When Walmart opened a pair of stores in Washington, D.C., in late 2013, over 23,000 people applied for 600 job openings. Remarking on the slim chances of actually getting hired, Stephen Colbert famously quipped, “Yes, Walmart is now harder to get into than Harvard.” Yet, before the D.C. Walmarts opened their doors, many members of the community viciously protested their potential presence. Today, a coalition of organizations is alleging that Walmart only overcame these demonstrations by foul play carried out by the Walmart Foundation.
In a letter to Internal Revenue Service commissioner John Koskinen dated earlier this week, representatives from thirteen different organizations have formally requested the investigation of the Walmart Foundation, stating that the foundation “has acted contrary to its exempt status by engaging in activities designed to advance the private business interests of its non-exempt corporate sponsor, Wal-Mart Stores, Inc. (‘Walmart’).”
Among the foundation’s alleged transgressions: “Walmart Foundation giving in an urban area often peaks as Walmart pushes to open stores there,” “Walmart Foundation advises grantees to promote Walmart,” and “Walmart directly and wholly controls Walmart Foundation.” Following the charges, the letter includes another twenty-two pages of “Supporting Documentation for Complaint against Walmart Foundation.” The supporting documents contain evidence justifying each of the charges such as screenshots from the foundation and the business entity’s websites, links to foundation and company tweets, and a number of news stories tracking Walmart’s behavior in a number of communities across the country. Although Washington, D.C., is featured prominently (especially in the Washington Post’s coverage of the letter), the New York Times highlights this story has national scope as it affects communities in Boston, Los Angeles, and New York City.
Reacting to the news, Walmart Foundation global responsibility communications director Tricia Moriarty released the following statement, according to Fortune:
We provide support for these and other important causes in communities across the U.S. and around the world, not just to particular areas or cities, and it’s unfortunate to see criticism of the Foundation’s charitable giving. . . . The Walmart Foundation takes the Internal Revenue Code and regulations very seriously and the allegations made have no merit.
Reading through the letter (available here), it appears that the allegations are valid to say nothing of their soundness. Whether these charges actually tempt the IRS to launch an investigation is unclear for now but, regardless, the charges are newsworthy nonetheless. To assert that a business used its associated charitable foundation to bribe its way into new urban markets where there was otherwise serious hostility from local community organizations is undeniably a big deal.
Is this story really newsworthy? Of course it is.
Over the last sixty years, Walmart has expanded to all corners of the country, and now tops the list of Fortune 500 companies. In the last fiscal year, Walmart raked in $485 billion of revenue and boasts of 2,200,000 employees. To complement the mammoth corporation, the Walmart Foundation “doled out $1.4 billion last year.” According to the Foundation Center, Walmart’s giving (for FY13) landed it at number 29 of the “Top 100 U.S. Foundations by Total Giving.” Any questionable behavior from organizations this large is absolutely notable.
Are the allegations surprising? Absolutely not.
The current tax code anticipates these types of allegations. If the IRS decides to open an investigation on the foundation, the proceedings could follow one of two paths. On the one hand, it might be quite obvious whether or not there was coordination between the company and the foundation. So far, from the letter of allegations, it appears that foundation giving has often preceded business opportunities and this correlation might be evidence of the foundation following the company’s orders. On the other hand, this situation puts the IRS in the precarious position of determining the motivations inspiring charity. To quote the letter, “IRS regulations provide that ‘[a]n organization may be exempt as an organization described in section 501(c)(3) if it is organized and operated exclusively for [charitable] purposes.’” As an effect of the tax code, the IRS is thrust into the role of judging hearts and reading minds.
The tax system allows for this hazardous position. A company like Walmart is allowed to sponsor an associated tax-exempt organization like the Walmart Foundation. Despite potentially employing the same individuals, one organization is taxed and the other is not. While the two groups serve different narrow purposes, there is an undeniable gray area when it comes to their serving a common mission. Stepping away from the legal intricacies of this particular case for a moment, one notices that the bureaucracy is asked to perform a rather difficult task, viz., determining the motivations and intent of nonprofit organizations. (This is to say nothing about administrative capacity to make such a determination.) Although the tax code creates a special space for nonprofit activity, it necessarily strengthens government by making it the bouncer. Is this a welcomed by-product for a robust civil society?
Walmart’s nonprofit woes may have been buried by other bad news surrounding the company this week but the nonprofit community should nonetheless begin to question how the status quo system has facilitated this complicated situation. Are the accusations surrounding Walmart simply a symptom of a greater ailment of the U.S. tax system? Let’s start there.