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SPOTLIGHT REPORT | CHARITY BEGINS AT HOME

Underfunded IRS unable to monitor trusts

The enormous surge of wealth in the 1990s fueled an explosion in the number and size of charitable foundations, so far outstripping the ability of the Internal Revenue Service to monitor the field that even some foundation trustees have grown alarmed.

The number of grant-giving charitable foundations increased by 73 percent in the boom years of the last decade, to nearly 62,000 across the country. Foundation assets more than doubled to almost $500 billion. And grant-making tripled to $30 billion a year.

But as the number of Americans who plowed new wealth into charitable foundations grew, the ability of the IRS to enforce the laws that govern foundations diminished. Foundation audits are now a rarity.

"While the public's trust with our field depends on government oversight, we have practically no oversight," said Dorothy S. Ridings, president of the Council on Foundations, at the trade group's annual meeting earlier this year.

Ridings said the IRS audits about 120 private foundations a year.

Many wealthy Americans establish foundations to support charities while reaping significant tax benefits and establishing family legacies. But the lack of meaningful federal or state oversight has allowed excesses and abuses by some trustees to go unchecked.

Many of the excesses found by the Spotlight Team investigation appear concentrated in family foundations that simply donate money to charitable causes, and not in the larger "operating foundations" that employ professional staffs to manage projects in public policy fields such as medicine and technology.

But some foundation trustees fear that the abuses of some will shake public confidence in all foundations. Concern about high foundation expenses and excessive perks escalated last month, when Congress considered legislation that would have barred foundations from including salaries and administrative costs in the 5 percent of assets they are required to donate to charitable groups each year.

But following opposition from some foundations, the proposal was watered down. And neither the House nor the Senate versions of the bill now pending would provide the IRS with significantly greater funds to monitor foundations.

Opponents of tougher regulations say they could hamper the ability of foundations to manage their assets and ensure long-term grant giving. Supporters, meanwhile, say new regulations are needed because some foundation trustees have abused tax breaks and the opportunities to establish family legacies -- often by putting family members on foundation payrolls.

"No one's watching," lamented Pablo Eisenberg, a senior fellow at the Georgetown University Public Policy Institute and co-author of a study on pay for foundation trustees. "Foundations are largely unaccountable, partly because the IRS does not have any money to oversee the whole sector, partly because it doesn't even read foundation tax returns."

SPOTLIGHT REPORT | CHARITY BEGINS AT HOME

Underfunded IRS unable to monitor trusts

The enormous surge of wealth in the 1990s fueled an explosion in the number and size of charitable foundations, so far outstripping the ability of the Internal Revenue Service to monitor the field that even some foundation trustees have grown alarmed.

The number of grant-giving charitable foundations increased by 73 percent in the boom years of the last decade, to nearly 62,000 across the country. Foundation assets more than doubled to almost $500 billion. And grant-making tripled to $30 billion a year.

But as the number of Americans who plowed new wealth into charitable foundations grew, the ability of the IRS to enforce the laws that govern foundations diminished. Foundation audits are now a rarity.

"While the public's trust with our field depends on government oversight, we have practically no oversight," said Dorothy S. Ridings, president of the Council on Foundations, at the trade group's annual meeting earlier this year.

Ridings said the IRS audits about 120 private foundations a year.

Many wealthy Americans establish foundations to support charities while reaping significant tax benefits and establishing family legacies. But the lack of meaningful federal or state oversight has allowed excesses and abuses by some trustees to go unchecked.

Many of the excesses found by the Spotlight Team investigation appear concentrated in family foundations that simply donate money to charitable causes, and not in the larger "operating foundations" that employ professional staffs to manage projects in public policy fields such as medicine and technology.

But some foundation trustees fear that the abuses of some will shake public confidence in all foundations. Concern about high foundation expenses and excessive perks escalated last month, when Congress considered legislation that would have barred foundations from including salaries and administrative costs in the 5 percent of assets they are required to donate to charitable groups each year.

But following opposition from some foundations, the proposal was watered down. And neither the House nor the Senate versions of the bill now pending would provide the IRS with significantly greater funds to monitor foundations.

Opponents of tougher regulations say they could hamper the ability of foundations to manage their assets and ensure long-term grant giving. Supporters, meanwhile, say new regulations are needed because some foundation trustees have abused tax breaks and the opportunities to establish family legacies -- often by putting family members on foundation payrolls.

"No one's watching," lamented Pablo Eisenberg, a senior fellow at the Georgetown University Public Policy Institute and co-author of a study on pay for foundation trustees. "Foundations are largely unaccountable, partly because the IRS does not have any money to oversee the whole sector, partly because it doesn't even read foundation tax returns."

Charity begins at home
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Spotlight Report The Boston Globe Spotlight Team would like to hear from readers who have information about this issue. The Spotlight telephone number is 617-929- 3208.

Confidential messages can also be left at 617-929- 7483.

The e-mail address for the Spotlight Team is spotlight@globe.com

Foundation tax returns are available for public viewing at www.guidestar.org
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