The Teat: IRS Loopholes/Conspiracy Benefitting School “Reformers”?

Heard anything about the IRS in the news lately? Here is more interesting scuttlebutt about the IRS and educational “reformers.” First, as is the tradition of The Teat, a cow Haiku:

Every cow comes wrapped
in cowhide, but that does not
serve to hide the cow.

Former IRS Commissioner, Doug Shulman, who resigned in November 2012, recalled his roots as an educational non-profiteer, which was shared at the Douglas H. Shulman Council on Foundations 2010 Annual Conference in Denver, Colorado on April 24, 2010:

The non-profit territory is familiar stomping grounds for me. I started my career in consulting, but then became what I refer to as a social entrepreneur. I was privileged to be one of a handful of people who helped co-found and launch Teach for America, which helps place teachers in urban and rural schools across the country. Since that time, I have also started a business, been a private equity investor and a securities industry regulator and now, IRS Commissioner.

Is that just a wild coincidence or something grander that an education “reformer” was put in charge of the IRS?

The recent IRS scrutiny from Congress on the process of tax-exempt status for some (Tea Party groups) and potentially not for other organizations piqued my curiosity. While my interest is not related to partisan political groups, it is directed towards education. For some time now, charter management groups and educational non-profits have burgeoned. Was this always the case or just a phenomenon that expanded over the last few years? It got me thinking. And led me right to the website.

It takes some doing to weed through volumes of dense material, but my hunch appears warranted.

The Internal Revenue Service actually provides extensive state-by-state listings of tax-exempt organizations on their Business Master File (BMF) and the Statistics of Income (SOI) site.  This can be a researcher’s gold mine if you have extensive time and can locate specific information coded under multiple headings.

An organization seeking tax-exempt status would routinely select from one to three codes that aligned with their purpose, operation, and/or activity on their application (Form 1023, Form 1024). This is not as customary, currently, but the general coding organizes the voluminous spreadsheets for viewers and can be downloaded for free. For example, Code (A) related to Arts, Culture and Humanities, but I was more focused on code (B), Education. Then there are sub-headings which for education range from B20 Elementary, Secondary Education, K-12, to B90 Educational Services and Schools-Other.

The data record includes basic fields such as name of organization, address, city, as well as topical subsection and activity codes. I found that the “ruling date” that appears as (yyyy/mm) and notes the actual year and month that the organization was granted federal tax-exempt status, particularly telling.

You might not consider the ruling date significant, but wait! If you connect the dots and consider the growth of educational non-profits over the last five years, is it change, chance or coincidence? You make the call. And then ask why?

In late Fall 2008, Americans were focused on the economic meltdown, coupled with the upcoming election and the final months of two-term, president, George W. Bush. But, on September 9, 2008, the IRS issued temporary Income Tax Regulations that eliminated the “advance ruling process” for any 501(c) (3) application.  This means that if an organization can show that it expects to be publicly supported when it applies for tax-exempt status, they can go for it, and do so quickly.

According to the IRS:

Under the old regulations, an organization that wanted to be recognized by the IRS as a publicly supported charity, instead of a private foundation, had to go through an extended two-step process. First, the organization had to declare that it expected to be publicly supported on an on-going basis, then after five years, it had to file Form 8734, showing the IRS that it actually met the public support test.

The new rules not only eliminate filing of Form 8734, but “the organization retains its public charity status of its first five years regardless of the public support actually received during that time” (

Wow! No wonder states like Colorado received such generous shares of Gates Foundation support directed to educational reform non-profits. Here’s a partial list of recipients from just one state— it reads like an all-star starting line-up for “reformers”:

  1.  A+ (Denver) $150,000 (for reform efforts and accountability)
  2. Clayton Early Learning (Denver) $500,000
  3. Colorado League of Charter Schools (Denver) $75,000
  4. Colorado School Finance Partnership (Denver) $25,000
  5. Denver School of Science and Technology (Denver) $525,000 (of a $1,500,000 commitment to Charter Management Organization)
  6. Foundation for Educational Excellence (Denver) $400,000
  7. Stand for Children (Denver) $75,000
  8. Strive Prep (Denver) $750,000
  9. TFA (Denver) $ 225,000 (part of a 3-year $500,000 commitment to TFA’s                                                                  expansion in Colorado Schools)
  10. University Prep School (Denver) $75,000
  11. West Denver Prep Charter School (Denver) $150,000

While The Gates Foundation’s generosity to the educational non-profits in Colorado, alone, exceeds the $3 million total above, for only one calendar year, they regulate applicants: “In compliance with IRS tax laws, we only accept proposals from 501(c)(3) and other tax-exempt organizations. We are unable to provide funding directly to individuals.”

So, yes, that tax-exempt designation does matter! (Just ask TFA: The Teat: ~Half Billion for Teach (Temp) For America)

Under the guise of many nonprofit, public good programs are strategic initiatives that employ reconfigured tax codes, political patronage, philanthropic, corporate/media support, ‘friends’ in high places, (no reference to the mile high city here), and compliant players who assume particular roles for pre-determined time frames or purposes (See Cloaking Inequity’s post Bush Foundation for Excellence in Education: “Pay to Play, Reap profits”?).

The IRS notes that nonprofit charitable organizations are exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and that bodes well for the educational non-profits who seek funding from foundations that direct funds to specific education reform agendas and can direct their business to friendly for-profits (See Cloaking Inequity’s post What BASIS?: Nepotism and aggrandizement in charters?).

Is this due to error or design? (See Cloaking Inequity’s post The Teat: Neoliberals, students first or padding adults’ pockets)

One thing that occurs with Tea Party hearings in Washington, DC, is that light, fueled by public outrage, is shed for once, on a mostly obscure topic ––tax codes.  Viewed as mundane by the populace and elected leaders, tax laws and codes, if left unexamined, proceed as is, for years. Tax codes and laws endure beyond Congressional and Senatorial terms and presidential administrations. Misappropriated exemptions for corporations, their designees, and overly politically zealous non-profits.

Congress holds the power of the purse, and that means close the loopholes in the tax laws across the board and hold “non-profits” accountable for irregularities and malfeasance. Gaming the tax system to privilege particular entities, platforms, and ideologies should outrage us enough to persist in our curiosity and questioning.  We’re all being misled if the ultimate goal is to make educational policy under the guise of public good, tax-exempt initiatives… that legally and magnificently line pockets.

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  • It’s quite an entrenched network.


  • Monty J. Thornburg

    Disturbing – Greasing the palms of Oligarchs, the 1%:

    Your information tells me that it’s a program that will grease the palms of the Oligarchs, the 1%, who pitch themselves as philanthropists but who are also positioning themselves to rake in $billions of taxpayers money to send to their banks with CC and RttT. It’s worse than I thought. Dollar Bill and the rest are also helped by the IRS. For example, the 5 $billion offered by Dollar Bill to put a video camera in every classroom, (Kafkateach) would be aided by the IRS through their grants programs.

    Also, from a previous Blog, May 5, I still have a question. Was it a coincidence that you, Dr. Vasques H. were “micro-aggressed” as an “intellectually unrigorous pseudo-scholar” by someone who I believe works as a high level official with The Foundation Center? The “center’s” business is to connect philanthropic organizations with organization searching for “non-profit” funding, nation-wide, and now we learn of this possible link with the IRS through Doug Shulman – disturbing.


  • It’s an udder disgrace …


  • Jesse Sandschaper

    Just a short point , STRIVE prep and West Denver Prep are the same thing.


    • I noticed that; but it’s interesting because on the Gates electronic tax return for 2012 they are listed separately.

      Another tax oversight? I appreciate their clarification.

      B Sent from my iPhone


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