Increasingly concerned that high-net-worth individuals are using so-called supporting organizations more for tax planning than for charitable purposes, regulators and lawmakers are pushing for tighter rules on the organizations as part of a broader crackdown on charitable tax exemptions, the New York Times reports.

Supporting organizations (SOs) are attractive to high-net-worth individuals because they offer the tax benefits associated with donating directly to charity and operate much like private foundations, but without many of the legal requirements imposed on foundations. For example, while private foundations are required to pay out, on average, 5 percent of their assets a year, supporting organizations are subject to no such requirement. According to the National Center for Charitable Statistics, the number of such organizations has grown to 34,000, up from 24,000 in 1995, while in 2001 the four hundred largest SOs controlled $76.7 billion in assets; a quarter of those made no grants at all.

In recent months, the Internal Revenue Service has revoked the tax exemption of one supporting organization and has brought cases against two people who claimed deductions for their gifts to such organizations. The agency also is considering penalties on fifteen promoters of the vehicles and is auditing about one hundred supporting organizations and their donors. "We are treating it very seriously because we've seen so many abuses," said IRS commissioner Mark W. Everson. Among the concerns cited by Everson are donations to supporting organization of assets held in offshore tax havens that find their way back into the donors' pockets, and the challenge of determining whether the values donors place on unconventional gifts for tax purposes are valid.

"I'm deeply disturbed that with a good number of supporting organizations, people are taking multi-million-dollar tax deductions for what they claim are contributions to charity, yet too often the result is a thimbleful of benefit to charity," said Sen. Charles E. Grassley (R-IA), chairman of the Senate Finance Committee, which is looking at the issue.