Tax Loopholes Follow Letter, Not Intent, Of Laws

ByABC News
April 11, 2006, 12:28 PM

April 11, 2006 — -- With a donation to charity of $165 million last year, Texas billionaire T. Boone Pickens made the list of the country's top five philanthropists.

And he gets to write off more of that than ever because of a one-time tax break that's part of the Hurricane Katrina relief legislation.

Watch the full report on "World News Tonight" at 6:30 p.m. ET.

"The special Katrina legislation allows you to deduct up to 100 percent of your adjusted gross income," said Marcus Owens, an attorney and former director of the Exempt Organizations Division of the Internal Revenue Service.

That's twice what had been allowed before, which means a taxpayer could deduct enough to effectively have a gross income of zero, which, as Owens noted, "would wipe out your tax."

But none of Pickens' $165 million went to Katrina victims, unless they were golfers in Oklahoma.

Pickens' huge charity contribution, made on the last day possible, went to what's called "Cowboy Golf" to support sports programs at Oklahoma State University, Pickens' alma mater.

An hour after the university received the money, it was wired back to Pickens' hedge fund so it could be invested. Pickens has waived all fees and profits on the investment.

The gift was apparently legal given that Congress never specified contributions had to go to Katrina relief to qualify for the special tax break. Owens said this is "somehow kind of out of synch with society's needs right now, as the folks in that region are struggling to recover from the hurricanes."

It's one more example of what some in Congress see as the wealthy using the letter of the law to get around the spirit of the law.

"We've had a whole industry of tax lawyers that have grown up about how you can further abuse the system," said Sen. Charles Grassley, R-Iowa.

The IRS even compiles a list of what it calls the dirty dozen of tax scams. For the second year, the list includes owners of historic buildings getting to write off hundreds of thousands of dollars for doing nothing more than donating the façade -- the fronts of their homes -- to a historic preservation group.