http://www.libertymatters.org/newsservice/2004/faxback/2718_Review.htm
Charities
Face Increased Reviews by I.R.S. as Senate Considers Strengthening
Oversight
By
STEPHANIE STROM
Published:
June
23, 2004
WASHINGTON
, June 22 - As part of its contribution to a broad regulatory effort
to police the nonprofit sector better, the Internal Revenue Service
said Tuesday that it would examine some 400 foundations to determine
whether the philanthropic institutions, which control billions of
tax-exempt dollars, were complying with tax laws.
That
effort officially began Tuesday with a wide-ranging hearing before the
Senate Finance Committee on nonprofit practices and abuses and ways to
improve oversight of charities.
Senator
Charles E. Grassley, the Iowa Republican who is chairman of the
committee, promised to introduce legislation in the fall to strengthen
regulation at the federal and state levels, increase the
responsibility of boards, stiffen penalties for conflicts of interest
and other failures to comply with tax laws and enhance disclosure.
"It's
obvious from the abuses we see that there's been no check on
charities," Mr. Grassley said. "Big money, tax free, and no
oversight have created a cesspool in too many cases."
Mr.
Grassley has long had an interest in charity affairs, but the turnout
for Tuesday's hearing suggested that some of his colleagues were also
paying more attention. Eight senators attended the hearing at its
outset, a much better turnout than the committee's staff had expected.
Senator Max Baucus of
Montana
, the ranking Democrat on the committee, asked the most questions.
Charitable
giving has come under greater scrutiny in recent years, as questions
arose about how nonprofit groups administered more than $2 billion
that poured in for the victims of the
Sept. 11, 2001
, attacks and as the amounts of new money flowing into philanthropy
grew.
The
effort is being driven by government agencies, state attorneys general
and by some charities themselves, which worry that abuses could affect
future giving.
Witnesses
at the hearing cited abuses that included an unnamed New York
foundation that paid for its lawyer's pleasure trip to the Vatican and
a group that enabled donors to pay all their adoption expenses,
normally only partly tax deductible, with tax-exempt dollars.
Two
witnesses, identified only as Mr. Car and Mr. House, stole the show,
testifying from behind screens and with their voices electronically
modified. Mr. Car described how, as an automobile auction manager and
a vehicle wholesaler, he had seen middlemen, auctioneers and used-car
dealers take most of the proceeds from the sales of cars donated for
charity.
His
testimony supported a report from the General Accounting Office that
found that charities often received far less from donated cars than
donors claimed for tax-deduction purposes. The Finance Committee has
proposed giving car donors a deduction equal only to the amount
realized by charity rather than allowing them to claim the Kelly Blue
Book value.
"The
charities are not paying attention to what options they have to get
the highest sale price," Mr. Car said.
Mr.
House, who described himself as a financial professional with 23
years' experience "in the prime position to witness a nonprofit
run amok," described how the founders of AmeriDream
Inc., a nonprofit group that helps with home purchases, had diverted
millions of dollars from the charity to themselves.
He
said AmeriDream bought a jet that was used
primarily by the organization's co-founders, whom he called Mr. Red
and Mr. White, for personal purposes, including flying to
Mexico
to play golf. The purchase was approved by the organization's
chairman, a fraternity brother of Mr. White who lived in Mr. White's
basement, Mr. House said.
Mr.
House said AmeriDream, which had a change
of management last year, had made improvements.
Ann
Ashburn, the current president and chief executive, said in a brief
telephone interview that the organization, which did not know of Mr.
House's testimony until reporters called on Tuesday, wanted to respond
to the committee before commenting publicly. Ms. Ashburn said she
would provide that information publicly on Wednesday.
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