[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
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                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 16, 2012

                               __________

                          Serial No. 112-OS13

                               __________

         Printed for the use of the Committee on Ways and Means





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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

WALLY HERGER, California             SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
PETER J. ROSKAM, Illinois            JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania            EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   RON KIND, Wisconsin
VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska               SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

         Jennifer Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

             CHARLES W. BOUSTANY, JR., Louisiana, Chairman

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
AARON SCHOCK, Illinois               XAVIER BECERRA, California
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
KENNY MARCHANT, Texas                JIM MCDERMOTT, Washington
TOM REED, New York
ERIK PAULSEN, Minnesota


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 16, 2012 announcing the hearing..................     2

                               WITNESSES

Mr. Roger Colinvaux, Associate Professor, Columbus School of Law, 
  The Catholic University of America, testimony..................     6
Ms. Diana Aviv, President & Chief Executive Officer, Independent 
  Sector, testimony..............................................    16
Ms. Joanne M. DeStefano, Vice President for Finance and Chief 
  Financial Officer, Cornell University, Testifying on behalf of 
  the National Association of College and University Business 
  Officers, testimony............................................    27
Mr. Michael Regier, Senior Vice President of Legal and Corporate 
  Affairs, VHA Inc., testimony...................................    33
Mr. Bruce R. Hopkins, Senior Partner, Polsinelli Shughart, 
  testimony......................................................    43

                       SUBMISSIONS FOR THE RECORD

American Association of Museums..................................    65
American Bankers Association.....................................    68
American Hospital Association....................................    75
Association for Healthcare Philanthropy..........................    77
Catalogue for Philanthropy.......................................    84
Cause of Action..................................................    85
Charity Navigator................................................    91
CharityWatch.....................................................    92
Community Catalyst...............................................    99
Credit Union National Association................................   104
Jewish Federations of North America..............................   107
National Association of Federal Credit Unions....................   115
National Council of Nonprofits...................................   117
The Community Foundation for Greater Atlanta.....................   121

                   MATERIAL SUBMITTED FOR THE RECORD

Question for the Record:
Ms. Diana Aviv...................................................   123


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                        WEDNESDAY, MAY 16, 2012

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Charles Boustany [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

         Boustany Announces Hearing on Tax Exempt Organizations

Wednesday, May 16, 2012

    Congressman Charles W. Boustany Jr., MD (R-LA), Chairman of the 
Subcommittee on Oversight of the Committee on Ways and Means, today 
announced that the Subcommittee will hold a hearing examining 
operations and oversight of tax-exempt organizations. This will be the 
first in a series of hearings by the Subcommittee on the tax-exempt 
sector and IRS oversight of tax-exempt activities. The hearing will 
take place on Wednesday, May 16, 2012, in Room 1100 of the Longworth 
House Office Building, beginning at 10:00 A.M.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.
      

BACKGROUND:

      
    Tax-exempt organizations have long played an important role in the 
United States. Since the first income tax was imposed in 1913, certain 
organizations have been exempt from taxation, including those organized 
and operated for religious, charitable, scientific, or educational 
purposes. Such organizations remain the most common types of exempt 
organizations and are defined in section 501(c)(3) of the Internal 
Revenue Code (``IRC''). In addition to the longstanding exemption for 
such organizations under section 501(c)(3), there are 28 other types of 
organizations that may qualify for tax-exempt status.
      
    As of 2008, 1.85 million organizations qualified for tax-exempt 
status, and 1.18 million qualified as charitable organizations under 
section 501(c)(3). In 2008, charitable organizations had $2.5 trillion 
in assets. It is estimated that tax-exempt organizations employ 
approximately 10% of the U.S. workforce (charitable organizations 
employ 7% of the U.S. workforce).
      
    Tax-exempt organizations are subject to a variety of rules to 
ensure compliance with Federal tax law and limit abuses, including 
rules that prevent private inurement, limit certain activities, and 
subject business income related to for-profit activities to income tax.
      
    On October 6, 2011, Chairman Boustany sent a letter to the Internal 
Revenue Service (IRS) seeking information related to the agency's 
administration and oversight of tax-exempt organizations (including 
charitable organizations). The letter sought information on a variety 
of topics to help the Committee understand the current state of 
relations between the IRS and tax-exempt entities, and provide a 
foundation for further engagement in overseeing this important sector 
of the U.S. economy. The letter focused on a number of issues related 
to corporate governance and compliance, requested information related 
to new reporting requirements for tax-exempt hospitals, and asked for 
an update on the ongoing Colleges and University Compliance Project 
that was launched in 2008.
      
    In announcing this hearing, Chairman Boustany said, ``Oversight of 
the tax-exempt sector is an important priority for the Subcommittee, 
and it has been an area that both Republicans and Democrats agree needs 
greater attention. In my letter to the IRS last October, I asked the 
IRS about recent efforts to address certain concerns that have been 
raised regarding the operation of tax-exempt organizations, including 
corporate governance issues and mishandling of funds by officers. It is 
now time for the Subcommittee to hear from members of the tax-exempt 
community for a more complete picture of the current state of affairs. 
This review allows us to examine the state of the tax-exempt sector, as 
it currently exists today and consider this information as we continue 
the Committee's efforts toward comprehensive tax reform. In both cases 
the goal is the same--to ensure that the tax-exempt sector is operating 
in an efficient manner and that the laws governing tax-exempt 
organizations are being applied fairly and evenly.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on certain current issues related to tax-
exempt organizations, including the current IRS compliance initiative 
related to Universities, recently enacted reporting requirements for 
tax-exempt hospitals, recent efforts by tax-exempt organizations to 
design and implement good governance standards, and taxpayer 
involvement in redesigning the Form 990. In addition, the hearing will 
discuss the history of recent legislative changes to the Tax Code 
dealing with tax-exempt organizations and what prompted those changes.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments for the hearing record must follow the appropriate 
link on the hearing page of the Committee website and complete the 
informational forms. From the Committee homepage, http://
waysandmeans.house.gov, select ``Hearings.'' Select the hearing for 
which you would like to submit, and click on the link entitled, ``Click 
here to provide a submission for the record.'' Once you have followed 
the online instructions, submit all requested information. ATTACH your 
submission as a Word document, in compliance with the formatting 
requirements listed below, by the close of business on Wednesday, May 
30, 2012. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
to all House Office Buildings. For questions, or if you encounter 
technical problems, please call (202) 225-3625 or (202) 225-2610.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BOUSTANY. The subcommittee hearing will come to 
order. Welcome to this morning's hearing on tax-exempt 
organizations. This hearing will be the first in a series of 
hearings exploring tax-exempt issues and related IRS compliance 
efforts.
    Tax-exempt organizations, especially charitable 
organizations, serve an important role in our society. From the 
local Little League to nonprofit hospitals to major 
universities, tax-exempt organizations are intertwined with our 
communities and economy.
    Tax-exempt organizations also control vast resources. It is 
estimated that in 2008 charitable organizations had $2.5 
trillion in assets. In addition, tax-exempt organizations 
employ 10 percent of the workforce. With so many Americans 
relying on, working for, and engaged in economic relationships 
with tax-exempt organizations, taxpayers should have confidence 
that tax-exempt organizations, especially charitable 
organizations, are operating efficiently and hopefully using 
good governance practices to maximize benefits provided to the 
community. To support these goals it is important that this 
committee review the substantive rules that apply to tax-exempt 
organizations, IRS compliance efforts, and the operations and 
governance of tax-exempt organizations.
    In addition, Congress must ensure that the IRS has the 
information it needs to effectively interact with tax-exempt 
organizations. The IRS is charged with ensuring tax-exempt 
organizations are operating in furtherance of their tax-exempt 
purpose and it is important that tax-exempt organizations and 
the IRS effectively communicate with each other to meet this 
goal.
    With this in mind, in October of last year I sent a letter 
to Commissioner Shulman to discuss a variety of current issues 
involving tax-exempt organizations and IRS compliance efforts. 
Today we have invited witnesses who can provide information 
from the tax-exempt sector's perspective on the issues that 
were raised in my letter, such as good governance and 
compliance, the IRS college and universities compliance 
project, and new reporting requirements for nonprofit 
hospitals.
    In addition, we have a witness who can provide historical 
background about recent changes in tax-exempt rules and the 
general structure of the tax-exempt sector. This is an 
opportunity to hear from the tax-exempt community on these 
important issues and learn what the current landscape looks 
like for tax-exempt organizations.
    I want to thank all of our witnesses for joining us here 
this morning. With that I will now yield to my friend Mr. 
Lewis, the ranking member of the subcommittee.
    Mr. LEWIS. Thank you, Mr. Chairman. Thank you, Chairman 
Boustany, for holding this hearing today. Tax-exempt 
organizations play an important role in our society. There are 
many types of tax-exempt organizations and each type serves an 
important role. There are organizations that help our poor and 
feed our hungry. There are colleges and universities that 
educate our young people and hospitals that care for our sick. 
There are also organizations that touch every corner of our 
life: religion, labor and the arts, and advocate on our behalf. 
In total there are over 1.8 million tax-exempt organizations 
that work to make our lives and our communities better.
    Throughout the year I have been concerned about the IRS 
budget and the effect of the budget cuts on tax administration. 
The IRS currently has a budget of $100 million, and fewer than 
900 employees to oversee nearly 2 million organizations that 
have more than $1 billion in revenue and $2.5 trillion in 
assets.
    I continue to be concerned that, not if properly funded, 
the Agency harms taxpayers and in this context harms the public 
trust when bad actors are discovered. I look forward to 
learning more about the tools used to ensure compliance with 
the Federal tax laws.
    In closing, I am mindful that tax reform is looming. If we 
adopt a Republican goal of a top individual tax rate of 25 
percent, some tax preferences will need to be eliminated. 
However, I believe that tax-exempt organizations play a major, 
valuable, and necessary role in our economy and in our country, 
and charitable giving should be encouraged. I look forward to 
hearing from the witnesses today and I want to thank each 
witness for your testimony and thank you for being here.
    And with that, Mr. Chairman, I yield back.
    Chairman BOUSTANY. Thank you Ranking Member Lewis.
    Next it is my pleasure to welcome the excellent panel of 
witnesses seated before us today. Today's witnesses have 
extensive experience studying or working with tax-exempt 
organizations and their experience will be very helpful as we 
examine the current state of the tax-exempt sector.
    First I would like to welcome and introduce Mr. Roger 
Colinvaux. Professor Colinvaux is an associate professor of law 
at Catholic University and an expert on matters relating to 
nonprofit organizations. From 2001 through 2008, Professor 
Colinvaux served as legislation counsel with the Joint 
Committee on Taxation. Mr. Colinvaux, welcome.
    Second, we will hear from Ms. Diana Aviv. Ms. Aviv is the 
president and CEO of Independent Sector, a national network of 
nonprofit organizations, foundations, and corporate giving 
programs. Before working at Independent Sector, Ms. Aviv worked 
as the associate executive vice chair for the Jewish Council of 
Public Affairs. Welcome, Ms. Aviv.
    To introduce our third witness I am pleased to yield to my 
friend, the gentleman from New York, Mr. Reed.
    Mr. REED. Thank you very much Mr. Chairman for yielding. 
And it is my honor and privilege to introduce to the committee 
a witness, the third witness on our panel today, Joanne M. 
DeStefano, Cornell University's vice president for finance and 
chief financial officer. She has custody and control of the 
university funds and has general responsibility for the 
maintenance of the financial records of the entire university. 
She oversees the comptroller's office, the treasurer's office. 
She holds an MBA from Cornell University. And before that, she 
worked for the private sector for Race Mark International, Inc. 
and Slumberge, Incorporated. She and I both live in the 
beautiful area of the Finger Lakes of New York. And it is my 
pleasure to introduce her in one of her first testimonies to 
the committee, and I know it will not be her last, having had 
the privilege of reading her testimony before it was given here 
today.
    And with that, I yield back and welcome her for her 
testimony.
    Chairman BOUSTANY. Thank you Mr. Reed, and welcome, Ms. 
DeStefano.
    Fourth, we will hear from Mr. Michael Regier. Did I 
pronounce it correctly?
    Mr. REGIER. Yes.
    Chairman BOUSTANY. Senior vice president of Legal and 
Corporate Affairs for VHA, Incorporated. VHA is the Nation's 
largest alliance of nonprofit hospitals serving members in 47 
States. Welcome, sir.
    And finally we welcome Mr. Bruce Hopkins, senior partner at 
Polsinelli Shughart in Kansas City, Missouri. Mr. Hopkins has 
published multiple treaties on nonprofit tax issues and is a 
former chair of the American Bar Association's Committee on Tax 
Exempt Organizations.
    I want to thank you all for being here today and spending 
time with us. The committee has received each of your written 
statements and we will make those part of the formal hearing 
record. Each of you will be recognized for 5 minutes for your 
oral remarks. And Mr. Colinvaux, we will begin with you. You 
are recognized for 5 minutes, sir. Thank you.

  STATEMENT OF ROGER COLINVAUX, ASSOCIATE PROFESSOR, COLUMBUS 
SCHOOL OF LAW, THE CATHOLIC UNIVERSITY OF AMERICA, WASHINGTON, 
                              D.C.

    Mr. COLINVAUX. Thank you. Thank you, Mr. Chairman, Mr. 
Ranking Member, Members of the Committee. Thank you for 
inviting me to testify today and for holding this hearing. The 
(c)(3) sector is a vital and dynamic part of our civil society, 
but it is also a sector with its share of business interests, 
bad actors, and vested interests as well. In part for this 
reason, the law governing our tax-exempt organizations is 
increasingly complex and also adrift.
    I am here today to express my concern that the law is 
developing without a clear sense of the Federal role or a tax 
policy towards (c)(3) organizations. Now, we first granted 
exemption about 100 years ago and the law has changed a lot. 
For one thing (c)(3)s have to apply for their status and report 
annually. They didn't when we started. (C)(3)s face 
restrictions on some of their activities like campaigning and 
substantial lobbying, but initially there were no activity 
restrictions. (C)(3)s must pay tax on some types of income, 
their unrelated business income, and private foundations pay 
tax on their investment income, so we don't have a blanket 
exemption anymore. Some (c)(3)s also are preferred over others. 
Public charities face many more restrictions than private 
foundations, so not all charities are still treated equally.
    So over time, Congress has placed limits on exemption. But 
what is interesting is that these limits are mostly negative in 
nature. That is, what we have said is, don't do this or don't 
do that or please file a form with the IRS as you go along. But 
we haven't really required anything affirmative of (c)(3) 
organizations. That is, we don't say that they must do anything 
to secure their status. Thus, we have kept the broad purposed-
based approach to exemption under which it is relatively easy 
to become a (c)(3) and remain one.
    We have also kept the all-or-nothing approach to exempt 
status making the main tool IRS has for enforcement, revocation 
of status, which because it is so drastic is also a somewhat 
limited tool. The results I believe are legal standards that 
facilitate growth but little in the way of oversight 
capability, in large part because there is not much for the IRS 
to measure. This can lead to problems and it has. In recent 
years we have seen far too many (c)(3) organizations associated 
with scandals and we have had legislation as a result.
    Now, I want to talk about this legislation for a few 
seconds because it highlights what I see as the current trends 
in the law. First, Congress has shown frustration with the 
breadth of the (c)(3) exemption standard.
    First, in the case of credit counseling groups and then in 
the case of hospitals, Congress decided to impose more rigorous 
exemption requirements on these organizations than other 
(c)(3)s. This, in my view, is very significant because it 
treats some (c)(3)s worse than others based on the 
organization's purposes. We haven't done that before. What this 
means is that the sector can be broken down into its component 
parts, disaggregated, with legal standards tailored to each 
organization type.
    Second, Congress has shown a willingness to blur the line 
between public charity, and private foundation, in several 
cases adopting the bright-line anti-abuse rules applicable to 
private foundations and applying them to stop abuses at public 
charities. This matters because it suggests that the old way 
for distinguishing (c)(3)s as public or private is less 
relevant today and that abuses can and do occur at public 
charities.
    However, rather than selectively applying foundation rules 
to abuses of public charities, it might be better to reexamine 
this distinction entirely. We can look at each abuse, decide if 
it is still a concern, and, if so, for which type of (c)(3).
    The final related trend to emerge is that Congress is 
showing a preference for brighter enforcement lines, more 
intermediate sanctions, and so frustration with the current 
facts and circumstances approach to enforcement. All these 
trends are important because they show the current direction of 
the law. We have a disaggregation of the sector based on 
purpose, a weakening of the public charity, private foundation 
distinction and a preference for bright, if harsh, enforcement 
lines.
    Now, going forward, I think the question is whether to 
continue on this path, and here I see a fork in the road. Right 
now the path is focused on abuse. Policymakers respond to 
abuses with new rules, and stopping abuse and protecting the 
integrity of the sector are very important goals. And in my 
written testimony I highlight some ways we might consider to 
focus on that.
    Another avenue for tax reform is to reconceive of the role 
the Federal Government has to (c)(3) organizations. Our current 
approach is somewhat monolithic. We tie all the tax benefits to 
(c)(3) exemption. Why not instead focus on areas where the 
Federal interest is the greatest: on support for charitable 
contributions; and decide whether eligibility to receive 
contributions should depend on the satisfaction of new 
criteria, perhaps based more on activities and outcomes rather 
than purposes?
    I see I am out of time. I recognize the very important goal 
of oversight. And thank you for inviting me to testify today.
    Chairman BOUSTANY. Thank you Mr. Colinvaux.
    [The prepared statement Mr. Colinvaux follows:]

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    Chairman BOUSTANY. Ms. Aviv, you may proceed.

STATEMENT OF DIANA AVIV, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
              INDEPENDENT SECTOR, WASHINGTON, D.C.

    Ms. AVIV. Thank you, Mr. Chairman, Representative Lewis, 
and Members of the Subcommittee for this opportunity to 
testify. I serve as the president and CEO of Independent 
Sector, which is a national coalition of nearly 600 public 
charities, foundations, and corporate giving programs and, 
that, with their affiliates, total tens of thousands of 
charitable organizations across the United States.
    Every day charitable organizations work to provide help for 
families in need, assist victims of disaster, enhancing the 
cultural, physical, and spiritual life of communities, and 
foster the democratic values of justice and individual liberty.
    These life-changing programs, as well as the 13.5 million 
jobs and $670 billion in annual wages provided by the nonprofit 
sector, are made possible in part by the generosity of 
Americans who contribute millions of hours and billions of 
dollars to support the charitable causes they care about.
    The difficult economy has affected both charitable giving 
and the need for services from charitable organizations. Annual 
giving dropped $30 billion between 2007 and 2009, and has not 
yet fully recovered to pre-recession levels. At the same time, 
charitable organizations have struggled to meet payroll or hire 
additional workers as they work to keep pace with the dramatic 
increase in demand for services. According to a study by the 
NonProfit Research Collaborative, human service organizations, 
for instance, saw a 78 percent increase in demand in 2010.
    Congress can help by immediately passing the expired tax 
extenders package which includes the IRA charitable rollover 
and enhanced deductions for donations of food.
    As you look towards tax reform, we also ask you to keep in 
mind the positive impact of tax incentives for charitable 
giving on the people we serve, and explore ways to expand those 
incentives.
    Because charitable giving depends in part on the high level 
of public trust in our sector, nonprofit organizations are 
deeply committed to ensuring effective and transparent 
governance, maximum accountability, and ethical conduct.
    Independent Sector, with the encouragement of congressional 
leadership, convened the Panel on the Nonprofit Sector, which 
in 2005 issued a report that recommended improvements within 
the sector, more effective oversight and changes in the law.
    The Pension Protection Act of 2006 included many of the 
provisions from our report, such as increased financial 
penalties for bad actors, safeguards against the use of 
charitable assets for personal gain, and improved information 
sharing between Federal and State oversight agencies.
    The recently redesigned IRS form 990 also reflects many 
panel recommendations. As a publicly available document, the 
Form 990 has become an important accountability and 
transparency tool, and we are therefore keenly interested in 
IRS efforts to make further improvements. One issue of 
particular interest is removing barriers to electronic filing, 
which will improve the quality and accuracy of data, promote 
accountability and transparency, and save time and money for 
donors, nonprofits, and the government.
    Using data from the redesigned Form 990, the IRS is 
evaluating whether good governance leads to better compliance. 
Their preliminary analysis of data from 1,300 returns shows a 
statistically significant positive correlation between a number 
of governance practices and tax compliance.
    The nonprofit community also recognizes the importance of 
self-regulation. To that end, the Panel issued The Principles 
for Good Governance and Ethical Practice: A Guide for Charities 
and Foundations, which outlined 33 recommendations designed to 
improve compliance, governance, financial oversight and fund-
raising practices. Almost 200,000 copies of the principles have 
been downloaded and used to develop governance policies, adjust 
board responsibilities, and offer guidance for those seeking to 
improve their practices.
    Taken together, the actions outlined in my written 
statement--legislative, regulatory and voluntary--have 
strengthened governance and improved oversight of tax-exempt 
organizations, and they reflect a deep mutual commitment on the 
part of Congress, the IRS, and charitable nonprofit 
organizations to accountability, transparency, and good 
governance. They have also allowed charitable organizations to 
maintain the public trust that is key to continued confidence 
in and support for our work.
    Mr. Boustany, Mr. Lewis, and Members of the Subcommittee, 
thank you for the opportunity to share these perspectives with 
you.
    Chairman BOUSTANY. Thank you Ms. Aviv.
    [The prepared statement of Ms. Aviv follows:]

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    Chairman BOUSTANY. Ms. DeStefano, you may proceed.

 STATEMENT OF JOANNE M. DESTEFANO, VICE PRESIDENT FOR FINANCE 
AND CHIEF FINANCIAL OFFICER, CORNELL UNIVERSITY, TESTIFYING ON 
 BEHALF OF THE NATIONAL ASSOCIATION OF COLLEGE AND UNIVERSITY 
                 BUSINESS OFFICERS, ITHACA, NY

    Ms. DESTEFANO. Thank you, Mr. Chairman, Ranking Member 
Lewis, Congressman Reed, and Members of the Subcommittee, thank 
you for the opportunity to testify today. As already mentioned, 
my name is Joanne DeStefano, and I am the vice president for 
finance and chief financial officer at Cornell University.
    Today I am testifying on behalf of the National Association 
of College and University Business Officers, known as NACUBO, 
which represents more than 2,100 public and private nonprofit 
colleges and universities.
    NACUBO's mission is to promote sound administrative and 
financial management at institutions of higher education. 
Cornell University is among the top research universities in 
the world with nearly $3 billion in annual revenue and 
expenses.
    But today I am here to represent my colleagues at 
institutions across the country who are responsible for 
ensuring compliance with Federal Tax Code regulations and 
interpretations.
    I want to stress to you three points today. First, many if 
not most institutions have long had institutional policies and 
practices in place reflecting a commitment to stewardship, 
accountability, and the highest standard of compliance with 
Federal and State laws and regulations.
    Second, both public and private institutions had well 
established, sound, and effective governing structures prior to 
the IRS linking good governance to strong tax compliance.
    Finally, although sometimes less visible to the public and 
to students and families, compliance with tax and other Federal 
rules, regulations, and requirements by institutions is a 
factor in our cost for education.
    Cornell received the compliance survey and just completed a 
2-year audit. We closed the audit in March of 2012 and had no 
findings on our 990 return and just one immaterial adjustment 
to our net operating loss carry forward on our 990-T.
    I believe at Cornell we have two of the Nation's best tax 
experts in house, and we have a growing tax compliance office. 
However, as the requirements for reporting and compliance are 
ever more complex, the university has engaged the services of 
an external auditor to review and sign both the Form 990 and 
the Form 990-T, even though these forms are completed 
internally. The costs are in addition to managing our in-house 
expertise.
    Many large institutions like Cornell are organized 
similarly. The IRS is requiring not-for-profit organizations to 
report more and more information on the 990-T. NACUBO has had a 
history of working with the IRS to ensure its efforts add value 
and increase understanding, rather than merely increasing 
administrative costs and creating confusion.
    With that in mind, I would like to raise a new concern with 
Form 990 regarding the (k)(1). This is a new requirement to 
report income and expenses and balance-sheet items related to 
partnership investments based on schedule (k)(1) information. 
Historically, partnership information on the Form 990 was 
reported consistent with all other financial data based on the 
organization's books and records. This new requirement will 
create a number of inconsistencies and add substantially to 
administrative burden. The IRS has even recognized the concerns 
and actually took a step back for fiscal year 2011 and allowed 
the reporting to be voluntary. We strongly encourage the IRS to 
eliminate this proposed requirement that income on the 990 be 
reported based on (k)(1)s.
    In conclusion, as stewards of Federal education, research, 
and student aid funding, as large employers, as significant 
operators of massive physical plant operations, and as home to 
our Nation's college students, institutions of higher education 
take very seriously their approach to compliance with a host of 
Federal rules and regulations, including those by the IRS. We 
understand the privilege afforded by Congress for tax-exempt 
entities. We understand and commend the objective of 
transparency to enhance information available to the public. We 
urge the Congress, the IRS, and all regulatory bodies to 
understand that all their respective and many times redundant 
requirements become a cost of delivery of services. In our 
case, it is the cost of education.
    Ultimately we hope the IRS uses all of the information it 
has garnered as part of the compliance project to continue to 
explore smart, sensible, and valuable approaches to 
streamlining reporting and requirements. Thank you again for my 
first opportunity to be a voice for all of the colleges and 
universities at this hearing today.
    Chairman BOUSTANY. Thank you Ms. DeStefano.
    [The prepared statement of Ms. DeStefano follows:]

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    Chairman BOUSTANY. Mr. Regier, you may proceed.

STATEMENT OF MICHAEL REGIER, SENIOR VICE PRESIDENT OF LEGAL AND 
         CORPORATE AFFAIRS, VHA INC., WASHINGTON, D.C.

    Mr. REGIER. Good morning Chairman Boustany, Ranking Member 
Lewis, and Members of the Committee. I am Michael Regier and I 
am pleased to be here on behalf of VHA, a national network of 
more than 1,400 not-for-profit hospitals and more than 23,000 
nonacute health-care organizations. Based in Irving, Texas, we 
at VHA exist to assure the success of nonprofit health care, 
and we do this through 47 regional offices--through 15 regional 
offices that cover 47 States and the District of Columbia.
    This morning I wanted to speak to you primarily about two 
topics: the new requirements that are applicable to nonprofit 
hospitals under the Affordable Care Act, and then what we at 
VHA believe matters most to tax-exempt hospitals in the context 
of more comprehensive tax reform.
    As I am sure you know, the Affordable Care Act imposed new 
statutory requirements that have to be met by all hospitals 
that seek to obtain or maintain income tax exemption under 
section 501(c)(3). These requirements are in addition to and 
not in lieu of the existing requirements already applicable to 
those organizations.
    We recognize the significant increase in the scope of 
responsibilities assigned to the IRS under the Affordable Care 
Act and we respect the good work the IRS has done to improve 
oversight of our Nation's tax-exempt organizations. However, 
during the more than 2 years since the Affordable Care Act was 
signed, the IRS has issued various forms of informal guidance 
and has revised the Form 990 annual information return filed by 
tax-exempt organizations, but has not yet issued any proposed 
or final regulations to implement most of the new requirements 
that are already applicable to tax-exempt hospitals and health 
systems.
    Along with many other stakeholders VHA has worked with the 
IRS to provide feedback on the informal guidance that has been 
issued so far and to express our concerns about the potential 
compliance burdens associated with these new requirements, as 
well as how they will eventually be implemented and enforced.
    And as an example just of the burdensome nature, I brought 
with me this morning the blank Form 990 with the schedules that 
must be completed and the instructions every year by tax-exempt 
hospitals. This is the blank form and instructions. In 
particular, we have expressed some serious concerns about the 
way the revised Form 990 Schedule H was issued in February 
2011, which we and many other organizations saw as supplanting 
the ordinary notice and comment rulemaking process.
    We also expressed our reservations about the overly 
prescriptive nature of the more recent draft IRS guidance that 
relates to the community health needs assessment. We expect 
that hospitals will have a number of challenges complying with 
these new requirements, especially given the increasing 
financial challenges that they are facing. Now more than ever 
before, we at VHA believe that Congress should ensure that 
hospitals can direct their limited resources to actually 
meeting their community's most significant health care needs 
rather than spending them to document the process that they 
used to identify those needs.
    We support the goals of transparency and accountability, 
VHA supports the efforts to make the Tax Code fairer, simpler 
and more efficient, and particularly those provisions that 
apply to our Nation's nonprofit health-care organizations.
    And as the Ways and Means Committee continues its effort 
toward comprehensive tax reform, we urge the committee to avoid 
any action that would jeopardize the followings three key 
benefits: first, the income tax exemption for charitable 
hospitals; second, tax-exempt financing for hospital 
facilities; and third, the deductibility of charitable 
contributions and bequests for hospital donors.
    Nonprofit hospitals and health systems need all three of 
these key benefits to assure that they can serve their 
communities well, whether that is through charity care or other 
financial assistance on behalf of the uninsured or 
underinsured, through subsidized health services, through 
community health improvement services, through community 
building services and activities, or through research and 
education.
    Every day in communities throughout the United States, not-
for-profit hospitals and health systems provide essential 
services compassionately and efficiently. Their work to further 
their charitable missions significantly contributes to the 
public good and lessens the burdens on government. In view of 
the expected cuts to Medicare funding under both the Affordable 
Care Act and the Budget Control Act and in light of the great 
financial demands that face the many State Medicaid programs, 
nonprofit community hospitals and health care organizations are 
going to be challenged to do more than they have ever had to do 
before to maintain access to quality health care for all 
Americans.
    We have long encouraged our members to take their community 
benefit obligations seriously and will be working with our 
hospitals to facilitate their compliance. As we do so, however, 
we will continue working to assure that the implementation of 
the new requirements is not unduly burdensome or overly 
prescriptive and does not go beyond congressional intent. We 
look forward to working with the Oversight Subcommittee as well 
as with the IRS to meet these goals. Thank you.
    Chairman BOUSTANY. Thank you Mr. Regier.
    [The prepared statement of Mr. Regier follows:]

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    Chairman BOUSTANY. Mr. Hopkins, you may proceed.

   STATEMENT OF BRUCE R. HOPKINS, SENIOR PARTNER, POLSINELLI 
                   SHUGHART, KANSAS CITY, MO

    Mr. HOPKINS. Thank you. And good morning, Mr. Chairman, 
Ranking Member Lewis, and the other Members of the 
Subcommittee.
    My task as a private practitioner in the exempt 
organizations area is to spend some time talking with you about 
the basics of the law in this area and then also identify what 
I believe to be the current developments in the field.
    By my reckoning there are 67 different categories of tax-
exempt organizations. Obviously I lack the time to take you 
through all of those. But what I have done in my prepared 
remarks is focus first on 501(c)(3) entities, charities, 
religious organizations, educational organizations, scientific 
entities, to give you a feel for the detail and the criteria 
for exemption under each one of these categories.
    For example, in the paper I note that under the concept of 
``charitable,'' there are 15 different ways that an entity can 
qualify as a tax-exempt charitable organization. Aside from a 
501(c)(3) there are a number of other categories of exempt 
organizations, as I mentioned, and I highlighted in my paper 
the ones that I think should be and are a primary concern to 
you: 501(c)(4) and 501(c)(6). And so I have got some material 
in there about social welfare organizations, the whole concept 
of what it means to promote social welfare, what it means to 
serve a community, and, in the context of business leagues, 
discuss the rules about operating to promote a common business 
interest, a line of business, and the rules dealing with not 
performing particular services for individual persons.
    There are plenty of other exempt organizations that could 
be talked about: political organizations, social clubs, 
fraternal organizations, labor groups, qualified health 
insurance issuers. But I wanted to put in the material at least 
a summary of the law dealing with what I consider to be the 
main categories.
    And then on the last page of my prepared remarks, I have 
given a simple list of what I believe to be confirmed 
developments in this area. I don't have time to go down the 
entire list. But as you can see, items like governance, which 
you have already heard about, and the Form 990 you have already 
heard about are at the top of the list. This isn't necessarily 
a prioritized list, but certainly those two are on the top of 
any type of list like this. The whole IRS enforcement fees, 
compliance checks, the whole matter of political campaign 
activity, particularly the involvement of charitable entities 
and social welfare organizations in that; the pending 
regulation projects and other initiatives of the Internal 
Revenue Service of which there are a lot; and then, of course, 
the status of tax extenders legislation certainly impacts this 
field, and the whole matter of tax reform obviously 
interrelates with the law of tax-exempt organizations as well.
    So with that I think I will end my oral remarks and will be 
happy to take whatever questions the subcommittee might have.
    Chairman BOUSTANY. Thank you, Mr. Hopkins.
    [The prepared statement of Mr. Hopkins follows:]

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    Chairman BOUSTANY. Clearly the tax-exempt area is a growing 
and increasingly complex sector of our economy, and that is why 
we feel it is important to have this oversight hearing as a 
starting point to get a better understanding of the sector as 
we contemplate fundamental tax reform. And all of you have 
raised important questions and concerns.
    I want to focus for a moment on the Form 990 specifically. 
This question is for the entire panel, but I would like to 
start with Ms. DeStefano and Mr. Regier to address this with 
regard to universities and hospitals in particular.
    The IRS has just completed a revision of the Form 990. It 
took several years to complete and according to the IRS has 
been redesigned to enhance transparency, promote tax compliance 
and minimize the filing burdens. As part of this effort, the 
form was reorganized and filers were given more opportunities 
to explain their tax-exempt activities, but were also required 
to provide more information regarding key issues such as 
executive compensation and other things.
    How is this process working from your perspective? Ms. 
DeStefano, you can start.
    Ms. DESTEFANO. Thank you for the question. We share our 990 
before it is filed with our audit committee of our board of 
trustees. There are approximately 12 members of the audit 
committee. And I can say 3 or 4 years ago, we would have in-
depth conversations about the data and material within the 990. 
Today the form is so complicated that our committee of our 
board of trustees do not know where to begin. And I would say 
we have less than one or two questions on the 990 today than 
where we were 3 years ago.
    Chairman BOUSTANY. Okay. Do you think that the form meets 
the criteria set forth initially by the IRS?
    Ms. DESTEFANO. I think there is too much information. And 
if you could streamline to the key points, and if executive 
compensation is an area that Congress feels is very important, 
keep that.
    We have some schedules, if you don't mind, if I could just 
highlight that we feel are redundant. Schedule F, which relates 
to foreign activity; Schedule I, which is subcontracts; and 
Schedule K, which is tax-exempt bonds. They require a 
tremendous amount of information and we are not exactly sure of 
the value.
    And I would like to point out, if I could zero in on 
Schedule I, which is the subcontracts. It requires information 
on grants and other assistance from organizations, governments, 
and individuals within the U.S. Cornell's response is 20 pages 
long. And it consists almost entirely of subcontracts through 
the Federal Government as part of our research enterprise.
    OMB already has a single audit act, with OMB A-133 that 
audits States, local government and not-for-profit 
organizations. If we could eliminate all of the reporting that 
already goes through another phase of what is being audited, we 
estimate this one change would save 40 hours of work preparing 
our 990 plus 20 pages of reporting data.
    Chairman BOUSTANY. Thank you. Mr. Regier.
    Mr. REGIER. Mr. Chairman, to go back to the first question, 
I think our members would say the form does make much more 
information available. I don't think that they would agree that 
it promotes efficiency or that it has lightened the filing 
burden. The form has expanded significantly. That is why we 
brought it this morning.
    I think the experience in most tax-exempt hospitals is very 
similar to what Ms. DeStefano outlined. This is not a form 
that, despite your best efforts and expertise inside of your 
organization, that you really can afford not to engage an 
outside advisor to help you with, whether that is your outside 
tax counsel, your outside auditors, or specialized tax 
consultants.
    Chairman BOUSTANY. I thank you. Any other members of the 
panel want to comment?
    Mr. HOPKINS. Mr. Chairman, I think one sentence might sum 
it up. The Form 990, the new Form 990 has greatly enhanced my 
law practice.
    Chairman BOUSTANY. Others?
    Mr. COLINVAUX. Well, I think one little bit of context, 
which is where we were before the new Form 990. Which was, the 
IRS was under a lot of pressure to revise the form because the 
form was seen as very outdated and not providing enough 
information. So it took years for them to come up with the new 
form.
    I think the other thing that is important to keep in mind 
is the value of the Form 990 as an enforcement tool. One of the 
difficulties here is that there is not a lot for the IRS to 
enforce. And one of the things that--one of the ways that we 
can keep oversight over organizations is through the disclosure 
of information which is made public on the 990.
    I think one of the problems that is being highlighted here 
is the too-much-information problem. And I recognize that is a 
problem. But I also think that it is a problem that the IRS is 
trying to work out by continuing to revise the form in 
discussions with stakeholders to find out what the most 
relevant oversight information is.
    And finally, I would say that the complexity of the form is 
absolutely correct. The instructions are, you could say, 
monstrous because they are so big. But what is going on here is 
that the complexity is reflecting the complexity of the sector. 
The sector is not a simple thing. And so the form is getting 
more complex as the IRS learns how complex the sector is. So 
there are a lot of issues at play here.
    Ms. AVIV. Just a very quick comment. The Form 990 is the 
only vehicle through which the public, donors and volunteers, 
or people seeking jobs can actually find out what is going on 
in an organization, or quite a lot about it. Now, there may be 
some parts of it that are too detailed, but this revised form 
has provided the first opportunity to get a really good picture 
of the charitable sector. So as we go forward with this, let's 
be mindful of the benefit of the public being able to see into 
these organizations as well.
    Chairman BOUSTANY. Thank you. Just a follow-up question, 
Mr. Colinvaux. Obviously this is a very complex and growing 
sector. Should there be--should we disaggregate to some extent 
or should the IRS disaggregate in terms of trying to get 
certain types of information from one sector of the tax-exempt 
area versus another?
    Mr. COLINVAUX. Well, I think that is what is happening. I 
mean the IRS has been under a lot of pressure in recent years, 
in part because of the scandals that have happened at 
organizations. And so I think what the IRS is doing is they are 
educating themselves and they are saying there are two very big 
elephants in the room; it is namely the hospitals and big 
colleges and universities. They take up most of the assets and 
the revenues of the sector. And so there is disaggregation 
going on not only in terms of exemption standards passed by 
Congress but in terms of enforcement, so new compliance 
initiatives are launched, we look at the hospital sector, they 
look at the colleges and university sector. So disaggregation 
is happening and it is happening on the Form 990, as well as 
more tailored questions, depending on what you do, are 
surfacing in the 990. So you can show the whole form, but a lot 
of that form isn't relevant to a lot of organizations.
    So, yes, I think the disaggregation is happening. It is one 
of the facts on the ground, and it is something that 
policymakers are going to continue to wrestle with.
    Chairman BOUSTANY. Anybody else want to comment on that 
issue? No. Mr. Colinvaux, the Ways and Means Committee, as you 
know, is currently focused on comprehensive tax reform, and we 
are definitely reviewing all areas of the code, including 
provisions that apply to tax-exempt organizations. You have 
recently looked at the tax-exempt sector over the last 10 years 
and were on the Joint Committee on Taxation in 2006 when the 
Pension Protection Act was enacted, which contained many new 
provisions related to tax-exempt organizations. Are there any 
lessons from the last few years we should keep in mind when 
considering tax reform proposals in this area?
    Mr. COLINVAUX. Well, one lesson based very much on my 
experience is to continue conducting hearings such as this, 
which is I think a really important form of oversight, because 
it calls the sector together and it reminds the sector that 
they need to do good and perform a public benefit. So I think 
this is a very important form of oversight that really does 
lead to better behavior. So that is one lesson.
    Another lesson is--what struck me about the Pension 
Protection Act was that it was very much focused on correcting 
abuses. And there are and always will be abuses in any sector. 
One of the challenges going forward, which was not addressed in 
2006, really goes to the role the Federal Government has with 
respect to (c)(3) organizations. So we can take the anti-abuse 
path, which is the path that we are on, continue to write rules 
that go to abuses, or we can start to ask harder questions such 
as which organization should get which benefits, do we expect 
certain public benefits to occur from our (c)(3)s? Those are 
questions that were not really asked in the lead-up--they were 
asked in the lead-up to 2006 but weren't really answered. So I 
think those are--the lessons are we still have those questions, 
maybe.
    Chairman BOUSTANY. Thank you. I appreciate that. I am now 
pleased to yield to the ranking member, Mr. Lewis, for 
questions.
    Mr. LEWIS. Thank you very much Mr. Chairman. And again I 
would like to thank each member of the panel for being here and 
for your testimony.
    Mr. Hopkins, you are a noted expert on tax-exempt 
organizations and you have worked in this area for over 42 
years. I don't believe you worked there that long. Apparently 
someone violated the child labor law and some law firm hired 
you at an early age, but I don't want to get into all of that.
    Now, the IRS has fewer than 900 employees to monitor more 
than 1.8 million organizations. Can you tell the Members of the 
Committee how you feel the IRS is doing in the oversight of 
these organizations?
    Mr. HOPKINS. Well, Congressman Lewis, I think based on the 
resources the IRS has, I think the IRS overall is doing a very 
good job. I have never worked for the IRS so I am not familiar 
with the internal workings. But based on what I see and 
certainly based on my years of practice working with the IRS, 
both on the examination side and working with the IRS with 
organizations that are applying for recognition of exemption, 
the IRS I think is doing an excellent job in reviewing 
entities, screening entities.
    I would note that almost every week there are a number of 
private letter rulings that are issued by the IRS. I review 
each one of those, and almost all of them are adverse to the 
nonprofit organizations that are applying. So the IRS is being 
very aggressive, very active in applying the law and 
determining which organizations comply and which ones don't. So 
my impression overall is that the Agency is doing a good job, a 
very good job actually with the resources that it has.
    Mr. LEWIS. Now, I noticed someplace that you provide a 
monthly newsletter?
    Mr. HOPKINS. That is correct.
    Mr. LEWIS. Do you get feedback from the private sector?
    Mr. HOPKINS. I get a lot of email as a result of some of 
the things that are mentioned in the newsletter, yes.
    Mr. LEWIS. Are people pretty satisfied with what they get 
from the IRS?
    Mr. HOPKINS. Well, I think it depends on what kind of 
entities you are talking about. I mean, I hear a lot from 
organizations that are unhappy that they have been audited and/
or been denied recognition of exemption. But I think on 
balance, probably the IRS position was correct. And then, of 
course, I hear from organizations that are very happy with the 
situation that they are in. So I think it just depends on how 
the nonprofit organizations have fared with the IRS. Some 
complain and some don't.
    Now, I am talking now about compliance with the criteria 
for exemption. This discussion about the Form 990 is a totally 
different matter. I hear in my practice daily complaints about 
the Form 990 overall, not just Schedule H but the parts of it 
as being--and we have heard some of these words this morning--
burdensome, redundant, overreaching, and that kind of thing. So 
there are lots of complaints about the Form 990; but leaving 
the Form 990 aside, not a lot of complaining about the IRS.
    Mr. LEWIS. Thank you. Ms. Aviv, you noted that charitable 
organizations have struggled financially during the economic 
downturn. How has the demand for service increased and what do 
people need?
    Ms. AVIV. Congressman Lewis, people need help. The economy 
hasn't recovered. The demand for service has grown. And the 
ability of these organizations to get additional funding has 
been diminished. Individual donor giving is down, and public 
funding has certainly not increased, particularly State 
funding. And the ability of these organizations to charge 
greater fees means that the people who are at the bottom of the 
economic scale, who have nothing, wouldn't pay more because 
many organizations charge fees on a sliding scale. Some of 
these organizations have coped by doing more with less, but 
there is only a limited amount of time that you can do that.
    For the most part what we are being told is that these 
organizations are finding themselves turning people away. And 
with your permission, I just want to share with you a story 
that was shared with us by Catholic Charities. They said that 
in the fourth quarter of 2011, a snapshot survey of 44 local 
Catholic Charity organizations located in 29 different States 
that served about 3\1/2\ million clients annually, found that 
the 44 responding agencies each maintained a waiting list or 
turned away individuals for services during the fourth quarter, 
with the greatest areas of unmet needs being in emergency 
financial assistance and utilities assistance. Even the most 
basic needs are going unmet in some communities. Three agencies 
reported turning away at least 1,750 individuals that came to 
them seeking food.
    So what we are seeing is that organizations are not able to 
keep up with the increased demand.
    Mr. LEWIS. What more can Congress do to assist these 
organizations, not just to do well in the entire private 
sector, but also to do good?
    Ms. AVIV. I mentioned in my remarks, and in my written 
testimony, that immediately passing the tax extenders, 
particularly the IRA charitable rollover and the other 
provisions that affect the charitable community, would be a big 
help.
    When Congress first passed the IRA charitable rollover, 
some of us had concerns that the only organizations that would 
benefit were those who were attached to high-income 
individuals, and that that might be universities, it might be 
cultural institutions. But in fact what we have found is that 
many different kinds of organizations, including health and 
human services organizations, are the beneficiaries of those 
kind of funds. That provision was not extended at the end of 
last year and we are concerned that it still hasn't been 
extended. It is an easy fix and it is certainly one of the ways 
to help these organizations.
    Mr. LEWIS. Thank you very much. Mr. Chairman, I yield back.
    Chairman BOUSTANY. I thank the ranking member. I now 
recognize Mrs. Black.
    Mrs. BLACK. Thank you, Mr. Chairman. Let me go to you, Mr. 
Regier. In your testimony you noted that VHA has worked with 
the IRS in its design of the new Schedule H; yet you express 
concerns regarding the clarity on the form. And I know that the 
chairman talked about the 990. How receptive has the IRS been 
with working with you and your organization and your other 
members about your concerns?
    Mr. REGIER. I think in our experience the service has been 
very open to receiving input, and so they have in many ways 
requested input and solicited input in advance of issuing their 
formal guidance. And I must say the IRS did agree with the 
request that we made to make certain provisions of the Schedule 
H optional for certain filers for a year. Those are questions, 
however, that are information gathering items in the Schedule H 
which we believe makes the schedule confusing. We did ask the 
IRS to extend that and make that voluntary or to eliminate it. 
We did not get a favorable response there. I would say we have 
had some success in shaping the form to the better as we see it 
for our membership, but we would like to see more.
    Mrs. BLACK. Well, other than the category you just spoke of 
to make it voluntary, what other specific concerns do you have 
on that schedule?
    Mr. REGIER. I think the new Schedule H compared to the 
former one has now expanded significantly in its length and 
detail, so there is now I think more than 60 subparts to the 
schedule. We saw the adoption of it as a pretty significant 
increase in the filing responsibility for the exempt 
organization.
    Mrs. BLACK. Let me go to your testimony where you state 
that many of the documentation requirements related to the 
community health needs assessment are burdensome. And as you 
know, these requirements are designed to ascertain whether each 
tax-exempt hospital is truly providing the requisite community 
benefit to qualify for tax exemption. So given this weighty 
task, do you propose an alternative method of demonstrating to 
the IRS that every tax-exempt hospital is meeting those 
requirements?
    Mr. REGIER. I think the concern that we have is not about 
demonstrating that the requirements have been met, it is more 
about the way that one--the process that is being prescribed 
for the needs assessment. The guidance that has been issued by 
the service so far for the community health needs assessment is 
very detailed in what you have to do to document what you have 
done. So for example, to list by name, by organization, the 
persons that you consulted with who you thought were public 
health experts; to list by name, and their indication of their 
community or status, the persons that you consulted with that 
represent low-income or specific disease populations. Leaving 
aside the question of privacy concerns, that is a level of 
detail about and prescribed detail about what you must supply 
and report about your process of assessing community need that 
we think really misses the point; the point of which is, here 
are the needs that are present in the communities that we are 
serving.
    The other concern I would say we have about the guidance so 
far really is the question of how this kind of assessment and 
planning is done in particular in multi-hospital systems. So 
multi-hospital systems that may extend through a State or 
across many regions typically plan on a systemwide basis and 
there are efficiencies to be obtained from that. The reporting 
scheme, however, that is set up, which is driven by the 
statute, is very siloed, so it is requiring reporting to be 
done on a hospital-by-hospital-by-hospital basis, along with an 
implementation plan that would be separate for the hospital-by-
hospital-by-hospital basis. We would love to see something that 
would allow a system to have a greater degree of flexibility, 
to show within the report how the individual hospitals are 
meeting needs without having to do this kind of siloed 
hospital-by-hospital kind of approach, which is how we see the 
guidance shaping up so far.
    Mrs. BLACK. And I think you make a very good point there. 
In certain hospital systems, you may have one hospital in an 
area that provides a great deal of community needs and maybe in 
another sector of that same system not so much so. But if there 
could be some coordination there, so the silo effect.
    Is there anything else that you would like to offer in this 
testimony to say how you think this could be made better on 
that?
    Mr. REGIER. I guess the overall concern I have is that 
today we are asking health-care organizations to become much 
more accountable in different ways to help manage and promote 
the wellness of the community. We want to keep people well, 
keep them healthy and be rewarded for that, or that is what 
government seems to be telling health-care providers. The 
community health needs assessment could be a very powerful tool 
to inform that work. I am concerned and we are concerned that 
it won't be if we ask our providers and multisystem providers 
to look on this siloed hospital-by-hospital basis. We don't 
achieve population health and wellness in that way, we don't 
achieve and meet the needs of communities and regions in that 
way. So that is the only thing I would say.
    Mrs. BLACK. Thank you for your testimony. I yield back.
    Mr. BOUSTANY. Thank you. Ms. Jenkins, you are recognized.
    Ms. JENKINS. Thank you, Mr. Chairman. Thank you for holding 
this hearing, and thank you all for joining us.
    Mr. Colinvaux, in your testimony as well as in your recent 
article in the Florida Tax Review, you raised the issue of the 
distinction between public and private charities. You stated 
that the distinction is one of form rather than substance and 
that the distinction is beginning to collapse from its own 
weight. As an example, you mentioned the different standard 
that applies with respect to self-dealing between a charity and 
the insiders. Can you just elaborate for us on the distinctions 
in law between a public charity and a private charity?
    Mr. COLINVAUX. Sure. Thank you for the question, Ms. 
Jenkins. By saying that the distinction is one more of form 
than substance, what I mean by that is that we take a public 
charity and a private foundation. Well, what makes a public 
charity public and what makes a private foundation private? 
Well, the private foundation is private not because of what it 
does but because it is funded really by one person or by a 
family, not because of its underlying charitable activity. And 
so Congress has looked at that shape, the form of the 
foundation, and said that shape is more likely to result in 
abuse because it doesn't have a donor community making 
contributions to it, it also doesn't have a service community 
so that there is no base to effectively oversee the foundation. 
So the form of the foundation is then disfavored relative to 
the public charity. So that is why it is a distinction of form 
and not substance.
    Why I think it is starting to collapse is because when 
Congress made that distinction in the law in 1969, it was very 
much an anti-abuse focus. That is, we said certain forms of 
charity are more subject to abuse, so they should be subject to 
the private foundation anti-abuse regime. What we have now seen 
in recent years has been more abuses at public charities, and 
one of the congressional responses, then, is to look to the 
private foundation rules, say here we have a set of rules that 
regulate abuse, why don't we apply those rules to public 
charities? And so the self-dealing rules are an example of 
that.
    The private foundation approach to self-dealing is quite 
harsh. It says if there is a transaction; that is, if there is 
a loan between the charity and a disqualified person or a sale 
of property between the charity and the disqualified person, 
then it is self-dealing.
    The approach under the public charity rules is different. 
You have to decide whether there has been an excess benefit. So 
it is a very different analysis, and by saying it is 
collapsing, I am saying that the more we use the public--the 
private foundation rules to regulate abuses, the less distinct 
these two types of charities become.
    Ms. JENKINS. Okay. So did I just hear you say that you 
believe that the anti-abuse rules that pertain to private 
charities should apply to public charities?
    Mr. COLINVAUX. Well, not across the board. What I think 
would make sense is to look at the types of abuses we have 
identified. So there are a number of abuses: Self-dealing, 
excess business holdings, the expenditures for nonexempt 
purposes. We should look at those abuses, decide whether those 
abuses, first of all, still matter. Some people would argue 
that we don't--we are not worried about some abuses anymore. We 
should look at the abuses, decide if they still matter, and if 
they do, then maybe apply the private foundation rules not 
based on whether you are a public charity or a private 
foundation or not but just apply them because we want to 
regulate the abuse.
    Ms. JENKINS. I see. You also mentioned in the Florida Tax 
Review article that a largely unexamined facet of the 
charitable sector is the ownership by public charities of for-
profit enterprises. Given that is an area that has remained 
largely unexamined, can you just elaborate on some of the 
reasons why a tax-exempt organization would own a taxable, for-
profit enterprise and how prevalent this practice is?
    Mr. COLINVAUX. Well, I can't really comment on how 
prevalent it is, but I know it is fairly common. There is no 
rule against it. So, first of all, there is a rule against it 
for private foundations. Private foundations cannot have excess 
business holdings. Public charities may, and because they may, 
they do. So why? Well, I think one of the reasons is because 
they want to do more than just the charitable work. They want 
to do other activities that may be related to the charitable 
work. So they set up a for-profit business and separately 
incorporate it. There is no rule against it. It is not 
necessarily bad, but it is something that we haven't thought 
about a lot as to whether we want to encourage it or not 
encourage it.
    Ms. JENKINS. Okay, thank you so much. I yield back.
    Mr. BOUSTANY. Mr. Reed, you are recognized.
    Mr. REED. Thank you, Mr. Chairman. Ms. DeStefano, if I 
could ask you a question in regards to your testimony, and I do 
appreciate you being with us today, you had mentioned in your 
testimony and when I read your testimony the compliance that 
you had with the Form 990, and you had mentioned something in 
your verbal testimony today about the K-1 and the side issues. 
I wonder if you could elaborate for me a little bit more in 
detail exactly what you are referring to in regards to that 
additional requirement.
    Ms. DESTEFANO. Currently the 990 is an informational 
return, and it reconciles with our financial data and our 
balance sheet of our audited financial statements. K-1 data 
typically will be used for institutions like Cornell that have 
large endowments where we are invested in partnerships, and we 
receive K-1s. The K-1 data is not part of our official 
university records. If we are required to now take a return 
full of data that reconciles with our financial statements and 
have financial statement data and other data commingled, the 
reconciliation issues and the amount of time to validate the 
accuracy of the reporting expands exponentially. So we are 
recommending that for the informational return that we stay 
with financial statement data that is already audited and can 
tie to something that someone else has already reviewed.
    Mr. REED. Well, that makes sense to me, and that is a 
really a good common sense suggestion. Is there any way, in 
your mind, that you could quantify the type of burden that you 
would have to comply with if we went down----
    Ms. DESTEFANO. I don't have the answer, but I can speak 
with my staff----
    Mr. REED. I would appreciate that.
    Ms. DESTEFANO [continuing]. And provide a response back.
    Mr. REED. And obviously any resources that you allocate to 
this compliance issue is taking away from your educational 
mission, correct?
    Ms. DESTEFANO. Exactly, it is additive.
    Mr. REED. And from your experience with the compliance 
audit, could you offer any insights to us as to what worked, 
what didn't work from your perspective in dealing with the IRS?
    Ms. DESTEFANO. So we spent 2 years going through the 
compliance audit. We had approximately 15 staff members 
involved. The IRS looked at every single transaction for fiscal 
year 2008. We spent a significant amount of time educating the 
IRS on the higher ed industry. I think that the auditors after 
2 years now understand our industry. The one thing, though, 
that we felt might be helpful is apparently the 990 and the 
990-T did not provide sufficient data to determine what should 
be audited, and as a result, the IRS created a questionnaire 
and at Cornell we felt that the way the questionnaire was, the 
questions were phrased, and that is what determined what is to 
be audited, the IRS should seriously take a look at what those 
questions were phrased, was sufficient to determine areas of 
audit if the return itself didn't identify the areas that they 
should come in and take a look at the survey questions, perhaps 
they were more effective.
    Mr. REED. Very good. I appreciate that testimony, and I 
look forward to receiving your additional material and that 
estimate of impact on your K-1 compliance requirement.
    With that, Chairman, I would yield back.
    Ms. DESTEFANO. Thank you.
    Mr. BOUSTANY. Thank you, Mr. Reed.
    Mr. Kind, you are recognized.
    Mr. KIND. Thank you, Mr. Chairman. I want to thank our 
panelists for your testimony here today. I appreciate this 
opportunity to have this hearing on tax-exempt organizations. 
Mr. Colinvaux, I think you are right, I think we are going to 
have to maintain lines of communication and learn more before 
we are ready to dive into comprehensive tax reform and help us 
to do that. But listening to almost all of you here today, I am 
being left with the impression, especially with the 990 form, 
that the IRS has not been all that responsive in receiving 
feedback or suggestions on how we might be able to streamline 
or simplify the 990 form.
    Is that the impression that you have or have they been 
responsive to feedback that various organizations have been 
giving them on how they can help simplify the 990 form? Mr. 
Regier, do you want to take that first?
    Mr. REGIER. Sure. And I don't want to leave the impression 
that the IRS has been unresponsive. They have not been. Through 
our dialogue, we have clarified some pretty important issues 
related to the Form 990 and the Schedule H, so, for example, 
they have been helpful in clarifying just what kind of hospital 
facility is required to comply with the new requirements in 
helping to define what it means to widely publicize your 
financial assistance policy. So I can point to, you know, four 
or five areas in particular that we think have been very 
helpful clarifications that have come out of that dialogue.
    That said, there is still at least that many or more where 
we believe there is some further help that is needed, and the 
biggest degree of help would be if we were able to get actual 
proposed or final regulations related to these new 
requirements, most of which have been in effect since the 
Affordable Care Act was signed in 2010.
    Mr. KIND. Anyone else have an opinion on how responsive the 
IRS has been? Ms. Aviv?
    Ms. AVIV. Mr. Kind, our experience is actually quite 
different from what the question might suggest. When the 
Pension Protection Act was passed, we worked closely with the 
IRS on the reform of the 990 the first time, and we found that 
they invited us in and many other organizations in to talk to 
them about what the concerns were, what the changes needed to 
be. When we offered our comments during the public comment 
period, they followed up with us. When they put in place the 
Pension Protection Act requirement that organizations that 
failed to file would lose their tax exempt status they went out 
of their way to provide notices across the board and on their 
web site to make sure that everybody knew when a number of 
organizations got caught in that that still existed. The idea 
was to clear out the inventory of those organizations that no 
longer existed so we have an accurate count of how many 
organizations there actually are. They worked assiduously to 
try and get those organizations reinstated. We found them 
responsive to our concerns, including questions, in a serious 
way. I think that is different than the question of the 
burdensomeness of the 990 form which many organizations feel is 
beyond their capacity and the expense capability and takes away 
from programs.
    Mr. KIND. I am sympathetic, too. And obviously we get 
testimony from the IRS themselves. It seems as if as a body we 
are asking them to do more with less, and these things are 
becoming more complex every year, and yet we are asking them to 
render good, effective service and responsive service to all of 
you, too.
    Mr. Hopkins, let me turn to you real quickly on a different 
line. Obviously, we have seen a real growth in (c)(4) activity 
off of the social welfare organizations, and we are also 
noticing stepped-up political involvement with a lot of the 
(c)(4)s out there. Is that an area that the Congress should be 
paying a little bit more attention to or even the IRS paying 
attention to, in your mind?
    Mr. HOPKINS. Well, absolutely. Certainly the IRS is paying 
attention to it now. The IRS, as you probably know, has gotten 
a substantial number of applications from organizations that 
want to be 501(c)(4)s, and some of them have a substantial 
amount of political campaign activity planned, and the position 
of the IRS is that if that is the entity's primary purpose, it 
can't qualify under 501(c)(4). There has been, for example, a 
recent ruling, the first ruling of the current batch was 
adverse to an entity that wanted to be a 501(c)(4). The IRS 
decided that 80 percent of what it wanted to do consisted of 
political activity. So the IRS is right now processing a lot of 
applications in that area.
    Mr. KIND. Well, what is your opinion on requiring 
disclosure of contributions to (c)(4)s?
    Mr. HOPKINS. Well, that of course is not the law at the 
present time.
    Mr. KIND. Right.
    Mr. HOPKINS. And we do have the alternative, the 527 
political entity, and that kind of an organization does have to 
make its donors public, and public charities have to disclose 
their donors but only to the IRS, and private foundations 
have----
    Mr. KIND. It just seems that a lot of the (c)(4)s are being 
used in order to allow these anonymous contributions to be made 
for, in essence, political activities.
    Mr. HOPKINS. That is one of the principal reasons, frankly, 
that (c)(4)s are being utilized in this regard is so that the 
donors do not have to be disclosed. So if the question is--and 
this is purely a matter of policy. Should donors or at least 
large donors have to be identified to 501(c)(4) entities? I 
mean, that is obviously well within the prerogative of 
Congress' decision making, and certainly that rule could be 
enacted.
    The question to me is, you know, what would be the 
consequence of that? Would it be to discourage contributions, 
political contributions to (c)(4)s? Probably to some degree. 
And maybe that is what is desired. But certainly as a matter of 
transparency I personally don't have any problem with having 
that sort of a rule, although probably as a matter of fairness 
if that kind of rule were to be enacted, maybe some other 
categories of exempt organizations ought to have the same rule, 
(c)(5), (c)(6)s, for example, but as a matter of transparency 
on balance it is probably a good idea.
    Mr. KIND. Right, right. Thank you. Thank you, Mr. Chairman.
    Mr. BOUSTANY. Thank you, Mr. Kind. We will go next to Mr. 
Paulsen.
    Mr. PAULSEN. Thank you, Mr. Chairman, also for holding the 
hearing today.
    Mr. Colinvaux, let me just shift back to something I think 
you referenced in your testimony before about the enforcement 
problems that are faced by the IRS than being due to a lack of 
positive requirements for tax-exempt status. Can you elaborate 
a little bit on that point, and do you agree or do you believe 
that this is not an enforcement problem that can be resolved 
simply by increasing the IRS budget to audit charities? Is 
there more to it?
    Mr. COLINVAUX. I do think there is more to it. I think a 
lot of what we are hearing about the 990 and the information 
burden, what is driving a lot of the information question to me 
really goes to what we mean when we say compliance, what do we 
mean by compliance. And partly what policymakers and others are 
concerned about is whether or not an organization is providing 
a public good. Well, there is no legal requirement, really, 
that the organization provide a public good. They just have to 
be organized for a good purpose. So we want all this 
information in order to assess a substantive question, which 
is, is the organization doing good. But there aren't really 
legal requirements to back that up. Rather, the legal 
requirements are more you may not pay excess compensation, you 
may not engage in campaign activity, you may not engage in 
substantial lobbying.
    So a lot of the enforcement efforts are tailored to that 
sort of compliance, and one quick note which I think is very 
significant, the governance initiative, we have talked a lot 
about governance. One of the reasons I think the IRS is looking 
at governance is because if the IRS can decide that good 
governance means better compliance, that means you will have a 
better run organization, fewer abuses, and maybe also more 
public good is being produced. So it is something the IRS can 
do. It is something they can look at. I think part of what they 
are doing with the 990 is gathering information to see what 
information works and what helps them oversee the burden.
    Mr. PAULSEN. You also noted that the new hospital 
requirements are a recent example of Congress imposing a 
positive requirement on organizations in order to support their 
tax-exempt status. Do you think that this type of sort of anti-
abuse positive requirement structure would also be useful in 
other areas of the tax-exempt sector?
    Mr. COLINVAUX. I think potentially yes, although with 
hospitals in a way the new rules fall short of a strict 
positive requirement, and that is where some context is useful 
there, too, because leading up to the new Section 501(r), the 
question was whether an affirmative duty of charity care should 
be imposed on hospitals, and Congress didn't go that route. 
Instead they went the route of requiring more process-based 
requirements; namely, more paperwork, more proof of the 
community benefit without actually defining what the community 
benefit is. So I think partly you are seeing more process being 
layered on community and charitable organizations as a 
substitute for requiring some affirmative duty.
    Mr. PAULSEN. Thank you, Mr. Chairman. I yield back.
    Mr. BOUSTANY. I thank the gentleman. Mr. Becerra, you are 
recognized.
    Mr. BECERRA. Mr. Chairman, thank you very much, and let me 
congratulate you on this hearing. This is something that we 
should be doing quite a bit more, I hope, and it is great to 
have the testimony of all the witnesses.
    Ms. Aviv, a pleasure to see you again, always a pleasure.
    Let me make sure about something, and Mr. Colinvaux, maybe 
this is a question I should direct at you. Close to two million 
tax-exempt organizations, at least that was a 2008 number, and 
my understanding is that in 2008 there were some 7,900 audits 
by the IRS performed of these tax-exempt organizations. So if 
my quick math is correct, less than 1 percent of organizations 
that qualify for tax-exempt status are audited by the IRS. Is 
that about right?
    Mr. COLINVAUX. It sounds about right.
    Mr. BECERRA. I actually know something more than you do on 
this; okay, that is good. That is a good way to start. At least 
those are the numbers I have, which to me is perhaps one of the 
reasons why we do have these issues, that there isn't enough 
oversight, and with these fuzzy rules on who qualifies and who 
doesn't, it is not surprising that we have so many entities 
applying to become tax-exempt organizations. Many of them do 
great work. We are finding, unfortunately, that some don't. And 
the sector, because it probably doesn't do as much as it can to 
police itself and because the IRS hasn't focused on doing more 
enforcement and oversight can't do it either or hasn't done it 
either, it seems that there are a lot of entities operating 
here that perhaps would not qualify, and the result is that a 
lot of American taxpayers are watching their taxpayer dollars 
go for noncharitable, nonpublic good purposes.
    Let me ask, Mr. Colinvaux, a question to you because you 
focused on this issue of enforcement, and having more effective 
enforcement would include having brighter lines, more positive 
requirements you have mentioned. Give me a sense, give me 
something tangible in terms of brighter lines. For example, 
what would you qualify, having, for example, a tax-exempt 
organization have to provide some information on its outcomes 
and activities that it is engaged in to have that status?
    Mr. COLINVAUX. Well, it is very hard for me to judge, but 
in part yes. I think what I am trying to argue is that our 
current system is one that is based on purposes which, as you 
suggest, means a lot of organizations can qualify, and once 
they qualify they tend to remain exempt. So in terms of looking 
at more positive requirements or brighter lines, one of the 
things I think we ought to be thinking about is whether we 
should shift away from just purposes and also towards 
activities, which is to look at the activities of an 
organization, maybe require a certain threshold of an activity, 
maybe do more work in terms of defining what a charitable 
purpose is. I also think it is important to remember that we 
don't have to view all of the tax benefits together. Right now 
we do. We put everything under 501(c)(3), and deductibility and 
tax-exempt financing flow from that. We don't have to do that. 
We could look at 170, the charitable deduction, and say are 
there certain eligibility requirements we want to impose on 
donations, on certain types of organizations that can receive 
donations? Do we want to prioritize certain types of charitable 
purposes over others? Those are the sorts of questions I think 
we should be asking.
    Mr. BECERRA. And that would help people understand where 
those tens of billions of dollars that--well, actually even 
more money that is being contributed by Americans to these 
nonprofits, how it is being used and how it is that they are--
those entities are now getting to shield those resources from 
taxation. So you make a charitable contribution, you get to 
write off that on your taxes, the organization has tax-exempt 
status, doesn't have to pay taxes the way a for-profit entity 
would have to pay. Therefore, it is in a better leveraged 
position than that for-profit entity. So taxpayers should be 
entitled to some sense of what is being done with the money 
since at the end of the day it is taxpayers who are covering 
the cost of giving these entities this tax-preferred status.
    Mr. COLINVAUX. Yes, I generally agree with that, and that 
is why I think looking at 170, the charitable deduction in 
particular, that is where the Federal interest is quite strong.
    Mr. BECERRA. I do have a concern with these 501(c)(4) 
organizations, these welfare organizations. We are finding more 
and more how they are going into the political side of things 
and, Mr. Hopkins, you testified to that. But I know my time is 
about to expire.
    Mr. Chairman, I know you are planning to have more hearings 
on this issue. I hope we do. I hope we have the IRS here. I 
believe that the more we do to examine this sector, the better 
off those that are doing phenomenal work will be able to have 
contributions made by Americans because they will know, in 
fact, that their money is going to great purposes, and so I 
hope we get on this. Thank you, Mr. Chairman.
    Mr. BOUSTANY. Thank you, Mr. Becerra.
    Mr. Marchant, you are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman. This question is for 
Ms. Aviv. As part of its Good Government Initiative, the 
independent sector has identified 33 principles in its 
Principles for Good Government and Ethical Practice Guide to 
help tax-exempt organizations with operations and transparency. 
Are any of the 33 principles reflected in the revised Form 990?
    Ms. AVIV. Mr. Marchant, I would have to get back to you on 
that, and I will check and do in writing to make sure that they 
are there. Let me say that the general point of these 
principles was for them to be applied to ourselves by 
ourselves. This was a set of voluntary principles that we put 
forward. We said that in order for this not to be a government 
compliance area, we need to step up to the plate and support 
standards of good governance and ethical practice that we 
impose upon ourselves. So the purpose was not to encourage 
further government action in this regard, believing that there 
were whole areas of governance that organizations themselves 
have a responsibility to fulfill. That is why we are so pleased 
that so many organizations have stepped up, downloaded this 
document, and are using it in order to improve their practice. 
We believe the more we step up, the less need there is for 
government to step in.
    Mr. MARCHANT. Are there some principles not incorporated in 
the form that you think should be?
    Ms. AVIV. I will have to get back to you on that in 
writing. I would be happy to do that.
    Mr. MARCHANT. Well, thank you. Thank you very much.
    Welcome to Mr.--how do you say it?
    Mr. REGIER. It is Regier.
    Mr. MARCHANT. Regier. Welcome. Your offices are in my 
district on Las Colinas.
    Mr. REGIER. Yes, absolutely.
    Mr. MARCHANT. It is good to see you here today.
    I have a couple of questions for Mr. Hopkins. Can you 
briefly describe the distinction between a 501(c)(4) and a 527?
    Mr. HOPKINS. I can do it. Whether I can do it briefly or 
not is another matter.
    Mr. MARCHANT. Well, in the amount of time that I have left.
    Mr. HOPKINS. Let me put it this way, they are both discrete 
categories of tax-exempt organizations. The 527 entity has as 
its primary purpose political campaign activity. The flip side 
is a 501(c)(4) cannot have that as its primary purpose and must 
have as the promotion of social welfare its primary purpose. So 
the primary purpose test takes those two organizations in 
different directions.
    We have talked about the donor disclosure rules. They apply 
to 527s. They do not currently apply to 501(c)(4)s. The 527 
organizations are taxable on all of their revenue from 
nonexempt functions whereas a 501(c)(4) would be taxable only 
on its unrelated business income. And the only other item that 
I can--or element that I can think of that would differentiate 
between the two is that the reporting for political 
organizations is far more complex and frequent than is the case 
for the 501(c)(4) organization.
    Mr. MARCHANT. Well, there has been a lot of recent activity 
out in the country among some of our activist groups that are 
complaining that the IRS is putting an incredible paperwork 
burden on them to prove that they should have the status that 
they have, and I am assuming that these are 501(c)(4)s that 
are--the accusation is that they are doing 527-type activity; 
is that correct?
    Mr. HOPKINS. That is absolutely correct.
    Mr. MARCHANT. And the IRS, I am getting a lot of complaints 
from my constituents that feel like that they are perfectly 
justified and are following all the rules under 501(c)(4) but 
that the IRS has singled them out for audit, for hundreds and 
hundreds of pages of forms, and has this always been the case 
or is this a recent phenomena?
    Mr. HOPKINS. This is a recent phenomenon in my judgment for 
two reasons. One, 501(c)(4)s, of course, do not have to file to 
begin with, and so the practice in many, many instances up till 
recent times has been for an organization to form as a 
501(c)(4) and just go forward and not even go through the 
application process. Why there has been this upsurge in 
application activity is not entirely clear to me, but the 
impression I have gotten based on the limited amount of 
experience derived from my own practice is that for some reason 
the IRS does seem to be asking for a lot more detail in this 
context than they might otherwise.
    Mr. MARCHANT. I would hope, Mr. Chairman, that at some date 
we will have the IRS here so that we can specifically ask the 
IRS, you know, why is there this sudden new focus on these 
groups. Thank you. Thank you, Mr. Hopkins.
    Mr. BOUSTANY. Thank the gentleman, and I share his concern.
    This concludes all the questioning. I want to thank each of 
you for coming here today and being witnesses and for your 
testimony. I want to remind you all that members may have some 
additional written questions that they might submit to you, and 
your answers to those as well as the questions would be made 
part of the official record.
    This has been a very helpful hearing. The information you 
provided to us has given us some good guidance as we look at 
this whole area of tax-exempt organizations. This hearing is 
now adjourned.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

    [Submissions for the Record follow:]

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                     American Hospital Association

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                Association for Healthcare Philanthropy

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                       Catalogue for Philanthropy

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                            Cause of Action

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                           Charity Navigator

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                              CharityWatch

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                           Community Catalyst

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                   Credit Union National Association

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                  Jewish Federations of North America

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             National Association of Federal Credit Unions

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                     National Council of Nonprofits

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              The Community Foundation for Greater Atlanta

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                   MATERIAL SUBMITTED FOR THE RECORD
                       Questions for the Record:
                             Ms. Diana Aviv

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