FUNDRAISING
In Hurricane Tax Package, a Boon for Wealthy Donors

By STEPHANIE STROM
Published: October 27, 2005

A little-noted provision in the tax relief package to aid victims of Hurricane Katrina is shaping up as a windfall for charity and a drain on government coffers. It allows donors who make cash gifts to almost any charity by the end of this year to deduct an amount equal to virtually 100 percent of their adjusted gross incomes, double the normal limit of 50 percent of income. The tantalizing prospect has set off a financial scramble among some wealthy donors and charities vying for their dollars.

"I just keep thinking there's got to be a catch, they can't really be doing this," said C. Kemmons Wilson Jr., a Memphis businessman whose father was the founder of Holiday Inns Inc.

Mr. Wilson said that he and his siblings gave away several million dollars a year and that the amount could double this year because of the provision. "How many sales does the government have?" he said. "This is a big sale, and you bet I'm going to go."

Fund-raisers say Mr. Wilson is one of many wealthy Americans pressing their financial planners in hopes of increasing their giving this year and reducing their tax bills. Some institutions, primarily universities, are encouraging big donors to take advantage of the favorable tax treatment and make sizable gifts or fulfill their pledges. Essentially, some donors may shift into 2005 gifts that would have been made in future years.

Because of the strong interest, experts say the government may forgo more tax revenue than Congress anticipated when it passed the legislation. Based on information from 2002 tax returns, Robert F. Sharpe Jr., a fund-raising consultant whose clients include the American Heart Association and the University of California, Los Angeles, estimated that the provision would spur $4 billion to $10 billion in additional giving this year; 2005 giving was already expected to exceed last year's total of $248 billion.

Mr. Sharpe said the additional giving would result in $1 billion to $3.5 billion in lost revenue for the Treasury, more than the $819 million Congress anticipated.

Moreover, some donors may be able to use the provision to take deductions this year for gifts made in past years. When taxpayers have more charitable deductions that they can use in a given year, they may carry them forward to future tax years. This possibility may further dampen tax revenues.

"Congress intended this, but I'm not sure they understood how big the tab is going to be," said Mr. Sharpe, who has become a national town crier on the issue. "There are just so many ways a donor can use this bill to maximize their charitable giving."

Congress was willing to give up some revenue because it feared that Americans had given so generously to charities working to help tsunami and hurricane disaster victims that they would cut back on their contributions to other organizations, including cultural institutions and schools.

Senator Charles E. Grassley, Republican of Iowa and chairman of the Senate Finance Committee, did not express any concerns about the potential cost of the provision in an e-mail response to questions, saying that if it was spurring a surge of giving, it was working as intended.

"After 9/11, there was an outpouring of giving to charities involved in responding to that tragedy, but unfortunately, many other charities saw a significant downturn in donations," Mr. Grassley said. "My hope in passing this provision is that Americans' generosity for those harmed by Hurricane Katrina won't mean a tradeoff for other important charitable work in this country."

But fund-raising experts have long said that the decline in charitable giving that followed the Sept. 11 attacks was smaller than nonprofit groups led the public to believe and driven more by economic factors than by exhausted donors.

"After 9/11, 65 percent of our members were raising the same or more, and the following year, the numbers went up again," said Paulette V. Maehara, president of the Association of Fundraising Professionals. "There wasn't the sky-is-falling impact that a lot of people thought there would be, and there won't be now, either, unless the economy does a nosedive."