Treasury, IRS shut down tax shelter involving charities
By MARY DALRYMPLE, AP TAX WRITER
WASHINGTON (AP) - The
Treasury Department and the Internal Revenue Service acted Thursday
to stop businesses from partnering with charitable organizations
to generate improper tax deductions.
This announcement marked the first time tax officials have designated
tax-exempt organizations, such as charities, as participants in
a tax shelter.
"The participation of tax-exempt entities in
these abusive transactions is a worrisome trend," said IRS
Commissioner Mark Everson. "We are acting today to ensure
the integrity of our charities. We don't want Americans to lose
faith in a unique and vital part of our nation's social fabric."
The transaction involves businesses organized as
corporations that pass income, and thus taxes, through to their
shareholders. The Treasury Department and IRS acted to stop those
businesses from partnering with a charity and shifting income
to the tax-exempt organization to generate improper tax deductions.
In one such strategy, shareholders reduced taxes
on the company's income by temporarily allocating it to a tax-exempt
entity. They also got a tax deduction for donating nonvoting stock,
which was created specifically for this transaction, to the tax-exempt
"Use of tax-exempt organizations as mere accommodation
parties should not be permitted," said acting Assistant Treasury
Secretary Gregory Jenner.
The announcement means taxpayers and promoters using
the transaction must disclose their actions to the IRS. Firms
promoting the arrangement must keep lists of investors.
The arrangement came under scrutiny last fall when
Senate investigators examined tax shelters sold by accounting
firm KPMG in the late 1990s and early 2000s. The firm said it
no longer offers the tax strategies.
The Senate Governmental Affairs investigations subcommittee
concluded that about a half-dozen tax-exempt groups participated
in the transaction.
The top Democrat on the panel, Sen. Carl Levin of
Michigan, said he was pleased to see the IRS attack the shelter.
"It is particularly disturbing when tax shelter
promoters start involving charities in their tax dodges,"
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