Charities Next to Feel Regulators’ Scrutiny

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You write that check to your favorite charity, send it off and feel pretty good about your philanthropic gesture, right? Federal and state regulators are taking steps to make sure that tax-deductible donation is being used properly by the nonprofit receiving it.

Following the firestorm that erupted in corporate America in the wake of numerous accounting scandals, some are wondering if enough is being done to regulate the nonprofit sector, with Massachusetts Attorney General Thomas F. Reilly leading the charge.

"We are seeing more mischief in this area than I think we've seen before," Reilly told the New York Times. He is calling for legislation in his state to tighten controls over charities.

New York Attorney General Eliot Spitzer proposed a series of laws to tighten up regulation of the nonprofit sector last summer, but the bills have stalled in the legislature. "When his efforts didn't go anywhere, I think some charities decided it was just a fad," Michael W. Peregrine, a lawyer in Chicago who represents many nonprofit groups, told the Times. "But the confluence of high-profile, notorious developments among charities is giving these attorneys general and congressmen the ammunition they need to push these measures through."

Senator Charles E. Grassley (R-IA), chairs the Senate Finance Committee and told the Times his committee's staff would be looking at charitable issues "over a long period of time." He added that there may be hearing held in the matter, which the charities had hoped wouldn't be necessary.

"In Congress, we legislate so much and delegate, but we need to do more oversight to make sure checks and balances work and supervise the tax credits we're giving," Grassley told the Times. "We give tax deductions for charitable giving, so there's a public policy interest in how the money gets used."

Rep. Bill Thomas (R-CA), chairman of the Ways and Means Committee, sent shock waves through the nonprofit sector earlier this month when he said his committee would be questioning the benefit taxpayers receive when a hospital or credit union is nonprofit as opposed to for-profit.

"They're in direct competition with institutions that pay taxes, and what is the good and worthy cause for which they were given the nonprofit, therefore tax-preferred, status?" he asked, referring to credit unions in a speech to the Federation of American Hospitals, reported by the Times. "I think some of it's gotten murky or lost in their attempt to build and grow and provide services to the point that if I put one down on paper and said profit or nonprofit, you couldn't tell the difference."

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