Taxation & Estate Planning

Arizona Tax Credit Program Abused

By Darrin Mish

What started as a worthwhile program with a noble cause has been abused over the years, say Democratic legislators. Since private schools are non-profit organizations, the Arizona private school tax-credit program was set up with the aim of helping students, especially poorer but deserving ones go to private schools. Under the program, taxpayers contributing gifts to the program can receive tax credits on their donations. These contributions may be used as scholarships for poorer students to enable them to have private schooling. This brings about a two-fold benefit – it saves the state government money in funding the private schools and gives students the opportunity to choose private school education.

Since its inception in 1998, the private school program has generated $349 million for private schools. Unfortunately these private tuition schools are not well supervised by the state leading to somewhat widespread violations of the system. Some wealthy taxpayers contributing money for scholarships have earmarked their donations to benefit their own or their relatives' children when they clearly do not need the financial assistance. Such a practice may contravene US federal and state laws.

Furthermore, the East Valley Tribune has reported that executives of two of the largest private tuition schools may have contravened federal laws on non-profit organizations regarding excessive compensation.

This violation of the program has long been public knowledge to Arizonans but it has received intense media coverage of late. It has also fueled a disagreement between rival legislators from either side of the political divide. Democratic lawmakers have called for the formation of a legislative task force and a thorough federal investigation into the abuses. They have also issued a formal letter of request to Douglas Shulman of the IRS and John Tuchi the interim US District attorney for Arizona seeking an inquiry into the program and its violation of many state laws.

Republicans on the other hand, aware of the grouses of the Democrats for a long time, assert that the objectives of the program remain intact and that it has largely fulfilled its purpose. Undeterred, the Democrats are pressing for the setting up of the legislative task force, a 10-member bipartisan panel, and have invited the Republicans to be part of it. It is not certain whether any Republican representative will accept the invitation.

Attorney General Terry Goddard, through his office spokeswoman Anne Hilby stated that he is "troubled by the allegations" of abuse of the program but declined to confirm whether he would investigate the matter, stating standard policies as the reason for the decline.
Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for almost two decades. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

Full post as published by IRS Problem Solver Blog on September 14, 2009 (boomark / email).