IRS 13909 Complaint Re Tax-Exempt Status of Shanghai Expo 2010, Inc./USA Pavilion, 20 May 2010

8/9/2019 IRS 13909 Complaint Re Tax-Exempt Status of Shanghai Expo 2010, Inc./USA Pavilion, 20 May 2010

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To: The Internal Revenue Service From: Robert Jacobson

EO Classification [Excerpted]

Mail Code 4910DAL [Excerpted]

1100 Commerce Street [Excerpted]

Dallas, TX 75242-1198 Phone: 520-762-7267

Email: [email protected] Email: [email protected]

Form 13909 Tax-Exempt Organization Complaint (Attachment)

May 20, 2010

Referenced Organization:

Shanghai Expo 2010, Inc.

1510 Kenmore Road

Pasadena, CA 91106

EIN 26-2321383

SUMMARY OF THE COMPLAINT

SECTION A. BACKGROUND TO THE COMPLAINT. This Complaint asks a very simplequeston: can an organization be qualified as tax-exempt when its primary purpose is to serve as amarketing vehicle for its corporate sponsors?

SECTION B. The referenced organization, Shanghai Expo 2010, Inc., was incorrectly

determined to have tax-exempt status by the IRS on July 24, 2009.

1. When it applied for and received expedited tax-exempt status, SE 2010's Certificate ofIncorporation had been revoked and it was considered not in good standing by the District ofColumbia Regulatory Affairs agency that registers corporations in DC.

2. SE 2010, when it applied for and received expedited tax-exempt status in June 2009, did notand does not today fall within any of the categories of organizations eligible for tax-exemptstatus as described in the IRS regulations. SE 2010 misrepresented what is essentially acommercial real-estate and advertising brokerage as a public service deserving of tax-exemptstatus.

3. Because SE 2010 did not qualify as an organization eligible for tax-exempt status, there was no

legitimate need to expedite its application.

4. SE 2010 in 2008 accepted funding, reported in the press to be approximately $1 million in total,that was not reported to the IRS or at least not acknowledged in its application documents,which only reveal a corporate balance of $2,027 for the year ending May 3, 2008. Thecorporation has not opened its books for inspection.

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5. Letters from Secretaries Rice and Clinton submitted in support of SE 2010's tax-exempt statusbased on an incorrect reading of the law that governs State Department funding of US Pavilionsand other Expo activities. Neither Secretary Rice or Clinton, experts advised by experts, wouldhave made such grievous errors. The letters obviously were written by others (who should beheld responsible) and put in front of Secretaries Rice and Clinton to sign. The IRS should avoidfurther embarrassment for the Secretaries and disregard these letters.

SECTION C. Since gaining its tax-exempt status, SE 2010 has engaged in conduct that would be

problematic for any corporation, but that clearly crosses the line in the case of a tax-exempt

organization.

1. SE 2010 has not filed conventional business tax returns or Form 990s as required for tax periods2008 and 2009 according to the IRS. So serious is this considered by the IRS, were it to missfiling for tax period 2010, it would automatically lose its tax-exempt status.

2. SE 2010 allegedly solicited contributions in Shanghai, claiming to be a tax-exempt organizationin March 2009 even before it had applied for tax-exempt status. This could constitute fraud.

3. SE 2010 with personal help from Secretary Clinton solicited and confirmed marketingpartnerships (i.e., sponsorships) with over 60 American and Chinese multinationalcorporations. Much of this fundraising took place before SE 2010 received its expedited tax-exempt status on July 24, 2009.

4. The current list of marketing partners includes 62 corporations, three states, two cities, and oneuniversity. Corporate America is well represented at the US Pavilion and almost everyoneelse in America is not. SE 2010 does not deserve its designation as a public charity. Itsbusiness is promoting commercial corporations. It is a marketing brokerage.

5. SE 2010's fundraising brochure, Corporate Marketing Partnerships for the US NationalPavilion at the 2010 Shanghai World Expo , contains indicative phrases such as Throughoutthis 'story' [told in the US Pavilion] there are many opportunities for unique and powerful brandmessaging across a variety of sponsored areas and Please note: The USA Pavilion organizerswill work closely with our Pavilion sponsors to incorporate their visions of the American city of2030 into the Pavilion story. SE 2010 has turned the US Pavilion into the world's mostexpensive, longest-running, and most high-profile infomercial.

6. The benefits for SE 2010's marketing partners include various commercial inducements. Theactual contracts have not be made public. Without public oversight, it might be expected hatthe benefits could include excess benefit transactions.

7. SE 2010's marketing documents further promise full integration of its marketing partners' brandwith the USA Pavilion brand with the USA itself thereby turning the US Pavilion into theworld's most expensive advertising billboard, depicting America as the world's principalhawker.

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8. There is a strong possibility that SE 2010 knowingly has engaged in two types of excessbenefits transactions with some of its marketing partners and suppliers, possibly at risk ofconflict of interest charges against its board members.

9. SE 2010 invited no American citizens (other than one Chinese-American club that lent itsimprimatur to SE 2010), no public agencies (other than the State Department, three states, andtwo cities), and no NGOs to participate as sponsors of the US Pavilion or to help plan its six-month program.

10. SE 2010 was not eligible on educational or cultural grounds when it applied for and was grantedtax-exempt status and there is no discernable educational or cultural function now beingconducted in the US Pavilion to make this deception more palatable. SE 2010 does not provideeven that minimum level of learning expected of the most modest tax-exempt public charityestablished for an educational purpose.

11. In every way, shape, and form the US Pavilion has been operated as a privately-owned,commercial venue that features the brands, products, services, and messages of payingcustomers. Addressing its customers' as Marketing Partners and Pavilion Sponsorsexpresses the true intent of SE 2010 to operate a commercial real-estate and advertisingbrokerage in the guise of providing a public service in materials it submitted to the IRS shouldhave been immediate grounds for rejection of SE 2010's application for rejecting SE 2010'sapplication for expedited tax-exempt status.

Section D. The Complaint asks the IRS to immediately undertake an investigation of SE 2010's

tax-exempt status and, should it find that the Complaint is valid in one or more particulars, take

the following actions:

1. Immediately suspend or revoke SE 2010''s tax-exempt status until its inquiry is completed andsensible decisions can be made about its status based on the evidence and the law.

2. Immediately suspend or revoke the tax-exempt portion of the deductibility for contributionsmade to SE 2010.

3. If fraudulent behavior took place and resulted in harm to any party, refer the finding to anappropriate law-enforcement agency for possible prosecution.

For the future, the IRS should

4. Specify how current prohibitions that prevent commercial organizations from gaining and

misusing tax-exempt status will apply to private contractors drafted by governmental agenciesto do things the agencies formerly did, without government oversight. While such directionmay not prevent further overall weakening of American public diplomacy, it may help to avoiddebacles like the current one from becoming the rule with each successive Expo and new USPavilion.

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5. Inform the Congress of the regulatory dilemmas it has encountered under current law whenoutsourcing and privatization of government functions occur. If US policy in the futureassumes more outsourcing and privatization, tax law as amended by legislation, not Executivefiat, should acknowledge this trend and specifically provide or deter favorable tax treatment forthe resulting hybrids, private firms endowed with a once-public purpose, unaccountable to theAmerican people.

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To: The Internal Revenue Service From: Robert Jacobson

EO Classification [Excerpted]

Mail Code 4910DAL [Excerpted]

1100 Commerce Street [Excerpted]

Dallas, TX 75242-1198 Phone: 520-726-7267

Email: [email protected] Email: [email protected]

Form 13909 Tax-Exempt Organization Complaint (Attachment)

May 20, 2010

Referenced Organization:

Shanghai Expo 2010, Inc.

1510 Kenmore Road

Pasadena, CA 91106

EIN 26-2321383

SECTION A. BACKGROUND TO THE COMPLAINT

This Complaint asks a very simple queston: can an organization be qualified as tax-exempt when itsprimary purpose is to serve as a marketing vehicle for its corporate sponsors?

This Attachment describes in detail the Complaint made on the associated Form 13909. The basis forthis Complaint are documents received from the Internal Revenue Service (hereafter, IRS) datedApril 20, 2010, in response to a Form 4056 request; a letter from the IRS TE/GE Adjustment Unitdated May 7, 2010, also in response to a formal request; press accounts; and personal interviews withindividuals in and out of the US Government and familiar with the US Pavilion effort.

The public record regarding Shanghai Expo 2010, Inc. (SE 2010), the contractor selected in a privateagreement by the State Department, without competition, public notice, or review, to privately developa US Pavilion at the Shanghai 2010 World Expo is sordid. SE 2010 has mischaracterized its wantonlycommercial business as a public service, consistently fudged the rules regarding its organization andoperations, missed or ignored reporting deadlines, indulged in questionable business deals among boardmembers, sponsors (marketing partners), and contractors, and generally made a mockery of IRSregulations.

Before getting into the details of the Complaint, it's important to note that historically, the USGovernment has always developed and ownedUS Pavilions at international World Expos. It was the

US Information Agency's responsibility from 1961 when the Fulbright Act created the agency through1998 when it was disbanded. No US Pavilions during those four decades were privately produced orfunded.

Because US Pavilions in the past were always US Government property, they were inherently taxexempt. Does that privilege automatically carry over to a US Pavilions that is 100% private in terms

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not only of their basic funding but also the population of Americans that they serve in this case, thecorporate community to the exclusion of all others? The answer, of course, must be no.

This fundamental policy issue was not dealt with by the IRS when Shanghai Expo 2010, Inc., wasgranted expedited determination that it was qualified for tax-exempt status. If for no other reason, theIRS should reconsider its position on this point as it sets a precedent for every privatized function ofgovernment yet to come. This is not the right way to make important national policy that affects notonly taxes and who pays them, but also the essential nature of our US government going forward.

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SECTION B. THE COMPLAINT STATES FIRST that the referenced organization, Shanghai

Expo 2010, Inc. (hereafter, SE 2010), was incorrectly determined to have expedited tax-exempt

status by the IRS on July 24, 2009. This determination was incorrect because:

1. SE 2010, when it applied for and received expedited tax-exempt status in June 2009 did nothold a valid Certificate of Incorporation as a nonprofit corporation from the District ofColumbia government. Its Certificate had been automatically revoked by the DC RegulatoryAgency (DCRA) in March 2009 and remained revoked until January 2010. The corporationwas not in good standing with DCRA.

As private citizens, Ellen Eliasoph and Nicholas Winslow, co-founders of SE 2010, received aLetter of Intent (LOI) from the State Department dated March 19, 2008, in a private outsourcingagreement to investigate fundraising and construction of a US Pavilion for the Shanghai 2010World Expo. They incorporated as SE 2010, a nonprofit corporation, on April 2, 2008, in theDistrict of Columbia.* The LOI was announced in a State Department press release on April 18,2008.

Subsequently, sometime in March 2009, SE 2010's Certificate of Incorporation was revoked bythe DCRA because of SE 2010's failure to file a Two-Year Report in February 2009 as requiredby DC law. Its Certificate remained revoked until January 19, 2010, when it filed its first Two-Year Report and its Certificate was reinstated.

When SE 2010 submitted its application for tax exempt status on June 29, 2009, it did notinform the IRS that its Certificate had been and remained revoked and that it was considerednot in good standing with the DCRA. Thus, SE 2010's application for tax-exempt status wasfatally flawedwhen it applied for expedited tax-exempt status on June 29, 2009, and when itreceived an expedited letter of determination from the IRS on July 24, 2009.

2. SE 2010, when it applied for and received expedited tax-exempt status in June 2009, did not

and does not today fall within any of the categories of organizations eligible for tax-exemptstatus as described in the IRS regulations. SE 2010 misrepresented what is essentially a

* It should be noted that at the time of its incorporation and later when it applied for expedited tax-exempt status, SE2010's Articles of Incorporation contained no clause dealing with conflicts of interest. SE 2010 noted this to the IRS andpledged to remedy the situation. It may have, but the Articles submitted with the application do not contain such a claus.This is important to note as allegations of possible conflicts of interest involving SE 2010 and its contractors have beenmentioned in the press and rumored within the community of exhibition designers.

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commercial real-estate and advertising brokerage as a public service deserving of tax-exemptstatus. The resulting US Pavilion and its operations demonstrate daily that this is the case.

The law (Internal Revenue Code 501(c)(3) and IRS regulations state that tax exempt status shallonly be granted to organizations that:

[A]re charitable, religious, educational, scientific, literary, testing for public safety, fosteringnational or international amateur sports competition, and preventing cruelty to children oranimals. The term charitable is used in its generally accepted legal sense and includes relief ofthe poor, the distressed, or the underprivileged; advancement of religion; advancement ofeducation or science; erecting or maintaining public buildings, monuments, or works; lesseningthe burdens of government; lessening neighborhood tensions; eliminating prejudice anddiscrimination; defending human and civil rights secured by law; and combating communitydeterioration and juvenile delinquency.

SE 2010 characterizes itself as a public charity. The only three charitable functions in which itcould possibly be engaged are advancement of education or science; erecting or maintainingpublic buildings, monuments, or works; or lessening the burdens of government. *

As for advancing education or science, SE 2010 does neither. It has no scientific purpose at all.Its educational function is dubious: it shows three short films, none of which impart lastingknowledge, as its principal content. This display has been characterized in the exhibition tradepress as Hollywood flash. The rest of the US Pavilion is given over to a trade show for itscorporate sponsors, which it calls marketing partners and indeed, that is what they are,marketers, not educators. In the past, the US Government when it created a US Pavilionengaged the American public with rich domestic educational programs during the run-up toExpos and ensured that there was a modicum of intellectual and cultural activity in each USPavilion.

No such effort occurred this time, nor is there a demonstrated pedagogical activity occurringwithin the US Pavilion except for occasional speeches by business persons, political figures,and celebrities. The central feature of the US Pavilion, which also includes a store, a VIPmeeting area, a marketing partner's fast-food court (next door), and assorted tributes to and

* SE 2010's Articles of Incorporation state that the corporation is a non-stock, nonprofit corporation, and it is organizedand shall be operated exclusively for charitable or educational purposes within the meaning of sections 170(c)(2) and501(c)(3) of the U.S. Internal Revenue Code.... In furtherance of such purposes, the corporation shall give preference todeveloping plans to design, construct, install and manage a U.S. Government Pavilion tat the 2010 Shanghai World Expoand to raise funding required therefor from the public sector.

This is in keeping with the provisions of the Letter of Intent issued to SE 2010 by the State Department in March 2008.

SE 2010 was merely to develop plans and raise money not actually build or operate a US Pavilion. The actualbuilding and operating of the US Pavilion would require a contract between the US Government and SE 2010, whichcontract, if it exists, has never been made available for public examination.

The IRS can authorize an organization to raise funds as a tax-exempt organization, but usually it does so after anorganization has demonstrated that the services it is already providing meet the IRS tests for tax exemption. Here, theIRS was going totally on faith and trusting the applicant and its supporters to make honest representations as to what itsactivities would be, how they would be conducted, and how they satisfied the requirements of 501(c)(3). Based on acontinuous history of misrepresentations, its faith may have been misplaced.

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showcases for its marketing partners and their products, are two theaters showing three shortfilms the longest of which is eight minutes. Here is what those short films and a fewassociated videos are supposed to convey, in the words of the SE 2010 website:

The USA Pavilion's theme at Shanghai Expo 2010 is 'Rising to the Challenge.' It tellsthe story of the American spirit of perseverance, innovation, and community-building ina multi-dimensional, hi-tech presentation. The Pavilion presents the U.S. as a place ofopportunity and diversity where people come together to change their communities forthe better.

That's a lot of story to tell in under 15 minutes with three tiny films, a simulated rainstorm, andsome wall hangings. Disregarding its multi-dimensional, hi-tech hyperbole the films arestandard 1980s fun-park fare and the videos just plain folk and celebrities waving in greeting the website blurb tells a better story than the entire US Pavilion and its contents combined *

No such standards have been applied here, by the State Department or any other publicoverseer. SE 2010's and its marketing partners modus operandi, its bottom-line, was and alwayshas been showing off the most brands and trademarks for the highest rent, enabling itsmarketing partners to sell the most fried chicken, machinery, services, and genetically alteredgrain, and ensuring a feel good atmosphere in the US Pavilion without bothersome referenceto the American people except as fleeting images on a three-minute movie or what Americastands for.

It has been noted by observers that the US Pavilion does not in any meaningful way adhere tothe Expo theme, Better City, Better Life. Some of its multinational marketing partners seemto have been selected almost to spite the Expo theme and its sub-themes of sustainability andquality of urban life. If the US Pavilion as constructed and operated by SE 2010 teaches itsvisitors anything, it is that American life is vapid, dominated by commercial interests. This isnot education, it is propaganda, and not even good propaganda.

As for erecting or maintaining public buildings, monuments, or works, the US Pavilioncreated by SE 2010 is not public. It is a private edifice observers have called it an autodealership or a shopping mall, based on its appearance erected completely with privatefunds, albeit private funds that are tax deductible because of SE 2010's improper tax-exemptstatus. The resulting tax deductions have to be made up by someone: the rest of America'staxpayers. There should correspondingly be some return to the rest of America's taxpayers;there is none. But putting aside that essential truism, no taxation without representationwhich has indirectly been violated here, the fact is that there is by design no ownership of theUS Pavilion by the US Government. Interestingly, a Request for Proposals issued by the StateDepartment in November 2006 inviting proposals for a US Pavilion, contained the caveat,

* Comparable, even better stories are told at the Expo in national pavilions that cost a half or even just a third of thereported cost of the US Pavilion even without including all of the time and taxpayer dollars spent by the StateDepartment, Secretaries Rice and Clinton personally, and the ever-reliable Shanghai Consulate to prop up, raise fundsfor, and endlessly hype the SE 2010 effort and the pavilion that has resulted (not to mention, in 2008 and 2009, runningdiplomatic interference with the increasingly skeptical Expo hosts). Are SE 2010's expenses reasonable per IRSregulations? Of course, this only matters if SE 2010 is properly tax exempt, which this Complaint argues it is not.

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The U.S. Pavilion shall be considered on loan to the U.S. Government, and thesuccessful applicant shall be solely responsible for the disposition of the U.S. Pavilion atthe conclusion of the World Expo 2010 Shanghai China. The aforementioned loan shallbe treated as a gift to the U.S. Government.

The various submissions in reply did acknowledge this unprecedented requirement, solving itin unique ways.

But that RFP ended in December 2007. SE 2010 did not participate in the RFP competition; itwas not even in existence when the RFP took place. It was created specifically for the purposeof exploiting the RFP's aborted conclusion. Thus the gifting provision did not apply to theLetter of Intent (LOI) that State granted to SE 2010 in March 2008. The LOI authorized SE2010 merely to investigate fundraising and construction of a US Pavilion. It was not a contract,only a prelude to a contract. A real contract, or Memorandum of Agreement (MOA) toactually create a US Pavilion, presumably would be signed if SE 2010 could secure funding.No MOA that governs the deliberately contractor-contractee relationship between State and SE2010 has ever been publicly produced. It does not show up among the documents submitted bySE 2010 in support of its application for tax-exempt status. It can be safely concluded, the USPavilion is not a public building.

Lastly, SE 2010 reduces no government burden. The State Department during the BushAdministration deliberately determined that the US Government would not fund a US Pavilionin Shanghai. It had avoided doing so for the privatized, much smaller Aichi 2005 Expo in Japanby extorting support from the Japanese government via Toyota America. (The resultingpavilion was a disaster, also not adhering to the Expo theme.) The model for privatizing the USPavilion for Shanghai was improved, however, by ensuring that the US Pavilion's outsourcingwould be more elegant, voluntary, driven by opportunities for commercial deals and politicalhorse trading among the various parties (the State Department, the pavilion organizers, and thepavilion's sponsors).

Unfortunately, the State Department under Secretary Rice was a bunch of bumblers. SE 2010publicly resigned its LOI in October 2008 and had to be dragged back into the fundraising frayby the Shanghai Consulate and AmCham, the American Chamber of Commerce in Shanghai,reportedly stoked with funding supplied by the Expo hosts. (Throughout this debacle, the Expohosts have been gracious, avoiding any public comments on the situation, but definitely notingits implications in terms of American ways of doing things.) It required Secretary Clinton'snetworking and fundraising abilities to pull off the privatization with style. The story is relatedfully in another section of this complaint.

Thus, there was no burden on the US Government for SE 2010 to lessen. The US was not

obligated to have a pavilion in Shanghai. The decision to have a US Pavilion in Shanghai wasmade purely for political and commercial reasons per a secret Action Plan concocted by theBush Administration in 2006. There was an Expo, there should be a way to exploit it forpolitical advantage and commercial gains for its friends, the Administration's reasoning went. Abroader public interest did not enter into its calculation. (Sketchy notes regarding the ActionPlan, first acknowledged in the State Department press release announcing the LOI, recently

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become available after an FOIA request made in February 2009 finally was responded to by theState Department. They tell by no means the whole story; another FOIA may result.)

The US dropped out of the Bureau for International Expositions (BIE), the inclusive treatyorganization that manages the holding of Expos, in 2001, after failing for several years to paythe $25,000 annual fee required of members (including virtually every nation on earth, the USbeing the most notable exception). Thus was under no obligation to appear in Shanghai andaccording to sources, the Bush Administration was ambivalent about whether the US wouldparticipate. It took pressure from a Congressional delegation returning from China in 2005 tolean on the Administration and get it to orally commit to the Chinese in 2006 that the US wouldbe there. Then the Bush Administration got to hopping on its Action Plan. Note that it wasCongress that insisted on US participation.

The first notice that there was an Executive decision to participate was the State DepartmentRFP that issued in November 2006, which stated blankly,

The Government of China has invited the United States to participate in the 2010 WorldExposition in Shanghai, China and the U.S. Government has advised the ChineseGovernment of its intention to participate with an official U.S. Pavilion.

The RFP contains an unusual admonition to its respondents,

The Department of State is not now authorized, and does not in the future intend toseek authorization from the U.S. Congress, to provide funding for any aspect of the U.S.pavilion/ exhibition at the World Expo 2010 Shanghai China. The successful applicantwill be responsible for all costs associated with the design, development, construction,and management of all aspects of the U.S. Pavilion, as well as all support for the U.S.Commissioner General.

This is critical. The RFP correctly reads the existing law pertaining to Expos, USC Title 22,Chapter 33, Section 245b,

Except as provided in subsection (b) of this section and notwithstanding any otherprovision of law, the Department of State may not obligate or expend any fundsappropriated to the Department of State for a United States pavilion or other majorexhibit at any international exposition or worlds fair registered by the Bureau ofInternational Expositions in excess of amounts expressly authorized and appropriatedfor such purpose . [emphasis added]

The law's meaning, though expressed in reverse logic, is clear, even to a layperson: the State

Department must get an appropriation from Congress to pay for US participation in an Expo.This is standard procedure for any Federal agency. (The superflous law was the result of asingle Member of Congress involving himself with the USIA, an agency for which he had nolove.)

The law goes on to say, and this is critical too in the instant matter:

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Nothing in this subsection authorizes the use of funds appropriated to the Departmentof State to make payments for contracts, grants, or other agreements with any otherparty to carry out the activities described in this subsection.

In other words, if an appropriation was made, the State Department had to own the US Pavilionitself. It could not sell it or outsource the task without specific Congressional direction.Presumably the legislation containing the Congressional appropriation would provide directionas to how the State Department could employ contractors to design, build, and operate the USPavilion. That was how it was always done in the past..

Outsourcing would probably not be among State's options.

Thus, the current law provides a motive for the State Department to deliberately not seek aCongressional appropriation: to do so would have involved the Congress and tied the hands ofState insofar as privatizing the US Pavilion was concerned.

We do not know in this case what the Congress would have done, as the State Department didnot request an appropriation, not during the Bush Administration and not during the ObamaAdministration. Instead, it relied on the Action Plan to get around the law and on its ownprivatize the US Pavilion.

(Further, in the heat of fundraising to prop up SE 2010 and its failing operation in Spring 2009,Secretary Clinton created within the State Department the Global Partnership Initiative, led bynewly appointed Special Assistant for Global Partnerships Elizabeth Bagley, to institutionalizethe outsourcing trend. Thus have the existing law's intentions been transformed into a whollyother policy, the privatization of public diplomacy generally. These partnerships will no doubtnow come before the IRS also, each requesting special treatment and handling, each a furtherdrain on the treasury in return for ... private gain. This is one of the unintended precedentscreated by granting SE 2010 tax-exempt status.)

Why is this legal analysis important in the instant case? Because it has been claimed, in officialState Department announcements and by State Department officials up to and includingSecretaries of State Rice and Clinton, and recently appointed Commissioner General JoseVillarreal, that existing law prohibits US government funding of participation in Expos. Thisfalsehood has been used as justification for why a private corporation, SE 2010, should behandling the US Pavilion and in the instant case, why it should qualify for tax-exempt status and on an expedited basis, so that it can get the fundraising done quickly.

(According to newspaper accounts, by the time SE 2010 applied for tax-exempt status, most ofthe fundraising for the US Pavilion had already been done by Secretary Clinton. Gaining was a

matter of getting the formalities right, post facto. Unfortunately, the IRS was not privy to thesefacts because SE 2010 did not make it privy, but rather continued the legality charade.)

This mistruth has been picked up and repeated so many times by a gullible press that it is nowbeing repeated it by State Department officials at every public gathering. Deliberate or not,spreading this fallacy covered for the Action Plan. Over time, as the Big Lie has been exposedin one after another venue, the story has evolved. Current popular State emanations are the

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law is too complex, we can't figure it out and conditions for getting an appropriation are toodifficult (rebutted by Congressional staffers who assert that Congress has been waiting for anappropriation, even to the point of a resolution to that effect being introduced in the House).Indicatively, the Department of Commerce has no problem getting appropriations for thehundreds of commercial pavilions it hosts at trade shows and events throughout the year. Whywould Congress not approve funding for a pavilion honoring America's most important politicalally and financial underwriter? It begs belief. Yet this claim is put forward in defense of SE2010's deserving expedited tax-exempt status.

Merely because political leaders of an Executive agency claim a fact to be true does not make itso, even if a foolish press endlessly parrots the claim. That would be right out of Orwell's 1984.

The US Government could easily have funded the US Pavilion. It chose not to do so.

There is no justification for the claim (which SE 2010 did not make, because it could not besupported) that SE 2010 is lessening the burden of government, since a burden does not exist.Other ways of being represented at the Expo were and are available to the State Department.That it did not avail itself of them does not justify the IRS's grant of SE 2010's tax-exemptstatus.

This interpretive historical account and analysis demonstrates that there was and is nocompelling reason to grant SE 2010 tax-exempt status, on an expedited or any other basis.

The US did not have to participate in the Shanghai Expo. The State Department choseto do so.

The State Department could have asked Congress for an appropriation to fund the USPavilion, for which Congress was ready. The State Department chose not to do so.

It's claimed in SE 2010's application to the IRS that a crisis in fundraising necessitatesendowing a private corporation with expedited tax-exempt status. But SE 2010 under501(c)(3) has no legally qualified mission.

The State Department under two Administrations engineered this situation.

The Bush Administration deliberately planned and encouraged creation of a nonprofitorganization that could claim tax exempt status for the purpose without Congressionaloversight or authorization of privatizing the American public diplomacy function within theState Department. This policy has been continued and intensified by the ObamaAdministration, also without Congressional oversight or authorization.

The IRS should not tacitly approve such a radical policy shift a Cabinet-level coup d'etatwithout direction from the President or the Congress.

3. Because SE 2010 did not qualify as an organization eligible for tax-exempt status, there was nolegitimate need to expedite its application. Expedition may have resulted in several crucialerrors being made during the abbreviated examination. Expedition was requested on June 29,

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2009 and granted on July 24, 2009, a period of only 25 days, hardly enough time to consider theperplexing challenge represented by SE 2010's unprecedented application.

4. SE 2010 in 2008 accepted funding, reported in the press to be approximately $1 million, thatwas not reported to the IRS or at least not acknowledged in its application documents whichonly reveal a corporate balance of $2,027 for the year ending May 3, 2008. Since SE 2010 hasnot opened its books or filed conventional business tax returns for tax years 2008 and 2009, orForm 990s since receiving the IRS determination letter, it is impossible to know how large anamount was collected, from whom, and how it was spent. Some or all of this funding wasreported in the press to have been received from agents of foreign nations, a related issue.Thus, SE 2010's application was not wholly truthful or made in good faith and thus was not areliable basis on which to make a favorable determination.

5. SE 2010 produced letters from two Secretaries of State, Rice and Clinton, that make a case foroutsourcing the US Pavlion to SE 2010. Unfortunately, the letters and supporting documentspublished elsewhere make the same uninformed claim that US law prohbits public funding forUS Pavilions at international Expos. The top officers of the State Department in twoAdministrations, well educated in the intricacies of their agencies and advised by scores ofexperts, would never make such mistaken comments. Whichever staffers wrote the letters andhad Secretaries Rice and Clinton sign them have some answering to do.

The IRS should spare the Secretaries further embarrassment and disregard these statements.

* * *

SECTION C. THE COMPLAINT STATES SECOND that since gaining its tax-exempt status,

SE 2010 has engaged in conduct that would be problematic for any corporation, but that clearly

crosses the line in the case of a tax-exempt organization.

1. SE 2010 has not filed conventional business tax returns or Form 990s as required for tax periods2008 and 2009 according to the IRS. So serious is this considered by the IRS, were it to missits filing for tax period 2010, in November 2010, it would automatically lose its tax-exemptstatus.

On May 7, 2010, the IRS TE/GE Adjustment Unit issued a letter stating that required Form990s for Tax Periods August 31, 2008, and August 31, 2009 had not been received by SE 2010.SE 2010's next Tax Period concludes August 31, 2010 (two months before the Expo closes).The letter suggests possible reasons why a tax-exempt organization might not file Form 990s;none fits SE 2010's circumstances. It is simply delinquent, twice over. Whether it is hidingsomething is for the IRS to determine.

2. SE 2010 allegedly solicited contributions in Shanghai in March 2009, claiming to be a tax-exempt organization before it had even applied for tax-exempt status. This could constitutefraud.

A copy of an SE 2010 fundraising solicitation making this claim, received by me in March 2009 three months before SE 2010 applied for tax-exempt status is appended to this Complaint.

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The document was shared with me in by a source whom I consider totally reliable. This sourceclaims that the solicitation was widely making the rounds in Shanghai in March 2009.

3. SE 2010 with help from Secretary Clinton solicited and confirmed marketing partnerships(i.e., sponsorships) with over 60 American and Chinese multinational corporations. Theircontributions range from hundreds of thousands of dollars to $5 million dollars or more.Much of this fundraising took place before SE 2010 received its expedited tax-exempt status onJuly 24, 2009.

Secretary Clinton began her fundraising for SE 2010, according to the New York Times, beforeshe was confirmed in office (see For Shanghai Fair, Famous Fund-Raiser Delivers, January 3,2010). Over the next nine months she raised $54 million of the $61 million US Pavilion budget.Thus a substantial portion or possibly the majority of the Secretary's campaign took place whileSE 2010 was without a valid Certificate of Incorporation or a determination letter from the IRSgiving SE 2010 tax-exempt status: in other words, while it was not qualified to accept a dime.

Secretary Clinton was obviously misinformed that SE 2010 was tax-exempt at the time shemade her phone calls. If SE 2010 was responsible for misinforming the Secretary, that isserious business and calls further into question SE 2010's integrity and thus its eligibility fortax-exempt status.

4. The current list of sponsors aka marketing partners is available on SE 2010's website,USAPavilion 2010.com. It comprises 62 American and Chinese multinational corporations,five local jurisdictions, and one university, including:

Global Sponsors ($5 Million Plus)

Chevron, Citi, GE, Johnson & Johnson, PepsiCo

Premier Sponsors ($3-$4.9 Million)

Procter & Gamble, Committee of 100 (Chinese-American club), Global Eagle

Pavilion Sponsors (Under $3 Million)

American Airlines, Boeing, Dow, FedEx, Marriott, VISA, Walmart, Amway, Covington &Burling, Dell, Deloitte, Dove, Doublemint, DuPont, Haier, Intel, Yum! (KFC and Pizza Hut),Microsoft, Motorola, Panasonic, Qualcomm, Walt Disney Company, B&L Group, Caterpillar,CG Crystal, EM Gallo Winery, Executive Centers, Honeywell, Pfizer, 3M, American Chamberof Commerce Shanghai, Bloomberg, Cargill, Cell Food, Corning, Cummings, C.V. Starr,Ecolab, Goodyear, Harman, NYSE Stock Exchange | Euronet, Pacific World, Praxair, UnitedTechnologies, University of Washington

State and City Sponsors (token amounts)

Texas, Tennessee, Hawaii, San Antonio, TX, Chicago, IL

Supplier/Contributors

Carrier, Erico, Knauf, Kohler, Laticrete, Leviton, Otis, Pentair, York

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This makes for a total of 62 corporations, three states, two cities, and one university.Corporations are well represented at the US Pavilion and almost everyone else in America isnot. A public charity that faithfully represented the full range of American values and culture,as SE 2010 indicated to the IRS that it would do, would have a very different, more diverse, andmore inclusive lineup of supporters. SE 2010 does not deserve its designation as a publiccharity. Its business is promoting commercial corporations. It is a marketing brokerage.

5. SE 2010's fundraising brochure, Corporate Marketing Partnerships for the USA NationalPavilion at the 2010 Shanghai World Expo , submitted to the IRS with SE 2010's application fortax-exempt status and available on SE 2010's website, opens with glowing cliches about thestory that it says the US Pavilion will tell about powerful core values, etc. It then notes,

Throughout this 'story' there are many opportunities for unique and powerful brandmessaging across a variety of sponsored areas.

The brochure then enunciates every locale and every event that will take place in the USPavilion, effectively holding each one out for sale. Just to make sure that the prospectivemarketing partners understand how much control they will have over the presentation of theirbrands and the overall environment, the brochure contains this damning footnote:

Please note: The USA Pavilion organizers will work closely with our Pavilion sponsorsto incorporate their visions of the American city of 2030 into the Pavilion story.

In other words, in exchange for their relatively modest contributions, the marketing partnerswill have total control over the content of all messaging taking place at the US Pavilionincluding the centerpiece short films, thus turning the US Pavilion into the world's longest-running, most expensive, and most high-profile infomercial. This did not happen at any priorExpo since US Pavilions historically were not private entities, as this one is, but rather units ofthe US Government.

Creating a so-called public charity and then putting it at the disposal of its commercialcontributors its buyers contradicts the letter and spirit of the law and IRS regulationsgoverning the privilege of tax exemption.

6. The benefits for SE 2010's marketing partners a term that clearly indicates a commercialrather than a public approach include various commercial inducements. These benefits(identified in the SE 2010 fundraising brochure) are reportedly apportioned based on eachmarketing partner's contribution, but the actual contracts governing these marketingpartnerships have never been publicly disclosed. Without public oversight and transparency, itmight be expected that the benefits could include excess benefit transactions.

7. SE 2010's marketing documents further promise full integration of its marketing partners'brands with the US Pavilion brand with the USA itself thereby turning the US Pavilion intothe world's most expensive advertising billboard, depicting America as the world's principalhawker. This contradicts the promises made by SE 2010 in its application for tax exempt status,that it would faithfully represent all Americans in its story.

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8. There is a strong possibility that SE 2010 knowingly engaged in two types of excess benefittransactions with some of its marketing partners and suppliers.

! In the first case, partners selling products and service on the US Pavilion's premises

stand to earn substantial revenues from sales to the US Pavilion's 40,000 daily visitorsover the 180 days that the Expo will be open. For this they may have contributed only a

few million dollars, for an astronomical ROI. SE 2010 knew this when they offeredthese particular retail firms primo marketing partnerships.

! In the second case, some contractors and suppliers to SE 2010, although allegedly

reporting their services at least in part as tax-exempt contributions, may have billed SE2010 for the same services at rates that may not be considered reasonable. This isovertly the case with SE 2010's law firm Covington & Burling, which per a lettersubmitted as part of the 1023 application process indicated that the law firm's charges,though modest to begin in 2008, would more than double in years two and three of theirassociation totaling more than $500,000 over the life of the relationship. Because thereis no access to SE 2010's books, there is no accounting for the cost of apparently high-priced services of PR and advertising agencies whose need is not self-evident. Theseand similar celebrity expenses redound to the benefit of SE 2010's individual boardmembers.

! Other excess benefit transactions may have occurred as a result of possible conflicts of

interest reported in the press between SE 2010 board members and contractors. Thisincludes the $23 million planned for production of the pavilion's sole embeddedentertainment and public-service message (three short films), the single largestexpenditure made by SE 2010. Journalist Adam Minter provides the details of thispotential scandal on his Shanghai Scrap blog,

9. SE 2010 invited no American citizens (other than one Chinese-American club that lent itsimprimatur to SE 2010), no public agencies (other than the State Department, three states, andtwo cities), and no NGOs to participate as sponsors of the US Pavilion or to help plan its six-month program. SE 2010 despite its airy claims is organized and operated primarily to promotethe private interests of its marketing partners who de facto own the US Pavilion.

Aside from internships granted to students who serve as welcoming ambassadors, noindividual American citizens play or have played a significant independent role (other than ascontractors and guest speakers) in the ongoing operation and programming of the US Pavilion.

10. SE 2010 was not eligible on educational or cultural grounds when it applied for and was grantedtax-exempt status and there is no discernible cultural or educational function being conducted inthe US Pavilion to make this deception more palatable. Stories adjusted to meet the needs ofmarketing partners and sponsors do not rise to the definition of either culture or education,unless shopping malls are the new standard by which we measure American intellectual andcultural life. The press reports that many Chinese visiting the US Pavilion have gone awaydisappointed by the US Pavilion's lack of challenging or enlightening content. SE 2010 doesnot provide even that minimum level of learning expected of the most modest tax-exemptpublic charity established for an educational purpose.

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11. In every way, shape, and form US Pavilion has been operated as a privately-owned venue which it is that features the brands, products, services, and messages of paying customers.Addressing its customers' as marketing partners and Pavilion sponsors expresses the trueintent of SE 2010 to operate a commercial real-estate and advertising brokerage in the guiseof providing a public service in materials it submitted to the IRS should have been immediategrounds for rejecting SE 2010's application for expedited tax-exempt status.

* * *

SECTION D. THE COMPLAINT ASKS the IRS to immediately undertake an investigation of

SE 2010's tax exempt status and that should it find that the Complaint is valid in one or more

particulars, take the following actions:

1. Immediately suspend or revoke SE 2010's tax-exempt status until this inquiry is completed andsensible decisions about its status can be made on the evidence and the law.

2. Immediately suspend or revoke the tax-exempt portion of the deductibility for contributionsmade to SE 2010.

3. If fraudulent behavior took place and resulted in harm to any party, the IRS must refer thefinding to an appropriate law-enforcement agency for possible prosecution.

For the future, the IRS should...

4. Specify how current prohibitions that prevent commercial organizations from gaining andmisusing tax-exempt status will apply to private contractors drafted by governmental agenciesto do things the agencies formerly did, without government oversight. While such directionmay not prevent further overall weakening of American public diplomacy, it may help to avoiddebacles like the current one from becoming the rule with each successive Expo and new USPavilion.

5. Inform the Congress of the regulatory dilemmas it has encountered under current law whenoutsourcing and privatization of government functions occur. If US policy in the futureassumes more outsourcing and privatization, tax law as amended by legislation, not Executivefiat, should acknowledge this trend and specifically provide or deter favorable tax treatment forthe resulting hybrids, private firms endowed with a once-public purpose, unaccountable to theAmerican people.

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Documents

IRS 13909 Complaint Re Tax-Exempt Status of Shanghai Expo 2010, Inc./USA Pavilion, 20 May 2010