All eyes on the nonprofit community.

• Author: Hurd, Geralyn R.

In the more than three years since September 11, many nonprofit organizations are still dealing with decreases in charitable giving and conference registrations. Now, they must also gear up for the challenges of new reporting requirements and controls. Public scrutiny is at an all-time high, thanks in part to a spillover from the high-profile scandals of for-profit corporations. However, there have been irregularities among nonprofit organizations as well, which have contributed to the overall climate. As a result, Congress, the IRS and state attorneys general are each taking steps to monitor and enforce new regulations targeted at the nonprofit community.

Heavier Compliance Burden

On June 23, 2004, the Senate Finance Committee (SFC) announced recommendations in response to publicized nonprofit abuses. At that time, it called for a compliance review of nonprofits every five years, requiring them to produce (1) articles of incorporation and bylaws, (2) conflicts of interest policies, (3) best practices, (4) financial statements and (5) a declaration, signed by the chief executive officer, that a return is true and accurate; see http://finance.senate.gov/hearings/tes timony/2004test/062204stfdis.pdf for details.

These requirements are remarkably similar to the criteria an organization has to meet when applying for an exemption. If they become law, they would essentially force an organization to reapply for exempt status every five years. In the past, a nonprofit organization was in danger of losing its exemption only if it abused its exempt status.

Response: Producing the materials necessary to comply with a compliance review would place a tremendous, additional burden on the already resources-trained nonprofit community. On the other side, how would the IRS Exempt Organizations Group--which is already stretched thin--take on the additional task of conducting reviews? In light of this, both the American Bar Association and the AICPA responded to the SFC's draft by requesting legislation that would specifically punish abusers rather than implement sweeping changes; see www.abanet.org/tax/groups/eo/achive. html and www.cpa2biz.com/Resource Centers/Tax/Exempt+Organization/ EO_Roundtable.htm.

More recommendations: In October 2004, the SFC announced its selection of a Panel on the Nonprofit Sector. Consisting of 24 nonprofit and philanthropic leaders, the panel was to provide recommendations to the SFC for "strengthening the governance, ethical...