Watchdog demands probe of Soros-backed nonprofits allegedly abusing tax exemptions

A conservative watchdog group is calling on the Internal Revenue Service (IRS) to investigate the tax-exempt status of two George Soros-funded nonprofits for allegedly misusing their tax-exempt status to promote left-wing causes.

Reclaiming Americans Freedom (RAF) — an advocacy group focused on defending civil and constitutional rights — filed a formal complaint with the IRS on Friday, accusing the Private Equity Stakeholder Project (PESP) and its affiliate, Private Equity Stakeholder Action (PESA), of “serious and deliberate” violations of federal tax laws. RAF alleges that both organizations have unlawfully exploited their tax-exempt status to engage in “excessive political activities as its primary purpose while providing an improper private benefit to Democratic candidates and the Democratic Party.”

“The Private Equity Stakeholder Project flagrantly abused their tax-exempt status and intentionally shielded their expenditures from public disclosures,” a spokesperson for Reclaiming Americans Freedom told the Daily Caller News Foundation. “Due to the egregious nature of these violations, the IRS should conduct a full investigation of PESP’s activities and consider revoking their tax-exempt status. If the IRS comes to the same conclusions we did, these violations should also be immediately referred to the Department of Justice.”

PESP, a Chicago-based 501(c)(3) organization founded in 2017, aims to “conduct and distribute research, studies, and analysis relating to the impact of financial services firms on stakeholder groups, including but not limited to impacts on human rights, jobs, housing, consumers and the Environment,” according to its IRS filings. PESP’s 501(c)(4) affiliate, PESA, described its mission in its tax filing as developing “policy and legislative solutions for the environment, social, and governance problems related to investments made by financial services firms, including but not limited to private equity firms, hedge funds, and infrastructure funds.”

PESP has condemned private equity firms for “looting American businesses and destroying jobs.” Both PESP and PESA have received millions of dollars from major left-leaning foundations, including Democrat megadonor George Soros’ Open Society Foundation, the Ford Foundation and the Surdna Foundation, which have made substantial investments in the private equity industry.

Under federal law, 501(c)(3) organizations are prohibited from participating in or intervening in, directly or indirectly, any political campaign for public office, including national, state or local offices, while 501(c)(4) groups may engage in only limited political activity, typically defined as falling below 50% of its total spending. However, RAF alleges that there is “strong evidence that PESA’s primary purpose in 2020 and 2022 was to engage in political activity in support of the Democratic Party rather than any legitimate exempt social welfare activity.”

Specifically, in 2020, PESA made a $10,000 contribution to the Democratic Treasurers Association and $5,000 to a Democratic candidate for Oregon state treasurer, which accounted for over 36% of its total expenditures, according to the RAF complaint. In 2022, it made over $54,000 in political contributions, all of which were directed towards Democratic organizations and candidates.

While PESA’s direct political expenditures fall below the 50% threshold for 501(c)(4) organizations, the RAF complaint alleges that the “only other activity PESA engaged in during these two years was to provide reimbursement to PESP pursuant to their cost-sharing agreement.”

The IRS filings further suggest some of these political activities may have been carried out by PESP and reimbursed by PESA, violating the strict limits placed on tax-exempt nonprofits regarding political campaigning, according to RAF.

“This arrangement raises significant questions about whether PESP impermissibly subsidized political activity engaged in by PESA, particularly to the extent both entities have common majority control of their Boards,” the complaint alleges.

In addition to its political activities, RAF alleges that both PESP and PESA defied IRS rules by engaging in unrelated business activities without paying the required taxes. Both groups have received substantial income described as “program service revenue” from consulting, research and “efforts to support workers,” which the complaint suggests may represent taxable commercial activity rather than legitimate nonprofit work.

RAF also accuses PESP of frequently using inflammatory and disparaging language that violates IRS standards for tax-exempt educational organizations in support of its anti-private equity policy positions. Additionally, it claims that PESP has failed to fully disclose its expenditures in its tax filings, thereby concealing its spending from appropriate public scrutiny.

“We have not seen the complaint. PESP and PESA are in full compliance with federal tax laws,” Jim Baker, executive director of the two organizations, told the DCNF. After being provided a copy of the complaint, Baker did not respond to a request for further comment.

In addition to criticizing the private equity industry, PESP and its employees have been outspoken in condemning Israel during its ongoing conflict with Hamas.

In a blog post from February 2024, PESP described the Oct. 7 attack — in which civilians in Israel were killed and taken hostage by Hamas terrorists — as simply “the deaths and hostages from October 7,” while referring to Israel’s response as “war crimes against civilians” and labeling it “apartheid.” Multiple high-level PESP employees have also praised the anti-Israel college protests and encampments across the country.

Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.