Washington (June 24, 2004) – Nonprofit foundations that shell out “excessive compensation” to insiders -- and the accountants who wink at such tax scams -- figure to come under intense federal scrutiny over the coming months as a result of an aggressive new “Tax Exempt Compensation Initiative” about to be launched by the Internal Revenue Service.

In outlining plans for the crackdown in testimony before the Senate Finance Committee on Monday, IRS Commissioner Mark W. Everson told Congress that the tax service will be demanding “detailed information and supporting documents” on compensation practices at “hundreds” of private foundations, as well as “public charities of various sizes.”

The initiative, which the IRS plans to launch this summer, is part of a broader drive by the agency to respond to growing congressional concern that tax-exempt charities are being abused by greedy taxpayers in the U.S. and manipulated to fund terrorist organizations abroad.

“If these abuses are left unchecked, I believe there is the risk that Americans not only will lose faith in and reduce support for charitable organizations, but that the integrity of our tax system will also be compromised,” Everson said.

Under the nonprofit compensation initiative being developed by the IRS, charitable groups will be asked to provide investigators with “details concerning the independence of the governing body that approved the compensation, and details of the duties and responsibilities of these managers,” the tax commissioner explained.

During subsequent stages of the initiative, the IRS plans to examine a variety of “insider transactions” by nonprofits, including loans or sales to officers of the organization, he told Congress.

Everson outlined the new compensation initiative during hearings at which a parade of witnesses rattled off horror stories of abusive tax avoidance schemes involving charities and other nonprofit organizations.

Finance Committee Chairman Chuck Grassley, R-Iowa, called the testimony “troubling,” and warned that “too many well-meaning charities have fallen prey to the charlatans’ pitch about easy money.”

-- Ken Rankin

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