WASHINGTON – An investigation undertaken by members of the House Ways and Means Committee accuses AARP of abusing its tax-exempt, nonprofit status, according to the congressmen who issued the report March 30.
Rep. Wally Herger (R-Calif.) and Rep. Dave Reichert (R-Wash.) along with Rep. Charles Boustany (R-La.) said they were referring to their findings and their report (pdf) to the Internal Revenue Service.
"We believe that the information that’s been brought forward in this report is very troubling and calls into question that tax-exempt status," said Rep. Boustany, chairman of the Ways and Means Committee’s Subcommittee on Oversight. "The bottom line now is we’re going to turn this over to the IRS and let them make that determination."
AARP maintains 501(c)(4) nonprofit status by virtue of its advocacy on behalf of senior citizens, but it also collects revenues through royalty agreements with a number organizations, including a company that is one of the largest insurers in the supplemental Medicare – or Medigap – insurance market.
In response to allegations, AARP leaders said the organization’s profits don’t differ from any other nonprofit organization. "We report to the IRS yearly and work closely with them and have had no negative response," said AARP president Lee Hammond.
The members of Congress did not say what prompted the investigation.
Rep. Reichert, who spent several decades in law enforcement before joining the House, said that politics played no role. "When I see something I think smells, I’m going to investigate," he said, adding, "This has nothing to do with trying to politicize the heath care bill." Rep. Herger, chairman of the Ways and Means Committee’s Subcommittee on Health, authored the report along with Rep. Reichert.
The congressmen did say their investigation found that AARP, which was a significant supporter of the Affordable Care Act, stood to gain financially from the law. They said that if the private Medicare Advantage program is reduced, millions of seniors might have to buy supplemental Medicare policies – policies that are sold by AARP’s partners.
"Seniors deserve to know where their dues are going and deserve to know what AARP is all about," said Rep. Boustany.
As a tax-exempt organization, AARP is required to promote social welfare. But, according to the congressional report, AARP’s royalty-related business is overshadowing the organization’s social welfare activities. Royalties from for-profit endeavors accounted for 46% of AARP’s revenue in 2009, while dues made up 17% of revenues. Those royalty payments have been rising at a faster rate than are dues, according to the report. AARP reported revenues of more than $1.4 billion in 2009.
AARP said royalties have allowed them to keep dues affordable and have funded social welfare programs including a campaign to end hunger, a tax-aid program, and its numerous publications. The organization posted documents outlining its finances in response to the congressional report.
The congressional report outlined what it called a pattern of excessive spending, such as a commitment by AARP to spend $14 million over the next 3 years to sponsor NASCAR driver Jeff Gordon. The report also called into question AARP’s executive compensation. For example, in 2009 then–AARP CEO William Novelli received a compensation package of $1,647,419 and a severance of $350,657.
The Oversight and Health subcommittees of the House Ways and Means Committee have called a joint hearing to examine the report in depth on April 1.
Alicia Ault, senior writer, also contributed to this report.