Are Neighbors Together Oakland Contributions Actually Tax Deductible?
Evidence suggests that Oakland politico Seneca Scott is running an unregistered 501(c)(3) — and has been for months.
The nonprofit world is complex. To the average person, the terms charity and nonprofit are likely interchangeable, but according to the only organization whose opinion on the subject matters, this could not be further from the truth.
The Internal Revenue Service recognizes 34 different types of tax-exempt organizations, including Cemetery Companies1, Black Lung Benefit Trusts2, and veterans’ organizations created before 18803. The most popular classifications by far are 501(c) numbers 3-9.
By the IRS standards, all a 501(c) organization has to do to qualify for nonprofit status is to fill out one or two government forms explaining how and why the organization meets the requirements of its desired classifications. Common examples of nonprofits include alumni associations, sports leagues, labor unions, and of course, charities.
But while all 501 organizations are nonprofits, only 501(c)(3) organizations are legally regarded as charities. The confusion is understandable, as in 2020, the most recent year for which data is available, 501(c)(3) organizations held over $5.5 trillion in assets, which is more than five times the combined asset totals of the six next most common forms of 501(c) organizations. When most Americans think of a nonprofit, they think of a 501(c)(3).
Of the 34 types of nonprofits, 501(c)(3)’s have a major leg up in fundraising, as donations received by 501(c)3’s are generally tax deductible. This is why the Salvation Army always asks you if you want a receipt when you drop off your old textbooks and faded jeans. You are legally permitted to reduce your tax burden by the value of your contribution, a benefit not available for nearly all other types of 501(c) contributions.
In order to be able to claim this special status, a 501(c)(3) has one extra layer of hoops through which to jump. To qualify as a 501(c)(3) specifically, the organization must meet one of several criteria given by the IRS:
The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
The IRS makes it clear that charitable is to be used in the loosest sense of the word, which has given us such incredible 501(c)(3)’s as Clowns Without Borders and the 501st Legion. As long as the clowns and Star Wars cosplayers don’t turn a profit from their work, continue to work toward their stated mission without amassing excess profits, avoid political endorsements, and file their paperwork on time, they are free to solicit tax-deductible donations.
Those final two requirements deserve additional scrutiny.
In 1954, then-Senator Lyndon B. Johnson shepherded the eponymous Johnson Amendment through Congress. While the amendment has been revised in the 70 years since it took effect, it largely continues to uphold Johnson’s original intent by prohibiting 501(c)(3)’s from participating in political campaigns on behalf of or in opposition to any candidate for any public office.
Crucially, this limit has been held to apply specifically to candidates, not causes. Students for Life of America is a 501(c)(3), and under our tax code, it is free to oppose abortion as loudly and vocally as it pleases. But Students for Life of America cannot endorse Kari Lake in Arizona’s Senate race, even if it believes she will better represent the group’s stance on abortion.
Additionally, most nonprofits must file annual financial disclosures with the IRS, which then makes these forms available for public inspection. Nonprofits essentially trade a tax reduction for increased scrutiny. This tradeoff is doubly true for 501(c)(3) entities, which go a step further in also offering tax breaks to their supporters but are widely scrutinized not just by the IRS, but by the public through independent evaluators like Charity Navigator, ProPublica, and GuideStar.
The form most 501(c)(3)’s file each year is Form 990. The document lists key financial data from the organization such as revenue and expenses, salaries of top officers, and lobbying expenditures. This form is how I know that the Kaiser Foundation Health Plan, the largest nonprofit in California and operator of 39 hospitals, brought in more than $70 billion in revenue and paid its CEO more than $13 million in 2022 — all while failing to adequately staff its mental health practice, resulting in state penalties, workers’ strikes, and patient desperation.
I am unable to tell you any of the same information about the group Neighbors Together Oakland.
Founded in 2021, Neighbors Together Oakland is the project of Seneca Scott. A multiyear fixture of Oakland politics, Scott ran unsuccessfully for a seat on city council in 2020 and again for the mayor’s office in 2022. A self-described “free thinker,” Scott has slowly pivoted to the right since his first run for office; examples include calling for increased policing in Oakland, villainizing the city's homeless population, and lobbing baseless accusations of pedophilia at an openly gay member of Oakland Mayor Sheng Thao’s staff.
The housing crisis in Oakland, as in much of the country, is extremely dire. And it is undeniably true that crimes like burglary and vehicle theft have increased in Oakland — again, as in much of the nation — since the start of the pandemic. However, homicides remain well below their peak in 1992. While I was unable to find sworn officer levels for 1992, in 1990, Oakland had 616 sworn officers. When the 2023 class of new officers was sworn in, the total across the department reached 714.4 It would appear there is no clear correlation between the number of officers employed by the city and crime rates in Oakland.
Neighbors Together Oakland (NTO) appears to have a very similar platform to the one espoused by Scott during his campaigns and latest media appearances. To hear NTO tell it, the housing crisis is the fault of the temporary eviction moratorium, not anti-housing property owners or landlords charging obscene rents, while the city’s residents are desperate for an end to the “state of lawlessness” hurting Oakland.
But an organization and its leader having similar stances on controversial topics is neither novel nor illegal. Instead, what caught my eye during NTO’s aggressive launch into public view in 2023, was the message proudly featured in the footer of its website and emails: Neighbors Together Oakland is a 501 (c)(3) organization.
And indeed, when NTO was incorporated with the state of California in 2021, it listed itself as a nonprofit public benefit corporation operating under IRS section 501(c)(3). The IRS agreed, issuing a determination letter in favor of NTO’s 501(c)(3) status retroactive to May 17, 2021.
In addition to sharing the news about its status, the determination letter reminded NTO of its responsibilities under federal law to file annual disclosures via Form 990, with a warning that three consecutive years of non-filing would lead to automatic revocation of its 501(c)(3) status.
At the time of publication, NTO has never since filed a Form 990 with the IRS, and its nonprofit status was automatically revoked on November 15, 2023. ProPublica’s charity database is similarly devoid of additional information about NTO’s finances.
Like many states, California requires additional paperwork from its nonprofits. All 501(c)(3) organizations are required to file an initial registration with the state Attorney General within 30 days of first receiving assets, and there are annual reporting requirements that largely mirror those of the IRS, as well as required disclosures to the state Franchise Tax Board (FTB). Neither the state Department of Justice (DOJ) nor the FTB currently list NTO as a tax-exempt organization under state law.
For reasons that remain unclear, the DOJ did not issue its first notice to NTO reminding the organization of its obligation to register as a nonprofit charity until September 19, 2023. This notice presumably went unheeded, as the DOJ sent NTO its final notice to register on November 1, 2023, which included a bolded warning that failure to register within 30 days would result in referral to the FTB and possible loss of tax-exempt status.
A quick records search with the FTB confirms that this failure to register wasn’t a case of the IRS bungling paperwork, but rather that NTO is no longer a nonprofit in the eyes of the California government either. The organization was arguably never operating as a proper 501(c)(3) at any point in its history, having failed to ever submit its required state and federal disclosures.
Automated revocation of 501(c)(3) status is common enough that the IRS offers a guide to reinstatement, and beyond some fees there are no real penalties for letting your status lapse merely due to lack of filing. It’s even possible to have your organization’s 501(c)(3) status retroactively restored, and the state-level restoration process with the FTB is largely the same as that of the IRS.
But the law is also clear that until the revocation process is complete, no former 501(c)(3) may continue to present its contributions as a tax-deductible. This prohibition has not deterred NTO, as the organization sent an email on March 27, more than four months after its tax-deductible status was revoked, where it proclaimed that it was a 501(c)(3) and that all contributions to the organization would be tax deductible.
As of publication, the Donate page on NTO’s website also states that the entity is a 501(c)(3). Falsely presenting the organization as a 501(c)(3) while its status is revoked can be illegal under both state and federal law.
A local nonprofit failing to file paperwork on time is a frequent occurrence. But when a local nonprofit touts the policy ideas of its leader, himself a repeat candidate for office and active supporter of the campaigns to recall Mayor Thao and Alameda County District Attorney Pamela Price, yet fails to file its disclosures for three years running, those failures become noteworthy.
Without any Form 990 filings on record, NTO donors have no idea how their contributions have been used, while NTO opponents lack the ability to scrutinize the organization’s use of funds. Meanwhile, Seneca Scott continues to leverage NTO and its supporters for free publicity, allowing him to advance his agenda during a critical election year that may include potential recall elections of both Mayor Thao and DA Price.
On a page labeled Our Mission, NTO highlights “unaccountable nonprofits” as one source of the problems facing Oakland.5 If they truly want to help save Oakland, Scott and his allies should start by looking inward.
Things I Enjoyed This Week
The Kim Mulkey way | The Washington Post
“Polynesian Sand” | Trey Coastal (YouTube)
First pitch: a journey through ceremony and baseball | Chicago Reader
The America that Americans Forget | The New York Times Magazine
Welcome to Beautiful Parkersburg, West Virginia | The Huffington Post
Thank you for reading, especially for my readers who have never even been to Oakland. I love my adopted city, and I want the people influencing its future to act in good faith, hence this mini-investigation. Hopefully readers learned something about nonprofits at the least!
Have a great weekend.
I am not an attorney, CPA, or financial advisor. Nothing within this post should be interpreted as legal or financial advice.
501(c)(13)
501(c)(21)
501(c)(23)
It is important to note that the Oakland Police Department remains under federal oversight due to civil rights violations, as it has been since 2003.
NTO also blames “Public Sector Unions,” which is particularly bizarre when you recall that Scott spent years working as an organizer for SEIU 1021, which represents many city of Oakland workers.
Any updates and thanks for this thorough overview. He has turned politics into a toxic soup
Despite working in non-profit myself, a lot of this information was new to me. Thank you for sharing! The citizens of Oakland deserve better.