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IRS Questions Charity’s Accounting Practices

September 10, 2012

The Internal Revenue Service has fined the nonprofit Food for the Hungry $50,000 for overvaluing medicine and other goods that it donated in 2008, part of a larger effort to crack down on overly high valuations of gifts-in-kind.

According to a report by The Arizona Republic and Arizona’s Call 12 News for Action, IRS auditors said Food for the Hungry claimed to have donated $86.8 million in medicine and other gifts-in-kind that the IRS said were actually worth $92,633. One of the items questioned was de-worming medicine, which helps cure children of parasites they got from drinking water in areas with poor sanitation. IRS auditors said the $46.4 million listed on the Form 990 was overvalued by tens of millions of dollars. Food for the Hungry claimed the fair market value of the pills was $1.40 to $1.54 per tablet, while telling donors that the pills were worth a nickel apiece.

The Phoenix-based charity also adjusted the numbers it submitted to watchdog group Charity Navigator, reducing the $86.8 million it reported as donated on the charity’s Form 990 for 2008 to $49.4 million. It said the values were adjusted to comply with new accounting standards and changes in Charity Navigator’s own methods for calculating the value of donated goods.

Food for the Hungry has undoubtedly done good work over the years in feeding the poor and generally receives high rankings from watchdog groups like Charity Navigator. The group said it is disputing the IRS’s findings and has requested a hearing.

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