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Watchdog Asks IRS To Probe Alleged Sierra Club Profiteering Off Its Tax Exempt Status

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A nonprofit legal foundation has notified the Internal Revenue Service that a prominent environmental group may be violating its tax-exempt status by engaging in activities that promote private interests of board members and green energy businesses.

The Energy & Environment Legal Institute (E&E Legal) filed a formal referral with the IRS Wednesday after releasing a detailed report on the Sierra Club and the Sierra Club Foundation’s potentially tax-status-violating activities from activities taken to benefit the green energy industry and the business interests of board members.

These allegedly illegal activities have nothing to do with political activity, but instead the report details two main ways Sierra Club and Foundation activities “appear to violate the law on impermissible benefit to private interests and failure to pay taxes on unrelated business income.”

“They have attempted to disguise this behavior in a green cloak of high-minded civic duty, but the reality is that the Club and the Foundation are engaging in classic ‘rent seeking’ and profit making – for themselves, for their directors and for private individuals who exchange donations for increased market share,” writes David Schnare, general counsel for E&E Legal, in a report on Sierra Club activities “This they cannot do and remain compliant with the law.”

The Sierra Club and the Sierra Club Foundation have Section 501 tax-exempt status under the tax code, which prohibits these groups from taking certain actions. The tax code bans “net earnings of such entity inur[ing] to the benefit of any private shareholder or individual.” The Sierra Club is also subject to tax on “unrelated business income” if it comes from “a trade or business; the trade or business is regularly carried on; and, the trade or business is not substantially related to the organization’s tax-exempt purpose.”

But Schnare says the Sierra Club has blatantly violated the tax code by “sending its members into communities to sell the products of a selected local solar panel company” — referring to a deal brokered between the Club and the solar company Sungevity.

Last month, The Daily Caller News Foundation reported Sungevity was giving the Sierra Club $750 for every solar panel its supporters bought from the company. The Club said it was a way to “support the development and deployment of clean energy and help move America beyond dirty fuels.” But the activity also helped generate revenue for the Club’s activities.

“Every home that we get to go solar, Sungevity gives us $750 back,” Sierra Club Chief of Staff Jesse Simons said in a Sungevity video promoting the campaign. “This has been a great revenue-generating tool for the Sierra Club.”

“The Sierra Club markets the products of a single company in each jurisdiction, in direct competition with several other similar companies who cannot rely on the Sierra Club sales force,” wrote Schnare. “This violates the law.”

Schnare also alleges that the Sierra Club and its foundation use the so-called “War on Coal” to promote the business interests of board members involved in the green energy industry — which benefits from regulations on coal mines and power plants.

According to Schnare’s report, eight of the Sierra Club Foundation’s 18 board members “own or operate” companies with interests in the green energy industry. Schnare says a “War on Coal, whose sole purpose is to create monopoly conditions for renewable energy generation by 2050… is not a charitable purpose.”

Schnare provides a list of board members who benefit from anti-fossil fuel regulations, but also notes that there are big ticket donors who also benefit from Sierra Club and Foundation funding of anti-fossil fuel activities.

David Gelbaum is the largest donor to the Sierra Club Foundation, donating more than $100 million. He controls the investment group Quercus Trust which controls more than 40 “clean technology” companies. Gelbaum is also Chairman of the Board and CEO of Entech Solar as well as a director at the companies Energy Focus Inc., Clean Power Technologies and Axion Power International, Inc.

The Sierra Club Foundation is a 501(c)(3) nonprofit that can’t lobby — unlike the Sierra Club which is a 501(c)(4) that is allowed to lobby. The Foundation is used to fundraise for the Sierra Club’s political and anti-fossil fuel campaigns.

According to Schnare, the Foundation’s three largest projects in 2012 were “the War on Coal… Sierra Club local chapters who are the foot soldiers in the War on Coal” and a program related to the Club’s mission to “reduce U.S. carbon emissions by at least 80 percent by 2050.” In total, the Foundation spent more than $30 million on these activities in 2012.

The Sierra Club did not respond to The Daily Caller News Foundation’s request for comment.

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