Flap over use of U.S. tax exemption to help settlements

By Eric Fingerhut · March 31, 2009

WASHINGTON (JTA) — Could a U.S. tax exemption be helping to hold back peace?

A top Washington columnist suggested that last week, and an Arab-American organization is asking the Treasury Department to investigate the tax-exemption status of U.S. organizations that financially support Israeli settlements in the West Bank.

Washington Post columnist David Ignatius pointed out in a March 26 column that while the U.S. bans the spending of government aid money on Jewish settlements, it also provides a tax exemption — indirect government support — to organizations that raise money “for the very activities that the government opposes.”

Ignatius emphasized that there’s nothing illegal about the contributions, but noted that there were 28 U.S. charitable groups that made a total of $33.4 million in tax-exempt contributions to settlements and related organizations between 2004 and 2007.

The day after Ignatius’ column appeared, the American-Arab Anti-Discrimination Committee announced in a news release that it had filed “multiple administrative complaints” with the Treasury Department and the Internal Revenue Service requesting investigations into the activities of tax-exempt groups raising money for West Bank settlements, charging that the groups were using the income “in direct violation of their addressed purpose.”

An ADC spokesperson said the group found some “preliminary evidence” to suggest that funds raised in the United States were being utilized for security or settlement construction, and felt it was important to raise the issue of the tax exemption with the government.

Americans for Peace Now spokesman Ori Nir was quoted in Ignatius’ piece, but said his organization was not planning or involved in any kind of initiative to yank the tax exemption for charities sending money to settlements, nor was he aware of a legislative effort to do so.

APN, he said, objects more generally to all the money going to support settlement activity — the “very principle of funding settlements in the West Bank.”

“It’s wrong for people to fund settlements,” whether it’s the U.S. government, Israeli government or private individuals, Nir said. “Anyone who sends money for increased settlements is contributing to something that makes peace more difficult.”

Residents and supporters of settlements objected to the suggestion that U.S. donations to their cause were in any way blocking peace. They said that any attempt to change the rules would be unfair.

In his blog, Yisrael Medad of the Shiloh settlement wrote that “a lot of American taxpayers’ money surely does go to the so-called ‘occupied territories,’ actually, ‘disputed,’ as well as private charitable contributions, without complaint by Ignatius. It’s just that the money goes to, well, Arabs” — pointing to the $900 million of aid that the U.S. is slated to send to the West Bank and Gaza.

Medad, a former Knesset aide and media critic who describes himself as an unofficial spokesman for the Jewish Communities of Judea and Samaria, goes on to say that “What Ignatius seems to be promoting is that you can get tax-exemption for your donation if the money doesn’t go to Jews. Or are there other areas around the globe where a similar thesis could be argued, that you can separate between peoples in the same territory?”

Morton Klein, the president of the Zionist Organization of America, offered similar arguments, saying it was discriminatory to single out the money Jewish settlers in the West Bank receive from U.S. groups as unworthy of tax-exempt status while permitting other organizations to raise funds for Palestinians in the area.

“The suggestion that a Jewish minority living among a West Bank Arab majority is harming peace is false,” he said.