Recent IRS Changes Increase Transparency
By Judy Keller
Senior Vice President
Changes at the Internal Revenue Service will make financial data about the nonprofit world more broadly accessible to the public—and that’s a good thing.
According to the Chronicle of Philanthropy, the tax agency has come under pressure in recent years by open-government advocates who wanted the information available in a format that is easy to put in a spreadsheet and analyze. Until now, the IRS has released this kind of data only to a few research groups; everybody else could obtain only a set of DVDs that allowed readers to look one by one at each charity’s informational tax return, but made large-scale analysis tough to do.
The data released by the IRS doesn’t include everything on the informational returns filed by charities and foundations. Mostly it includes figures on sources of financial support, total assets and revenue, spending on overhead and programs, and compensation paid to a group’s top-paid officials. It also lacks the names and locations of the organizations, instead just offering a federal employee identification number for each group’s form.
So while the changes aren’t as user friendly as they might be, they are an improvement and will allow for wider use of information.
Nonprofits should welcome this change, take advantage of it, and encourage their donors to do the same.
As our donors become more sophisticated in analyzing how their charitable dollars are spent, the nonprofit community is under increased pressure to be not only more efficient and effective with each dollar, but more transparent as well. A well-managed organization has nothing to fear with the increased potential for scrutiny and should encourage efforts to educate and evaluate, whether by donors or peer organizations.
To encourage this drive for efficiency, The Bill & Melinda Gates Foundation is holding a competition that will offer $100,000 grants to projects that help nonprofits and donors pull together information on a wide variety of sources, such as data that would show a nonprofit program’s results, what beneficiaries and grant makers thought about the project, and what other experts say about its value.
The competition, which could finance as many as 80 projects, expects to receive at least 1,000 applications. Details about how to apply are available at www.grandchallenges.org.
Everyone in the philanthropic community grows stronger when we raise the standards of accountability by which we are all measured.
For more information on how to help your organization meet transparency standards, reach out to me directly through Jeffrey Byrne + Associates, Inc. at firstname.lastname@example.org.
Death, Taxes…and Tax Reform
As we hear so often “there are two things for certain in this life: death and taxes.” Well, based upon all the talk in Washington at the moment, we probably ought to alter that quote so that it also includes “tax reform”. Recently, the House Ways and Means and Committee has been holding hearings on the subject of tax reform and specifically about the future of the charitable tax deduction.
In his book Federal Taxation in America: A Short History, W. Elliot Brownlee has some very insightful things to say about taxation and reform in the United States. He reminds us that real tax reform….serious, durable, ambitious tax reform….requires a national crisis.
Brownlee’s story centers on the concept of a tax regime: the collection of revenue tools that make up a discrete system of federal taxation. Regimes tend to last a long time; the current one has been around for 70 years. But others have been quite short, including one that lasted for less than a decade. Brownlee contends that every tax regime in American history shares one central trait: they have been forged in the “crucible of national crisis.” Wars have been the most common impetus for reform, but economic depression has also been a catalyst. (However, he further contends that while crisis prompts reform, it does not shape it).
Over the course of more than five centuries, the United States has had five distinct tax regimes, each emerging from a crisis-borne watershed:
- 1789 until the Civil War: marked by tariff duties and low-rate import duties
- 1862 until World War I: featuring new consumption taxes and steeper excise and tariff duties
- 1916 through 1931: introducing new corporate and individual income taxes
- The shortest, coincided with the first two terms of FDR’s presidency
- World War II to the present: transformed the income levy from a “class tax” to a “mass tax”
But if the structure of American taxation has been constant for decades, the debate has raged for just as long. However, to date, sweeping reform has proved elusive marked by American leaders repeatedly stopping short of fundamental change. The TAX REFORM ACT of 1986 almost rose to the status of a watershed, but its reforms failed to establish a new regime. As Brownlee points out, “that ambitious effort served to revitalize the existing regime, giving new life to the income tax.”
So what about today and all the talk going on in Washington? Well, if Brownlee is right about the role of national crisis prompting fundamental tax reform, not much real reform should be expected. Of course, we still might see a crisis which as history has shown, has a way of sneaking up on you. But as tax reform analyst Joseph Thorndike has stated “real reform happens when it MUST. Policymakers are not likely to make hard fiscal choices just because they seem like good ideas. Rather, they will make those choices when their backs are to the wall….and not a moment sooner.”
So back to the recent hearings…….the Committee invited representatives from throughout the philanthropic community to address the topic of reforming the federal charitable tax deduction and the impact such reform could have on giving. Thirteen United Way heads, university presidents, leaders in health care, human services and the arts, community foundation heads and fundraising consultants (such as Conrad Teitell) spoke eloquently and most persuasively about reformation, and urging change that will enhance ways to promote even greater levels of philanthropy in the United States.
I was particularly taken with the comments of Brian A. Gallagher, President and Chief Executive Officer of the United Way Worldwide, extracts of which follow.
“Americans give for a variety of reasons. I think it is rare that someone gives to charity only because of a tax incentive. But, tax incentives are often a factor in how much someone donates. I can tell you from my experience, large donors are very sensitive to the tax code. In a recent study, 23% of high net-worth individuals indicated that receiving tax benefits for charitable contributions was a major motivation for giving.
At a time when all manner of government funded social service programs are being cut, decreasing the capacity of charities to provide services is the wrong thing to do. Those at the bottom of the economic spectrum have suffered the most through recent years of economic downturn. They are also the ones who would bear the brunt of reduced giving to charity because of a tax policy change.
I urge the Committee to preserve and expand the charitable deduction so that we can continue our important work to improve the lives of millions of Americans.”
Returning to what Mr. Brownlee contends, it would appear that unless things get much worse for the United States, tax reform seems likely to “remain a chimera.” We’ll see…….
To learn more about how your organization might be affected by charitable tax reform, contact me directly through Jeffrey Byrne + Associates, Inc. at email@example.com.