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NRA reports alleged misspending by current and former executives to IRS

The Washington Post logo The Washington Post 11/25/2020 Beth Reinhard, Carol D. Leonnig

After years of denying allegations of lax financial oversight, the National Rifle Association has made a stunning declaration in a new tax filing: Current and former executives used the nonprofit group’s money for personal benefit and enrichment.

The NRA said in the filing that it continues to review the alleged abuse of funds, as the tax-exempt organization curtails services and runs up multimillion-dollar legal bills. The assertion of impropriety comes four months after the attorney general of New York state filed a lawsuit accusing NRA chief executive Wayne LaPierre and other top officials of using NRA funds for decades to provide inflated salaries and expense accounts.

The tax return, which The Washington Post obtained from the organization, says the NRA “became aware during 2019 of a significant diversion of its assets.” The 2019 filing states that LaPierre and five former officials received “excess benefits,” a term the IRS uses when officials have enriched themselves at the expense of a nonprofit entity.

The disclosures in the tax return suggest that the organization is standing by its 71-year-old chief executive while continuing to pursue former executives who left the group. The filing says that LaPierre “corrected” his financial lapses with a repayment and contends that former executives “improperly” used NRA funds or charged the nonprofit for expenses that were “not appropriate.”

LaPierre has reimbursed the organization nearly $300,000 in travel expenses covering 2015 to 2019, according to the tax return, which does not explain how that amount was determined or when LaPierre paid it.

NRA spokesman Andrew Arulanandam said in a statement this week that “the vast majority of Mr. LaPierre’s travel was undertaken in strict compliance with NRA policy.”

In response to questions from The Post, NRA officials said the organization is financially strong and closely adhering to nonprofit law. “As its tax filing demonstrates, the NRA is committed to strict compliance with its accounting controls and good-governance practices,” said Charles Cotton, an NRA vice president and audit committee chair.

The tax filing acknowledges that there are disputes over the alleged financial abuses the NRA blames on the departed officers, including former board president Oliver North and former chief lobbyist Chris Cox.

Some of those executives parted ways with LaPierre over his leadership and are cooperating with the New York attorney general’s investigation, according to two people familiar with the matter who spoke on the condition of anonymity because of the sensitive nature of the ongoing investigation.

In another disclosure in the tax return, the NRA said it is investigating unnamed board members for flying first class without authorization.

Three tax and accounting experts who reviewed the 2019 tax return for The Post said the disclosures show the organization and LaPierre trying to take responsibility and avoid further legal jeopardy.

“This is the type of cleanup I would expect to see after a history of gross violations of nonprofit law,” said Philip Hackney, an associate professor of law at the University of Pittsburgh who worked at the IRS for five years until 2011 providing legal oversight of tax-exempt organizations.

LaPierre personally signed the 2019 tax return; such a document is customarily signed by the organization’s treasurer. “He is putting himself on the line, under penalties of perjury, which is what you do if you are trying to get in someone’s good graces,” Hackney said.

New York lawyer and expert on nonprofits Daniel Kurtz said, “It’s a smart move by the NRA instead of digging in their heels, though who knows how they came up with the numbers. It’s an admission of wrongdoing, for sure.”

In her lawsuit, New York Attorney General Letitia James, a Democrat, alleged a much larger misappropriation of funds, seeking to shut down the nation’s largest gun rights organization and oust LaPierre.

“For years, Wayne LaPierre and his lieutenants skirted the law and pocketed millions from NRA coffers to fund lavish lifestyles that included private jets, pricey vacations, expensive meals, and no-show contracts,” James said this week. “Mr. LaPierre’s reimbursement of just a fraction of the millions he personally profited from indicates how the NRA went unchecked under his leadership.”

LaPierre has called the lawsuit unconstitutional, casting James as a liberal anti-gun activist who has long sought to destroy the gun lobby.

The New York suit alleges that LaPierre funneled personal expenses through the NRA’s former public relations and advertising firm, Ackerman McQueen, and failed to report hundreds of thousands of dollars of personal income. Executives at Ackerman McQueen have said that all of their financial arrangements were approved by LaPierre.

James said in August that she was referring her findings to the IRS. The Wall Street Journal reported last month that the agency was investigating LaPierre for possible criminal tax fraud related to his personal taxes.

According to two people familiar with a deposition LaPierre gave last year in litigation between the NRA and Ackerman McQueen, the chief executive said he never reported as personal income the travel and entertainment expenses the NRA paid on his behalf because he thought those benefits were provided as part of his leadership role at the organization.

LaPierre declined an interview request from The Post through his new personal attorney, Kent Correll.

Of the reported IRS inquiry, Correll said, “We are unaware of any inquiry, therefore it would be premature to comment.”

The new tax documents portray an organization trimming costs and struggling as membership dues and other revenue declined even before the coronavirus pandemic curbed charitable fundraising nationwide. The NRA reported a $12.2 million operating shortfall last year, up from $2.7 million the previous year. This is the fourth year in a row the organization has reported spending more than it took in.

The one area where the NRA’s expenses are growing: legal costs, which soared in 2019 to $38.5 million from $25 million in 2018. Ackerman McQueen was the NRA’s highest paid contractor for years, churning out provocative marketing campaigns and broadcasts, until the relationship disintegrated in a litigious squabble last year. Now, the NRA’s single largest vendor is the Dallas law firm headed by William Brewer, which was paid nearly $25 million last year.

Arulanandam called the legal costs “an investment in the future of the NRA.” He added: “NRA members expect us to use our resources to defend their constitutional freedoms — not avoid the fight.”

In the latest legal setback, New York insurance regulators announced last week that the NRA is barred from selling insurance in the state for five years and will pay a $2.5 million civil penalty to settle charges of illegally marketing insurance to gun owners involved in self-defense shootings. The NRA said in a statement that it had “successfully resolved” the matter.

That LaPierre remains at the NRA helm despite months of turmoil is a testament to his tenacity as the face of the American gun lobby for decades.

Since his leadership was challenged at a raucous annual meeting in the spring of 2019. LaPierre has weathered revelations that he spent hundreds of thousands of the nonprofit’s dollars on luxury menswear and travel, and that the NRA considered buying him a multimillion-dollar estate in Texas. Some board members and veteran staffers walked away in protest, accusing LaPierre and other executives of self-dealing and alleging that the group had strayed from its core mission of promoting firearm ownership.

“LaPierre would have stepped aside a long time ago if his concern was really for the institution,” said Rob Pincus, a lifetime NRA member who has led a campaign to overhaul the organization. “He remains a distraction and a detraction.”

Cox resigned in June 2019 after LaPierre accused him and North of orchestrating a coup — a claim they both denied. The tax return says the organization is seeking to recover more than $1 million it says Cox improperly received for travel, meals and tickets to sporting events.

Cox’s lawyer, Tom Buchanan, called the allegation “false” and said all of the lobbyist’s expenses during his 24 years with the NRA were reviewed and never questioned. Buchanan said also that Cox has provided the New York attorney general with “thousands of documents” and has not been implicated in her investigation.

North was ousted as NRA president last year after accusing LaPierre of spending recklessly on legal fees for Brewer’s firm. The new tax filing says the NRA has “reason to believe” North received excess salary that he failed to earn. North declined through his attorney to comment on the tax return.

North has previously argued that the NRA has falsely accused him of financial improprieties in retaliation for his cooperating as a key witness in the New York investigation, according to pleadings in New York State Court.

“In public, the NRA has said these allegations of misspending were completely unfounded, but these official filings present a picture that a lot of the claims made were accurate and the only question is who was at fault,” said Brian Mittendorf, an accounting professor at Ohio State University.

On Nov. 18, after NRA members complained that Brewer’s firm should not represent both the NRA and LaPierre, the chief executive notified the court in Texas that he had hired his own lawyer, Correll.

Correll previously worked in Brewer’s firm.

Three other former NRA executives are accused in the tax return of receiving “excess benefits.” They are Wilson “Woody” Phillips, who was treasurer; Joshua Powell, who had been chief of staff to LaPierre; and David Lehman, who was a lobbyist. Powell declined to comment. Phillips and Lehman could not be reached this week after repeated phone calls from The Post.

Last year, compensation for top NRA executives rose by 41 percent, with LaPierre receiving a total of about $2.2 million from the NRA and related entities even as pension benefits for employees have been frozen. By comparison, the previous year, he received about $1.4 million. Executive salaries declined only slightly in 2019, and the NRA continued to hand out six-figure bonuses to four top officials, including LaPierre, the tax filing shows.

The NRA also continued to direct money to some board members for providing various services, according to the return, a practice tax experts say can cloud a board’s independent oversight.

For the first time in years, the NRA filing acknowledged the dual and potentially conflicting roles held by board member Marion Hammer, a longtime consultant who was paid $220,350 last year. She did not respond to requests for comment by phone and email. Seven other board members received a total of $175,000 in side agreements with the organization, the filing shows.

During the same time period, the group slashed spending on hunter services by 63 percent, public affairs by 52 percent, legislative programs by 17 percent, and safety education, training, gun shows and exhibits by 16 percent, according to an audit filed this year with North Carolina charity regulators.

NRA spokesman Arulanandam said the organization “has never been better positioned to execute its legislative and political agenda — leading the protection of America’s constitutional freedoms.”

In the spring of 2020, as the coronavirus forced states to close down business and schools, the NRA announced that it was cutting salaries, canceling fundraising activities and gun shows, and laying off employees to “favorably position the Association leading up to the November election,” according to a statement from a spokesman at the time.

But the NRA also cut its spending on political campaigns.

The group’s political arm allocated less than $17 million for President Trump’s reelection, according to Federal Election Commission records, compared with $30 million to help elect Trump in 2016.

Bill Powers, the executive vice president for communications at Ackerman McQueen, said the financial statements lay out the NRA’s steady decline as the organization faced a raft of defectors questioning LaPierre’s leadership, and as more of its money went into scorched-earth legal battles to defend LaPierre. “You have just seen an election where the NRA was sidelined,” he said.

John Feinblatt, the president of Everytown for Gun Safety, which supports restricting gun ownership said, “Put simply, they put their limited money on Donald Trump and lost big time.”

The tax return shows membership dues falling 34 percent in 2019, to $113 million. Arulanandam called those figures “dated information.” He said that donations and grass-roots support are “surging” and that the NRA added 300,000 members in the past six months.

The NRA continues to rely on its charitable arm, according to the tax return. It received $12 million in grants and is paying off a $5 million loan from the NRA Foundation. The two entities share employees, office space and other resources, and the NRA sought about $15 million in reimbursements from the foundation in 2019.

The relationship between the NRA and the foundation is the subject of a lawsuit by D.C. Attorney General Karl A. Racine (D), who contends that the foundation has strayed from its legal duty to pursue charitable activities and instead has been used to cover the NRA’s deficits.

NRA officials have said the financial statements are audited and that the organization uses best practices in accounting and governance.

Alice Crites contributed to this report.

Read more: New York attorney general seeks to dissolve NRA in lawsuit alleging sweeping fraud. NRA board member and former president Marion Hammer obtained low-interest loan from affiliate she leads. Follow @wpinvestigates on Twitter | Like Investigations on Facebook Latest investigative news a close up of a person wearing glasses: New York State Attorney General Letitia James as she announced her lawsuit against the National Rifle Association during an August 2020 press conference. © Kathy Willens/AP New York State Attorney General Letitia James as she announced her lawsuit against the National Rifle Association during an August 2020 press conference.
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