Nov. 7 (Bloomberg) -- A group that has been feuding for years with the Humane Society of the United States has filed a complaint with the Internal Revenue Service over the animal welfare group’s tax accounting.
The Center for Consumer Freedom, which opposes the efforts by the Humane Society to tighten rules for egg farms and livestock operations, ran advertisements in the Washington transit system this summer criticizing the group for not giving more of its money to local animal shelters.
Now it’s taking the fight to the IRS. It submitted a complaint saying the Humane Society violated IRS rules by listing as contributions the $17.7 million value of air time for its public service announcements to promote pet adoption. The net effect is to raise the ratio of program expenses to total expenses, which the independent assessor Charity Navigator uses to rank the effectiveness of charities.
The complaint is the latest salvo in the dispute between the Humane Society, which has targeted chicken and pork producers for their care of animals, and the Center for Consumer Freedom, which opposes animal rights groups that target the meat industry. The latter group runs the website Humanewatch.org, which targets the organization and personally criticizes HSUS President Wayne Pacelle. It also started a competing group with the similar name of Humane Society for Shelter Pets.
The Humane Society’s accounting “unjustly boosted a charity rating that many donors may rely on,” according to the Oct. 3 complaint filed by Will Coggin, senior research analyst for the Center for Consumer Freedom in Washington.
The Washington-based Humane Society filed its own complaints with the IRS and New York Commission on Public Integrity on the Center for Consumer Freedom, alleging it’s unlawfully using corporate donations to enrich the for-profit firm of its executive director, Richard Berman. Taking on health groups earned Berman the moniker “Dr. Evil” from the CBS News broadcast “60 Minutes” in 2007.
“We follow the advice of our legal and accounting experts” in filling out tax returns, Alan Heymann, a spokesman for the Humane Society, said. “The only thing I would ask is that you consider the source of these allegations.”
Eve Borenstein, a lawyer in Minneapolis specializing in preparing the 990 tax form of non-profits, said the Humane Society shouldn’t count the public service air time as contributions.
“This is a relatively elementary rule, and the IRS has been trying to scream it” to tax preparers, Borenstein said in an interview.
In this case, the practical impact of the accounting change is minimal.
The Humane Society earned the highest, four-star rating from Charity Navigator, and that wouldn’t change if the in-kind contributions were subtracted. Excluding those in-kind contributions would lower the ratio by 3.4 percentage points, to 75.2 percent.
“It’s not a significant enough error, if it is an error, that it would change the overall rating,” Ken Berger, president of the Glen Rock, New Jersey-based Charity Navigator, said in an interview. “The charity would still get our highest score.”
CharityWatch, a competing rating agency based in Chicago, rates the Humane Society as a “barely satisfactory” C-, saying when it comes to the group, the truth “lies somewhere between the fuzzy image presented by the charity and the voracious criticisms of its naysayers.”
CharityWatch first raised the issue of the accounting of the public service announcements in its newsletter this year.
Federal law bars the IRS from commenting on any particular taxpayer, Eric Smith, an agency spokesman, said in an e-mailed response to questions about the complaint.
The Center for Consumer Freedom had an advertising campaign opposing New York Mayor Michael Bloomberg’s effort to ban sale of soft drinks larger than 16 ounces. The mayor is the founder and majority owner of Bloomberg LP. The group provided its IRS complaint to Bloomberg.
Last year the Humane Society filed a 251-page complaint against the Center for Consumer Freedom and four other tax-exempt groups that are all headquartered at the Washington offices of a Washington public relations firm run by Richard Berman. The complaint showed that those five groups paid the for-profit firm $15 million in management expenses from 2008 to 2010, an arrangement that may violate IRS rules prohibiting executives from profiting off the tax-exempt entities they run.
The Center for Consumer Freedom hasn’t heard from the IRS about that complaint, Coggin said in an interview.
In addition, while the Center for Consumer Freedom said the Humane Society is gaming the Charity Navigator rankings, Consumer Freedom and its affiliates have been the subject of a “donor advisory” by Charity Navigator because of the expenses for the for-profit firm. “That’s a whole other order of magnitude” compared to the complaint against the Humane Society, Berger said. “It’s something very atypical.”
Of the 7,000 charities it reviews, 123 have donor advisories, he said.
The Center for Consumer Freedom specifically mentioned Charity Navigator in its complaint to the IRS. Still, it calls the donor advisory issued against its groups as “retaliatory.”
“We have been critical of Charity Navigator in the past for applying such lax standards to HSUS, so the organization felt obliged to take a swing at us,” Coggin said.
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