‘Scam PACs’ Are On the Rise: Don’t Confuse Them for Legitimate Charities
Jun 17, 2020
Political action committees, also known as PACs, are not the same thing as public charities, but some questionable actors from the charity world may be confusing donors into thinking otherwise. These individuals appear to be operating, or providing the for-profit fundraising and administrative support for, what have been dubbed “scam PACs” to enrich themselves at the expense of the donating public. Over the past several years, there has been an alarming rise in these so-called “scam PACs,” as has been detailed in reporting by POLITICO and The New York Times, among others. “Scam PACs” raise most of their funds from small-dollar donors and use skillfully crafted names to evoke popular charitable causes, according to such reports. Unfortunately, when giving to a “scam PAC,” a donor who thinks she just gave money to help veterans, first responders, or cancer victims may have done little more than help line the pockets of a greedy fundraiser or PAC executive instead. According to an analysis by The Center for Public Integrity (CFPI), the names of some of these “scam PACs” are listed below.
Many of these names could easily be confused with public charities, such as Autism Speaks, National Association of Police Organizations, or Veterans Assistance Foundation. And that is likely the point.
Even if a particular donor doesn’t care whether his donation goes to support a public charity that conducts its own charitable programs versus a PAC that supports a political candidate or partisan cause, most donors do care whether or not their donation is being used efficiently. Sadly, nearly all of the money raised by “scam PACs” is spent on fundraising, wages, and administrative costs. There were 61 such “scam PACs” raising money in 2017–2018, up from a total of 38 in 2015, an increase of 60%, according to an analysis by CFPI. For some perspective on this concerning trend, CFPI's September 2019 reporting notes that only seven (7) such PACs existed during 2001–2002, raising and spending just over $5 million; in 2017–2018, the 61 PACs collected a combined $101 million. Of the 23 new PACs that popped up between 2015 and 2017, over half contracted with for-profit vendors run by the same man, Richard Zeitlin, who “[f]or more than two decades…raised tens of millions of dollars in the name of nonprofits before shifting to PACs,” according to CFPI. Additionally, several other individuals, some of whom also started out in the charity sector, each run multiple PACs purporting to raise money for different causes.
Capitalizing on Name Confusion
Chris Hanson, the president of Veterans Assistance Foundation (VAF), a 501(c)(3) public charity based in Tomah, Wisconsin, has lamented about the confusion being caused by a Super PAC with a nearly identical sounding name, U.S. Veterans Assistance Foundation. For a period of time, the Super PAC was brazenly using the charity’s logo on its solicitation mailings without the charity’s approval, according to what Hanson told The Cap Times of Madison, Wisconsin for a January 2019 article. The Cap Times article also notes that Hanson said that VAF “is continually fielding calls from upset donors across the country who confuse it with [the] PAC.” On the homepage of its website, VAF has taken to warning donors that VAF does not use phone solicitations to raise money, and that if someone calls claiming to be from Veterans Assistance Foundation asking for a donation, it is “a fraudulent call.”
Though VAF the charity was co-founded by Robert Piaro, who now runs the similarly named Super PAC, the two organizations are otherwise not related. Piaro worked at VAF until late 2015; two years later he started the U.S. Veterans Assistance Foundation PAC. The existence of the similarly named, but unaffiliated Super PAC has been “a real headache” for the charity, Hanson told POLITICO in a May 2018 article. During Piaro’s time as VAF’s Chairman, the charity received poor grades from CharityWatch, including a “D” and an “F” for fiscal 2012 and 2011, respectively. CharityWatch’s more recent ratings of VAF improved to within a “C” range, but Hanson told The Cap Times that VAF has been “decimated” by Piaro’s PAC fundraising and other negative press VAF has received. (VAF’s cash contributions reached only about $59,000 in 2018, prompting CharityWatch to remove the charity from its ratings.)
Where Does All the Money Raised by “Scam PACs” Go?
In addition to the U.S. Veterans Assistance Foundation, Robert Piaro reportedly runs three other “scam PACs”—Association for Emergency Responders and Firefighters, Standing by Veterans PAC, and Americans for the Cure of Breast Cancer. The Cap Times January 2019 article notes that less than 2% of the money raised by Piaro’s PACs had gone to a political candidate, committee, or cause. CFPI's September 2019 reporting states that three of Piaro’s four PACs had not spent any of their funds on supporting politicians. Piaro is not the only one in the business of running multiple “scam PACs.” CFPI reports that Oliver Cappleman, Paul Kutac, and William & Kecia Pollock (who are husband & wife) operate two, two, and four PACs, respectively. Including Piaro’s four PACs, these 12 PACs all contract with for-profit vendors that are managed by Richard Zeitlin, the longtime professional fundraiser for charities who has shifted to contracting with PACs.
At one point, based on CFPI's reporting, the Federal Trade Commission (FTC) was investigating whether two of Zeitlin’s fundraising companies, Courtesy Call, Inc. and Donor Relations, were “engaging in unfair or deceptive acts or practices,” according to a February 2018 court filing. Although the FTC “suddenly dropped the investigation” later that year, per CFPI, the FTC and attorneys general in various states have shut down at least five charity clients that contracted with Courtesy Call for allegedly misleading donors, according to CFPI, including Help the Vets and Breast Cancer Outreach Foundation. These two charities were the subject of a CharityWatch September 2016 article: Multiple Names + Exaggerated Programs = Two Related Charities, But Little Help for Vets or Cancer Relief. Other of Zeitlin’s charity clients include CharityWatch “F” rated charities, such as Community Charity Advancement, Firefighters Charitable Foundation, HonorBound Foundation (formerly National Veterans Services Fund), and United States Deputy Sheriffs’ Association. As summarized by CFPI, “As Zeitlin’s charity clients face increased scrutiny, Zeitlin has veered into a lucrative and decidedly less regulated territory—politics.”
The 13 total PACs CFPI identified as paying vendors managed by Zeitlin collectively raised more than $31.8 million in 2017–2018, mostly from small-dollar donors. Of that amount, about $26.5 million, or 83%, went to Zeitlin’s companies, according to CFPI. Going back to 2006 and including both Zeitlin’s charity and PAC clients, Zeitlin’s companies have been paid a cumulative total of about $133.1 million, or approximately 86% of the $153.1 million they raised from donors, CFPI reports. CFPI refers to the 86% “charged” by Zeitlin’s companies as “one of the highest percentages among fundraisers who’ve brought in at least $10 million.” Due to the differences in financial reporting required for PACs versus charities, CharityWatch is unable to provide donors with ratings for PACs. But for context, a charity that is spending 86% of its contributions on fundraising will almost always receive an “F” grade from CharityWatch.
With very little to no money raised by these “scam PACs” actually being spent on political activity, much of the remaining portion of the funds not going to Zeitlin’s network of companies gets spent on salaries and overhead expenses. For example, CFPI notes that the Pollocks “brought home about $150,000” since 2017 while less than 1% of the close to $4 million spent by all four of their PACs went towards political expenditures. Cappleman had received about $55,100 since 2018; the only political spending by his two PACs amounted to $20,000, according to CFPI. Of the 61 total “scam PACs” analyzed by CFPI, about $245.7 million, or more than 71% of the $344.3 million spent in total since 2001, paid for fundraising, wages, and administrative expenses. “Little of the money collected went to political contributions, or directly advocating for a candidate’s election or defeat,” according to CFPI.
Super PACs Have Their Advantages for Bad Actors
For many donors, a major factor driving their decisions about which nonprofits to support and how much they can afford to give is their ability to take a tax deduction for their contributions. Since donations to PACs are not tax-deductible, but donations to public charities generally are, donors have more incentive to direct their donations to qualified 501(c)(3) public charities than to PACs. Or at least that was true before the Tax Cuts and Jobs Act (TCJA) passed in late 2017. Only taxpayers who itemize their deductions, as opposed to taking the standard deduction, can reduce their reportable income for qualified charitable donations. (The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes a charitable giving incentive that allows non-itemizers to deduct up to $300 in cash contributions for the 2020 tax year.) After the TCJA, which, among other things, nearly doubled the standard deduction, the number of itemizers fell from nearly 25% of all U.S. taxpayers in 2017 to less than 10% in 2018, according to February/March 2020 reporting by The Chronicle of Philanthropy. The result is that, for about 90% of potential donors, it no longer matters whether the organizations to which they donate are public charities, social welfare organizations, PACs, or some other type of nonprofit because they will not be taking a tax deduction for their donation irrespective of which type of organization they support. Knowing that tax-deductibility is no longer a factor for most donors provides even more incentive for some of the questionable actors formerly involved in fundraising for public charities to raise money for PACs instead, eliminating a lot of federal and state oversight in the process.
While some donors may no longer consider it important to know the tax status of an organization prior to supporting a particular cause, they should. There are important differences in regulation, oversight, and public disclosure for public charities as compared to PACs. The rationale behind the ability of public charities to offer tax deductions to their donors is that, to comply with Internal Revenue Service (IRS) rules, these organizations must operate exclusively to benefit the public—for charitable, religious, scientific, literary, or educational purposes. Public charities are prohibited from engaging in any type of partisan political election advocacy. In contrast, PACs, which are regulated by the Federal Election Commission (FEC), have an IRS section 527 tax-exemption, and donations to these groups are not tax-deductible. A PAC is not a public charity, neither is it a party committee nor an authorized committee of a candidate. Rather, PACs can directly influence the outcome of elections through express advocacy with literature and media communicating messages encouraging people to “vote for” or “vote against” a particular candidate or political issue.
Different types of PACs also exist. The PACs at the center of CFPI's September 2019 reporting are “Super PACs,” which can raise and spend unlimited dollar amounts from individuals, corporations, unions, and other groups. Super PACs are officially known as “independent expenditure-only committees” because they must operate independently. That is, Super PACs cannot donate directly to, or engage in any direct coordination with, any candidates, political parties, or other political committees. Super PACs can, however, promote specific, individual candidates and attack political opponents.
The differences in regulation and oversight power by the FEC versus the IRS may be one of the main reasons why PACs have attracted some questionable actors from the charitable sector. For example, although the FEC has rigorous reporting requirements for contributions and expenditures that PACs must follow, those requirements do not include the more comprehensive Form 990 tax filing public charities must submit annually to the IRS. Additionally, most states require public charities to register on an annual basis as a condition of being allowed to solicit funds within their borders. State charitable organization registrations, which often require independently audited financial statements and the disclosure of professional fundraising contracts, are usually filed with the state attorney general or secretary of state office. By contrast, no such state-by-state annual registration requirements exist for federal Super PACs (although some states do require certain registration and/or reporting filings for federal PAC expenditures in connection with state-level elections). Referring to “scam PACs,” a May 2018 report in POLITICO asserts:
Their activities highlight an unpleasant truth: Political groups often receive less oversight and get more leeway than charities, even though they have to disclose more details about their donations and spending. Indeed, the Federal Election Commission has said it is all but powerless to crack down on scam PACs.
In regard to potential bad actors trying to skirt the authority of federal regulators and the enforcement challenges facing the FEC, Ann Ravel, a former FEC Commissioner, is quoted in the POLITICO article as saying: “It’s easier for a scam PAC than it is for a charity.” In September 2016, Ravel and a fellow FEC Commissioner wrote a memo to The Commission proposing ways to “Attack Scam PACs,” but unfortunately, the “scam PAC” problem has continued and flourished in the years since.
Not All PACs Are Scams
Although donors should beware of the increasing trend in “scam PACs” and their reliance on telemarketing and direct mail to raise funds, donors should also keep in mind that many popular, legitimate nonprofit organizations have affiliated PACs. Examples of some of these organizations are: Environmental Defense Fund, Human Rights Campaign, National Rifle Association (NRA), Planned Parenthood, and Sierra Club. In fact, those five organizations each have one or more affiliated 501(c)(3) charitable arms, 501(c)(4) tax-exempt “social welfare” entities, and 527 political organizations, such as PACs.
A nonprofit organization’s affiliates, regardless of their individual tax-exempt status, generally operate with a similar overall mission. Furthermore, the entities usually share a common name, differing only by additional words or suffixes like “Action Fund,” “Education Fund,” “Foundation,” or “Political Action Committee.” Depending on their tax-exemption, however, the individual entities often conduct very different programs that serve different purposes, such as research versus lobbying, or education versus advocating for the election of a political candidate. Some types of entities are restricted by IRS rules from engaging in the same types of activities that other entities are allowed to perform. Therefore, donors should always check the full name of the organization to which they are donating to make sure their money will be directed to the entity running the specific programs or activities they intend to support. Also remember that if tax-deductibility is an important factor, be sure to give to the 501(c)(3) public charity entity of the organization.
Whether trying to avoid a “scam PAC” or a sham charity, the same warning for donors applies—never give in response to unsolicited telemarketing calls or direct mail unless you have already researched the organization and are confident it will use your donation effectively and in support of the cause you intended. Donors can also rely on CharityWatch’s list of Top-Rated Charities as a guide to direct donations to financially efficient groups in over 30 categories.