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Jewish Journal

ZOA’s lost tax-exemption status prompts demand for new leadership

by Jonah Lowenfeld

September 14, 2012 | 5:55 pm

Mort Klein, President of ZOA

Mort Klein, President of ZOA

On Sept. 11, the Zionist Organization of America’s (ZOA) board of directors met in New York and overwhelmingly approved a resolution expressing confidence in the organization’s direction and in the leadership of Morton Klein, its president of 19 years.

The vote came less than a day after a news report that ZOA had had its tax-exempt status revoked as far back as May 2011 for failing to file three consecutive years of key financial documents with the Internal Revenue Service.

Only one board member present at the meeting, ZOA National Vice Chair Steven Goldberg, voted against the resolution. Goldberg, a Los Angeles resident, told the Journal that he believes ZOA’s loss of tax-exempt status points to larger problems with the 115-year-old educational and advocacy nonprofit. In an interview on Sept. 12, Goldberg insisted Klein must be replaced for the ZOA to move forward.

“He thinks he is the ZOA, and he isn’t,” Goldberg said of Klein. “He deserves credit for dedicating so many years of his life, but right now he is hurting the ZOA.”

Goldberg said he believes in ZOA and in its mission, but said his fellow board members have been derelict in their duty to exercise independent judgment and oversight over Klein.

“The board is made up of cronies, yes-men and sycophants who will do nothing but approve everything he [Klein] says and kvell [rejoice] about it,” Goldberg said. 

Klein has led the ZOA for the past 19 years, thanks to a pair of amendments to the organization’s constitution allowing him to serve an unlimited number of four-year terms. In an interview on Sept. 13, Klein told the Journal that he believes Goldberg is motivated by a personal vendetta and a desire to take over as president.

“The entire board disagrees with this person and is shocked by his irrational actions,” Klein said.

Over the past two decades, ZOA has been the most prominent and relentless critic of those who would have Israel give up territory as part of a peace deal. Claiming a national membership of 30,000, ZOA lobbies Congress frequently to advance its agenda.

Klein, meanwhile, is the organization’s sole public face and has become known on Capitol Hill and beyond. Speaking to the Journal from his home in Pennsylvania, where he has been recovering since undergoing open-heart surgery six weeks ago, Klein said he had received phone calls from Israeli Prime Minister Benjamin Netanyahu and more than a dozen members of Congress wishing him well.

Former board members and ex-employees have criticized Klein for his at times tempestuous leadership style in the past, but for Goldberg, an officer on the board, to take Klein — and the rest of the ZOA board — to task in such a public way is highly unusual.

Both Klein and Goldberg said that at one time they had a friendly relationship; according to Goldberg, it was Klein who invited him to join the national board as an officer. But from the time ZOA was informed on Feb. 22 of this year that its tax-exempt status had been revoked, and throughout the months-long debate ever since over whether the organization should make public the revocation, the two men have staked out opposing positions in a dispute that has become very public, after all.

In accordance with a law passed by Congress in 2006, ZOA’s tax-exempt status was revoked because it did not file three consecutive years of 990 forms, in 2008, 2009 and 2010. Most nonprofits are required to file such forms every year; the filings disclose basic information about an organization, including its overall budget and the salaries paid to top officers.

The deadline for submitting the form is four and a half months after the end of an organization’s fiscal year, but the IRS allows three-month extensions to any organization that requests one, and an additional three months for organizations showing good cause.

David Drimer, national executive director of ZOA, said ZOA typically requested and received six-month extensions, filing annual 990s in November, and that the revocation of tax-exempt status was the result of “missing the technical deadline” for submitting the 2008 form. Drimer, who began working at ZOA in August 2011, said the organization sent the 2008 form to the IRS in November 2011, thinking the submission was timely, only to find out in February that the deadline had passed in May 2011.

ZOA, Drimer said, is not the only organization to fall prey to a regulation, which automatically revokes the tax-exempt status of any organization that fails to file forms for three consecutive years.

Most of the organizations that have had their tax-exempt status revoked were agencies that take in less than $50,000 per year. Under the 2006 law, such groups were, for the first time, required to submit short annual filings.

ZOA, however, has always been required to submit standard 990 forms, which in recent years have run more than 35 pages; according to the three most recent ones — 2009, 2010 and 2011 — shared with the Journal by Drimer, ZOA took in an average of more than $3.6 million a year.

Drimer said those forms would be submitted soon to the IRS, along with a request for retroactive reinstatement of ZOA’s tax-exempt status. The reason for the belated filing, Drimer said, had to do with ZOA’s hiring new accountants in early 2009, Loeb & Troper, and that firm’s questions about the accounting done for ZOA before it hired the firm.

Since February, ZOA has designated FJC, a New York-based public charity, to accept donations earmarked for ZOA on its behalf. Those donations, Drimer said, will remain inaccessible to ZOA until its nonprofit status is reinstated.

Drimer added that all Web sites and ZOA materials had been “cleansed” of anything calling the ZOA a 501(c)(3) organization.

“We never kept it a secret,” he said. “Everybody who donated to the ZOA up to Feb. 22 gets their deduction, and everybody who donated to the ZOA after Feb. 22, gets their deduction. The idea that we have somehow done something wrong, unethical or illegal is preposterous.”

However, until an article about the ZOA’s loss of tax-exemption appeared in The Forward on Sept. 11, few in the Jewish community knew about ZOA’s change in tax-exempt status. Goldberg said even some board members were unaware until recently.

Goldberg said Larry Hochberg, who is listed as a board member on each of the last three years of ZOA 990 forms, wasn’t aware that the tax-exempt status had been revoked until Goldberg e-mailed the entire board about the matter in late August.

“He quit in disgust,” Goldberg said. “He thought he should’ve known back in February when the ZOA found out.” Reached by phone on Sept. 13, Hochberg declined to comment.

Drimer, however, said the ZOA board had been informed early on. “We called a meeting as quick as we could and explained the problem,” he said. The meeting, a conference call with “a good portion of the board of directors,” Drimer said, took place less than two weeks after ZOA received notice from the IRS.

Goldberg said he remembered the call taking place at the end of February, and he estimated that fewer than a dozen board members participated. (The exact number of current board members appears to be in dispute. Goldberg and Drimer said ZOA has 38 board members, Klein said there are 52, and the 2011 990 lists 59 board members, a list that includes Hochberg and the now-deceased Newton Becker.)

On the call in February, Goldberg said, he and others urged the organization to disclose the revocation, but he said Klein had opposed it, “and that vote carried the day.”

“To the best of my memory, that’s not correct,” Drimer said.

According to Goldberg, the dispute over how and how much to disclose about the revoked status continued for the next six months, with Goldberg arguing — with increasing urgency, he said — in favor of full disclosure. In August, he circulated to the entire ZOA board a memo written by Kent Seton, an outside attorney hired by Goldberg, that found donors had a right to know about the loss of tax-exempt status and called the failure to disclose it “inexcusable.”

Klein and Drimer rejected the conclusions of the memo on the grounds that Seton is a California-based lawyer not admitted to the New York State Bar and that he did his analysis without the permission or cooperation of ZOA.

Instead, they rely on the ZOA’s outside counsel, who, according to Drimer, was retained in February.

“We have a first-rate tax attorney; we’ve done everything that he has said we need to do that is appropriate and legal and moral,” Klein said. “Every donation to ZOA remains fully tax-deductible.”

In the course of discussing his grievances about Klein and ZOA, Goldberg did not limit his criticism to the lost tax-exempt status. In an hour-long conversation with the Journal, he expressed frustration at having never seen an organizational budget, especially given the significant chunk of that budget allocated for Klein’s salary.

Compared with other nonprofit organizations, Klein’s salary — $435,050 in 2011 — is very high. According to a 2010 report on CEO compensation by Charity Navigator, nonprofit organizations of ZOA’s size paid their CEOs a median salary of $157,056.

Some Jewish charities of ZOA’s size appear to dedicate a greater share of their annual spending to CEO compensation, but even there, Klein’s package sits at the higher end of the spectrum.

According to the 990 forms prepared by ZOA, the organization made expenditures of $3.3 million in 2009, $2.9 million in 2010 and $3.1 million in 2011. The documents show that Klein was given a compensation package totaling $717,700 in 2009, $467,000 in 2010 and $518,800 in 2011, which translates to 21.65 percent, 16.19 percent and 16.97 percent of the organization’s total spending in any given year.

Drimer said that in 1993, when Klein took over the then-indebted ZOA, he worked without pay for six years. He added that Klein’s pay has been calculated with the help of a compensation consultant. Klein said that his cumulative salary, averaged out over his 19-year tenure as president, was “well under $200,000” per year.

The board, Klein said, was responsible for any raises he had been given over the years.

“They did it because of appreciation for my working for free, being a very successful fundraiser,” Klein said. “Anything I got in terms of income, they decided, I never asked for it.”

Orit Arfa, the executive director of ZOA’s Western Region, has also been drawn into the political battle between Klein and Goldberg.

Arfa sent a memo on Sept. 5 to Goldberg, Drimer and Michael Goldblatt, chairman of ZOA’s board, in which she stated that Klein had told her “several times” to “remain secretive about the tax-exempt status issue.”

Drimer dismissed the idea that Klein would have asked Arfa to refrain from publicizing the loss of tax-exempt status.

“It wouldn’t make sense,” Drimer said. “It’s not a secret.”

Arfa, formerly a frequent writer for the Journal and who currently blogs on a ZOA-focused blog hosted at jewishjournal.com, declined to speak to the Journal for this article.

In her memo, shared with the Journal by Goldberg, Arfa wrote that her immediate reason for contacting the organization’s national executive director and top two board officers was a “disturbing” phone call she received on Sept. 5 from Klein.

“Mort reiterated several times that he is the president and pays my salary, implying that he could therefore fire me at will if I do something that does not please him or is perceived as being disloyal to him,” Arfa wrote.

Drimer said that ZOA had retained counsel to look into Arfa’s complaint.

“We take those kinds of matters very seriously, and we try to treat them in an appropriate way,” he said.

Accusations of bullying ZOA employees have dogged Klein in the past. In 2006, an article in The Forward reported on complaints from former employees and one former board member about Klein’s behavior. According to the article, in the 13 years since Klein had taken over as president in 1993, ZOA had at least eight executive directors, two of whom reportedly “told The Forward that they had left because of frequent verbal abuse from Klein.”

Arfa’s immediate predecessor in Los Angeles, Shelly Ventura-Cohen, lasted just six months before resigning her post.

In her resignation letter to Klein, dated July 24, 2011, and shared with the Journal by Goldberg, Ventura-Cohen mentioned “recent interactions with you, and the manner in which you communicate” as reasons for her resignation.

“He screamed at her, abused her, was vicious to her,” Goldberg said. “She couldn’t take it.”

Goldberg also shared a copy of an e-mail from Klein to Ventura-Cohen sent just three days before her resignation. Under the subject line, “thoroughly unacceptable and embarrassing memo to zoa board you wrote,” Klein called Ventura-Cohen’s writing “worse than what i would expect from an 8th grader.”

Ventura-Cohen was 74 when she died at the end of 2011.

Goldberg referred to Arfa, who has worked at ZOA for less than a year, as an outstanding employee, but said she was “in danger” of being fired because Klein “worries that she’s not loyal to him.”

Klein said that whether Arfa keeps her job is strictly dependent on ZOA’s bottom line.

“ZOA cannot continue to lose significant funds by funding an office when the director is not raising any funds,” Klein said. “I made it clear to her that if she isn’t able to raise significant funds, we may have to close the office.

“That’s something that any national president would say to any local executive director where there is a fundraising problem,” he added.

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