Congressional Panel Urges Greater Disclosure of Non-Profit Data by IRS

A key Congressional committee is recommending that the Internal Revenue Service be allowed to greatly expand the amount of financial and other information it releases to the public about the country’s 1.3 million non-profit organizations.

Increased disclosure of such information would “improve the efficiency of the operations of the tax-exempt sector,” in part by stepping up the public’s role in the oversight of non-profit groups, said staff members of the Joint Committee on Taxation.

The committee, which scrutinizes tax proposals for the House and Senate, urged Congress to make changes to the Internal Revenue Code to open up previously undisclosed information on the tax agency’s dealings with foundations and other non-profit groups. None of the report applies to disclosure of information by churches and other places of worship.

In some cases, the committee recommends making documents — such as the results of I.R.S. audits — public for the first time. The committee also would like the revenue service to be able to share information with state attorneys general and other regulators about audits that are currently under way.

Another suggestion would allow the service to give out the names of organizations and other identifying information in I.R.S. documents that have previously been released to the public with all such details removed.

In one case, however, the committee took the opposite approach and recommended that a piece of information that is currently available be kept secret: the taxpayer-identification numbers the I.R.S. uses to keep track of organizations. The committee said it was worried that the information could be misused.

The joint committee and the Treasury Department were required to make reports under a law passed by Congress in 1998 that restructured the Internal Revenue Service. Congress wanted to know whether the public interest would be served by increased public disclosure of information about non-profit organizations. The report from the Treasury Department has not yet been issued.

Congress will consider both reports and then decide whether to act on any of the recommendations.

Following are details of the proposals made by the committee:

Audits. The joint committee told the House and Senate that the public should be allowed to see, with as few deletions as possible, the results of government audits of charities, as well as the “closing agreements” that organizations sign when the I.R.S. catches them doing something wrong and forces them to make changes in their operations.

“Information regarding the outcome of an audit would assist the public in determining whether the organization is in compliance with the law, and how the organization is using funds,” the joint committee said.

The report noted that some observers think that the disclosure of closing agreements would deter some charities from voluntarily turning themselves in to the I.R.S. for possible or actual violations of the law. Others maintain that charities would refuse to enter into closing agreements with the government if they knew that the information would eventually be made public, the report said.

“It is also argued that publication of such information will lengthen the audit process, as both sides will negotiate with a view toward what information will ultimately be made public,” the report said.

However, the joint committee said that these concerns do not “outweigh the public’s interest in disclosure.”

I.R.S. rulings. The committee also suggested that the I.R.S. be allowed to disclose its rulings on tax issues, such as private-letter rulings and technical-advice memoranda, without blanking out words that identify the organizations involved, as the tax agency does under current law. The I.R.S. also should be able to make public the documents that it sends to charities when it revokes their tax exemptions, the committee said.

Non-profit tax returns. The committee told Congress that the I.R.S. should revise the informational tax returns, known as Forms 990 and 990-PF, that charities and foundations file with the government each year “to ensure that the forms provide relevant and comprehensible information to the public as well as the I.R.S.”

The revenue service also should accelerate its timetable for accepting the returns in electronic form, beginning with returns filed after 2002, the committee said. The tax agency currently plans to accept the forms electronically in 2007. “Electronic filing of Form 990 will facilitate the posting of the forms on the I.R.S. site on the World Wide Web, which will make more information available more quickly to the general public,” the report said.

The joint committee also recommended that the revenue service be allowed to make public the tax returns, called Forms 990-T, that charities file to report the income they receive from businesses that are unrelated to their missions and the taxes they owe. The documents are currently kept private, in the same manner as individual and corporate tax returns. “As a result, the public may be getting an incomplete picture of the activities of tax-exempt organizations,” the report said.

The I.R.S. should change the Form 990 to make charities report more information about the money they may transfer among various tax-exempt groups, including political funds under Section 527 of the tax code, “so that the public and the I.R.S. can better assess whether contributions to tax-exempt organizations are being used to fund political activities,” the report said.

Lobbying. The joint committee said that the I.R.S. should require that charities provide a general description of their lobbying activities on Schedule A to the Form 990. Groups would have to spell out the specific legislation they supported or opposed. Organizations should also have to disclose on tax returns the amount of money they spend on so-called self-defense lobbying — when they work on issues that pertain to the operations of their own organizations — and the dollars that pay for nonpartisan studies, analyses, and research that single out legislators who will be voting on issues the organizations care about.

The full text of the Joint Committee on Taxation’s report can be found on the committee’s Web site at http://www.house.gov/jct. The recommendations that apply to non-profit organizations can be found in Volume II of the report: “Study of Disclosure Provisions Relating to Tax-Exempt Organizations.”