The scrutiny of the Mayor's Fund is expanding.
A week after the fund's former chairperson was charged with stealing and misusing public funds given to the city nonprofit, state prosecutors said they had also referred the case to investigators at the IRS.
"This one had an angle that required, we think, both the attention of the Philadelphia Ethics Board and the IRS based on our investigation," Attorney General Josh Shapiro said Monday, "so we referred it to them for their consideration."
Shapiro declined to elaborate. His office will also continue its criminal prosecution. And a spokeswoman for the IRS said the agency is barred by law from discussing any particular taxpayer or case.
But the revenue sources for the fund — a nonprofit set up to advance the mayor's policy goals, collects about $12 million annually from private and public donors, as well as profits from the city marathon and bike share program — and the alleged mismanagement that occurred under former chairwoman Desiree Peterkin Bell would make it an obvious target for review. Beyond pursuing criminal or civil penalties against individuals, the IRS also can revoke the tax-exempt status of nonprofits it finds to have violated the law.
Peterkin Bell, who also served as city representative, was charged last week with six felonies for allegedly stealing more than $20,000 from the fund and misusing $225,000 of the public money donated to the fund for a bike race.
According to an investigating grand jury and previous reports by the Inquirer and Daily News, Peterkin Bell kept fellow board members in the dark about many of the fund's expenses. At the time, the board was mostly made up of other government officials. When staff members questioned Peterkin Bell's spending, she dismissed them, saying it was all work-related.
In early 2016, right after Mayor Michael Nutter's term ended and Peterkin Bell left city employment, the fund's executive director, Ashley Del Bianco, asked then-City Controller Alan Butkovitz to investigate. Butkovitz found hundreds of thousands of dollars in questionable expenses and said Peterkin Bell treated the nonprofit like a "slush fund." He referred the case to the district attorney and state attorney general.
On Monday, Butkovitz said his office had also thought about referring the case to the IRS but thought local or state prosecutors could investigate the matter quicker.
"The IRS will largely go to whether the fund can stay in business," Butkovitz said. "It's an issue for the fund rather than it is for an individual."
Marcus S. Owens, the former director of the IRS division that oversees nonprofits, said agency investigators will likely look at whether the nonprofit reported on its tax returns that funds were either diverted from their original intent or if a person personally benefited from the nonprofit.
If the person who filed the returns knew about the alleged misuse and theft of money but didn't report the diversion of funds, Owens said, the IRS could consider it a false tax return with intent to mislead — an offense that could result in jail time.
The fund's 2016 and 2017 disclosures reported no such diversions or excess benefits, according to copies provided to the Inquirer and Daily News.
Del Bianco signed off on those returns. When asked why she didn't report the alleged theft and misuse, she said the fund wanted to wait until the completion of the attorney general's investigation and legal proceeding before reporting anything.
Proving whether someone knew and at what point is hard to prove, Owens said.
If the federal government found that someone personally benefited from the fund's assets, IRS investigators could force that person to pay back whatever money was taken plus pay a 25 percent tax penalty on that amount. Refusal to pay back the money and pay the tax could result in a 200 percent tax penalty, Owens said.
If the IRS found a pattern of abuse of funds, it could revoke the organization's tax-exempt status.
As to a timetable, Owens said a resolution is unlikely to occur any time soon. A referral in itself takes several months because it has to go to a Texas office to be processed. Then the IRS might wait to see whether Peterkin Bell is convicted before starting a review.
Peterkin Bell is scheduled to appear in court for a preliminary hearing on Tuesday.
"The state could come back and sue individual board members for lack of accountability," said Tish Mogan, the standards for excellence director for the Pennsylvania Association of Nonprofit Organizations. "The board is legally responsible for the organization."