IT IS TIME FOR SENATOR GRASSLEY TO PUT AN END TO EXPEDITED EXEMPTIONS: WHAT IS GOOD FOR THE RED CROSS IS GOOD FOR EVERYBODY ELSE

As regular readers of this blog know all too well, Senator Grassley, Chairman of the Senate Finance Committee, is very interested in reforming the nonprofit sector.  He and his staff have floated a litany of proposals of questionable merit.  His focus is on governance, which should really be the concern of state legislatures and attorneys general.  His focus should instead be on tax-related issues.

Monday’s New York Times carries an article by Stephanie Strom (Many Charities Founded After Hurricane Katrina Are Faltering) that examines some of the charities that received expedited review by the IRS because they claimed to be related to Hurricane Katrina.  As we have said before, this is a practice that should....

Our very own Jack Siegel's book,  A Desktop Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good is scheduled to hit the streets before the end of March.  The page proofs are now complete and production is about to commence.  Here is what noted lawyer, authority, and author Bruce R. Hopkins had to say about an advance copy of Siegel's book. Jack Siegel – lawyer, accountant, management consultant, and computer whiz – takes the putative director or officer of a nonprofit organization on a useful and often entertaining voyage throughout the realm of the tax-exempt organizations universe, pointing out its quirks, foibles, and legal liabilities along the way.  His handbook will make mandatory – and arresting – reading for those who are already serving as trustees, directors, officers, and key employees of exempt organizations, particularly charitable ones. Mr. Siegel’s goal, in which he succeeds, is to help directors and officers of nonprofit organizations “make better decisions.”  He recognizes that his book is arriving in the midst of government officials’ and other policymakers’ intense examination of corporate principles and practices of exempt organizations.  He correctly notes, nonetheless, that “good governance cannot be mandated; there must be buy-in from those charged with governing.”  Siegel wisely notes the need for emphasis on what he terms the “secondary aspects” of running an organization: control, red tape avoidance, risk management, and administration.  The book is full of large policy analyses and paragraphs on the details, such as board size, board committees, board meeting formats, the contents of minutes, and the duties of officers. Salted with some excellent real-life examples, what also sets this book apart from most in its genre is the tone: the writing style, the brusqueness, the blunt.  He complains that too many directors “check their good judgment at the boardroom door.”  He advises individuals who “desire agreement and demand adulation” to stay off boards; he insists on “commitment” and “institutional tension” with the executive director.  He warns prospective directors that some organizations want, in addition to time and judgment, “either your money or your ability to raise money.”  To my delight, he extols the virtues of “some level of expenditures” for qualified lawyers and accountants. Please join me in adding this most helpful handbook to your nonprofit library. Pre-order your copy of the Guide today by clicking here

be put to an end.  There is nothing that an idealistic group of people can do to provide disaster relief on an expedited basis that existing organizations are not better equipped to do.  Moreover, we do not understand why a viable organization providing services to the homeless in Seattle should take a backseat to an upstart organization providing disaster relief for a widely-publicized disaster.  Are the homeless in Seattle any less deserving of assistance than the homeless of New Orleans?  This is a point we have made before.

So what did Stephanie Strom uncover?  According to the article, Angel Pray Child Charity Foundation of King of Prussia, Pennsylvania has not provided any assistance to any child displaced by Hurricane Katrina, but it has sent money to children in China.  It received its exemption application in 15 days.  Another organization that was supposed to provide health care to Katrina evacuees in the Los Angles area is unable to account for how many evacuees it has assisted.  Ms. Strom describes another charity that received expedited approval, but which cannot be reached and now has a defunct Web site.  And there is Texans for Better Science Education Foundation.  According to Ms. Strom, they distributed several hundred DVDs promoting alternatives to Darwinism “to shelters and evacuation centers.”  Praise the Lord.  I may be homeless and hungry, but I can watch a DVD on my portable DVD player.  That might make for an interesting endorsement ad for the Apple video I-Pod.  But our favorite is the Lords of Leather Mardi Gras Krewe. This organization plans to help disaster victims who are into S&M. That certainly is a logical demographic division when it comes to disaster relief.

So back to Senator Grassley.  He continues to beat up the Red Cross. Not surprisingly, that sort of criticism has led a very cynical view of the established charitable sector by members of the public.  We certainly are not surpised to hear one of the founders of a charity that received expedited review say:

When I planned to donate money after Katrina, I looked at a lot of Internet chat rooms and found people don't trust where their money goes,…I know myself that I won't misuse this money, and I have a lot of friends, too, who I knew could use help at the end of the year for tax breaks.

This is the charity that has helped children in China, but apparently has not helped Katrina disaster victims.  This charity apparently only received $1,000 earmarked for Katrina-related relief.  We will be interested to see its tax return when it files one.  We said it in our earlier posts on this topic.  Anyone who thinks they can start a charity from scratch to provide meaningful relief following a disaster is arrogant.  You can't and Strom's article proves that we were right.  There is a lot more than just raising money when it comes to providing disaster relief.  There are logistical issues that most of these people have no idea even exist.

Why doesn’t Senator Grassley send some of his “love letters” to these expedited charities and review their governance at public hearings?  We suspect that the Red Cross might not look so bad after those hearings.  Better yet, Senator Grassley should propose legislation putting an end to expedited review by the IRS.  Charities organized on the spur of the moment after a group of friends meet at Cracker Barrel or Starbucks are only going to clog the system, waste resources, and expose well-intentioned donors to possible fraud.

And by the way, we would be interested to know whether the idea for expedited review originated with the IRS, or if its origins are with Karl Rove.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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.” Copyright 2006, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog.  For additional information call 773-325-2124