Nonprofit Advocate Carves Out a For-Profit Niche

Speaking on behalf of the Center for Consumer Freedom, Richard B. Berman takes no prisoners.

The Humane Society of the United States is his latest target, and his attacks on the way the organization spends its money have recently appeared in catchy newspaper advertisements, on bus shelters around Washington and on a billboard in Times Square.

His real objection to the Humane Society, though, seems to be its campaign for better living conditions for livestock, which could cost agribusiness millions and which he argues is really aimed at ending meat consumption. “The Humane Society wants to force us all to be vegetarians — or vegans,” Mr. Berman said, applying a hefty dose of scorn to the word “vegan.”

In similar style, Mr. Berman has gone after groups like the Physician’s Committee for Responsible Medicine and Mothers Against Drunk Driving, whose campaign to make all convicted drunken drivers install ignition systems that prevent them from starting their cars when intoxicated amounts, Mr. Berman says, to “de facto Prohibition.”

Mr. Berman has carved out an unusual niche for himself in the hothouse world of Washington influence-peddling. While he once called himself a lobbyist when he made such statements, he now styles himself as an advocate — just like the people at the Humane Society and MADD.

Across two decades, Mr. Berman has founded the Center for Consumer Freedom and five other nonprofits with similarly innocuous names. His industry donors — including restaurant chains whose costs could rise if living conditions for animals have to be improved, and wine and spirits companies that might sell less liquor if MADD has its way — can claim a deduction for charitable donations or business expenses. And since nonprofit groups do not have to disclose their donors, Mr. Berman’s groups offer an even more valuable asset — anonymity for companies that would rather their customers not know they are behind certain attacks.

His critics say Mr. Berman’s organizations are little more than moneymakers for his for-profit communications firm, Berman and Company. Last month, in what appears to be a new tactic by those critics, the Humane Society and MADD filed a complaint with the New York Commission on Public Integrity, charging that the American Beverage Institute and Berman and Company were in fact lobbying and had failed to register with the state as lobbyists.

Walter Ayres, a spokesman for the commission, said that it had reviewed the complaint but that he was bound by law to keep any investigation confidential.

Sarah Longwell, a spokeswoman for Berman and Company and several of its nonprofits, called the filing “a harassment P.R. strategy, pure and simple.”

“These complaints are the desperate acts of groups who can’t respond to the substance of our criticisms,” Ms. Longwell said.

The federal tax code defines nonprofits as organizations that are “religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international amateur sports competition or prevention of cruelty to animals.”

Almost any type of activity fits that definition, and businesses discovered years ago that they could form nonprofit groups to promote their interests in Washington. The Gulf of Mexico Foundation, for example, says it promotes marine conservation, but it is partly financed by oil companies whose employees sit on its board, and it recently came under scrutiny when its executive director played down the environmental impact of the oil spill in the gulf.

Specialists in tax law say that Mr. Berman has taken the tactic a step further because his organizations barely exist separate from his firm. In many years, payments by the nonprofits to the firm for services that include staff work, accounting, copying and rent represent more than half of the nonprofits’ revenues, and they do not have independent offices or staff.

Indeed, the Center for Consumer Freedom, which among other things fights against efforts to curb the sale of sodas and snacks in schools, channeled more than 90 percent of its revenues in 2008 to Mr. Berman’s firm for its services, including everything from writing and placing op-ed articles to the bookkeeping, which is overseen by Mr. Berman’s wife, Dixie, for all the nonprofits and the firm.

The nonprofits’ board members are mostly current and former employees of the firm and executives and consultants for the restaurant and beverage industries. Mr. Berman said he had selected them for their deep knowledge of the issues. “They’re on there because they have something unique to offer that is substantive and useful to the organization,” he said.

Mr. Berman said that the firm did not make a profit from what it charged its nonprofit groups and that he was paid no more than “a senior partner at a major law firm.” The firm’s employees do all the work for the groups, which have no employees of their own other than Mr. Berman, who receives little direct compensation from them — although they often reimburse him for thousands of dollars of expenses. “We do not mark up,” he said.

Mr. Berman, 67, who is from New York, is a former lobbyist for the very industries that now support his nonprofits. As much as 70 percent of his firm’s revenues come through the nonprofits he has set up, though the amount varies from year to year, Mr. Berman said. Because of that, he said, he makes sure his operations are “squeaky clean.”

“We do a lot of edgy stuff, so a lot of people don’t like us and so I overcomply,” he said. “We do everything to make sure we are well on the right side of the law.”

He noted that the Internal Revenue Service had audited the political activities of the Center for Consumer Freedom after Citizens for Responsibility and Ethics in Washington, a watchdog organization, filed a formal complaint in 2004. The tax agency found that the center had violated regulations prohibiting charities from engaging in politicking when it attacked a presidential candidate, Representative Dennis J. Kucinich, Democrat of Ohio, but did not impose penalties because the group had taken steps to prevent such violations in the future.

The I.R.S. also looked at the Employment Policies Institute, a business-backed nonprofit that Mr. Berman helped create and that argues against a higher minimum wage, among other things, and found nothing that would warrant a revocation of its tax exemption. The I.R.S., as is its policy, declined to comment.

Asked about critics like Wayne Pacelle, executive director of the Humane Society, Mr. Berman said, “You know Wayne is a vegan, right?”

Mr. Pacelle is a vegan, but he said the Humane Society was not working to stop people from eating meat. He said the companies that support Mr. Berman’s organization were “upset because we’ve had some success in protecting farm animals from inhumane conditions.”

But precisely which companies support the Berman nonprofits, which range from charities to trade associations and all of which are tax exempt under federal law, is unclear. Like most nonprofit groups, the Berman organizations decline to disclose their donors — and though Mr. Berman does say that chain-restaurant and beverage companies are among them, he also says the nonprofits have “thousands” of small donors.

Roger Colinvaux, a law professor at Catholic University in Washington who worked for the Congressional Joint Committee on Taxation, said the anonymity of the donors made it hard to assess whether Mr. Berman was really representing industries.

“The pivotal fact that’s missing is where the money is coming from,” Mr. Colinvaux said. “My guess is that whoever is funding those nonprofits is probably benefiting the most from their activities, and that raises a question about whether the benefit these organizations bring is really a public one that justifies tax exemption.”

Mr. Berman counters that his nonprofits provide broad educational value to the public and are thus no different from the organizations his groups attack.

(The New York Times and Berman and Company are among the co-defendants in a lawsuit brought by the Humane League of Philadelphia over an advertisement critical of the organization that ran in the paper and was paid for by the Center for Consumer Freedom.)

Craig Garthwaite, a professor at the Kellogg School of Management at Northwestern University who is a former research director of and now a board member at the Employment Policies Institute, said the board used a competitive bidding process to select Berman and Company.

Asked to elaborate, he referred further questions to Mr. Berman — who explained that in fact no other firm had ever bid on the business. “Nobody else wants it,” he said.

Jack Reilly, a former lawyer for the I.R.S., said he thought a case could be made that the Berman nonprofits were established to provide business for Mr. Berman’s firm, and thus were commercial in nature. He cited a case involving EST of Hawaii, which was denied tax exemption after the United States Tax Court found that it “was simply the instrument to subsidize” for-profit companies that would have provided it with a variety of services and “had no life independent of these corporations.”

“The court said these aren’t really charities,” Mr. Reilly said. “You’re just operating your business under a charity guise, and therefore are getting paid with pretax money.”

He noted another would-be nonprofit, Church By Mail Inc., failed to gain a tax exemption after the tax court found that it had been set up primarily to provide business for a company owned by its founders.

“They set up a church to further their advertising business,” Mr. Reilly said. “The issue in Berman is the same: do these nonprofits Mr. Berman has set up fundamentally have a charitable purpose? Or are they part of a commercial model?”

Alan Dye, the lawyer for the Berman nonprofits, said the cases cited by Mr. Reilly were different. “It would be a mistake to compare those to this situation, because they are much more complex and evocative of a profit-sharing agreement than simple management contracts” of the type governing the relationship between Berman and Company and its affiliated nonprofits, he said.

Mr. Berman said it would be hard for his nonprofits to “stand on their own” without the services of his firm.

Which, to Mr. Reilly, raises the question: “Then why isn’t Berman and Company just being paid directly to do this work?”