IRS, Congress Cracking Down on Charities

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Heading up a charity can be lucrative for executives, but should it be? That is the question Congress will take up after string of scandals and controversies have rocked the nonprofit sector.

Besides looking at executive compensation, Congress will seek to reign in charities by cracking down on fraudulent activities and tightening laws governing tax exemption, the Washington Post reported. Commissioner Mark Everson told a Senate hearing that the agency would contact hundreds of organizations beginning this summer in an aggressive program that will include audits, the Wall Street Journal reported.

This week, the Senate Finance Committee takes up a number of suggested revisions to the existing tax law, which would greatly increase disclosure requirements, require outside audits of many charities, tighten the rules governing credit counseling groups and require justification of nonprofit status with the IRS every five years, the Post reported. The House is examining the billing practices of nonprofit hospitals.

The Senate Finance Committee will look at a broad range of possible revisions, including changes that would greatly increase disclosure requirements, require outside audits of many charities, stiffen the rules covering credit counseling groups, and require nonprofits to refile with the Internal Revenue Service every five years to justify their continued nonprofit status. The House oversight panel is reviewing the billing practices of nonprofit hospitals.

"It's obvious from the abuses we see that there's been no check on charities. Big money, tax free, and no oversight have created a cesspool in too many cases," Senate Finance Committee Chairman Charles E. Grassley (R-IA) said late last week. "It's time for Congress to send a message." Added Sen. Max Baucus (MT), the ranking Democrat on the panel: "The examples of abuse surrounding charitable organizations are growing at an alarming rate… These actions are immoral and inexcusable—and threaten to taint the reputation of all charitable organizations."

Charitable groups and professionals who work for nonprofits say they support the general idea of reform, but reacted cautiously to the committee's long list of issues, the Post reported.

"There is a whole range of ideas" under consideration and the "intention is to consult with various groups. That will give us all ample opportunity to have a public discussion," Diana Aviv, head of Independent Sector, an umbrella group of nonprofits, told the Post.

"This is an occasion for us to think seriously about policies that may have been in place that are no longer acceptable, and where law and practices haven't caught up" with what is going on in the marketplace, she added.

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