Government Update

On June 22, the U.S. Senate Finance Committee began its inquiry into possible reforms in the nonprofit sector with a wide-ranging hearing that focused on state and federal regulatory enforcement and oversight, abuses among all nonprofits and governance reform challenges. The Senators in attendance for various portions of the hearing were: Chairman Charles Grassley (R-IA), Ranking Member Max Baucus (D-MT), Jeff Bingaman (D-NM), Don Nickles (R-OK), Olympia Snowe (R-ME), Craig Thomas (R-WY), Rick Santorum (R-PA) and Jim Bunning (R-KY).

A 19-page discussion draft authored by Senate Finance Committee staff served as the basis for the hearing. However, Chairman Grassley emphasized from the outset that the suggested reforms were just discussion items, saying, "I welcome a dialogue" with the nonprofit sector.

At least three important messages came across during the hearing:

• The Internal Revenue Service (IRS) and the tax-writing committee made a public commitment to provide additional and more effective oversight and enforcement of the nonprofit sector.   
• Both Senators and witnesses stressed that the overall health of the sector is good, but public confidence is threatened when charities or individuals abuse the public trust.   
• Internal accountability, transparency, self-governance and best practices are all important in addressing the challenges our sector faces.

Many of the panelists agreed on several measures outlined in the discussion draft, such as: 

• The IRS's 990 and 990-PF forms need to be improved to provide more pertinent information to regulators, the public and the media. Also, mandatory e-filing of the forms would get the IRS more accurate data.   
• Congress should enact legislation permitting the IRS to share nonprofit information with state regulators.   
• The IRS and state regulators need more resources to better regulate nonprofits. IRS Commissioner Mark Everson called on Congress to fully fund President Bush's proposed budget increase for the IRS, which includes a 17 percent increase for audits of tax-exempt organizations.   
• The use of charitable organizations as accommodation parties in tax-shelter transactions must stop.   
• Charitable organizations must regulate themselves through a combination of standards, accreditation programs and education about best practices.

However, panelists disagreed with some aspects of the discussion draft, particularly some governance reform proposals. There was little mention of private foundations during the hearing, although some witnesses supported limitations on trustee compensation and on administrative expenses. At the close of the hearing, Chairman Grassley noted that some proposals in the discussion draft could see the light of day as part of tax legislation later this year, especially those proposals that raise revenues by shutting down abuses.

The discussion draft and talking points related to the hearing—including the statement from Council on Foundations President and CEO Dorothy S. Ridings—are online at www.cof.org/index.cfm?containerid=64. Questions? Please contact Kevin Anderson at andek@cof.org or 202/467-0277.