Oregon Attorney General Asks IRS To Evaluate Evergreen Aviation And Space Museum Tax Exempt Status

March 20--Oregon Attorney General Ellen Rosenblum said Thursday the state's Justice Department will ask the Internal Revenue Service to consider whether McMinnville's Evergreen Aviation and Space Museum is entitled to its tax exemption.

In a prepared statement, the attorney general said her department is concerned with whether the Wings and Waves waterpark should be treated as a non-profit, and whether the "significant interrelationships" between the museum and the for-profit Evergreen International companies were improper.

The report released Thursday marks the end of a lengthy department study of the interrelationships at the Evergreen campus in McMinnville. Since the state's investigation began, the for-profit side of the Evergreen International empire has gone out of business. That effectively ends the question of whether the two sides are improperly commingling funds, while placing the non-profit museum in what Rosenblum described as "a precarious place."

The museum issued a statement of its own to respond to the Justice Department's announcement. "We are pleased that the DOJ will not be taking legal action and concludes that no commingling of funds occurred," the one-paragraph statement said, in part.

While the Justice Department considered taking legal action but decided against doing so, it didn't conclude that no commingling occurred. Instead, the report noted that many transfers were repaid, occurred a long time previously, or have been rendered academic by the changes at the Evergreen campus.

"Some specific transactions suggest that charitable assets may have been mismanaged," the report says.

After conducting its audit of the museum and its affiliates, the Oregon Justice Department found what it called "significant governance issues."

The audit "found that a number of museum board members were affiliated with Evergreen companies, and concluded that at least some of the board members had likely violated their duties to the museum by failing to pursue the best interests of the museum," the agency said.

The Department of Justice's lengthy investigation focused on the question of whether money and assets flowed improperly between the for-profit Evergreen International businesses and the non-profit museum. The museum and its associated operations, such as the Wings and Waves Waterpark, were established in 2001 as a private charitable foundation by Evergreen founder Del Smith, court documents showed.

The intertwining of personal and business relationships is illustrated by an explanatory paragraph in the Justice Department's report.

"While the Museum's campus and displays are impressive, in fact, the Museum owns very little of what the public sees," the paragraph begins. The buildings and the land are owned by Evergreen International or the Michael King Smith Foundation, the report notes. The museum operates its facilities under a lease to the two entities, but pays no rent. Instead, it is responsible for upkeep of the buildings and grounds.

Elsewhere, the report said, Evergreen International, the for-profit company, exercised considerable control over the non-profit museum. "After the construction and opening of the aviation building, the construction of the theater building, the space building and the waterpark quickly followed," the audit says. "The board seemed to have little to no input on these matters."

Evergreen International Airlines, the for-profit operation, formally filed for dissolution with a Chapter 7 bankruptcy petition on Dec. 31. Even after selling its helicopter business to rival Erickson Air-Crane last year for $250 million, the company couldn't overcome its financial difficulties. The bankruptcy proceeding is continuing in Delaware.

The collapse of the for-profit businesses changed the calculus for the Oregon Department of Justice. "As a practical matter," the state's statement said, the Evergreen bankruptcy filing "eliminate(s) most of the overlap between the museum's board and the for-profit Evergreen enterprises."

The state considered asking the museum to remove some directors, the statement said, but decided not to after the museum's board said it would adopt recommendations made by the Justice Department.

"We considered the possibility of litigation," Oregon Justice Department spokesman Michael Kron said in an email. "But the museum adopted many governance reforms on its own and Evergreen's bankruptcy will necessitate many changes."

The museum, which relies heavily on the work of volunteers, says it has about 300,000 visitors a year.

-Mike Francis

Copyright 2014 - The Oregonian, Portland, Ore.