• April 25, 2014

IRS Urged to Reduce Paperwork Burden on Charities

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Derek Lieu, for The Chronicle

Rep. Charles Boustany Jr. heads the Ways and Means subcommittee

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Derek Lieu, for The Chronicle

Rep. Charles Boustany Jr. heads the Ways and Means subcommittee

The federal government is asking big nonprofits like universities and hospitals to spend too much time and money reporting on their finances and other activities, nonprofit officials told members of Congress today at a hearing held by the House Ways and Means Committee.

The wide-ranging hearing, the first in a series of sessions expected to be held by a Ways and Means subcommittee that oversees the Internal Revenue Service, also featured a call to change the standards for getting charity status so that groups would have to prove they are making a positive contribution, rather than giving them an exemption simply because they avoid things like lobbying and engaging in untaxed business activities.

And the head of a prominent coalition of charities issued a plea for the renewal of tax breaks that encourage charitable giving.

Rep. Charles W. Boustany Jr., a Republican from Louisiana and the subcommittee’s chairman, called the hearing to gather information for “the committee’s effort toward comprehensive tax reform.” In October, Mr. Boustany sent a letter to the Internal Revenue Service asking for information about nonprofit regulation in which he expressed concern that too many charities resembled for-profit companies.

Causing Problems for Trustees

Two of the witnesses at the hearing spent most of their time talking about the reporting burdens that resulted from recent changes to the informational tax form, known as the 990.

Joanne M. DeStefano, vice president for finance at Cornell University, who testified on behalf of the National Association of College and University Business Officers, said the new requirements had forced Cornell to hire outside auditors for help in completing the form. She was especially critical of new reporting requirements on the hiring of contractors and investments in partnerships.

The new 990 lists too much information, she argued, making it less useful even for the 12 Cornell trustees who serve on the university’s audit committee.

“Three or four years ago, we would have in-depth conversations about the material in the 990,” Ms. DeStefano said. “Today the form is so complicated that our trustees do not know where to begin.”

Michael Regier, senior vice president for legal and corporate affairs at VHA Inc., a national alliance of more than 1,400 nonprofit hospitals, complained that a new part of the tax form that requires nonprofit hospitals to show how they benefit their communities requires too much “siloed” reporting by individual hospitals at a time when many are part of much bigger systems.

“Hospitals should direct their limited resources to meeting their community health-care needs rather than spending those resources to identify the processes they use to meet those needs,” Mr. Regier said.

Roger Colinvaux, a former top aide to Congress’s Joint Committee on Taxation, who is now an associate professor at the Catholic University of America, said that requiring the disclosure of lots of information was one of the IRS’s few tools for making sure nonprofits comply with federal law.

“The form is getting more complex as the IRS begins to understand how complicated the sector is,” Mr. Colinvaux said.

Ms. DeStefano and Mr. Regier acknowledged that the IRS had been open to feedback and had made some changes to the tax form based on concerns raised by colleges and hospitals.

Setting Higher Standards

Rep. Xavier Becerra, a Democrat from California, said he worried that too many tax-exempt organizations were engaging in “noncharitable activities” and that the IRS was ill-equipped to catch them. He cited statistics that he said show the IRS audited just 7,900 charities in 2008—less than 1 percent of the nation’s total.

He also pushed Mr. Colinvaux to illustrate how federal laws could be shaped to show a charity is engaging in “positive” activities.

Earlier in the hearing, Mr. Colinvaux had urged Congress to consider setting a higher standard for groups that seek tax-exempt status, so only organizations that clearly help society would get the right to offer their donors the option of getting a tax break for their giving.

“Give me something tangible,” Mr. Becerra said. “What would qualify? Should tax-exempt organizations have to provide information on their outcomes and activities?”

Mr. Colinvaux didn’t have a ready answer and said the IRS and Congress would need to “do more work in defining what a charitable activity is.”

Diana Aviv, president of Independent Sector, testified that the situation for most charities remains grim, with stable or declining revenue from private fundraising, government contracts, and fees for services.

“Some of these organizations have coped by doing more with less,” Ms. Aviv said. “For the most part, what we’ve been told is that these organizations are finding themselves turning people away.”

She urged Congress to pass legislation to renew incentives for giving that expired at the end of 2011, including a provision that allowed older people to make charitable donations from their individual retirement accounts tax-free.

Monitoring Political Groups

One lawmaker used the hearing as an opportunity for a jab at the IRS, which has questioned several social-welfare organizations, organized as 501(c)(4)’s under the tax code, about their political leanings and activities. While social-welfare organizations can engage in political activity, that can’t be their primary purpose. Nevertheless, the designation includes groups such as American Crossroads, founded to help elect Republicans.

Rep. Kenny Marchant, a Republican from Texas, said the IRS had “singled out” several social-welfare organizations in his district for questioning about their support of political campaigns. Bruce Hopkins, a lawyer who represents charities, testified that he had represented several clients who had undergone such grilling. “The IRS does seem to be asking for a lot more detail in this context,” he said.

Mr. Marchant urged Mr. Boustany to invite the IRS to a future hearing “so that we can ask the IRS why there is this focus on these groups.”

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