Behind the Headlines: Jewish Purchase of Arab Lands Could Trigger Irs Investigation

U.S.-based charities raising money to purchase Arabowned land in Israel’s disputed areas could be scrutinized for possible violations of U.S. tax laws.

Critics of these purchases charge that they are a political and provocative act by those who seek to change the facts on the ground and sabotage the peace process.

They say such ideological activity cannot legally be financed with the help of U.S. dollars, through charitable tax exemptions and deductions.

Both a current and former official with the Internal Revenue Service said publicity of the issue, such as a recent segment on the CBS “60 Minutes” program, could trigger an audit by federal tax authorities.

But the results of such an audit are far from certain.

Tax experts say determining whether organizations are violating their tax- exempt status is highly subjective and rendered on a case-by-case basis. They say the complexity stems in part from IRS guidelines that are highly nuanced.

The charities in question, such as Ateret Cohanim, defend their tax-exempt status as legitimate, saying that their mission is humanitarian or educational. They say any related property acquisition fulfills the religious and Zionist call to redeem the Land of Israel and that it is anti-Semitic to restrict Jews from living in certain places, Israel most of all.

Some add that by helping settlers, they are filling gaps caused by the United Jewish Appeal’s policy of not allocating funds over the Green Line, or beyond Israel’s pre-1967 borders.

That UJA policy evolved in part in deference to the political sensitivity of the U.S. government, which provides grants to the UJA’s system for refugee rescue and resettlement.

The ideological back and forth over the purchases by the charities could continue without resolution, but for one claim by the critics: that the charities’ tax-exempt status is illegal if their raison d’etre is primarily political and ideological. And these critics say they are intent on calling it to the attention of U.S. tax authorities.

A tax-exempt, or 501(c)3 status, prohibits a U.S. organization from engaging in “substantial” lobbying or trying to influence the outcome of an election in the United States.

But the parameters of permissible political activity supported abroad is more murky, especially if it can be argued that such activity is for educational or religious purposes, some tax experts say.

What is clear is that the imbroglio could have an impact beyond the organizations directly involved.

One official from a mainstream Jewish philanthropy, who requested anonymity, termed all the publicity surrounding the issue “unhelpful.”

It “puts pressure on U.S. bureaucrats” to look at the fund-raising activity for Israel “and it won’t be satisfied looking at one organization,” he said. “It gives the impression others are doing things beyond the guidelines.”

Sheldon Cohen, a Washington, D.C., attorney and a former commissioner of the IRS, reinforced the notion that the publicity could have a broader impact.

“Many Jewish charities here seem to feel anything they do to benefit the State of Israel is charity, but it isn’t so,” he said. “The State of Israel is a foreign country and they have to meet all the criteria here” to be tax-exempt.

The “60 Minutes” broadcast focused on the wealthy Miami philanthropist, Dr. Irving Moskowitz, and his projects in eastern Jerusalem it said were aimed at ensuring Jewish control over all Jerusalem.

The money brought in by people like Moskowitz, often through U.S. charities, “is like fuel added on the fire that is threatening to engulf the entire city of Jerusalem,” Meron Benvenisti, a former Jerusalem deputy mayor, said on the program.

Similar purchases by private individuals and charities escalated in 1992 after an independent Israeli inquiry culminated in the issue of the Klugman Report. The report found that the previous government headed by Likud had funneled millions of dollars illegally to purchase property for Jews in eastern Jerusalem.

The highly publicized move by Cabinet Minister Ariel Sharon into the Muslim Quarter was part of this broader campaign in the mid-1980s to “recover” the area for the Jews.

When Labor took over, officials froze such funding.

Despite recent reports of private land purchases in Hebron by foreign Jews, it is eastern Jerusalem that has excited the most concern.

Today, the primary “ideologically motivated” player in Jerusalem real estate is Moskowitz, according to Danny Seidmann, the legal adviser for Ir Shalem, a Jerusalem development project of the dovish Peace Now.

One of Moskowitz’s projects, a planned 130-unit Jewish housing complex in the Arabpopulated section of eastern Jerusalem called Ras al Amud, recently has drawn much attention, even prompting emergency consultations by the United Nations Security Council.

The project is now deadlocked, Israeli sources say, because it is a political hot potato, especially for Jerusalem Mayor Ehud Olmert and Prime Minister Benjamin Netanyahu, who enjoy the backing of Moskowitz.

Moskowitz, much of whose money comes from a foundation in his name in California, is a major backer of Ateret Cohanim, a movement whose centerpiece is a yeshiva in the Muslim Quarter of Jerusalem’s Old City.

The movement’s expansion through the funding of its sister organization in the United States, Friends of Ateret Cohanim, was highlighted in the “60 Minutes” program.

Moskowitz could not be reached for comment.

Dr. Joseph Frager, the president of the Friends organization in New York, said Ateret Cohanim is a “yeshiva like any other yeshiva.”

He attacked the CBS program as “false, misleading and defamatory” and protested what he termed its “exaggerations or distortions.”

“We believe in coexistence with the Arabs and always have had an excellent relationship” with the yeshiva’s neighbors, he said.

Frager said money raised in the United States is for educational purposes. He said property purchases have been made solely to house the yeshiva’s professors and 200 students and to provide other facilities integral to any academic campus.

But its promotional material says much more.

Ateret Cohanim’s home page on its Web site says it is a “a national movement which aspires to renew and bolster the Jewish presence in the heart of Jerusalem, which was eradicated by Arab riots in the 1930s. The pioneering spirit is still alive once again in the eternal capital of the Jewish people as stone by stone, house by house, the Old City is restored to her rightful owners.”

The Old City refers to the historically walled part of Jerusalem that was and remains divided into four quarters: Jewish, Muslim, Armenian and Christian.

The home page also says Ateret Cohanim has a waiting list of “some 300 families seeking to relocate to the Old City.”

And then it outlines its strategy: “Ateret Cohanim yeshiva students move into the dwelling temporarily, and renovations are begun until prepared for yet another Jewish family to become part of the growing community of the Kotel Quarter,” using the Hebrew term for the Temple’s Western Wall to refer to the Muslim Quarter.

The solicitation calls for donations not for education but so “we can continue our important work of reclaiming the Old City on behalf of the Jewish people.”

Frager, in an interview, defended his organization’s rights and practices.

“Jews should be allowed to live anywhere in the Land of Israel just as they live anywhere in America,” he said. “To lose sight of this” is “not only anti- Zionist, but anti-Jewish.”

But Cohen, the former IRS commissioner, said charities do not have the right to enjoy tax-exempt status if they purchase land for “ideological reasons.”

“U.S. deductions should not be used,” he said, “for the purpose of pushing Arabs out” of Jerusalem.

Based on the recent publicity, Cohen said the IRS probably would launch some sort of probe.

The IRS is prohibited from disclosing whether such an audit has been launched.

Bob Fontenrose, an IRS tax lawyer in the tax-exempt division, stressed in an interview that he was not addressing any specific case, but said: “One of the ways we find out about problems” is if “something gets prominent play” in the media.

He said any audit would seek to determine whether a charity is in compliance with its tax-exempt requirements by ascertaining whether “its primary purpose” is charitable. That includes a religious or educational aim.

But the issue is complicated. He said an educational purpose is largely understood as related to the “instruction of individuals.”

Helping individuals who are not low-income get housing may be more of a compensation issue than a charitable one.

At the same time, however, he said it may be argued that housing them in one area in “special circumstances” may serve a religious purpose.

Such nuanced judgments would be a “headache” for the IRS, Fontenrose said.

James Zogby, president of the Arab American Institute, said he had joined with dovish Jewish groups to explore bringing what he termed the “evasive maneuvers” of these taxexempt organizations to the attention of U.S. authorities for investigation.

Their purchase of “property in the Holy Land is not for religious reasons,” he said. “It is being done to deny Palestinians property rights and establish a provocative presence in the midst of Palestinian-populated areas to disrupt the peace process.”

But Yechiel Leiter, the chairman of the tax-exempt U.S.-based One Israel Fund, which raises money for humanitarian causes in the territories, said that if he were one of the critics, he would be “reluctant to go to court for fear of opening a Pandora’s Box.”

Leiter, who lives in the West Bank settlement of Eli, said it could lead to close scrutiny of left-wing organizations, such as Americans for Peace Now, for the activity it sponsors in Israel, and some Arab-American charities that have been reported to be fronts for “political as well as terrorist activity.”

Americans for Peace Now, for its part, said the money it raises in the United States goes only to Peace Now’s educational fund.