Academic journal article Business Case Journal

The Tax-Exempt Status of AARP

Academic journal article Business Case Journal

The Tax-Exempt Status of AARP

Article excerpt

AARP under Fire

It was April 1, 2011, but no one was fooling. AARP, formerly known as the American Association of Retired Persons, was under fire. Two Republican members of the House Ways and Means Committee--Wally Herger (Representative, California) and Dave Reichert (Representative, Washington)--had recently issued their 40-page Investigative Report, Behind the Veil: The AARP America Doesn't Know. Although not an author of the report, Charles Boustany (Representative, Louisiana) headed the subcommittee from which the report was launched and was also instrumental in initiating related criticisms against AARP. The press, the American public, and rival Democrats were at loggerheads, engaged in an intense debate over whether AARP was a legitimate tax-exempt organization or a colossal for-profit enterprise--given that many of AARP's activities were potentially inconsistent with those of a non-profit organization.

Fox News summarized the issues as follows: Charitable contributions to AARP had not increased substantially during a time when AARP's revenue from insurance products--ostensibly a for-profit activity--had tripled. Instead, the organization's former CEO's salary had increased 80%, and AARP had become the fourth highest-spending lobbying organization in the nation. Fox News also had reported specific concerns about AARP's lobbying for the Obama administration's healthcare law. The news agency stated the new law "cut $500 billion from Medicare spending, leading critics to ask if AARP had a conflict of interest. Government experts predicted the cuts in Medicare would push seniors into Medigap insurance--the product from which AARP makes the most money" (Angle, 2011, np).

While largely echoing Fox News' summary of the issues, NPR also reported briefly on Democrats' responses to Herger and Reichert's report. For example, John Lewis (Representative, Georgia) had retorted, "This is nothing other than a political witch hunt. The Ways and Means Committee is better than this" (Overby, 2011, np).

Had AARP violated the requirements of its tax-exempt status? And what exactly were those requirements? Or was Herger and Reichert's report simply political backlash? In other words, were these Republicans responding to AARP's support for President Obama's healthcare law? Remember, this was not Congress's first investigation of AARP's tax-exempt status. Congressional hearing were held in the 1990's by Senator Simpson who later reflected that AARP was "the biggest marketing operation in America and money-maker" and an organization whose practices were "the greatest abuse of American generosity I witnessed in my time in the U.S. Senate" (Editorial, 2011).

Organization of AARP

AARP originated in 1947 when its founder--Dr. Ethel Percy Andrus--first advocated on behalf of an impoverished former teacher who had had to resort to living in a chicken coop. In 1958, Andrus's assistance to the elderly inspired the formation of AARP, Inc.--a social welfare organization exempt from tax under Section 501(c)(4) with the generic purpose of "promoting the interests of older persons" (KPMG: AARP Consolidated Financial Statements, 2011, p. 6).

Despite humble origins, AARP held over $2.5 billion in total assets as a consolidated entity by the time Herger and Reichert published their Congressional report in 2011. The entity had generated over $1.3 billion in total operating revenue in 2010 alone.

The organizational structure behind this impressive wealth had grown considerably since AARP's inception as well. In fact by April 2011, AARP ("the consolidated entity") was comprised of AARP, Inc. and at least seven other for-profit, tax-exempt, and pass-through affiliates:

1. Together, AARP Foundation and its wholly owned subsidiary AARP Institute were known as the Foundation. Tax exempt under Section 501(c)(3), the Foundation was designed to assist "vulnerable" persons 50 years of age and over obtain "the essentials--food, housing, income, and personal connection--and achieve their best life" (KPMG: AARP Consolidated Financial Statements, 2011, p. …

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