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SPECIAL ISSUE
Devoted to Non-Profit Legislation Recommendations
Work Groups convened by the Panel on the Non-Profit Sector by Independent Sector, under the encouragement of the Senate Finance Committee, have compiled comprehensive recommendations on non-profit legislation. These recommendations have faced review by an Expert Advisory Group and will be deliberated by the Panel to inform its final recommendations to the Finance Committee.
This lengthy process will continue and I will keep you apprised of developments, including public comment opportunities.
Most of the recommendations do not directly impact Planned Giving, but they all directly act on non-profits. That's why I have chosen to devote this entire issue to a summary of the work to date. You can read individual recommendations or download the full 60 pages at the Panel's website.
I have summarized the most interesting aspects of each recommendation for you below. The recommendations have come from these four Work Groups:
Send me your comments from below.
Improving Transparency and Financial Management
- The CEO and CFO, or equivalent, should be required to sign Form 990 (the Exempt Organization return) declaring under penalty of perjury that they have examined the return and that they believe it is correct. Suspension and revocation of tax-exempt status are under consideration as penalties for a failure to comply.
- IRS should strengthen rules and procedures for granting extensions to filing deadlines for Form 990. The concern is that back-to-back extensions are granted too liberally, depriving the public of vital information on a timely basis.
- Give the IRS authority to revoke or suspend tax-exempt status for organizations that fail to submit a 990 for two consecutive years (the Expert Advisory group prefers suspension); increase penalties on 990 preparers who willfully or recklessly misrepresent; make e-filing of 990s mandatory.
- Require IRS to electronically capture Form 990 data
- Organizations that are exempt from filing Form 990 (religious or do not meet the income threshold) should have to make annual disclosure of basic information including mission, summary of the year's activities and total revenue and expenses.
- Two additional groups contributed here, the Governance and Fiduciary Responsibility Work Group and the Senate Finance Committee staff. The Work Group seeks to have all public non-profits' financial statements CPA-audited every year. The Transparency and Financial Management Work Group would apply that recommendation only to public charities grossing $500,000 or more per year. Those with revenues between $250,000 and $500,000 would have their financial statements reviewed by a CPA, not audited. Under $250,000 there should be neither audit nor review.
The Finance Committee staff proposes auditor rotation every five years, but neither work group recommends that. Their rationales are “rotation discards valuable knowledge” and the auditor's steep learning curve in the first two years with a new client.
The Expert Advisory Group adds its own recommendation to replace Financial Accounting Standards Board (FASB) standards for non-profits with a new organization akin to the Public Company Accounting Oversight Board required by Sarbanes-Oxley on the for-profit side.
- Financial statements should be filed with Form 990 (a public document) and made available for public inspection. Currently, there is no mandate to disclose financial statements.
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Improving Government Oversight and Enforcement
- The penalties for self-dealing should be increased. Self-dealing transactions are those in which officers and board members enrich themselves through improper business dealings with the non-profit to which they owe a fiduciary duty.
- Supporting Organization abuses should be targeted.
- There are many recommendations related to Donor Advised Funds including increased disclosure for non-profits that own one, preventing donors from keeping assets in a fund too long (called “asset parking”), certification that a donor's recommended grant from a fund would not enrich or benefit the donor and allowing something not now permitted: using a fund grant to satisfy a personal pledge.
- Create a schedule of sanctions for non-profits that participate in tax shelters and all abusive tax avoidance transactions.
- This lacks a firm recommendation but the issue is whether states should have authority to enforce federal tax law. (I note that this could have very broad implications for non-profits, particularly multi-state organizations, depending upon how it would be implemented.)
- There should be harsher penalties for non-profit managers who willfully participate in fraud.
- Congress must ensure the IRS has enough resources of all kinds to adequately enforce our tax laws. The excise tax on private foundations' investment income should be appropriated for this purpose as it was supposed to have been since 1969 yet never has been.
- Change the law that prohibits the IRS from sharing information with the states about ongoing investigations of non-profits.
- The IRS should not be required to reveal tax liability closing agreements (agreements that make a final determination of liability for a previous year), as proposed by the Finance Committee staff.
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Improving Governance and Self-Regulation
- Non-profits are encouraged to develop and implement codes of ethics and standards of conduct to ensure the public's trust.
- All non-profits should establish policies to protect whistleblowers.
- All non-profits should establish conflict of interest policies that have particular emphasis on transactions between board members and the organization. They should be required to disclose the existence of a policy on the Form 990.
- It is recommended to organizations that have an independent audit that they have an audit committee of the board comprised of non-staff, independent directors.
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Compliance Requirements for Small Organizations
- All of these recommendations should be commensurate to the size of the non-profit. Small non-profits should not be exempt from regulation but their means of complying should be appropriate to their size.
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Your Feedback
As I said above, I will inform you of progress in this area. I am interested in your opinion of this Special Issue of The Martignetti Report. Please send me a message with your comments. Or, you can always reach me through the company website.
If you know anyone with an interest in Planned Giving, please forward this to them.
Best regards,
Tony Martignetti, Esq.
Managing Director
Martignetti Planned Giving Advisors
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