Nonprofits' Fix-Us List
Thursday, June 23, 2005
A group of charities and other nonprofits yesterday offered Congress and the Internal Revenue Service a list of more than 120 ways to stem abuses by tax-exempt entities, including greater public disclosure of organizations' finances, more coordination between state and federal authorities, and tougher requirements for certain types of charities.
The report by the Panel on the Nonprofit Sector follows a series of disclosures of abuses by nonprofits ranging from self-dealing and excessive compensation of officials to participation in improper tax shelters. Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), who received a copy of the report yesterday, has been pushing for broad tightening of the rules on the behavior of charities.
The disclosures and Grassley's efforts have sent alarms through the nonprofit sector, which has rushed to show that it is on board in the push to clean up abuses but says it wants to do so in a way that does not damage reputable organizations.
"This [nonprofit] sector has exploded" in size and diversity, and "current law has not kept pace," said Diana Aviv, executive director of the panel and head of Independent Sector, an umbrella group for nonprofits.
Aviv pointed to increased "transparency" as a key reform. The panel report calls for making the IRS Form 990 returns, which nonprofits must file, clearer and more complete, and "requiring electronic filing of the returns by all charitable organizations."
The report backed away from seeking specific limits on compensation of executives of nonprofits and from tough new limits on conflicts of interest.
Aviv said the panel found when it talked to nonprofits that most executives think they already make much less than their counterparts in for-profit industries, and that a specific limit would have "a chilling effect" on organizations' ability to recruit capable officials.
On conflicts of interest, the report said "charitable organizations should adopt a conflict of interest policy consistent with state laws and organizational needs," and they should be required to disclose on their Forms 990 whether they have such a policy.
The report also calls for tightening the rules covering "donor-advised" funds. These funds, operated by such groups as Fidelity Investments, allow individuals to make deductible contributions to a mutual fund and later direct the fund to make donations to a charity.
The report urges new rules that would force such funds to distribute at least 5 percent of assets each year, require written agreements between the fund and charities that get money from it, and bar donations from the funds to private foundations or to the fund's donors, advisers or related organizations.
It also calls for tightening rules for a "Type III supporting organization," which is a kind of charity that supports other charities.
IRS Commissioner Mark W. Everson, who also received a copy of the report yesterday, called transparency "the centerpiece" of what his agency needs for effective enforcement, and he applauded the panel's call for information-sharing with state authorities -- something the IRS can do now with state tax officials but not with those who enforce state laws governing nonprofits.
Grassley said he hopes to have legislation ready for committee consideration later this summer.