Two Key Senators Urge IRS to Require Charities to Disclose Additional Information

The Internal Revenue Service must ask charities to disclose additional information so the public can better understand what the organizations do with their money, the leaders of a key Senate committee wrote in a letter sent to the Treasury Department on Monday. They urged the tax agency to update the informational tax returns that must be filed annually by all nonprofit organizations with revenue of $25,000 or more.

“It is clear that transparency and openness are pillars in encouraging our nation’s charities to be responsive to the needs of the community,” Sen. Max Baucus, chairman of the Senate Finance Committee Chairman and Sen. Charles E. Grassley, Republican of Iowa, wrote in their letter.

An update of the Form 990, the federal informational tax return charities file, will not only help the public but will also help the Internal Revenue Service find abuses of nonprofit organizations, the two senators wrote. A more thorough form “will allow the IRS to better identify those entities that warrant additional review or further questions…and also mean that charities that are doing the right thing will be less subject to audit,” they wrote.

Among the topics the senators asked the Treasury Department to focus on as they revise the form:

Executive pay and perquisites, including payments from other charities, joint ventures, contracts, and subsidiaries. “It can be easier to understand how much a Fortune 500 executive is paid than how much a charity is compensating executives due to the shell games that go on in some cases,” Senator Grassley said in a statement accompanying the letter. “Fast and loose games in this area and others undermines the mission of nonprofits and fosters a public cynicism that’s detrimental to all charities as they rely on public support for their nonprofit work.”

Governance. “Time and time again we have seen poor governance at the core of problems at charities,” the senators said. They urged the IRS to use the informational tax return to ensure that charities are taking steps to ensure that boards are doing a good job of overseeing the organization and that managers are running the organization well.

Endowments. Charities that have endowments should show how much of the endowment is spent on their charitable mission.

Related organizations and joint ventures. “While there can be benefits to joint ventures, such activities also raise red flags, particularly of charitable assets being used for private benefit,” the senators wrote.

Fund raising. Charities should show how much of the money they raise is spent on charitable programs rather than fund-raising costs.

Hospitals. Hospitals need to provide more information about their charity care and billing and debt-collection practices, the senators wrote.

Officials at the Internal Revenue Service could not be reached for comment.

The tax agency has been working on an overhaul of the Form 990 for the past four years and say they plan to ask more detailed questions of charities. The agency expects to release a draft of the form within the next two weeks.

A copy of the letter is available online at http://finance.senate.gov/press/Gpress/2007/prg052907a.pdf