MELISSA BLOCK, host:
The Secretary of Health and Human Services, Mike Leavitt, has a charitable foundation that until recently gave little money to actual charities. The Washington Post broke the story this morning.
NPR's Ari Shapiro has more on what tax experts call a significant loophole in the law.
ARI SHAPIRO reporting:
Nobody's accused Secretary Mike Leavitt of breaking the law, but as Rick Cohen of the National Committee for Responsive Philanthropy says -
Mr. RICK COHEN (National Committee for Responsive Philanthropy): Because something may not be illegal doesn't make it right.
SHAPIRO: Cohen believes Leavitt and his family have taken advantage of a weakness in the tax law. Most private charitable foundations have to give at least 5 percent of their money to charity every year. But the Leavitt family put its money in a different kind of charitable fund, called a supporting organization.
Last year the family sold off some of its water rights to Las Vegas and increased its charitable giving, but tax records show that from 2002 to 2004, the foundation gave less than 1 percent of its money to charity.
Meanwhile, Secretary Leavitt claimed his contributions to the foundation as tax write-offs and the organization gave a loan for hundreds of thousands of dollars to a Leavitt family real estate business. If the Leavitt money had been in a private foundation, such a loan would've been illegal. Don Alexander is a former commissioner of the IRS.
Mr. DON ALEXANDER (Former Commissioner, IRS): I think this case, although perhaps not an abusive case, demonstrates why the law doesn't work very well because people could take advantage of the law by letting charity begin very close to home if not at home.
SHAPIRO: The current IRS administrator, Mark Everson, would not comment for this story. But in testimony to the Senate Finance Committee last year, Everson said these supporting organizations are ripe for abuse.
Secretary Leavitt's brother is Dale Leavitt. He says because his family's foundation was not bound by the same rules as other charitable organizations, it was able to sell its water rights later and give more money to charity as a result.
Mr. DALE LEAVITT (Partner in Leavitt charity): It's a long-term good that's occurred by our being able to wait until the time is right to sell that asset.
SHAPIRO: And he said the loan to his family's real estate company was a good investment that generated a market rate of return or better. Secretary Leavitt said in his statement today that his family foundation “has already contributed nearly $1.5 million to charity and will continue to make generous contributions in the years to come. We find satisfaction that many people will benefit from our giving.”
Evelyn Brody is a law professor at Chicago Kent College of Law, the Illinois Institute of Technology. She says Congress has been trying for a while to eliminate the potential for abuse that these funds provide.
Ms. EVELYN BRODY (Chicago Kent College of Law): There have long been proposals to say if you walk like a duck and you quack like a duck you should be treated, for tax purposes, like a duck.
SHAPIRO: And such treatment is part of a bill now pending in Congress. Today the Senate Finance Committee's Republican chairman and its senior Democrat wrote to President Bush urging him to make sure charitable organizations are really about charity, and citing the Leavitt Foundation as a potential case of abuse.
Ari Shapiro, NPR News, Washington.