IS Testifies Before House Ways & Means Subcommittee
The House Ways and Means Subcommittee on Oversight held a hearing on May 16, 2012 to examine the operations and oversight of the tax exempt sector.  In his opening statement, Chairman Charles Boustany (R-LA) articulated the importance of the issue to the Subcommittee, saying, “With so many Americans relying on, working for, and engaged in economic relationships with tax-exempt organizations, taxpayers should have confidence that tax-exempt organizations, especially charitable organizations, are operating efficiently and hopefully using good governance practices to maximize benefits provided to the community.”

In her testimony before the Subcommittee, Independent Sector president and CEO Diana Aviv emphasized the tax exempt sector’s commitment to improving governance, transparency and accountability, and the significant strides that have been made in recent years.

Diana highlighted for lawmakers the numerous improvements to governance and oversight of the sector, particularly in the areas of self-regulation, changes in the law, and the redesigned IRS Form 990 since 2006.  Many of these improvements were the direct result of the work of the IS-convened Panel on the Nonprofit Sector, including:

Enhanced Self-Regulation
Panel recommendations for improved self-regulation incorporated in the Principles for Good Governance and Ethical Practice included:

• Board review of the Form 990 prior to filing, as well as periodic board review of governing instruments, financial transactions and compensation policies;
• Board approval of CEO compensation;  
• Disclosure of donor advised funds owned;
• Adoption of policies governing travel reimbursement, and a prohibition on reimbursement for spouses, dependents, or others traveling with a board member;  
• Adoption of conflict of interest policies and whistleblower protections; and  
• Discouraging the compensation of board members.
  

Legislative Changes
Panel recommendations incorporated into the Pension Protection Act of 2006 included:

• Doubling the excise taxes for charities, social welfare organizations, private foundations, and exempt organization managers found to be participating in abusive tax shelters;
• Requiring exempt organizations with annual gross receipts less than $25,000 to file an annual notice with the IRS containing basic contact and financial information; 
• Clarifying that assets in donor advised funds may not be used in ways that confer substantial benefits on donor/advisors; 
• Removing barriers that prevent information sharing between state charity officials and the IRS; and  
• Improving the appraisal process to ensure more accurate deductions for donated property.
  

IRS Form 990
Panel recommendations adopted by the IRS or incorporated in the Form 990 redesign included:

• The mandatory revocation of exempt status for organizations that fail to file an appropriate Form 990 for three consecutive years;
• Expanded Form 990 compensation reporting, to include listing names and reporting compensation for the organization’s five most highly compensated employees; 
• Requiring additional information, including a summary and statement of purpose on the first page, disclosure of which voting board members are independent, and disclosing the total amount of donor advised funds; and
• Asking whether an organization has a written conflict of interest policy.
  

Diana emphasized that the progress we have seen in these areas and the resulting continued public support for our sector, reflects the charitable sector’s deep commitment to accountability, transparency, and good governance, as well as our collective determination to preserve an environment in which lawful, ethical, and accountable nonprofit organizations can continue to serve and enrich our communities. 

Charitable Giving Incentives
Diana also urged Congress to enact the expired tax extenders without delay, stressing the urgency for our community, and the people we serve, of immediately reinstating the charitable giving incentives in the tax extenders package, which include the IRA charitable rollover as well as enhanced incentives for the donations of food, books, computer equipment, and land conservation easements.   She also asked members to take a broader look at ways to expand incentives for charitable giving as Congress embarks on comprehensive tax reform.

Other Witnesses
Witnesses from the health care and higher education communities expressed concerns about the new Form 990, calling the compliance requirements burdensome and the information requested redundant.  Roger Colinvaux, Associate Professor of Law at the Catholic University of America, reminded lawmakers that the information disclosed on the Form 900 is one of the IRS’s few tools for ensuring nonprofit organizations comply with federal law.

Witness List and Testimony
Diana Aviv, President and CEO, Independent Sector - Testimony
Roger Colinvaux, Associate Professor, Columbus School of Law, The Catholic University - Testimony
Joanne DeStefano, Vice President for Finance and Chief Financial Officer, Cornell University - Testimony
Bruce Hopkins, Senior Partner, Polsinelli and Shugart - Testimony
Michael Regier, Senior Vice President for Legal and Corporate Affairs, VHA, Inc.- Testimony

Watch the Hearing
The complete Subcommittee hearing on tax exempt organizations can be viewed here.