IRS Probes Nonprofit Sector

Internal Revenue Service Commissioner Mark Everson has notified the Senate Finance Committee of his concerns about possible wide-scale evasion and abuse within the rapidly expanding nonprofit sector, the Washington Post reported.

"We can see that tax abuse is increasingly present in the 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," Everson said in his letter, which laid out the abuses his agency has uncovered.

Everson said the problems found by the IRS extend across the sector, which has grown to include about 3 million entities that control $8 trillion in assets. Nonprofits extend beyond charities to include colleges and universities, many hospitals, pension plans, trade associations and think tanks, the Post reported.

"Unfortunately, we have no precise way to gauge the revenue impact of these issues," Everson said.

The Finance Committee began looking into abuses in the nonprofits last summer and included several provisions in last fall's tax bill that were directed at curbing the abuses. As members of the committee suspected, Everson's letter demonstrates there is much more to be done.

"It's a seminal letter that rips off the rose-colored glasses with which we usually look at tax-exempt organizations," Senate Finance Chairman Charles E. Grassley (R-IA) said yesterday. "What's going on isn't a pretty picture in the harsh light."

The nonprofit sector is paying attention. Last month the industry-convened Panel on the Nonprofit Sector offered a preliminary report on how laws could be tightened and practices improved to curb abuse, the Post reported.

Everson noted that "our enforcement presence faded in the late 1990s," Everson attributed much of the growth of problems to "weak governance practices" among nonprofits and "a culture [in the sector] that has become more casual about compliance [with tax laws] and less resistant to noncompliance."

He also said the sector has evolved while the tax-exempt rules have remained the same for decades. "Since 1969 there has been only limited review of the rules relating to tax-exempt status," Everson said.

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