November 29, 2007 | Read Time: 2 minutes
The Internal Revenue Service may take aggressive steps to help the public identify inefficient and ineffective nonprofit organizations, says Steven T. Miller, the commissioner of the agency’s tax-exempt and government-entities division.
“Efficiency and effectiveness have obvious implications when you consider the level of subsidy being provided here,” Mr. Miller said. “Should the public be able to rely on the Internal Revenue Service and the states to be sure when they make a contribution to an organization that the contribution is put to good use and not squandered?”
Mr. Miller’s remarks, made during a session at this month’s annual meeting of the Philanthropy Roundtable — an association of grant makers — led to sharp rebuttals from other speakers and members of the audience who said that the IRS may be overstepping its basic charge of ensuring compliance with the tax code.
Marc Owens, a Washington lawyer who is himself a former commissioner of the IRS’s tax-exempt division, urged the IRS to be cautious before stepping into new areas. He said state prosecutors have far greater powers to tackle issues related to governance and effectiveness than does the IRS.
“I would urge the IRS, as it begins to contemplate the concepts of efficiency and effectiveness, and of good governance, to keep in mind that some of those words are not found in the Internal Revenue Code,” Mr. Owens said.
The IRS is already planning to ask questions related to governance on the new version of the Form 990 informational tax return, the primary tax document that charities file each year. But Mr. Miller said that the IRS may need to take additional action to encourage efficiency and effectiveness, although he didn’t make clear exactly how the agency might do so.
Mr. Miller said the IRS was concerned that many organizations are not making effective use of their assets.
Wealthy colleges have come under increasing pressure in Congress to spend more of their assets. Similar concern about the “warehousing” of assets has led to scrutiny of donor-advised funds, which allow people to donate assets to special accounts, claim a tax deduction, and then recommend how, when, and to which charities money in the accounts should be distributed.
“Is providing a peppercorn of public benefit enough for a tax exemption?” Mr. Miller asked. “How much savings is too much savings? Should we insist on behalf of the public that the charity provide a public benefit that is commensurate with the charity’s financial resources and with the tax subsidy it receives?”
