Congress Investigates Charity Tax Deal

By Elizabeth Schwinn

A Congressional subcommittee last week examined a tax deal involving charities and other tax-exempt groups, such as pension funds.

The Senate Permanent Subcommittee on Investigations spent two days examining two approaches it said involved questionable tax shelters, including one that involved fraudulent charitable donations by companies. The charity deal was promoted by KPMG to small businesses with annual earnings exceeding $3-million. The charities, which were not identified, accepted gifts of corporate stock that they later sold back to the corporations. The complex transaction enabled the corporations to unethically shelter income from taxation, and also allowed individual donors to take charitable deductions, members of Congress said.

KPMG sold the arrangement to 58 companies, generating $28-billion in fees, according to the subcommittee. The charities and pension funds that worked with the companies were not identified. KPMG officials at the hearing maintained that the arrangements were allowed under federal tax law.