Decoding the ICC pt. 3
In the first installment, we looked at the ICC’s revenue sources to understand its incentives. In the second installment, we analyzed the basis for its 501(c)(6) tax exemption status. Today we go back to the Form 990 to ask “where does all the money go?”
The ICC is sitting on top of sizable cash flow and liquid assets. In 2024, it had $110M in revenue and $7.6M in profits on $200M in assets (accrual basis); after liabilities, the unrestricted net assets are $123M, of which $38M is in cash and $61M is in publicly traded securities1. That’s a lot of money flowing in, flowing out, and lying around. When a standard for-profit operation meets this kind of success, the excess cash is distributed to shareholders, who are incentivized to hold management accountable to generate profits. Since a successful non-profit is not allowed to distribute money to private interests such as shareholders, two consequences emerge:
Excess cash sits inert
Management is not held accountable to spend the money wisely
When combined, these factors create an environment wherein management may:
Overpay themselves (extraction)
Overpay employees, vendors, and customers (social clubbing/fraternization)
Spend the money on side projects (empire building)
Spend the money on organizations owned by themselves, friends, and relatives (diversion)
Straight up steal the money (embezzlement)2
So today, we are going to use the 2024 Form 990 to understand where management spent those funds.
A bag of mysteries on the balance sheet
One avenue of shenanigans is making excessive loans or investments in other organizations, which would appear on the balance sheet. Another is transferring valuable assets out of the non-profit. Both types appear in the 2024 990, though they remain mysteries which require further investigation3. For now, I document them as mysteries to be unraveled in the future.
A Mysterious Intangible Asset Transfer
There is a sudden and obscure $7,367,871 increase in net assets disclosed on Form 990 Part XI line 9. When a non-profit makes profit, to a first approximation, the profits get added to net assets. However, this disclosure is interesting because that $7.4M increase in net assets does not appear on the income statement. Some none-income event caused the increase.
This is helpfully explained by a note in Schedule O:
TAX INCURRED ON TRANSFER OF INTANGIBLES - -763267;
BOOK TO TAX RECONCILIATION - 8131138;
TOTAL - 7367871;
This means that some intangible assets were transferred out of the ICC 501(c)(6) to some other entity, triggering a taxable event. The transfer triggered $760k of taxes, implying it’s a sizable transfer. The destination entity is not disclosed nor is a reason given why it did not generate recognized income.
This is alarming because intangible assets include copyrights. We know that the ICC considers its codes to be crown jewels, enough to sue upstarts and lobby Congress aggressively. If the copyrights were transferred out without income compensation, such a deal must be made transparent to its members and to the public.
Even more, why trigger a tax event by transferring the codes at all? Usually, this is done to protect the mothership. Based on what we’ve learned so far, I would speculate that because the 501(c)(6) is limited to general industry advocacy, putting the valuable copyrights in another organization allows them to enter into aggressive commercial licensing agreements that would otherwise jeopardize the parent org’s tax-exempt status.
$18M in loans receivable
The ICC discloses that it lent out $17,974,470. However, these loans are not disclosed in the official spaces reserved for loans to current or former employees, executives, and their wives nor in the official space reserved for “normal” loans. Instead it’s bundled in the “Other Assets” bucket and then disclosed on an attached schedule as TERM LOAN RECEIVABLE, which is a name for a standard loan. No explanations are given as to why it is “Other.”
After digging, we find that there is an outstanding $16,974,470 MEMBERSHIP INTEREST in its single-member 501(c)(4) subsidiary, ICC Codification, Inc. Note that the numbers are the exact same except it’s $16 and not $17. Could that be a coincidence or is the “Other Assets” loan the membership interest? If it is not, then the entire $18M is unaccounted for. If it is, there is still exactly $1M in “other loans” unaccounted for.
Separate from these line items, the fact that the parent ICC is funding a 501(c)(4) subsidiary is also alarming. 501(c)(6)s can lobby but its primary activity must be advancing the industry. A 501(c)(4) can conduct unlimited advocacy, for example, lobbying federal, state, and local governments to entrench its codes and thereby its lucrative tax-exempt monopoly. This loan matches the overall strategy we have uncovered in this series: the ICC writes the codes, the lobbies governments to adopt the codes, it charges everyone for certification. To close the loop, in 2024 the 501(c)(6) received interest payments on its loan to the 501(c)(4) to the tune of $989k. The parent effectively engages in political activities via the child without jeopardizing its tax status.
$34M in loans
With nearly $100M in cash and liquid securities on hand, it is strange that the ICC has $34M in loans on its balance sheet. It does not seem to need debt to fuel expansion. On what terms? To whom?
$23M in investment in subsidiaries
Also in the “Other Assets” bucket separate from the $17M, sits a $23M investment in subsidiaries. No details are forthcoming as to what are these subsidiaries.
In all three cases, further digging is required, especially looking at past 990s and 990s related to its subsidiaries.
Auditor risk
One meta-comment about the 990 is that in order for the statement to be useable, they must be trusted. Unfortunately, the ICC’s auditor, BDO USA, does not have a great track record.
BDO has been cited in various accounting controversies in recent years. An audit of BDO’s audits by the Public Company Accounting Oversight Board (the organization which polices public company accounting) found that BDO’s audits had an 86% deficiency rate in 20234 and 60% in 20245, respectively. These figures do not compare favorably with firms like Deloitte, PwC, and KPMG which were in the 10-20s range. While this is not positive evidence that the ICC’s 990 filings are false, it is worthwhile to flag.
Compensation
The most sensational disclosure in any 990 form is executive compensation6. In total, on $110M in revenue, they spent $5.3M on executive compensation. This level of compensation (~5% of $100M revenue, $1.5M for the CEO7) is similar at the National Fire Protection Association in 20248. By comparison employee compensation in 2024 was $58M, which at 622 employees, comes out to $93k a year per employee. At a glance, these figures do not seem out of the ordinary.
Looking forward
I continue to open the box that is the ICC in order to understand it from the business side. I recognize that just looking at the most recent 990 is limited in what it can tell us: I’m missing historical context from its past filings; and, I risk taking the 990 too much at face value. Still, I think it has uncovered insight into its inner workings and revealed a few mysteries. As this organization grows in size and complexity, financially and politically, it requires more accountability.
Coming soon: a look at its subsidiaries and a dive into its history.
International Code Council 2024 Form 990 https://projects.propublica.org/nonprofits/organizations/363999004/202533219349327548/full. All data discussed is taken from the 2024 Form 990, unless otherwise specified
To be clear, I am describing a general pattern of behavior. In my opinion, ICC management has conducted empire building and may be accused of extraction and fraternization. None of these are illegal especially if blessed by the ICC board. And (somewhat) to their credit, they appear to be successful empire builders. I have not found evidence of embezzlement or diversion.
The definitive source of information would be the audited financial statements, which are not publicly available. Barring the financial statements, more information can be gleaned by tracing the history of these line items through historical 990s, an activity which I reserve for a future article
https://pcaobus.org/search?keyword=Inspection%20report&indexName=pcaob.20250512.135851.all-data-types&contenttypelabel=Inspection%20Report&country=United%20States&inspectionyear=2023&globalnetworks=Deloitte%20Touche%20Tohmatsu%20Limited%2CErnst%20%26%20Young%20Global%20Limited%2CGrant%20Thornton%20International%20Limited%2CBDO%20International%20Limited%2CKPMG%20International%20Cooperative%2CPricewaterhouseCoopers%20International%20Limited
https://pcaobus.org/search?keyword=Inspection%20report&indexName=pcaob.20250512.135851.all-data-types&contenttypelabel=Inspection%20Report&country=United%20States&inspectionyear=2024&globalnetworks=Deloitte%20Touche%20Tohmatsu%20Limited%2CErnst%20%26%20Young%20Global%20Limited%2CGrant%20Thornton%20International%20Limited%2CBDO%20International%20Limited%2CKPMG%20International%20Cooperative%2CPricewaterhouseCoopers%20International%20Limited
While public disclosure of person-by-person exec compensation has been great for the clicks, my intuition is that it actually served to enable the explosive growth of executive pay in the past few decades, as disclosure made it possible to coordinate among execs and to turn it into a competition. The disclosures become the evidence used every year to justify ballooning exec pay.
A nice benefit: the CEO gets his social club dues reimbursed, as is befitting a company based in Country Club Hills, IL.