AP News, July 24th, 2007
Tax abuse persists among charities and other tax-exempt groups and the Internal Revenue Service does not always have the legal means to deal with the problem, the IRS commissioner told Congress.
"In several areas within our jurisdiction our remedial tools are largely ineffective," acting IRS Commissioner Kevin M. Brown said in a letter to the chairman and ranking Republican of the Senate Finance Committee made public Monday.
Brown, in the 28-page letter, mentioned such problems as the improper valuation of charitable contributions, inaccurate reports of executive compensation, questionable filings by nonprofit hospitals, involvement in prohibited political activities and charities established to benefit the donor.
He said that while compliance among tax-exempt groups has improved in the past few years, "some remain casual, indifferent or even callous toward compliance."
The tax-exempt and government entities world comprises some 3 million groups controlling over $13 trillion in assets and ranging from small volunteer community organizations to sovereign Indian tribes and large pension funds. Brown said that, while they are not subject to federal income tax, they pay more than $270 billion annually in employee income withholding and other taxes.
Brown said the tax-exempt sector has changed markedly over the past 40 years, but the laws governing their activities has not kept pace.
The absence of appropriate governance contributed to scandals in the corporate world in the 1990s and "we remain concerned that lax governance could lead to similar problems within the tax-exempt community," he wrote.
"This is sober reading for everyone who supports a strong charitable sector," said Sen. Charles Grassley of Iowa, the top Republican on the Finance Committee. "Big problems remain across the board."
Charities do a great deal of good across the country, and "it's important to maintain the public trust in this vital sector," added the committee chairman, Sen. Max Baucus, D-Mont.
Among the problems, Brown noted:
_"Many tax-exempt hospitals are difficult to distinguish meaningfully from for-profit hospitals; many tax-exempt credit unions may be hard to distinguish from for-profit banks; and many tax-exempt and for-profit nursing homes may meet the same standards."
_A review of executive compensation found that almost one-third of organizations reported compensation incorrectly or incompletely.
_A February 2006 report on the political actions of some tax-exempt organizations found that nearly three-fourths of the 82 examinations completed uncovered some level of prohibited political campaign activity.
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