It’s hard for a lot of us to understand how the rich get richer by giving money away, but here’s one way.
Health and Human Services Secretary Mike Leavitt and his relatives have claimed millions of dollars in tax deductions through a type of charitable foundation they created that until recently paid out very little in actual charity, tax records show.
Instead, much of the foundation’s money has been invested or lent to the family’s business interests and real estate holdings, or contributed to the Leavitt family genealogical society.
The Leavitts used nearly $9 million of their assets to set up the foundation in 2000 under an obscure provision of the federal tax code. But unlike standard private foundations, which are required to give away at least 5 percent of their assets to charitable causes, the Leavitt organization donated less than 1 percent of its assets in 2002, 2003 and 2004. The donations jumped to 6.3 percent of total assets last year, after the sale of family water interests that also allowed the foundation to increase its lending to Leavitt business interests.
While Mike Leavitt alone has claimed about $1.2 million in tax write-offs since 2000, the foundation gave away only $49,000 in 2002 and $52,000 the next year, according to tax returns and other documents filed by the foundation. Meanwhile, the foundation’s assets have been used for a $332,000 loan to Leavitt Land and Investment Inc., in which the secretary owns a significant stake, and other secured loans for insurance and real estate deals, said Alan A. Jones, a trustee of the organization.
Leavitt Land and Investment, in turn, extended an interest-free loan to Leavitt in 2002 valued at more than $250,001, according to a recent financial disclosure. (Washington Post)
Hmmm. Here’s a quiz. What could possibly be a defense for this? We’ll give you a minute to dredge up an answer, based on your knowledge of what officials always say when they caught with their hands in the cookie jar (or maybe in your personal records). Don’t peek at the answer.
OK. Here it is:
“The foundation’s activities are totally legal and proper,” Christina Pearson, an HHS spokeswoman, said this week on the secretary’s behalf.
Leavitt and his brother Dane have defended the family’s actions as both legal and ethical.
But Rick Cohen, executive director of the National Committee for Responsive Philanthropy, said that “the Leavitts are using the foundation as a personal piggy bank, and that’s not what the public — or Congress — ought to tolerate.” Cohen reviewed the family foundation’s records and tax returns at the request of The Washington Post.
The tax structure used to create the foundation is called a Type III supporting organization. The Internal Revenue Service has said the category is rife with abuse, designating “supporting organizations” this year as one of its “Dirty Dozen” top tax scams, along with Internet identity theft and offshore banks. Use of the tax structure could be significantly reined in under a tax provision that was inserted into pension legislation passed by the Senate and now under negotiation with the House.
The Leavitt family is one of the most prominent in Utah, making a fortune in land and insurance. Mike Leavitt was governor of the state and was the president and CEO of the Leavitt Group. He divested his company assets when joining the Bush Cabinet. But his family still profits and profits handsomely. Most of the money in the “charity” wasn’t even in cash, but in the form of the equivalent cash value of the family’s $8.1 million in water rights, of which Mike Leavitt had a 15% share. This allowed him to take a $1.2 million tax write-off. Meanwhile the assets remained in the Bunkerville (Nev.) Irrigation Company which the family still controls.
Thanks to Congress and a wealthy club of tax code lobbyists it’s legal.