November 1, 2007 | Read Time: 1 minute
The Internal Revenue Service is trying to crack down on a possible scam involving real estate and charities.
The tax agency has started contacting charities it believes have taken part in so-called successor member interest real-estate transactions — transactions the IRS thinks may be an abuse of the federal tax code.
It has sent letters to nonprofit groups asking them to fill out a questionnaire about the transactions and telling them they could face penalties if they fail to provide satisfactory answers.
The transactions are potentially abusive because they allow donors to improperly claim substantial tax deductions on ownership of a property.
In such cases, a donor buys either direct or indirect interest in a property. To avoid claiming capital gains — or to inflate the value of a loss — the donor transfers his or her interest in that property to a charity and takes a charitable deduction on his or her income taxes that is significantly greater than the amount the donor paid to acquire the interest.
The IRS is concerned about the transactions because there is often a large discrepancy between the amount the donor paid for the interest in the property and the amount claimed by the donor as a charitable contribution.
