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Newsroom  IS Applauds Senate Finance and Treasury for Efforts to Eliminate Sham Transactions Based on Inflated Property Values Independent Sector applauds the efforts of the Senate Committee on Finance and the Secretary of the Treasury to publicize and eliminate fraudulent schemes based on property donated to 501(c)(3) organizations. In a letter sent to Senator Max Baucus and Senator Charles Grassley, and in a similar letter to Secretary of the Treasury Henry J. Paulson, IS endorsed the use of the severest remedies under law to penalize all willing participants to abusive transactions involving the contribution of non-cash property. The letter also emphasizes IS’ support for increased funding for IRS enforcement efforts, and highlights the important safeguards imbedded in the new draft Form 990 published by the IRS on June 14. ************************************************************************************************************************
June 21, 2007 The Honorable Max Baucus The Honorable Charles Grassley RE: Sham Transactions Based on Inflated Property Values Dear Chairman Baucus and Ranking Member Grassley: I am writing to express the sincere appreciation of Independent Sector for your efforts to publicize and eliminate fraudulent schemes involving deductions for property donations to 501(c)(3) organizations. We share your concern over revelations that charities may have been willing participants in these illegal schemes and are heartened to learn of the recent actions take by the Internal Revenue Service to investigate the 48 entities allegedly involved in such sham transactions. We fully endorse the use of the severest remedies under law to penalize all willing participants to abusive transactions involving the contribution of noncash property to a charity, including tax shelter promoters, donor/investors, and appraisers. In addition, if the facts demonstrate that persons in the tax-exempt organizations knowingly participated in such schemes, then the individuals responsible and the managers that approved the activities should be subject to appropriate criminal and civil penalties. Most donors are conscientious about gift valuations and most charities have systems in place to prevent the inside dealing of the reported schemes. As former IRS Commissioner Mark Everson told the Senate Finance Committee in testimony in 2005, “the overwhelming majority” of charitable organizations “try hard to comply fully with the letter and spirit of the tax law.” They do this both out of respect for the law and a realistic fear of the consequences resulting from effective IRS enforcement. All of us recognize that illegal conduct involving donations to charities hurts all donors, the charities themselves, and the people they serve. This is one of the key reasons Independent Sector supports increased funding for IRS enforcement. IS continues to believe that stronger oversight and education of charitable organizations are central to enhancing compliance with the law and ultimately increasing the ability of charities to improve lives. Crucial to fulfilling our missions is our ability to demonstrate to our stakeholders – donors, beneficiaries, volunteers, and policymakers – that we operate ethically and accountably. Only if we earn and maintain trust will we receive continued support. Preservation of that trust depends upon a combination of active self-regulation by charitable organizations and effective enforcement of the law. The transactions you have brought to light appear to have violated numerous tax laws and reflect a callous disregard for those laws. These violations include improper return benefit to the donor, improper retention of a partial interest in donated property, inflated valuation, and possible impermissible private benefit on the part of the 501(c)(3) organizations that participated in the transactions. Aggressive enforcement of these laws is a strategy we all can support. We note that the draft Form 990, made public last week, incorporates numerous changes that, once implemented, will provide further safeguards to taxpayers and enhance enforcement. As a general matter, the format of the disclosure form has been updated to incorporate the needs of electronic filing of returns which will increase accuracy and permit easier oversight. Independent Sector strongly supports efforts to expand the Service’s authority to mandate electronic filing for organizations filing five or more returns. Even more relevant to the cases at issue, the draft informational return improves reporting on related nonprofit as well as for-profit organizations and asks filers to declare whether they have written policies that require them to safeguard their exempt status with respect to transactions and arrangements with related organizations. The draft Form 990 expands disclosures of noncash contributions on Schedule M, and a charity would be required to declare whether it had received during the year “by contribution any property that it must hold for at least three years from the date of the initial contribution.” These changes, combined with the design modifications of the draft Form 990 that will better enable electronic filing, should give the IRS the upper hand in combating abusive tax shelter schemes. The threat of fraud, of course, will not be completely eliminated once this set of wrongdoers is punished. The “overwhelming majority” of nonprofit organizations, however, will remain vigilant against any such future threat and continue to live by the “letter and spirit of the tax law.” Independent Sector is committed to encouraging the sector to meet the highest standards of ethical practice and stands ready to work with policymakers and the Service to educate the nonprofit community about the nature of this scheme and to help prevent its spread in other forms. Building an organization committed to the highest ethical standards demands more than just following the law: it also requires fostering practices that create an environment of transparency, accountability and integrity. Sincerely, Diana Aviv cc: Kevin Brown #### Independent Sector is a nonprofit, nonpartisan coalition of approximately 600 charities, foundations, and corporate philanthropy programs, collectively representing tens of thousands of charitable groups in every state across the nation. Its mission is to advance the common good by leading, strengthening, and mobilizing the charitable community. |
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