The Senate Finance Committee yesterday listened to a range of suggestions for dealing with the tax cheating that experts say is widespread among charities and other nonprofits.
But even as Chairman Charles E. Grassley (R-Iowa) said he'd like to see the heads of some abusers mounted like big game -- "figuratively, of course" -- other members of the panel urged caution lest Congress discourage legitimate charitable donations.
Yesterday and in earlier hearings, the committee has heard a stream of testimony from the Internal Revenue Service and experts on Congress's own staffs about abuses by charities and other nonprofits.
"Simply stated, there are increasing indications that the twin cancers of technical manipulation and outright abuse that we saw develop in the profit-making segments of the economy are now spreading to pockets of the nonprofit sector," Internal Revenue Commissioner Mark W. Everson told the panel yesterday.
In a lengthy letter to the committee last week, the commissioner laid out an array of cheating and abuse that his agency has discovered among nonprofits. These include use of donor-advised funds and supporting organizations for transactions that appear to be deductible gifts but allow the donor continued use or even possession of the donated money or assets.
Everson and Jane Gravelle of the Congressional Research Service also described how difficult it is for the IRS to ensure that donations are properly valued when they are neither cash nor publicly traded securities.
Indeed, Grassley cited in his opening remarks "a new scam" in which some big-game hunters receive potentially large income tax breaks by donating trophy mounts from their expeditions to museums, often at what the IRS considers inflated prices. A committee staff member held up the mounted head of an African springbok next to the senator as he spoke.
Grassley said news accounts of the charitable donations make "me think that many people think the 'tax' in taxidermy is meant to allow them to write off safaris to Africa as tax deductions if they give away a stuffed animal."
It is the appraisers in such deals whose heads Grassley suggested that the IRS should seek.
But when George K. Yin, chief of staff of Congress's Joint Committee on Taxation, suggested that deductions for certain non-cash donations be capped or limited to the amount the donor paid for the asset, senators from both sides of the aisle expressed concern.
"I do not accept the notion that only cash and publicly traded securities" should be deductible at full value, said Sen. James M. Jeffords (I-Vt.). He said localities have no trouble valuing land when they tax it, so it shouldn't be so hard to ascertain its value when it is donated to charity.
Jeffords was joined at various points during the discussion by Sens. John D. Rockefeller IV (D-W.Va.), Rick Santorum (R-Pa.), Jim Bunning (R-Ky.) and Charles E. Schumer (D-N.Y.), all saying they worry about tightening the rules too much.
"If you don't get this right . . . one of two bad things can happen," said Sen. Ron Wyden (D-Ore.). "More low-income people get hammered again or taxpayers get fleeced."
Everson said the IRS does not know exactly how much revenue is lost to abuses in nonprofits. He said the agency's ongoing analysis of the "tax gap" of as much as $353 billion that Americans do not pay each year indicates that more than $15 billion to $18 billion is overstatement of deductions. "Charitable contributions are in there," but the IRS has not yet figured out what share of lost revenue they represent.
Representatives of charities and other nonprofits told the panel they are as eager as anyone to see abusive behavior driven out of their industry, and they said they approve of efforts to increase transparency so that government and the public can see clearly what individual nonprofits are doing.
"The challenge is to find the right balance," said former representative Leon E. Panetta, who was director of the Office of Management and Budget under President Bill Clinton before becoming his chief of staff. He is now part of a group working with nonprofits to come up with rules and practices that suppress abuse but not legitimate giving.