Many Charities Don’t Tell IRS How Much They Spend on Programs

As lawmakers in Oregon consider a bill that would crack down on charities that spend too big a share of their revenue on fund raising and overhead costs compared with their programs, they probably expected that it would be easy to find out how nonprofits spend their money.

But it turns out that many nonprofits don’t report how much they spend on charitable programs, even though the Internal Revenue Service requires them to show that information on tax forms and to make it available to the public.

In a scan of more than 100,000 nonprofits The Chronicle conducted using the GuideStar database of tax forms, more than one-fifth would not have met the guidelines of the Oregon bill. Of that group, nearly 96 percent wouldn’t have passed Oregon muster because they left the sections on their IRS forms blank where they were supposed to report how much they spent on programs or else they filled in a zero.

That lack of information will cause problems for regulators if Oregon’s legislature passes a measure now under consideration to prohibit donors from deducting on their state income taxes any gifts to charities that spend less than 30 percent of their revenue on charitable programs. And it points to the problems that regulators nationwide face.

The Oregon measure, passed by the state Senate, would cover nonprofits with an annual revenue of more than $200,000. To calculate the percentage devoted to programs, the state would average spending over three years as reported on the informational returns.

Incomplete Forms

To figure out how many charities nationwide would be affected by the rule if it were in place nationwide, The Chronicle asked GuideStar for the records of charities with that much in revenue. The 2009 forms, the most recent and complete available, show 100,664 nonprofits in that category, and of that total, 23,189, or about one-fifth, would not have met the Oregon standard.

But since so many didn’t report program spending costs, it’s impossible to tell much about whether they would be affected by the Oregon law.

Dan Moore, a vice president at GuideStar, said that the incomplete information on the forms highlights a weakness in how the IRS regulates nonprofits.

“If you can get away with not answering these questions, then it undermines the utility of the 990 as an important disclosure document,” Mr. Moore said.

In many cases, charities deliberately omit the data, says Ken Berger, head of the watchdog group Charity Navigator.

“If a nonprofit is up to no good, there are an infinite number of ways for them to scam the system,” he said.

Nonprofits are also failing to fill out their tax forms because they do not understand the rules, he said. And while the IRS should play a greater role in making sure charities disclose required data, Mr. Berger says it’s up to the nonprofits themselves to be accurate.

One possible benefit of the Oregon bill is that it would force more groups to fill out their tax forms completely, says Mr. Moore of GuideStar.

“At least in Oregon, it would focus on how people are completing the 990, and if you fail to complete this information, you would be put in a bad category,” Mr. Moore said. “Organizations won’t be able to get away with not completing it. In that sense, it’s a potentially positive step in getting better reporting data.”