On March 4, 2012 Debra E. Blum of the Chronicle of Philanthropy wrote an interesting article “Think Tank in Koch Brothers Dispute Could Find Its Tax Status at Risk”.  The article discussed the litigation surrounding the US Cato Institute.  It also has ramifications in Canada in that we are dealing with some similar issues of political involvement by think tanks and also the Cato Institute apparently funds initiatives in Canada.

“Think Tank in Koch Brothers Dispute Could Find Its Tax Status at Risk”

Here is an excerpt from the article:

“Charles and David Koch, the billionaire brothers active in Tea Party politics, last week sued the libertarian Cato Institute, which Charles Koch helped found more than 30 years ago, in a move that would ensure their control over the institution.

But in filing the lawsuit, the brothers may well have tipped off the Internal Revenue Service to concerns that the organization has never deserved to be a charitable institution eligible to receive tax-deductible contributions or other benefits of tax exemption, says a former head of the tax agency’s charity division.

Marcus Owens, a Washington lawyer, says the lawsuit filed in Kansas state court reveals a “fatal flaw” in Cato’s structure. The lawsuit and other documents about Cato’s legal status show that the think tank gave ownership shares to its founders, including, it appears, the right to sell the organization. That goes against federal law, which has strict rules that forbid any one person or group from having ownership rights.

The penalty, says Mr. Owens, could be as severe as the IRS revoking the think tank’s tax-exempt status going back to Cato’s founding in the 1970s. That would require it to file corporate tax returns for the revoked years and pay federal and state taxes on income for some years, where appropriate. Cato has an annual operating budget of about $20-million. Last year, the group raised nearly $40-million in private contributions, about half of it for a capital campaign.”

Here is another interesting quote:
“Observers say that think tanks, considered powerful thought leaders, are especially vulnerable to manipulation by activists with a political viewpoint.”

Here is an article in the Washington Post on the Koch brother’s lawsuit:

Also here are court documents: