Any criminal charge against Norquist would likely be tied in some fashion to his activities with either the Americans for Tax Reform Foundation or the related 501(c)(4) organization, Americans for Tax Reform. Both appear to be incorporated as non-profit organizations under the laws of the District of Columbia.
Section § 29-301.05 (14) of the D.C. Code provides that a non-profit corporation has the power:
To indemnify any director, or officer, or former director or officer of the corporation, or any person who may have served at its request as a director or officer of another corporation, whether for profit or not for profit, against expenses actually and necessarily incurred by him in connection with the defense of any action, suit, or proceeding in which he is made a party by reason of being or having been such director or officer, except in relation to matters as to which he shall be adjudged in such action, suit, or proceeding to be liable for negligence or misconduct in the performance of a duty. Such indemnification shall not be deemed exclusive of any other rights to which such director or officer may be entitled, under any bylaw, agreement, vote of board of directors or members, or otherwise[.](Emphasis supplied.)
Typically, when corporations are formed, the organizational documents (e.g., the bylaws) provide the broadest possible indemnification provisions allowed by law. Since the D.C. statute is open-ended, the bylaws of ATRF and ATR more than likely have provisions that allow indemnification even of costs incurred in defending against criminal charges. The provisions may or may not provide for reimbursement of the costs in the event of a conviction, but, as a practical matter, if Norquist were charged and convicted after a full-blown trial, it is unlikely that he would be able to repay the attorneys' fees advanced by either ATRF or ATR.
Now here's the genius part: as of the end of 2004, ATRF, the 501(c)(3) foundation that can accept tax deductible charitable contributions, owed ATRF, the 501(c)(4) organization, almost $6.5 Million. (Take a look at Statement 7 the 2004 tax return of ATR, which is on page 18 of the exhibits to the complaint filed with the IRS by Citizens for Responsibility and Ethics In Washington.) Thus, ATRF can take in up to $6.5 Million of tax deductible dollars, repay the loan to ATR, and ATR can use all of that amount to pay Norquist's legal fees.
I've been puzzled as to why ATR has been subsidizing ATRF. After all, contributions to ATR are not tax deductible while contributions to ATRF are. The subsidy has actually been growing. Line 65 of the 2001 tax return of ATRF, set forth on page 78 of the exhibit to CREW's complaint, shows that at the beginning of 2001 the amount owed by ATRF to ATR was $4,257,206 and the debt increased to $4,909,208 by the end of that year. As noted above, it increased to $6.5 Million over the next two years.
I can only think of two reasons, neither of which are intellectually satisfying:
- In appropriate circumstances, contributors to ATR can deduct their contributions as business expenses. This does not seem to account for the disparity since ATR seems to have a wide array of contributors who are not taking their contributions as business deductions.
- Much of what ATRF is doing is not truly tax deductible, but because so much of its operations are funded via loans, it made an unattractive audit target when the expenses were being incurred. At some later date, however, after the statute of limitations period had run with respect to any improper deductions, the loan to ATR is repaid via funds obtain through charitable contributions. In other words, the timing mismatch between the date of expense and the receipt of (tax deductible contribution) income is designed to camouflage the improper activities from scrutiny. Quite frankly, I have to believe that this is too clever and devious even for Norquist.