The Senate on Thursday rejected a proposal to bar the Justice Department from awarding grants to charities that put money in offshore accounts to avoid paying income taxes.
But Sen. Charles E. Grassley, who promoted the idea as an amendment to a spending bill, said he would continue pushing the measure. The Iowa senator, the senior Republican on the Senate Judiciary Committee, said it was designed to cover groups like Boys & Girls Clubs of America—an organization he has criticized since a 2010 Senate investigation found it held more than $50-million in off-shore equities and partnerships. That allowed it to avoid paying unrelated business income tax, or UBIT—taxes that charities owe on income they earn from businesses not directly tied to their charitable missions.
Senator Grassley proposed the offshore-tax measure as part of an "11-point accountability plan" for the Justice Department. He also proposed:
* Auditing 10 percent of grantees.
* Excluding groups with negative audit findings from grants if the problems are not corrected within six months.
* Requiring grantees to provide 25 percent of their grants in matching funds, with most coming from cash.
The senator said he was concerned about a high level of fraud in grants offered under the Trafficking Victims Protection Act and Violence Against Women Act.
The Senate rejected Mr. Grassley's amendment by 54 to 46. He said he has asked the bipartisan "super committee," which has been set up to find $1.2-trillion in budget savings over the next decade, to consider his package of proposals.
Boys & Girls Clubs acknowledged its off-shore investments last year but called them "completely legal, routine, and widely implemented by large nonprofit organizations."