August 3, 2006 | Read Time: 2 minutes
TAX WATCH
A financial deal involving a Sacramento housing charity has led to battles at the Internal Revenue Service and in the California courts.
Don F. Harris, who founded Nehemiah Corporation, a nonprofit provider of down-payment assistance, said in a petition to the U.S. Tax Court that he had not received excessive compensation from Nehemiah and that therefore the IRS should not have assessed him $2.5-million in taxes and penalties.
He told the court that stock in a for-profit marketing company, which the charity gave him, did not constitute inappropriately high compensation as defined by federal law. Nor, he said, did he receive any financial benefit when the marketing company bought the rest of the charity’s stock for less than the IRS said it was worth.
Mr. Harris also said the IRS did not accurately state the value of the stock he received. He said it was worth $4.34 per share, not $91.80 per share as the tax agency estimated.
Under a 1996 law, charity executives and other officials who receive inappropriately high compensation can be forced to pay fines, as can trustees who approve the arrangements.
The for-profit marketing company was created and owned by Nehemiah. The charity sued Mr. Harris in California state court over the deal in which Mr. Harris received stock through the sale of the company, and the parties are now working out a settlement, the terms of which neither side will disclose.
The lawsuit says that Mr. Harris misled the charity into divesting itself of the company and giving its stock to Mr. Harris and other officials, and that Mr. Harris then enriched himself at the charity’s expense by collecting $42-million in marketing fees from the housing group.
Mr. Harris, who resigned from the organization in 2002, says he acted “in good faith.”
As is its policy, the IRS declined to comment on Nehemiah or on the case involving Mr. Harris.
