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U.S. Pressed on Israeli Settlement Tax Breaks

WASHINGTON (CN) - The U.S. Treasury has long turned a blind eye to nonprofits that funnel up to $1 billion a year to Israeli settlements, several activists claim in a federal complaint.

"Treasury claims that it takes a very vigorous and active role in terms of monitoring the activities of" entities that fund settlements in Israel occupied Palestine, according to the Dec. 16 complaint.

"If it does so, it missed $1 billion in total transfers to the settlements in 2015 and at least $60 million in tax-deductible contributions to the IDF in a single month, December 2014," the 72-page complaint states.

Far from engaging in "charitable activities," the complaint alleges that these nonprofits are fueling land theft, forcible expulsion of hundreds of thousands of Palestinians from their land, demolition of Palestinian homes and paramilitary activities carried out by armed Israeli settlers against Palestinian civilians.

U.S.-based donations support these practices, which violate both U.S. and Israeli law, according to the complaint.

"I want a court, somewhere, somehow, to hold accountable those who have financed my pain of dispossession and exile; to hold accountable the financiers of Israel's wholesale theft of another people's historic, material, spiritual, and emotional presence in the world," the complaint says, quoting one of the plaintiffs, Palestinian-American writer Susan Abulhawa.

Michael Several, a Jewish-American co-plaintiff, says he has done extensive research on the financial contributions to nonprofits like Friends of the Israeli Defense Forces, a U.S.-based nonprofit that received $60 million in donations in a single month lat year.

In addition to entrenching Israel's occupation of Palestine, these organizations have undermined U.S. foreign policy in support of a Palestinian state and helped breed the conditions from which Palestinian violent resistance emerges, according to the complaint.

Although the tax-exempt entities themselves are not named as defendants in the case, the complaint alleges that the Treasury's "double standard" in enforcing its own regulations has led to the proliferation of the Israeli settlement enterprise, and has resulted in up to $1 trillion in lost U.S. tax revenue.

"Huge tax deductions are being taken that support ethnic cleansing of Palestinians," Martin McMahon, an attorney for the plaintiffs, said in an interview. "Guess who picks up the tab? The American taxpayer. There's something wrong with that. "

The numbers could be a gross underestimation of the money actually flowing into the settlements, McMahon added.

The complaint alleges that the Treasury Department's policy has turned a blind eye as up to 150 exempt entities encourage donors to take illegal tax write-offs, violating at least eight federal criminal statutes and five Treasury regulations, including money laundering and supporting terrorist activity.

"U.S. tax-exempt entities and their donors, settlement leaders, and the construction companies they hired to build housing developments and shopping malls can all be criminally prosecuted because they have conspired to fund, facilitate, trespass on, demolish and/or confiscate private Palestinian property, all in the name of settlement expansion," the complaint says.

McMahon says proving the allegations could lead the U.S. to designate these entities as "special designated global terrorists," stripping them of their tax-exempt status and freezing their assets.

"There are huge penalties that go with that," but it remains uncertain how the Treasury will react now that it faces pressure to enforce the laws, the attorney said.


Tax-exempt entities that fund "charitable" activities overseas must disclose to potential donors the causes their contributions will support, and must also disclose any deviations from educational or charitable activities described in their applications for 501(c)3 status, according to the complaint.

The receiving organization overseas must also meet Treasury guidelines for tax-exempt status.

Abulhawa, Several and the third plaintiff, Egyptian-American Mohamed Abdel Aziz say "the entities cannot promote or finance racially or religiously discriminatory practices, nor can they violate federal statutes in the process of raising funds and/or transmitting the funds overseas." (Emphasis in original.)

They noted that a 1995 executive order issued by the Clinton administration in conjunction with Treasury officials prohibited the funding of Middle Eastern violence because it frustrates "U.S. foreign policy objectives."

The complaint contends that it has been official U.S. policy across party lines for the last 40 years to oppose the expansion of Israeli settlements.

"When you send money overseas, you're presumed to know what the law is in the recipient country," McMahon said.

The complaint notes that part of the U.S. code regulating prohibitions against the financing of terrorism "has codified the UN [United Nations] Convention against Terrorist Financing into U.S. law, which prohibits U.S. nationals from funding violence abroad in order to intimidate a civilian population like the Palestinians."

Israel built the settlements on territory it seized by force in 1967, where Palestinians had hoped to build a state.

The biggest settlement block, Ma'ale Adumim, nearly severs the West Bank in half.

According to statistics from Israeli human rights organization B'tselem, there are 125 Israeli government sanctioned settlements, and another 100 settlement outposts. At the end of 2013, B'tselem says approximately 547,000 Israelis lived in settlements in the West Bank and East Jerusalem.

The complaint puts forth a higher number - 750,000 - based on satellite imagery.

Israel officially rejects a narrative held by most of the international community, that the settlements are illegal under international law, according to the complaint, citing a Biblical connection to the land for its justification.

For McMahon, however, the issue of whether the settlements are legal is irrelevant.

"We don't care if settlements are deemed to be illegal or not," he said. "Settlement expansion means ethnic cleansing, wholesale violence and armed settlers stealing private property."

The complaint contends that some of the tax-exempt entities have only a post office box as their sole U.S. presence, the complaint says.

This alone is a basis to revoke tax-exempt status, the plaintiffs say.

They note that most U.S. donors prefer to donate to U.S.-based nonprofits because tax deductions to Israeli tax-exempt entities require that a substantial amount of the donor's income originate in Israel. Because of the tax break, U.S. donors in turn seek out U.S.-based pro-settlement nonprofit foundations.

Israeli universities within the 1967 borders represent the only exception noted when it comes to donations, according to the complaint. Ariel University, situated in one of the biggest settlement blocks in the West Bank, would not qualify, the plaintiffs say.

"The taxpayers who have been writing off 'Ariel University contributions' need to have their tax returns audited - they owe Uncle Sam a lot of money," the complaint says.

The plaintiffs seek a declaratory judgment requiring investigations by the Treasury and its Financial Crimes Enforcement Network, plus the Internal Revenue Service and Office of Foreign Assets Control.

Tax-exempt entities at issue include the Hebron Fund, the Gush Etzion Foundation, American Friends of Ariel and Friends of the Israeli Defense Forces.

None of these entities responded to emailed requests for comment.

McMahon said he and W. Jameson Fox are doing most of the work on the lawsuit pro bono, and hope other plaintiffs will join the lawsuit.

A conversation with a Palestinian friend, and ample time spent in the Middle East, prompted McMahon to tackle the issue, the attorney said.

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