April 23, 1998 | Read Time: 2 minutes
State charity regulators are opposed to an idea recently floated by the Internal Revenue Service: allowing many more small tax-exempt groups to avoid filing informational tax returns that detail their finances. Non-profit organizations must provide such a return — known as the Form 990 — if their annual gross receipts total more than $25,000.
In a statement issued last year (Announcement 97-115, Internal Revenue Bulletin 1997-47), the I.R.S. said it was considering a proposal to raise that threshold, perhaps to $40,000 or $100,000, and asked for public reaction. The service says it wants to keep up with inflation — the $25,000 threshold has not been adjusted since 1982 — and reduce the paperwork burden on non-profit groups.
About 600,000 tax-exempt groups now report gross annual revenue of at least $25,000. The I.R.S. said that about 40,000 organizations would be relieved of the filing requirement if the threshold were raised to $40,000.
In its letter of comment to the I.R.S., the National Association of State Charity Officials asked the government to abandon the idea. “It is often the smaller, less sophisticated charities that have the greatest need for checks and balances and public scrutiny,” wrote Craig R. Mayton, co-president of the National Association of State Charity Officials and an Assistant Attorney General of Ohio, and Betty D. Montgomery, the Ohio Attorney General.
New York regulators noted that charities currently provide the Form 990 to most state governments each year to meet financial-disclosure requirements. If the I.R.S. allowed smaller charities to get out of filing the Form 990 with the federal government, New York and many other states “would have no choice but to design and implement their own reporting form [for smaller groups], merely replacing the 990 with a new state form,” said Matthew D. Sansverie, an Assistant Attorney General in New York. “The result would be replacing one filing with another and increasing the burden on filers.”
James J. McGovern, former top charity regulator at the I.R.S., said that an increased threshold would significantly reduce the service’s “ability to effectively oversee the population of tax-exempt organizations.”
But the I.R.S. also received numerous letters that backed the idea. A threshold of $100,000 would be ideal, said Barbara T. Edmond, chief professional officer of United Way of York County, Maine. “Nonprofits with budgets under $100,000 are mostly grassroots organizations, totally run by volunteers and disbursing almost everything they raise on direct service,” said Ms. Edmond. “We at the United Way of York County have come to realize that we are doing the community more of a disservice by placing stringent requirements on these small organizations than value gained in accountability.”
That notion was embraced by the volunteer firefighters of the Lincroft Fire Company in New Jersey. “Spend your time auditing the large national groups with their high-salaried executives and large expense accounts and reduce the paperwork burden on small groups of volunteers,” said treasurer Alan G. Speck. “We are not ‘crooks’ hiding behind a non-profit status. We just put out fires.”
