Congressman Seeks Tax-Form Change

Rep. Ernest J. Istook Jr., an Oklahoma Republican, is asking the Treasury Department and Internal Revenue Service to make a “modest change” in the Form 990 federal informational tax return filed by charities. Mr. Istook says the modification is needed to help the public get a better picture of the commercial activities of nonprofit organizations.

The request carries weight because Mr. Istook is chairman of a subcommittee of the House Appropriations Committee that oversees the Treasury Department and IRS.

In a letter to Treasury Secretary Paul H. O’Neill, Mr. Istook said that he would like the IRS to change the Form 990’s Part VII, which is called “Analysis of Income-Producing Activities.”

Charities must pay tax on income stemming from business activities that are unrelated to their missions. The government levies the tax to prevent nonprofit groups from enjoying an unfair competitive edge against private companies.

In 1987, a subcommittee of the House Ways and Means Committee held hearings on the effectiveness of the unrelated-business income tax.

The hearings did not lead to changes in tax law. But, Representative Istook said, “every stakeholder in that debate — the small-business community, nonprofits, and tax writers — agreed more data was needed on the nature and scope of the business income activities of larger nonprofits, and the bases on which they claimed exemption.”

As a result of the hearings, the IRS added to the Form 990 a new section, Part VII, that asked charities to break down what revenue was received from activities related to or unrelated to their missions, and what revenue legally fell outside the definition of taxable unrelated-business income.

But Mr. Istook said that Part VII fails to request sufficient details “on the nature and scope of nontaxed commercial endeavors in which nonprofits engage” and is of little value to regulators and policy makers.

Representative Istook told the Treasury Department that a revised form would help “for-profit firms in analyzing nonprofit returns; donors in determining merits of beneficiaries; researchers in learning more about the activities of the independent sector; and enforcement officials in better targeting resources.”