December 14, 2000 | Read Time: 2 minutes
By GRANT WILLIAMS
The Internal Revenue Service is concerned that many charities fail to report their fund-raising costs on the federal informational tax returns they file, even though they are required to do so.
As a result, the tax agency plans to issue an announcement to explain what it expects from charities and to warn organizations against trying to dodge the requirement.
David Jones, an official in the I.R.S.’s Exempt Organizations office, said the service’s concern was sparked in part by The Chronicle’s May 18 story, which analyzed I.R.S. data. That story found that more than one-fourth of the 4,889 nonprofit organizations that received $500,000 or more in gifts from private sources in 1996 reported spending nothing on fund raising. While some charities had legitimate explanations, the story said, many others simply did not comply with the I.R.S. rules.
Many of the groups “did not appear to be fly-by-night, sleazy operations,” said Mr. Jones, “but rather mainline charities that were presumably well-advised” by lawyers and accountants.
Mr. Jones attributed some of the misreporting to pressures on charities by donors to report low fund-raising expenses relative to program costs. “The reality is that, for better or worse, there is an extreme emphasis on efficiency,” said Mr. Jones.
Mr. Jones said that the instructions the I.R.S. currently provides to preparers of informational tax returns are straightforward. But he said the service has now done some “tweaking” of the instructions to remove all ambiguity and will issue an announcement to hammer home its position.
For example, the I.R.S. will make clear that charities must report fund-raising expenses even if they think of the expenses as program costs.
“Our rationale here is not necessarily to make a judgment,” said Mr. Jones. “It’s merely to say that when we’ve designed the form, we’ve asked you to break out a specific item of expense, and whether or not you characterize it in the end as something related to your exempt function is not relevant to what you reported as a fund-raising expense as the service requires.”
Mr. Jones spoke at a conference in Washington held by the American Law Institute-American Bar Association Committee on Continuing Professional Education.
