Our esteemed author Bruce Hopkins was one of a few experts to testify a couple of weeks ago before the House committee on Oversight about Tax-exempt Organizations. We asked him to write up a summary of his experience.
The House Subcommittee on Oversight, on May 16, held a hearing to examine the operations and oversight of tax-exempt organizations. This hearing is the first in a series by the Subcommittee on the exempt sector and IRS oversight of it. My editor, Susan McDermott, asked me for some comments of the hearing, since I was privileged to be one of the witnesses.
When Subcommittee Chairman Charles W. Boustany, Jr., MD (R-LA), announced the hearing, he said: “Oversight of the tax-exempt sector is an important priority for the Subcommittee, and it has been an area that both Republicans and Democrats agree needs greater attention.” He added: “This review allows us to examine the state of the tax-exempt sector, as it currently exists today and consider this information as we continue the Committee’s efforts toward comprehensive tax reform. In both cases the goal is the same—to ensure that the tax-exempt sector is operating in an efficient manner and that the laws governing tax-exempt organizations are being applied fairly and evenly.”
The first of five witnesses to testify was Catholic University law Professor Roger Colinvaux, who offered several observations in connection with his theme that the “laws regulating the section 501(c)(3) sector are in need of a critical look.” One of his observations was that the federal tax law lacks much in the way of “positive requirements” that charities must adhere to in order to secure recognition of exemption and retain it; the emphasis, he said, is on the “negative requirements,” such as the rules concerning private inurement, substantial lobbying, and political campaign activity. Another observation, one that correlates with the first one, is that the risk of IRS examination is “low,” but that that is sort of beside the point in that, “at least with respect to public charities, there is very little ‘hard’ law for the IRS to enforce.”
Diana L. Aviv, President & CEO of independent sector, provided an excellent overview of the sector, including the recent emphasis on good governance principles. Joanne M. DeStefano, Vice President for finance and CFO, Cornell University, appeared on behalf of the National association of College and University Business Officers, representing the higher education subsector. Michael Regier, Senior Vice President of Legal and corporate Affairs, VHA, Inc., testified on behalf of the health care subsector. The testimony of Ms. DeStefano and Mr. Regier focused on the compliance burdens imposed by the revised Form 990.
My testimony focused on the tax law governing the principal categories of exempt organizations and current IRS compliance initiatives. There was significant interest expressed by various Subcommittee members in social welfare organizations (IRC § 501(c)(4) entities), particularly those engaging in political campaign activity. Also, there were inquiries about the sufficiency of IRS enforcement efforts with respect to exempt organizations, heralding the day (probably at the next hearing) when a representative of the IRS will be called to testify.
The discussions about IRS enforcement efforts did not trigger any mention of the IRS compliance checks. (I tried to work that into answers but failed.) These initiatives are, in many ways, more important than IRS audits, because they reach far more entities and the questionnaires that are developed have a meaningful educational effect for all involved. It is to be hoped that a forthcoming witness can impart to the Subcommittee the importance of these checks, as a material augmentation of the IRS enforcement effort.
One topic that was—surprisingly—rarely mentioned was impending tax reform. Hanging over the event was the prospect that tax exemptions and charitable deductions may be eliminated or trimmed in the name of (and to pay for) tax reform.
On a personal note, it was a wonderful experience to participate in this hearing. I have done this before, but it is always a thrill to be a part of these events that take place in the striking House Ways and Means committee hearing room.
Bruce R. Hopkins is the author of more than 35 books, including The law of Tax-exempt Organizations, 10e, The law of Fundraising, 4e, Nonprofit law for Colleges and Universities, Nonprofit governance, and Nonprofit law Made Easy, as well as the monthly newsletter Bruce R. Hopkins’ Nonprofit Counsel, all published by Wiley. He is the country’s legal leading authority on tax-exempt organizations. Find out more about Bruce on his website.
Related items:
The Law of Tax-Exempt Organizations, 10th Edition by Bruce R. Hopkins
Nonprofit Law Made Easy by Bruce R. Hopkins
