Current & Quotable

EO skullduggery right under my nose for the past 25 years and I missed it. As has been reported in recent months, Maryland-based Erickson Retirement Communities (ERC) is in bankruptcy court. In brief, ERC is a for-profit developer and manager of nonprofit retirement communities — 501(c)(3)s — in Maryland and nearby states.

ERC was built from scratch by John C. Erickson starting in the early eighties. The first retirement community, Charlestown, is not far from where I grew up in Baltimore. I have an aunt who is a current resident of the grandly named “Renaissance Gardens at Charlestown.” One of her sons, prior to his recent retirement, was one of the top tax officials in Maryland state government.

The ERC “concept” was simple in its design, more complex in execution. After ERC created a retirement community as the developer, it would sell the “campus” to an allegedly independent nonprofit organization, which would finance the purchase, at least in part, by tax-exempt bonds, and then enter into management contracts with ERC. It appears that the numerous nonprofits are largely controlled by National Senior Campuses Inc., a 501(c)(3) supporting organization, which appears to be largely controlled by ERC through overlapping officers and directors.

On April 4, The Washington Post did a great summary of what has transpired in recent years with ERC. Perhaps the IRS could have done more, but at least they were on the scene. My criticism today is directed at the State of Maryland, which, as I have mentioned in the past, is no fan of charity regulation. The reason is mostly political. No aspiring Maryland governor or attorney general wants to run on a platform that includes charity regulation in a state that is saturated with nonprofits. While no one likes excessive government regulation, without any regulation you get cases like ERC, where lots of innocent people get hurt. End of sermon.

Today I have more on the Harvard audit and news that Suffolk University is joining Harvard in being targeted by the IRS.

Harvard Natural Target for IRS Audit, Administrator Says
University is one of 40 institutions of higher education to be audited

Hopefully the kids at the Harvard Crimson will demand that Harvard make its IRS audit transparent. Aren’t students, as well as other Harvard constituencies, entitled to know what is going on? Speaking of transparency, if exemption applications and Form 990s and 990-Ts are open to public inspection, why are EO audits not open to the public?

The reported audit of Harvard is a challenge for both Harvard and the IRS. Harvard needs to justify its compensation practices and its many joint ventures, among other issues. The IRS needs to show that is can assemble a first-class team from its Examinations function to audit an exempt organization that will field a team of the country’s best accountants and attorneys. The IRS Office of Chief Counsel needs to support this effort and demonstrate that its staff can compete with the best that the private sector offers. The IRS folks in Washington, from the commissioner on down, need to demonstrate fortitude as Harvard rallies its allies on the Hill and in the Obama Administration.

1 – Sandy Deja Writes Authors of Anything Goes: Approval of Nonprofit Status by the IRS

2 – Law Professor Advocates Creation of New Agency to Regulate Charities
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