Tucked into the Tax Relief Bill of 2006, now being buffeted back and forth by four senators and four representatives on a congressional joint reconciliation committee, are provisions that could change the way charities of all sorts do business. The Senate version of the recently passed legislation would increase penalties on charities for self-dealing and place new restrictions on the ability of some charitable entities to make international grants. One upshot: a crackdown on donor-advised funds.

The Senate Finance Committee's co-chairman, Republican Charles Grassley of Iowa, has promised to strengthen charities' financial reporting requirements.

"I want to shut down those who twist the good will and generosity of others for their own personal benefit," Grassley said in a November statement that announced his intention to follow the tax bill with further legislation on charitable reform.

The Senate bill includes several provisions that are widely supported by charities. It would allow donors to roll over individual retirement accounts into their favorite charities without paying any taxes. It would also double the maximum fine, to $20,000, for charity executives caught self-dealing, plus tack on 5 percent of the sum involved.

Yet executives worry that these provisions may be a harbinger of the onerous legislation Grassley has threatened. "It seems clear to me that this is part of a larger package of reforms," says Diana Aviv, president and CEO of the Independent Sector, a Washington-based, nonpartisan coalition of charities that lobbies Congress on matters pertaining to governance of nonprofits.

The Senate bill, moreover, takes on donor-advised funds. These charitable investment vehicles -- which most large money managers now offer -- allow a donor to direct a contribution to a charity, receive a tax deduction and still determine how the assets get invested.

The largest donor-advised funds, run by Fidelity Investments and Vanguard Group, manage nearly $3 billion in assets. Because there are no reporting requirements specific to these funds, the government has no idea how much money passes through smaller trusts.

The Internal Revenue Service is investigating some 200 donors suspected of using donor-advised funds for personal gain (by, for instance, directing tax-deductible contributions to foundations headed by their relatives or dedicated to dubious causes).

Although increased regulation might sound good to investors, Grassley's restrictions would effectively limit use of donor-advised funds to U.S.-based charities listed in the IRS directory of tax-exempt organizations. In addition to severely restricting overseas donations, this puts at a disadvantage organizations that do charitable work but are not foundations, comments Luis Maldonado, director of government relations at the Washington-based Council on Foundations, an industry association.

Congress did not take up a pet peeve of many executives of nonprofits: the complicated tax returns that charities and foundations must file each year. Critics say they should be vastly simplifed and also adapted to electronic filing. "You shouldn't have to be a tax accountant to understand them," mutters Gary Yates, CEO of the California Wellness Foundation, which seeks to improve the health of people in that state.

Lobbyists and nonprofit executives are bracing themselves for the next phase of Grassley's charity agenda, which they speculate will include new crackdowns on executive compensation.

"I look forward to advancing legislation that would strengthen financial reporting requirements and make boards of trustees more accountable to their donors and the goals of the charity," Grassley declares.

Whether his colleagues on the reconciliation committee will embrace that cause remains to be seen.