First sanctions case: transfer of assets brings scrutiny. (The IRS).

Recent votes on legislation to permanently repeal the estate tax stirred the concerns of some in the nonprofit community who believe a permanent repeal will decrease charitable giving, shift tax burden to middle- and lower-class taxpayers, and force government to cut nonprofit subsidies.

Supporters of a permanent estate tax repeal assert it may lead to more charitable giving because people will save on taxes and tax-avoidance costs, capital gains taxes will recoup some projected government revenue losses, and government has a hard time targeting programs and effectively spending additional revenue.

In June, the U.S. House of Representatives and Senate voted on bills, aiming to permanently repeal estate taxes. The House passed legisliation making the estate tax repeal permanent. But the real battleground was in the Senate, where permanent repeal fell short of the 60 votes needed to gain majority The final vote was 54-44 with two senators not voting.

Despite this vote, this issue will arise again.

"If we don't get there, I think groups are planning on continuing to push for it until it's made permanent," said Paul Boyle, vice president of government affairs for Newspaper Association of America (NAA) headquartered in Vienna, Va., which supports permanent repeal.

"I think if all goes well, we will have won a skirmish but not the overall battle or war," said Gary Bass, executive director of OMB Watch, before the vote. "They will be back to talk about repeal. We in the nonprofit community have got to do a better job of educating our sector about the issues and coming up with what is a responsible reform approach."

Estate taxes affect individuals who leave behind estates worth more than $1 million in 2002. The highest tax rate in 2002 is 50 percent. The tax affects the wealthiest 2 percent of Americans.

Last year's tax cuts gradually increase the starting tax threshold for individuals to $3.5 million by 2009 and lessen the highest tax rate to 45 percent. The estate tax is repealed in 2010 and then reinstated in 2011.

The estate tax raised $28 billion in 1999. Eliminating it will cost an estimated $100 billion in revenue for the federal government over the next 10 years, according to Americans for a Fair Estate Tax (AFET), a coalition of nonprofits that oppose permanent repeal.

At issue is what motivates people to make bequests or donations to charities.

Some nonprofit and foundation officials fear it will reduce charitable giving to nonprofits and foundations by eliminating wealthy Americans' need to seek tax breaks through bequests.

Chuck Collins, co-founder of Responsible Wealth in Boston, a project of United for a Fair Economy, said studies estimate that erasing the estate tax would cut charitable bequests by 12 percent or $6 billion -- $7 billion per year in lost revenue.

"The common sense evidence is the estate tax is an incentive for charitable giving," Collins said.

Paul Schervish, director of Social Welfare Research Institute at Boston College in Chestnut Hill, Mass., said he supports permanent repeal of the estate tax and believes it could lead to more charitable giving from wealthy Americans.

Schervish argued that once a wealthy person assures financial security for family members, which they define as maintaining a chosen standard of living for children and grandchildren, that person's remaining wealth is available for charity.

"When you think of it that way the propensity, not for everybody, is not to give it to heirs any further because they made a decision about that, but to choose then between government and charity," Schervish said. "If the estate tax was repealed, there is no reason to think that they wouldn't still choose charity when they have solved the economic problems for themselves and their heirs."

Leaving out estate amounts going to spouses, a trend shows that a greater proportion of estates is going to charity Schervish said.

Dan Blankenburg, manager of legislative affairs at National Federation of Independent Businesses in Washington, D.C., said, "We never really believed that the tax code was the motivation for the charitable giving."

NFIB supports permanent repeal because officials believe it unfairly "attacks" family-owned businesses.

Others would rather have a definite motivator for giving. "We can hope for a spirit of goodwill and that people will give money," said Bass, who is also chairman of AFET. "I don't want to just hope. We know that tax initiatives serve as an enormous incentive for giving."

The nonprofit community agrees the estate tax needs to be reformed, but hasn't said in a unified voice what reform it supports. Common options nonprofit representatives gave are raising the exemption threshold, ensuring small businesses and farms are taxed fairly, ensuring the government has adequate revenue to pay for services, and ensuring it doesn't adversely affect charitable bequests.

Blankenburg said past reform attempts that raised the exempt threshold became ineffective because of inflation and businesses had trouble qualifying for family-business exemptions.

"It's very important that people understand the policy we're asking for," Blankenburg said. That policy is eliminating estate taxes and replacing them with capital gains taxes, he said.

Sens. Phil Gramm (R-Texas) and Jon Kyl (R-Ariz.) sponsored Senate legislation. Gramm wasn't available for comment, but in an earlier floor debate about the estate tax said it negatively impacted "every business and every farm in America."

Senate Majority leader Tom Daschle (1)-S.D.) opposed permanent tax cuts, including making the estate tax repeal permanent, until the country figures Out how to get out of deficits, a Daschle spokeswoman said in a telephone message. Daschle's spokeswoman also said he was concerned about its effect on charitable giving and state budgets.