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Is More Bureaucracy the Answer for the Sector?


A couple of weeks ago, many of the regulators of nonprofit organizations from the English-speaking countries around the world met in Washington, D.C. One of them stopped by our offices to learn more about GuideStar. My guest divides the regulators into two groups: those within a tax-revenue organization (U.S., Canada, and Australia) and those housed in independent agencies (U.K., New Zealand, Ireland, Northern Ireland, and others). In his view, those housed in regulatory agencies tend to be “more secretive” about what they do and how they do it. And he thinks this leads to a culture that emphasizes regulation and tax revenue as more important than supporting the nonprofit sector. As the head of an independent agency, he sees his role as both a regulator and policy advisor serving three clients: government, the charitable sector, and the public at large. It sounded to me that his independent status gave him more flexibility—and perhaps a more gentle approach—in decision making than employees of the IRS might be permitted to take.

This discussion was of more interest to me than usual since the previous week I had attended an interesting seminar hosted by the Urban Institute and the Houser Center for Nonprofit Organizations on whether we need a new federal agency for nonprofit organizations.

The case for such an office was made primarily by Marcus Owens of Caplin & Drysdale—and the former head of Exempt Organizations at the IRS. Owens argues that the IRS keeps lousy records of nonprofits, does a sloppy job of oversight, and is bureaucratic and difficult to work with on legal matters. These problems will never get fixed, he claims, as long as the Exempt Organizations Division is a tiny appendage of a huge organization whose primary focus is on tax collection. He argues for a semi-independent authority, modeled loosely on the National Association of Securities Dealers, that has sufficient funding for vigorous oversight, the flexibility to make its own purchasing decisions, and the freedom to set its own agenda and priorities.

Many participants argued against Owens’s recommendation, saying it would be nearly impossible to get approval from the IRS and Congress for such an agency and furthermore would still suffer from the handicaps of being part of the federal bureaucracy. Besides, many asked, just what is the problem? Despite its shortcomings, the IRS does a pretty good job under challenging circumstances. We don’t need more regulation or oversight. Maybe what we need is an organization that promotes the welfare of nonprofits. Shirley Sagawa of the Center for American Progress led a presentation urging the formation of an organization similar to the Small Business Administration—one that could gather data, influence federal agencies, and generally advance and promote the work of nonprofit organizations.

I think this is an interesting discussion, but I’m not sure it is very productive. I can’t imagine the IRS wanting to give up its authority over nonprofits. The task of creating a new independent authority or agency in today’s toxic political environment seems highly unlikely. I think our energy is best spent trying to make our current system better. I would focus on two things: making the IRS more effective, while encouraging it to not engage in over-regulation, and doing a better job of coordinating activities among nonprofits so we can be more effective in telling our stories to Congress and the American people. It is within our power to improve the standing and respect of the nonprofit sector without creating another federal agency.

Bob.jpgThe preceding is a guest post Bob Ottenhoff,  Chief Executive of the Center for Disaster Philanthropy. With an entrepreneurial spirit, strong technology focus, and a quest to make an impact in the world, Bob has the ability to take an organization and lead it into strong performance, sustainability, and industry leadership.

Topics: Policy Nonprofit Sector Bureaucracy