On December 31, 2009, the National Taxpayer Advocate, Nina E. Olson, released her annual report to Congress for 2009—we can only wonder whether Ms. Olson files her own tax return on April 15th given the release date of the report. All kidding aside, we look forward to this report each year because it contains lots of provocative ideas about tax administration, making it a good read.
This year, Olson recommends increased efforts on the part of IRS officials in the Tax Exempt/Governmental Entities division of the IRS to reach out to tax-exempt groups. In particular, Olson is concerned about smaller organizations, which constitute a majority of the over 1.8 million tax-exempt organizations. She acknowledges the IRS’s efforts to develop web-based information tools for these organizations, but refers to this effort as a “one-size-fits-all” approach. She refers to staffing levels in EO outreach as “inadequate” and calls for greater IRS presence in local communities. She also recommends that the IRS conduct research into the information needs of this community so that the IRS can tailor its efforts to help small nonprofits better understand their reporting responsibilities.
We have a couple of observations that reveal our fundamental...
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote:
Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. |
disagreement with Ms. Olson’s underlying assumptions. As we have written before, we think there are far too many nonprofit/tax-exempt organizations. We therefore are opposed to throwing vast taxpayer resources at bringing smaller nonprofit organizations into compliance with the law. In our view, one of the considerations that should enter into the decision to form a nonprofit is the cost of regulatory compliance. We find much duplication in services and mission on the part of many nonprofits and believe that a world with fewer, more cost efficient nonprofits is a desirable goal. Therefore we are opposed to hand holding. While we agree that the government should clearly enunciate the rules and make compliance as streamlined and as free of burden as possible, we do not believe the role of government should be spoon-feed information to sector participants. Organizers and donors can minimize compliance and costs while doing good by opting for a number of alternatives to starting new organizations. These include utilizing community foundations and donor-advised funds, volunteering and contributing money to existing organizations, and encouraging mergers. In short, before you start a nonprofit, you should take compliance issues and costs into account. If you can’t afford lawyers and accountants, then you aren’t prepared to start a new organization. In all likelihood, you can’t afford internal controls and other administration costs that are required to run an efficient nonprofit. Lots of people will not like our position, but it is our response to the inefficiency that we see all too often. We also are troubled by the Olson’s view of the Web. In our view, webinars and other quality material are the more efficient way to get information out to the nonprofit sector. The trend in business is a move toward delivery of information through the Web. We have seen an explosion in webinars and interactive tutorials by business corporations, professional groups, governments, and secondary schools. At times, in-person meetings are invaluable, providing interaction among the participants, facilitating committee work, and providing networking opportunities. Yet, where basic information is being provided, a web-based approach has several advantages: It assures that everyone has ready access to the material, it reduces what are otherwise large travel costs, and it reduces the cost of preparing the materials because the materials need only be prepared once. Moreover, a web-based approach assures consistency in the presentation and efficiently provides the expertise of those with knowledge. 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.
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." Copyright 2010, Charity Governance Consulting 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 "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124
We also questioned the 1.8 million number. Olson is not the only one who focuses on that number, but we suspect it grossly overstates the number of active tax-exempt nonprofits. During the next several years, that number should decline significantly, as the new e-card program effectively identifies and eliminates many defunct nonprofits from the IRS roles.
Although Olson’s report is addressed to Congress, we think the executive summary discussing TE/GE outreach should be clearer: If Congress wants more outreach by TE/GE, it needs to appropriate more funds for the staffing. As it stands, the TE/GE faces obvious limitations that result from limited financial resources. We do think a good case exists for expanding educational outreach, given the fact that every charitable dollar received by charities is a tax expenditure. Everyone should want those dollars used efficiently and constructive educational efforts should pay dividends, but the IRS can’t appropriate more funds. Right now, it also is under pressure from Senator Grassley to step up its enforcement efforts. Olson should do some work for the 2010 report addressing the adequacy of TE/GE resources and the how current budgetary constraints effect resource allocation.
While we may sound critical of Olson, as we said at the outset, we are big fans of her work. On the issues covered here, we just see the IRS’s role and the world differently. As usual, Olson has provided food for consideration and debate.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
