Earlier this week, on May 16, 2012, the U.S. House of Representatives Ways and Means Subcommittee on Oversight (the “Subcommittee”) held what will be the first in a series of planned hearings on the oversight of the tax-exempt sector. This hearing showcased a general effort on the part of the Subcommittee to learn more about the sector and glean information regarding different types of tax-exempt status, the IRS Form 990, and general ideas for improvement of regulation of the sector.
The witnesses at the hearing were: Roger Colinvaux (Associate Professor, Columbus School of Law, The Catholic University of America); Diana Aviv (President & Chief Executive Officer, Independent Sector); Joanne DeStefano (Vice President for Finance and Chief Financial Officer, Cornell University, testifying on behalf of NACUBO); Michael Regier (Senior Vice President of Legal and Corporate Affairs, VHA Inc.); and Bruce R. Hopkins (Senior Partner, Polsinelli Shughart). Each witness offered a short statement and then the members of the Subcommittee each asked three to four questions of the witnesses. The hearing was relatively short, starting at 10:00 a.m. and ending promptly at 11:30 a.m.
Overall, the purpose of the hearing was mostly informative. The topic given the most attention seemed to be the redesigned Form 990. Many of the witnesses stressed the redundancy and complication of the main body of the Form, schedules, and instructions. Regier went so far as to display the blank Form 990 and related schedules that his organization must complete as visual evidence of the volume of reporting responsibility. The Subcommittee also was interested in the process that organizations undergo in completion of the Form. DeStefano suggested that the increased complexity of the Form led to less robust discussion amongst the organizational leadership reviewing the Form 990.
The Subcommittee also asked about the general interactions of the sector with the Internal Revenue Service (the “Service”). Overall, the witnesses reported positive interactions with the Service in seeking input from the sector and responding to formal comments, although Hopkins qualified, in his experience, that the general level of satisfaction varies amongst types of tax-exempt entities.
The Subcommittee also briefly inquired into the process involved in the Service’s compliance projects. U.S. Rep. Jim McDermott (D-WA) asked about the time and staff resources which were devoted to Cornell’s efforts to respond to an audit as part of the Service's Nonprofit Colleges and Universities Compliance Project. DeStefano responded that it was a two-year process involving up to 15 staff members in which “every transaction” from 2008 was examined.
Several of the questions posed indicated an effort on the part of Subcommittee members to educate themselves on the legal distinctions within the sector. For example, members of the Subcommittee asked the witnesses for clarification on the prohibitions imposed on private foundations versus public charities as well as the differences between Section 501(c)(4) entities and Section 527 organizations.
There were also a few comments offered during the testimony that provided insights into potential reform of the sector. Colinvaux remarked that Congress has become frustrated with the breadth of 501(c)(3) organizations and has begun a trend of imposing additional requirements on certain types of entities, such as credit counseling organizations and hospitals (with the enactment of Internal Revenue Code Sections 501(q) and 501(r), respectively). Chairman Charles Boustany (R-LA) posed the question to all witnesses whether it would be a good idea to “disaggregate the tax-exempt sector.”
Chairman Boustany closed the session by thanking the participants in the hearing and indicating that subsequent hearings will be planned. Venable will continue to monitor and provide updates on the House Ways and Means Oversight Subcommittee’s activities related to tax-exempt organizations.
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This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can only be provided in response to a specific fact situation.