Thursday, October 20, 2005

Truck-Sized Loophole

The Center for Public Integrity has issued a new report, Murky Waters, a piece that wonders aloud whether "A private foundation tied to Red Lobster’s parent company has paid for House Resource Committee Chairman Pombo’s trips abroad. Did they break the law?"

After reading this extensive report and comparing it with the Capital Athletic Foundation (previous post), it is apparent that there is a big loophole in IRS law that you can drive a truck through. The IRS 990 report requires nonprofits to provide the name and address for all gifts that exceed $5,000. It also requires them to share a copy of their 990 with any individual who requests one but allows them to leave out the information on these gifts. As such, a nefarious group of individuals could set up a phony nonprofit organization and arrange for donations that never have to be disclosed to the public. Individuals who are trying to be responsible donors and give to quality organizations do not have that information available as they evaluate. Any monitoring is left to the IRS and state attorney generals, who do not have the funding to routinely review the tax returns or investigate suspicious organizations. Oregon’s assistant attorney general for charitable activities openly admits he only has the budget to go after big time offenders of nonprofit law.

Congress is currently considering changes to the regulations that govern nonprofit organizations like these private foundations. Some of their proposals make sense and others will be onerous for smaller organizations. Is their goal justice or increased tax revenue? I would argue that we need more money for enforcement of laws already on the books. The IRS and state Justice Departments already have access to this revenue information. If they would simply commit funds to study the 990s and connect the dots, they would easily discover many who are using tax exempt status for criminal activity.