Join The NonProfit Times: or Become a member

Subscribe: Print Publication or Newsletter

Stay connected.
Stay informed.

House Subcommittee Targets Nonprofits

By Joann Weiner - May 16, 2012

At a time when many nonprofits are seeing an increased demand for services amid government deficits at all levels, organizations are under increased congressional scrutiny of their tax-exempt status and their activities.

The Oversight Subcommittee of the House Ways and Means Committee held a hearing Wednesday morning that examined the operations and oversight of tax-exempt organizations. In explaining the importance of the hearing, which is the first in a planned series on the tax-exempt sector, subcommittee Chairman Charles Boustany, Jr. (R-La) said in his prepared remarks, “With so many Americans relying on, working for, and engaged in economic relationships with tax-exempt organizations, taxpayers should have confidence that tax-exempt organizations, especially charitable organizations, are operating efficiently and hopefully using good governance practices to maximize benefits provided to the community.”

Boustany opened the hearing with an inquiry into the recent Internal Revenue Service (IRS) audit of Cornell University, asking Joanne DeStefano, Cornell’s vice president for finance and chief financial officer, to explain what the IRS learned from its audit.

DeStefano replied that the IRS learned a tremendous amount in the two years it spent looking over “every single transaction” on the university’s regular Form 990 and Form 990-T, which reports unrelated business taxable income. DeStefano noted that much of the information that the IRS requests is redundant, especially information provided on Schedule I dealing with grants and other assistance. “Complying with that provision adds another 20 pages and 40 hours of work,” to the filing process, she said, which in turn increases the cost of providing education.

Catholic University law professor Roger Colinvaux, another invited speaker to the hearing, suggested that the form provides “too much information.” The complexity of the form does reflect the complexity of the sector, he added.

The tax-exempt sector plays an important role in the U.S. economy. As of 2008, 1.85 million organizations were exempt from federal income tax, and 1.19 million of these organizations also qualified as charitable organizations under section 501(c)3 of the tax code. Individual and corporate contributions to such organizations are tax deductible.

This provision is costly to the federal government. The nonpartisan Joint Committee on Taxation estimates that the federal government will give up $242.6 billion in revenue for fiscal years 2011 through 2015 from the tax deduction that individuals and corporations claim for their charitable contributions to religious, charitable and similar organizations.

U.S. Rep. John Lewis (D-Ga.) worried that if Congress followed the Republican lead and cut top income tax rates to 25 percent, Congress might turn to the charitable deduction as a source of revenue to pay for that tax cut. “We need to encourage charitable giving,” he said.

Diana Aviv, president and CEO of Independent Sector (IS), noted that charitable donations are significantly influenced by the incentives in the tax code. In her prepared testimony, Aviv cited the fact that “more than 22 percent of all annual online charitable donations in the U.S. are made on December 30 and 31” as proof of how sensitive these contributions are to the tax break. Aviv later said that Congress could help the sector meet its mission by renewing expired tax extenders, which include the IRA charitable rollover and deductions for food, books, and computer equipment.

As part of his federal budget proposals in recent years, President Barack Obama has proposed lowering the tax deduction on charitable contributions, among other things, for people earning more than $200,000 annually.

Rep. Ron Kind (D-Wisc.) wondered how responsive the IRS had been to comments during the process to revise Form 990. Michael Regier, senior vice president of legal and corporate affairs of VHA Inc., a national alliance of more than 1,400 not-for-profit hospitals and more than 23,000 non-acute care organizations, said the agency has been helpful in clarifying issues related to Form 990, but that “the biggest area where we need help is in finalizing the regulations.” Although tax code section 501(r), which imposes new requirements on hospitals, was enacted in 2010, the IRS hasn’t yet issued any regulations.

Rep. Xavier Becerra (D-Calif.), stressed that taxpayers “want to understand how their donations are being used.” He explained that the IRS audited about 7,900 tax-exempt organizations in 2008 – less than 1 percent of all such organizations. He wondered whether the IRS should impose an “outcomes” standard on tax-exempt organizations. Colinvaux, agreed, noting that, “Once an organization qualifies as tax-exempt, it largely stays that way.”

To be exempt from federal income tax under section 501(c)3, the IRS requires organizations to be organized and operated exclusively for exempt purposes. These organizations must refrain from attempting to influence legislation as a “substantial” part of their activities and they are “absolutely prohibited” from getting involved in a political campaign.

One future point of contention might center on the tax-exemption granted to “social welfare organizations” under section 501(c)4 of the tax code. Social welfare organizations can participate in political campaigns as long as that’s not their main purpose but contributions to these organizations are not tax-deductible and the recipient of the contributions may be required to pay gift tax on amounts received.

Rep. Kind asked whether the organizations should make public their list of contributors. Bruce Hopkins, a partner with Kansas City, Mo.-based Polsinelli Shughart, responded that if disclosure were mandatory, then contributions might be discouraged. “I have no problem with that,” he said, adding that in the spirit of fairness, other tax-exempt organizations might also have to follow the same rule.


Sponsored Podcasts

Welcome to the Raise & Engage podcast, a filters-off series for nonprofit professionals hosted by Blackbaud's straight-shooting expert Danielle Johnson Vermenton. During this open-mic session, you’ll hear honest advice to help YOU do more for your cause.

Episode 6: The Power of ‘No’ at Work|| daniellejohnson-76

You have a job description, but on any given day, you're probably doing dozens of things outside the scope of that description. Combine that with the challenge of a fast-paced environment and the shifting priorities of funders, colleagues, and board members and it’s easy to fall short of doing your best. By being mindful of your limitations and capacity—and saying “no” when your plate is full—you can actually do more for your cause. In the sixth installment of the Raise and Engage podcast Danielle Johnson and Robin Anderson discuss the power of saying “no” at work.

Episode 5: Professional Development: Getting Un-Stuck|| daniellejohnson-76

In the most recent episode of Raise + Engage, Danielle is back with Brian Reich from little m media to discuss how nonprofit professionals can stay motivated and energized in their day-to-day roles. Brian shares his experience working with nonprofits and the lessons and tips he's learn from and shared with them over the years, including tips for avoiding a professional rut, creating forward momentum in your career and pushing yourself outside of your comfort zone. If you're considering making a career move or want to ensure you're on the right path, you won't want to miss this inspo-packed episode!

Episode 4: Apps and Hacks to Stay (Mostly) Sane || daniellejohnson-76

Episode 4: Apps and Hacks to Stay (Mostly) Sane, is all about tips, tricks and tools for sanity. Blackbaud’s own interactive product marketer, Julia Lenz, joins host Danielle Johnson to share some high tech. (and no tech.) productivity tips to help nonprofit professionals stay sane in the crazy world of philanthropy.

Tune in to hear:

  • Tips for how to spend the first 30 minutes of your day
  • The benefits of 15 minute meetings
  • Why notebooks are still relevant to a successful organization
  • Ideas for better managing your inbox
  • Why you should take lunch outside the box
  • ...and much more!
Don’t forget to visit the #NoFilterNonprofit Hub afterwards to download our newest tip sheet10 Productivity Hacks for Nonprofits.

Episode 3: Tech. Connection: Solutions, Strategy, and Staff || daniellejohnson-76

Episode 3: Tech. Connection: Solutions, Strategy, and Staff In episode 3 of the Raise + Engage podcast, Danielle Johnson is joined by Chris Geady and William DaSilva, two IT experts in the nonprofit space, to talk technology integration for NPOs: when you need it, when you don’t, and how to do it successfully.

Tune in to hear:

  • When to say NO to integration
  • How to set your strategic plan before even looking at technologies
  • Ways to get your entire team on board
  • The importance of identifying a project lead
  • The RFP process - how it should and should not go
And William shares a story about a nonprofit that may or may not have still been using a typewriter. You don't want to miss this one!

Episode 2: From Socially Awkward to Socially Awesome! || daniellejohnson-76

According to Danielle Johnson, straight-shooting host of the Raise + Engage podcast series, if your staff members aren’t the number one advocates for your cause on social media, you’re failing. In the most recent episode, Danielle is joined by Blackbaud’s own social media guru Madeline Turner to discuss overcoming social struggles and creating a social ambassador program at your organization. This entertaining and insightful duo dishes on the importance of making your social media presence human, making the case for a formal social program to leadership, how University of Michigan turned a one time social media campaign into a long term social program, and how Madeline's mom unknowingly became a social ambassador on #GivingTuesday.

Episode 1: Corporate Culture & Development: Shake It Up! || daniellejohnson-76

In the premiere episode of Raise & Engage, Danielle is joined by three straight-shooting nonprofit rock-stars: Jodi Smith of Sanford Health Systems, Veronica Brown of Chicago Public Library Foundation and Ali Burke of Southlake Regional Health Centre Foundation. The group talks organizational culture, problem employees, why its important to celebrate and how to shake things up this year and build a better more authentic team that gets stuff done!


Stay informed, catch latest trends in the nonprofit space.

Subscribe to Our Free Newsletter

No obligation, unsubscribe at anytime.

Success! Check your email inbox.

Follow Us On Twitter

NPT 2016 Buyers' Guide

Newsletter Sign-up

click here to return to the previous page