Overhauling Oversight of Charities and Foundations: How Senate Aides and Charities Would Make Changes

CONFLICTS OF INTEREST

Laws designed to prevent conflicts of interest and “self-dealing” among foundations would also apply to charities. Penalty fees for those found guilty of legal abuses would be increased.

The Internal Revenue Service should require all organizations to disclose on their informational returns whether they have a conflict- of-interest policy. Said existing rules to prevent conflicts of interest among charity officials are adequate.

GRANT MAKERS

Board members would be prohibited from receiving any compensation or might be limited in the amount they receive for their work at the foundation.

Increase penalties on foundation board members who receive excessive compensation and disclose on tax forms the hours of service a trustee is expected to perform.

Board and staff members who provide services to foundations would not be allowed to receive more than people who perform similar services for the federal government. Foundations would have to explain to the IRS, in publicly available documents, why they paid $200,000 or more a year to employees and others.

Board and staff members who provide services, such as legal or accounting help, to foundations or charities would have to disclose on their informational tax forms exactly how much was paid for those services and how much they received in trustee pay.

Foundations that devote more than 10 percent of their total expenses to administrative fees would be required to explain to the IRS why such spending was necessary and whether it could be counted toward the required 5-percent minimum payout rate. Foundations could not count any administrative expenses exceeding 35 percent of total expenses toward their payout figure.

Did not deal with this topic, but said it would propose standards for administrative spending by foundations and charities, as well as ways to improve disclosure of such expenses.

Foundations that distribute more than 12 percent of their assets in a year would not have to pay any excise taxes on net investment income that year as an incentive to encourage increased giving.

Did not deal with this topic, but said it may be included within the next report, which will examine foundation administrative expenses.

Companies that are publicly traded would have to file a list each year showing which causes they supported and that list would have to be made available to the public. Companies that give less than $10,000 annually to charities would be exempt.

Did not take a position on this issue and has no plans to do so.

CHARITY SPENDING

Charities could pay no more than the federal government (or a special nonprofit rate that might be determined by the Internal Revenue Service) for meals, travel, and accommodations. Board members, however, could authorize increased spending; the charity would have to disclose such expenses on its informational tax return.

Charities should be required to disclose on their annual informational returns whether they have a policy on travel spending and the IRS should be required to make clear which travel expenses are acceptable. Rejected the ideas of using a rate set by the federal government as unreasonable, in part because government employees often have access to discounts that nonprofit groups do not.

DISCLOSING INFORMATION

Chief executive officers of charities would be required to sign informational tax returns before they are submitted to the IRS.

Require chief executive officer, chief financial officer, or highest-ranking officer to sign the Form 990.

Stiffened penalties and requirements would be imposed on charities that fail to file complete, accurate, and timely tax returns. Such penalties would also apply to people paid to prepare such forms.

Recommended no change, saying that charities often need extra time to file a complete and accurate return. Suggested imposing penalties on tax preparers who fill out forms incorrectly.

IRS would be required to issue standards on how to fill out informational tax returns to ensure that organizations provide comparable information.

IRS would be required to issue standards on how to fill out informational tax returns to ensure that organizations provide comparable information.

Independent audits of informational tax returns would have to be undertaken by all groups that had $250,000 or more a year in gross receipts. Every five years the charities would be required to switch auditors.

Charities with annual revenue of $1-million or more should have to undergo an audit each year; organizations with $250,000 to $1-million in annual revenue would be required to have their financial statements reviewed by an independent public accountant. Organizations would not be required to switch auditors.

Charities would be required to detail ties with for-profit subsidiaries and other related organizations.

Did not make any recommendations on this point; it considers current disclosure requirements to be adequate.

Charities would be required to make their financial statements available to the public.

Charities would be required to make their financial statements available to the public.

Charities would have to make available to the public the tax form on which they state how much they paid annually in taxes on business activities unrelated to their charitable missions.

Did not deal with this topic, but it plans to examine this issue as part of its next report, which will include recommendations to change the Form 990 tax return.

CHARITY BOARDS

Charity boards would have to be made up of at least three members and no more than 15. A board’s chairman and treasurer would not be allowed to receive compensation. At least one-fifth of the board would have to be free of any relationships with the nonprofit group that could cause a conflict of interest. People who were convicted of criminal charges of fraud or similar offenses could not serve on any charity board for five years following the conviction.

Charity boards would have to be made up of at least three members, but no maximum number would be set. At least one-third of the board members would have to be independent, meaning they receive no compensation from the charity and meet other standards. People could not serve on charity boards if they had been convicted of crimes directly related to breaches of fiduciary duty at a company or charity or those who are otherwise barred from serving on the board of a private company.

CHARITY PERFORMANCE

Every five years, a charity must give the IRS updated information about its operations so that the government could, if it chose, review the group to make sure that it still qualified for tax-exempt status.

Congress should not require charities to file reports every five years, but should give the IRS more money to review charities to figure out if they are qualified for tax-exempt status.

Groups with more than $250,000 in gross receipts would have to give the IRS a detailed description of their annual performance goals and how they measure them as well as an explanation of their goals for the coming year. This information would also have to be made available to the public.

Congress should not tell the IRS to require charities to provide a detailed description of their annual performance goals and how they measure them as well an explanation of their goals for the coming year.

The IRS would receive $10-million to support a charity-accreditation system.

Plans to examine accreditation system and recommend what systems or standards might work best, including a possible role by the IRS.

ENFORCING NONPROFIT LAWS

With IRS approval, states could prosecute charities and foundations that violate certain federal tax laws.

Congress should allow states to get access to IRS information and should give states money to step up education of nonprofit groups about regulations and enforcement of state laws. States should not have power to prosecute charities that violate federal tax laws.

The IRS would be allowed to require tax-exempt groups to remove board members who have violated certain laws and rules related to their charity dealings, and to require that such board members not serve at other organizations for asset time.

Did not deal with this issue, but said it would consider this issue in its next report.

Trustees would be allowed to sue nonprofit groups in U.S. Tax Court if they felt their organizations were not following the law.

Did not make a recommendation, but said it was studying the issue for its next report as part of a discussion on changes that would expand the power of trustees to sue charities.

TAX SHELTERS

Charities that are involved in illegal tax shelters could be prohibited from offering charitable tax deductions to any donor for at least a year. Charities would also have to pay penalties for their involvement in illegal tax- shelter deals.

Charities would have to pay increased penalties for their involvement in illegal tax-shelter deals, but would not be prohibited from offering donors tax deductions.

DONOR-ADVISED FUNDS

Donor-advised funds would be required to distribute at least 5 percent of their assets each year.

Organizations that hold donor-advised funds would be required to make sure that their accounts distribute an aggregate of 5 percent of their assets each year.

Grants to overseas charities would have to be on the IRS’s published list of approved organizations that operate outside the United States.

Did not deal with this issue, but said its next report would examine the issues related to charities operating outside the United States.

Funds would have to disclose their existence and their grants on an informational tax return.

Funds would have to disclose their existence and their grants on an informational tax return.

Grants made from funds couldn’t be used for anything other than direct charitable causes.

Grants made from funds could not benefit donors, advisers, or related parties.