Last month Bloomberg Tax blew the whistle on a tax strategy that raises serious concerns about the integrity of charitable giving. According to the Bloomberg Tax investigation, a whistleblower has asked federal authorities to examine a structure that allows donors to claim charitable deductions worth up to five times their initial investment, potentially transforming a $50,000 outlay, for example, into a $250,000 tax write-off.
While marketed as a way to “do good” through the donation of technology, such as tools for the visually impaired or AI for law enforcement, the structure raises fundamental questions about whether charitable deductions are being used for the public good or are simply being exploited as a tax shelter.
The Bloomberg Tax article describes a multi-step process involving shell companies, technology licensing, and donations to charity. The effort “to collect $360 million total from investors last year could generate charitable deductions of $1.8 billion this tax season, assuming high-wealth investors vote to donate the technology and then claim a deduction worth five times their investments. That would cut an estimated $667 million from their federal returns and $90 million from state returns for tax year 2025,” according to the article.
The process is fairly simple. Investors purchase interests in entities that acquire rights to digital technology, then vote to donate those assets to nonprofits. The key step is the valuation. At the time the donation is made to charity, an appraiser assigns a fair market value up to five times higher than the value of the donor’s original investment, thus enabling investors to claim large tax deductions based on the higher values.
According to the Bloomberg Tax article, “The pitch documents don’t specify how generous, but investors in the strategy are ‘effectively guaranteed’ they’ll be able to claim a tax deduction of five times their initial investment, according to a Senate whistleblower complaint obtained by Bloomberg Tax.”
The legality of such arrangements often remains uncertain for years, as regulators must evaluate novel tax strategies through audits, enforcement actions, and potential litigation. It can take time for the letter of the law to catch up with the spirit of it.
From the donor’s standpoint, the appeal is straightforward: the possibility of converting a relatively modest investment into a substantially larger tax deduction.
But that benefit comes with risk. If the IRS later disallows the deduction, donors could face:
Notably, the promoters of the strategy reportedly do not guarantee protection against such outcomes. This dynamic of large, upfront tax benefits paired with uncertain, long-term legality is a hallmark of aggressive tax shelter strategies.
While the focus of the Bloomberg Tax investigation is on tax benefits for donors, these arrangements also raise important questions about the role charities play in such transactions.
CharityWatch’s analysis of nonprofit financial reporting over more than 30 years has consistently found that in-kind donations of goods, services, or intellectual property, are valued wildly differently by different charities. How much these things are worth is highly subjective and open to individual interpretation and judgment.
For example, CharityWatch’s past investigations have found that a charity was valuing at $10.66 to $12 per pill pharmaceuticals that could readily be bought from multiple sources for only 2 cents per pill. We also found many instances of charities accepting in-kind goods of questionable value, such as expired or otherwise unusable pharmaceuticals, placing a value on them amounting to tens of millions of dollars, then reporting the write-off as a “program expense” in their financial reporting.
In other words charities have an incentive to accept donations they may not need or have the ability to use, inflate their value, then flow that value through their financial statements as a way to obfuscate how efficiently they are spending their cash donations. In simple terms:
In the type of arrangement described in the Bloomberg Tax article, charities may receive technology assets with high appraised values but uncertain real-world utility. Even if the charity never meaningfully deploys the technology, the reported value can still enhance its financial statements.
This dynamic can benefit:
But it does not necessarily benefit:
The IRS allows donors to deduct the fair market value of certain donated property, but determining that value, especially for intangible assets, is inherently complex.
As the Bloomberg Tax article explains, tax shelter promoters often exploit gray areas in the tax code, designing structures around perceived gaps or ambiguities.
In practice:
This creates an environment where inflated valuations can persist long enough to generate significant tax benefits before regulators are able to intervene.
The emerging tax strategy highlighted by Bloomberg Tax illustrates how easily charitable giving can be repurposed into a vehicle for tax minimization when oversight lags behind innovation.
For donors, the lesson is clear: unusually large tax benefits tied to non-cash donations should be approached with caution.
For charities, the issue is equally important. Accepting in-kind donations of questionable valuation or limited utility may boost financial metrics in the short term, but doing so risks undermining transparency, accountability, and public trust over time.
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