Late this past week came two significant news items regarding the Internal Revenue Service: that the agency is finally going to revamp the core annual reporting requirements for non-profits, and that the agency's chief is departing to take over the troubled American Red Cross.
[Both of these changes were reported in news articles which are not online, yet at least: the first item in Friday's Wall Street Journal and the second item in this week's Chronicle of Philanthropy. Both newspapers based their articles on extensive quotes from various parties both on and off the record, and neither item is being denied by anyone.]
The redesign of the federal Form 990 is long overdue; as the Journal puts it the form "has over 100 line items of information in haphazard order, the result of decades of additions by the tax agency without a complete revamp. A reader finds a charity's revenue listed pages before learning what the group does. Questions about officers, directors and other key employees are often scattered many pages apart." The revamp appears to be mainly aimed at reorganizing the thing so it flows in a logical order.
Unfortunately that won't get at the bigger issue which is the lack of any requirement to report actual results other than financial. The head of the IRS's tax-exempt organization unit says, "I'm pretty sure the public doesn't want the government deciding who's effective and who isn't." She's missing it; no one argues for the federal government ranking non-profits' effectiveness. (I mean seriously, can you imagine? Might as well let a federal bureaucracy decide who's best on "Dancing With The Stars".) No, what would be a real step forward would be simply a requirement that non-profits report each year some measure(s) of effectiveness. Let organizations themselves decide what that is and then let the marketplace of informed donors and watchdogs decide who is being smartest about that. The governmental role here would be simply to enable a free market of comparisons, just like it does with regard to investing in for-profit corporations.
Meanwhile New York Times reporter Stephanie Strom broke the story that IRS chief Mark Everson is leaving to take over the Red Cross, which has recently been in some crisis. Whether he is a good fit for that organization is open to debate (I lean slightly towards yes); it does seem like a good sign for them that they can land someone with a resume of his caliber.
The Chronicle rightly notes, though, that Everson has in his four years running the IRS sharply increased the agency's focus on tax-exempt organizations. While some of the specifics of that have seemed weak (see above) or dubious (the NAACP and All Saints Episcopal Church audits had the scent of partisan politics), in the big picture we clearly need more focus on this booming civic sector not less. Hopefully the next agency director will understand that.
Showing posts with label IRS. Show all posts
Showing posts with label IRS. Show all posts
Saturday, May 05, 2007
Thursday, March 08, 2007
Too many for what, exactly?
Next month I'm attending a discussion gathering of foundation staffs for which the invitation begins, "As non-profits grow in number and stretch available resources..." Notice that this premise is stated as simple obvious fact: that the number of non-profits has been growing faster than the available funding for them. That's a widely-believed factoid which has made it into the mainstream media; its a commonplace among foundation staffers. It is easily the most-common reaction I hear to this recent report that my foundation published online.
The thing is, as stated it simply isn't true: the number of non-profits in the U.S. has not grown faster than overall non-profit revenues, indeed hasn't even kept up with the growth in charitable giving.
Independent Sector says that non-profits roughly doubled in number from 1980 to 2005; or put another way, that non-profit employment doubled from 1977 to 2001. The IRS reports (see Table 16 there) that the number of tax returns filed by non-profits increased by 138% from 1985 to 2002. [It makes sense that this increase would be a bit higher than the overall creation of new groups because the filing threshold has not been indexed for inflation.] So okay let's take that basic premise as documented: that there are somewhere around twice as many non-profits as a quarter century ago.
That same IRS table shows that total non-profit revenues increased by 112% above inflation from 1985 to 2002. (The table shows raw totals not adjusted for inflation; I applied this inflation calculator which uses the official federal Consumer Price Index through the years to make conversions.) And apparently non-profit spending has not been increasing as fast as have the revenues, because the IRS figures show total non-profit fund balances increasing by 161% above inflation in the same period.
For some corroboration I checked the printed Giving USA 2005 report: it says (page 26) that total charitable contributions in the U.S. increased by 148% above inflation from 1980 to 2004. [The heavy growth has been in non-religious giving: giving to religious organizations grew only 66% during those years (page 37).]
The time periods of these various figures don't match up exactly, and obviously there may be large differences between types of non-profits. With all that stipulated, it is clear that overall this particular piece of conventional wisdom is not rooted in reality: the booming growth in this sector is not at all "stretching available resources". At a minimum, arguments that we now have "too many non-profits" need to be driven by a different issue.
The thing is, as stated it simply isn't true: the number of non-profits in the U.S. has not grown faster than overall non-profit revenues, indeed hasn't even kept up with the growth in charitable giving.
Independent Sector says that non-profits roughly doubled in number from 1980 to 2005; or put another way, that non-profit employment doubled from 1977 to 2001. The IRS reports (see Table 16 there) that the number of tax returns filed by non-profits increased by 138% from 1985 to 2002. [It makes sense that this increase would be a bit higher than the overall creation of new groups because the filing threshold has not been indexed for inflation.] So okay let's take that basic premise as documented: that there are somewhere around twice as many non-profits as a quarter century ago.
That same IRS table shows that total non-profit revenues increased by 112% above inflation from 1985 to 2002. (The table shows raw totals not adjusted for inflation; I applied this inflation calculator which uses the official federal Consumer Price Index through the years to make conversions.) And apparently non-profit spending has not been increasing as fast as have the revenues, because the IRS figures show total non-profit fund balances increasing by 161% above inflation in the same period.
For some corroboration I checked the printed Giving USA 2005 report: it says (page 26) that total charitable contributions in the U.S. increased by 148% above inflation from 1980 to 2004. [The heavy growth has been in non-religious giving: giving to religious organizations grew only 66% during those years (page 37).]
The time periods of these various figures don't match up exactly, and obviously there may be large differences between types of non-profits. With all that stipulated, it is clear that overall this particular piece of conventional wisdom is not rooted in reality: the booming growth in this sector is not at all "stretching available resources". At a minimum, arguments that we now have "too many non-profits" need to be driven by a different issue.
Sunday, March 04, 2007
Non-profit CEO pay keeps hitting the fan
I had a really bad travel day on Thursday but it was a whole lot better than a bunch of non-profit executives and groups who have just been nailed to the wall by the IRS, as described in that day's New York Times. In addition to finding that dozens of organizations had failed to properly disclose executive salaries, the agency "asked 40 individuals to pay a total of $20 million in excise taxes, which is the penalty it imposes when it determines a nonprofit executive has been paid excessively."
That ain't good, even a little bit. The names of the guilty have not yet been revealed.
It is a condition of federal tax-exempt status that salaries paid not exceed a reasonable range for jobs of comparable responsibility in the local market. That has not been something which has received consistent IRS attention, in part because until the 1990s the agency had no recourse short of the "death penalty" (revoking an organization's tax-exempt status) which was obviously not a politically-plausible threat against established beloved institutions. However now the feds can impose fines and penalties such as the excise taxes noted above, against both an organization and an individual.
The above discoveries have "convinced the agency that it needed to do more in the area of compensation at nonprofits" according to the article. Yea I bet...we can add to this pile the truly-outrageous case of the chief of the Museum of Modern Art in NYC, described by Trent Stamp of Charity Navigator. The guy was already the highest-paid museum official in the U.S.A., and then two wealthy board members created a trust through which to secretly pay him millions more!
Unbelievable. I hope the state attorney general and the IRS nail all concerned to the wall. Clearly there are plenty of people in this sector who need wakeup calls.
That ain't good, even a little bit. The names of the guilty have not yet been revealed.
It is a condition of federal tax-exempt status that salaries paid not exceed a reasonable range for jobs of comparable responsibility in the local market. That has not been something which has received consistent IRS attention, in part because until the 1990s the agency had no recourse short of the "death penalty" (revoking an organization's tax-exempt status) which was obviously not a politically-plausible threat against established beloved institutions. However now the feds can impose fines and penalties such as the excise taxes noted above, against both an organization and an individual.
The above discoveries have "convinced the agency that it needed to do more in the area of compensation at nonprofits" according to the article. Yea I bet...we can add to this pile the truly-outrageous case of the chief of the Museum of Modern Art in NYC, described by Trent Stamp of Charity Navigator. The guy was already the highest-paid museum official in the U.S.A., and then two wealthy board members created a trust through which to secretly pay him millions more!
Unbelievable. I hope the state attorney general and the IRS nail all concerned to the wall. Clearly there are plenty of people in this sector who need wakeup calls.
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.
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.
Saturday, November 18, 2006
Are non-profit hospitals holding up their end?
The Democrats' big win on November 7th is expected to bring new focus on the issue of how much community benefit non-profit hospitals actually provide, in the person of new House Ways and Means Committee chairman Charles Rangel (D-N.Y.). Committee chairman Bill Thomas (R-Cal.) has been raising the same questions as Illinois' Democratic Attorney General (and likely future governor) Lisa Madigan; Rangel as ranking member has defended non-profits in general but has also expressed concerns about how much charity care the hospitals are providing.
Hospitals, in order to qualify as tax-exempt non-profits, are required by every state to provide some free care for the indigent. However Illinois is one of many states where no specific amount of such care is required; in other states it's low, 5% or less of total patient revenues. Federal rules are soft, allowing non-profit hospitals to demonstrate "community benefit" in other ways such as public-service announcements, medical research, and health fairs. Madigan in 2003 commissioned a study which reported that Illinois hospitals were providing actual free care worth as little as 1% of patient revenues; the NY Times in June reported that the IRS is now examining the same question nationally. Madigan's tough bill in the Illinois General Assembly was deferred this past spring to be taken up in 2007.
The American Hospital Association has proposed instituting a standard definition of community-benefit costs which every non-profit hospital would have to report on as part of its annual tax return. They want that definition to continue to go way beyond free care, and specifically they want it to include bad debt: patients who never pay their bills. That last item gets a big raspberry from watchdog groups such as Charity Navigator, whose president has become Madigan's biggest cheerleader: he asks why patients who were billed because they are not indigent should suddenly count as charity work just because they fail to pay up?
The real issue might be a broader one which this blogger eventually touches on, namely: should hospitals have to meet a different public-benefit standard than other non-profits? The basic non-profit social contract is: exemption from taxes in exchange for a publicly-beneficial operation which spends any profits only on that operation. Non-profit symphonies and museums are not legally required to give away 10% of their tickets for free. Less-blunt incentives encourage them to do a lot of things like that, but the law does not impose an arbitrary minimum amount of it. If hospitals are to be held to a different contract with society in order to be tax-exempt, then what other types of organization should the same logic apply to?
Hospitals, in order to qualify as tax-exempt non-profits, are required by every state to provide some free care for the indigent. However Illinois is one of many states where no specific amount of such care is required; in other states it's low, 5% or less of total patient revenues. Federal rules are soft, allowing non-profit hospitals to demonstrate "community benefit" in other ways such as public-service announcements, medical research, and health fairs. Madigan in 2003 commissioned a study which reported that Illinois hospitals were providing actual free care worth as little as 1% of patient revenues; the NY Times in June reported that the IRS is now examining the same question nationally. Madigan's tough bill in the Illinois General Assembly was deferred this past spring to be taken up in 2007.
The American Hospital Association has proposed instituting a standard definition of community-benefit costs which every non-profit hospital would have to report on as part of its annual tax return. They want that definition to continue to go way beyond free care, and specifically they want it to include bad debt: patients who never pay their bills. That last item gets a big raspberry from watchdog groups such as Charity Navigator, whose president has become Madigan's biggest cheerleader: he asks why patients who were billed because they are not indigent should suddenly count as charity work just because they fail to pay up?
The real issue might be a broader one which this blogger eventually touches on, namely: should hospitals have to meet a different public-benefit standard than other non-profits? The basic non-profit social contract is: exemption from taxes in exchange for a publicly-beneficial operation which spends any profits only on that operation. Non-profit symphonies and museums are not legally required to give away 10% of their tickets for free. Less-blunt incentives encourage them to do a lot of things like that, but the law does not impose an arbitrary minimum amount of it. If hospitals are to be held to a different contract with society in order to be tax-exempt, then what other types of organization should the same logic apply to?
Monday, November 06, 2006
The tax man cometh and we are...confused
This past August, Congress passed and the President signed the "Pension Protection Act of 2006" which, as its name clearly implies, included a number of changes to federal law related to...charitable contributions and certain types of charitable foundation! One of those sausages from our lawmaking mill, like when a defense-budget bill turns out to include amendments authorizing new studies of wombat psychology...anyway if your work has anything to do even tangentially with donor-advised funds or supporting organizations you'll want to be informed about the law.
However that won't necessarily be easy, the Council on Foundations says the thing is a mess: "The provisions in the PPA have varying effective dates....Many of these provisions [some of which are now already the law of the land as I type this] are ambiguous and cannot be applied absent regulatory or other IRS interpretation..." Full gory details are available here.
However that won't necessarily be easy, the Council on Foundations says the thing is a mess: "The provisions in the PPA have varying effective dates....Many of these provisions [some of which are now already the law of the land as I type this] are ambiguous and cannot be applied absent regulatory or other IRS interpretation..." Full gory details are available here.
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