IRS Levies Fine on Food for the Hungry Over Drug Valuations
By Caroline Preston
The Internal Revenue Service sent a letter last month to
Food for the Hungry, one of the
country’s largest aid organizations, alleging that it purposely
overstated its revenue from deworming pills and other goods
in 2008 with the intention of
misleading would-be donors.
The letter levies a penalty of
$50,000 on the charity. It says
that charity managers could
face additional financial penalties if the organization does not
correct its 2008 tax filing.
The letter says “ did not
file a complete or accurate return.” (The organization’s name
was redacted from a copy of the
letter provided to The Chronicle,
but an official of Food for the
Hungry confirmed the charity’s
identity.)
“The fact that took
actions to document incoming
and outgoing donations that
should not have been reported
on its Form 990 and actually
misreported those donations
on its Form 990 indicates that
had a purpose to mislead
both the public and the Service.
did this so it could
raise more funds,” the letter
says.
All told, the IRS letter says,
Food for the Hungry’s noncash
contributions should have been
listed on its 2008 tax form as
$92,633, not $75.7-million.
Food for the Hungry contests
the IRS’s claims.
“The values that we claimed
were in accordance with then-prevalent tax law and generally accepted accounting principles,” said Barry Gardner, Food
for the Hungry’s chief financial
officer.
Mr. Gardner said the organization has retained a lawyer,
Charles M. Watkins, who specializes in nonprofit issues.
respond, but Mr. Gardner said
his charity had received an oral
assurance that the deadline had
been postponed.
The letter could signal broad-er IRS interest in charity drug
values. Mr. Gardner said the
IRS informed him and Mr. Watkins that the agency had created a “task force” to examine
the issue.
Mr. Gardner said a second
charity had been questioned
by the IRS about its valuation
practices, but he declined to
name the organization.
An IRS spokeswoman said
privacy laws prevent the agency
from commenting. The agency’s
2011 agenda says that it has
an effort under way to examine
charities that are involved in
“gifts-in-kind,” or noncash, donation programs.
State regulators are also looking into nonprofit groups’ valuation practices and the companies and organizations that supply goods to them.
are handling fees, not payments
for the drugs themselves.
Other accountants and lawyers say charities are paying for
the drugs, and they should not
be booking them as donations.
The IRS letter clearly sides
with the latter position. The
letter disputes the charity’s
claims of “donative intent.” The
IRS says Food for the Hungry
should not have counted any
of the $46.4-million revenue it
claimed from deworming pills.
It says e-mails show that Food
for the Hungry officials knew
that they were buying medicines and sought paperwork
that described any money paid
as handling fees so they would
be able to record the transactions as donations.
Mr. Gardner, who joined the
charity in 2010, rejects that
characterization. “The extensive
correspondence [the IRS agent]
reviewed should have been proof
of the lengths we went to estab-
lish what the accurate donative
value was,” he said.
Changing Standards
Accounting practices at many
aid groups have been evolving.
Last year, Food for the Hun-
gry and many other nonprofit
aid groups reduced the values
they place on the deworming
pills and other drugs, a move
they said was prompted by a
new rule from the Financial
Accounting Standards Board,
which provided additional guid-
ance on how nonprofits and
companies should value their
products. Food for the Hungry
is now valuing one type of de-
worming pill at $1.54 per tablet
instead of $10.64.
Controversial Practices
How humanitarian groups
value their medicines has been
a source of controversy. Last
fall, The Chronicle reported on
the widespread practices of aid
groups paying 2 cents a pill for
deworming tablets but valuing those medicines as high as
$16.25 per pill.
The practice made some aid
groups look on paper as though
they were much larger than
they were, sometimes by tens
or even hundreds of millions of
dollars.
Accountants disagree on
whether charities may purchase
drugs and then mark them up to
higher values. Accountants who
sign off on the practice say it is
permitted because the drug suppliers have “donative intent,” or
a desire to make a gift, and that
commercial prices for the drugs
are higher than the prices paid
by nonprofits. Some groups say
the payments to drug suppliers
Congratulations to the 2011
Mutual of America Community
Partnership Award Recipients
Governor Hugh L. Carey Award Recipient
College Possible Access and Success Partnership
Saint Paul, Minnesota
Honorable Mention Award Recipients
Family Connections
Pittsburgh, Pennsylvania
PACE Center for Girls Expansion
Jacksonville, Florida
Merit Finalist Award Recipients
Haven for Hope
San Antonio, Texas
HavenHouse St. Louis / Family Centered Care
St. Louis, Missouri
Juvenile Alcohol Safety Action Program
Anchorage, Alaska
Law Enforcement Exploring Program
New York, New York
Milwaukee Teen Pregnancy Prevention Initiative
Milwaukee, Wisconsin
A New Focus
The IRS letter gave Food for
the Hungry until January 31 to
Sexual Assault Nurse Examiner (SANE)
Hebron, Kentucky
Transporting Children to Better Health
Birmingham, Alabama
Charities Urge Supreme Court
to Uphold Health-Care Law
By Suzanne Perry
A raft of health charities and
patient-advocacy groups are
urging the U.S. Supreme Court
to uphold the new health-care
overhaul law, which has been
challenged as unconstitutional
for requiring most Americans
to buy health insurance.
The groups have filed briefs
with the court saying that the
health-insurance provision,
known as the “individual mandate,” is critical to making the
new law work effectively.
“Without that requirement,
healthy people tend to avoid
buying insurance until they
need it, leaving insurance plans
to cover a sicker population and
driving up costs for everyone in
the health care system,” said
the American Cancer Society,
the American Cancer Society
Cancer Action Network, the
American Diabetes Association,
and American Heart Associa-
tion, which filed a “friend of the
court” brief last month.
The Mutual of America Community Partnership Award annually honors the
outstanding contributions that nonprofit organizations, in partnership with public,
private and other social sector organizations, make to society. Since its inception
in 1996, the Community Partnership Award has recognized 160 partnerships
from cities and towns all across America.
Applications for the 2012 Community Partnership Award are now
being accepted. To download an application, and for more information
about the award program and submission guidelines, please visit
mutualofamerica.com/cpa.
Completed applications must be received no later than April 2, 2012. Applications
that fail to meet the criteria will not be considered.
If you have additional questions about the Community Partnership Award program,
please contact:
Thomas Gilliam, Chairman and CEO
Mutual of America Foundation
212-224-1147
thomas.gilliam@mutualofamerica.com
Mutual of America® and Mutual of America Your Retirement Company® are registered service marks
of Mutual of America Life Insurance Company.
