Federal fund gives millions to charity tax cheats

Agency can't check tax records
Gregory Kutz, the GAO's Managing Director for Forensic Audits and Special Investigations, said that that the number of CFC-participating charities that are delinquent on their taxes is almost certainly higher than the 1,280 identified by his agency because it didn't count charities that underreport their income or fail to file returns.

A short-term solution to the problem would be to identify charities that have a history of tax delinquency or fraud. But OPM is prohibited from doing that. It cannot even check to see if charities that receive money from the federal employees’ fund have filed routine tax returns required of every tax-exempt organization.

"In the short term, that's a problem that can't be fixed," Kutz told MSNBC.com.  "It would require a change in the law."

What's more troubling, Kutz said, is that the CFC's minimal screening process opened the door wide for a fake charity to con its way on to the authorized list. Kutz said the GAO actually created a fake charity itself -- and then applied to three local CFC campaigns for money, all of which sent checks.

"We were three for three," he says.  "In one case, we had to answer a few questions on the phone, but then it was fine."

Karin Hope, legislative director for U.S. Rep. Jim Ramstad, R-Minn., who was chairman of the Ways and Means Committee when it called for the investigation, said the committee was tipped to the problem by a charity employee who noticed there was no deduction on his pay stub for payroll taxes. (The Government Accountability Office, which was assigned to sort it out, is an independent investigative arm of Congress).

Charities' tax-exempt status reviewed
OPM Director Linda M. Springer said last week that her agency launched an immediate review of the CFC charities after the report was issued. Working with IRS data, she said, the agency has determined that all the charities receiving money from the CFC were legitimately tax-exempt, except for 132 that have not yet proven their nonprofit status. No federal employee contributions will be given to those organizations until her staff is confident they are legitimate non-profits, she said.

“We rely on the IRS status as our benchmark,” Springer said. “We’re comfortable in relying on them.” Ultimately, however, she said her agency has to make sure the CFC runs smoothly and donors can be confident their dollars are going to the right places.

“The responsibility is with OPM,” she said.

An IRS spokesperson declined to say whether the tax-collection agency is investigating the 15 charities GAO referred to it for collection and criminal investigation, citing taxpayer confidentiality. The spokesperson responded to other questions about the GAO findings by referring MSNBC.com to the IRS written comments in the report.

In those comments, the IRS said it would work with the OPM “to implement a program to verify the tax-exempt status of CFC charities,” and is reviewing the 15 referred cases “and will take further action if warranted.”

MORE FROM GIVING

Giving Section Front

Molly Sims joins fight against malaria   Pepsi pays to 'refresh' communities ‘Sleepers’ raise money for homeless Madonna promises light for Malawian village Julianne Hough: Dancing with the kids Mayor revives distressed ghost town Bill Gates makes big push on education reform Giving Section Front   Add Giving headlines to your news reader: