Over Memorial Day weekend two weeks ago, American Spectator editor in chief R. Emmett Tyrrell Jr. got married in Washington, D.C. Following the Catholic ceremony, Tyrrell and his new bride invited friends to a black-tie reception at the capital's exclusive Cosmos Club.
What most of the wedding guests didn't know, however, is the role they and the rest of the taxpaying public play in subsidizing the cost of the Spectator's membership in the club. Like many expenses incurred by Tyrrell, the Cosmos membership is paid for by the American Spectator Educational Foundation, the tax-exempt foundation that publishes the monthly conservative magazine.
According to internal American Spectator documents obtained by Salon, many of Tyrrell's living costs, from his American Express card to the lawn care and utility charges at his house in suburban McLean, Va., are covered in whole or in part by the Spectator foundation. In fact, the foundation supplied one-third of the $598,492.68 purchase price of Tyrrell's house when he and his previous wife bought it in 1986. Under the terms of a trust agreement between Tyrrell and the foundation -- whose board he chairs -- the Spectator owns a one-third interest in the property. As part of the deal, the foundation also pays for a third of the upkeep and repair, including lawn service, water and utility bills.
Other items covered by the Spectator foundation have included an apartment in New York City used by Tyrrell; a membership at the New York Athletic Club; costly trips to London; and long-distance telephone calls by someone else using his calling card. Tyrrell received this generous package of benefits in addition to his annual salary of more than $200,000 and health and pension premiums.
Tyrrell's perks became a matter of concern to American Spectator officials, attorneys and accountants not long before the magazine's then publisher, Ronald Burr, began to raise questions about its spending on the Arkansas Project -- a four-year, $2.4 million effort to discredit President Clinton and his associates paid for by Pittsburgh conservative Richard Mellon Scaife.
After calling for a tax fraud audit of the Arkansas Project last summer and soliciting bids for the work from two accounting firms, Burr, who had been with the magazine since he and Tyrrell founded it as Indiana University students in 1967, was summarily dismissed as publisher by the Spectator's board of directors.
Burr is bound by a confidentiality agreement with the Spectator foundation, which agreed to pay him $350,000 in severance, and refused to comment on any aspects of his work there. Tyrrell did not return Salon's phone calls for this article. But internal Spectator documents, including letters from the foundation's lawyers and accountants, outline the extent of Tyrrell's expenditures -- and indicate that Burr was concerned about the possibility of tax code violations.
Internal Revenue Service regulations governing 501(c)3-type organizations such as the American Spectator Educational Foundation strictly regulate the use of tax-exempt resources for the "private inurement" of any individual beyond "reasonable compensation" for his or her services. Defining what is or is not "reasonable" has been a topic of particular concern to foundation executives since 1995, when United Way president William Aramony was convicted of misusing the charity's assets. (Aramony's $390,000 salary plus the use of a New York apartment was deemed excessive even though he ran a huge national organization.) By late 1996, when the Spectator's lawyers and accountants began to fret about the Tyrrell compensation issue, Congress had empowered the IRS to crack down on abuses like Aramony's with "intermediate sanctions," including the imposition of punitive taxes and fines.
In October 1996, with the advent of a new excise tax on excessive benefits to employees of tax-exempt foundations, Burr consulted William J. Lehrfeld, a Washington attorney who specializes in laws governing foundations and trusts. In a letter to Burr obtained by Salon, Lehrfeld, who provided legal counsel for the Arkansas Project, refers to "re-evaluating the tax status of Bob Tyrrell's housing arrangement and other arrangements," and requests detailed information about Tyrrell's contract, fringe benefits, credit card use and other expenses. In discussing the risk of an audit, Lehrfeld also makes an offhand reference to Richard Larry, the president of the Sarah Scaife Foundation and a chief advisor to Scaife. "I am not as pessimistic as Dick Larry that IRS will focus, after Clinton's re-election, on all of his conservative opponents via IRS audits," he writes. "But being a competent fiduciary means being prudent and prudence means being prepared for all events. Thus, this type of information would provide a starting point to protect Bob's financial relationship with the [Spectator] Foundation."
Just before federal tax returns came due in April 1997, lawyers and accountants associated with the Spectator began an examination of Tyrrell's compensation and benefits, with an eye toward possible violations of the IRS code. The magazine's certified public accountants, L.M. Henderson & Co., suggested in a letter to the Spectator's lawyers at Copilevitz & Canter that "it might be well to review the transactions that might come under scrutiny by the Service [IRS], so we can be better prepared in case of an audit ... I think it would be prudent for us to discuss possible strategies to keep the magazine from falling into any unnecessary pitfalls."
The letter's author, accountant Kevin L. Hart, noted that "we routinely examine all travel and entertainment expenses that the executives of American Spectator may incur. In the past two years, we have found items that we feel could come under some pressure from [the] Internal Revenue Service under their new guidelines." Hart outlined several potential problems, including "reimbursements that relate to the Magazine's ownership in [Tyrrell's] house" and to its maintenance costs, including garbage disposal, lawn care and electric and water charges. Another important task, he wrote, would be "to document the Magazine's purchase of the home, and why it was necessary to do so."
According to one tax expert, it would be difficult for Tyrrell to make such a case. "It's hard to see what charitable purpose it served," says Thomas A. Troyer, a leading expert on tax-exempt organizations and a partner of former IRS Commissioner Mortimer Caplin at the Washington, D.C., law firm of Caplin & Drysdale. If the foundation's partial ownership of Tyrrell's house were found to be improper, Troyer said, the American Spectator could lose its tax-exempt status because of the illegal inurement of some of its assets to the personal benefit of one of its insiders. "Its whole tax exemption and its qualification to receive deductible contributions and grants from private foundations free of expenditure responsibility would all be blown," he said.
In his letter, accountant Hart also pointed out the lack of documentation for expenditures by various American Spectator executives and Tyrrell, such as "fees from the Cosmos Club and the New York Athletic Club," several months' worth of American Express bills, invoices for $2,265.97 from a Washington, D.C., liquor store, "certain [overseas] trips" and the Con Edison utility bills from the apartment the foundation keeps for Tyrrell in New York. The foundation's board, Hart added, "should approve the use of the New York apartment and make clear the business purpose of this transaction."
"If some of the above items are not addressed," Hart warned, "the results could be disastrous." The penalties imposed by the IRS, he wrote, could go as far as "denying us our not-for-profit status, and we would lose our ability to provide a contributor with a tax deduction ... It could also cause us some unwanted publicity and public embarrassment."
Hart's conclusion was more upbeat, however. "Ron and Jeff [Kaufman, the Spectator's finance director] are both aware of these findings, and there seems to be some improvement with conversations I have had with Jeff."
Indeed, by then Kaufman seems to have started monitoring Tyrrell's spending closely. Reviewing the editor's use of his MCI phone card and comparing the phone bills with Tyrrell's personal schedule, he discovered charges from Bloomington and Indianapolis, Ind., on dates when Tyrrell was not in those cities. "It appears someone else is using his phone card number," Kaufman advised Burr in a March 1997 memo. Following up with an analysis of phone bills dating back to July 1995, Kaufman found more than $2,000 worth of long-distance calls originating in Indiana when Tyrrell wasn't there.
The effort to "document" Tyrrell's expenses and the magazine's part ownership of his house continued into the summer and fall of 1997, just as publisher Burr became embroiled in the internal controversy over the Arkansas Project. In July, the publisher sent a two-page memo to Copilevitz & Canter, listing "frequent visitors to Bob's home/office for business purposes" and "dinners and meetings at RET's home" in 1996 and 1997.
Aside from the magazine's staff members, the "frequent visitors" included Washington attorney Theodore Olson, a close friend and former law partner of independent counsel Kenneth Starr; David Henderson, the Spectator vice president who helped supervise the Arkansas Project; Stephen Boynton, the Virginia lawyer who disbursed most of the project's funds; and Ambrose Evans-Pritchard, then the London Daily Telegraph's Washington correspondent and a fixture of the anti-Clinton journalistic set.
As for the dinners, on a few occasions the guests were named only as "sources," while others who dined with Tyrrell ranged from former United Nations Ambassador Jeane J. Kirkpatrick, who is a member of the Spectator's board, to L.D. Brown, the former Arkansas trooper whose discredited tales of Clinton, cocaine and CIA intrigue at the Mena, Ark., airport were featured in the Spectator. All told, Burr listed 20 "dinners and meetings" at Tyrrell's house in 1996 and 28 in 1997.
Finance director Kaufman prepared a summary of Tyrrell's foreign travel during the fiscal year that ended July 31, 1997, which he presented in a memo to Burr. According to the summary, in November 1996 Tyrrell spent $8,796 on airfare, meals and entertainment and lodging for a trip to England. He returned to England in July 1997, spending $7,611. Tyrrell also took a brief and inexpensive ($612 airfare) trip to the island of Grenada. The grand total on his American Express card for these three trips came to $17,019.
The travel memo was dated Oct. 1, 1997, but Burr probably never had an opportunity to discuss its implications with Tyrrell. Four days later, he was fired.