Other Developments

• Published date: 01 October 2020
• Date: 01 October 2020
• DOI: http://doi.org/10.1002/npc.30782

Bruce R. Hopkins’ NONPROFIT COUNSEL

October 2020 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

personal benefit and that of his family; to continue, by

use of a secret ‘poison pill contract,’ his employment

even after removal and ensuring NRA income for life;

and to intimidate, punish, and expel anyone at a sen-

ior level who raised concerns about his conduct.” The

effect, the complaint continues, “has been to divert

millions of dollars away from the charitable mission [see

above], imposing substantial reductions in expenditures

for core program services, including gun safety, educa-

tion, training, member services and public affairs.”

This lawsuit is not only against the NRA but also four

individual NRA executives, including LaPierre. The com-

plaint states that LaPierre hired and retained these three

individuals, “despite their lack of skills or experience for

their respective roles and responsibilities.” The accusa-

tion is that these four “regularly ignored, overrode or

otherwise violated the bylaws and internal policies and

procedures that they were charged with enforcing,”

causing diversion of “charitable assets” to benefit “NRA

insiders and favored vendors.”

The complaint asserts that the former treasurer and

CFO of the NRA (one of the individual defendants), at

the direction of the CEO, “instituted a practice whereby

millions of dollars in entertainment and travel expenses

incurred by NRA executives were billed to the NRA as

disbursements by the NRA’s largest vendor.” This practice

is said to have “evaded both the NRA’s own accounting

and Board-established expense reimbursement process,

and IRS requirements for proper expense reimburse-

ment.” Three of these defendants are said to have “reg-

ularly used this pass-through arrangement to conceal

private travel and other costs that were largely personal

in nature, wasting substantial charitable resources and

exposing the NRA to millions of dollars in potential liabil-

ity for violation of IRS reporting requirements.”

The NRA general counsel (one of the individual

defendants), selected by LaPierre, is characterized as

“unprepared” to manage the NRA’s legal and regulatory

affairs. He is said to have “little apparent knowledge of

the requirements of New York law governing not-for-

profit corporations.” He stands accused of “fail[ing] to

maintain and enforce whistleblower and conflict of inter-

est policies that met the requirements of applicable law.”

The complaint asserts that the NRA, at the direc-

tion of the individual defendants and “with a series of

failures of required oversights by the Board,” has “per-

sistently engaged in illegal and unauthorized activities

in the conduct and transaction of its business.” These

defendants are said to have “routinely circumvented

internal controls; condoned or partook in expenditures

that were an inappropriate and wasteful use of charita-

ble assets; and concealed or misreported relevant infor-

mation, rendering the NRA’s annual reports filed with the

Attorney General materially false and misleading.”

The attorney general is seeking court dissolution of

the NRA (1) based on the organization’s “pattern of

conducting its business in a persistently fraudulent or

illegal manner, abusing its powers contrary to public

policy of New York and its tax exempt status, and failing

to provide for the proper administration of its trust assets

and institutional funds,” and/or (2) because “directors or

members in control of the NRA have looted or wasted

the corporation assets, have operated the NRA solely

for their personal benefit, or have otherwise acted in an

illegal, oppressive or fraudulent manner.”

The attorney general also seeks an order directing the

individual defendants to account, make restitution, and

pay penalties resulting from their “breach of fiduciary

duties and their misuse of charitable assets for their own

benefit and interests.” The attorney general also wants

LaPierre removed as a director and officer of the NRA,

similar removal of the general counsel, and an injunction

barring the individual defendants from future service in

connection with any New York nonprofit organization

or one that solicits charitable contributions in the state.

LaPierre issued a statement declaring that the lawsuit

is an “unconstitutional, premeditated attack aiming to

dismantle and destroy the NRA — the fiercest defender

of America’s freedom at the ballot box for decades.” He

added: “We’re ready for the fight. Bring it on.” ◆

OTHER DEVELOPMENTS

◆In an analytic piece/article, a writer in The New York

Times proclaimed that “[l]egally, nonprofits are required to

be independently managed by a board of directors.” No

one apparently ran that one by a lawyer — the statement

simply is not true. In his zeal to malign public universities

for “teaming up” with oft-criticized for-profit colleges,

this writer attempted to make the case that a nonprofit

corporation taking over the assets of a for-profit uni-

versity is illegally being controlled by the University of

Arizona. As the US Court of Appeals for the DC Circuit

once said, “Fiddlesticks” (see the August 2019 issue).

Nonprofit organizations, including charitable and educa-

tional ones, are controlled by other organizations all the

time — quite legally. Sometimes, the entities doing the

controlling are for-profit companies. [e.g., 29, 30]

◆The IRS has created an Enterprise Digitalization and

Case Management Office, intended to “spearhead IRS

efforts to empower taxpayers and IRS employees to

rapidly resolve issues in a simplified digital environment”

(IR-2020-166 (July 21)). This new stand-alone office “will

focus on enhancing the taxpayer experience by improv-

ing business processes and modernizing systems.” The

office “will apply agile, customer-centered thinking and

draw on leading industry test-and-learn practices to

rapidly identify what combination of business process

and technology works best for the IRS’s customers and

employees.” “In the digitalization space,” the IRS said,

a “portfolio-based approach [see last month’s issue]