The report says the IRS is not keeping up with the challenges of overseeing nonprofits and that the data it has to work with (primarily from the Form 990 returns filed each year by most nonprofits) are not clear and accurate enough to give the IRS or the public the information they need.

Senator Grassley believes that IRS oversight should "help the public identify whether charities are spending donors' money on lavish salaries, expensive vacations, or other inappropriate items." He is also concerned with the amounts some organizations spend on fundraising.

There are troubling signs that many organizations do fail to fill out accurately the sections of their 990s that document fundraising expenses. Fewer, but still enough to be troublesome, structure their operations or their reports in a way that conceals how much senior executives are paid. Complete and accurate reporting would make it easier for individual donors to make confident decisions, and it would give policy-makers a better sense of how much of a problem concerns like these actually represent. But present laws don't give the IRS much leverage for controlling the internal operations of honerably managed exempt organizations. And there are many reasons for being cautious about making big changes in the IRS's responsibilities in such matters.

The current issue of the "Chronicle of Philanthropy" (http://www.philanthropy.com; viewing back issues requires a subscription to the print edition) includes a discussion of the report and reactions, including this observation by me: "If Congress wants the IRS to exercise effective oversight of exempt organizations, it's going to have to give the IRS a clearer mandate of what effective oversight means." If there are steps in that direction, it will be important for people throughout the nonprofit sector to think carefully about what the goals should be and how best to implement them.

The GAO report also raises again the question of cooperation between state regulators and the IRS in dealing with cases of possible fraud or other abuse involving nonprofits. Current law sets very strict limits on the ways the IRS can work with other law-enforcement agencies. There have recently been discussions in congress of ways to encourage closer cooperation; the IRS is reported to be supporting legislation that would have that effect.

On June 7, Steven T. Miller, Director, Exempt Organizations, Internal Revenue Service, spoke to the Cicago-Kent College of Law conference on not-for-profit organizations. Larry Perlman, of the "Exempt Organization Reporter" put out by CCH Incorporated, provided an informal summary of his remarks to the CharityLaw discussion forum of http://www.charitychannel.com.

Highlights: The IRS is working on changes in the Form 990 to clarify the requirements for reporting fundraising expenses. There will be a notice published within the next few weeks outlining both immediate changes and proposals that are being discussed for the future. The are also about to publish two pamphlets on car0-donation programs, one for donors and one for organizations that seek such donations as a source of financial support.

Essays on Accountability

Jossey-Bass recently published volume 31 in their continuing series called "New Directions for Philanthropic Fundraising." The recent volume was edited by me, and includes chapters contributed by Evelyn Brody (Chicago-Kent College of Law), Geoffrey Peters (counsel for American Charities for Reasonable Fundraising Regulation), Vic Murray (University of Victoria), Angela Bies (Texas A&M University), Tom Pollak and Linda Lampkin from the National Center for Charitable Statistics, Dan Moore (New Mexico registrar of charitable organisations) and Sara E. Melendez, Predident of Independent Sector. The range of the discussion is suggested by the title: "Accountability: A Challenge for Charities and Fundraisers." For more information or to order a copy, visit Amazon.Com's website with this URL: http://www.amazon.com/exec/obidos/ASIN/0787948640/internetnonprofi (a portion of your purchase price will be paid as a royalty that helps support this site).

Staying in Touch

If you publish (or would like to publish) an electronic newsletter about your organization and its work, you'll probably be grateful for the "e-zine" creation tool offered online without charge through http://www.ossweb.com/ez-ezine-template.html. It lets you organize your content, then formats it into a file that is saved on your hard-drive. After you review the file to make sure everything came out as you wished, it's ready to be sent out as an email in an easy to process, and read (!), format.

Regulations on Corporate Sponsorship

The IRS has issued final regulations on corporate sponsorships after a long series of discussions of several drafts. The regulations took effect on April 25, 2002, and apply to any transactions that occurred after December 31, 1997.

On one point of uncertainty, the new regulations are quite clear: simply providing a hyperlink to a sponsor's website from a nonprofit webpage does not constitute advertising. But if the link is accompanied by a commercial call to action (like "for the best widgets, click here") then it probably is advertising and Unrelated Business Income Taxes will probably need to be paid.

The general principle is straightforward: A sponsorship agreement must not convey any substantial return benefit to the sponsor. Those that do will subject the sponsored organization to UBIT. Sponsorship agreements are, though, often very complicated and the new rules cover a lot of ground. The ins and outs of how the rules will apply in any particular case will need expert attention. There is one new brightline rule, though: if the agreement requires the sponsored organization to restrict onsite sales to the sponsor's products, then the agreement is advertising and UBIT will be due.

The complete text of the regulations can be retrieved from the April 25, 2002, 'Federal Register' at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2002_register&docid=02-9930-filed

Election Year Tips

Charity Lobbying in the Public Interest has a new website at http://www.clpi.org. The website offers clear guidance on the complicated, and often misunderstood, issues surrounding political work by nonprofit organizations. Especially useful this year is their compendium of "Election Year Do's and Don'ts" at http://www.clpi.org/do_dont2.html

These Bulletins are published from time to time at the Internet Nonprofit Center (http://www.nonprofits.org) and are written by the editor, Putnam Barber, President of The Evergreen State Society (http://www.tess.org) in Seattle, Washington, USA.

If you would like to be on a list to receive an announcement whenever a new Bulletin is published, please fill in your email address in the box in the right-hand column of this page and follow the simple process to subscribe.

If you have comments or suggestions about this Bulletin or anything else at the Internet Nonprofit Center, please send email to editor@nonoprfits.org. Thank you for your interest.

June 11, 2002

© 2002, The Evergreen State Society