oversight

Social Security Advocacy: Organizations That Mail Fund-Raising Letters

Published by the Government Accountability Office on 1997-06-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman, Subcommittee
                 on Social Security, Committee on Ways
                 and Means, House of Representatives


June 1997
                 SOCIAL SECURITY
                 ADVOCACY
                 Organizations That
                 Mail Fund-Raising
                 Letters




GAO/HEHS-97-69
          United States
GAO       General Accounting Office
          Washington, D.C. 20548

          Health, Education, and
          Human Services Division

          B-276151

          June 18, 1997

          The Honorable Jim Bunning
          Chairman, Subcommittee on Social
            Security
          Committee on Ways and Means
          House of Representatives

          Dear Mr. Chairman:

          The Congress and the media have been concerned that some organizations
          conduct fund-raising efforts that may raise elderly people’s fears about
          Social Security. Some organizations, for example, have sent letters to
          elderly people stating that the Social Security program has “dire financial
          troubles” or that its trust funds are being “mishandled” and requesting
          financial contributions to combat these alleged threats to the program.
          The media have reported that the letters have aroused elderly people’s
          fears because they distort problems facing Social Security and exaggerate
          threats to Social Security beneficiaries. The media have criticized some
          letters for using scare tactics to solicit millions of dollars in donations
          from the elderly.

          Because some organizations mailing these letters are exempt from federal
          income taxes, some individuals may perceive their activities as being
          conducted at taxpayer expense. In addition, the general public could view
          these organizations’ tax-exempt status as validation for the worthiness of
          their fund-raising appeals. This is because an organization’s tax-exempt
          status is based on the Internal Revenue Service’s (IRS) recognition of it as a
          nonprofit organization promoting the general welfare.

          Because of your concerns, you asked us to identify organizations that use
          Social Security issues as part of their mail fund-raising appeals.
          Specifically, you wanted to know (1) the bases for the groups’ tax
          exemption; (2) the services the groups provide; (3) their sources of
          income, income subject to taxes, and expenses; (4) their financial
          relationships with other businesses; and (5) characteristics of their Social
          Security-related fund-raising letters. As agreed with your office, this report
          discusses the results of our review of seven organizations that we
          identified as using Social Security issues in fund-raising letters. The
          organizations we identified are the

      •   American Conservative Union,




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                   •   Council for Citizens Against Government Waste,
                   •   National Committee to Preserve Social Security and Medicare,
                   •   TREA Senior Citizens League,
                   •   The Seniors Coalition,
                   •   60/Plus Association, and
                   •   United Seniors Association, Inc. (USA).

                       Other organizations are also involved in Social Security-related advocacy;
                       however, they do not rely on mail fund-raisers to the public for support.
                       For example, the Council of Better Business Bureaus, Inc., reported one
                       such organization as relying on sales of services and products to members,
                       commercial activities, or government grants to support its advocacy.

                       To develop our information, we reviewed the Social Security
                       Administration’s (SSA) correspondence files to identify organizations that
                       combine Social Security advocacy with fund-raising letters to the public.
                       SSA develops these files by encouraging individuals who question Social
                       Security-related mailings received from businesses to send the agency the
                       organizations’ solicitation packages. We also obtained information that the
                       organizations provided either for public record to state regulatory
                       agencies and a consumer interest group or in response to our inquiries. We
                       mailed letters in August 1995 and conducted interviews in November 1996
                       and March 1997, requesting officials of the organizations to provide
                       information on their organizations’ activities and their views on issues
                       addressed in this report. We conducted our review between March 1995
                       and March 1997 following generally accepted government auditing
                       standards. (See app. I for more details on our objectives, scope, and
                       methodology.) Appendixes II through VIII detail information on each
                       organization, including each’s three most recent information returns based
                       on IRS Forms 990 (if available) and an example of one of its Social
                       Security-related fund-raising letters.1


                       The seven organizations we identified that have mailed the public
Results in Brief       fund-raising letters alleging threats to Social Security programs are
                       nonprofit organizations exempt from paying federal income taxes on
                       income they receive from the public that relates to the public service they
                       provide. The organizations report providing a variety of public services,
                       especially education and advocacy on publicly debated issues. For
                       example, they report educating, lobbying, and testifying as advocates for
                       the public on issues such as (1) the status of Social Security’s trust funds,

                       1
                        IRS Form 990 is a tax-exempt organization’s public annual report on its income and expenses.



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             tax increases, and earnings limits; (2) health care; (3) Medicare; (4) foreign
             policy; and (5) the federal budget.

             The organizations depend on fund-raising letters to generate most of the
             income supporting their activities. For tax year 1993, the most recent year
             for which comparable data exist, the seven organizations received over 90
             percent of their income from public contributions. Their annual
             contributions from the public ranged from about $352,000 to $37 million.
             They reported to the IRS that 61 to 79 percent of their total spending
             supported public service activities and 14 to 37 percent supported fund-
             raising.

             Each of the organizations uses a contractor to produce and distribute its
             educational materials and to conduct its fund-raising activities. We were
             told that hiring professional fund-raising contractors is commonplace in
             organizations that solicit contributions to support their activities.
             According to officials involved in regulating tax-exempt organizations that
             solicit contributions, the organizations are not prohibited from using
             fund-raising contractors to manage their educational and fund-raising
             activities. Organization officials acknowledged that their fund-raising
             letters discuss issues in strong terms but said their letters are intended not
             to scare but to educate the public and motivate individuals to action on
             certain issues.


             Some organizations advocate for Social Security issues as part of their
Background   fund-raising appeals. Included among the activities of such organizations
             are producing and distributing informational materials to the public and
             soliciting contributions from supporters. Some of these informational
             materials have included statements about (1) “thefts” by the federal
             government from the Social Security trust funds, (2) threats to cost-of-
             living adjustments for Social Security benefits, and (3) proposed Social
             Security tax increases. These fund-raising letters have sometimes included
             surveys and petitions to raise support for these organizations’ positions.

             Organizations may be exempt from paying federal income taxes for
             varying reasons. The Internal Revenue Code has 25 categories of
             organizations—each with its own rules—that qualify for such exemption.2
             To qualify, organizations must be nonprofit and organized for one of the
             purposes specifically mentioned in the Internal Revenue Code.


             2
              They may also be exempt from many state and local taxes.



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                    IRSexempted six of the organizations we identified under Internal Revenue
Bases for           Code section 501(c)(4) as social welfare organizations, and it exempted
Organizations’      the other as a qualifying veterans’ organization under section 501(c)(19).3
Tax-Exempt Status   Section 501(c)(4) allows IRS to exempt nonprofit groups operated and
                    organized exclusively to promote activities benefiting the common good
                    and general welfare of a broad community of people. Section
                    501(c)(19) provides an exemption for nonprofit veterans’ groups that
                    promote similar activities specific to veterans. Among the seven
                    organizations, three have had their tax exemption less than 6 years, three
                    an average of 13 years, and one about 32 years.

                    Charitable, religious, educational, and scientific organizations, known
                    collectively as charities, are the best known tax-exempt organizations and
                    are exempt under section 501(c)(3).4 The tax provision for social welfare
                    organizations was intended to grant exemptions to organizations that were
                    not purely charitable but that served patriotic or community purposes.

                    Social welfare organizations differ from charities because contributions to
                    such organizations do not qualify as charitable deductions for federal
                    income tax purposes. IRS requires social welfare organizations to disclose
                    in their fund-raising materials that contributions to them do not qualify as
                    charitable deductions.5 In addition, before July 30, 1996, the Internal
                    Revenue Code stipulated nothing about the issue of individuals profiting
                    financially from social welfare organizations’ activities. Since that time,
                    the Internal Revenue Code has been amended so that the exemption
                    allowed under section 501(c)(4) does not apply if any of the organization’s
                    earnings benefit a private shareholder or individual.6

                    In their application for tax exemption, the six groups receiving tax
                    exemptions under section (501)(c)(4) and the one receiving an exemption
                    under (501)(c)(19) proposed advocating for the public interest by trying to

                    3
                     Social Security-related fund-raising letters were previously mailed by the TREA Senior Citizens
                    League, part of The Retired Enlisted Association, before the Senior Citizens League received its own
                    501(c)(4) tax exemption.
                    4
                     An organization may have exemptions from federal income taxes under more than one section of the
                    Internal Revenue Code such as in cases when the organization establishes separate units that also
                    qualify for tax exemptions.
                    5
                     We found the organizations’ mailings generally include response devices such as surveys and petitions
                    in which the organizations usually discuss the nondeductibility of contributions to them for federal
                    income tax purposes. Contributions to an organization exempt under section 501(c)(19) of the Internal
                    Revenue Code may qualify as charitable deductions for federal income tax purposes if 90 percent or
                    more of the organization’s members are war veterans.
                    6
                     P.L. 104-168.



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                     influence legislation by contacting legislators or the general public. In
                     requesting federal income tax exemption from IRS, the seven organizations
                     essentially described their main purpose as educating the public about
                     relevant issues and increasing its participation in the political arena.


                     All seven organizations said that they rely on fund-raising letters to finance
Organizations        their educational and advocacy work. They had from 80,000 to 6 million
Emphasize Advocacy   senior citizens, retired military personnel, and members of the general
Work                 public among their members and supporters, we were told.7

                     Officials of the organizations we spoke with said their organizations are
                     issue oriented rather than service oriented. That is, sales of services and
                     merchandise to members constitute a small portion of their income.
                     Officials said they educate and advocate for members and target audiences
                     on a range of issues—including the Social Security program. Issues other
                     than Social Security include foreign policy, welfare reform, Medicare,
                     health care, the consumer price index, and federal spending. In addition to
                     mass mailing fund-raising letters, these organizations send newsletters to
                     members and distribute a variety of free, issue-oriented informational
                     literature to members of the Congress, the media, and interested groups.
                     As examples, the organizations cited publications that rated individual
                     Congress members, another containing questions most asked about Social
                     Security benefits, and one detailing basic information about becoming a
                     senior activist. Radio public service announcements; television programs
                     featuring seniors’ issues; a toll-free telephone line for members to obtain
                     information on relevant issues; and ancillary services, such as discounts
                     on prescription drugs, eyeglasses, and travel discounts are offered by a
                     few of these organizations.

                     The organizations also reported conducting activities to influence
                     legislation such as lobbying and testifying before the Congress. Examples
                     of these activities include (1) sponsoring a conference to discuss and set
                     political agendas for publicly debated issues; (2) lobbying for the repeal of
                     the Social Security tax increase and earnings limit; and (3) testifying on
                     issues such as health care, the federal budget, and telemarketing of
                     seniors. Officials said the organizations often attach surveys and petitions
                     to their fund-raising letters to raise support for certain positions. They
                     reported communicating supporters’ responses to surveys and petitions to
                     the Congress or the President and sometimes urging supporters to

                     7
                      Some of the organizations defined members as individuals who made recent contributions and
                     supporters as individuals who answered surveys or signed petitions.



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                      communicate directly with elected officials. Most indicated that they also
                      participate in or conduct town meetings and workshops on issues of
                      interest to their targeted groups. We verified neither each organization’s
                      performance of the reported activities nor these activities’ frequency.


                      The seven organizations receive their income mainly from public
Income and Expenses   contributions and to a lesser extent from commercial activities. Income
                      they receive from commercial activities is taxed if those activities do not
                      substantially relate to the basis for their tax exemption. For example,
                      income from magazine sales may or may not be taxable depending on the
                      facts and circumstances of each case, which determine whether the
                      activity substantially relates to the organization’s tax exemption.

                      A review of the organizations’ annual information returns revealed that all
                      rely on public contributions as their main source of income. The
                      organizations use fund-raising letters to generate contributions. For 1993,
                      the most recent year for which comparable information was available,
                      contributions from the public constituted at least 92 percent of each
                      organization’s total income. For the seven organizations, the amounts they
                      received from the public ranged from about $352,000 to $37 million. Six of
                      them reported total tax-exempt income from commercial activities—
                      interest on investments, insurance income, sales of mailing lists,
                      advertising revenue, and convention sales—ranging from $11,000 to
                      $527,000. Three of the six reported taxable commercial income (not
                      substantially related to their tax-exempt purposes) of $7,000, $241,000, and
                      $2 million, respectively. (See table 1 for amounts reported by each
                      organization.)




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Table 1: Organizations That Mail Social Security-Related Fund-Raising Letters to the Public, Tax Year 1993 Financial Profile
Dollars in thousands
                                        Council for              National
                                          Citizens          Committee to             TREA
                         American          Against        Preserve Social           Senior              The
                      Conservative     Government            Security and          Citizens         Seniors        60/Plus
                            Union           Waste               Medicare           League          Coalition   Associationa       USA
Income from
General public              $9,395             $2,926              $37,443           $4,161         $11,114            $352     $4,830
Taxable
commercial
activities                        0                  0                1,988                    7        241               0          0
Tax-exempt
commercial
activities                      89                  11                  527              333             70               0        285
Total income                $9,484             $2,937              $39,958           $4,501         $11,425            $352     $5,115
Expenses for
Public service
activities                    6,491             2,139                23,600            2,731          7,548             494      2,721
Fund-raising
activities                    2,239              490                  7,467            1,079          1,364             165      2,182
Administrative
activities                    1,610              252                  7,666              262            599              13        966
Total expenses             $10,340             $2,881              $38,733           $4,072          $9,511            $672     $5,869
                                           a
                                            60/Plus Association reported a $321,000 deficit.

                                           Source: IRS Form 990, “Return of Organization Exempt From Income Tax.”



                                           The seven organizations’ total expenses for tax year 1993 ranged from
                                           about $673,000 to about $39 million. Their reported expenses for public
                                           service activities ranged from about 46 to 79 percent of their total
                                           expenses. Expenses for fund-raising activities ranged from 14 to
                                           37 percent, and those for administrative activities ranged from 2 to
                                           20 percent of their total expenses. (See apps. II through VIII for a summary
                                           of each organization’s three most recent information returns.)

                                           The organizations routinely incurred certain expenses to conduct their
                                           educational and fund-raising programs, according to a review of the IRS
                                           Forms 990. They reported incurring expenses for (1) production and
                                           printing of informational materials, (2) postage and shipping to distribute
                                           materials to the public, (3) mailing lists and membership development to




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                     gain contributors and supporters, and (4) computer services to support
                     these functions.


                     All seven organizations use contractors to conduct educational and
Relationships With   fund-raising programs. Officials told us in March 1997 that, because these
Other Businesses     organizations depend heavily on public contributions, using experienced
                     fund-raisers is the most cost-effective way of managing their resources.
                     They said the cost of handling the large but infrequent workload of mailing
                     fund-raising letters in house would be prohibitive. Because professional
                     fund-raising contractors routinely handle large-volume mailings, however,
                     they can readily provide services necessary to market and produce mass
                     mailings at reduced costs. Moreover, these contractors serve as strategic
                     advisors to increase the effectiveness of the organizations’ mailings. The
                     contractors may recommend specific mail projects and schedules and
                     sometimes provide services to conduct mail campaigns or obtain the
                     services through other vendors. In the latter situation, when the contractor
                     arranges for other vendors to provide services, their contracts with the
                     nonprofit organizations require the vendors to be paid directly by the
                     nonprofit organizations.

                     The organizations develop and research the issues for their fund-raising
                     letters, officials told us, and fund-raising contractors do the creative
                     writing (subject to the organizations’ approval) and find vendors to
                     produce and mail letters. In addition, the organizations retain approval
                     authority, officials said, over services provided or obtained on their behalf
                     by fund-raising contractors. Using professional fund-raisers to handle this
                     aspect of organization work allows more time for education and advocacy
                     activities, according to officials.

                     From the records we examined, we could neither determine how much the
                     seven nonprofit organizations paid contractors to conduct their education
                     and fund-raising programs nor how much they paid other vendors chosen
                     by their fund-raising contractors. For six of the organizations, according to
                     our review of IRS Forms 990, about 59 to 92 percent of their spending was
                     for producing materials for mailing, delivering materials, increasing
                     membership, and hiring computer services. These same services were
                     specified in contracts with the six organizations’ fund-raising contractors.8



                     8
                      USA told us it did not use a fund-raising contractor for tax year 1993 but conducted its fund-raising
                     programs in house. The organization said 1994 was the first year it used a professional fund-raising
                     contractor.



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                       Each of the seven organizations we reviewed conducted mail campaigns
Fund-Raising Letters   that combined education and fund-raising activities. (See apps. II through
Make Emotional         VIII for examples of letters used in these campaigns.) We found examples
Appeals for Support    of letters describing money in the Social Security trust funds as having
                       been “borrowed” or “looted” by the Congress “to spend on wasteful
                       programs.” Other letters informed individuals that they will not receive the
                       benefits to which they are entitled because the Congress and President
                       “would rather tax Social Security benefits than stop their wasteful
                       spending” or because they are considering “anti-senior proposals” that
                       would reduce the amount of individuals’ Social Security benefits.

                       Members of the public wrote to SSA expressing concern about receiving
                       such Social Security-related fund-raising letters. SSA responded by
                       informing them that they do not have to contribute to the organizations to
                       continue receiving Social Security benefits and expressed concern that the
                       mailings undermine the public’s confidence in Social Security. In
                       publications that SSA provides the public, the agency has cautioned about
                       organizations that solicit contributions to “save” Social Security from
                       serious financial trouble or to support the organizations’ efforts to combat
                       alleged “mishandling” of the trust funds. One SSA publication reported that
                       some letters deliberately mislead individuals into thinking they must
                       respond with a donation or risk losing their Social Security benefits.

                       Officials of the organizations do not believe their Social Security-related
                       fund-raising letters scare the public, they told us, but that the type of
                       issues their letters raise is the source of the public’s concern. Their letters
                       educate the public about issues, such as the funding of Social Security
                       benefits and the government’s use of Social Security money, they said,
                       which are not fully understood by the public. It is more harmful to
                       members of the public to be uninformed and not act to influence
                       legislation affecting them, according to these officials.


                       The Commissioner of SSA and each of the seven organizations responded
Comments and Our       to our request for comments on a draft of this report, and they took no
Evaluation             exception to its contents. One of the organizations offered technical
                       comments, which we incorporated in the report. Appendix IX includes
                       letters from SSA and the six organizations that provided such letters,
                       commenting on our draft report.




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We are sending copies of this report to the Commissioner of SSA, the seven
organizations we reviewed, and other interested parties. Copies will also
be made available to others upon request.

If you or your staff have any questions about this report, please call me on
(202) 512-7215. Appendix X lists major contributors to this report.

Sincerely yours,




Jane Ross
Director, Income Security Issues




Page 10                                     GAO/HEHS-97-69 Fund-Raising Letters
Page 11   GAO/HEHS-97-69 Fund-Raising Letters
Contents



Letter                                                             1


Appendix I                                                        16

Objectives, Scope,
and Methodology
Appendix II                                                       19

American
Conservative Union
Appendix III                                                      27

Council for Citizens
Against Government
Waste
Appendix IV                                                       33

National Committee
to Preserve Social
Security and Medicare
Appendix V                                                        40

TREA Senior Citizens
League
Appendix VI                                                       45

The Seniors Coalition
Appendix VII                                                      55

60/Plus Association




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                        Contents




Appendix VIII                                                                                     64

United Seniors
Association
Appendix IX                                                                                       71

Comments From the
Social Security
Administration and
Six Organizations
Appendix X                                                                                        81

Major Contributors to
This Report
Tables                  Table 1: Organizations That Mail Social Security-Related                   7
                          Fund-Raising Letters to the Public, Tax Year 1993 Financial
                          Profile
                        Table II.1: ACU’s Financial Profile                                       21
                        Table III.1: CCAGW’s Financial Profile                                    28
                        Table IV.1: National Committee to Preserve Social Security and            34
                          Medicare’s Financial Profile
                        Table V.1: TREA’s and TREA Senior Citizens League’s Financial             42
                          Profile
                        Table VI.1: The Seniors Coalition’s Financial Profile                     47
                        Table VII.1: 60/Plus Association’s Financial Profile                      56
                        Table VIII.1: USA’s Financial Profile                                     65

Figures                 Figure II.1: ACU Fund-Raising Letter                                      23
                        Figure III.1: CCAGW Fund-Raising Letter                                   30
                        Figure IV.1: National Committee to Preserve Social Security and           36
                          Medicare Fund-Raising Letter
                        Figure V.1: TREA Fund-Raising Letter                                      44
                        Figure VI.1: The Seniors Coalition Fund-Raising Letter                    49
                        Figure VII.1: 60/Plus Association Fund-Raising Letter                     58
                        Figure VIII.1: USA Fund-Raising Letter                                    67




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Contents




Abbreviations

ACU        American Conservative Union
CCAGW      Council for Citizens Against Government Waste
IRS        Internal Revenue Service
SSA        Social Security Administration
TREA       The Retired Enlisted Association
USA        United Seniors Association, Inc.


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Page 15   GAO/HEHS-97-69 Fund-Raising Letters
Appendix I

Objectives, Scope, and Methodology


              Although we identified other organizations known for their Social Security
              advocacy, we focused on tax-exempt organizations combining fund-raising
              with Social Security advocacy in letters to the general public for our
              review. To do this, we initially reviewed files of SSA’s Office of Public
              Affairs to identify organizations that had sent Social Security-related
              fund-raising letters to the public. Next, we determined whether these
              organizations recently filed annual information returns (IRS Forms 990) as
              required by IRS for currently operating organizations. Through this process,
              we identified 10 organizations, only 7 of which were currently operating
              and had fund-raising letters in SSA’s files.

              The organizations we identified are the (1) American Conservative Union,
              (2) Council for Citizens Against Government Waste, (3) National
              Committee to Preserve Social Security and Medicare, (4) TREA Senior
              Citizens League, (5) The Seniors Coalition, (6) 60/Plus Association, and
              (7) United Seniors Association. Our objectives were to provide
              information about each organization on (1) the basis for its tax exemption;
              (2) the services it provides the public; (3) its income, income subject to
              taxes, and expenses; (4) its financial relationships with other businesses;
              and (5) characteristics of its Social Security-related fund-raising letters. In
              literature provided to the public, SSA encourages individuals who question
              Social Security-related mailings received from businesses to mail SSA the
              entire solicitation package along with their written inquiry. For example,
              members of the public have written to SSA asking whether they must send
              money to certain organizations to protect their Social Security benefits
              and have enclosed the solicitation packages that prompted them to
              contact SSA.

              Appendixes II though VIII include examples of Social Security-related
              fund-raising letters we found for each organization. These letters do not
              constitute the organizations’ complete solicitation packages and may not
              fully represent all the mailings they have sent to the public.

              In addition, we conducted literature searches and interviewed cognizant
              officials to discuss their knowledge of organizations that send Social
              Security-related mailings. We interviewed officials from SSA’s Office of
              Public Affairs and Office of Inspector General; IRS; the Council of Better
              Business Bureaus, Inc.; selected state regulatory agencies; and consumer
              interest groups. We also discussed ethical business practices with the
              National Charities Information Bureau and Direct Marketing Association.




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Appendix I
Objectives, Scope, and Methodology




We determined the bases for the organizations’ tax-exempt status by
reviewing their application for tax exemption (IRS Form 1024, “Application
for Recognition of Exemption”), IRS determination letters, the Internal
Revenue Code, and IRS reporting instructions.

In a certified letter to each of the seven organizations sent in August 1995,
we asked them to provide information about their operations and services
they provide the public. All organizations except 60/Plus Association
responded to our letter. In November 1996 and March 1997, we
interviewed officials from each organization to obtain their views on
issues addressed in our report and on their Social Security-related fund-
raising activities.

We profiled the organizations’ income and expenses by reviewing IRS
reporting instructions and analyzing the organizations’ three most recent
information returns, which they provided or which were on file with the
states where we conducted our field work.9 Generally, IRS requires
tax-exempt organizations to file an IRS Form 990, “Return of Organization
Exempt From Income Tax,” for public inspection.10 IRS Form 990 shows
expenses incurred by tax-exempt organizations for various types of
services. It also shows organizations’ allocation of expenses for services
on the basis of the function the services support. The functions include the
(1) public service activities for which the organization was created and
received its tax exemption, (2) fund-raising activities to solicit and handle
contributions received from the public, and (3) centralized administrative
activities (that is, board meetings and general legal services) not directly
related to either of the other two functions.

We could not determine the possible financial relationships among the
seven organizations, their fund-raising contractors, and other businesses.
We reviewed copies of the organizations’ contracts with their fund-raising
contractors on file with state regulatory agencies. We also reviewed
information that the National Committee to Preserve Social Security and
Medicare, TREA Senior Citizens League, The Seniors Coalition, and United
Seniors Association provided in response to an inquiry by the
Pennsylvania State Attorney’s Office. The Pennsylvania State Attorney’s
Office had requested organizations actively soliciting in the state to
provide it with information on the type of businesses with which the
organizations had contracts and an itemization of organizations’ payments

9
 IRS requires tax-exempt organizations to file a Form 990 within 5 months and 15 days of the close of
their fiscal year. Some states accept a copy of IRS Form 990 to satisfy state reporting requirements.
10
    Generally, annual reports are required for tax-exempt organizations with gross incomes over $25,000.



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Appendix I
Objectives, Scope, and Methodology




to vendors. Upon reviewing the above information, we determined that we
needed certain internal records of the organizations to determine the
amounts they had paid to fund-raising contractors and the amounts paid to
other vendors for services arranged by fund-raising contractors.

We developed information on the organizations’ relationships with other
businesses by reviewing their contracts with fund-raising contractors
corresponding to the periods covered by the organizations’ information
returns. We identified the services that fund-raising contractors managed
or provided for the organizations. We reviewed the organizations’
information returns to determine the amounts they reported spending for
services mentioned in contracts with their fund-raising contractors.

Information in this report was provided by these organizations for public
record to state regulatory agencies, to consumer interest groups, or in
response to our inquiries. We did not verify the accuracy of the
information provided. We performed our work at SSA headquarters in
Baltimore, Maryland; the IRS Southeast Key District Office, Exempt
Organization Branch; state offices in Maryland, Pennsylvania, and Virginia;
and offices of the seven organizations located in Washington, D.C., and
Virginia. We chose the state regulatory agencies because of their proximity
to our work location. We conducted our review between March 1995 and
March 1997 following generally accepted government auditing standards.




Page 18                                    GAO/HEHS-97-69 Fund-Raising Letters
Appendix II

American Conservative Union


                      The American Conservative Union (ACU), founded in December 1964,
                      received an exemption from federal income taxes as a social welfare
                      organization under section 501(c)(4) from IRS on April 1, 1977. In 1995, ACU
                      reported its membership to be about 800,000 members and supporters. ACU
                      advances the principles of American conservatism, using public education
                      and direct political action, according to an ACU official. The organization
                      uses mailings to correspond with members and prospective members. The
                      mailings do not specifically target seniors but people of all ages, said an
                      official.

                      ACU  is a multi-issue organization, said this official, and Social Security
                      issues have not been its major focus. Some of the issues ACU has addressed
                      in its mailings include the Social Security trust funds, health care reform,
                      Medicare, Social Security tax increases, defense and foreign policy, and
                      federal spending. In one of its Social Security-related mailings, ACU asked
                      individuals to help it get the “Congress’ greedy hands out of the Social
                      Security Trust Funds.” ACU’s letter alleged that the Congress borrowed
                      money from the Social Security trust funds and spent it on wasteful
                      programs. The letter requested financial contributions to support ACU’s
                      efforts to prevent future borrowing from the Social Security trust funds. It
                      also asked for signatures for a petition to support legislation to restrict the
                      Congress’ use of the Social Security trust funds. (See fig. II.1 at the end of
                      this app. for a copy of the letter.)


                      ACU does not provide members services in the customary sense but
Advocacy Activities   advocates for members through its educational and direct lobbying
                      activities, according to the official. ACU provides members its newsletter,
                      Battleline, which covers ACU’s activities and developments in the Congress.
                      ACU distributes a variety of free literature at events such as conferences.
                      The organization provided us a copy of ACU’s publication rating individual
                      members of the Congress on the basis of the members’ votes on a range of
                      issues. ACU said it provides these ratings to news media, advocacy groups,
                      and the public.

                      ACU uses direct mail “to inform, educate, and alert the public” about
                      particular issues, the ACU official said, and the mailings usually request
                      financial support and include petitions or surveys. Some of the mailings do
                      not seek financial help, however, but instead request individuals to take
                      certain actions such as writing or calling members of the Congress. ACU
                      compiles survey responses received from individuals and reports the
                      results in its newsletter, in subsequent mailings to the public, and in press



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                      American Conservative Union




                      releases, the official said. ACU usually presents the petitions to the
                      Congress.

                      ACU  provides a variety of political advocacy services. For example, ACU has
                      testified before the Congress and also encourages its members to make
                      their views known to the Congress. ACU annually sponsors the
                      Conservative Political Action Conference, during which conservative
                      activists and leaders discuss current issues and set future political
                      agendas.


                      For tax years 1991 through 1993, ACU received from $822,000 to
Income and Expenses   $9.4 million annually (over 95 percent of its income) from the public. (See
                      table II.1 for ACU’s financial profile based on IRS Form 990.) ACU reported
                      receiving income ranging from $11,000 to $89,000 from use of its mailing
                      list. It reported that all of this commercial income supported tax-exempt
                      activities and thus, under IRS rules, was not subject to federal income
                      taxes.




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                                                American Conservative Union




Table II.1: ACU’s Financial Profile
Dollars in thousands
                                           1993                                     1992                                1991
                                      Amount              Percent            Amount              Percent          Amount           Percent
Income from
General public                         $9,395                 99.1               $948                 95.5           $822             98.7
Taxable commercial
activities                                 0                    0.0                  0                 0.0               0              0.0
Tax-exempt commercial
activities                                89                    0.9                 45                 4.5             11               1.3
Total income                           $9,484                100.0               $993                100.0           $833            100.0
Expenses by function
Public service activities               6,491                 62.8                473                 49.0             81               8.9
Fund-raising activities                 2,239                 21.7                303                 31.4            764             83.5
Administrative activities               1,610                 15.6                190                 19.7             70               7.7
Total expenses                        $10,340                100.0               $966                100.0           $915            100.0
Expenses by services
Postage/shipping                        5,343                 51.7                342                 35.4            309             33.8
Printing/publication                    1,579                 15.3                130                 13.5            199             21.7
Mail list related                       1,729                 16.7                100                 10.4            172             18.8
Computer                                 381                    3.7
Subtotal                               $9,032                 87.4               $572                 59.2           $680             74.3
Other services                          1,308                 12.6                394                 40.8            235             25.7
Total expenses                        $10,340                100.0               $966                100.0           $915            100.0
                                                Note: Percents may not add to 100 due to rounding.

                                                Source: GAO summary of reporting on IRS Form 990.



                                             An ACU official attributed the increase in ACU’s contributions from the
                                             public between tax years 1991 to 1993 to the start-up of health care reform
                                             initiatives by President Clinton. At the start of health care reform, ACU
                                             substantially increased mailings to gain members and solicit contributions,
                                             said the official. He believed the increase in contributions from the public
                                             reflected a growing support for conservative groups such as ACU.

                                                ACU’s expenses for tax years 1991 through 1993 ranged from about
                                                $915,000 to $10 million. During this period, its expenses for public service
                                                activities increased from 8.9 percent of its total expenses to 62.8 percent.
                                                In the years following health care reform, the official said, ACU directed
                                                more of its spending to public service activities and less toward



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                     American Conservative Union




                     fund-raising. ACU reported that its spending for fund-raising activities
                     decreased from 83.5 to 21.7 percent of its total expenses during this
                     period.


                     Registration documents revealed that ACU had hired two fund-raising
Relationships With   contractors. An ACU official confirmed that the organization had contracts
Other Businesses     with both of the fund-raising contractors during the period covered by
                     ACU’s 1991 through 1993 information returns. One contractor provided
                     strategic planning and scheduling for ACU’s fund-raising program. It
                     oversaw all aspects of ACU’s fund-raising program, including writing copy,
                     selecting mailing lists and vendors for cashier services, and determining
                     the quantity of mailings. The contract authorized the contractor to accept
                     bids from other business on behalf of ACU for services to conduct fund-
                     raising. ACU paid vendors for the services its contractor obtained on its
                     behalf. The other contractor conducted an education as well as a
                     fund-raising program for ACU. The latter contractor either performed
                     services or subcontracted with other businesses on ACU’s behalf to obtain
                     services to conduct these programs. The latter contractor secured
                     computer services; procured mailing lists; and printed, produced, and
                     mailed literature. A review of ACU’s information returns for tax years 1991
                     through 1993 shows that 59.2 to 87.4 percent of ACU’s total expenses were
                     for services also specified in contracts with its contractors.




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                                       American Conservative Union




Figure II.1: ACU Fund-Raising Letter




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Appendix III

Council for Citizens Against Government
Waste

                      The Council for Citizens Against Government Waste (CCAGW), founded in
                      September 1984,11 received exemption as a social welfare organization
                      from federal income taxes under section 501(c)(4) from IRS on
                      December 21, 1984. CCAGW describes itself as providing its members and
                      the general public with educational materials about what it perceives as
                      government waste. In 1995, CCAGW had about 600,000 members, according
                      to an official.

                      Of its 16 mailings in 1993 and 1994, a CCAGW official said, only two
                      discussed Social Security issues. One advocated eight specific
                      governmentwide spending cuts instead of higher Social Security taxes, and
                      the other suggested that individuals inform their representatives if they
                      opposed recent tax increases on Social Security benefits.

                      CCAGW’s mailing about the Social Security tax increase asked current
                      Social Security beneficiaries whether they were “mad as hell that [their]
                      Social Security benefits [they] paid for during [their] working career are
                      now being taxed away.” It asked workers “if the new taxes made [them]
                      doubt that [they’ll] ever see a penny of the Social Security benefits [they]
                      are now paying for.” The letter said that the Congress and President
                      should stop taxing Social Security benefits and instead be forced to cut
                      wasteful spending. It urged individuals to support CCAGW’s efforts to
                      protect current and future Social Security benefits by contributing to
                      CCAGW and supporting its petition to repeal the 1993 Social Security tax
                      increase. (See fig. III.1 at the end of this app. for a copy of the letter.)


                      CCAGW  mails members a wide variety of literature about government waste,
Advocacy Activities   including a quarterly newsletter. CCAGW has not surveyed its members
                      about Social Security-related issues, according to the official.

                      CCAGW   lobbies the Congress on its members’ behalf. On occasion, the
                      official said, CCAGW asks members to send letters to their congressional
                      representatives to oppose specific congressional actions. In 1995, CCAGW
                      joined the Coalition for America’s Future, which lobbied for the repeal of
                      the 1993 Social Security tax increase and an increase in the earnings limit
                      for Social Security beneficiaries, among other activities.


                      From tax years 1992 through 1994, CCAGW received from $2.3 million to
Income and Expenses   $2.9 million a year (over 99 percent of its income) from the public. (See

                      11
                        Before Sept. 1985, CCAGW was called Council for Citizens Against Waste.



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                                              Council for Citizens Against Government
                                              Waste




                                             table III.1 for CCAGW’s financial profile based on IRS Form 990.) During this
                                             period, CCAGW received from $4,000 to $11,000 a year in income from
                                             interest, royalties, and sales of items at conferences. CCAGW reported all of
                                             the income from these activities as mission related and therefore exempt
                                             from federal income taxes.


Table III.1: CCAGW’s Financial Profile
Dollars in thousands
                                            1994                                  1993                                1992
                                   Amount                  Percent         Amount              Percent          Amount           Percent
Income from
General public                       $2,305                   99.6           $2,926                 99.6         $2,613             99.8
Taxable commercial
activities                                  0                  0.0                 0                 0.0               0              0.0
Tax-exempt commercial
activities                                  9                  0.4                11                 0.4               4              0.2
Total income                         $2,314                  100.0           $2,937                100.0         $2,617            100.0
Expenses by function
Public service activities                1,770                76.6            2,139                 74.2          1,985             76.0
Fund-raising activities                   396                 17.1              490                 17.0            446             17.1
Administrative activities                 144                  6.2              252                  8.7            182               7.0
Total expenses                       $2,310                  100.0           $2,881                100.0         $2,613            100.0
Expenses by services
Postage/shipping                           12                  0.5                17                 0.6             16               0.6
Printing/publication                      178                  7.7              282                  9.8            221               8.5
Membership related                       1,474                63.8            1,836                 63.7          1,599             61.2
Subtotal                             $1,664                   72.0           $2,135                 74.1         $1,836             70.3
Other services                            646                 28.0              746                 25.9            777             29.7
Total expenses                       $2,310                  100.0           $2,881                100.0         $2,613            100.0
                                              Note: Percents may not add to 100 due to rounding.

                                              Source: GAO summary of reporting on IRS Form 990.



                                              CCAGW’s     expenses for the 3 years have been between $2.3 million and
                                                 $2.9 million. Its expenses for public service activities have generally been
                                                 around 75 percent of its total spending, with fund-raising expenses
                                                 accounting for less than 9 percent of its total spending.




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                     Council for Citizens Against Government
                     Waste




                     CCAGW used a contractor to conduct its fund-raising program. CCAGW’s
Relationships With   contract with the fund-raising contractor that we reviewed covered from
Other Businesses     April 1, 1994, through March 31, 1997. The contract required the
                     fund-raising contractor to recommend specific mail projects and
                     schedules. In addition, the contract stated that the fund-raising contractor
                     would procure mailing list(s) of prospective donors from other businesses
                     and could also contract with other vendors for services such as creating,
                     producing, and mailing materials. The contract stated that CCAGW would
                     pay vendors for services the contractor arranged on its behalf. CCAGW used
                     the same contractor during the years covered by its 1992 through 1994
                     financial reports, according to an official. The fund-raising contractor
                     essentially performed the same services during the earlier period. For tax
                     years 1992 through 1994, CCAGW’s expenses for services mentioned in the
                     contract with its fund-raising contractor accounted for 70 to 74 percent of
                     CCAGW’s total spending.




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                                          Council for Citizens Against Government
                                          Waste




Figure III.1: CCAGW Fund-Raising Letter




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Waste




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Waste




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Appendix IV

National Committee to Preserve Social
Security and Medicare

                      The National Committee to Preserve Social Security and Medicare,
                      incorporated on November 18, 1982, received exemption as a social
                      welfare organization from federal income taxes under section
                      501(c)(4) from IRS on February 22, 1983. As part of its mission, the
                      Committee has stated that it will support the continuation of the Social
                      Security and Medicare programs and work to maintain the integrity of the
                      Social Security trust funds for all Americans.

                      The Committee uses mailings to conduct its education and advocacy
                      activities. In 1995, the organization had about six million members and
                      supporters. About once a month, according to an official, the organization
                      sends members and prospective members a mailing that discusses an issue
                      before the Congress that affects Social Security or Medicare. The mailing
                      usually requests contributions and includes a survey or petition.

                      In one of its mailings to the public, the Committee informed individuals
                      that the Congress was supporting a proposal that threatened future Social
                      Security benefits. The Committee’s letter told individuals that the
                      Congress’ “anti-senior proposals would reduce the amount of [their]
                      annual Social Security Cost-of-Living-Adjustment.” The Committee
                      reminded people of its success in opposing other cuts in Social Security
                      benefits and asked for their support once again. The letter requested
                      support for an enclosed petition and a financial contribution to the
                      organization. (See fig. IV.1 at the end of this app. for a copy of the letter.)


                      The Committee reports using a variety of means to communicate issues
Advocacy Activities   concerning senior citizens to its members, the public, and those in the
                      field of aging; some of these means involve no fund-raising. As examples,
                      an official cited the Committee’s bimonthly magazine, Secure Retirement,
                      its responses to the public’s written and telephone inquiries, legislative
                      alerts on pending issues, opinion editorials published in newspapers
                      nationwide, and radio public service announcements. The Committee
                      reports maintaining a toll-free information hot line to keep members
                      abreast of congressional developments and providing members discounts
                      for services such as medical prescriptions, eyeglasses, and hearing aids.

                      Among its advocacy activities, the Committee lobbies and testifies before
                      the Congress, surveys the public to formulate legislative positions, and
                      encourages members to communicate views to the Congress. The
                      organization reported in 1994 that it testified 10 times on a variety of
                      issues, including health care reform, Medicare reform, and the federal



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                                             National Committee to Preserve Social
                                             Security and Medicare




                                             budget. The Committee said it also holds town hall-style meetings with
                                             seniors about issues of interest to them and conducts outreach and
                                             information sharing on entitlement programs such as the Supplemental
                                             Security Income program.


                                             For tax years 1992 through 1994, the Committee received $34.2 million to
Income and Expenses                          $37.4 million annually (around 93 percent of its income) from the public.
                                             (See table IV.1 for the Committee’s financial profile based on IRS Form
                                             990.) It received income of $2.3 million to $2.6 million from interest and
                                             magazine sales. It reported that all of its income from magazine sales,
                                             ranging from $1.5 million to $2.2 million, was unrelated to its tax-exempt
                                             mission and therefore subject to federal income taxes.


Table IV.1: National Committee to Preserve Social Security and Medicare’s Financial Profile
Dollars in thousands
                                         1994                                    1993                                1992
                                   Amount              Percent            Amount              Percent          Amount           Percent
Income from
General public                     $36,293                 93.4           $37,443                  93.7        $34,159             93.7
Taxable commercial
activities                            2,241                  5.8             1,988                  5.0          1,549               4.2
Tax-exempt commercial
activities                             322                   0.8               527                  1.3            766               2.1
Total income                       $38,856                100.0           $39,958                 100.0        $36,474            100.0
Expenses by function
Public service activities           24,225                 59.3             23,600                 60.9         18,053             53.1
Fund-raising activities               7,849                19.2              7,467                 19.3          9,246             27.2
Administrative activities             8,808                21.5              7,666                 19.8          6,722             19.8
Total expenses                     $40,882                100.0           $38,733                 100.0        $34,021            100.0
Expenses by services
Postage/shipping                      6,908                16.9              6,284                 16.2          4,968             14.6
Printing/publication                17,583                 43.0             17,622                 45.5         14,692             43.2
Mail list related                     1,021                  2.5               954                  2.5          1,082               3.2
Computer                              2,407                  5.9             1,193                  3.1          1,131               3.3
Subtotal                           $27,919                 68.3           $26,053                  67.3        $21,873             64.3
Other services                      12,963                 31.7             12,680                 32.7         12,148             35.7
Total expenses                     $40,882                100.0           $38,733                 100.0        $34,021            100.0
                                             Note: Percents may not add to 100 due to rounding.

                                             Source: GAO summary of reporting on IRS Form 990.




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                     National Committee to Preserve Social
                     Security and Medicare




                     The Committee’s expenses for the 3 years have ranged from $34.0 million
                     to $40.9 million. During this period, it reported that from 53 to 61 percent
                     of its total expenses were for public service activities. The organization
                     reported that fund-raising expenses accounted for 27 percent of its total
                     spending for the first year and 19 percent for the last 2 years covered by its
                     1992 through 1994 information returns.


                     The Committee used a fund-raising contractor to conduct its direct mail
Relationships With   educational and fund-raising programs. A Committee official confirmed
Other Businesses     that the organization had a contract with the fund-raising contractor in
                     effect during the tax years covered by its 1992 through 1994 information
                     returns. A review of the contract revealed that the fund-raising contractor
                     oversaw such functions as printing and producing materials; mail list-
                     related services; and computer, mailing, and postage services. The
                     contractor either provided the services or arranged for the Committee to
                     receive the services from other vendors. The Committee retained control
                     over all its fund-raising activities, including timing, frequency, nature, and
                     content of mailings, according to an official. It also had contracts with
                     other vendors, we found, for cashier operations, data processing,
                     publication of its magazine, investment management, list management and
                     brokerage, prescription drug services, office supplies, artwork, and
                     various consulting services. Expenses for the services mentioned in the
                     Committee’s contract with the contractor that conducted its educational
                     and fund-raising programs accounted for about two-thirds of the
                     Committee’s total spending during the 3-year period.




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                                          National Committee to Preserve Social
                                          Security and Medicare




Figure IV.1: National Committee to Preserve Social Security and Medicare Fund-Raising Letter




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National Committee to Preserve Social
Security and Medicare




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Security and Medicare




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Page 39                                 GAO/HEHS-97-69 Fund-Raising Letters
Appendix V

TREA Senior Citizens League


                      TREA  Senior Citizens League was established in 1993 as a special project of
                      The Retired Enlisted Association (TREA). TREA, founded in 1963, received
                      its current exemption from federal income taxes as a qualifying veterans’
                      organization under section 501(c)(19) from IRS on June 29, 1984. TREA is a
                      federally chartered veterans’ organization that provides services to retired
                      military personnel. TREA considers its target audience to be military
                      personnel retired either due to a medical disability or to longevity of
                      service.

                      According to a League official, the League became an independent affiliate
                      of TREA in January 1995 and received an exemption from federal income
                      taxes under section 501(c)(4) from IRS on June 28, 1995. The League has
                      stated that its mission includes protecting and defending benefits—Social
                      Security, Medicare, and veterans’ or military benefits—earned and paid for
                      by seniors. In 1997, the League had over 750,000 members and supporters,
                      according to a League official.

                      TREA  created the League to address seniors’ issues beyond those
                      concerning TREA’s existing membership of retired military personnel,
                      according to the official. TREA’s Social Security-related mailings are
                      conducted by the League, this official said. A consumer group reported
                      that the League has been involved in the Social Security “notch” issue
                      since 1993.12 Other issues the League has addressed include cost-of-living
                      adjustments, Medicare, health care, and health maintenance organizations.

                      One of the League’s Social Security-related mailings has concerned the
                      notch issue. The letter informed individuals that “many Notch Victims
                      receive Social Security checks of $100, $500, and even $1,000 a year LESS
                      than they would if Congress passes Notch reform.” The letter asked
                      individuals who are notch victims for permission to include their names in
                      the League’s petition for notch reform that it would present to the
                      President and the Congress. It also asked people to financially support the
                      League’s effort to collect two million signatures for its petitions. (See fig.
                      V.1 at the end of this app. for a copy of the letter.)


                      The League reports using its educational materials to increase public
Advocacy Activities   awareness. The organization distributes its newsletter, The Social Security

                      12
                        Social Security retirees born in 1917 and beyond generally receive lower benefits than those born
                      earlier—a disparity commonly referred to as the “notch.” In 1972, the Congress adjusted the Social
                      Security formula, causing individuals born between 1910 and 1916 to receive higher benefit amounts
                      than intended. In 1977, the Congress corrected the formula and in effect reduced benefits to intended
                      levels for retirees born in 1917 and beyond.



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                      Appendix V
                      TREA Senior Citizens League




                      & Medicare Advisor, 10 times a year to its most active supporters. It also
                      distributes a variety of literature on issues of interest to seniors such as
                      The Notch Victim’s Handbook and The Senior Activist’s Survival Manual.
                      The League reports conducting polls and gathering research information,
                      which it provides to lawmakers, its members, and the general public.

                      The League’s lobbying activities have included providing the results of its
                      surveys and petitions, sometimes included with its mailings, to the
                      Congress as well as providing elected officials information on seniors’
                      issues upon request.


                      For tax years 1993 through 1995, TREA and the League received over 92
Income and Expenses   percent of their income from the public. Their combined revenues were
                      $4.5 million and $6.8 million for 1993 and 1994, respectively. In 1995, the
                      League reported revenues of $1.9 million. (See table V.1 for TREA’s and the
                      League’s financial profile based on IRS Form 990.) For the first 2 years,
                      their combined report showed income from activities such as insurance
                      sales, interest on savings, magazine advertising, and conventions. TREA
                      reported that less than 1 percent of its total income was unrelated to its
                      tax-exempt purpose and thus subject to federal income taxes. For tax year
                      1995, the League reported receiving commercial income of $76,000 from
                      interest on savings and its mailing list. It reported all of this income as
                      mission-related and therefore exempt from federal income taxes.




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                                             Appendix V
                                             TREA Senior Citizens League




Table V.1: TREA’s and TREA Senior Citizens League’s Financial Profile
Dollars in thousands
                                    1995 Leaguea                              1994 TREA                              1993 TREA
                                  Amount               Percent            Amount              Percent            Amount          Percent
Income from
General public                      $1,872                 96.1             $6,403                 94.6            $4,161           92.4
Taxable commercial
activities                               0                   0.0                  5                 0.1                    7         0.2
Tax-exempt commercial
activities                             76                    3.9               360                  5.3               333            7.4
Total income                        $1,948                100.0             $6,768                100.0            $4,501          100.0
Expenses by function
Public service activities            1,267                 63.8              4,453                 72.3             2,731           67.1
Fund-raising activities               456                  23.0              1,432                 23.3             1,079           26.5
Administrative activities             263                  13.2                272                  4.4               262            6.4
Total expenses                      $1,986                100.0             $6,157                100.0            $4,072          100.0
Expenses by services
Postage/shipping                      970                  48.8              1,760                 28.6               730           17.9
Printing/publication                                                         1,511                 24.5             1,117           27.4
Mail list related                     212                  10.7                652                 10.6               309            7.6
Membership related                                                             590                  9.6               542           13.3
Subtotal                            $1,182                 59.5             $4,513                 73.3            $2,698           66.3
Other services                        804                  40.5              1,644                 26.7             1,374           33.7
Total expenses                      $1,986                100.0             $6,157                100.0            $4,072          100.0
                                             Note: Percents may not add to 100 due to rounding.
                                             a
                                             1995 was the first year the League reported as an independent organization.

                                          Source: GAO summary of reporting on IRS Form 990.



                                          Over the 3 years, expenses for both organizations have ranged from about
                                          $2.0 million to $6.2 million. For these years, TREA and the League reported
                                          that over 60 percent of their expenses were for public service activities
                                          and about 25 percent were for fund-raising activities.


                                             TREA  and the League used a contractor to conduct their fund-raising and
Relationships With                           education programs. The contractor created and produced mail
Other Businesses                             solicitation packages and provided, or obtained under contract with
                                             others, services for mail list brokerage, computer services, production,




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Appendix V
TREA Senior Citizens League




printing, and mailings. A TREA official confirmed that the contracts were in
effect during the period covered by its 1993 and 1994 information returns,
and, since January 1995, the League has been assigned the terms and
conditions of TREA’s contract, according to a League official. A review of
TREA’s and the League’s 1993 through 1995 information returns shows that
expenses for services mentioned in the contract accounted for from 59 to
73 percent of their total expenses.




Page 43                                     GAO/HEHS-97-69 Fund-Raising Letters
                                       Appendix V
                                       TREA Senior Citizens League




Figure V.1: TREA Fund-Raising Letter




                                       Page 44                       GAO/HEHS-97-69 Fund-Raising Letters
Appendix VI

The Seniors Coalition


                      The Seniors Coalition, incorporated on September 17, 1990, received
                      exemption as a social welfare organization from federal income taxes
                      under section 501(c)(4) from IRS on July 15, 1991. The Seniors Coalition
                      has stated its mission as public education and lobbying on behalf of
                      seniors nationwide. The organization had one million members and
                      another one million supporters in 1995, according to a Coalition official.

                      The Seniors Coalition conducts prospective membership mailings on an
                      ongoing basis. Once a month, according to an official, The Seniors
                      Coalition sends mailings to alert members to publicly debated issues,
                      solicit contributions, and request membership renewals. Some of the
                      Social Security issues the organization has addressed have included
                      opposing Social Security tax increases, protecting Social Security, and
                      eliminating work penalties.

                      In one of these mailings, The Seniors Coalition accused the Congress of
                      “looting of the [Social Security] trust funds.” The Congress “stole the
                      money . . . and spent it on wasteful pork barrel spending projects . . .”, and
                      the letter warned individuals that the Social Security program “will be in
                      grave financial jeopardy in the future.” The letter asked individuals to
                      financially support The Seniors Coalition’s efforts to stop the Congress’
                      raid on the trust funds, restore money owed the trust funds, and insulate
                      the trusts funds from future congressional actions. The letter also asked
                      individuals to complete a survey and support its petition on the issue. (See
                      fig. VI.1 at the end of this app. for a copy of the letter.)


                      The Seniors Coalition conducts a wide range of activities to educate
Advocacy Activities   members and represent seniors’ interests. In addition to monthly issue
                      alerts, the organization sends members its bimonthly newsletter, the
                      Senior Class, which features information of interest to older Americans. In
                      the past year, The Seniors Coalition said it has published over a dozen
                      papers and books on issues of concern to seniors and distributed them to
                      the media, the Congress, and the public. As examples, it cited articles
                      titled “Medicare: Elderly Lifeline Under Attack” and “100 Most Asked
                      Questions About Your Social Security Benefits.” The organization offers
                      members discounts on prescription drugs and also provides them a
                      toll-free number to inquire about specific issues, ask questions about
                      member services, or request publications.

                      The Seniors Coalition reports that its lobbying efforts have included
                      testifying before the Congress many times and encouraging individuals to



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                      The Seniors Coalition




                      send letters and other communications to legislators. Some of the issues
                      the organization has testified on include the Social Security earnings limit
                      and long-term care. During the past year, the organization has involved the
                      public in dozens of town hall meetings and rallies nationwide, according to
                      an official.


                      For tax years 1992 through 1994, The Seniors Coalition received from
Income and Expenses   $8.8 million to $11.1 million (over 94 percent of its revenues) from the
                      public. (See table VI.1 for The Seniors Coalition’s financial profile based
                      on IRS Form 990.) During this period, its income from commercial
                      activities ranged from about $43,000 to $556,000. The organization
                      reported that about $43,000, $241,000, and $561,000 of income from
                      advertising and renting its mailing list in 1992, 1993, and 1994, respectively,
                      did not substantially support its tax exemption and was therefore subject
                      to federal income taxes.13 During this period, The Seniors Coalition
                      reported that over 70 percent of its total spending supported public service
                      activities and from 14 to 23 percent supported its fund-raising activities.




                      13
                       Difference in income amounts of $556,000 and $561,000 is due to a $5,000 loss that The Seniors
                      Coalition reported in tax-exempt commercial activities.



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                                               The Seniors Coalition




Table VI.1: The Seniors Coalition’s Financial Profile
Dollars in thousands
                                          1994                                       1993                                        1992
                                    Amount                Percent             Amount               Percent             Amount           Percent
Income from
General public                        $9,961                  94.7            $11,114                  97.3              $8,815            99.5
Taxable commercial
activities                               561                    5.3                241                  2.1                  43             0.5
Tax-exempt commercial
activities                                –5a                 –0.0                   70                 0.6                      0          0.0
Total income                         $10,517                 100.0            $11,425                 100.0              $8,858           100.0
Expenses by function
Public service activities              7,899                  71.8               7,548                 79.4               6,290            72.1
Fund-raising activities                2,121                  19.3               1,364                 14.3               2,024            23.2
Administrative activities                977                    8.9                599                  6.3                 409             4.7
Total expenses                       $10,997                 100.0              $9,511                100.0              $8,723           100.0
Expenses by services
Postage/shipping                       3,183                  28.9               3,059                 32.2               2,437            27.9
Printing/publication                   3,900                  35.5               3,473                 36.5               3,166            36.3
Mail list related                      1,303                  11.8               1,153                 12.1               1,254            14.4
Computer                                  28                    0.3                   0                 0.0                      0          0.0
Subtotal                              $8,414                  76.5              $7,685                 80.8              $6,857            78.6
Other services                         2,583                  23.5               1,826                 19.2               1,866            21.4
Total expenses                       $10,997                 100.0              $9,511                100.0              $8,723           100.0
                                               Note: Percents may not add to 100 due to rounding.
                                               a
                                                The Seniors Coalition reported a net loss in tax-exempt commercial activities.

                                            Source: GAO summary of reporting on IRS Form 990.




                                               The Seniors Coalition used a contractor to provide membership
Relationships With                             acquisition and creative and production services for its educational and
Other Businesses                               fund-raising programs. Among the services the fund-raising contractor
                                               provided were copy writing, acquiring mailing lists, printing, and mailing
                                               of literature. The fund-raising contractor was authorized to contract with
                                               other vendors on the Coalition’s behalf, although the Coalition remained
                                               liable for actual payments to vendors. The contractor provided services for
                                               most of the period covered by the three returns we reviewed, according to




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The Seniors Coalition




a Coalition official.14 The Seniors Coalition also had contracts with three
other businesses to receive cashier, list marketing, and data processing
services. The contracts with two of the vendors required them to recognize
the fund-raising contractor as The Seniors Coalition’s agent for contract
administration, and the third vendor was affiliated with the fund-raising
contractor. A review of The Seniors Coalition’s tax years 1992 through
1994 information returns shows that expenses for services mentioned in
the contract accounted for about 77 to 81 percent of the organization’s
total expenses.




14
  The official said that The Seniors Coalition was reorganized in Nov. 1992 and no longer had records
relevant to the organization before it was reorganized.



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                                           The Seniors Coalition




Figure VI.1: The Seniors Coalition Fund-Raising Letter




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The Seniors Coalition




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The Seniors Coalition




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The Seniors Coalition




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The Seniors Coalition




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The Seniors Coalition




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Appendix VII

60/Plus Association


                      60/Plus Association incorporated on October 2, 1990, and received its
                      exemption from federal income taxes as a social welfare organization
                      under section 501(c)(4) from IRS on March 28, 1991. In its annual
                      information returns, 60/Plus stated its purpose as protecting seniors’
                      rights. In applying for an exemption from federal income taxes, the
                      organization said it would mainly educate the general public about seniors’
                      concerns, including, but not limited to, the Social Security and Medicare
                      programs. In its application to IRS for tax exemption, 60/Plus said that it
                      planned to conduct educational activities that would include distributing
                      newsletters, journals, alerts, and letters and convening conferences. Its
                      advocacy activities would include encouraging seniors to express their
                      views on various issues to the Congress, it said. The organization had
                      about one-half million members in 1997, according to an official.

                      In one of its mailings, 60/Plus alleged that “President Clinton has requested
                      a 70% Social Security tax increase for about 10 million seniors” and that
                      the President “wants to increase many other taxes that affect seniors.” The
                      letter informed individuals that the President will certainly get his way
                      unless they are willing to protest the tax increases. 60/Plus’s letter asked
                      individuals to support its protest letter to the President and members of
                      the Congress and to complete its Social Security survey. The letter also
                      requested individuals to financially contribute to support 60/Plus’s efforts
                      to deliver more letters, send more surveys, and contact more voters. (See
                      fig. VII.1 at the end of this app. for a copy of the letter.)


                      60/Plus did not respond to our certified letter requesting information about
Advocacy Activities   the services the organization provides. In a 1997 meeting, a 60/Plus official
                      told us that the organization’s fund-raising letters are its primary way of
                      communicating with and educating members. Its members also receive its
                      newsletter, Senior Voice, three to four times a year. Some of the
                      organization’s other educational activities include participating in radio
                      and television interviews and issuing press statements about seniors’
                      issues, according to this official. 60/Plus sends general literature on the
                      organization to members of the public who inquire about it. The
                      organization does not offer any ancillary services such as insurance.


                      In its tax years 1993 and 1994 information returns, 60/Plus reported
Income and Expenses   income of $352,000 and $1.4 million, respectively. It listed contributions
                      from the public as its exclusive source of income. (See table VII.1 for
                      60/Plus’s financial profile based on IRS Form 990.) 60/Plus’s expenses for



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                                     60/Plus Association




                                     the 2 years were $672,000 and $1.9 million, respectively. For each of the 2
                                     years, 60/Plus reported that a little over 70 percent of its total expenses
                                     were for public service activities and a little over 20 percent for fund-
                                     raising activities.

Table VII.1: 60/Plus Association’s
Financial Profile                    Dollars in thousands
                                                                                     1994a                              1993b
                                                                              Amount            Percent          Amount           Percent
                                     Income from
                                     General public                             $1,367             100.0             $352              100.0
                                     Taxable commercial activities                     0              0.0                0               0.0
                                     Tax-exempt commercial
                                     activities                                        0              0.0                0               0.0
                                     Total income                               $1,367             100.0             $352              100.0
                                     Expenses by function
                                     Public service activities                    1,368             72.6              494               73.5
                                     Fund-raising activities                        398             21.1              165               24.6
                                     Administrative activities                      119               6.3               13               1.9
                                     Total expenses                             $1,885             100.0             $672              100.0
                                     Expenses by services
                                     Postage/shipping                               586             31.1                20               3.0
                                     Printing/publication                           338             17.9                72              10.7
                                     Mail list related                              669             35.5              501               74.6
                                     Computer                                        42               2.2               29               4.3
                                     Subtotal                                   $1,635              86.7             $622               92.6
                                     Other services                                 250             13.3                50               7.4
                                     Total expenses                             $1,885             100.0             $672              100.0
                                     Note: Percents may not add to 100 due to rounding.
                                     a
                                     60/Plus reported a $518,000 deficit.
                                     b
                                      60/Plus reported a $321,000 deficit; 1993 was the first year 60/Plus filed a Form 990 with the
                                     states.

                                     Source: GAO summary of reporting on IRS Form 990.




                                     60/Plus contracted with a business to conduct its educational and fund-
Relationships With                   raising programs. The contract allowed the fund-raising contractor to
Other Businesses                     either perform or hire other vendors to perform services such as designing
                                     programs; writing copy; obtaining mailing lists; printing, producing, and




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60/Plus Association




mailing letters; and providing computer services. 60/Plus’s contract with
its fund-raising contractor covered the 1993 through 1994 information
returns we reviewed. Our review of the two information returns revealed
that 60/Plus reported that from 86 to 92 percent of its total expenses were
for services also mentioned in the contract with its fund-raising
contractor.




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                                           60/Plus Association




Figure VII.1: 60/Plus Association Fund-Raising Letter




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60/Plus Association




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Appendix VIII

United Seniors Association


                      United Seniors Association (USA), incorporated on May 17, 1991, received
                      exemption from federal income taxes as a social welfare organization
                      under section 501(c)(4) from IRS on July 25, 1991. The organization had
                      400,000 members and 500,000 supporters in 1995, according to a USA
                      official. USA has stated that its purpose is to educate and inform seniors
                      and retirees about matters of interest to older Americans, including the
                      Social Security and Medicare programs.

                      An official said the organization communicates with members on a variety
                      of issues, mainly through mailings. Mailings have covered issues such as
                      Social Security, Medicare, and health care reform.

                      The letter accompanying one of USA’s Social Security-related mailings
                      informed individuals that “the tax increases on Social Security benefits
                      proposed [by the President] can be stopped.” The letter alleged that
                      politicians stole their money and “want to tax more of their benefits and
                      then turn around and cut Social Security benefits” instead of cutting their
                      “special interest spending,” which was the real cause of the federal deficit.
                      USA’s letter asked individuals to sign its protest letter relating to these
                      issues and to financially contribute to help USA alert other seniors about
                      the attacks on Social Security. (See fig. VIII.1 at the end of this app. for a
                      copy of the letter.)


                      USA members receive USA’s newsletter, The Senior American, about seven
Advocacy Activities   times a year, according to an official. The organization also publishes a
                      variety of other informative literature, which it distributes to senior
                      Americans and lawmakers. Since June 1995, USA has hosted a weekly cable
                      television program designed for seniors, according to the official. Among
                      the services the organization provides its members are discounts on
                      prescription drugs, eyewear, hotel accommodations, and rental cars.

                      The organization uses mailings to alert members and prospective members
                      to events of interest to them and to solicit their opinions on issues. USA’s
                      mailings often include response devices such as petitions, surveys, or
                      mailgrams. USA compiles responses to surveys, petitions, and mailgrams
                      and provides the information to the Congress, according to the official.

                      USA reports that it regularly lobbies the Congress on behalf of its members
                      and has testified before that body on a variety of issues, including
                      repealing the Social Security tax, Medicare reform, and pension




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                                                  United Seniors Association




                                                  protection. The organization reports regularly hosting or participating in
                                                  town hall meetings and other forums on elderly issues nationwide.


                                                  For tax years 1991 through 1993, income ranged from about $2.1 million to
Income and Expenses                               $5.1 million, with the public’s portion ranging from about 88 to 94 percent
                                                  of USA’s revenues. (See table VIII.1 for USA’s financial profile based on IRS
                                                  Form 990.) USA reported mail list rental and deferred income as the
                                                  sources of its other income. The organization reported that all of its other
                                                  income was related to its mission and therefore exempted from federal
                                                  income taxes.


Table VIII.1: USA’s Financial Profile
Dollars in thousands
                                             1993                                     1992                                1991
                                        Amount              Percent            Amount              Percent          Amount           Percent
Income from
General public                           $4,830                 94.4             $5,295                 92.0         $1,807             88.1
Taxable commercial
activities                                   0                    0.0                  0                 0.0             10               0.5
Tax-exempt commercial
activities                                 285                    5.6               463                  8.0            234             11.4
Total income                             $5,115                100.0             $5,758                100.0         $2,051            100.0
Expenses for
Public service activities                 2,721                 46.4              2,998                 48.8            937             49.2
Fund-raising activities                   2,182                 37.2                970                 15.8            379             19.9
Administrative activities                  966                  16.5              2,178                 35.4            590             31.0
Total expenses                           $5,869                100.0             $6,146                100.0         $1,906            100.0
Expenses by services
Postage/shipping                          1,337                 22.8              1,433                 23.3            603             31.6
Printing/publication                      1,720                 29.3              1,993                 32.4            597             31.3
Mail list related                          434                    7.4               560                  9.1            228             12.0
Subtotal                                 $3,491                 59.5             $3,986                 64.9         $1,428             74.9
Other services                            2,378                 40.5              2,160                 35.1            478             25.1
Total expenses                           $5,869                100.0             $6,146                100.0         $1,906            100.0
                                                  Note: Percents may not add to 100 due to rounding.

                                                  Source: GAO summary of reporting on IRS Form 990.




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                     United Seniors Association




                     For the 3 years, USA reported that from $937,000 to $3 million (around
                     48 percent) of its total spending supported public service activities. During
                     this period, USA’s spending for fund-raising ranged from about 20 to about
                     37 percent of its total spending.


                     In 1994 state registration documents, USA stated having used three
Relationships With   contractors to conduct its educational and fund-raising programs. Services
Other Businesses     received from one fund-raising contractor included consulting services for
                     (1) creating, designing, developing, and producing fund-raising solicitation
                     materials; (2) increasing membership; and (3) arranging for production/
                     mail shop services for newsletters. A second fund-raising contractor
                     advised USA on creating and producing mailing lists and mail packages.
                     The third contractor advised USA on its direct mail program and created
                     and produced packages for mailing. An official said the organization
                     received the services of the three contractors after the period covered by
                     its 1991 through 1993 information returns. USA did not use a fund-
                     raising contractor before 1994 but instead conducted its fund-raising
                     activities in house. USA also reported having contracts with three lobbyists,
                     a media relations business, a financial management services, and a
                     consultant to produce direct mail packages. From 1991 through 1993, USA
                     reported that expenses for services specified in these contracts accounted
                     for about 75 percent of its total expenses.




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                                         Appendix VIII
                                         United Seniors Association




Figure VIII.1: USA Fund-Raising Letter




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United Seniors Association




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United Seniors Association




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United Seniors Association




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Appendix IX

Comments From the Social Security
Administration and Six Organizations




               Page 71          GAO/HEHS-97-69 Fund-Raising Letters
Appendix IX
Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




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Comments From the Social Security
Administration and Six Organizations




Page 80                                GAO/HEHS-97-69 Fund-Raising Letters
Appendix X

Major Contributors to This Report


               Roland H. Miller III, Assistant Director, (202) 512-7246
               Jacquelyn Stewart, Senior Evaluator
               James Wright, Assistant Director
               John Smale, Social Science Analyst




(105155)       Page 81                                      GAO/HEHS-97-69 Fund-Raising Letters
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