TAX-EXEMPT STATUS Congress looks into nonprofits

Some people use the tax-exempt status as a charity to get rich.
WASHINGTON (AP) -- Lawmakers are taking a close look at charities and tax-exempt organizations such as universities and hospitals to assess allegations that nonprofit groups are using their legal status as a cover for criminal behavior.
Millions of groups that claim nonprofit motives use the tax-exempt status. It can apply to charities, foundations, credit unions, civic leagues, political associations, farmers' cooperatives, mutual insurance associations and religious orders.
In the House, the pricing practices of tax-exempt and other hospitals is the subject of a Ways and Means subcommittee hearing Tuesday.
Witnesses set to appear Tuesday before the Senate Finance Committee intend to say that state and federal agencies have done little to ensure compliance by the fast-expanding tax-exempt sector.
"I think that the sector is growing enormously," said H. Art Taylor, president and chief executive of the BBB Wise Giving Alliance. "Clearly, there are people who have decided to get into this business for the purpose of enriching themselves."
What's happening
Stories of personal enrichment caught the attention of the committee leaders.
"I am very troubled that the fraudulent practices of a few have begun to overshadow the efforts of those who work to do good in the charitable world," said the committee's top Democrat, Sen. Max Baucus of Montana. "Using charities as a smoke screen to hide unethical and criminal behavior is inexcusable."
Last week, class-action lawyer Richard Scruggs filed federal lawsuits in Jackson, Miss., against 13 not-for-profit hospitals in eight states that alleged the hospitals inflated the amount of charity care they provide and used strong-arm tactics to collect money from the uninsured.
The suits seek unspecified damages from hospitals in Alabama, Florida, Georgia, Illinois, Minnesota, Ohio, Tennessee and Texas.
The Internal Revenue Service has a large portion of the tax-exempt debt counseling industry under audit. This year, the agency also issued its first ruling against a tax shelter involving charities.
In testimony prepared for the Senate hearing, an insurance analyst describes schemes she sees marketed to and used by charities for the profits of corporations.
"These are not small investments. These are billion-dollar pools each," insurance analyst J.J. MacNab of Insurance Barometer LLC said.
"There's a lot of games being played," she said. "The charities are hungry right now. They had a bad couple of years."
Proposals
The problems have congressional tax writers contemplating many changes.
Some ideas would establish an IRS review every five years to make sure groups continue to meet their obligations, revoke the tax-exempt status of charities that use tax shelters, put in place corporate governance rules on boards of directors and require groups to disclose more information to the public.
"We need reforms to shut down the hucksters who twist the good will and generosity of others for their own personal benefit," said Senate Finance Committee Chairman Charles Grassley, R-Iowa. "I intend to propose legislation on various charitable abuses as the problems emerge and my colleagues and I develop clear solutions."
Some charities welcome the review.
"They are not being held to a higher standard. They are being held to a charitable standard," said Rick Cohen, executive director of the National Committee for Responsive Philanthropy.