Minnesota fraud probe fuels IRS crackdown calls on nonprofit accused of Hamas links

FIRST ON FOX: The California chapter of the Council on American-Islamic Relations (CAIR) is facing heightened scrutiny as House Ways and Means Committee Chairman Jason Smith referred the group to the IRS for a probe into whether the nonprofit should lose its tax-exempt status, citing alleged misuse of taxpayer funds, potential violations of federal law and support for unlawful activity.

"Tax-exempt status is a privilege, not a right," Smith, a Republican from Missouri, told Fox News Digital Tuesday. "Organizations that receive special treatment under the tax code must follow the law and operate in the public interest, not bankroll illegal activity, mislead federal agencies, or misuse hard-earned taxpayer dollars." 

Smith sent a letter to Treasury Secretary and acting IRS chief Scott Bessent and IRS CEO Frank Bisignano Tuesday referring CAIR-California for IRS review, arguing that the nonprofit may no longer meet the legal standards required to operate as a 501(c)(3) organization. 

The letter claims that evidence alleges CAIR-California improperly used millions of dollars in federal funds, provided misleading information to the IRS, and materially supported activity that resulted in arrests and violations of the law, particularly during campus protests across California.

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The Council on American-Islamic Relations is a leading American Muslim civil rights organization, with chapters across the country and its home base located in Washington, D.C. Republicans have scrutinized CAIR in recent years, including calls for Treasury reviews over alleged Hamas ties — allegations the group denies.

CAIR pushed back on the letter to Fox News Digital Tuesday, calling it "embarrassing" and based on "a false claim made by a pro-Israel group without fact-checking." 

The New York Post published an article in March 2025 based on an investigation by an advocacy group, Intelligent Advocacy Network, into CAIR-California that found alleged financial irregularities. 

CAIR-California includes offices in Los Angeles, the San Francisco Bay Area, Sacramento and San Diego. 

The call for an investigation comes as the IRS and other investigators dig into what officials say is a sprawling COVID-era scheme in Minnesota involving money laundering that has dominated headlines since before the holiday season. Federal prosecutors have estimated the fraud could exceed $1 billion and rise to as high as $9 billion. 

Officials have made dozens of arrests, the majority of which are from the state's Somali community. 

"The widespread fraud uncovered in Minnesota has only made our efforts to root out fraud in the nonprofit sector more urgent, and we owe it to the American taxpayer to hold these bad actors accountable," Smith told Fox Digital. "If these allegations are true, CAIR-California does not meet the standards required to maintain tax-exempt status, and the IRS must act accordingly."

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The chairman’s letter detailed concerns surrounding CAIR-CA’s handling of more than $7 million in federal refugee legal-aid funding intended to help resettle Afghan refugees. 

The referral, citing the New York Post article detailing a watchdog group's previous investigation, indicated CAIR-California assisted fewer than 10% of the refugees it pledged to help, while allegedly routing millions of dollars through an unregistered affiliate operating under CAIR-California’s tax identification number — potentially exposing the group to False Claims Act violations, according to the referral. 

"Not only does this misdirection of funds back to itself potentially violate the law, but the failure of CAIR-CA to properly document the use of grant funding would also place the organization at risk of violating the False Claims Act for misrepresenting grant use," Smith wrote. 

CAIR told Fox News Digital that Smith's letter was "provably inaccurate letter," and based on a "retracted story about CAIR-California that the New York Post had to correct after it repeated a false claim made by a pro-Israel group" is "a sign of how desperate he and other Israel First members of Congress have become to smear and silence Americans who speak up for Palestinian human rights and against the waste of American taxpayer dollars on Israel's genocide in Gaza."

Fox News Digital reached out to The New York Post for comment and has not yet received a reply. 

CAIR continued that, "Contrary to the false claims made by Mr. Smith, CAIR-California is a respected civil rights organization with a long record of lawful advocacy and cooperation with government agencies."

"Every dollar CAIR-California receives is used strictly for its intended purpose and subject to rigorous internal and external oversight, auditing, and reporting," CAIR continued in its emailed comment. "Funds designated to support Afghan refugees are used exclusively to serve that population, consistent with grant terms. CAIR-California also receives a diverse set of funds that allows the organization to serve clients beyond the Afghan and Muslim community." 

If the IRS revokes a group’s 501(c)(3) status, it can trigger a cascading hit on the organization — donations may no longer be tax-deductible, federal taxes and penalties can apply, and the nonprofit’s funding pipeline can dry up as donors and grantmakers pull back.

The letter adds that evidence suggests CAIR-California "institutionally endorsed and materially supported" college encampments during the anti-Israel protests that swept the nation from 2021 until the Trump administration, including protests that "resulted in violations of the law and/or arrests." 

The letter argued that CAIR national also promoted and endorsed a "Protest Donald Trump" rally at the Minnesota Republican Party Lincoln-Reagan Dinner during the 2024 election cycle, which the letter claims may have violated the prohibition on 501(c)(3)s to directly or indirectly participate, or intervene in, any political campaign.  

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Smith argued that while protests are generally permitted, the IRS has previously found groups can lose exempt status if demonstrations cross into civil disobedience or other illegal activity.

"The only allegation in Mr. Smith's letter that is even remotely close to accurate is the claim that CAIR expressed support for college students who hosted sit-ins to peacefully protest their university's financial entanglements with the Israeli government's genocide in Gaza," CAIR said. "We were proud to express solidarity with students peacefully protesting the Gaza genocide, who were on the right side of history, just like the college kids who protested segregation, the Vietnam War, and apartheid South Africa."

CAIR sent its own letter to Bessent and the IRS Tuesday morning following Smith's letter, Fox News Digital learned. 

Conservatives have previously argued CAIR’s national network crosses from civil-rights advocacy into partisan politics and activism — pointing to past allegations cited by GOP lawmakers of improper political involvement and long-standing concerns about ties to Hamas-linked entities, which CAIR has repeatedly denied. 

Texas Gov. Greg Abbott, for example, designated CAIR, as well as the Muslim Brotherhood, as foreign terrorist organizations under state law in 2025, claiming the groups "support terrorism across the globe and subvert our laws through violence, intimidation, and harassment."

CAIR pushed back on Abbott's designation, telling the Houston Chronicle in January that it has worked to stop terrorism in the U.S., including claiming it flagged the FBI to a potential threat against  President Donald Trump during his first term, the outlet reported. 

"We only reveal it now in response to these ludicrous claims that CAIR — which has quite literally helped to stop acts of terrorism — is a terrorist organization," Edward Ahmed Mitchell, CAIR’s national deputy director, told the Chronicle. "CAIR has not only condemned terrorism verbally, but we have taken action to stop terrorism."

Smith's referral cited long-standing concerns about CAIR’s alleged connections to terrorism, including reported links to the now-defunct Holy Land Foundation, which was convicted in 2009 for providing material support to Hamas. 

"Given CAIR-CA’s alarming activity, along with the fact that CAIR’s network holds suspicious ties to terrorist organizations like Hamas, I ask that you use your authority to investigate CAIR-CA and consider the revocation of tax-exempt status of CAIR-CA upon adequate review," Smith concluded in his letter.