Dateline: March 9, 2007, Chicago
Senator Grassley is no longer Chairman of the Senate Finance Committee through no fault of his own: He isn't a Democrat. Many members of the charitable sector probably applauded that change. After all, Grassley has been a vocal watchdog over the last few years, placing the regulation of charities high on his list. As events are unfolding, those who celebrated Grassley's demotion did so...
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prematurely. The new chairman of the Senate Finance Committee, Max Baucus, is beginning to look like Grassley’s Mini Me. On March 7, 2007, Baucus and Grassley issued a joint press release that clearly indicated that they were joining forces to pursue tougher regulation of the charitable sector. Together, they wrote IRS Commissioner Mark Everson, making the following request:
Therefore, we believe this is an appropriate time to request that the IRS provide the Committee with a new report on compliance issues involving tax-exempt and government entities and charitable contributions. This report should describe each issue, include information on the nature and scope of the problem, including the revenue at issue, provide a technical analysis of the IRS’s position with respect to the issue, and what actions the IRS is taking to mitigate each issue. The report should also include any recommendations you might have for how best to address these compliance issues. We ask that the report particularly highlight and emphasize those matters that you view as contributing to the tax gap.
If you are concerned about the looming April 15 filing deadline for your 2006 return, think of the poor Commissioner. He was asked to provide his response to Baucus and Grassley by April 1, 2007 and we suspect there is not an automatic extension.
Which brings us to Justice Stephen Breyer, a Supreme Court justice who believes that United States courts should take a look at international law when deciding cases. He has been much criticized by conservatives and anti-globalization forces. The conservatives like their law red, white, and blue. Now, you might ask, what does international law have to due with charities?
Enter England’s Charity Commission, the organization that regulates charities in England. According to Sam Kean of the Chronicle of Philanthropy in an article entitled Britian’s New Rules: After 400 Years, Laws Governing Nonprofit Groups Get a Long-Anticipated Overhaul, Dec. 7, 2006, the new legislation was in part a response to a massive embezzlement that sent one fundraiser to jail after he pocketed over $800,000 in contributions meant for a charity. People were not happy about that, nor were they pleased how much of their contributions went to fundraising and administration.
Although much of the new Charity Act relies on self-regulation, it does focus on the basis for charitable status. The Charity Commission has issued what it refers to as a Consultation on Draft Public Benefit Guidance, which lays out a series of proposed principles for assessing whether an ostensible charitable organization is providing too much private benefit, thereby disqualifying it as a charity. The elite British private school system is not specifically targeted by the proposal, although the Consultation on Draft does make reference to private schools and private benefit. In providing the backstory to the Draft, Debbie Andalo of the Guardian does focus on private schools. Private Schools Told to Help the Poor or Lose Charity Status, Mar. 7, 2007. The headline should come as no surprise. When the revision to the Charity Act was being debated, some groups urged that elite private schools lose their status as charities because they did not provide enough public benefit.
Andalo points out that were the proposal adopted, private schools might be forced to provide more scholarships and share their facilities with public schools in order to maintain their status as charities. Although Andalo focuses on private schools, the Consultation on Draft contains examples of other types of charities that might have to change their operations to retain their status as charities.
The proposed change has already garnered attention in the United States. We happen to know one British scholar who assisted in the development of the Britain’s revamped Charities Act. She frequently participates in U.S. conferences focused on philanthropy, meaning that British ideas are jumping the pond. Like Britain, the U.S. is also struggling with a workable definition of charity at a time when the distinction between charity and commercial activity is becoming blurred. In particular, both the House and the Senate have recently taken a close look at whether exempt-status is appropriate in certain cases. For example, both bodies of Congress have examined the question of tax-exempt status for health care institutions.
Those charities who like their laws red, white, and blue should take note. Some find it easy to criticize Justice Breyer for looking outside the U.S. when applying U.S. law. Those folks will find it much more difficult to criticize Justice Breyer when he is asked to interpret British law that has subsequently found its way into congressional legislation.
Internal Revenue Service - Circular 230 Disclosure: As provided for in
Treasury regulations, any advice (but none is intended) relating to
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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 training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
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