Tuesday’s Washington Post says that Internal Revenue Commissioner Mark Everson is the government official to help us make sure that our contributions are received by legitimate charities. In a letter to the Senate Finance Committee, which is currently discussing increased charity regulation, Everson noted, “We can see that tax abuse is increasingly present in the [Exempt Organization] sector,” and unless the government takes effective steps to curb it, such organizations risk “the loss of the faith and support that the public has always given to this sector.”
But the reality of increased government revenue to be had rather than good faith may be the more immediate issue. According to Chairman Grassley, those revenues can offset the costs of the CARE Act [current legislation that provides increased tax advantages for human service charity donors].
The Senator’s conclusion is admirable: “I want to make certain that the vitality of nonprofits, particularly small charities and churches, is not unduly burdened by governance reforms.” And it is consideration of these smaller charities that may prove a considerable challenge in the maze of supporting organizations and donor advised funds–hardly the stuff of neighborhood nonprofits.
According to the Urban Institute’s National Center for Charitable Statistics, 78.7% of the registered Exempt Organizations received less than $100,000 in 2004, but only 46.6% of $100,000 nonprofits were required to file IRS form 990; the remainder received less than $25,000, and thus were not required to file.
It is doubtful that such charities have the time or accounting sophistication to execute questionable easements and buybacks of discounted assets. Senator Grassley’s committee is really trying to combine two entirely different galaxies of charity issues. I hope that increased regulation is not so focused on the tax gap most certainly generated by the minority that it literally obliterates the charities for whom Mr. Everson created the EZ 990 option.