In one of the more stupid moves coming out of the Federal government in response to Hurricane Katrina, the IRS announced today ...
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expedited procedures for processing applications for new charitable entities that are focused on Katrina relief. This is a knee-jerk reaction to President Bush's demand that all Federal agencies pitch in with immediate responses. Yet, the IRS knows better than anyone that there are too many charities providing duplicative services and wasting valuable resources. Its administrators are constantly carping about the need to clear many inactive and failed charities from among the 900,000+ Section 501(c)(3) organizations on the IRS Master File (2002 statistic).
If anything, the IRS should be identifying those applications for new organizations seeking to help the Katrina victims and then sending them a letter telling them to rethink their decision to start a charity--and we are not for that approach either. If people want to apply for exempt status for organizations providing Katrina relief, they should do so. But they should not be given expedited--special--treatment. In fact, such treatment arguably sends the wrong message by suggesting that resources should be shifted from other charities to disaster relief efforts. We think it is a very dangerous to start favoring one form of charitable relief over another. We suspect that there are many local social service agencies that share our concern about resources being shifted from local needs to Katrina relief. No doubt that a person trapped in the water in New Orleans is in great danger, but that also can be said for a homeless person out on the streets of Chicago in January. People need to be very careful, taking into account the full implications of their actions, before taking regulatory actions that favor one form of charitable activity over another.
By the way, the IRS released an interesting denial letter (LTR 200535029) yesterday, eventually rejecting the application after several exchanges with the charity that showed, among other things, that the charity had an unrealistically high budget, related parties in control (despite the addition of unrelated parties to the board), and other concerns. This is precisely what the IRS should be doing.
While the IRS Press Release does acknowledge the importance and efficiency of relying on existing entities, it undercuts that message by expediting the process for charities devoted to Katrina relief. In short, actions speak louder than words.
For those of you thinking about starting a charity to provide Katrina relief, click here for important information regarding your efforts.
For the record, here is the IRS Press Release:
IR-2005-93, Sept. 6, 2005
WASHINGTON — The Internal Revenue Service will provide an expedited review and approval process for new organizations seeking tax-exempt status in order to provide relief for victims of Hurricane Katrina. However, the agency encourages people to use existing organizations currently working on immediate aid efforts.
New organizations should apply for tax-exempt status by filing IRS Form 1023 and write at the top of the form “Disaster Relief, Hurricane Katrina.” The IRS will give such applications expedited attention to ensure they meet legal requirements.
“We want to make sure we do all we can to help new charitable organizations get up and running so they can begin providing the assistance the victims of this terrible disaster so desperately need,” said IRS Commissioner Mark W. Everson. “Just as we did after September 11, 2001, we will put these applications at the head of the queue and turn them around promptly.”
Use of existing charitable organizations is encouraged because such organizations, including churches, are frequently able to administer relief programs more efficiently than newly formed organizations, because they already have fund-raising and distribution infrastructures in place.
The web site of the Federal Emergency Management Agency (FEMA) and the U.S. Government’s main Web portal at FirstGov.gov offer lists of organizations that provide support to victims of Hurricane Katrina.
However, the IRS anticipates new charities will form to address the numerous and more specific needs of the disaster victims. The IRS will continually update its on-line search feature that allows taxpayers to determine if a charity has IRS-approved tax-exempt status.
In addition to Form 1023 for applying for recognition for tax exemption, the IRS also offers Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, which provides guidance on the application process.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.”
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