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Charity Reform Update, June 2007: Senate Finance Committee Leaders Advocate Form 990 Revision


On May 25, 2007, Senate Finance Committee chairman Max Baucus and ranking member Chuck Grassley wrote to secretary of the Treasury Henry Paulson urging expedited revision of IRS Forms 990 and 990-PF. Grassley and Baucus have led Congressional charity-reform efforts in recent years and were instrumental in adding provisions governing charities and private foundations to the Pension Protection Act of 2006.

"It is clear," the senators stated in their letter to Paulson, "that transparency and openness are pillars in encouraging our nation's charities to be responsive to the needs of the community and to act in accordance with the principles and goals for which they were established and that they seek contributions from the public." Unfortunately, deficiencies in the Form 990, which the senators note is made publicly available on GuideStar, prevent adequate nonprofit reporting.

The two Finance Committee leaders noted that Form 990 does not capture enough information on complex nonprofits, especially hospitals and universities. They also suggested that a revised return would make it easier for the IRS to determine which charities require additional scrutiny and which do not. "In particular," they wrote, "we are concerned that the IRS have adequate information to review bond transactions and UBIT [unrelated business income tax] as well as other matters that impact on the tax gap."

Baucus and Grassley outlined several areas requiring better reporting and transparency:

  • Executive compensation–noting that some charity executives receive compensation from multiple sources and that "some charities are as creative as for-profit entities in providing compensation," the senators called for making "the source and amount of compensation of an executive of a charity ... crystal clear."

  • Endowments–details about charities' endowments must also be made clearer. Further, "the new Form 990 should allow the IRS and the public to easily identify how the commensurate test is being met," i.e., to compare a charity's activities to its financial resources.

  • Related organizations–all organizations related to a charity should be disclosed to enable the public to "understand the big picture of what is going on at a charity." Similar thinking, Baucus and Grassley continued, led to making Form 990-T a public document. ( about public disclosure of Form 990-T.)

  • Joint ventures–details about joint ventures, particularly those related to hospitals and universities, must also be revealed. The senators observed, "While there can be benefits to joint ventures, such activities also raise red flags, particularly of charitable assets being used for private benefit."

  • Governance–Form 990 should be used to focus a charity's board, management, and the public on governance issues.

  • Dollars raised v. dollars for charity–the IRS "should seek to make this information easily and clearly available for the public."

  • Hospitals–Baucus and Grassley suggested that the IRS look at the Catholic Health Association's reporting guidelines on charity care and community benefits. They also suggested that hospitals be required to outline their billing and debt collection procedures and to define clearly their charity care policies.
The two senators urged Paulson to make revising Form 990 a priority. "Sunshine," they stated, "can't do its work unless we open the blinds. The sooner we open those blinds the better." They also encouraged the IRS to examine ways to make the returns available to the public more quickly. "We are worried that ... extensions for filing are routinely extended and that it is often months after the end of the tax year before a Form 990 is even filed."

Baucus and Grassley closed by asking Paulson to report on IRS efforts to improve the accuracy of the 990s and "to provide any suggestions you may have for Congress in terms of improving accuracy of Form 990s." They requested a response to their letter within 30 days.

The Chronicle of Philanthropy reported on May 30 that the IRS has been working on revising Form 990 for four years and expected to release a draft version of the new return within two weeks.

Read the letter >

Suzanne E. Coffman, June 2007
© 2007, Philanthropic Research, Inc. (GuideStar)
Topics: Law and Regulations