With Congress set to flee D.C. for its annual summer recess Friday, two leading senators, a Republican and a Democrat, gave President George W. Busha parting request: Order the Treasury Department and the Office of Management and Budget to begin rewriting federal tax laws governing charitable giving.
In a July 21 letter, Senators Charles Grassley, R-Iowa and Max Baucus, D-Mont. — chair and ranking member of the Senate Finance Committee, respectively — called on Bush to reshape U.S. tax code governing charities into a form that would boost compliance and sharpen watchdog regulations.
In particular, the senators urged Bush to move to ensure charities benefit from donations made to so-called supporting organizations. Under existing rules it is possible to donate to a supporting organization, and get a significant tax break for the year the donation is designated, but still retain control and benefit from the donated assets. The donor gets a tax benefit without actually releasing the donation to the charity.
These types of organizations can be vulnerable to abuse, with some wealthy donors benefiting more in tax write-offs than the charities they are supposed to be helping. Poorly worded clauses in the law and lack of federal regulations have allowed such loopholes to flourish, Grassley contends.
Nonprofit leaders take a mixed view of Grassley’s continued push for reform.
“We believe that these [supporting organization] loopholes need to be tightened, but not at the expense of the private nonprofits and foundations that are adhering to IRS rules and would be burdened by further regulation,” said Betsy Johnson, executive director of the DC Center for Nonprofit Advancement. Her organization and others are worried that toughening enforcement to close some loopholes, including increasing reporting requirements would hurt law-abiding charities.
“We favor measures that would encourage enforcement of current regulations such as additional IRS staff.”
Even so some changes, such as requiring regular reporting by very small charities, may actually help the sector, Johnson said. Current rules are vague on what need and need not be reported and small organizations without tax advisors can trip up. The proposed filing schedules would clarify requirements and help some charities avoid penalties.
Other groups are also calling on Bush for more regulation, saying Congress alone won’t be enough to spur reform.
“We believe the president’s support would be very helpful,” said Diana Aviv, president and CEO of the Washington-based Independent Sector.
Media coverage pointing out possible abuse of tax-exempt organizations by people more interested in enriching themselves than helping charitable causes has increased interest in the issue, Aviv told The Examiner.
“However, new legislation is only one way to improve the governance and accountability of charitable organizations,” said Aviv. “Legislation must be coupled with effective new enforcement by the IRS and action by the sector itself.”
Have information about area nonprofits? Contact Frank Sietzen at [email protected].
