Disclosure of Charity Salaries Is a Complicated and Confusing Process

At first glance, David Troyer of Christian Aid Ministries appears to be one of a handful of unpaid chief

executives in The Chronicle’s salary survey. On the informational tax return filed by the charity for the 2003 fiscal year, his salary is listed as zero.

But a call to the charity’s offices in Berlin, Ohio, reveals that Mr. Troyer is indeed paid — by Christian Aid’s fully owned for-profit subsidiary, TGS International. Mr. Troyer splits his time between the two operations, which are closely linked, and declined to reveal his salary during an interview, although a top official at the organization said he makes less than $100,000.

Should Mr. Troyer have to reveal his salary? The law doesn’t require it. But not even Mr. Troyer himself was familiar with the IRS regulation that allows him to avoid reporting his salary, which suggests that potential donors scrutinizing the charity’s financials would face a daunting task in ascertaining that Mr. Troyer is indeed paid something by the two organizations.

As more and more questions arise about abuses at charities, including excessive compensation for executives, nonprofit experts are nearly unanimous in their call for greater disclosure of timely and uniform information about charity operations.

Much blame for the current problems falls on Form 990, which is filed by charities, and its cousin, the 990-PF, which is filed by private foundations.

Potential for Abuse

Many nonprofit officials complain that the forms are not easy to fill out, and that the reporting requirements are vague. Officials at watchdog groups say that the ambiguities in the forms make them ripe for abuse, and they say that problem has been compounded by the relatively lax scrutiny of the forms — until this year — by the Internal Revenue Service.

“In a lot of cases, I know what the value of a particular [compensation] package is, and it’s not there on the 990,” says Hugh A. Mallon III, a Baltimore consultant who helps nonprofit groups set their pay levels. “I’m not saying that charities are purposely doing it wrong, but oftentimes the advice they get on how to fill out the form is flawed.”

The IRS concedes problems exist with the 990.

The agency has a team of eight employees working full time on a redesign of the 990. However, the IRS recently pushed back the date for introducing the new form to the 2007 filing year, according to an IRS expert working on the redesign, who asked that her name not be used.

In the meantime, some charities and foundations have adopted structures that allow them to avoid disclosing certain information that watchdog organizations say is most vital, including the salaries of the five highest-paid employees.

At Christian Aid, Mr. Troyer says an outside accountant filled out the 990 for the charity, which distributes food, clothing, medicine, and Christian literature in Romania, Moldova, Ukraine, Haiti, Nicaragua, Liberia, and other countries. Last year, based on the $106-million the group received in private support, it ranked No. 123 on the Philanthropy 400, The Chronicle’s annual list of the charities that have raised the most money. In 2003, the charity’s 990 listed total income at TGS International, which makes money by selling books and arranging overseas shipments, of nearly $903,000.

“I don’t pull one of those huge salaries,” Mr. Troyer says. “It’s not a big secret, but to my knowledge I guess we’ve never published it.”

The organizations were divided in the mid-1980s to keep the profit-making and charitable activities separate. Mr. Troyer says he has been paid solely by TGS for about 12 years, and that the arrangement is a boon for donors. “Christian Aid doesn’t have to fork out any money for me,” he says. He couldn’t provide a breakdown of the number of weekly hours he spends at the charity and the for-profit business. “It’s really intertwined,” he says.

IRS regulations require a tax-exempt organization to reveal compensation paid to an officer by a subsidiary only if the officer receives compensation from all the related entities that exceeds $100,000.

It is unclear why the $100,000 income threshold is considered significant when the payments come from related entities. When a key official or director is paid directly by the charity, the compensation must be listed regardless of size.

In pointing out this provision, Steve Pyrek, an IRS spokesman, also alluded to the redesign of the 990, and stated that one goal of the redesign is to “clarify the type of compensation information we require to effectively enforce the Internal Revenue Code.”

Management Companies

Another complicated reporting requirement on the 990 is how to handle salary disclosure when most of the money a charity pays its workers is sent through a separately incorporated management company.

The instructions for the 990 and the 990-PF state that if a nonprofit organization pays a management company for work done by officers of the nonprofit group, the compensation should be listed on the tax form as if it had been paid to the officer directly.

Those instructions, which are still on forms today, date to 1999. But in April 2001, the IRS published a request for additional comments on that requirement (Announcement 2001-33), after some people had complained that the requirements were too burdensome for tax-exempt organizations and that they invaded the privacy of contractors who didn’t work for the organizations.

The announcement essentially provided a “safe harbor” for those that use management companies and don’t report income paid to an officer as if it were paid to the officer directly. The IRS heard from 75 people after its announcement; 65 thought the requirement should be modified or eliminated, eight supported it, and the remaining two suggested a middle ground. Some three and a half years later, the IRS still has not issued an update, which means the “safe harbor” created in 2001 remains on the books.

Some organizations that employ a management-company structure don’t appear to be trying to hide anything.

For example, executives at the Doris Duke Charitable Foundation, in New York, are paid by the Doris Duke Management Foundation, which is itself a charity that handles management and administrative functions for the charitable foundation and two other foundations.

The charitable foundation’s 990-PF lists no salaries for its top officials — including that of Joan Spero, the foundation’s president, who made $513,317 in 2003. But the salaries for all of Doris Duke’s top executives can be found on the management foundation’s 990-PF.

However, another grant maker that uses a management company — the Walton Family Foundation, in Bentonville, Ark. — doesn’t reveal the top salaries of its executives at all.

The only listed payment for an officer or contractor is $916,239 to Walton Enterprises, for “management services.” The foundation explains on the bottom of the page that the payment to Walton Enterprises is “reported as authorized under IRS Announcement 2001-33.”

Buddy Philpott, executive director of the Walton Family Foundation, declined to comment on why the foundation does not report salaries for its top officials.

Rick Cohen, executive director of the National Committee for Responsive Philanthropy, a watchdog and research group in Washington, says the IRS’s current stance is “ripe for potential conflicts of interest and self-dealing.”

“If we’re concerned about the transparency of uses of tax-exempt resources,” he says, “foundations and their management contractors should be prepared to accept the responsibility of the kind of transparency that they would face were these employees paid directly by the foundation.”

Mr. Pyrek of the IRS says the reporting requirement regarding payments to management companies is another area that will be examined in the redesign of the 990.