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Legislative
Advocacy
Federal
Activities with regard to the Nonprofit Sector
Compiled
for the Texas Association of Nonprofit Organizations by
Richard W. Meyer,
Attorney at Law rmeyer@justice.com
(as of 3 /05)
INCREASED
GOVERNMENTAL SCRUTINY OF NONPROFIT ENTERPRISES
Summary by Richard W. Meyer, Attorney at Law (3 / 2005)
CONGRESSIONAL ACTION AND PROSPECTS
--The
long shadow of the Sarbanes-Oxley Act : nonprofit corporations
face new federal regulation
--H.R.
7 (2004) –Congress considered how to “fix”
the nonprofit world. Sen. Charles Grassley of Iowa, Chair
of the Senate Finance Committee, is intent on tightening
nonprofit activities and reporting. Ranking Democratic member
Sen. Max Baucus of Montana agrees that the I.R.S. is not
enforcing against fraud and misrepresentation in the nonprofit
sector. Proposals from H.R. 7 Senate hearings in 2004:
•
Expiration and recurring review of a nonprofit’s
tax-exempt status by the I.R.S
•
Expanding the reach of the Sarbanes-Oxley Act (which regulates
publicly-traded corporations) to increase reporting and
personal accountability of nonprofit executives and directors
•
Performance reviews as part of the nonprofit’s annual
I.R.S. Form 990 filing
•
More fees from nonprofit filers to pay for increased I.R.S.
enforcement
•
“Accreditation” of larger nonprofits
•
Establish federal standards for board duties such as compensation
and conflict of interests
--Current
developments and 2005 Congress – Interested
congressional leaders asked the Independent Sector to convene
a national panel of stakeholders from the nonprofit world,
which issued its Interim Report on March 1, 2005. The Panel
on the Nonprofit Sector sought to prevent hasty action by
angry legislators. Will the interests of small and mid-sized
nonprofits be heard in this process, which is run largely
by executives of huge national organizations? Will Congress
actually enact laws to “federalize” nonprofit
structure, governance and financial reporting, thereby trumping
state laws? For the status of the panel’s work, go
to www.nonprofitpanel.org
I.R.S.
ENFORCEMENT AND PROPOSALS
•
Increase I.R.S. audits of nonprofits (very few formal
audits at present)
•
“Light” I.R.S. visits / inquiries at 2,000
nonprofits promised in late 2004
•
Change required reporting on Form 990 and verification
by person(s) signing the return
•
Excessive executive compensation now subject to “intermediate
sanction” rules
•
Hot issues for I.R.S. audits: car donations; donor-advised
funds; tax shelters; salaries; connections between 501(c)(3),
(c)(4), and “527” entities; use of charities
by foreign terrorists
BEST PRACTICES – POLICING BEYOND
THE MARGINS – SPILLOVER ISSUES
•
Even if Congress or the I.R.S. do not act decisively,
trends and “best practices” in the nonprofit
sector can compel intensified reporting and tighter operations
•
States can enact legislation similar to H.R. 7 proposals
(California has done so)
•
The Independent Sector is chairing a stakeholder panel
to propose reform, advocate best practices, standard codes
of ethics, etc.
•
Audit standards for nonprofits can be amended by accountancy
boards
•
Government agencies and foundation grant makers can require
compliance with industry standards as a prerequisite to
funding
•
The General Accounting Office (GAO) has issued revised
and strengthened audit guidelines for nonprofits that
receive federal funds, incorporating Sarbanes-Oxley mandates
•
Misconduct and illegal practices in major national organizations
have made headlines and will drive demands for reforms
in accountability and transparency in the nonprofit sector
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