Wednesday, December 20, 2006

New rules for non-profits, sort of, except not, maybe

The U.S. Treasury Department has issued new "voluntary best practices" for non-profits to ensure that they aren't being used as conduits for funding for terrorist groups. The Council on Foundations, after working to get the new federal guidance altered, now says the feds should drop the whole idea. They argue that the new procedures would impose significant administrative burdens on non-profits without much benefit because only a teeny fraction of them have ever been even accused of terrorism-related financial dealings.

Reading the entire Treasury document left me scratching my head. After nine pages of restating the blindingly obvious (charities should write down their missions?? gosh!), the feds propose a series of doublechecking practices aimed at being sure that no money is going to terrorist groups...accompanied by lengthy footnotes explaining why all that effort may not work in practice. That's it.

Those doublecheck steps do sound fairly onerous, the likely effect is that only large staffed groups would ever make grants to or hire people from outside the U.S. Would that gain a worthwhile tradeoff in making it harder for terrorists to raise money in the U.S.? I dunno, and the feds offer no data or argument about it. But anyway it's not at all clear whether this is actually required. The federal document calls it "voluntary" but the CoF says that IRS agents have questioned groups about complying with it. (How many IRS agents? How many times? Did the groups respond, and if not what happened then? They don't say.)

I'm not finding the Council's arguments on this very persuasive but the feds' approach seems incoherent. If those are to be the new rules of operating as a tax-exempt organization then let's call them rules and have a fact-driven debate about whether they make sense in practice. Perhaps a couple of large groups with staff attorneys could do a service by openly refusing to comply with these "voluntary best practices" and forcing the feds to decide whether they mean it.

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