April 05,2005

Chairman Grassley’s opening and closing statements at hearing on charities

Opening Remarks of Sen. Chuck Grassley of Iowa
Chairman, Senate Committee on Finance
Hearing on Charities and Charitable Giving: Proposals for Reform
Tuesday, April 5, 2005

This is a hearing on two important subjects. The first is strengthening the role of charitiesin this country. The second is closing the tax gap as it relates to charities and charitable giving.

Last week the Commissioner of the Internal Revenue Service came out with preliminaryfindings on the tax gap. The news is not good. We continue to have a tax gap of well over $300billion a year. That’s the difference between the amount of tax voluntarily paid and the amountof tax that should be paid. Like a loaf of bread, the tax gap is made up of many slices. Thereisn’t one specific problem or issue that makes up the whole. If we’re going to begin to close thetax gap, we’ll do so one slice at a time.

In one particular area, we’ve become familiar with the problem of individuals taking bigtax deductions based on estimates – often pie-in-the-sky estimates – for gifts of closely heldstock, in addition to real and tangible property that is given to charity. What we see too often isthe charity receiving a very small amount of support, at best, from this kind of gift, at the sametime the taxpayer gets a tremendous benefit from the tax deduction.

I have here a Spring Bok from South Africa. Unfortunately, some people think its nameis “Free Buck.” The Spring Bok is known for its ability to leap when startled. Boy, were westartled when we learned of this new tax scam. The story in this morning’s Washington Postmakes me think that many people think the “tax” in taxidermy is meant to allow them to write offsafaris to Africa as tax deductions if they give away a stuffed animal. This type of scam givesnew meaning to the term tax “game.”

I expect the Internal Revenue Service to be very active in big-game hunting when itcomes to this particular tax shelter. Mr. Commissioner, I would suggest the next head that needsto be mounted – figuratively, of course – is the appraisers who’ve been promoting this scam.

This taxidermy problem is just one example of what we’re seeing too often when it comes tocertain tax deductions for gifts to charity. Similar problems with valuation exist throughout thetax code. Finding solutions is part of slicing away at the tax gap.

The second aspect of today’s hearing is strengthening the charitable sector.

From the earliest days of European settlement, charity has been central to our national character.In his sermon to the Puritans sailing to the Massachusetts Bay Colony, John Winthrop said thatthey would be creating a “city upon a hill” for all to see. The Reverend Winthrop said that tosucceed in the new land, the Puritans needed to be a model of Christian charity.

The years between then and now have proven the importance and value of this ethic.

Today’s tax code recognizes the importance of charities in helping those in need. It provides taxexemptstatus to charitable organizations and tax deductions for charitable giving. Congress, theadministration and the charitable sector itself are all obliged to make certain these tax preferencesare used as intended. Congress hasn’t taken on a serious review of tax-exempt organizationssince 1969.

Today I’m submitting for the committee record a letter from IRS Commissioner Everson.Mr. Everson’s letter to Sen. Baucus and me makes it clear that a lot has changed since 1969.Congress must revisit the laws in this area to make sure that it’s “charity” that benefits from thelaws rather than “private interests.”

Last year, the Finance Committee had a hearing and a roundtable discussion on thissubject. We considered a staff discussion paper. Since then, we’ve received the Joint Committeeon Taxation’s thoughtful proposals in this area and the IRS Commissioner’s detailedobservations. We’ve also engaged the charity sector, which is providing recommendations andreactions through the Nonprofit Panel.

It’s my hope that in the near future the Finance Committee can move legislative reformsthat will strengthen charitable governance and address this part of the tax gap. Those revenuescan offset the costs of the CARE Act, which has an able advocate in Sen. Santorum. I’mconfident we can consider a mark that will take meaningful steps to address this part of the taxgap, help see that charities act in the interest of their charitable purpose and, finally, encouragenew charitable giving. Today’s hearing gives committee members an opportunity to explorethese matters in detail.

Closing Remarks of Sen. Chuck Grassley of Iowa
Chairman, Senate Committee on Finance
Hearing on Charities and Charitable Giving: Proposals for Reform
Tuesday, April 5, 2005

This has been a very useful hearing. The testimony today has made it clear that there is aneed for reforms to deal with this part of the tax gap. We have heard good suggestions that willallow us to address many of the problems raised. Balancing these efforts, I want to make certainthat the vitality of nonprofits, particularly small charities and churches, is not unduly burdened bygovernance reforms.

I want to note the work of the Nonprofit Panel, which was well-represented today by Ms.Aviv, Mr. Gallagher and Mr. Panetta. We heard extensive and thoughtful comments about theproblems in the nonprofit sector. These comments need to be shared with the charitable sector asyou conduct your discussions and meetings. Too often as charities across the country considerproposals for reforms, they do so in an atmosphere that doesn’t reflect the reality we see. Istrongly encourage the Nonprofit Panel that their work must be one not only of dialogue withcharities but informed dialogue that starts with serious and significant education of the problemsbefore us. Without education, it is only natural that some charities respond as if the sky isfalling.

But the fact is that those who turn a blind eye to the problems in the charitable sector, orseek only a fig leaf of reform, potentially cause real long-term damage to non-profits. Those whoare seeking real reforms to address the issues raised by the Commissioner and others today, willhelp ensure continued public confidence and support for non-profits. By doing so they act in thetrue best interests of charities.

Given the limited time frame, I encourage the non-profit panel to concentrate its workfirst on the areas of governance. It is particularly vital that the panel provide us seriousproposals that the IRS can efficiently administer in the areas of self-dealing, governance and payand benefits. The Finance Committee has taken a rare step in reaching out so extensively. Myhope is that this experiment will be a success, and that we will see serious reform proposalsquickly.