August 27, 1998 | Read Time: 2 minutes
The Internal Revenue Service is providing its agents with new advice on how to handle a range of issues that may arise during charity audits and other reviews. Among the topics: the controversy over tax-exempt funds set up by for-profit banks and investment companies.
The advice appears in the latest version of the service’s training textbook. The publication is intended solely to train I.R.S. workers, but charity leaders and their lawyers find the guide useful because they can see how the agency views complicated aspects of tax law.
Other issues discussed in the new edition include: tax-exempt bonds and joint ventures between non-profit hospitals and for-profit companies.
In one chapter, the government discusses the debate over commercial gift funds, which have been a subject of fierce debate within philanthropy since 1992, when Fidelity Investments started a service intended to make it easier for donors to give money to charity.
Funds offered by Fidelity and other businesses operate much like community foundations: Donors put their money in special charitable accounts, take a tax deduction for their gifts, and then advise the company about which charities they would like to support.
Critics of the commercial funds charge that profit, not philanthropy, is the driving force behind the funds; that they give too much control to the donor; and that they are open to abuses, including situations in which donors could illegally profit from their own gifts.
In its handbook for agents, the I.R.S. said it is “not the arbiter” between the two warring sides but must “evenhandedly” administer the tax law.
“The service will carefully evaluate both commercial gift funds and community trusts as to operations and purposes,” the handbook said. “Each case is highly factual and outcomes may vary depending on the facts in each case.”
However, the I.R.S. said that it “is likely to view more favorably those organizations that live up to a well-defined exempt purpose,” give away at least 5 per cent of their assets each year where appropriate, “and monitor and police donor abuse.”
Copies of the publication, Exempt Organizations Continuing Professional Education Technical Instruction Program, may be obtained for $45.45 from the Internal Revenue Service, F.O.I./Privacy Section, P.O. Box 795, Ben Franklin Station, Washington 20044. Ask for the edition designated “Training 4277-050″ for the 1999 fiscal year.
