updated 9/24/2009 6:57:15 PM ET 2009-09-24T22:57:15

The embattled community activist group ACORN appears to be collecting charitable contributions through affiliate organizations that it then uses for impermissible lobbying and political activity, says the Republican staff of the Senate Finance Committee.

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The assessment, in a memo to Sen. Charles Grassley, R-Iowa, further fuels the controversy surrounding ACORN, formally known as the Association of Community Organizations for Reform Now.

The GOP staff memo says ACORN-affiliated charities are being used to raise money which is then funneled to other charities or other organizations for purposes other than what a donor may have intended.

ACORN, the parent entity, is not tax-exempt, but dozens of ACORN affiliates around the country are tax-exempt.

On Thursday, Grassley asked Internal Revenue Service commissioner Douglas Shulman to explain how the agency audits organizations like ACORN "where the movement of money appears to be a shell game."

"Do IRS audit procedures require auditors to follow the money trail to or from a charitable organization to determine whether that money is being used for impermissible activities, including electioneering and promoting illegal acts?" asked Grassley.

Video: Behind ACORN's candid camera

The Republican staff said 42 tax-exempt organizations have some affiliation with ACORN and that 52 other affiliated entities are taxable.

"You cannot move money from a charity and to another entity for a purpose that the charity could not do," Dean Zerbe, a former counsel to the Senate Finance Committee, said in an interview. Zerbe is now national managing director of Alliantgroup LP, a provider of specialized tax services for businesses.

ACORN has been under fire over videotapes of ACORN employees offering advice about how to establish a brothel with underage prostitutes.

Separately, ACORN employees and volunteers have been involved in a number of voter-registration fraud cases. Many of the group's offices are in heavily Democratic inner-city neighborhoods.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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