l+I Canada Revenue

Agency
Agence du revenu
du Canada

REGISTERED MAIL

September 5, 2018

Islamic Society of North America - Canada BN: 118971886RR0001

(ISNA - Canada)
2200 South Sheridan Way File No: 0658203
Mississauga, Ontario
L5J 2M4

Attention: Mr. Shameem Mohammed

Subject: Notice of Penalty and Suspension of Receipting Privileges

Islamic Society of North America - Canada (ISNA - Canada)

Dear Mr Mohammed:

We are writing further to our Administrative Fairness Letter (AFL) dated June 16, 2014,
in which you were invited to submit representations as to why the Canada Revenue
Agency (CRA) should not revoke the registration, assess a penalty, and/or suspend the
receipting privileges and qualified donee 1 status of Islamic Society of North America -
Canada (ISNA - Canada) 2 (the Society) in accordance with sections 168( 1), 188.1
and/or 188.2 of the Income Tax Act.

We have carefully considered the Society's representations of November 3, 2014. While

we acknowledge the background information you provided on the many charitable
program areas of the Society, as well as the remedial steps taken prior to and after the
audit period, our concerns surrounding the Society's non-compliance with requirements
of subsection 149.1(1) and paragraph 168(1)(d) of the Act have not been fully
alleviated. Specifically, our position that the Society failed to devote its resources to its
own charitable activities in that it gifted resources to non-qualified donees still remains.

Our AFL raised serious concerns that the Society provided resources to non-qualified
donees, including the and the
which may have, directly or indirectly, been
used to support the political efforts of and/or its armed wing,
. In response to our concerns, the Society has advised that it is no longer
operating overseas and has taken measures to improve its governance structure to

1
A "qualified donee" means a donee described in subsection 149.1 (1) of the Act.
2Formerly known as "Islamic Society of North America (ISNA) ;" name changed with the Society's filing for Certificate
of Continuance under the Canada Not-for-profit Corporations Act on October 16, 2014.

Canada R350 E (08)

 -2-

allow the Board of Directors to regain control of its assets and activities, which included
the removal of the Society's former Secretary General, who was purported to have been
responsible for the transfer of funds to and without the knowledge of the
Board of Directors until after the funds had been transferred.

In addition , we also maintain our position that the Society entered into a third-party
receipting scheme and as such issued official donation receipts otherwise than in
accordance with the Act and/or the Income Tax Regulations.

The CRA has considered the fact that the Society has initiated measures to comply, has
taken steps already to address issues of non-compliance, including ceasing to gift to
non-qualified donees, and is committed to addressing the identified remaining non-
compliance issues. Therefore, we are prepared to enter into a Compliance Agreement
with the Society. The Society will be required to meet the terms of such a Compliance
Agreement, as approved by the CRA, outlining several corrective measures to address
the remaining instances of non-compliance identified during the audit. In particular, this
agreement will confirm the Society's undertaking to cease its overseas operations.
Should the Society fail to put into effect the agreed upon corrective measures, notice
may be given to propose revocation of the Society's registration by issuing a Notice of
Intention to Revoke in the manner described in subsection 168(1) of the Act.

The Society will also be subject to penalties and a suspension of its receipting privileges
and qualified donee status.

The penalties relate to the Society's gifting of resources to non-qualified donees, which
has provided an undue benefit and therefore is subject to a penalty under subsection
188.1(4) of the Act.

In addition, the Society's issuance of official donation receipts containing false

information as part of a third-party receipting scheme is not in accordance with the Act
and/or its Regulations and is therefore also subject to a penalty under subsection
188.1 (9) of the Act.

PENALTIES

Failure to devote its resources to charitable activities carried on by the Society

itself - gifting to non-qualified donees

Our AFL of June 16, 2014, advised our preliminary findings showed that, over the
period of the audit, the Society gifted a total of $357,804.17 to non-qualified donees.
Our AFL also stated that subsections 188.1(4) and (5) of the Act provide for the levying
of a penalty when a registered charity, at a particular time in a taxation year, confers on
a person an undue benefit, which includes amounts provided to non-qualified donees.
 -3-

After reviewing the Society's November 3, 2014, representations, it remains our position
that the Society failed to devote all of its resources to charitable activities carried on by
itself. Based on the Society's representations, we have revised the audit findings to
reflect that the Society gifted a total of $277,309.17 to non-qualified donees during the
audit period. 3 In its representations, the Society acknowledged that it gifted resources to
non-qualified donees during the audit period. However, the Society also described steps
it has taken to prevent this from happening in the future, including its undertaking to
discontinue any overseas operations.

In accordance with subsection 188.1 (4), a registered charity that, at a particular time in
a taxation year, confers on a person an undue benefit is liable to a penalty equal to
105% of the amount of the benefit.

Issued a receipt for a gift otherwise than in accordance with the Act and its
Regulations

The audit found that over the period under audit, the Society issued receipts amounting
to $206,158.90 for gifts not intended for the Society.

After reviewing the Society's November 3, 2014, representations, it remains our position
that the Society issued receipts that are not in accordance with the provisions of the Act
and/or the Income Tax Regulations; namely, the Society receipted for donations to third-
parties.

According to subsection 188.1 (9) of the Act, a registered charity that has been found to
contravene the receipting requirements of the Act by issuing receipts on behalf of, or in
the name of, another person, is liable to pay a penalty equal to 125% of the eligible
amount stated on the receipt.

3
Our AFL of June 16, 2014, presented our preliminary findings , which showed that the Society gifted $357,804.17 in
resources to non-qualified donees. However, based on our review of the Society's November 3, 2014
representations, we have reduced this amount by $80,495 to $277,309.17 to reflect the Society's position that the
Housing Co-operatives reimbursed the salaries paid by the Society.
 -4-

Penalty assessment

The penalty assessed by the Canada Revenue Agency is calculated as follows:

rr.
. t 91"fte d resources to non-c1ua 11ed d onees
The S oc1ety
Fiscal Periods Ending Dec.31,2009 Dec.31,2008 Dec.31,2007 Total
Undue benefit - gift of $56,928.38 $119,210.80 $101,169.99 $277,309.17
resources to non-
qualified donees
Penalty applied in 105% 105% 105% 105%
accordance with
subsection 188.1(4) of
the Act
Total penalty owing as $59,774.80 $125,171.34 $106,228.49 $291,174.63
per subsection
188.1 (4) of the Act

The Society issued receipts otherwise than in accordance with the Act and it
Regu Ia fions
Fiscal Periods Ending Dec. 31, 2009 Dec.31,2008 Dec.31,2007 Total
Amount of donation $74,265.20 $61,416.00 $70,477.70 $206,158.90
receipt issued - third
party receipting
Penalty applied in 125% 125% 125% 125%
accordance with
subsection 188.1 (9)
Total penalty owing as $92,831.50 $76,770.00 $88,097.13 $257,698.63
per subsection 188.1 (9)
of the Act

In accordance with subsection 189(6.3) of the Act, the penalty may be paid to an eligible
donee as defined in subsection 188(1.3). An eligible donee in respect of a particular
charity is a registered charity:

1. of which more than 50% of the members of the board of directors or trustees of
the registered charity deal at arm's length with each member of the board of
directors or trustees of the particular charity;
2. that is not subject to a suspension of tax-receipting privileges;
3. that has no unpaid liabilities under the Income Tax Act or the Excise Tax Act;
4. that has filed all its information returns; and
5. that is not subject to a security certificate under the Charities Registration
(Security Information) Act.
 -5-

The CRA requires the following documentation to confirm that the eligible donee
received the penalty payment:

• a letter addressed to the Director, Review and Analysis Division (address

below), signed by an authorized representative of the eligible donee,
confirming the penalty payment was received and the amount paid; and
• a copy of either the cancelled cheque or evidence of a non-cash transfer.

Should you choose instead to make your payment to the CRA, please make the cheque
payable to the Receiver General for Canada and mail it to:

Director, Review and Analysis Division

Charities Directorate
Canada Revenue Agency
320 Queen Street
Ottawa ON K1A OL5

Please note that in accordance with subsection 149 .1 ( 1.1) of the Act, the penalty
payment made to an eligible donee shall not be deemed to be an amount expended on
charitable activities nor a gift made to a qualified donee.

Failure to pay this penalty amount or make arrangements for payment will result in us
reconsidering our decision not to proceed with the issuance of a notice of intention to
revoke the registration of the Society in the manner described in subsection 168(1) of
the Act.

If you have any questions or require further information or clarification regarding the
penalty payment, please contact at

SUSPENSION

In addition, as the penalty under subsection 188.1 (9) of the Act exceeds $25,000 ,
subsection 188.2( 1) stipulates that a one-year suspension of the Society's authorization
to issue an official donation receipt and its qualified donee status must be applied .

In accordance with subsection 188.2(3) of the Act, for the duration of the Society's
suspension, the Society:

• may not issue official donation receipts for gifts it received;

• must, before accepting a gift, inform the donor that it has received a notice of
suspension and cannot issue an official donation receipt; and
• must, before receiving gifts from other registered charities, inform them that it
is no longer a qualified donee as defined in the Act.
 -6-

Please note that the Society has six (6) days after the day this letter was mailed, to issue
donation receipts for gifts it received prior to the suspension .

Failure to cease receipting will result in the CRA reconsidering its decision not to
proceed with the issuance of a notice of intention to revoke the registration of the
Society in the manner described in subsection 168( 1) of the Act.

Consequently, for each of the reasons mentioned in our letter dated June 16, 2014 , we
wish to advise you that, pursuant to subsections 188.1 (4), 188.1 (5), 188.1(9) and/or
188.2(1) of the Act, we propose to assess two penalties to the Society and a suspension of
the Society's receipting privileges. The Society's authorization to issue official donation
receipts and its qualified donee status as defined by the Act are hereby suspended for one
year beginning on September 12, 2018.

Appeal process

Should you wish to appeal this notice of penalty and/or suspension of receipting
privileges in accordance with subsection 165(1) and/or 168(4) of the Act respectively, a
written notice of objection, which includes the reasons for objection and all relevant
facts, must be filed within 90 days from the mailing of this letter. The notice of objection
should be sent to:

Tax and Charities Appeals Directorate

Appeals Branch
Canada Revenue Agency
250 Albert Street
Ottawa ON K1A OL5

In accordance with subsection 188.2(4) of the Act, an application to the Tax Court of
Canada may be filed for a postponement of the portion of the suspension period that
has not elapsed. The application can only be filed once the notice of objection to a
suspension under subsection 188.2(2) has been filed by the Society.

Public notice

By virtue of paragraph 241 (3.2)(g) of the Act, the following information relating to the
Society's penalty assessment and its suspension of receipting privileges and qualified
donee status will be posted on canada.ca :
 -7-
Penalty assessment
Name of organization :
Registration number:
Effective date of penalty:
Reason for penalty:
Act reference:
Amount of penalty:
Penalty assessment
Name of organization:
Registration number:
Effective date of penalty:
Reason for penalty:
Act reference:
Amount of penalty:
Suspension
Name of organization:
Registration number:
Effective date of suspension:
Reason for suspension :
Act reference:
End date of suspension:
Postponement date, if applicable:
Islamic Society of North America -
Canada (ISNA - Canada)
118971886RR0001
September 5, 2018
Undue benefit - gift of resources to non-
qualified donees
188.1(4) and 188.1(5)
$291,174
Islamic Society of North America -
Canada (ISNA - Canada)
118971886RR0001
September 5, 2018
Issued receipts otherwise than in
accordance with the Act and/or the
Income Tax Regulations - False
information
188.1 (9)
$257,698
Islamic Society of North America -
Canada (ISNA - Canada)
118971886RR0001
September 12, 2018
Issued receipts otherwise in accordance
than with the Act and/or the Income Tax
Regulations - False information
188.2(1)
September 11, 2019
 -8-

We trust the foregoing fully explains our position.

Yours sincerely,

Tony Manconi
Director General
Charities Directorate

Attachments:
-CRA letter dated June 16, 2014 (AFL)
- Society's representations of November 3, 2014
- Notice of Assessments - Fiscal periods 2007, 2008, and 2009

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