A Tax Break Fuels Middle East Friction By David Ignatius

A Tax Break Fuels Middle East Friction
By David Ignatius
Thursday, March 26, 2009; A21

For many years, the United States has had a policy against spending aid money to fund Israeli settlements in the West Bank, which successive administrations have regarded as an obstacle to peace. Yet private organizations in the United States continue to raise tax-exempt contributions for the very activities that the government opposes.

There's nothing illegal about the charitable contributions to pro-settlement organizations, which are documented in filings with the Internal Revenue Service. They're similar to tax-exempt donations made to thousands of foreign organizations around the world through groups that are often described as "American friends of" the recipient.

But critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns. A search of IRS records identified 28 U.S. charitable groups that made a total of $33.4 million in tax-exempt contributions to settlements and related organizations between 2004 and 2007.

"This is an issue that has not gotten the attention it deserves," said Ori Nir, a spokesman for Americans for Peace Now, a lobbying group that opposes settlements. "I don't know how many people, including in the U.S. government, realize the extent of private American funding to settlements. . . . Every dollar that goes to settlements makes Middle East peace that much harder to reach."

The Obama administration had an early confrontation over settlements when Secretary of State Hillary Clinton visited Israel this month. She criticized Israeli demolitions of Palestinian homes in a largely Arab area of Jerusalem known as Silwan, just below the walls of the Old City. "Clearly this kind of activity is unhelpful," she said. Jerusalem Mayor Nir Barkat responded that Clinton was mistaken and that the Palestinian houses had been built illegally.

One of the Israeli organizations that has led the way in developing this area of East Jerusalem is called Ir David, or City of David. Like other pro-settlement groups, it has an active fundraising effort in the United States. According to Form 990s filed with the IRS, Friends of Ir David raised $8.7 million in 2004, $1.2 million in 2005 and $2.7 million in 2006.

The group's primary tax-exempt purpose, according to the IRS filings, is: "To create a charitable fund to provide financial aid & other reasonable assistance to benefit the Jewish people of the Old City of Jerusalem. To teach about the history and archeology of the biblical city of Jerusalem. To offer aid & assistance for education, housing & the rehabilitation of distressed properties."

A senior Jordanian official argued in an interview this week that Israeli pro-settlement groups such as Ir David are seeking to transform the demographic character of East Jerusalem so that a two-state solution with Jerusalem shared by Israeli and Palestinian governments will be impossible.

Hebron is another controversial area where settlements have received substantial tax-exempt gifts from America. According to IRS records, the Hebron Fund donated $860,637 in 2005 and $967,954 in 2006 for "social and educational well-being"; the fund's online mission statement makes clear this is for Israeli settlers inside the city. The Hebron settlement of Kiryat Arba received $730,000 in 2006 from a group called American Friends of Yeshiva High School of Kiryat Arba.

Often the U.S. charities will specify that their gifts are going to charities in Israel, even though the recipients are in the West Bank, which the United States regards as occupied territory. American Friends of the College of Judea and Samaria, for example, said its donations were "to provide for the expansion and furtherance of the needs of educational institutions in Israel," even though the college is in the settlement of Ariel. Similarly, other filings speak of gifts to "Elon Moreh, Israel," "Gush Etzion, Israel," "Karnei Shomron, Israel," "Efrat, Israel," and "Bat Ayin, Israel," even though those settlements are all in the West Bank.

A 2005 report by the Congressional Research Service stated: "The United States stipulates that U.S. aid funds cannot be used in the occupied territories." The issue came to a head during a 1992 dispute over the use of U.S. loan guarantees. A Jan. 25, 1992, story in the New York Times said that Secretary of State James A. Baker had cautioned Israel's ambassador "that the administration was not going to underwrite Israeli policies that fundamentally contradict its own principles and long-stated policies."

U.S.-Israeli friction over settlements is likely to increase as Israel forms a new conservative government under Prime Minister-designate Binyamin Netanyahu. Indeed, the man he has selected as Israel's next foreign minister, Avigdor Lieberman, lives in the West Bank settlement of Nokdim, just east of Bethlehem.