The GuideStar Blog retired September 9, 2019. We invite you to visit its replacement, the Candid Blog. You’re also welcome to browse or search the GuideStar Blog archives. Onward!

GuideStar Blog

Tell the IRS What to Do

And Don't Forget to Tell Them If You Change What You Do

Tell the IRS What to Do

The Department of the Treasury and the IRS wants the public's input on what they should be focusing on between July 1, 2013, and June 30, 2014. Recommendations should be submitted by May 1, 2013. The process for submitting recommendations and the criteria for evaluating them are outlined in Notice 2013-22.


IRS Updates, March 2013: Changes to Form 990 and Form 990-EZ, Nationwide Tax Forums, and EO Internship Opportunities

Excerpted from Exempt Organizations Update


IRS Updates, February 2013: Type III Supporting Organizations, 990s for the 2012 Tax Year, and More

Reprinted from Exempt Organization Update


Exempt Organizations 2012 Annual Report and 2013 Workplan: The IRS Says It's All About Form 990

The latest report on the activities and plans for the Exempt Organizations (EO) Division of the Tax Exempt and Government Entities section of the IRS sends a clear message to nonprofits, summarized succinctly on page 22:


Two Sides of the Charitable Deductions Debate

Although this month's "Fiscal Cliff" legislation retained the charitable deduction, the question of eliminating or restricting it has by no means been decided. Nor are opinions in the sector about this issue unanimous. Here are two different perspectives. Where do you stand in this debate? Tell us in the GuideStar Blog.

Don't Push Charities Over the Fiscal Cliff

Reprinted from Independent Sector

December 11, 2012

Dear Mr. President and Members of Congress:

We, the undersigned, write to express our concern that ongoing discussions in Washington to avoid the so-called "fiscal cliff" may ultimately produce policies that disproportionately impact our most vulnerable communities. We lead nonprofit organizations whose tens of millions of employees and volunteers are working to improve lives in every community across America.

In particular, we are deeply troubled by reports that an aggregate cap, whether a dollar-limit or percentage, on the value of the charitable deduction is under consideration as a potential short-term revenue solution during the lame duck session. Since 1917, our nation's tax system has strongly encouraged Americans to give back to their communities, and the broad concept of charity on which the deduction is based has given rise to a diverse and pluralistic set of organizations all dedicated to the public good.

Research has suggested that a cap on the charitable deduction could reduce charitable giving by as much as $7 billion a year; this would come on top of the nearly $20 billion annual decrease in giving since the economic downturn began in 2007. Federal and state budget cuts have further overburdened and diminished the capacity of nonprofits and disproportionately affected those least able to help themselves. It is simply untenable to ask them to now endure the inevitable reductions in nonprofit programs and services that will be driven by a cap on the charitable deduction.

Congress has, in fact, long recognized the connection between the tax code and giving to charitable organizations. In the days following the devastating January 2010 earthquake in Haiti, legislation was enacted allowing taxpayers to claim a 2009 deduction for donations made to Haiti relief efforts between the date of the earthquake and March 1, 2010. Similar extensions were enacted following the Southeast Asia tsunami of 2004, Hurricane Katrina in 2005, and storms in the American Midwest in 2008.

Congress took these steps out of recognition that the deduction does, in fact, encourage people to give to charity. We know that more than 80 percent of the 46 million Americans who itemized their tax returns in 2009 claimed the charitable deduction, and that these individuals and families, who represent barely one-quarter of all taxpayers, were responsible for more than 76 percent of individual contributions to charitable organizations.

Moreover, the power of the incentive can be seen in the timing of charitable gifts. Between 2003 and 2009, charitable organizations in the U.S. received $281 million in online donations. Remarkably, more than 22 percent of those donations were made on December 30 and 31 each year, underscoring the extent to which tax implications guide donor behavior.

The charitable deduction is also a fair and efficient way for the government to spur investment in communities. The current tax code treats every taxpayer who claims the deduction equitably; regardless of the rate at which their income is taxed, individuals are not required to pay taxes on the portion of their earnings donated to charity. When an individual in the highest tax bracket donates $1,000 to charity, the government foregoes $350 in tax revenue, but communities benefit from the entire $1,000 gift. The government is unlikely to find another vehicle that leverages, at a nearly 3-to-1 ratio, private spending to provide educational and economic opportunities for families in need, alleviate poverty and suffering at home and abroad, assist victims of disaster, enhance the cultural and spiritual development of individuals and communities, and foster worldwide appreciation for the democratic values of justice and individual liberty that are part of the American character.

Unlike other deductions, which subsidize personal spending that benefits the individual taxpayer, the charitable deduction actually encourages taxpayers to give away income in order to benefit our communities. The tax deduction for charitable giving is not a path to amassing greater personal wealth or accumulating tangible personal assets. In fact, it is the beneficiaries of contributions made by Americans of all incomes, rather than the taxpayer, who will pay the highest price in a loss of vital services if Congress acts to limit the charitable deduction.

We are also greatly concerned that the impending automatic, across-the-board spending cuts and proposed changes to entitlement programs being discussed could undermine the social safety net and cause added hardship for low-income families. We urge you to avoid cuts in programs that help meet basic needs and provide educational and employment opportunities. Increased poverty must not be an unintended consequence of avoiding the fiscal cliff.

In this critical time we acknowledge and support the need to put our nation on a more sustainable fiscal path, but urge you to protect programs that assist people with low incomes and preserve the charitable deduction's powerful incentive for giving. Taken together, these steps will help ensure that basic human needs are being met in communities across America.

Thank you for your leadership and your consideration of these vital issues.

Respectfully,

More than 940 nonprofits and foundations

Reprinted from Independent Sector; reprinted with permission.

Independent Sector is a nonprofit, nonpartisan coalition of approximately 600 charities, foundations, and corporate philanthropy programs, collectively representing tens of thousands of charitable groups in every state across the nation. Its mission is to advance the common good by leading, strengthening, and mobilizing the nonprofit and philanthropic community.

In Defense of Taxes—Even If They Might Cut into Charitable Giving

Reprinted from Nonprofit Quarterly

In recent weeks, nonprofit organizations mobilized against the threat that Congress would limit tax deductions for charitable gifts. Because charitable deductions provide an incentive for giving, many nonprofit leaders fear that scaling them back will make it harder to raise money. Following the "fiscal cliff" negotiations, the charitable deduction remains more or less intact—at least for now. As we consider the broader implications of tax reform and government spending and gear up for legislative fights to come, I am concerned that many of my nonprofit colleagues are overreacting or—even worse—responding to the wrong threat.

First, a few facts about charitable giving. Seventy percent of American households contribute to nonprofits. Only one-third of taxpayers itemize their deductions. In other words, a majority of donors currently get no tax benefit from their giving, and yet they continue to give. If the charitable deduction is reduced, experts project that donations will decline by one to three percent, hardly worthy of the panic we see in the nonprofit community. Why can't we accept this loss and say, "We are willing to do our part"—especially if increased revenue helps to protect government programs that serve our nonprofit clients and customers?

The larger issue is the demonization of government and the culture of tax avoidance. For the past thirty years, we've heard the insistent drumbeat of the argument that government is bad, and therefore paying taxes is a waste of money. A recent vice presidential candidate called taxes "unpatriotic." I prefer the perspective of Supreme Court Justice Oliver Wendell Holmes, who said, "Taxes are the price we pay for a civilized society." While many nonprofit networks were mounting an all-out campaign to preserve the charitable deduction, a handful of important voices—including author Kim Klein and Aaron Dorfman of the National Committee for Responsive Philanthropy—were offering more nuanced messages, in the spirit of Justice Holmes, about tax policy, equity, and democracy.

Nonprofit leaders, who are daily healing the sick, caring for the needy, protecting the environment, serving our spiritual needs, enriching our communities with arts and culture, and so on, need to talk more about what we buy with our tax dollars. We buy not only a safety net for the poor and dignity for the elderly, but also roads, bridges, courts, parks, public safety, public schools, public airwaves, regulations that protect our food, water, air, workers, drivers, other species, etc. Government is not "them." It is us. It's how we express our common values and create shared rules and expectations. These things enrich our lives, so it's appropriate to support them with our taxes. Furthermore, those who vigorously avoid paying taxes continue to use government services while shifting the costs to others. At the very least, this is unfair. Under some circumstances, it's criminal.

Let me be clear: healthy skepticism about government behavior is a fine thing. We can and should argue about the specific ways our government spends money—too much on pointless wars, in my opinion—and we must hold our elected officials accountable for their decisions. Furthermore, there is no shame in claiming legitimate deductions. Congress and our state legislatures create tax breaks, including the charitable deduction, as a way of implementing public policy. A few years ago, while legislators debated the state budget, I marched in front of the statehouse carrying a sign reading, "I will pay more taxes." Dozens of my Vermont neighbors joined the rally to make the same point: government serves the common good and paying taxes is a patriotic and necessary act.

Nonprofit leaders can and should take the lead in delivering this message. The current debates about government spending and fiscal policy offer a great opportunity to say, "We are willing to risk a small decrease in charitable donations to strengthen the common good."

Andy Robinson
© 2013, Nonprofit Quarterly. Reprinted with permission.

Andy Robinson is an author, consultant, and trainer based in Vermont. Nonprofit Quarterly is an online and print publisher whose mission is to promote an active and engaged democracy.

Note: The views expressed in this letter and editorial are those of the authors and signatories and may or may not represent GuideStar's opinions. GuideStar is committed to providing a range of topics and perspectives to our users. We make every effort to obtain articles from knowledgeable, trustworthy sources, but we make no warranties or representations with regard to content provided by persons outside GuideStar.

What's your opinion on the charitable deduction?

Although this month's "Fiscal Cliff" legislation retained the charitable deduction, the question of eliminating or restricting it has by no means been decided. Nor are opinions in the sector about the issue unanimous. We reprinted differing opinions from two respected organizations, Independent Sector and the Nonprofit Quarterly, in our newsletter: http://www.guidestar.org/rxa/news/articles/2013/charitable-deductions-debate.aspx.


ECFA Commission Concludes No New Rules Needed on Unreasonable Nonprofit Compensation

About two years ago, Senator Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, asked his staff to investigate media-based ministries and make recommendations about how to address self-dealing and questionable executive compensation levels and practices. Their recommendations were pretty dramatic: change which organizations are given nonprofit status by IRS, expand penalties on self-dealing, and establish new regulations to make sure that nonprofits, particularly religious organizations, did not reward their leaders in an extravagant and excessive manner.


Endowments–the Elephant in the Room

The following is a guest post by Lee T. Sullivan, CPA, CGMA, nonprofit team leader at Witt Mares, PLC.


What you need to know about the IRS Form 990

Let’s face it: the IRS Form 990 can be confusing. It’s also the most valuable source of information when it comes to digging into a nonprofit. It’s provides information on the filing organization’s mission, programs, and finances.


Insights from the IRS on Nonprofits—What's New

In a recent speech, Lois Lerner, director of IRS Exempt Organizations (EO), shed some light on current issues for the IRS staff. Some of her comments should be of great interest to all nonprofits.