NY Times: Charitable Deduction Subsidizes Israeli Settlements, Contrary to U.S. Policy

New York Times, Tax-Exempt Funds Aid Settlements in West Bank:

HaYovel is one of many groups in the United States using tax-exempt donations to help Jews establish permanence in the Israeli-occupied territories — effectively obstructing the creation of a Palestinian state, widely seen as a necessary condition for Middle East peace.

The result is a surprising juxtaposition: As the American government seeks to end the four-decade Jewish settlement enterprise and foster a Palestinian state in the West Bank, the American Treasury helps sustain the settlements through tax breaks on donations to support them.

A New York Times examination of public records in the United States and Israel identified at least 40 American groups that have collected more than $200 million in tax-deductible gifts for Jewish settlement in the West Bank and East Jerusalem over the last decade.

The money goes mostly to schools, synagogues, recreation centers and the like, legitimate expenditures under the tax law. But it has also paid for more legally questionable commodities: housing as well as guard dogs, bulletproof vests, rifle scopes and vehicles to secure outposts deep in occupied areas.

In some ways, American tax law is more lenient than Israel’s. The outposts receiving tax-deductible donations — distinct from established settlements financed by Israel’s government — are illegal under Israeli law. And a decade ago, Israel ended tax breaks for contributions to groups devoted exclusively to settlement-building in the West Bank. ...

In theory, the same is true for the United States, where the tax code encourages citizens to support nonprofit groups that may diverge from official policy, as long as their missions are educational, religious or charitable.

The challenge is defining those terms and enforcing them.

There are more than a million registered charities, and many submit sparse or misleading mission summaries in tax filings. Religious groups have no obligation to divulge their finances, meaning settlements may be receiving sums that cannot be traced.

The Times’s review of pro-settler groups suggests that most generally live within the rules of the American tax code. Some, though, risk violating them by using the money for political campaigning and residential property purchases, by failing to file tax returns, by setting up boards of trustees in name only and by improperly funneling donations directly to foreign organizations. ...

Americans cannot claim deductions for direct donations to foreign charities; tax laws allow deductions for domestic giving on the theory that charities ultimately ease pressure on government spending for social programs.

But the I.R.S. does allow deductions for donations to American nonprofits that support charitable projects abroad, provided the nonprofit is not simply a funnel to another group overseas, according to Bruce R. Hopkins, a lawyer and the author of several books on nonprofit law. Donors can indicate how they would like their money to be used, but the nonprofit must exercise “some measure of independence to deliberate on grant-making,” he said.