Posted on November 2, 2011

IRS Oversight of Nonprofit Sector Questioned

Although nonprofit hospitals are required to provide information in their Form 990s about the amount of so-called charity care they provide to the poor and uninsured, the Internal Revenue Service has not enforced the reporting requirement, the New York Times reports.

According to the Times, complaints from the American Hospital Association and aspects of the new healthcare law have prompted the IRS to delay enforcement of the charity care reporting requirement. That, in turn, led Rep. Charles W. Boustany, Jr. (R.-LA), a member of the House Ways and Means Committee, to send a letter to the IRS seeking an explanation of how it oversees the nonprofit sector and what it is doing to tighten compliance with the laws and regulations governing charities and foundations. "We need to get a general sense of what's going on in this whole sector of the economy," Boustany told the Times. "There is strong bipartisan interest [in having Congress be more active in supervising these organizations.]"

While the IRS concedes that several regulatory issues have remained unresolved for years, it blames Congress for a lack of clarity and notes that rules must apply to all types of charities. But five years after enactment of the 2006 Pension Protection Act — which was supposed to spur the IRS to keep a closer eye on the activities of donor-advised funds and so-called supporting organizations — the agency is still soliciting comments on new rules for the latter and hasn't begun to tackle the former. Agency efforts to impose greater disclosure of the use of management companies and other related businesses that can mask compensation to nonprofit executives have been on the back burner even longer.

"I thought we had learned from the financial crisis what happens when regulators don't do their jobs," said Dean A. Zerbe, national managing director of the tax consulting firm Alliantgroup and formerly a staff lawyer for the Senate Finance Committee. "It's often the most vulnerable in our society who lose when the IRS refuses to regulate nonprofits."