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The IRS and the Crystal Spring Legal Defense Fund

| August 29, 2014, 09:18 AM | 0 Comments

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Several months ago, a forum was held under the guise of discussing traffic on Forest Drive. With more than 300 people attending, it became clear a bit later on that the meeting was more about stopping the Crystal Spring development and collecting money for a legal battle than anything else. Now granted, the development, in any iteration, will bring additional traffic to Forest Drive, so I guess there was a bit of relevancy to the meeting.

Why a legal fight? In terms of a background, the developers filed a Forest Stand Delineation in early 2013 which was approved by the City’s Department of Neighborhoods and Environmental Programs (DNEP) “as revised.” The decision was appealed to the Annapolis Building Board of Appeals which dismissed the appeal saying that DNEP can not “approve” but can only advise if it is “complete and correct.” An appeal of the dismissed appeal was filed in Circuit Court in October of 2013. In April 2014, the Circuit Court affirmed the dismissal of the appeal and opined that a Forest Stand Delineation is not appealable. However, a Forest Conservation Plan (FCP) is. The developers submitted a plan in May of 2013 and received comments from DNEP in June 2013. Based on the comments, the developers submitted a revised FCP in June 2014. In early August 2014, DNEP responded with additional comments. At the present time, there is no active litigation on the project; but it appears that several parties are gearing up for a legal battle in the future.

What surprised me the most coming out of that meeting was that the Severn Riverkeeper was the point of contact for a legal defense fund to fight the project.  In addition to keeping the Severn River, the organization is keeping the money to fight a proposed development  on the South River–with a goal of $200,000 or more to fight the project.

It would make more sense that the South River Federation might be the point organization, but they are already on board with the project and are willing to work with the developers to affect a responsible project. Many people would prefer to see no development; but that is not reasonable. So why the Severn Riverkeeper? And more to the point, is it even legal?

The Severn Riverkeeper’s mission is

The mission of the Severn Riverkeeper Program is to protect and restore the Severn River for our families and future generations. Our goal is to reduce pollution, muddy runoff, contamination, and loss of habitat so that the Severn is removed from EPA’s “impaired waterways” list and is once again safe and swimmable.

Yet on July 4, 2013, they officially stepped up to “house the Crystal Spring Legal Defense Fund.

At the traffic meeting at St. John’s College, the form clearly stated that any contribution was tax deductible.

Crystal Spring Defense Fund

The Sierra Club also has taken a similar stand and is encouraging people to make donations to the Crystal Spring Legal Defense Fund housed by the Severn Riverkeeper. Just last week, Gerald Winegrad, a former Maryland Senator and David Prosten of the Anne Arundel Sierra Club sent out another email soliciting funds and claiming tax-deductible donations with a stated goal of $200,000.

A review of the Severn Riverkeeper’s IRS Form 990 does not indicate that they maintain a separate legal defense fund. In fact, on the form they state that the organization exists to “protect and restore the Severn River, located in the State of Maryland, through education, monitoring, community outreach, and sponsoring restoration projects.” There is no mention of legal defense funds. Additionally, it does not appear that the organization or  any of the current or past officers or directors are involved in the legal actions against Crystal Spring.

From a legal standpoint, how does this work?  How can you make a tax deductible contribution to one charitable organization for the benefit of several private entities?  On the surface, it appears that the Severn Riverkeeper is channeling tax-exempt dollars to a project that is not a part of their stated mission. The legal challenge to Crystal Spring was brought on by private individuals (Karl W. Roscher, Karl R. Roscher, Forrest E. Mays, Annapolis Neck Peninsula Federation, and Friends of Crystal Spring Farm which is a loosely organized group founded by an environmental scientist named Ross Geredien–none of which are a charitable 501c3 organization). The Severn Riverkeeper is not a party to the legal challenge. Is it legal for a private individual or entity to receive tax-free funds to pay their legal bills? Will the donors ultimately be responsible for the tax burden on the contributions?

According to the IRS, “no part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual.

Glen Frost, an Annapolis  based attorney specializing in IRS Tax Litigation feels there may very well be a problem. Frost, who does not represent any of the parties involved explained,  “There are a few issues here. If the use of funds is found not to be in line with their stated mission, it is quite possible that their (Severn Riverkeeper) status as a non-profit could be forfeited. And if they are found to be passing tax exempt contributions to an entity that does not have exempt status, the organization and their directors may be put in jeopardy.”  We asked about the IRS coming after the individual donors for claiming an improper deduction and he said he did not think so, “but the interest of the IRS is to stop fraudulent activity.”

As I have said before, there is a middle ground on this project. The public spoke out (loudly) on the initial plan and the project was downscaled and re-submitted. The City has done its job and returned 39 pages of modifications which the developers are currently reviewing according to Jeffrey Davis, spokesman for the project.  For months, developers have said they are up against a “no growth” faction which has been denied by the various groups in social media. However, Geredien, as (presumably) spokesperson for the legal petitioners is calling for a halt to the project. In an August 25, 2014 letter to The Capital, Geredien said, “the Crystal Spring development should not be permitted, and so I urge the mayor to stand by his original vision to protect Crystal Spring for future generations.”

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Category: OPINION

About the Author - John Frenaye

John is the publisher and editor of Eye On Annapolis. As a resident and business owner in Anne Arundel County for nearly 25 years, he realized that there was something missing in terms of community news–and Eye On Annapolis was born in late spring 2009.

John’s background is in the travel industry as a business owner, industry speaker, and travel writer. In terms of blogging and social media, he cut his teeth with

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