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Donors Claim $1.1 Billion Skirting Tax Laws, Audit Says

A shadow of the U.S. flag is seen on the Internal Revenue Service (IRS) building in Washington, D.C. Photographer: Andrew Harrer/Bloomberg
A shadow of the U.S. flag is seen on the Internal Revenue Service (IRS) building in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

Jan. 15 (Bloomberg) -- U.S. taxpayers routinely violate rules requiring them to prove the value of noncash contributions to charities, costing the government $1.1 billion in 2010, according to the Treasury Inspector General for Tax Administration.

Under U.S. tax law, noncash donations exceeding $500 must be accompanied by a tax form detailing the contribution and the recipient. The most valuable donations -- of art, historic building easements and items worth more than $500,000 -- require taxpayers to submit an appraisal.

The inspector general’s study of 507 tax returns found that about 60 percent didn’t comply with the rules. They didn’t file the correct forms or provide clear descriptions of what was donated.

Senator Charles Grassley, an Iowa Republican, issued a statement complaining about “poor work” by the IRS.

“Instead of rushing to raise taxes, the administration should do more to collect the taxes already owed,” said Grassley, a former chairman of the Senate Finance Committee.

“The president has insisted on raising taxes on upper-income taxpayers, yet the report shows the administration is giving a free pass to those claiming high-value deductions for donations of vehicles, art, or securities,” Grassley said.

Requesting Documentation

In its response to the report, the Internal Revenue Service said it will request documentation from more taxpayers and revise the form.

Michelle Eldridge, a spokeswoman for the IRS, said in a statement the agency will “make improvements” on the issue. Still, she said the IRS disagrees with the report’s estimate of potential lost revenue.

“The figure they cite is potentially misleading as an unsubstantiated expense does not automatically equate to an unallowable expense, and subsequent enforcement actions were not taken into account,” she said.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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