D.C. Attorney General Alerted to the Possibility Shakespeare Theatre May Have Compromised Its Tax Exempt Status and Laws Are Being Broken

6th and I Intersection

United Neighbors of Southwest asked the D.C. Attorney General to look into the possibility that Shakespeare Theatre Company (STC) may have compromised its tax exempt status as a result of its relationship with Erkiletian Construction Corporation (Erkiletian). The concern is three-fold:

  1. Over the past three years, STC has not declared its relationship with Erkiletian. 501(c)(3) law requires that declaration be on STC’s taxes. It isn’t, and it isn’t in STC’s financial statements either.
  2. Stephanie Erkiletian, who is the President of Erkiletian, sits on both the Shakespeare Theatre Board of Trustees and the Erkiletian Board. Because she sits on both boards and STC (a non-profit) has not declared this joint venture with a for-profit company, inurement laws* may have been broken.
  3. It is illegal for an owner of a for-profit company to sit on a non-profit’s governing board and cause that non-profit’s assets to benefit a for-profit company, as may be the case in the joint project between Erkiletian and STC.

Erkiletian’s plan is to put a four-story market-rate condo building atop two floors for STC. No matter what Erkiletian says about the benefit of this project for STC, the bottom line is that four floors of market-rate dwellings on nearly half a city block equals a very  profitable project for Erkiletian.

If Stephanie Erkiletian weren’t on the STC Board, would STC have entered into this venture that will greatly profit Erkiletian? Is STC’s status and position in D.C. being used to benefit the finances of Erkiletian, a large developer based in Virginia? Have any decisions been made by STC that aren’t in their financial interests and instead are in the interests of Erkiletian?

United Neighbors of Southwest alerted the D.C. Zoning Commission to these issues in February  2018. Erkiletian lawyers declared the allegations were “totally without merit,” but they’ve offered no evidence to support that denial. They also said UNSW’s concerns “have nothing to do with the land use and zoning issues that are the subject of this application” which suggests they do not understand law related to inurement and private benefit.

Meanwhile, the joint venture between Erkiletian and Shakespeare Theatre Company  submitted another Planned Unit Development to the Zoning Commission in September 2018. Stephanie Erkiletian is still the President of Erkiletian Construction Corporation, and she is still on both her company’s Board and the Shakespeare Theatre Board of Trustees. This joint project between a non-profit organization and a for-profit company is still undeclared. Inurement/private benefit is still illegal, and as the IRS says, even a small amount of private benefit “is fatal to exemption.”

This project between Erkiletian and STC has smelled bad since Erkiletian paid the Southwest Neighborhood Assembly $60,000 in September 2014 to withdraw their Historic Preservation application from the 501 I Street SW site. The project still stinks. The Advisory Neighborhood Commission and the Washington Gateway Neighborhood Association have repeatedly rejected Erkiletian and STC’s proposal to change the zoning at the site. Councilmember Allen has said he supports the ANC’s decision.

This project should be rejected by the Zoning Commission. The D.C. Attorney General’s review of potential inurement and any changes to STC’s tax exempt status as a result should be made available to the public as soon as possible.

A copy of the United Neighbors of Southwest letter to the D.C. Attorney General is available here.

*Here’s a link to the IRS’s discussion of inurement/private benefit. It’s an interesting document that contains numerous examples of private benefit, insiders, disqualified persons, and self-dealing. And here’s a more summary-level webpage describing inurement / private benefit.