Attorney General Ellen Rosenblum today announced that, following a public audit and investigation of the Evergreen Aviation and Space Museum by the state Department of Justice’s (DOJ) Charitable Activities Section, she will be asking the IRS to look into whether the museum’s operations are consistent with its tax exempt status under federal law. The department also identified significant concerns regarding the governance of the museum, and made several recommendations for improvement, some of which the museum has already agreed to adopt. A report detailing DOJ’s findings was released today and is available on the DOJ website.
DOJ’s investigation began after a whistleblower reported concerns that the museum had transferred more than $700,000 to a for-profit Evergreen International Aviation company. Although the money was repaid with interest shortly after DOJ’s inquiry began, the department had already identified additional areas of concern and the investigation continued. One of the most significant concerns relates to the operation of a popular waterpark under the auspices of the nonprofit museum. Also problematic are the significant interrelationships between the museum and Evergreen companies controlled by Delford Smith, the primary benefactor of the museum. DOJ found that a number of museum board members were affiliated with Evergreen companies, and concluded that at least some of the board members had likely violated their duties to the museum by failing to pursue the best interests of the museum. The department also identified a handful of questionable financial transactions between the museum and various Evergreen enterprises. Evergreen’s for-profit enterprises are now engaged in bankruptcy proceedings.
“Charities are subsidized by taxpayers and depend on public trust,” Rosenblum said. “That trust is shaken when nonprofits stray from their charitable purposes, and when charitable assets are used to benefit affiliated for-profit companies.”
DOJ will refer to the IRS its concerns about the waterpark and other operations that seem incompatible with the museum’s tax exempt status. Whether the museum, or its income from those activities, should be subject to tax is a federal question for the IRS to answer.
The report notes that DOJ considered exercising its authority to ask a court to remove some of the members of the museum’s board of directors, but ultimately decided against doing so. That conclusion was partly based on the board’s agreement to adopt a number of changes recommended by the department. The department also concluded that the pending bankruptcies of Evergreen companies will, as a practical matter, eliminate most of the overlap between the museum’s board and the for-profit Evergreen enterprises. Given the museum’s reliance on Mr. Smith and Evergreen companies, those bankruptcies are also likely to worsen the museum’s fiscal problems – problems that would only be further exacerbated by the expense of litigation.
“Make no mistake, the way the museum has been structured and operated has left it in a very precarious place,” Rosenblum said. “It is going to be difficult, but I appreciate the Museum’s board’s commitment to preserving this valuable community resource.”
The Oregon Department of Justice Charitable Activities Section supervises the 18,000 charities registered in Oregon. The section is headed by Attorney-in-Charge Elizabeth Grant. Assistant Attorney General Susan Bower and Charitable Audits Coordinator Douglas W. Pearson conducted the investigation and authored the report. Rosenblum expressed her appreciation for their thorough and excellent work.
Kristina Edmunson, Department of Justice, Kristina.Edmunson@doj.state.or.us, 503-378-6002