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§ 10.11 CHARITABLE GIVING AND FUNDING OF TERRORISM4. The intermediate entity does not earn any investment income on theamounts destined for charity5. The intermediate organization directly transfers the appropriate funds tothe charitable organizationThese factors, in summary, make it clear that the intermediate entity is functioningas a conduit on behalf of the charitable organization.§ 10.10 REALLOCATION OF DEDUCTIONSCongress has provided the IRS with broad authority to undo a taxpayer’s “creative”tax planning by readjusting the facts to more correctly state the taxpayer’stax position. This authority empowers the IRS to closely scrutinize transactionsbetween mutually controlled parties. This process is known as reallocation ofitems of income, deductions, and credits; it is done when necessary to preventthe evasion of taxes or to ensure the clear reflection of each taxpayer’s income. 197The IRS can use this authority to reallocate, in the charitable giving context, toadjust (reduce) a claimed charitable contribution deduction.In one instance, two partners, who were an individual and a corporationwholly owned by him, caused their partnership to distribute to them a tract ofland in the form of two tracts of approximately equal value but not equal size.The individual received a 76 percent interest in one tract and a 24 percent interestin the other. The individual held a 49 percent interest in the partnership.The land was donated to a city and the individual claimed a charitable contributiondeduction based on a 76 percent interest in the real estate. (He alsoreported 24 percent of the gain from the sale of the other tract.) The IRS reallocatedthe amount of the charitable contribution deduction (and the capitalgain) between the two partners on the basis of their respective percentageinterests in the partnership. The IRS was successful in court in forcing thisdonor to confine his deduction to an amount equal to the 49 percent interest inthe land. 198§ 10.11 CHARITABLE GIVING AND FUNDING OF TERRORISMNational security concerns, certainly those arising in the aftermath of the terroristattacks on September 11, 2001, can add federal governmental regulatory constraintsand prohibitions on charitable organizations that attract contributionsfor use in countries other than the United States. While the law in this area isemerging, a key element of it is an executive order signed by the president a fewdays after the attacks. 199 Actions by the Office of Foreign Assets Control (OFAC),197 IRC § 482.198 Dolese v. Commissioner, 82 T.C. 830 (1984), aff’d, 811 F.2d 543 (10th Cir. 1987).199 Exec. Order No. 13,224 (Sept. 24, 2001), titled “Blocking Property and Prohibiting Transactions with PersonsWho Commit, Threaten to Commit, or Support Terrorism.” A summary of this executive order is at Rambler,“New Developments for International Charitable Giving: The War Against Terrorist Financing,” 39 ExemptOrgs. Tax Rev. (No. 1) 33 (Jan. 2003). 383