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IRS Rules Allowed Contras To Bypass Paperwork For New Foundation

March 1, 1988

WASHINGTON (AP) _ The Contra rebels, looking for a tax-exempt organization to carry out fund raising, used a legal shortcut to take over a foundation begun by political conservatives to promote understanding of ″governmental systems.″

By reconstituting an existing foundation, the Contras avoided the time nd lengthy application process generally entailed in applying to the Internal Revenue Service for tax-exempt status.

What now goes by the name of the Nicaraguan Resistance Educational Foundation was originally the John Davis Lodge Foundation for International Studies, according to IRS records.

The Contra foundation has not filed its first tax return yet because the changeover occurred just last fall.

The Lodge foundation stated in its application for tax-exempt status in 1982 that its purpose would be to ″foster, develop and promote, among people of the world, in a nonpartisan basis, a greater understanding and awareness of comparative governmental systems, international policies and the relationships between sovereign states.″

The late John Davis Lodge was a Connecticut governor and congressman, and ambassador to Argentina, Switzerland and Spain. The grandson of Sen. Henry Cabot Lodge of Massachusetts, he was an ardent anti-communist and chaired Ronald Reagan’s 1980 presidential campaign in Connecticut. He died in 1985 at age 82.

He was also a mentor to conservative political consultant Roger Stone of Virginia. Stone set up the Lodge foundation in 1982 to host forums and publish educational materials.

″It was set up as a hardline anti-communist″ organization, but the foundation never really got off the ground and published only one monograph by former United Nations Ambassador Jeane Kirkpatrick, Stone said.

Last fall, Stone learned from his wife that the rebels needed a foundation to collect money for their cause.

It so happens that Ann Stone has a direct mail fund-raising business and the Contras are one of her clients. ″She had something to do with it,″ Roger Stone said of the idea to turn his foundation over to the Contras.

″She made the argument it was consistent with the original purposes of the foundation.″

So last October, Stone and two business partners, Charlie Black and Paul Manafort, whom Stone had installed as original board members, met and voted themselves off the board. They turned the organization over to newly elected board members Ernesto Palazio, the Contras’ Washington spokesman, and two Miami Contra officials, Leonardo Somarriba and Mario Zeledon.

Now the foundation is the principal conduit for funds the Contras are raising privately. The rebels have placed increasing emphasis on these efforts in the wake of Congress’ recent rejection of new U.S. aid.

The Contras say the money they are raising from U.S. citizens is for humanitarian aid only.

Raising money for weapons is not a tax-exempt function, and Contra backers ran afoul of that law in last year’s Iran-Contra scandal.

The IRS permits changes in purpose and makeup of a foundation as long as the new group is still within the guidelines of tax-exempt purposes, said IRS spokesman Wilson Fadely.

The Contra foundation in December received $140,000 from the fund created in memory of the late CIA Director William J. Casey, and Contra officials said the money was for a rehabilitation hospital for their wounded and maimed soldiers.

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