August 7, 2008 | Read Time: 1 minute
The Internal Revenue Service is looking at whether charities are using offshore accounts and other tactics to avoid paying taxes on income earned in the United States.
Frank Ng, commissioner of the IRS’s Large and Mid-Sized Businesses Division, told the Senate Finance Committee that the tax agency is “evaluating the nature” of offshore investments by nonprofit groups that otherwise would be required to pay unrelated-business income tax, known as UBIT, on their investment gains.
Mr. Ng’s acknowledgment, during a Senate hearing on offshore investments, follows recent scrutiny of charities subject to UBIT. The Chronicle found in an investigation published in its February 7 issue that nearly half of the largest U.S. charities that have unrelated-business income pay no tax.
Sen. Charles Grassley, of Iowa, the senior Republican on the finance committee, has expressed concern that some institutions are using overseas companies to avoid the tax. Citing the Chronicle report at the hearing, Mr. Grassley questioned whether charities that are subject to UBIT use so-called blocker companies to avoid tax. Under current law, groups can use blocker companies overseas to convert taxable profit from hedge funds into dividends that are not taxed.
Mr. Grassley has asked Mr. Ng for a detailed written response to his questions.
