Ways and Means Subcommittee Holds Hearing On Charities and Employment Tax Compliance

The House Ways and Means Oversight Subcommittee held a hearing on May 25, 2006 on charities' compliance with employment tax obligations. As preparation for the hearing, Subcommittee Chairman Jim Ramstad (R-MN) asked the General Accounting Office (GAO) to review whether any charities participating in the Combined Federal Campaign (CFC) have outstanding tax debts.

GAO reported that more than 1,280 charities that participated in the 2005 annual Combined Federal Campaign, or 6 percent of the total campaign, have tax debts equaling approximately $36 million. Approximately $28 million of this debt originates from unpaid payroll taxes, penalties, and interest. The remaining $8 million is due to various taxes, including annual reporting penalties, excise taxes, exempt organization business income, and unemployment taxes. Of the studied charities, GAO closely examined 15 and found that each engaged in abusive and potentially criminal activity. GAO referred these organizations to the Internal Revenue Service for further review.

Other questions raised by the Subcommittee were: whether the IRS is effectively using its regulatory authority over charities to ensure that they pay their taxes; whether charities with substantial tax debt should maintain their tax-exempt status; whether charities with tax debt should participate in the CFC; whether the Office of Personnel Management performs effective background checks on the charities participating in the CFC;and whether there are tax-exempt organizations with significant tax debt that receive benefits, such as grants, from the federal government.

Read GAO’s testimony entitled, “Some Combined Federal Campaign Charities Owe Payroll and Other Federal Taxes” (PDF).

See the House Ways and Means Oversight Subcommittee’s website for other statements and testimony.

Last Updated: June 1, 2006

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