May 03,2004

Grassley Seeks Details of Instrument Donation, Highlights Need for IRS Whistleblower Incentives

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, is askingfor details of a donation the Smithsonian Institution received of four Stradivari musical instruments– two violins, a viola, and a cello – in 1998. Several observers believe the donor may havesignificantly inflated the instruments’ value to claim a much bigger tax break than he deserved, andthat the Smithsonian may have done little to help prevent that.

“It’s troubling that the Smithsonian may be turning a blind eye to tax mischief,” Grassley said. “Government agencies should be working in concert, not against each other. We’re seeing problems of wildly inflated in-kind donations across-the-board: cars, land, intellectual property andnow, possibly, donations of musical instruments. Donors shouldn’t be able to get away with playingthe taxpayers like a fiddle.

“Car donations are getting the most headlines as areas of abuse, but donations of land, art andintellectual property are all raising concerns. It appears we’re just scratching the surface. We haveto get a good handle on all areas of abuse to allow taxpayers to take the deductions they’ve earned,not what they’ve inflated.”

Grassley and Sen. Max Baucus, ranking member, are working to advance reforms of vehicleand intellectual property donations through their foreign sales corporation/extraterritorial income actbill, which is pending before the full Senate. They plan to develop additional legislative reformproposals on charitable giving and accountability as needed.

Grassley also is asking the Internal Revenue Service for details of an individual who raisedthe tax fraud question regarding the Stradivari donation with the agency. The individual may deservewhistleblower compensation, and Grassley is working to improve the IRS’ incentive system toencourage whistleblowers to expose tax fraud.

“I was the Senate author of the 1986 whistleblower amendments to the False Claims Act,”Grassley said. “Those amendments have returned more than $12 billion to the U.S. Treasury.Unfortunately, one of the agencies that could most benefit from strong whistleblower incentiveslacks them. The IRS is allowed to pay rewards to whistleblowers, but there’s no guarantee of areward and, therefore, less incentive for whistleblowers.

“The Senate is considering an international tax reform bill that I’m responsible for as FinanceCommittee chairman. I’ve included a provision that would require the IRS to pay rewards towhistleblowers. My legislation would model an IRS rewards program on the False Claims Act. Itwould empower whistleblowers to help catch tax cheats. This is long overdue. One well-positionedwhistleblower could expose millions of dollars of fraud. It might take IRS auditors years to catchthat much cheating on their own.”

The text of Grassley’s letters to the Smithsonian and the IRS follows.

April 28, 2004

Mr. Lawrence M. Small
Smithsonian Institution
1000 Jefferson Dr. SW
Washington, D.C. 20560

Dear Mr. Small:

The Finance Committee has been conducting an ongoing review of in-kind donations tocharities. The findings of this review have been troubling, indicating that too many taxpayers aretaking highly inflated values for in-kind donations – be it cars, land, intellectual property or othertypes of in-kind property.

The Finance Committee has recently been made aware of questions being raised as to thevalue of a donation the Smithsonian received of four Stradivari musical instruments in 1998. Iwould appreciate the Smithsonian providing all material in its possession or control regarding thisdonation and particularly a copy of the IRS Form 8283 (“Noncash Charitable Contributions”) for thisdonation. In addition, please provide me a copy of all Form 8283's for all donations over $10 milliondollars received by the Smithsonian since January 1, 2001.

This is not the first time this type of question has been raised regarding the Smithsonian.

In 1983 the IRS raised serious concerns about gems donated to the Smithsonian that were beingappraised for tax donation purposes at five times purchase price. What steps did the Smithsoniantake in response to this matter to prevent a recurrence?

By comparison, following the investigation by the Finance Committee, the NatureConservancy (TNC) has adopted several reforms regarding acceptance of in-kind donations. Thiswas in response to concerns about the validity of appraisals for tax deductions made by donors ofland and easement donations. Please describe what, if any, steps the Smithsonian takes before itsigns a Form 8283 to ensure that the taxpayer’s claimed deduction is accurate.

Thank you for your time and assistance. I would ask for a response in 30 days.

Cordially yours,

Charles E. Grassley

April 28, 2004

The Honorable Mark Everson
Internal Revenue Service
Washington, D.C.

Dear Mr. Commissioner:

I am writing to you regarding an issue of great concern to me – the Internal Revenue Service(IRS) and individuals who blow the whistle on tax fraud.

I have seen first-hand the enormous benefits that the False Claim Act has provided to thefederal government in its fight against fraud by health and defense contractors. The problems in taxfraud are even greater. It is for this reason that I have included legislation in the JOBS bill thatexpands and improves upon the IRS’ current limited program to reward whistleblowers. I amconfident that these changes will bring far-ranging benefits to enforcement and compliance with thetax laws.

In that light, I am requesting that the IRS please provide my office all details regarding theApplication for Reward for Original Information (Form 211) that was filed by Mr. Neil Fitzgeraldregarding claims he has raised regarding certain charitable donations.

Pursuant to IRC section 6103(f)(4), I hereby authorize Dean Zerbe of my staff to review thisinformation. Thank you for your time and assistance. I would ask for this information in thirty days.


Charles E. Grassley