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Congress Looks at Charity Reform

The nation's charitable organizations have come under the Congressional microscope. Last month, committees of both the U.S. House and the U.S. Senate held hearings related to tax-exempt organizations, particularly charities.

On June 22, the Subcommittee on Oversight of the House Ways and Means Committee examined hospital pricing practices. According to the subcommittee, although hospitals represent only 1.9 percent of all 501(c)(3) organizations, they account for 41 percent of total expenditures.

The hearing was the first in a series the subcommittee will hold on tax exemption. For more information, see the House Ways and Means Committee's Web site.

Also on June 22, the Senate Finance Committee heard testimony on "Charity Oversight and Reform: Keeping Bad Things from Happening to Good Charities." Under the leadership of Chairman Chuck Grassley (R-Iowa) and ranking Democratic member Max Baucus (Mont.), the committee has proposed a number of changes in how tax-exempt nonprofits do business, including:

  • Requiring every exempt organization to file with the IRS every five years to determine if it should retain its exemption.
  • Extending to public charities the rules against self-dealing that currently apply to private foundations.
  • Prohibiting or limiting compensation of private foundation trustees.
  • Requiring justification if a private foundation's administrative costs exceed 10 percent of its total expenses and limiting the proportion of administrative expenses that can be counted in a foundation's qualifying distribution.
  • Empowering states to pursue federal tax law violations by exempt nonprofits; currently only the federal government can take such action.
  • Improving the quality and scope of Forms 990.
  • Increasing the penalties for failing to file a complete and accurate 990.
  • Limiting 990 filers to one four-month filing extension, rather than the two three-month extensions currently available.
  • Requiring organizations to file Form 990 electronically.
  • Expanding disclosure of certain information in the 990.
  • Requiring exempt organizations to make their financial statements available to the public.
  • Requiring any exempt organization that has a Web site to make all public documents and its financial statements for the last five years available on the site.
  • Making Form 990-T a public document.
  • Requiring a publicly traded organization to disclose all deductible charitable gifts totaling more than $10,000.
  • Establishing regulations and criteria for the boards of tax-exempt organizations.
A draft copy of the proposals is available on the Independent Sector Web site.

Several nonprofit and regulatory leaders testified at the hearing. Marc Pacella, president of the National Association of State Charity Officials (NASCO), supported proposals to improve the quality and timeliness of charities' Forms 990, spoke of the need for federal-state cooperation, and advocated using technology to help charities and regulators work more efficiently. He cited 990 e-filing and NASCONet, the charity registration system GuideStar is developing for NASCO, as examples of how technology can reduce the mountains of paperwork both charities and regulators currently cope with.

Other witnesses included IRS commissioner Mark Everson, New York State assistant attorney general William Josephson, and Independent Sector president and CEO Diana Aviv. Their statements are available on the Senate Finance Committee Web Site. GuideStar is submitting written testimony.

In closing the hearing, Senator Grassley emphasized that the day's proceedings represented the start of a discussion on charity reform and asserted that part of this exchange must focus on ways to improve the sector without overwhelming exempt nonprofits with increased regulation. "Finding that balance will be the task in the weeks ahead," he stated. Grassley concluded by noting that he and Senator Baucus hope to introduce charity-reform legislation this fall.

Dan Moore, GuideStar's vice president for public affairs, encourages organizations to let their views be known: "More than ever, nonprofits need to engage in this public policy debate at the local, state, and national level. State associations and national organizations such as Independent Sector, the Alliance for Justice, and Charity Lobbying in the Public Interest offer sound advice on how to lobby elected officials legally and effectively."

If you have questions or comments about the hearings or the issues raised in them, contact Moore at

Suzanne E. Coffman, July 2004
© 2004, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.
Topics: Law and Regulations