National Public Radio has learned that the organizers of a southern California weekend adventure for military families do not have the tax exempt and charitable status they claimed and may be in violation of federal and state laws.
Michael and Jeannie Kerr of Orange County, California, are the founders and chief organizers of the Snowball Express, an all-expenses-paid weekend vacation held Dec. 15-18. As many as 900 widows, widowers and children of American service men and women killed in Iraq and Afghanistan were treated to a Christmas pageant and dinner, a day of extreme sports, a shopping spree, an Anaheim Ducks hockey game and free admission to Disneyland.
The event required more than a million dollars in cash and in-kind contributions, according to event organizers.
Michael Kerr has been the subject of a number of news stories, including two reported by NPR, which outlined a checkered past. Kerr is a self-described former drug addict who owes $44,584 in overdue child support payments for two children from a previous marriage. He also faces arrest in Arizona for failure to pay child support. NPR has discovered new problems directly related to the Snowball Express event.
Kerr and his current wife Jeannie established the Snowball Express organization and another entity, the M. Scott Kerr Foundation. The Kerrs described these organizations as tax exempt and contributions as tax deductible on the Snowball Express website, in solicitation envelopes distributed at fundraising events and in e-mails to donors.
One solicitation on the Snowball Express website contained this phrase: "Tax exempt status applied for." A solicitation envelope seeking contributions of as much as $1,000 says "Your contribution is tax deductible." And in an e-mail just before the Snowball Express event, Michael Kerr tells a potential contributor "Checks can be made out to Snowball Express or Rotary Snowball Express both are tax deductable (sic)."
In a statement issued to reporters on December 14, Michael Kerr said that the tax exempt organization "paperwork was being handled" and that "people who have donated money will be able to deduct those gifts as contributions."
But the Kerrs repeatedly failed to produce for NPR the documents the Internal Revenue Service requires when non-profit organizations apply for tax-exempt status, an IRS form 1023. The Internal Revenue Service also confirmed that neither Snowball Express nor the M. Scott Kerr Foundation have tax exempt status under IRS code section 501c3.
Submission of a form 1023 would permit the Kerrs to say "tax exempt status applied for." Donors would then be on notice that their contributions may or may not be deductible, depending upon the eventual decision by the IRS on tax exempt status. In a recent interview with NPR, the Kerrs admitted that they had never filed IRS form 1023.
Under federal law, groups cannot claim that contributions are tax deductible unless they've attained tax exempt status.
In California, organizations collecting charitable contributions must formally register as charitable trusts within 30 days of receiving their first contribution. NPR has contacted Snowball Express donors who have cancelled checks endorsed to the Snowball Express/M. Scott Kerr Foundation that were submitted to the groups more than 30 days ago. But neither organization is registered as a charitable trust, according to state records.
The Kerrs now admit they never registered their groups as charitable trusts in California as required by state law.
"We were operating under the advice we were given by professionals and in complete good faith," Michael Kerr told NPR. "The only thing we may have done wrong is get advice from the wrong people."
The Kerrs say the advice came from lawyers and accountants but they won't be more specific.
NPR has documented good advice the Kerrs ignored. More than a month before the Snowball Express event, Mamie Maywhort told the Kerrs and other Snowball Express organizers about the need to file the proper state and federal paperwork. Maywhort is an accountant with her own tax exempt organization, a military support group called Homefront America. Maywhort helped the Kerrs set up an accounting system but became increasingly alarmed at the failure to follow state and federal law.
"I have seen too many organizations get themselves in trouble because they do put the cart before the horse," Maywhort says. "So then money's coming in. It's just things can fall through the cracks."
Maywhort's verbal warnings were followed by a detailed e-mail to the Kerrs and other Snowball Express organizers. It is dated November 21, three weeks before the Snowball Express event. "In order to solicit from the public," Maywhort wrote, "you must be a registered charitable organization with the California Attorney General's office. Jeannie (Kerr) is aware of this." Maywhort referred to donation envelopes promising tax deductibility, and noted, "This is an incorrect statement and needs to be changed to comply with IRS regulations." To underscore her concern, Maywhort attached a copy of the relevant California law and closed with these words: "It simply cannot go on this way. If it does, we all loose (sic)."
Jeannie Kerr acknowledges Maywhort's warnings but is dismissive of them, even now. "Mamie is not…a CPA. She's more of a book keeper and I just wasn't really sure that her information was correct," Kerr told NPR. "And we were so busy doing this event and I just knew we would just clean it up, we would just make sure that everything was cleaned up in very good form."
Maywhort also told NPR that she processed $31,016.69 in cash and checks contributed to the Snowball Express/M. Scott Kerr Foundation. Jeannie Kerr confirms the amount and Michael Kerr says the money has been deposited in a bank account and will be used to cover legitimate Snowball Express expenses. But there's no way to be sure, given the failure to abide by state and federal law. Those laws provide for accountability and transparency, notes Rick Cohen, the former executive director of the Center for Responsive Philanthropy.
"What particularly bothers me about this," Cohen says, "is that this is one more example of charities that play fast and loose with the law but they hide behind the characteristics of needy beneficiaries -- in this case, the family members of soldiers killed…in Iraq"
Michael and Jeannie Kerr say they'll file the necessary paperwork now. But that may not be enough for state and federal authorities. California law carries a possible fine of $2500 for each misleading solicitation by a group that is not properly registered as a charitable trust. A fine of as much as $10,000 is possible for failure to register. The contributions may actually be treated as income and the Kerrs could face a tax bill. There's even a criminal charge possible, under the right circumstances, of theft by false pretenses. Donors expecting a federal tax deduction may find their deductions disallowed. Neither the Internal Revenue Service nor the California Attorney General's office would comment.
Many contributions to the Snowball Express event were handled by a local Rotary Club foundation which has the appropriate tax exempt and California charitable trust status.
Jeannie Kerr says, "We did the best we could with what we had to work with in a very short amount of time and it was outstanding what we accomplished."
Michael Kerr is defensive. "It's sad that the real story behind the Snowball Express doesn't come out," he says, "the real story about someone who went through what I went through, pulled themselves back up and could reach out and do something like this, had that ability to do that, as a result of what these soldiers died for…That's the real story."
To promote that story and to try to intimidate inquiring reporters, Kerr used his new database of Snowball Express military families to call out the cavalry. He wrote in an e-mail to widows and widowers, "There are…reporters and…individuals who want nothing more than to destroy the Snowball Express and particularly destroy my wife and I." Kerr enclosed e-mail addresses for reporters at NPR, The Los Angeles Times and the Orange County Register.
NPR has received three dozen e-mails so far, including one from Kelly Gibbons, a mother of two from Tennessee who lost her husband Thomas to the fighting in Afghanistan. In a telephone interview, Gibbons called Michael Kerr "…an angel. I mean for somebody like him to put together this and rally everybody behind him was amazing. He is an amazing man with a special heart."
"Somebody like him" is a reference to Kerr's troubled past. "People make mistakes," Gibbons adds. "People deserve a second chance."
If Snowball Express is Michael Kerr's second chance, it appears his handling of it may only buy more trouble.