Should the IRS Protect Donors?

November 12, 2007

Should the IRS Protect Donors?

How far should the Internal Revenue Service go in making sure the public isn’t getting taken when it donates to charity?

That question took center stage at the annual meeting of the Philanthropy Roundtable in Dana Point, Calif., following a presentation by Steven T. Miller, the commissioner of the IRS’s tax-exempt and government-entities division.

Said Mr. Miller: “Efficiency and effectiveness have obvious implications when you consider the level of subsidy being provided here. Should the public be able to rely on the Internal Revenue Service and the states to be sure when they make a contribution to an organization that the contribution is being put to good use and not squandered?”

Mr. Miller also said he is concerned that some charities and foundations are allowing donors to stash money tax-free in donor-advised funds and other entities without any requirement to put that money to charitable use.

He suggested that the IRS should consider requiring donor-advised funds to pay out a minimum portion of their assets each year to maintain their tax-exempt status — much in the same way that private foundations are required to distribute at least 5 percent of their assets each year to charity.

“We should review existing tools and explore whether we can hold organizations to a standard of commensurate use of assets, at least in the most offensive or egregious cases,” Mr. Miller said.

What do you think? Does the IRS have the authority to help the public identify ineffective nonprofit organizations? Should donor-advised funds be subject to a minimum distribution requirement? Click on the comments link below this post to share your thoughts.

— Peter Panepento

Comments

Absolutely donor advised funds should have an annual minium payout. Anything the IRS can do to require nonprofits to conduct finances appropriate to their mission and accuracy of the information they publicize is appreciated and needed. Here in the west, there is very little infrastructure or oversight from state governnents on the honesty or effectiveness of charitable organizations.

— S. Foltz Nov 14, 03:58 PM #
The IRS is not equipped to evaluate charity effectiveness. Government agencies should avoid trying to make such value judgments – that would quickly lead them into political and Constitutional quagmires. Instead, the charity’s board and executive leadership should assess the charity’s impact against mission goals on a regular basis.

— L. Lewis Nov 14, 05:45 PM #

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