Shelley man accuses Idaho Freedom Foundation of breaking nonprofit rules
Clark Corbin, Idaho Capital Sun
BOISE (Idaho Capital Sun) – An eastern Idaho man who created a new nonprofit organization to serve as a watchdog for political candidates and groups has filed a complaint against the Idaho Freedom Foundation with the IRS.
Travis Oler, a Democratic legislative candidate from Shelley, created the Hold Idaho Accountable nonprofit organization earlier this year.
One of his first actions with the nonprofit was to file a complaint with the IRS alleging that the Idaho Freedom Foundation violated its nonprofit status by engaging in excessive lobbying.
Oler is the third person who told the Idaho Capital Sun they have filed complaints against the Idaho Freedom Foundation. IRS officials confirmed they have received one of the complaints but did not confirm or deny whether the IRS was investigating the complaints, according to documents obtained by the Idaho Capital Sun.
The complaints cited in this article are not an exhaustive list of complaints against the Idaho Freedom Foundation. The complaints are included because the sources agreed to speak publicly and in detail about them.
But a former IRS regulator said the agency may not be equipped right now to devote investigative resources to complaints against tax-exempt organizations. And the question of whether a group like Idaho Freedom Foundation is engaged in “excessive lobbying” is a complicated one, he said.
The Idaho Freedom Foundation did not respond to emailed requests for an interview from the Idaho Capital Sun sent June 15 and July 6.
On June 22, the Idaho Attorney General’s Office sent Idaho Freedom Foundation Vice President Dustin Hurst a letter fining him $250 for lobbying on Idaho’s higher education budget on behalf of IFF’s attached nonprofit, Idaho Freedom Action, without first registering as a lobbyist.
Launched in 2009, the Idaho Freedom Foundation is a 501(c)(3) nonprofit organization that advocates for conservative ideas and limited government. The organization is well known for its Freedom Index, a scorecard that rates many — but not all — bills under consideration by the Legislature based on 12 criteria.
As part of the Freedom Index, the Idaho Freedom Foundation publishes a scorecard that ranks legislators based on how they vote on the bills the foundation scored. Eighteen of Idaho’s 135 legislators have a score of 90 or higher on the Freedom Index.
On top of the Idaho Freedom Foundation, it created another organization called Idaho Freedom Action with the same staff and office location. Idaho Freedom Action is registered as a 501(c)(4) “social welfare” nonprofit, which may engage in political lobbying and limited campaign activities. Unlike a 501(c)(3), donations made to a 501(c)(4) are not tax-deductible.
Idaho Freedom Action has used the Freedom Index to endorse candidates. In a 2016 email to the Spokesman-Review, Dustin Hurst, Idaho Freedom Foundation’s now vice president, said the Idaho Freedom Foundation does not endorse candidates. He said Idaho Freedom Action does endorse candidates, and he added that the Idaho Freedom Foundation is not a 501(c)(4) organization.
What crosses the line when it comes to lobbying?
Whether a nonprofit is violating tax rules depends on the answers to several questions, said Marcus S. Owens, a partner at Loeb & Loeb LLP in Washington, D.C.
“It’s kind of hard to tell with some of these organizations that sort of loudly and publicly proclaim their views. Sometimes they are quite active in contacting members of the legislative body or encouraging the public” to contact lawmakers, he said. “Other times, it’s just hot air they’re emitting.”
In a May 27 letter to potential donors, Idaho Freedom Foundation President Wayne Hoffman took credit for much of this year’s pushback against education.
“In the 2021 session, IFF and people like you built a never-before-seen reckoning for Idaho education,” Hoffman wrote in the letter, a copy of which the Idaho Capital Sun obtained.
In his letter to potential donors, Hoffman said the Legislature passed House Bill 377, the so-called anti-indoctrination bill, “thanks entirely to our reports.”
Owens was the chief tax regulator for nonprofits at the IRS for 10 years before he went into private practice.
It isn’t unusual or illegal for a nonprofit to engage in lobbying. The line they cannot cross is excessive lobbying — and the nonprofit itself decides on what standard that should be measured, he said.
The first standard is “no more than an insubstantial amount of the activity can be lobbying,” Owens said. The definition is somewhat subjective, perhaps 5% or 15% or somewhere in between, he said.
The second standard is based on the percent of spending — no more than 20% — that goes to lobbying versus charitable activity.
It also isn’t unusual or illegal for a nonprofit to have a 501(c)(4) that engages in public policy, he said. The American Civil Liberties Union, the Sierra Club and the National Rifle Association have operated both 501(c)(3) and 501(c)(4) organizations, he noted.
“And it works if the two organizations are very careful about their record-keeping, and the charity — the (c)(3) — does not allow itself or its funds to be used by the (c)(4) for excessive lobbying or political campaign activity,” he said. “If the (c)(3)’s money is involved, there has to be a contractual limit on the use of the money by the (c)(4). … It really becomes an accounting and record-keeping exercise.”
What about the legislative scorecard? Does that cross the line into lobbying or endorsing political candidates?
“The IRS has litigated that for years with various organizations,” Owens said.
Does the 501(c)(3) present an incumbent’s voting record in a way that is skewed toward a particular political party? Does its voter guide favor one party or candidate? Does the organization only issue scorecards or voter guides at a certain time, suggesting it’s meant to influence legislation or votes, or on a regular basis?
Those questions may not be answered at the IRS for a long time, Owens said, because the IRS is short on resources to look into complaints.
“They have been seriously unfunded (during the Trump administration) and have basically shut down audits” of tax-exempt organizations, he said. The IRS is now auditing “just a few thousand organizations, just looking at employment tax issues,” such as whether employers are properly withholding taxes, he said.
The Biden administration has asked for an expansion of the IRS budget, but the agency is so backlogged that it is behind on even the basic task of processing nonprofits’ tax returns, Owens said. That could mean that the additional funds go into service centers instead of funding more nonprofit investigations.
Oler’s complaint with the IRS
Oler said his experience looking up rules and regulations for 501(c)(3) organizations while setting up his own nonprofit informed his decision to file a complaint with the IRS.
“I thought that the Idaho Freedom Foundation is 501(c)(3), so I should set my organization up the same way,” Oler said. “I realized that would be the wrong thing to do because a 501(c)(3) is not supposed to be directly or indirectly involved in political campaigns, especially on behalf of candidates.”
Oler flagged the Freedom Index in his complaint, saying he thinks rating candidates is an endorsement. Oler doesn’t have a problem with organizations that get involved with campaigns, lobbying and elections. But he thinks the Idaho Freedom Foundation isn’t registered properly.
“If you want to be influencing political campaigns and influencing political candidates, then I think you really should not be formed as 501(c)(3),” Oler said.
In the 2020 general election, Rep. Julianne Young, R-Blackfoot, defeated Oler by a 64%-36% margin. Oler has already declared his candidacy for 2022.
Did the Idaho Freedom Foundation encourage people to break the law?
Retired Idaho Falls community volunteer Carrie Getty Scheid filed a complaint against the Idaho Freedom Foundation with the IRS in April 2020.
In her complaint, Scheid said the Idaho Freedom Foundation encouraged people to break the law, specifically Gov. Brad Little’s stay-home order and the city of Boise’s mask mandate. She brought up IRS rules that say tax-exempt nonprofit organizations should not be engaged in illegal activity or encourage illegal activity.
The Idaho Statesman reported on Scheid’s complaint last year.
Scheid has spent her life in nonprofits and fundraising. She was vice president of the Better Business Bureau of Greater New York for about 10 years beginning in 1984. She served as executive director of the Idaho Falls Arts Council for 15 years beginning in 1994, and she went on to serve as the board chairwoman of the Idaho Nonprofit Center.
She submitted her initial complaint over email and then mailed the IRS hard copies of her complaint, including printouts of Idaho Freedom Foundation social media posts, including ones that read “Let your smile shine free: Disobey McLean’s mandates.”
Between April and November 2020, Scheid sent 57 pages worth of documents and complaints to the IRS.
Scheid maintains an email group for self-identified moderate Idahoans that includes about 600 subscribers. Scheid said she told the group last spring that she filed her complaint with the IRS. “That is when I heard people say ‘what can I do?’ Fifteen people said they just did it (filed a complaint too),” Scheid said.
In May 2020, Sean E. O’Reilly, IRS acting director of compliance planning and classification, wrote back to Scheid to tell her the IRS had received her initial complaint and would consider it as part of its audit program to ensure compliance with Internal Revenue Code.
O’Reilly thanked Scheid “for bringing this matter to our attention” and said the IRS would not be able to disclose whether it has started an investigation based on the information she submitted.
Owens said it’s possible that the April 2020 “Disobey Idaho” rally and campaign could have put the nonprofit’s status at risk.
If an organization actively encourages people to violate a lawful directive, “that would seem to violate public policy,” Owens said.
A Supreme Court decision over Bob Jones University’s racially discriminatory admissions policies in the 1970s said that the IRS can revoke a nonprofit’s tax-exempt status if it violates public policy. The court ruled that the IRS wasn’t violating the organization’s First Amendment rights.
The IRS in 1975 also published a ruling that said an organization that encouraged people to engage in illegal activity wasn’t entitled to tax exempt nonprofit status. The IRS determined that the purpose of the organization, an antiwar protest group, was not charitable as a 501(c)(3).
“The purpose is illegal if the trust property is to be used for an object which is in violation of the criminal law, or if the trust tends to induce the commission of crime, or if the accomplishment of the purpose is otherwise against public policy,” the ruling said.
It also didn’t qualify as a 501(c)(4) social welfare organization because it promoted “illegal activities, which violate the minimum standards of acceptable conduct necessary to the preservation of an orderly society, (and) are contrary to the common good and the general welfare of the people in a community …”
Owens noted that people protesting COVID-19 public health measures have said the government is violating their rights to freedom of speech, expression and assembly. Requirements to “wear a mask to prevent the spread of a deadly infection throughout the population is not in that same category,” he said. “There’s nothing in the Constitution that says … that you have the right to spread a deadly virus.”
Former legislator spoke out against Idaho Freedom Foundation
Former state Sen. Shawn Keough says she believes the Idaho Freedom Foundation overstepped rules by engaging in excessive lobbying.
Keough, a Republican from Sandpoint, is the longest-serving female senator in Idaho history. She served 11 terms in the Idaho Senate between 1996 and 2018, finishing her career as the co-chairwoman of the powerful, budget-writing Joint Finance-Appropriations Committee.
Keough is a member of the Idaho State Board of Education and the executive director of the Associated Logging Contractors, itself a 501(c)(6) nonprofit.
“On the political side, I believe they also flouted, and in my viewpoint continue to flout, state sunshine laws requiring lobbyists to register, although they are now registered correctly,” Keough said.
Keough was a regularly scored low on the Idaho Freedom Foundation’s index. In 2016, Keough earned an F- on the organization’s scorecard. In 2018, she earned a D+.
For years, Keough said the foundation held her freedom scores against her and pushed it heavily during the campaigns after the Idaho Freedom Foundation launched in 2009.
“The campaigns I was involved with in running for the Senate, they pushed the envelope as a nonprofit organization in the type of information they put out,” Keough said. “Sometimes in the early years they went over the line, I think, in their information and were actually advocating against me and others who were up for re-election, in my view. They’ve created a separate organization (Idaho Freedom Action), but it’s still run by the same people.”
On the campaign trail, Keough said she was constantly bombarded by her F ratings from the Idaho Freedom Foundation, to the point they became a huge talking point in her races. It came via the scorecards, quotes Keough said were taken out of context and not telling the whole story about complex pieces of legislation and budgets that Keough voted for.
Keough responded by meeting with her constituents over and over again, telling them the Idaho Freedom Foundation was just one of over 200 lobbying or special interest groups that are active in Idaho. She was a legislator to represent her constituents and neighbors, Keough would say, not a special interest group like the Idaho Freedom Foundation.
“I didn’t feel pressure as much as I felt anger because it’s just not appropriate,” Keough said. “It’s one thing to say, ‘I’m from XYZ organization and this is our perspective, we hope you can see it.’ And it’s another to attack your integrity and put a false narrative around your intentions. In my book, that’s dirty politics and has no place in Idaho.”
Keough said she complained to Hoffman and filed a complaint with the IRS, which she never heard back on.
“In my mind, they clearly have crossed the line in what the IRS regulations say, even though they are wising up, I guess, they are … pushing the limits,” she said.