[WPRT 106-11]
[From the U.S. Government Publishing Office]


106th Congress 
 2d Session                 COMMITTEE PRINT                       WMCP:
                                                                 106-11
_______________________________________________________________________

                                     


                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                            WRITTEN COMMENTS

                                   ON

              JOINT COMMITTEE ON TAXATION DISCLOSURE STUDY






                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                              MAY 19, 2000

  Printed for the use of the Committee on Ways and Means by its staff
                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel




Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed record of written comments remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing/written comments 
record, the process of converting between various electronic formats 
may introduce unintentional errors or omissions. Such occurrences are 
inherent in the current publication process and should diminish as the 
process is further refined.

 
                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 3, 2000, announcing request for written 
  comments on Joint Committee on Taxation Disclosure Study.......     1
Alabama Policy Institute, Birmingham, AL, Christian S. Spencer, 
  letter.........................................................     3
American Family Association, Tupelo, MS, Patrick J. Vaughn, 
  letter.........................................................     4
American Hospital Association, statement.........................     4
American Society of Association Executives, Jim Clarke, letter...     7
Anderson, John, Yucaipa, CA, letter..............................    11
Bjorklund, Victoria B., Simpson, Thatcher & Bartlett, New York, 
  NY, and Committee on Exempt Organizations, Section of Taxation, 
  American Bar Association, joint statement......................    14
Boris, Elizabeth T., Urban Institute, letter and attachment......    93
Cecil B. Day Foundation, Inc., Norcross, GA, Edward L. White, 
  Jr., letter....................................................    18
Christian Alert Network (TCAN) Inc., Killeen, TX, Rev. Curt 
  Tomlin, letter.................................................    18
Clarke, Jim, American Society of Association Executives, letter..     7
Coalition for Fair Competition in Rural Markets, statement.......    19
Coalition for Nonprofit Health Care, Boone Powell, Jr., statement 
  and attachment.................................................    21
Concerned Women for America, Beverly LaHaye, letter..............    28
Council on Foundations, Dorothy S. Ridings, statement............    28
Courter, Hon. J. Carlton, III, Virginia Department of Agriculture 
  and Consumer Services, Richmond, VA, letter....................    98
DeWitt, Leonard W., Ventura Missionary Church, Ventura, CA, 
  letter.........................................................    95
Donovan, William, Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
Dunn, David C., Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
Emerson, Karl E., National Association of State Charity 
  Officials, Harrisburg, PA, letter..............................    71
Family Research Council, Washington, DC, Stephen W. Reed, joint 
  letter.........................................................    41
Ferguson, Robert H.M., Patterson, Bellknap, Webb & Tyler, New 
  York, NY, and Committee on Exempt Organizations, Section of 
  Taxation, American Bar Association, joint statement............    14
First Baptist Church, Groton, VT, Pastor Chris Paine, letter.....    30
First German Congregational Church, Lincoln, NE, Rev. James 
  Pedersen, letter...............................................    31
Fishman, Linda, Los Angeles, CA, letter..........................    32
Focus on the Family, Pasadena, CA, Stephen W. Reed, letter.......    41
Free Speech Coalition, Inc., McLean, VA, statement and attachment    43
Goldman, Karin K., New York State Office of the Attorney General, 
  letter and attachment..........................................    74
Goodman, Edward N., VHA Inc., statement..........................    96
Hall, LeeAnn, Northwest Federation of Community Organizations, 
  Seattle, WA, letter and attachment.............................    78
Howard, John, Branson West, MO, letter...........................    48
Hyatt, Gil, Piercy, Bowler, Taylor & Kern (CPAs), Las Vegas, NV, 
  statement and attachments......................................    83
Independent Sector, statement....................................    49
International Health, Racquet & Sportsclub Association, Boston, 
  MA, statement..................................................    63
Istook, Hon. Ernest J., Jr., a Representative in Congress from 
  the State of Oklahoma, letter..................................    65
Jestes, Michael L., Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
Jestes, Velonia, Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
Josephson, William, New York State Office of the Attorney 
  General, letter and attachment.................................    74
LaHaye, Beverly, Concerned Women for America, letter.............    28
Lampkin, Linda M., Urban Institute, letter and attachment........    93
Lehrfeld, William J., Bethesda, MD, statement....................    66
Mauldin, Alan, Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
McAlister, Lloyd G., Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
National Association of State Charity Officials, Harrisburg, PA, 
  Karl E. Emerson, letter........................................    71
National Club Association, statement.............................    72
New York State Office of the Attorney General, William Josephson, 
  and Karin K. Goldman, letter and attachment....................    74
Northwest Federation of Community Organizations, Seattle, WA, 
  LeeAnn Hall, letter and attachment.............................    78
Oklahoma Family Policy Council, Bethany, OK, Lloyd G. McAlister, 
  Alan Mauldin, Michael L. Jestes, William Donovan, David C. 
  Dunn, Stephen Prentice, Jeanne R. Young, and Velonia Jestes, 
  letter.........................................................    79
Paine, Pastor Chris, First Baptist Church, Groton, VT, letter....    30
Pedersen, Rev. James, First German Congregational Church, 
  Lincoln, NE, letter............................................    31
Philanthropic Research, Inc., Williamsburg, VA, Arthur W. 
  Schmidt, Jr., letter and attachment............................    81
Piercy, Bowler, Taylor & Kern (CPAs), Las Vegas, NV, Gil Hyatt, 
  statement and attachments......................................    83
Powell, Boone, Jr., Coalition for Nonprofit Health Care, 
  statement and attachment.......................................    21
Prentice, Stephen, Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
Reed, Stephen W., Focus on the Family, Pasadena, CA; Family 
  Research Council, Washington, DC; and Reed & Brown, LLP, 
  Pasadena, CA, joint letter.....................................    41
Ridings, Dorothy S., Council on Foundations, statement...........    28
Schmidt, Arthur W., Jr., Philanthropic Research, Inc., 
  Williamsburg, VA, letter and attachment........................    81
Sheldon, Rev. Louis P., Traditional Values Coalition, letter.....    92
Spencer, Christian S., Alabama Policy Institute, Birmingham, AL, 
  letter.........................................................     3
Steuerle, Eugene, Urban Institute, letter and attachment.........    93
Tomlin, Rev. Curt, Christian Alert Network (TCAN) Inc., Killeen, 
  TX, letter.....................................................    18
Traditional Values Coalition, Rev. Louis P. Sheldon, letter......    92
Urban Institute, Eugene Steuerle, Elizabeth T. Boris, and Linda 
  M. Lampkin, letter and attachment..............................    93
Vaughn, Patrick J., American Family Association, Tupelo, MS, 
  letter.........................................................     4
Ventura Missionary Church, Ventura, CA, Leonard W. DeWitt, letter    95
VHA Inc., Edward N. Goodman, statement...........................    96
Virginia Department of Agriculture and Consumer Services, Hon. J. 
  Carlton Courter, III, Richmond, VA, letter.....................    98
White, Edward L., Jr., Cecil B. Day Foundation, Inc., Norcross, 
  GA, letter.....................................................    18
Whiting, Stephen C., Whiting Law Firm, P.A., Portland, ME, letter    99
Young, Jeanne R., Oklahoma Family Policy Council, Bethany, OK, 
  letter.........................................................    79
      

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

February 3, 2000

No. FC-18

                      Archer Announces Request for

                          Written Comments on

              Joint Committee on Taxation Disclosure Study

    Congressman Bill Archer (R-TX), Chairman of the Committee on Ways 
and Means, today announced that the Committee is requesting written 
public comments for the record from all parties interested in the study 
and recommendations released on January 28, 2000, by the Joint 
Committee on Taxation concerning disclosure of Federal tax returns and 
return information, including disclosures relating to tax-exempt 
organizations.
      

BACKGROUND:

      
    The Internal Revenue Service Restructuring and Reform Act of 1998 
(P.L. 105-206 ) required the Joint Committee on Taxation and the U.S. 
Department of the Treasury to conduct separate studies on the present-
law provisions regarding disclosure of Federal tax returns and return 
information, including whether the public interest would be served by 
greater disclosure of information relating to tax-exempt organizations. 
The studies were to include legislative and administrative 
recommendations and were due on January 22, 2000. On January 28, 2000, 
the Joint Committee on Taxation released its three volume analysis, 
Study of Present-Law Taxpayer Confidentiality and Disclosure 
Provisions, JCS-1-00, which includes numerous recommendations 
concerning both general disclosures and disclosures relating to tax-
exempt organizations. That study is available at the Joint Committee's 
internet site at http://www.house.gov/jct or may be purchased at the 
Government Printing Office. The Committee anticipates requesting 
further comment once the U.S. Department of the Treasury has submitted 
its required study.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record should submit six (6) single-spaced copies of 
their statement, along with an IBM compatible 3.5-inch diskette in 
WordPerfect or MS Word format, with their name, address, and comments 
date noted on label, by the close of business, Wednesday, March 15, 
2000, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, 
U.S. House of Representatives, 1102 Longworth House Office Building, 
Washington, D.C. 20515.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit 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 statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely 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. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
      

                                

                               Alabama Policy Institute    
                                       Birmingham, AL 35223
                                                      March 7, 2000
A.L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth Bldg.
Washington, DC 20515

    Dear Mr. Singleton,

     This letter is to oppose the Joint Committee on Taxation Staff 
Proposals, JCS-1-00 (January 28, 2000) concerning the further 
regulation of tax exempt organizations.
     The Joint Committee on Taxation staff has prepared a report 
entitled ``Study of Present Law Taxpayer Confidentiality and Disclosure 
Provisions as Required by Section 3802 of the Internal Revenue Service 
Restructuring and Reform Act of 1998.'' Volume II deals with the 
disclosure provisions related to Tax-Exempt Organizations.
     The report contains recommendations in three major areas which are 
of concern to us. The proposals would require tax-exempt organizations:
     1. To provide detailed narrative descriptions of their lobbying 
activities on their 990 forms,
     2. To track and report amounts spent on self-defense lobbying, and
     3. To track and report the amounts spent on nonpartisan research 
which includes an ``indirect'' call to action.
     The first item is overreaching and goes beyond the intent of 
Congress to simplify, not complicate tax code compliance. The second 
item would require an inordinate amount of staff time and expense for 
organizations which depend primarily upon multiple small donations for 
their existence, as well as complicating their Form 990 tax reporting. 
The third item not only has the problems of items number one and two, 
but is in fact impossible to achieve except on the most subjective of 
standards. This creates a non-compliable standard for research and 
education organizations whose purpose is to educate about issues of 
general public interest.
     As proposed, the regulations will intimidate nonprofit 
organizations from exercising First Amendment rights on politically 
sensitive issues. This would substantially censor healthy and robust 
dialogue on matters of national, state and local import as intended by 
the Framers of the Constitution, and consistently supported by the 
United States Supreme Court.
     Under the current regulations, as the above mentioned report also 
concedes, a nonprofit organization may provide nonpartisan analyses of 
issues and be excepted from the lobbying reporting requirement even if 
a particular analysis includes a limited or implicit ``call to action'' 
based on the fair and balanced weighing of both sides of an issue. In 
every case the regulations have been held to permit exempt 
organizations to communicate to their constituents a view on 
legislation which does not include a specific call to action, and such 
communication does not constitute lobbying.
     The staff report would add the onerous burden of reporting all 
communications which identify a legislator and his or her positions on 
an issue, the relation of the legislator to the elector, or the 
relation of a legislator to a committee or subcommittee considering 
legislation on the issue. None of these activities are currently 
considered lobbying, a fact acknowledged by those who compiled the 
report. (Staff Report, Vol. II, p. 119) Consequently, there is no 
substantial reason to add such a burden to nonprofit organizations.
     In short, as proposed, the recommendations are bad because they: 
complicate the reporting requirements of nonprofits in contradiction to 
the move of Congress toward tax simplification; extensively increase 
needless regulatory control over nonprofits; produce heavy new economic 
burdens on nonprofits; substantially cloud the standard by which 
nonprofit lobbying activity is judged with vague and overbroad 
definitions; intimidate and curtail free speech in an illegitimate 
manner; irresponsibly increase needless paperwork and record keeping by 
nonprofits; complicate the ability of nonprofit organizations in trying 
to determine which, if any, of their policy studies are reportable as 
lobbying and which are not; and, such changes would confuse the public 
as to the actual lobbying activities of an organization, rather than 
clearly informing the public of the organization's lobbying activities.
     If Congress wishes to pursue more regulatory control over the 
activities of nonprofit corporations in regard to lobbying activity, it 
should focus those efforts toward nonprofit organizations that are 
funded with taxpayer dollars. Organizations that receive a substantial 
part of their funding from state and, particularly, federal grants 
should be viewed differently than other nonprofits that raise their 
funds from the private sector whose purpose is education rather than 
advocacy.

            Sincerely,
                                 Christian S. Spencer, Esq.
                                                    General Counsel

cc: Joint Committee on Taxation: Sen. William V. Roth, Jr. Chairman, 
Rep. Bill Archer, Texas, Chairman, Sen. Charles E. Grassley, Rep. 
Philip M. Crane, Sen. Orin G. Hatch, Rep. William M. Thomas, Sen. 
Daniel Patrick Moynihan, Rep. Charles Rangel, Sen. Max Baucus, Rep. 
Fortney Pete Stark, Hon. Lindy L. Paull, Chief of Staff, Hon. Bernard 
A. Schmitt, Deputy Chief of Staff, Hon. Mary M. Schmitt, Deputy Chief 
of Staff, Hon. Richard A. Grafmeyer, Deputy Chief of Staff

Alabama Delegation: Sen. Richard C. Shelby, Rep. Sonny Callahan, Sen. 
Jeff Session, Rep. Terry Everett, Rep. Bob Riley, Rep. Robert B. 
Aderholt, Rep. Robert E. Cramer, Jr., Rep. Spencer Bachus, Rep. Earl 
Hilliard
      

                                


                            American Family Association    
                                           Tupelo, MS 38803
                                                     March 14, 2000
A. L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Ref: Study of Disclosure Provisions Relating to Tax-Exempt 
        Organizations

    Dear Mr. Singleton:

    The Committee's recommendation that public charities disclose 
expenditures for nonpartisan study, analysis, and research that 
includes an ``indirect'' call to action, would implicitly expand the 
definition of grassroots lobbying and chill the free speech rights of 
educational organizations that study and teach about society and 
current events from a particular viewpoint, such as a Biblical 
worldview, or a feminist perspective. When such study, analysis and 
research teaches citizens how to consistently make choices that apply 
their principles, the study could easily be interpreted as including an 
``indirect'' call to action, if government happened to be addressing 
related issues at the same time. The effect of expanding the definition 
of lobbying to include an ``indirect'' call to action, would be that no 
``substantial part of the activities'' of a public charity could 
address subjects that the government chose to address. The free speech 
rights of public charities clearly outweigh any public interest in 
expanding the definition of lobbying.
    The recommendation that small charities (below the filing threshold 
for Form 990-EZ) be required to file an annual IRS report will either 
throw thousands of small organizations into noncompliance, or force 
them to shut down out of fear of the IRS. It is in the public interest 
that small charities be allowed to focus on their exempt purpose, 
unencumbered by bureaucratic paper work.
    In 1998, Congress passed legislation to simplify the tax scheme. 
The Committee's proposals appear contrary to the direct intent of 
Congress and would prove costly and burdensome to charitable 
organizations.

            Sincerely yours,
                                          Patrick J. Vaughn
                                          Assistant General Counsel
      

                                


Statement of American Hospital Association

    The American Hospital Association (AHA) represents nearly 
5,000 hospital, health system, network and other health care 
providers. This statement comments on the Study of Disclosure 
Provisions Relating to Tax-Exempt Organizations (the ``Joint 
Committee Study'') published by the staff of the Joint 
Committee on Taxation on January 28, 1999. The Joint Committee 
Study was required by section 3802 of the Internal Revenue 
Service Restructuring and Reform Act of 1998.

                 General principle governing disclosure

     The Joint Committee staff recommends that ``the general 
principle governing disclosure of information regarding tax-
exempt organizations is that such information should be 
disclosed unless there are compelling reasons for nondisclosure 
that clearly outweigh the public interest in disclosure.'' This 
proposed standard would establish a presumption that all return 
information of tax-exempt organizations should be publicly 
disclosed, unless this presumption can be overcome by 
compelling policy reasons for nondisclosure. While the AHA 
acknowledges that many special policy considerations apply to 
tax-exempt organizations, a general presumption in favor of 
public disclosure of all return information is not appropriate.
     The Joint Committee staff properly acknowledges that many 
policy considerations weigh towards confidentiality. These 
considerations include respect for privacy rights, 
encouragement of voluntary compliance, and the avoidance of 
imposition of additional administrative burdens on exempt 
organizations. The AHA acknowledges that other considerations 
weigh towards public disclosure, including public oversight of 
the activities of exempt organizations. We submit that it is 
appropriate for Congress to impartially weigh these policy 
considerations in determining the extent of required public 
disclosure, but that it is not helpful or appropriate to begin 
with the premise that public disclosure of all information 
gathered by the IRS is presumptively the better policy.
     The Joint Committee staff appears to assume that exempt 
organizations have no significant legitimate ``privacy 
rights.'' We acknowledge that exempt organizations may not have 
privacy rights in exactly the same sense and to the exactly the 
same degree as individuals. Exempt organizations do, however, 
have a legitimate interest to be free from excessive regulatory 
intrusion by the federal government. For example, the prospect 
of public disclosure of all material contract terms could 
adversely affect exempt organizations in negotiating with 
providers of goods and services which, for bona fide business 
reasons, prefer not to make all terms of their contracts 
public. The approach of the Joint Committee staff appears to 
disregard this legitimate interest, and instead in effect 
posits a presumption in favor of increased regulation.
     The Joint Committee Report discusses the tax benefits 
provided to exempt organizations at some length, listing the 
exemption of income from business level income taxes, the tax 
deductibility of charitable contributions, and access to tax-
exempt financing. We question whether the level of tax benefits 
provided to tax-exempt organizations is a factor that is 
appropriate to consider in determining whether public 
disclosure is appropriate. Many industries (e.g., oil and gas, 
timber and pharmaceutical) effectively receive significant tax 
expenditures and other tax benefits under the Internal Revenue 
Code; in other contexts, magnitude of tax benefits is not taken 
into account in distinguishing the level of public disclosure 
required of different types of taxpayers. Instead, we believe 
that Congress should focus on whether increased public 
disclosure will enhance tax compliance, and whether the 
improvement in tax compliance is sufficiently significant to 
outweigh the policy reasons for preserving confidentiality.
     In general, we believe that the starting point of the 
Joint Committee staff--that public disclosure of all 
information is presumptively the better policy--leads to 
certain recommendations in the Joint Committee Study that are 
overreaching.

           Disclosure of audit results and closing agreements

     The recommendations of the Joint Committee staff that are 
most objectionable to exempt healthcare organizations concern 
disclosure of return information related to IRS examinations 
and closing agreements.
     In general, we believe that the Form 990 is a more 
appropriate vehicle for meaningful disclosure to the public. 
Consideration of refinements to that form to make it more user-
friendly would be more appropriate than wholesale disclosure of 
all information gathered by the IRS.
     We fully acknowledge that it is appropriate for the IRS to 
disclose to the public a change or revocation in the exempt 
status of an exempt organization. This disclosure is in general 
permitted under existing law. The Joint Committee staff, 
however, recommends required disclosure that reaches far beyond 
core concerns about whether an organization qualifies as an 
exempt organization. Many exempt health care organizations have 
varied and complex operations. It will commonly be the case 
that, at the conclusion of an IRS examination of an exempt 
health care organization, some technical adjustments are made 
but the exempt status of the organization will be maintained; 
such an organization will then be in compliance with the 
requirements of the Internal Revenue Code. It is difficult to 
see how the additional disclosure recommended by the Joint 
Committee staff will assist the public in the core concern of 
knowing whether an organization qualifies as an exempt 
organization.
     Both Congress and the IRS Commissioner have emphasized the 
need for the IRS to adopt measures that will enhance voluntary 
compliance of stakeholders. We believe that the disclosure of 
the results of an IRS examination will in many instances 
discourage exempt health care organizations from cooperatively 
and flexibly resolving disputes with the IRS. We concur with 
the views expressed by other commentators that the publication 
of such information in many cases will lengthen the examination 
process because both sides will negotiate with a view towards 
what information will ultimately become public.
     We in particular believe that disclosure of closing 
agreements is inconsistent with the policy of encouraging 
voluntary compliance. We note that in recent years the IRS has 
instituted a number of innovative programs that in effect 
foster voluntary compliance by encouraging stakeholders to 
voluntarily enter into closing agreements with the IRS to 
resolve disputes. We have no doubt that the viability of such 
approaches would be compromised if the recommendation of the 
Joint Committee staff on disclosure of closing agreements is 
enacted.
     Moreover, in general, the Joint Committee staff recommends 
that closing agreements should not be publicly disclosed 
because they are not an effective means to provide guidance to 
taxpayers regarding the law. The Joint Committee staff 
acknowledges that closing agreements are negotiated, and do not 
necessarily represent the IRS view of the law. Because closing 
agreements are fact specific and may not contain all relevant 
information, they may be misleading if relied upon by others. 
The Joint Committee staff proposes, however, that disclosure of 
the closing agreements entered into by an exempt organization 
is appropriate, because the general public, including potential 
contributors, have an interest in full disclosure about all of 
the activities of an exempt organization. We concur with the 
view that closing agreements are potentially misleading to 
taxpayers because they often represent compromise positions and 
do not purport to state all the relevant facts. For these 
reasons, disclosure of closing agreements can be misleading to 
potential contributors and the general public as well as to 
other similarly situated exempt organizations.
     The Joint Committee staff recommends that ``the IRS 
disclose the documents reflecting the results of an audit at 
the conclusion of the administrative examination process (i.e., 
after the audit is closed and the time for filing an 
administrative appeal has expired).'' The basis for this 
recommendation is that ``information regarding the outcome of 
an audit would assist the public in determining whether the 
organization is in compliance with the law and how the 
organization is using funds.''
     Disclosure of the results of an IRS examination may be 
misleading for the same reasons that disclosure of closing 
agreements may be misleading. As a practical matter, the 
results of an IRS examination may often reflect compromise 
positions and the results of the examination presented to the 
public may not state all relevant facts.
     One implicit justification for the recommended additional 
disclosure appears to be that it arguably could assist the 
public in determining whether an organization is in compliance 
with laws other than the Internal Revenue Code. Although 
Congress may choose to expand public disclosure of federal tax 
return information in the Internal Revenue Code to facilitate 
compliance with other laws, we suggest that it should do so 
only for the most compelling policy reasons; in general, the 
presumption should be against increased regulation in the 
Internal Revenue Code to speculatively facilitate compliance 
with state and local laws. The Joint Committee staff makes 
other recommendations that would appear to adequately address 
the objective of greater federal and state coordination of 
oversight of exempt organizations. For example, the Joint 
Committee staff recommends that the IRS should be able to 
disclose to Attorneys General and other state officials audit 
and examination information concerning tax-exempt 
organizations. Although compelling policy reasons may justify 
such sharing of information with state officials, the policy 
reasons for public disclosure of all information gathered by 
the IRS are not as compelling.
     There are two other recommendations on which we would like 
to comment. The Joint Committee staff recommends that 
determinations be disclosed without redaction. If the name of 
the exempt organization and others with whom it does business 
are made public, it will adversely affect the ability of exempt 
organizations to find business partners and significantly limit 
the opportunity for exempt organizations to seek IRS guidance 
on business activities and relationships they are 
contemplating. In the spirit of furthering tax compliance, it 
does not make sense to require unredacted disclosures when that 
will have a chilling effect on seeking advance guidance.
     With respect to the recommendation that the tax return of 
a taxable affiliate of an exempt organization be publicly 
disclosed, we do not see a sufficient public policy basis for 
doing so. Presently, the tax returns of taxable organizations 
are not subject to public disclosure. Merely being an affiliate 
of a tax-exempt organization should not deny the company the 
typical and traditional confidentiality protections.
      

                                


             American Society of Association Executives    
                                  Washington, DC 20005-1168
                                                     March 15, 2000
The Honorable Bill Archer, Chairman
Committee on Ways and Means
United States House of Representatives
Room 1102
Longworth House Office Building
Washington, DC 20515

    Dear Chairman Archer:

    The American Society of Association Executives (``ASAE'') is a 
Washington, D.C.-based association comprised of more than 25,000 
professionals who manage approximately 11,000 trade, individual, and 
voluntary organizations. Almost all the associations represented by 
ASAE's membership are exempt from taxation under section 501(c)(3), 
501(c)(4) or 501(c)(6) of the Internal Revenue Code.
    ASAE welcomes this opportunity to comment on the Joint Committee on 
Taxation (``JCT'') Staff Study on Disclosure by Tax-Exempt 
Organizations, issued January 28 of this year, pursuant to the 1998 IRS 
Restructuring and Reform Act.

                            I. Introduction

    ASAE is a strong believer that reasonable disclosure 
requirements for the tax-exempt community are beneficial. 
Disclosure can be an effective tool for ensuring public trust 
in the exempt community. In fact, ASAE was among the 
organizations that supported the tax law change included in the 
1996 Taxpayer Bill of Rights 2 legislation (Public Law 104-168) 
that brought about the rule requiring exempt organizations to 
provide copies of certain exempt organization documents to 
requesters.
    Still, ASAE does not support disclosure for disclosure's 
sake, especially when disclosure requirements are overly 
burdensome and offer little to benefit the public. A number of 
the disclosures called for in the JCT report will indeed help 
better inform the public without undue burden on the exempt 
community. But, many of the recommendations offer little 
benefit compared to the paperwork and other compliance 
difficulties placed on the exempt community.
    These comments seek to point out those areas where ASAE 
agrees with the JCT Staff report, as well as those areas where 
ASAE takes issue. Not all recommendations by the JCT Staff are 
addressed in these remarks. The fact that ASAE does not discuss 
some recommendations should not be an indication of support or 
lack of support for those particular items. Rather, ASAE has 
chosen only to address those recommendations which it feels 
have the greatest impact on its members.
    Two final notes before addressing the specific 
recommendations:
    A. ASAE believes that any recommendation for increased 
disclosure should look to balance the public's right to know 
with the burdens placed on the exempt organization community. 
However, ASAE takes issue with the JCT Staff assertion that the 
tax benefits received by exempt organizations essentially 
create disclosure obligations akin to those placed on the 
public sector by virtue of the tax benefits they receive (JCT 
Staff Report, page 80). Associations and other exempt 
organizations are private entities, facing the same economic 
realities as their for-profit counterparts. Though the JCT 
Staff report states that it takes into consideration the 
privacy interests of exempt organizations, the sheer breadth 
and number of new disclosures called for in the report suggests 
that the JCT Staff values those interests as very minor when 
compared to the obligations exempt organizations have to the 
public as a result of their tax status.
    B. As ASAE noted in its comments to the JCT Staff prior to 
the formulation of this report, it is important to remember 
that the enhanced disclosure provisions of the Taxpayer Bill of 
Rights 2 law have only recently (June 8, 1999) taken effect. 
Those provisions require tax-exempt organizations to mail to 
legitimate requesters, or else make widely available, copies of 
their three most recent Form 990's and/or Form 1023 or 1024. 
Previously, tax-exempt organizations could require requesters 
to come in person to the organization's headquarters in order 
to conduct such a public inspection. Given that these 
provisions only became effective very recently, it might be 
beneficial to allow some time in order to accurately determine 
the effect that these requirements have on the availability of 
exempt organization information.

                II. Recommendations Which ASAE Supports

    A. ASAE supports the JCT Staff recommendation that taxpayer 
identification numbers of tax-exempt organizations should not 
be subject to disclosure (JCT Report, page 88), particularly 
because of the real potential for unauthorized use of such 
numbers.
    B. ASAE strongly supports the JCT Staff recommendation to 
accelerate the timetable for optional electronic filing of the 
Form 990 (JCT Staff Report, page 91). It should be noted, 
however, that some of the disclosures called for within this 
report would have the effect of delaying the implementation of 
electronic filing, especially where the information called for 
is in narrative form, such as the information regarding 
heightened disclosure of 501(c)(3) activities that the JCT 
Staff believes to be related to lobbying.
    C. ASAE supports the JCT Staff's call for general revisions 
to the Form 990 to ensure that it provides more relevant and 
comprehensible information to the public (JCT Staff Report, 
page 91).
    Specifically, ASAE agrees with a particular suggestion by 
the JCT Staff which states that it would be ``...appropriate to 
consider whether the need for information relating to an 
organization should also vary depending on the paragraph of 
section 501(c) under which the organization qualifies for tax-
exempt status'' (JCT Staff Report, page 81).
    ASAE believes that if the Form 990 is to be revised at some 
time to make it more relevant and comprehensible to the public, 
the first step toward that objective should be a clearer 
expression on the face of the form as to the nature of the tax-
exempt organization filing it. Currently, the only such 
expression appearing on the face of the form is the code 
section category ``501(c)(3),'' ``501(c)(4),'' ``501(c)(6),'' 
etc., which appears on a relatively inconspicuous line just 
below the organization's name and address. ASAE suggests that 
only a small minority of the general public is familiar with 
the differences between those categories. Furthermore, even if 
the reader does understand those distinctions, the code section 
category does not describe in full the nature of the 
organization, the makeup of its membership (corporate vs. 
individual vs. nonprofit), or whether it solicits contributions 
(deductible or non-deductible) from the general public.
    A clearer expression of the nature of the organization on 
the face of the form would go a long way to informing the 
public as to the differences between tax-exempt organizations, 
and would help the public to focus on matters in which it is 
truly interested. The category in which the organization falls 
should then dictate which of the remaining pages of the Form 
990 would be subject to public disclosure, thus helping the 
public to focus its gaze more precisely on issues of interest 
to it. At present, ASAE suggests, the majority of the general 
public draws no distinction between tax-exempt organizations 
which receive charitable contributions and those which do not. 
The unrefined exposure of all Form 990 filings, which tend to 
look alike to the untrained eye, will only exacerbate that 
confusion.
    Under a separate heading below, ASAE offers some more 
specific suggestions as to possible revisions to the Form 990, 
and to the separate categories of disclosure that might be 
required of each distinctive type of tax-exempt.

                III. Recommendations Which ASAE Opposes

    ASAE joins a great many others in the tax-exempt community 
in expressing its general concern that certain of the JCT Staff 
recommendations go too far in giving precedence to the public's 
right to know, and do not give sufficient recognition to the 
value of certain areas of privacy in promoting compliance and 
fair administration of the laws.
    A. ASAE opposes the public disclosure of all Form 990-T's 
filed by tax-exempt organizations, as well as any Forms 1120, 
1065, and others filed by affiliates of tax-exempts (JCT Staff 
Report, page 93). The purpose for requiring that those business 
activities not related to an organization's exempt purpose 
should be taxed like any other similar activities in the non-
exempt sector is to provide a level playing field for 
competition between the two sectors. If tax-exempt 
organizations are required to disclose their business income 
tax returns, and non-exempts are not so required, that purpose 
of even and fair competition would be undermined.
    The JCT Staff states that the disclosure of these returns 
will ``facilitate comprehensive oversight by the public of the 
full range of activities by tax-exempt organizations'' (JCT 
Staff Report, page 93). This goal is already served, however, 
given that unrelated business income and affiliated taxable 
organizations are required disclosure items on the current Form 
990. Also currently reported on the Form 990 is the volume of 
revenues reported on the tax returns associated with each. That 
disclosure should be more than sufficient to inform the public 
about such side activities.
    B. ASAE also joins with many others in opposing the 
unredacted disclosure of audit results and closing agreements 
(JCT Staff Report, page 84). Such a step might well impede, 
rather than aid, the objective of maximum voluntary compliance 
with the laws. Also, this disclosure would not have the 
intended effect of assisting ``in the public oversight'' of 
exempt organizations, as the JCT Staff predicts. On the issue 
of closing agreements, the JCT Staff notes in its own report 
that they are negotiated and ``may not contain all relevant 
information'' (JCT Staff Report, p. 85, FN 186). Exempt 
organizations might decide to negotiate rather than take on a 
costly battle with the IRS, even though the organizations 
firmly believe they have done nothing wrong. Of course, the 
public is apt to be misled when viewing such negotiated 
settlements, and many will likely believe from the mere 
existence of a closing agreement that the exempt organization 
ran afoul of tax law. Without the promise of confidentiality, 
exempt organizations will be far less willing to negotiate 
(and, in the eyes of the public, admit wrongdoing), thus 
forcing more disagreements into an already overburdened court 
system.
    Under this scenario, the exempt organization pays more, the 
government pays more, and the public gains nothing. The JCT 
Staff contradicts itself in its reasoning for requiring this 
disclosure. It states that it will not recommend such 
disclosure for non-exempt organizations, citing the potential 
for this information to be misleading, and thus, presumably, 
not beneficial to the public. But the JCT Staff then goes on to 
state that this information would be beneficial to the public 
if it involves exempt organizations (JCT Report, p. 86).
    C. ASAE opposes also the recommendation that public 
charities be required to disclose expenditures which meet 
certain exceptions to the definitions of reportable lobbying, 
such as self-defense and nonpartisan study, analysis and 
research that includes a limited call to action (JCT Staff 
Report, page 118). By definition under current tax law, these 
items do not constitute reportable lobbying, and should not be 
characterized as such for disclosure purposes.
    It might be true that IRS enforcement would be aided by an 
explicit enumeration, but if that reporting were made subject 
to public disclosure, its most common use would be by opponents 
of the organization's views, to point to its use of presumed 
``loopholes.'' It should be up to the IRS, not to self-
appointed public advocates, to determine if an organization is 
legitimately asserting these duly considered legal exceptions. 
This increased disclosures would also significantly increase 
the recordkeeping requirements currently faced by 501(c)(3) 
organizations regarding tracking lobbying activities. The 
recommended disclosures would require the organizations' staff 
to track separately (1) lobbying activities as defined in 
501(c)(3), (2) ``self-defense'' lobbying activities, (3) 
certain nonpartisan research and analysis, and (4) lobbying as 
defined under the Lobbying Disclosure Act of 1995 (Public Law 
104-65).
    D. ASAE maintains a similar position with respect to the 
recommended additional disclosure of transfers among various 
organizations ``so that the public and the IRS can better 
assess whether contributions are being used to fund political 
activities'' (JCT Staff Report, page 97). Any such transfer by 
a 501(c)(3) organization is a violation of the requirements of 
its exemption, risking loss of exempt status and possible fines 
under section 4955. The present Form 990 requires disclosure of 
any transfers to non-501(c)(3) exempts and requires disclosure 
of the amount of any such transfers that are made available for 
lobbying or political expenditures. It should be up to the IRS, 
not to public advocates, to determine if the organization has 
complied with the law in this respect.

       IV. ASAE's Suggestions on General Revision of the Form 990

    As noted above, ASAE believes that any major changes to the 
disclosure obligations of exempt organizations should only be 
done after sufficient time has passed for an accurate 
evaluation of the impact regarding the new, enhanced public 
availability rules for exempt organizations' Form 990's and 
other documents. At such time, Congress should ask how the 
public has benefited from this increased access, and how the 
publicly available information can be more beneficial in the 
future.
    In an effort to at least start that analysis, ASAE raises 
certain specific suggestions below that it believes will begin 
to make the Form 990's more relevant and comprehensible.
    The Form 990 and the Schedule A attachment required of 
501(c)(3) organizations have grown in length considerably over 
the past 20 years. This enlargement is traceable in part to the 
number of statutory provisions added over that time period, but 
is also traceable to the addition of more in-depth and detailed 
questions designed to enhance the IRS's and the state 
regulatory agencies' ability to discern pertinent information 
without conducting a first-hand inquiry. The Form also serves 
as a road map for such inquiries and for full-blown 
examinations. The Form was not designed, nor should it have 
been, to be user-friendly to the general public.
    ASAE does not dissent from the general proposition that 
informed, focused public opinion, as it does in almost all 
areas of a free society, would not only be an essential aid to 
the regulators, but would enhance the overall level of 
compliance with the laws relating to tax-exempt organizations. 
Focused, self-interested public opinion, it is generally 
agreed, promotes rational outcomes to political and legislative 
contests, and is beneficial in helping to regulate the behavior 
of publicly-traded companies in compliance with the securities 
laws. Absent the self-interest, however, public opinion tends 
to lack the focus required to produce rational and desirable 
outcomes.
    Presented with a Form 990 filed by an organization that 
solicits tax-deductible charitable contributions from the 
general public, any member of the general public has a 
legitimate self-interest in attempting to make a determination 
whether those contributions are in fact used for the purposes 
intended, and not diverted to private purposes, because every 
member of the public should be presumed to be a potential 
contributor. With that self-interest in mind, those members of 
the public possessed of the patience to examine all those areas 
of the current Form 990 that are subject to public inspection 
will reach an informed decision, in the main.
    Presented with a Form 990 filed by an organization that 
does not solicit any funds from the general public, charitable 
or otherwise, but only solicits funds from the professional or 
commercial members it represents, ASAE believes that most 
members of the general public would be at a loss as to what to 
look for, primarily because their interest is not so clear. The 
most common reaction would probably be to approach it as if one 
were inspecting another filing from an organization that 
solicits public contributions.
    ASAE suggests that the public inspector will be able to 
focus on his or her interest and make an informed decision if 
the Form makes clear on its face certain essential facts about 
the organization, such as whether or not it is eligible to 
receive charitable donations, whether it solicits funds from 
the general public, whether its membership/constituency is 
composed primarily of individuals, corporations, or other tax-
exempt groups, and if its individual members belong in a 
business or personal capacity. None of those items is clearly 
evident from the face of the form today.
    If, for example, the tax-exempt organization is composed 
primarily of corporate members from a particular industry, then 
the public would likely direct its self-interested focus to the 
nature and size of the organization's efforts to influence the 
legislative and regulatory process, and to influence consumer 
attitudes, as well as to other areas like the organization's 
research, statistical information, standard-setting and self-
regulatory endeavors. That focus would only be impeded by such 
extraneous information as the approximate risk composition of 
the investment portfolio; the distribution of revenue sources 
between dues, voluntary contributions, program service 
revenues, and investment income; the organization's ownership 
of buildings and other fixed assets and the degree to which 
that ownership is debt-financed; and even by what the Board 
members have agreed to pay the exempt organization's top 
executives in order to compete with comparable positions within 
their own industry. Yet, those latter items are much more 
clearly quantifiable and evident in the public inspection copy 
of the present Form 990 than is anything about the 
organization's participation in those areas that are likely of 
greater interest to the public.
    (Regarding the issue of exempt organization staff salaries, 
it should be noted that disclosure of such information is not 
mandated by statute for most categories of exempt 
organizations. As ASAE noted in its October 1, 1999, comments 
to the JCT Staff: ``The most popular portion of any 
organization's Form 990 will likely be the Part V listing of 
compensation received by certain organization leaders. This 
information is required by law to be disclosed by 
Sec. 501(c)(3) organizations under Sec. 6033(b)(7) of the 
Internal Revenue Code. However, such information is not 
required by statute to be provided by other tax-exempt 
organizations (like Sec. 501(c)(4) or Sec. 501(c)(6) 
organizations), it is only required by regulatory fiat. ASAE 
believes that compelling individuals to disclose publicly 
information that is as private as their own annual salaries 
should only occur when they are required by statute to do 
so.'')
    For all tax-exempt organizations, ASAE suggests that the 
first page of the 990 be used to identify the organization and 
delineate the general category into which it falls. To quantify 
the sources of support without identifying the dollar 
contribution of each member, some use of the North American 
Industry Classification System (``NAICS'') codes to sort 
revenues by general source might be used. The category in which 
the organization falls should then dictate the additional 
public disclosure.
    For a trade association composed almost entirely of 
corporate members from a given industry, ASAE suggests that the 
additional financial disclosure be confined to the volume of 
annual revenues and expenditures, and then to the magnitude of 
expenditures on legislative lobbying, regulatory lobbying, 
public relations to improve the industry's image, research of 
potential benefit to the economy, standards-setting to improve 
public safety, and all other areas of activity.
    For a 501(c)(3) professional organization that does not 
solicit funds from the general public, and which receives 
little charitable contribution money, if any, the public 
inspection version of the Form 990 might be organized as 
follows: After the general description of the nature and 
sources of support, the public inspector should then be 
directed to the categories of expenditure to enhance the 
profession (continuing education programs, research, standards 
setting, lobbying, etc.) and the volume of expenditures for 
fundraising and administration. The overall volume of revenues 
and expenditures and the salaries of officers should be subject 
to disclosure pursuant to existing law, but the precise 
composition of the balance sheet and the distribution of 
revenues between contributions, program fees and investment 
income should be given much lesser attention.
    A list of specific disclosure items should be designated 
for every other major category of exempt organization.

                             V. Conclusion

    ASAE believes that the intent of increased public disclosure of 
Form 990 filings is to enhance public understanding of exempt 
organizations and their activities. ASAE is concerned, however, that 
much of this increased disclosure will have the effect of further 
confusing the public, while placing tremendous additional burdens on 
exempt organizations. If the public disclosure portions of the Form 990 
are made more comprehensible to the general public, and the bulk of the 
information available to it is focused on answering its most common 
self-interested questions, then the public will be in a much better 
position to reach informed judgments than it would be if it were 
forced, by the sheer volume of information, to rely on the opinions of 
a few self-appointed guardians.
    Thank you for the opportunity to provide our remarks on this issue. 
Please feel free to contact me at 202/626-2703 if you have any 
questions.

            Sincerely,
                                                 Jim Clarke
                                      Vice President, Public Policy
      

                                


                                     Yucaipa, CA 92399-1783
The Honorable Bill Archer
Chairman, Committee on Ways and Means
c/o A.L. Singleton, Chief of Staff
Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Re: Public Comments Regarding JCS-1-00 Per Chairman Bill Archer's 
        Request of Feb. 3, 2000

    Dear Congressman Archer:

    Thank you so much for this opportunity to submit public comments on 
the recently published Study of Present-Law Taxpayer Confidentiality 
and Disclosure Provisions as Required by Section 3802 of the Internal 
Revenue Service Restructuring and Reform Act of 1998 by the Joint 
Committee on Taxation (JCS-1-00), published in three volumes on January 
28, 2000.
    It was with great surprise and a sense of appreciation that I 
learned the Joint Committee on Taxation published in Volume III of 
their Study, page 272, my previous public comments submitted to the 
Chief of Staff, Ms. Lindy L. Paull, on October 25, 1999 regarding the 
public disclosure requirements pertaining to tax-exempt organizations 
in the United States. I wish to add to my previously published comments 
and to clarify one in particular. However, before I do that, I want to 
commend the Joint Committee for the incredible work that they 
accomplished in producing JCS-1-00. I am just amazed at what they did! 
What a tremendous accomplishment! This is absolutely incredible! We as 
U.S. citizens are forever in their debt. I wish to heartily endorse 
their many recommendations, especially the recommendation regarding the 
making of completed Federal Forms 990-T (Exempt Organization Business 
Income Tax Return) available to the general public for their inspection 
so that anyone can then conduct further personal due-diligence on those 
exempt organizations that they have an interest in. If (or when) this 
recommendation is enacted into law it would help to further motivate 
all exempt organizations to be circumspect and above reproach in the 
way that they report their unrelated (or non-exempt) business 
activities on this Federal Form. The way the law now stands, plus the 
fact that the Internal Revenue Service is able to audit less than 1% of 
all exempt organization tax returns, many of these organizations are 
not being above reproach in the way that they report their activities 
on Form 990-T.
    I wish to clarify one of my previous public comments found on page 
272 of Volume III of JCS-1-00. I mentioned in this comment that exempt 
organizations should be required to disclose all governmental grants on 
Federal Form 990 and then I listed the types of information that should 
be presented. In addition to governmental ``grants,'' I would add 
governmental ``contracts'' as well. Also, in meeting this 
recommendation of mine, I would accept the information disclosures be 
shown on some web site that is widely available to the general public 
and easily accessible instead of having to make it an integral part of 
Form 990 itself, as long as the web site address was clearly given 
somewhere on the completed Form. I fully realize that the amount of 
this information could be rather voluminous for some exempt 
organizations and could be quite a burden if page after page after page 
were added as supplementary statements to the Form 990. So, to 
alleviate this burden I would accept posting of the recommended 
information disclosures be made on a web site where anyone with an 
interest in doing so could easily download the information for their 
own personal use.
    In response to the Committee's Study (JCS-1-00), I wish to submit 
six further recommendations regarding the public disclosure 
requirements pertaining to tax-exempt organizations:

         Recommendation Number One: Conflict-of-Interest Policy

    I recommend that a new question be added to Part VI (the 
Part entitled ``Other Information'') of Form 990, page five. 
The question to read as follows: ``Does the organization have 
in effect a Conflict-of-Interest Policy which is duly enforced? 
If so, then please attach a copy of the current Policy. Also, 
please indicate whether or not all Corporate Officers, 
Directors, Trustees, and Key Employees are in compliance with 
this Policy. If there is any non-compliance, then please attach 
a summary explanation of the non-compliance AND HOW IT WILL BE 
RESOLVED.''

        Recommendation Number Two: Audited Financial Statements

    I recommend that an additional new question be added to 
Part VI of Form 990, page five. This question to read as 
follows: ``Is a copy of the organization's audited financial 
statements available for public inspection? If so, then please 
indicate how a copy can be obtained by listing the appropriate 
mailing address or e-mail address or web site address (if it is 
already widely available and easily accessible directly over 
the world wide web somewhere).''

   Recommendation Number Three: IRS Computer Programs for Compliance 
                                Checking

    Once electronic filing of all Forms 990 and 990-T are 
required, the Internal Revenue Service should put in place 
computer programs that will automatically reject or return an 
organization's information or tax return when it is obviously 
inaccurate or incomplete, with the necessary summary 
explanations. Unfortunately, as it now stands, many exempt 
organizations submit returns that are OBVIOUSLY inaccurate or 
incomplete. This practice is absolutely disgraceful and needs 
to be remedied as soon as possible in the most effective and 
efficient manner. Only when the IRS starts to reject returns 
automatically will these organizations finally sit up and take 
notice as to the terrible condition of their returns. I'm sorry 
to say this, but it is true. Over the last three or four years 
I have acquired a number of Forms 990 at my own expense from 
the Ogden Service Center in order to learn the practices of 
other exempt organizations. And, to see how their returns 
compared with the ones I prepared for a prominent tax-exempt 
organization in southern California that was my employer until 
I recently returned to graduate school at Golden Gate 
University in San Francisco, in order to fulfill the program 
requirements for an M.S. degree in Taxation.

      Recommendation Number Four: Composition of Board Committees

    I wish to recommend that the composition of all Board 
Committees be disclosed on completed Forms 990, especially the 
composition of the Internal Audit and Corporate Compliance 
Committees so that legitimate concerns regarding an 
organization's Forms 990 and 990-T can be taken to the 
appropriate Committee Chairperson when the organization's 
present administration is unresponsive to these concerns. I 
have learned that in some cases that an organization's Board 
Members have no idea that their organization is filing, and has 
been filing for quite some time, inaccurate, incomplete and 
non-compliance information/tax returns with the Federal 
Government. I'm sure many Board Members would be aghast at what 
was taking place in their organization, if they only knew. And, 
if they just knew about the situation, then they might be in a 
position to help bring about needed change.

 Recommendation Number Five: Threshold for Meeting Filing Requirements 
                              of Form 990

    I wish to recommend that the threshold for meeting the 
filing requirements for Form 990 be raised from the present 
threshold of $25,000 in gross receipts to $100,000 in gross 
receipts and then indexed for inflation in $1,000 increments 
thereafter, unless the organization possesses any wholly owned 
or partially owned taxable subsidiary organizations or, unless 
the organization has any lobbying or self-defense lobbying 
expenditures. Many of the new legislative proposals for 
expanding and improving the public disclosure requirements for 
exempt organizations would prove to be especially burdensome 
for the smaller organizations who are just barely scraping by. 
In respect to their plight, I would recommend that the 
threshold for filing be substantially raised. Many smaller 
exempt organizations are teetering on the edge of solvency. If 
they wanted to voluntarily file Forms 990, then they should be 
allowed to do so--so that their financial statistics can be 
included in the IRS's Business Master Files and Statistics of 
Income databases. I would encourage them to make these filings, 
but only if they have the time and the resources and the 
determination to do so.

  Recommendation Number Six: Churches' Exemption for Filing Form 990 
                           Should be Removed

    My last recommendation is a very controversial one, to say the 
least, but one that I feel very strongly about in light of the 
inability of many church members to acquire meaningful financial 
information regarding their church, or convention of churches, or 
association of churches, or even integrated auxiliaries of churches. 
This is another absolutely disgraceful situation. Any member should be 
able to conduct meaningful financial due-diligence on their own church! 
By having the present exemption for filing Forms 990 for churches 
removed would go a long ways in helping church members to conduct their 
own due-diligence. I just do not understand why any organization in the 
United States exempt from income tax should be exempted from filing 
Forms 990. This should be a basic requirement.
    Thank you for taking the time to consider my public comments 
regarding JCS-1-00. If you should have any questions regarding my 
comments, then please feel free to contact me at the telephone number 
or e-mail address listed below. I would be more than happy to answer 
any of your questions.
    Please give my regards to your staff and the staff of the House 
Ways and Means Committee. How they are able to accomplish all that they 
do is beyond my comprehension. The organizational challenges must be 
staggering. Best wishes to each one.

            Sincerely,
                                              John Anderson
      

                                


Statement of Victoria B. Bjorklund, Simpson, Thatcher & Bartlett, New 
York, NY; Robert H.M. Ferguson, Patterson, Bellknap, Webb & Tyler, New 
York, NY; and Committee on Exempt Organizations, Section of Taxation, 
American Bar Association

                            I. Introduction

    These comments are submitted in response to a request made 
by Congressman Bill Archer, Chairman of the Committee on Ways 
and Means, for public comments on the study, released on 
January 28, 2000 by the Joint Committee on Taxation (the ``JCT 
Study''), concerning disclosure of federal tax returns and 
return information. The comments that follow are directed 
specifically to the portion of the study that relates to tax-
exempt organizations.
    As a matter of form, our comments follow the order in which 
recommendations were made in the JCT Study. Each comment begins 
by restating the recommendation of the Joint Committee Staff 
and then stating whether we agree or disagree with the 
recommendation. In those cases where we disagree, our reasons 
are indicated.

                    II. Disclosure of IRS Materials

    1. Recommendation: All written determinations, including 
background file documents, should be disclosed in unredacted 
form.
    Comment: Agree as to disclosure, especially with respect to 
rulings that have heretofore been undisclosed because they 
``affect tax-exempt status,'' but disagree that such materials 
should be disclosed without redaction.
    Reasons: The principal benefit to be derived by the public 
from the disclosure of written determinations issued to tax-
exempt organizations is a more complete and current 
understanding of how the Service is administering the tax laws 
and what activities exempt organizations are, or are not, being 
permitted to engage in by the Service. This benefit can be 
fully realized without disclosing the specific identity of the 
organization or the specific monetary and valuation details of 
the transaction. The additional information that would be 
available from an unredacted private letter ruling will be 
available from the recipient organization's Form 990 for the 
year(s) covered by the transaction. Similarly, the details of 
any transaction that is the subject of a technical advice 
memorandum or a field service advice will be available from the 
returns to which that determination relates. In our view, the 
highlighting of this additional detail by including it in the 
published versions of these determinations will add little of 
material value or benefit to the public; however, it is likely 
to generate significant correspondence to the Service from 
individuals and organizations that may have philosophical 
differences with the organization which have no legal 
significance. Involving the Service in such philosophical 
disputes will absorb staff time which would be better spent on 
administration of tax laws. Objections to legal reasoning or 
activities can still be identified from redacted determinations 
so the public's interest is not impaired by redaction. To 
enable members of the public to direct criticism at a ``rifle 
shot'' target where a shotgun approach is actually required, is 
both unfair to the target and would result in an uneven and 
clearly undesirable method of administering the tax laws. The 
JCT staff's explanation ``recognizes that certain exceptions to 
this general rule [that disclosure should be made without 
redaction] may be appropriate ... [and that the items currently 
specified] in section 6110(c) ... provide a guide as to the 
type of information that it may be appropriate to redact,'' but 
the proposal would appear to contemplate redaction only with 
respect to determinations issued during the audit and 
examination process, and that ``[o]nce the examination process 
is completed, ... such ruling should be disclosed publicly in 
unredacted form.'' We respectfully disagree. The public's 
interest and oversight function will be more than adequately 
fulfilled by the timely publication of these materials in 
redacted form.
    2. Recommendation: Disclose the results of audits and all 
closing agreements in unredacted form.
    Comment: Tentatively agree as to audit results but disagree 
as to closing agreements, unless unredacted disclosure is a 
condition to the agreement.
    Reasons: Disclosure of audit results in unredacted form 
runs the risk of publicizing unagreed or inaccurate, and 
therefore unfair, information about the audited organization. 
Embedded in the JCT staff's recommendation regarding the 
publication of audit results is the assumption that examining 
agents apply the tax laws in generally accurate and consistent 
manners. Experience indicates that this is frequently not the 
case. Within any group of tax-exempt organizations engaged in 
substantially similar activities, many will never be audited, 
and those that are will frequently end up with markedly 
different audit results because of differences in the 
experience and training of, and positions taken by, the agents 
conducting the audits and the quality of their representatives. 
Further, the public may incorrectly draw a negative inference 
merely from the fact that an organization was selected for 
audit where such an inference is not warranted (e.g., the 
Service's recent sampling of private foundations with assets 
less than $1 million). For this reason, we believe that if 
audit results are to be disclosed in unredacted form, such 
disclosure should be made only as a part of the disclosure of 
the entire return or returns affected by such adjustments, and 
that public disclosure should occur only after the audit 
results have been subject to internal Service review by 
appeals, if not the closing of the audit. To highlight audit 
adjustments in any more limited context, particularly if the 
audit issues are unagreed, would create an unwarranted 
presumption of wrongdoing by the organization in question.
    The disclosure of closing agreements presents a different 
issue. Because the use of closing agreements is optional to the 
exempt organization and the Service, the possibility of 
unfairness is lessened considerably. However, because of the 
wealth of detail that is frequently contained in such 
agreements, a requirement that they be disclosed in unredacted 
form could frequently result in an organization's unwillingness 
to enter into a closing agreement because of the adverse 
publicity involved. To counter this possibility, the JCT staff 
suggests that any organization that declines to enter into a 
closing agreement will perforce be placed in the position of 
having to litigate the issue or lose its exemption, with either 
such course of action resulting in public disclosure. We 
believe that this reasoning is basically flawed in that it 
assumes that closing agreements are never seriously considered 
as a way of resolving an issue unless there also exists a real 
threat of loss of exemption. Once again, experience shows that 
there are many situations in which closing agreements are 
clearly the best way of resolving an issue but where loss of 
exemption is not an issue. For example, an organization might 
believe that it has a very strong position as to an item for 
which the amount in dispute is too insignificant to warrant 
litigation of the issue. Closing agreements are frequently 
helpful in the CEP context. In these cases, the publicity 
attendant to the disclosure of a closing agreement presents the 
very real possibility that the tax-exempt organization will 
choose not to enter into such an agreement but instead will opt 
for some other method of dispute resolution that is in neither 
its nor the Service's best interests. In those situations where 
loss of exemption is a real possibility, the Service's 
bargaining position is usually strong enough so that it can 
require disclosure as an overall condition to the agreement. 
However, where loss of exemption is not a real issue, we 
believe that any benefit resulting from requiring public 
disclosure in unredacted form is far outweighed by the 
deterrent effect on prompt dispute resolution that would result 
from such a requirement. We would recommend leaving with the 
Service the flexibility as to whether a particular closing 
agreement should or should not be disclosed in unredacted form.
    3. Recommendation: Disclose exemption applications (with 
supporting documents) at the time of filing, together with 
action taken on the applications by the IRS.
    Comment: Agree as to disclosure, but disagree as to timing.
    Reasons: Disclosure of applications and accompanying file 
materials is appropriate and desirable in any case where the 
exemption is granted. In those cases where an application is 
filed either by a new organization or by an organization that 
has previously operated without exemption and where exemption 
is denied, the disclosure of these materials would result in 
the involuntary public release of return information of a 
taxable entity, although the disclosure of the denial itself 
would normally be unobjectionable. Obviously, such disclosure 
would have to occur if the entity in question elects to contest 
the denial, such as by filing a petition for declaratory relief 
under Section 7428, but we believe that in this situation, the 
decision to precipitate such disclosure should remain the 
prerogative of the organization. Even in those cases where 
exemption is ultimately granted, disclosure of material in the 
application file prior to the time that the exemption is 
granted would be of limited benefit to the general public and 
could result in a highly undesirable politicization of the 
determination process. The Joint Committee staff argues that 
early disclosure is warranted because the processing of 
exemptions occasionally takes a considerable length of time, 
and disclosure is required to alert the public that 
contributions to organizations seeking exemption under section 
501(c)(3) are not yet deductible. This position fails to take 
into account that adequate procedures already exist to put 
members of the public on notice of this fact (i.e., Publication 
78, which is easily accessible in public libraries and online 
at the Service's website, and the Internal Revenue Bulletin), 
and we think it is unlikely that the early disclosure of 
application files would provide any significant measure of 
additional protection or warning to members of the donor 
public. Early disclosure could also put the Service in the 
middle of correspondence campaigns initiated by individuals or 
groups with philosophical, but not legal, objections to 
applicants. Such campaigns could require attention from Service 
staff whose time could be better spent in administration of the 
tax laws.
    4. Recommendation: Apply section 6110 disclosure rules to 
third party communications relating to determinations and 
applications that are subject to section 6104.
    Comment: Agree.
    5. Recommendation: Do not disclose employer identification 
numbers of exempt organizations.
    Comment: Agree.

                    III. Form 990 and Related Forms

    1. Recommendation: Accept Forms 990 and related forms for 
electronic filing after 2002, and revise such forms to 
``provide relevant and comprehensible information to the public 
as well as the IRS.''
    Comment: Agree, but it must be recognized that the process 
by which these forms are approved for use by state agencies 
(attorneys general and the like) may result in their revision 
being considerably more difficult, from a procedural viewpoint, 
than is envisioned by the JCT Study.
    2. Recommendation: Expand the scope of section 6104 to 
require the disclosure of all Forms 990-T and any returns filed 
by ``affiliated organizations.''
    Comment: Disagree.
    Reasons: The Joint Committee staff's recommendation fails 
to take into account the essential differences between the 
information contained on Form 990, which is an information 
return, and Forms 990-T, 1120 and 1065, which are income tax 
returns. The public's ``right to know'' extends to the manner 
in which a tax-exempt organization is operating--how it is 
utilizing its assets and personnel. Consistent with this right, 
we agree that it would be appropriate to revise the information 
return (Form 990) to increase the amount of disclosure 
concerning the nature of any unrelated trade or business 
activities (potentially including disclosure of a trade or 
business conducted in connection with or through a taxable 
affiliate). However, once that information is released, then we 
believe that the ``balancing of interests'' referred to in the 
JCT Study shifts and the organization's right to, indeed its 
need for, privacy outweighs the public's need for additional 
detail. In our view, it would be basically unfair to require 
disclosure of the income tax return of an organization or its 
affiliates where no disclosure is required of returns of 
unaffiliated entities that are engaged in similar activities.
    3. Recommendation: Expand the scope of section 6104 to 
require disclosure of returns filed by section 527 
organizations; require such organizations to file returns even 
if they have no taxable income; and revise the form of such 
returns to disclose more of the activities of such 
organizations.
    Comment: Agree, as this return is essentially an 
information return, not an income tax return.
    4. Recommendation: Require disclosure of both legal and 
business names.
    Comment: Agree.
    5. Recommendation: Require the IRS to instruct the public 
that Forms 990 are publicly available.
    Comment: Agree.
    6. Recommendation: Require the disclosure, and publication 
by the IRS, of World Wide Web site addresses.
    Comment: Agree.
    7. Recommendation: Require the disclosure on Form 990 of 
``more information concerning the transfer of funds among 
various tax-exempt organizations ... [to] better assess whether 
contributions ... are being used to fund political 
activities.''
    Comment: Tentatively disagree.
    Reasons: We believe that this proposal is too vague. It is 
not clear what information an organization filing Form 990 
could contain as to organizations not under the control of the 
filing organization. A better alternative would appear to 
require more detail on the activities of or grants made by 
filing organizations.
    8. Recommendation: Require annual notification to the IRS 
by organizations (other than churches) that are below the 
filing threshold.
    Comment: Agree. In addition, we suggest that a similar kind 
of notification be made available on a voluntary basis to any 
church that wishes to use it. We also recommend that 
organizations that terminate their existence or have their 
exemptions revoked be deleted from the hard-copy version of the 
Cumulative List (IRS Publication 78) in a timely manner. 
Further, the filing instructions for terminating organizations 
should be made clearer as many are not aware that they should 
check the box on line B marked ``FINAL RETURN'' on the Form 
990.
    9. Recommendation: Permit private foundations to disclose 
only a summary of capital gains and losses, with details 
available on request.
    Comment: Agree. We believe that this proposal would 
encourage copying of Form 990-PF by interested parties. We note 
that the Forms 990-PF filed by endowed foundations can be 
several inches thick when securities schedules are included. 
Where a private foundation holds a position of 10% or more in a 
single company, however, that fact could be required disclosure 
in the summary.
    10. Recommendation: Extend the tax-return preparer 
penalties for omission, misrepresentation and willful disregard 
of rules to preparers of Form 990.
    Comment: Agree.

    IV. Disclosure of Returns and Return Information of Tax Exempt 
          Organizations to Nontax State Officials or Agencies

    Recommendation: Disclose audit and examination information 
to attorneys general and other nontax officials with 
appropriate jurisdictional needs prior to the completion of the 
audit and when the IRS determines that the disclosure may 
facilitate resolution of the case.
    Comment: Agree.

                        V. Lobbying Expenditures

    Recommendations: Require public charities to provide a 
general description of their lobbying activities on Schedule A 
to Form 990.
    Require public charities to disclose expenditures for self-
defense lobbying.
    Require public charities to disclose expenditures for non-
partisan study, analysis and research if it includes a limited 
``call to action.''
    Comment: The members of our Committee who were consulted on 
the above recommendations had differing views with regard to 
these lobbying proposals.
    Reasons: Some members agree with these proposals so long as 
they are limited to lobbying-related information. However, a 
majority of those consulted are seriously concerned that 
requiring electing charities to report on their lobbying 
activities may defeat the purpose of the section 501(h) 
expenditure test as the alternative means for determining 
substantiality. Requiring charities to disclose expenditures 
for self-defense lobbying could have a chilling effect on their 
advocacy. Those members who disagree fail to see either the 
tax-policy reason or the overriding benefit to tax 
administration of these proposals, especially in a climate in 
which the Service is seeking to encourage public charities to 
make the section 501(h) election.

    These comments are the individual views of members of the 
Section of Taxation who prepared them and do not represent the 
position of the American Bar Association.
    Primary responsibility was exercised by Robert H.M. 
Ferguson and Victoria B. Bjorklund. Substantive contributions 
to these comments were made by Brian Menkes. These comments 
were reviewed by Terrill Hyde for the Committee on Government 
Submissions and by Council Director Douglas M. Mancino.
    Although the members of the Section of Taxation who 
participated in preparing these comments may have clients who 
would be affected by the federal income tax principles 
addressed, or have advised clients on the application of these 
principles, no such member (or firm) has been engaged by a 
client to make a government submission with respect to, or 
otherwise to influence the development or outcome of, the 
specific subject matter of these comments.
      

                                


                          Cecil B. Day Foundation, Inc.    
                                         Norcross, GA 30092
                                                     March 14, 2000
Mr. A.L. Singleton
Chief of Staff
Committee of Ways and Means
U.S. House of Representatives
1102 Longworth
Washington D.C. 20515

    Dear Mr. Singleton:

    It is my understanding that regulations for implementing the IRS 
Restructuring and Reform Act of 1998 contain provisions requiring 
nonprofit organizations (including churches) to notify the IRS every 
time they encourage their membership to contact a member of Congress on 
any issue. I am writing this letter to voice strong objection to such a 
requirement.
    As you most certainly know, this issue would not only have effect 
upon freedom of speech and freedom of religion issues for churches in 
requiring them to report upon their particular statements, but also 
would extremely infringe upon these rights.
    Furthermore, the churches that the Foundation deals with have an 
average size of between 75 and 125 members (which also matches the norm 
for approximately 65 to 70 percent of all U.S. churches). This 
burdensome reporting requirement upon such a small organization would 
be rather intrusive and cumbersome.
    It is respectively requested that this request be stricken from the 
IRS's consideration.

            Sincerely,
                                       Edward L. White, Jr.
                                                          President

ELWjr/ksh
      

                                


                The Christian Alert Network (TCAN) Inc.    
                                     Killeen, TX 76547-1746
                                                       9 March 2000
A. L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth
Washington, DC 20515

Re: Comments on IRS reform act proposals for 501 (c) (3) 
        organizations--churches

    Sir:

    Summary: these proposals would create burdensome new record keeping 
requirements for non-profit organizations, such as churches.
    The Internal Revenue Service restructuring and Reform Act of 1998 
was intended to consider methods to restructure the IRS to make it more 
responsive to the needs of Americans and less intrusive in their lives 
but they have done just the opposite.
    There is a clear potential that every time a church asks its 
members to call or write their elected officials [local, state, and 
federal] concerning a piece of legislaion, they would be required to 
report that activity to the IRS. I believe the purpose of this 
intrusion seems to be to frighten the churches and keep pastors away 
from expressing their 1st Amendment Rights.
    I call upon The Joint Committee NOT to adopt the changes, 
requirements, or proposals presently being considered as noted below.
    1. Provide information about their lobbying activities on their 
annual tax form (Form 990), described in the Joint Committee's report 
as ``a detailed description of the legislation addressed in their 
lobbying efforts and the manner in which organizations engaged in 
lobbying activities.'' Currently 501(c)(3)s that have elected to use 
the 501(h) expenditure test for lobbying need only report their 
lobbying expenditures, and non-electing 501(c)(3)s must provide a 
narrative description of their lobbying that is probably less detailed 
than the report envisioned by the Joint Committee's proposal.
    2. Disclose the amount of money the organization spends on 
activities under the ``self-defense'' exception to the lobbying rules. 
Currently advocacy involving legislative proposals that effect a 
501(c)(3)'s rights or existence are not considered lobbying and need 
not be reported. Under the Joint Committee's proposal, self-defense 
advocacy would still not count against a 501(c)(3)'s lobbying limits, 
but 501(c)(3)s would now have to report all such expenditures.
    3. Disclose expenditures for nonpartisan research and analysis if 
the research or analysis includes a ``limited `call to action.' '' 
Currently under the exception for nonpartisan research and analysis, a 
``full and fair'' discussion of an issue that provides sufficient 
information for readers to come to their own conclusions about this 
issue will not be considered lobbying, even if it includes an 
``indirect'' call to action. An indirect call to action is identifying 
certain legislators that will vote on the issue. The Joint Committee's 
proposal would require 501(c)(3)s to report expenditures for this 
educational activity.
    In short, these proposals would create burdensome new record 
keeping requirements for non-profit organizations, such as churches.

            Sincerely,
                                       Rev. ``Curt'' Tomlin
                                                     Major USA Ret.
                                                President TCAN Inc.
      

                                


Statement of Coalition for Fair Competition in Rural Markets

                                Overview

    This statement is submitted by the Coalition for Fair 
Competition in Rural Markets (the ``Coalition''). The Coalition 
currently has more than 150 members including more than 140 
companies, nine state propane trade associations and the 
National Propane Gas Association.
    This statement is submitted in response to the Committee's 
February 3, 2000 request for comments on the January 28, 2000 
study and recommendations prepared by the staff of the Joint 
Committee on Taxation (``JCT'') with respect to disclosure of 
tax returns and tax return information, particularly with 
respect to tax exempt organizations (JCS-1-00).
    The Coalition strongly supports the JCT staff's 
recommendation that unredacted copies of private letter rulings 
and other written determinations (along with background 
documents) related to exempt organizations be publicly 
disclosed (Volume II, pages 83-84).
    Our support for this recommendation arises from our recent 
experience in which public disclosure of the IRS's ruling that 
an exempt rural electric cooperative can maintain its exempt 
status when entering the propane retailing business is 
prohibited by Treasury regulations, notwithstanding the 
statutory provision providing for disclosure of Internal 
Revenue Service (the ``IRS'') determinations when an entity is 
granted exempt status initially. Given the special nature of 
exempt status, we believe everyone--other exempt entities, tax 
practitioners, taxable companies, the general public--should 
have access to written determinations affecting exempt 
organizations.

                               Background

    The Coalition's interest in this particular recommendation 
arises from our efforts to encourage the IRS to develop clear, 
direct and public guidelines which describe the scope of the 
exemptions available under Internal Revenue Code section 
501(c)(12) in general and particularly the limitations on the 
term ``like organization'' in (c)(12)(A) under which rural 
electric cooperatives (``RECs'') have been granted exemptions. 
The following presents the history of these efforts and the 
factors which led to this statement.
    Taxable propane companies encountered the first REC 
competitor in 1996. Our concerns about the significant 
competitive benefits available to RECs (the tax exemption, the 
substantial business assets built up in the exempt environment 
and the subsidized loans from the Rural Utilities Service) 
prompted us in 1998 to seek a thorough review of what federal 
law allows the RECs to do with their special benefits.
    With respect to the income tax exemption, our counsel 
undertook an extensive research project regarding the sec. 
501(c)(12) provisions and its predecessors all the way back to 
the original 1916 income tax legislation. This project made 
clear to our counsel and to our members that there is no 
overall policy statement regarding the (c)(12) exemption in 
either Treasury regulations or a published revenue ruling. 
Indeed, much of the available history detailing the IRS's views 
on what ``like organization'' means and what RECs can do within 
their exempt status is found in private letter rulings.
    By early September 1999, our counsel had completed a 
memorandum for delivery to the IRS. That memorandum discussed 
the law, court decisions, revenue rulings and private letter 
rulings related to the issues under consideration. It concluded 
that an exempt REC's entry into the propane retailing business 
was not allowed under sec. 501(c)(12) because such activity was 
not permitted for a ``like organization'' under the statute; 
RECs' tax exemptions derive from this term because electricity 
is not explicitly enumerated in sec. 501(c)(12)(A). This was a 
growing controversy because more than 30 RECs had been 
identified as having entered the propane business, with the 
first apparently doing so as recently as 1996. The memorandum 
and cover letter strongly urged that the IRS promptly develop 
an overall policy statement in this area and, in the process, 
make clear the limitations on exempt RECs that enter the 
propane business.
    As they prepared the memorandum for delivery, our counsel 
saw a memorandum prepared by REC representatives (posted on an 
REC-related web site) reporting that the IRS had agreed to rule 
that propane sales are a ``like activity'' after having refused 
to do so on previous occasions. Anticipating that we would soon 
see at least a redacted copy of such a letter ruling, the 
memorandum was revised to state explicitly that additional 
commentary would be delivered to the IRS as soon as public 
release of a letter ruling confirmed the web site's report and 
enabled our counsel to review the analysis.

                              The Problem

    The problem which prompts our support for the JCT staff's 
recommendation became clear soon after the memorandum was 
delivered to the IRS on September 28, 1999. We had assumed 
that, within a few weeks, a redacted copy of the text of a 
letter ruling would be released in the normal course of IRS 
activities.
    Our assumption was incorrect, as our counsel found through 
further research and telephone conversations with IRS officials 
in the Exempt Organizations/Employee Plans division. In fact, 
IRS officials were prohibited from even discussing the 
existence or nonexistence of such a letter ruling.
    Then, in early November 1999, we read an October 22, 1999 
REC newsletter article which reported that the IRS had issued 
four private letter rulings holding that sales of propane by an 
REC are considered to be a ``like activity'' for purposes of 
sec. 501(c)(12). A brief quotation in the article from one 
letter ruling provided us with the only insight into the IRS's 
analysis and conclusion that propane sales qualify as a ``like 
activity'' for purposes of sec. 501(c)(12). Knowing that the 
IRS would neither confirm nor deny the accuracy of such 
reports, Coalition members and counsel were left to ponder only 
the published report that such letters had been issued.
    We disagree strongly with the reported ruling and 
particularly with the reason quoted in the article. Although 
that quotation generally confirms what our counsel had 
concluded earlier was the IRS's incorrect analysis, we continue 
to be hampered in our ability to challenge the ruling in 
communications with the IRS because we do not have any 
documents from the IRS which provide that analysis in detail. 
The source of this problem is the anomalous interaction of the 
general disclosure rules of sec. 6110 (which ordinarily provide 
for the redacted disclosure of private letter rulings following 
issuance to the requesting taxpayer) with that section's carve 
out of those matters that fall under sec. 6104 (which governs 
disclosure of applications for exempt status and annual 
information returns). Treasury regulations issued under sec. 
6104 effectively extend nondisclosure to virtually all IRS 
determinations related to an organization's continuing exempt 
status.
    This result appears to be unintended, given the emphasis on 
disclosure of information by exempt entities. Allowing 
interested parties to see approved exemption request forms and 
other information emphasizes the special nature of the public 
support and subsidy that is inherent in income tax exemptions. 
However, in our situation where the IRS was asked to rule 
explicitly on whether a new activity would or would not qualify 
as a ``like activity'' for purposes of an REC's continuing 
exempt status under sec. 501(c)(12), the law prohibits release 
of even redacted texts.
    This is a very troubling problem. From the Coalition's 
perspective, the IRS apparently has ruled that an REC can 
engage in direct competition with the taxable companies which 
comprise our industry and can do so with the continuing benefit 
of an exemption under sec. 501(c)(12). We believe the IRS's 
ruling incorrectly interprets and applies current law, but we 
are hindered greatly in challenging that conclusion when we 
cannot read the rulings themselves. The non-precedential nature 
of such rulings does not change the importance of making public 
a ruling in which the IRS says, in essence, that an exempt 
entity can begin to engage in direct competition with taxable 
companies in a sector in which there is neither historical 
precedent nor, we believe, a sound argument for such action.
    Tax practitioners and other exempt organizations, as well 
as taxable companies and the general public, should be afforded 
every opportunity to examine guidance issued by the IRS, 
particularly with respect to rulings which expand, limit or 
otherwise define the scope of an exemption from the income tax. 
This would be a natural and parallel rule for the principle of 
statutory construction which holds that exemptions are to be 
applied narrowly. For other exempt organizations (and tax 
practitioners advising those organizations), disclosure allows 
information to spread more efficiently. But the Coalition's 
primary interest is that disclosure of such rulings also will 
allow taxable competitors to have some notice that an exempt 
entity is, in effect, being granted a new tax exemption for a 
new business activity.
    Coalition members believe that the public, including 
taxpayers competing with exempt organizations, have a right to 
know the types of transactions and activities that the IRS 
endorses and the rationale for such decisions. Taxpayers should 
not be forced to wait (possibly for years) for formal Treasury 
regulations, published revenue rulings or technical advice 
memoranda addressing permitted types of activities, or worse 
yet, to speculate both as to the types of permitted activities 
and the IRS's underlying analysis endorsing such activities.

                               Conclusion

    The JCT staff's recommendation to provide for the 
unredacted disclosure of most types of guidance issued by the 
IRS to exempt organizations is consistent with current law 
requiring public disclosure of exempt applications and annual 
information returns. Exempt organizations should not continue 
to be subject to less disclosure than fully taxable taxpayers. 
There exists a strong policy argument in favor of disclosure by 
exempt organizations that supports the notion that such 
organizations are publicly accountable. The Coalition strongly 
supports the JCT staff's recommendation with respect to exempt 
organizations and urges the Committee to act favorably on it.
      

                                


Statement of Coalition for Nonprofit Health Care, Boone Powell, Jr., 
Chair

    The Coalition for Nonprofit Health Care appreciates this 
opportunity to comment for the record on the recommendations 
concerning tax-exempt organizations contained in the Joint 
Committee on Taxation Staff Disclosure Study (``JCT Study'') 
released on January 28, 2000. As discussed below, the Coalition 
generally supports increased disclosure that advances tax 
administration or the public interest in a meaningful way while 
respecting the legitimate privacy rights of tax-exempt 
organizations and their employees and avoiding undue burdens on 
them. However, the Coalition has serious concerns about certain 
of the recommendations in the JCT Study, and would oppose their 
enactment into law.

                The Coalition for Nonprofit Health Care

    The Coalition for Nonprofit Health Care (``CNHC'' or the 
``Coalition'') champions the role of nonprofit, mission-driven 
health care and works to preserve our nation's primarily 
nonprofit health care delivery system through an active agenda 
of research, education, and advocacy. CNHC is a national 
membership organization of health care providers and 
associations of providers, including hundreds of hospitals, 
academic medical centers, HMOs, physician clinics, integrated 
delivery systems, nursing homes, and home health agencies, as 
well as other organizations interested in nonprofit health 
care. CNHC believes it is in the public interest to preserve a 
strong charitable, nonprofit health care delivery system 
because nonprofit providers are mission-driven, provide 
individuals and communities access to treatment that otherwise 
would not exist, are responsible for the vast majority of 
clinical and educational innovation, and provide considerable 
charity care and other community benefits.
    Coalition members are located throughout the United States 
and include some of the most respected and most innovative 
health care organizations. A list of Coalition members is 
attached. They include hundreds of institutional and thousands 
of individual health care providers, including:
     the nation's largest HMO and nonprofit health care 
system;
     several of the most respected physician clinics 
and academic health centers;
     the nation's largest consumer-governed health care 
organization;
     three of the ten largest health care systems in 
the nation; and
     four of the nation's largest operators of skilled 
nursing facilities.

                 Recommendations the Coalition Supports

Disclosure of all written determinations

     The JCT Study recommends that all written determinations 
(and background file documents) involving tax-exempt 
organizations, such as private letter rulings and technical 
advice memoranda, be disclosed. The Coalition supports this 
recommendation. This expanded disclosure would fix a technical 
gap between Internal Revenue Code Sections 6104 and 6110 and 
place all IRS written determinations issued to taxpayers on a 
level playing field. In addition, consistent disclosure of 
written determinations furthers the goal of enabling the public 
to obtain guidance as to the views of the IRS on particular 
issues.

Disclosure of certain third-party communications to the IRS

    The Coalition supports the JCT Study recommendation to 
disclose third-party communications (e.g., Congressional, 
Executive Branch) to the IRS with respect to final IRS written 
determinations and approved applications discloseable under 
Section 6104, applying rules similar to current rules under 
Section 6110(d) applicable to taxable organizations.

Expanding IRS authority to share information with state non-tax 
officials or agencies

    The Coalition generally supports the recommendation in the 
JCT Study to expand IRS authority to share information with 
state non-tax officials or agencies before reaching a final 
determination with respect to revocation or denial of 
exemption. Any such information sharing should remain subject 
to the confidentiality and nondisclosure provisions of Section 
6103 applicable to state officials and agencies. The Coalition 
believes that such information sharing is in the public 
interest because it aids in the administration by appropriate 
governmental officials of both the tax laws and a state's laws 
governing charitable organizations. In the rare but egregious 
case in which a charitable organization's assets are being 
diverted, earlier disclosure to appropriate governmental 
officials may help preserve charitable assets.

Requiring IRS to revise Form 990 and accept Form 990 via 
electronic filing

    The Coalition supports the JCT Study recommendation that 
would require the IRS to accept Form 990 via electronic filing 
and to revise the form to make it more relevant and 
comprehensible to the public as well as the IRS.
     The Coalition respectfully submits that wide dissemination 
of a more relevant and comprehensible Form 990 would achieve 
most of the goals set forth in the JCT Study without the need 
for many of the additional disclosures we have identified in 
this submission as potentially causing more harm than good. The 
disclosure of a Form 990 containing more relevant and 
comprehensible information would achieve the primary goal of 
publicizing the information that is of greatest public 
interest. Though sometimes difficult to decipher, the Form 990 
elicits the types of information identified by the JCT staff as 
relevant to the public's oversight of tax-exempt organizations. 
Such information includes financial information similar to that 
available for publicly traded companies, a description of the 
organization's activities and use of funds, and a description 
of how those activities further its exempt purposes. We would 
be happy to work with the IRS and other interested parties to 
help redesign the form to improve its relevance and clarity.

Requiring small tax-exempt organizations to file annual status 
note cards

    The Coalition supports the JCT Study recommendation to 
require exempt organizations having receipts of less than 
$25,000 to file a small note card annually updating the IRS 
with respect to the organization's continued existence, 
termination, address, etc.

Requiring notification that Forms 990 are publicly available

    The Coalition supports the JCT Study recommendation that 
the IRS be required to notify the public that tax-exempt 
organizations' Form 990 are publicly available.

Requiring disclosure of both a tax-exempt organization's legal 
name and names under which it does business

    The JCT Study recommends that a tax-exempt organization be 
required to report on Form 990 both its legal name and any 
names under which it does business, and that the IRS be 
required to publish both names in Publication 78.
    The Coalition generally supports this recommendation. To 
avoid unnecessary burdens on large health care corporations 
with multiple small service sites and to avoid public 
confusion, we suggest that a tax-exempt organization be 
required to disclose only names under which the organization 
(1) solicits contributions or (2) conducts substantial 
activities.

Requiring disclosure of World Wide Web site addresses

    The Coalition supports the JCT Study recommendation to 
require disclosure of the address of a tax-exempt 
organization's Web site (1) by the organization on its Form 990 
and (2) by the IRS in Publication 78.

Expanding preparer penalties for known omissions and 
misrepresentations on Form 990

    The Coalition supports the JCT Study recommendation to 
expand preparer penalties for (1) known omissions or 
misrepresentations on Form 990 and (2) willful or reckless 
misrepresentation or disregard of the rules and regulations 
with respect to Form 990, in each case regardless of whether 
there is an understatement of tax.

                 Recommendations the Coalition Opposes

Disclosure of all written determinations in unredacted form

    As discussed above, the Coalition supports the JCT Study 
recommendation to disclose all written determinations, placing all IRS 
written determinations issued to taxpayers on a level playing field. 
The JCT Study further recommends, however, that all written 
determinations (and background file documents) with respect to tax-
exempt organizations be disclosed without redaction. The Study does not 
make this recommendation with respect to taxable organizations.
    The Coalition opposes disclosure of names and identifying details 
in written determinations because such additional disclosure would 
undermine the level playing field described above, would do little to 
advance the public interest, and is unnecessary to achieve the goal of 
providing guidance on IRS positions. Written determinations, unlike the 
information contained in Forms 990 and 1023, typically involve specific 
isolated transactions and address technical issues for which existing 
precedents provide no clear guidance. Although the Coalition recognizes 
the public interest in oversight of tax-exempt organizations, the 
narrow scope of written determinations would not provide a meaningful 
opportunity for increased public oversight.
     Further, the highly regulated competitive environment in which 
many health care organizations operate makes confidentiality of 
proposed business arrangements important. The knowledge that any IRS 
written determination will name names may discourage private 
individuals or taxable organizations from doing business with tax-
exempt organizations or have a chilling effect on an organization's (or 
the other party's) willingness to seek advance guidance in gray areas. 
The advance ruling process is an important means by which the IRS keeps 
up with emerging developments involving exempt organizations. The 
Coalition believes that this process should be encouraged.

Disclosure of the results of IRS audits of tax-exempt organizations 
(without redaction) and all closing agreements involving exempt 
organizations (without redaction)

    The JCT Study recommends that all IRS examination results involving 
tax-exempt organizations be disclosed without redaction after the 
administrative appeal rights have expired. The JCT staff further 
recommends that all closing agreements involving exempt organizations 
be disclosed without redaction. This information is not subject to 
disclosure with respect to taxable organizations.
     The Coalition opposes disclosure of IRS audit results and closing 
agreements and believes existing law regarding confidentiality of these 
materials should be preserved. The JCT Study asserts that information 
regarding the outcome of an audit would assist the public in 
determining whether the organization is in compliance with the law and 
how the organization is using funds. The Coalition respectfully 
disagrees that disclosure of audit results and closing agreements will 
add in a meaningful way to the information otherwise available to the 
public regarding a tax-exempt organization's compliance with the law 
and its use of funds. In the absence of such a benefit, the Coalition 
believes that the negative effects of such disclosure far outweigh any 
meaningful increase in the public's ability to oversee tax-exempt 
organizations.
    First, only a limited number of tax-exempt organizations are 
examined in any year. A disproportionate number of those organizations 
are large organizations, such as universities and health systems, that 
are subject to coordinated examination procedure (``CEP'') audits. The 
unredacted disclosure of examination results would create two classes 
of exempt organizations--those that have been examined and those that 
have not. Whether an organization has been examined typically is no 
indication of its compliance with the law. Thus, a meaningless and 
potentially misleading classification would be established that adds 
little or nothing to the public's oversight ability.
    We are very concerned that release of this information with respect 
to a small number of tax-exempt organizations each year invites 
misinterpretation and misuse of the information. Audit findings that 
may be minor or insignificant from the IRS's perspective, but could be 
damaging to an exempt organization's reputation or business 
nevertheless, will make their way to the front pages of newspapers, and 
could escalate into significant public relations problems. Worse, this 
information is ripe for misuse by litigants, philosophical opponents, 
and competitors. Nonprofit health care organizations increasingly face 
competition from for-profits in their local or regional markets (15% of 
hospital beds and 75% of HMOs are operated by for-profit companies). 
Releasing IRS audit information and closing agreements involving tax-
exempt organizations, while holding confidential the same information 
involving taxable organizations, places exempt organizations at a 
disadvantage and could weaken charitable health care providers, invite 
further conversions to for-profit status, and erode public confidence 
in the remaining nonprofits.
    Further, many of the issues addressed in an IRS examination, 
particularly a CEP examination, are not unique to tax-exempt 
organizations and do not even relate to tax-exempt status. For example, 
there appears to be no compelling public interest in publicizing 
whether a particular tax-exempt organization has properly characterized 
certain individuals as employees or independent contractors, a common 
issue for colleges, universities, and hospitals. Certainly such 
information would not be subject to disclosure for any other taxpayers, 
including taxable schools or hospitals.
    Most importantly, disclosure of audit results and closing 
agreements likely would have a harmful effect on tax administration and 
voluntary compliance. Such disclosure likely would result in a 
lengthening of the audit process and added litigation because tax-
exempt organizations would have a disincentive to compromise with the 
IRS on disputed matters. An organization may reasonably be concerned 
that such a compromise could be misconstrued as an admission of failure 
to comply with the law. Similarly, a tax-exempt organization would be 
less likely to come forward, independent of the audit process, to 
resolve with the IRS potential tax issues it may discover on its own.
    Under current law, a tax-exempt organization may choose to 
compromise a contested position during an examination or as part of a 
closing agreement without any implication that its original position 
was not in compliance with the law. Many, if not most, disputed issues 
compromised during the course of an examination relate to areas in 
which the law is not clear. In the case of a closing agreement 
initiated by the taxpayer, the organization has identified an area of 
possible noncompliance and seeks the assistance of the IRS in resolving 
the matter, including through implementation of agreed-upon 
corrections. Where the tax-exempt organization has made a good-faith 
attempt at compliance or correction, the public interest is best served 
by a compromise acceptable to both the taxpayer and the IRS. In fact, 
the legislative history of the intermediate sanctions excise tax states 
that revocation of an organization's tax-exempt status should be 
reserved for situations in which the organization no longer operates as 
a charitable organization. The decision to resolve any disputed issues 
without revoking exempt status indicates that the IRS has determined 
that the organization continues to operate as a charitable organization 
or that the dispute did not involve issues relating to the 
organization's tax-exempt status. Thus, it is difficult to see how 
disclosure of examination results or closing agreements adds in any 
meaningful way to the public's interest in compliance by tax-exempt 
organizations.

Disclosure of pending applications for tax-exempt status

     Though applications for tax-exempt status and supporting documents 
are disclosed upon receipt of a favorable IRS determination under 
present law, the JCT Study recommends that applications and supporting 
documents be disclosed when the application is made. In addition, the 
Study recommends that any IRS action taken on the application be 
disclosed.
    The Coalition opposes disclosure of exemption applications prior to 
a final determination by the IRS. The review of an organization's 
application involves a legal determination as to whether the 
organization has met the applicable requirements for tax-exempt status. 
This legal determination is made in the first instance by the IRS and 
is reviewable by the courts. There is little, if any, public benefit to 
be derived from disclosure of an application while it is pending. In 
fact, such disclosure could be misleading, particularly in situations 
in which the IRS requests clarifications or changes during the 
application process (for example, when a legally unsophisticated 
applicant has inartfully described activities that do in fact qualify 
for exemption). In addition, disclosure of applications during the 
review process would interfere with fair and efficient tax 
administration by increasing the potential for inappropriate 
interference by competitors or philosophical opponents and for 
politicization of a legal process.
    Though the IRS appears to have done a good job in recent years in 
resisting inappropriate political interference, releasing pending 
exemption applications invites such interference and increases the 
possibility of inconsistent legal determinations. An application that 
is accompanied by well-orchestrated opposition or political pressure 
may receive a different determination than one unaccompanied by such a 
response. Present law requirements for disclosure of applications and 
the underlying file aftera final determination by the IRS help ensure 
consistency of determinations and public understanding of the standards 
applied.
    The release of a Form 1023 or 1024 submitted by an organization 
that the IRS ultimately does not recognize as exempt, either because 
the organization withdraws its application or does not qualify for 
exemption, needlessly discloses information about an organization that 
is not tax-exempt. If an organization withdraws its application or the 
IRS denies exemption, the applicant is taxable, and should be treated 
like any other taxable organization.
    The Coalition is aware of one circumstance in which the public may 
have a limited interest in an organization's pending application. A 
potential donor has an interest in knowing whether a donation is 
deductible as a charitable donation under Section 170 of the Code. For 
most Section 501(c)(3) organizations, tax-exempt status is effective as 
of the date of incorporation, while the actual IRS determination is not 
made until a later date. Thus, an organization that believes it meets 
the qualifications for tax-exempt status under Section 501(c)(3) may 
solicit or receive contributions from donors while its application is 
pending. Even in this circumstance, however, disclosure of the 
application itself would not meaningfully advance the public interest. 
A donor could not predict, with any greater certainty than the 
organization itself, whether the IRS will approve the application. In 
such cases, requiring a public statement that the application is 
pending and that a final determination letter has not yet been received 
may be appropriate to alert donors to the possibility that the 
application may be withdrawn or rejected. Donors may then make an 
informed decision as to whether deductibility of the donation is 
important and if so, whether to make the donation currently, defer the 
donation, or require a redirection of the donation if a favorable 
determination is not received.

Disclosure of related returns and returns of affiliated organizations

    The JCT Study recommends requiring disclosure of (1) a tax-exempt 
organization's Form 990-T, Unrelated Business Income Tax Return; (2) 
Form 1120 for any taxable affiliate of a tax-exempt organization; and 
(3) Form 1065 for any partnership in which a tax-exempt organization 
participates.
    The Coalition opposes these recommendations. Tax-exempt 
organizations are expressly permitted to engage in non-exempt 
activities, through conduct of an unrelated trade or business or 
through a separate organization such as a partnership or taxable 
corporation. Such activities are treated in the same manner as the 
activities of other taxable entities and are subject to the same tax 
liabilities. Taxation of these activities in the same manner as the 
activities of any other taxable entity preserves a level playing field 
and prevents unfair competition. To subject the tax returns for these 
taxable businesses to disclosure, when other taxable businesses are not 
subject to disclosure, creates a non-level playing field and would 
place nonprofits' subsidiaries and other affiliates at a competitive 
disadvantage. Disclosure of the detailed information in these returns 
may also make it more difficult for affected organizations to attract 
skilled managers and may inhibit relationships with potential investors 
or business partners, who may be reluctant to enter into transactions 
if the details will be made public. There is no meaningful public 
benefit from such disparate treatment and any bases for the public's 
interest in an organization's exempt activities do not apply to taxable 
activities.
    The nonprofit health care sector, in particular, would be unduly 
burdened and harmed by required disclosure of taxable affiliates' 
returns. Health care organizations have developed complex multi-
corporate structures as a legitimate means to address liability 
concerns and the unique regulatory environment in which they operate. 
Moreover, investor-owned organizations are aggressively moving into 
some of the more profitable venues in health care, and could use 
increased disclosure by taxable affiliates of nonprofits as a road map 
to cherry-pick financially attractive activities, leaving a diminished 
nonprofit sector to conduct the money-losing activities. It is 
difficult to identify a public interest that justifies this kind of 
potential harm.

Requiring additional information to be reported on Forma 990 regarding 
the transfer of funds among organizations exempt under Section 
501(c)(3), Section 501(c)(4), and Section 527

    The JCT Study recommends that Form 990 should be revised to require 
tax-exempt organizations to clearly identify conduit arrangements in 
which funds are being transferred among Section 501(c)(3), Section 
501(c)(4), and Section 527 organizations. The JCT staff expressed 
concern that existing reporting requirements, which apply only to 
transfers to affiliated organizations, do not require disclosure of 
more complex arrangements that may be used to circumvent restrictions 
on political campaign activities and calls for reporting more 
information on transfers.
    The Coalition believes that expanding the required disclosure to 
include any transfer among Section 501(c)(3), Section 501(c)(4), and 
Section 527 organizations would be unduly burdensome and is not 
necessary to address the concern identified in the JCT Study. Many 
nonprofit health care providers are parts of multi-corporate systems in 
which funds are routinely transferred back and forth. Any expanded 
reporting or disclosure should be narrowly crafted to address only the 
specific perceived abuse related to political campaign activities and 
to exclude transfers that occur in the ordinary course of legitimate 
activities and operations.

Requiring Section 501(c)(3) public charities to provide a detailed 
description of their legislative activities on Schedule A to Form 990

    The JCT Study recommends that Section 501(c)(3) public charities, a 
classification that includes most nonprofit health care providers, be 
required to provide on Schedule A, Form 990, a detailed description of 
legislation addressed and activities involved in their lobbying 
efforts. This would include information regarding expenditures for 
self-defense lobbying and expenditures for nonpartisan study, analysis, 
or research if it includes a limited ``call to action,'' even though 
these activities are excluded under certain circumstances from the tax 
law definition of lobbying.
    The Coalition opposes these proposals as unnecessarily broad, 
burdensome, and in many cases duplicative of information already 
required to be reported under the Lobbying Disclosure Act of 1995 
(``LDA''). Information about activities that fall outside the tax law 
definition of lobbying likely is not collected at present. Thus, we are 
concerned that the additional record keeping requirements would be 
burdensome and unnecessarily expensive for charitable organizations of 
all sizes. A narrow proposal to disclose only the information required 
to be disclosed under the LDA in a format that conforms to existing tax 
and LDA reporting requirements and the method elected by the reporting 
entity would be far less burdensome, expensive, or chilling of lobbying 
activities by smaller charities. Moreover, the IRS would likely have 
little use for lobbying expenditure information beyond that already 
reported on Schedule A.
    We are particularly concerned that the JCT staff's latter two 
proposals, concerning self-defense lobbying and nonpartisan study, 
analysis, or research appear to be a backdoor approach to broadening 
the existing tax law definitions of lobbying, at least for reporting 
and public disclosure purposes. The recommendation to report and 
disclose expenditures for nonpartisan study, analysis, and research 
even though it falls outside the existing tax law definition of 
lobbying would be a particular problem for membership organizations and 
associations. Our concern is that, ultimately, collection and 
disclosure of this information could result in calls for congressional 
expansion of the definition of lobbying. This could have a chilling 
effect on organizations like the Coalition and its member associations 
that seek to review, summarize, and inform their members about 
legislative proposals affecting issues their membership cares about. 
This proposal, instead, would discourage open, informed discussion 
about legislative issues.
    If information concerning expenditures for self-defense activities 
is required to be disclosed, it is likely that the primary persons 
interested in obtaining or using it would be those who are challenging 
the organization's exempt status. If those persons or organizations 
(likely to include for-profit competitors or philosophical opponents) 
are for-profit, they would not be required to disclose amounts spent 
challenging exemption.

                                

Coalition for Nonprofit Health Care

List of Members

                            Provider Members

Banner Health System
Fargo, North Dakota
  
Baptist Health Systems of South Florida
Miami, Florida
  
Baylor Health Care System
Dallas, Texas
  
Catholic Health Initiatives
Denver, Colorado
  
Catholic Healthcare Partners
Cincinnati, Ohio
  
Catholic Healthcare West/St. Joseph Health System
San Francisco, California/Orange, California
  
The Children's Hospital
Denver, Colorado
  
Dartmouth-Hitchcock Medical Center
Lebanon, New Hampshire
  
Deaconess Billings Clinic
Billings, Montana
  
Fairview/Lutheran Hospitals
Cleveland, Ohio
  
Group Health Cooperative of Puget Sound
Seattle, Washington
  
Kaiser Foundation Health Plan, Inc.
Oakland, California
  
Marshfield Clinic
Marshfield, Wisconsin
The Mayo Foundation
Rochester, Minnesota
  
Memorial Hermann Health Care System
Houston, Texas
  
Mercy Health Services
Farmington Hills, Michigan
  
Moses Cone Health System
Greensboro, North Carolina
  
PeaceHealth
Bellevue, Washington
  
Scott & White Memorial Hospital
Temple, Texas
  
  

                         Organizational Members

Alliance of Catholic Health Care (ACHC)
Sacramento, California
  
Alliance of Community Health Plans (ACHP)
New Brunswick, New Jersey
  
American Association of Homes and Services for the Aging (AAHSA)
Washington, D.C.
American Protestant Health Alliance (APHA)
Washington, D.C.
  
Premier, Inc.
San Diego, CA
  
Catholic Health Association of the United States (CHA)
St. Louis, Missouri
  
  
VHA, Inc.
Irving, Texas
  
Visiting Nurse Associations of America (VNAA)
Boston, Massachusetts
  
  
  
  
      

                                


                            Concerned Women for America    
                                       Washington, DC 20005
                                                     March 14, 2000
Mr. A.L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Re: Comments on Joint Committee on Taxation Staff Proposal, JSC-1-00 
        (January 28, 2000) regarding Taxpayer Confidentiality and 
        Disclosure Provisions

    Dear Mr. Singleton,

    Concerned Women for America (CWA) is the nation's largest public 
policy women's organization and enjoys the support of well over 500,000 
members nationwide. In 1999, CWA celebrated 20 years of service to the 
nation, representing the voice of hundreds of thousands of women and 
like-minded men who refuse to remain silent when radical feminists 
attempt to speak on their behalf.
    CWA has been able to perform this service to its members and the 
nation as a 501(c)(3) non-profit H-electing organization. The committee 
staff recommendations relating to non-profit disclosure drew our 
attention, and we offer the following observations and urge the 
Committee members not to accept the recommendations.
    Organizations such as CWA actively engage in self-disclosure of our 
lobbying activities to our members as well as often to the general 
public. Thus, additional disclosures are largely unnecessary. Unlike 
government agencies, CWA is directly accountable to its members whose 
financial support will cease the moment their organization ceases to 
achieve its promised mission. Unlike taxpayer-supported non-profits, 
CWA has never requested nor received taxpayer dollars to engage in its 
member-directed work. Additional disclosure would surely better serve 
the taxpaying public's interest if it is directed towards those 
organizations which receive taxpayer support and engage in lobbying. 
(e.g., Planned Parenthood affiliates or Legal Services Corporation-
grantees).
    Additional disclosures, as recommended by the Committee staff, are 
both duplicative and an unnecessary added financial and organizational 
burden which will tend to distract CWA from achieving its mission. CWA 
would have to begin to track for reporting purposes potentially 
multiple issues which it has never had to track and report before.
    Congress is engaged in a process of simplifying tax-related 
requirements. The staff recommendations are the precise opposite: they 
call for more complex reporting which will require a more complex 
Schedule A. This additional complexity does not come with efforts to 
clarify definitions, let alone provide any which may be missing. On the 
contrary, the additional demands with which the recommendations would 
burden non-profits come with more terms which are left undefined. For 
example, a ``limited call to action'' is apparently different from a 
``call to action.'' The statute at least mentions a ``call to action.'' 
Nowhere does it mention a ``limited call to action.'' This new term 
could affect the meaning of ``lobbying'' as defined for H-electing non-
profits such as CWA.
    CWA and other non-profits are already chilled in expressing their 
opinions for fear of crossing IRS regulations which are largely 
undefined, thus allowing federal agencies such as the IRS wide leeway 
to punish non-profits after the fact. This is an unconscionable 
situation which will only worsen if the staff's recommendations to 
further complicate reporting with largely undefined demands upon non-
profits.

            Respectfully submitted,
                                             Beverly LaHaye
                                               Chairman and Founder
      

                                


Statement of Dorothy S. Ridings, President & CEO, Council on 
Foundations

    The Council on Foundations is a national membership 
organization representing the collective interests of more than 
1,900 community, family, independent and company foundations as 
well as corporate giving programs. The Council has always had a 
strong commitment to promoting the accountability of 
grantmakers to donors, grantees and the public. Consistent with 
its support for accountability, the Council has routinely 
supported initiatives to improve public access to information 
about the financial and programmatic operations of its members. 
In particular, the Council has supported efforts to make both 
Form 990 and Form 990-PF more easily available. It also has 
supported, and continues to support, increased funding for IRS 
oversight of tax-exempt entities, including reviews to ensure 
that the returns filed by both private foundations and public 
charities meet the legal requirements for full and accurate 
disclosure. Finally, the Council supports electronic filing of 
exempt organization tax returns in order to speed the public 
disclosure process, as well as reduce the burden of filing 
paper returns.
    We have reviewed the volume of the disclosure report 
addressing issues related to tax exempt organizations and we 
support a majority of its nineteen recommendations, although we 
respectfully disagree with some. We will not, in this 
submission, discuss the Council's position on each 
recommendation since our positions are fully reflected in the 
detailed statement submitted by Independent Sector. We submit 
this supplementary comment in order to provide more detail on 
two of the disclosure recommendations that are of particular 
interest to grantmakers.
    However, before discussing those two issues, the Council 
wishes to underscore two important points in the Independent 
Sector analysis. First, while the Council has long advocated 
public disclosure of information about grantmakers, we have 
done so because we believe that disclosure fosters public 
trust, and that maintaining public trust is essential to the 
effective operation of charitable organizations. We disagree 
with the report's premise that tax exemption and the 
deductibility of charitable contributions transform private 
institutions into quasi-public ones that should be completely 
transparent to the public. We also strongly disagree with the 
presumption that the burden should be on tax-exempt entities to 
justify the withholding of any information about their 
activities and operations. While we support greater public 
disclosure than that required from taxpaying institutions, we 
firmly believe that the burden should be on the advocates of 
disclosure to demonstrate significant public benefit from 
additional revelations--particularly in areas such as audits, 
the conduct of activities on which tax is paid, and 
participation in the public policy process, where privacy would 
normally be assumed.
    Second, we affirm the opposition in Independent Sector's 
comments to disclosure requirements that could have a chilling 
effect on charities' participation in the public policy 
process. Many of the Council's members are public charities, as 
is the Council itself. Adopting the report's recommendations 
would have a significant negative effect on these members' 
educational and policy activities, and on the Council's ability 
to advocate for its members. Moreover, extension of the self-
defense lobbying recommendation to private foundations would 
further restrict the limited capacity of these institutions to 
participate in the formation of public policy that directly 
affects their ability to operate.

                Simplifying and Streamlining Form 990-PF

     As part of its effort to improve public disclosure of 
relevant financial information, the Council drew the attention 
of both the Joint Tax Committee staff and the Department of 
Treasury's Tax Policy Office to two specific changes to the 
requirements of Form 990-PF that we believed would 
substantially lessen the filing burden, while improving public 
access to information about private foundations. Part II of 
Form 990-PF (Lines 10 through 15) requires all private 
foundations to submit to the IRS each year a detailed listing 
of all of their assets. Particularly for larger foundations 
with substantial assets, these lists, which catalog the 
foundation's holdings on a single day during the tax year, add 
considerable bulk to the foundation's return. The same is true 
for the requirement in Part IV of the form that private 
foundations provide a complete list of all of their capital 
gains transactions during the year. Together, these two 
schedules can add hundreds of pages of tiny-type schedules to 
Form 990-PF, burying the reader in such a morass of detail that 
it becomes difficult to focus on the important parts of the 
return. Eliminating these schedules would improve public access 
to information about foundations by making the form easier to 
read and comprehend and by making it substantially easier to 
post on a web site. A further compelling reason for eliminating 
the schedules is that despite the cost and burden of supplying 
the data, there is every indication that the Internal Revenue 
Service makes little, if any, use of it.
    The Joint Committee Report acknowledges the need for change 
in this area, recognizing that disclosing voluminous data can 
obscure more important information. Accordingly, the report 
proposes that private foundations routinely disclose only a 
summary of their capital gains transactions to the public (the 
complete list would have to be supplied to an interested member 
of the public, upon request). However, this recommendation does 
not go far enough to solve the problems that the Council 
identified, because all of the underlying data about capital 
gains still must be supplied to the IRS. Moreover, the Joint 
Committee Report did not address the issue of the schedules of 
assets held. These lists are at least as voluminous and 
uninformative as the lists of capital gains transactions.
    We strongly recommend that Form 990-PF be amended to 
substitute a requirement that private foundations provide 
summaries of their assets and their capital gains transactions 
rather than complete lists. Recognizing that this information 
could be valuable in the event of an audit, we also recommend 
that private foundations continue to be required to retain this 
information in their files until the statute of limitations 
runs out on the return. The Council would be happy to work with 
the IRS to devise appropriate ways of summarizing the data that 
meet the enforcement needs of the Service and the public's 
interest in information about private foundations.

 Disclosures with respect to returns filed by affiliated organizations

     The report recommends that section 6104 be expanded to 
require the disclosure of Form 990-T (unrelated business income 
tax) if a tax-exempt organization files that form. The report 
also recommends disclosing Form 1120 (the corporate tax return) 
and other returns filed by taxable entities affiliated with 
tax-exempt entities. For all of the reasons stated in 
Independent Sector's comments, the Council opposes required 
disclosure of business tax returns.
    There is, however, an additional problem with the 
recommendation. The report does not elaborate on the basis on 
which a taxable organization would be deemed to be affiliated 
with a tax-exempt entity. While we do not believe the Joint Tax 
Committee staff intended the result, the Council notes for the 
record that corporations are affiliated with their corporate 
foundations. Thus, a literal interpretation of the report could 
lead to the required disclosure of the Form 1120 filed by a 
significant number of major U.S. corporations simply because 
they are affiliated with a tax-exempt entity, a result that 
would quickly lead to the termination of most existing 
corporate foundations and would certainly chill the formation 
of new ones. The absurdity of this outcome underscores the 
complexity of the recommendation to require disclosure of 
information about the business activities of tax-exempt 
entities.
      

                                


                                   First Baptist Church    
                                           Groton, VT 05046
To: The Joint Committee on Taxation:
The Chairman of the House Ways and Means Committee, Representative Bill 
    Archer (R-TX)

Re: IRS reform act proposals for 501 (c) (3) organizations--churches

    Summary: these proposals would create burdensome new record keeping 
requirements for non-profit organizations, such as churches.
    The Internal Revenue Service restructuring and Reform Act of 1998 
was intended to consider methods to restructure the IRS to make it more 
responsive to the needs of Americans and less intrusive in their lives 
but they have done just the opposite.
    There is a clear potential that every time a church asks its 
members to call or write their elected officials [local, state, and 
federal] on a bill, they would be required to report that activity to 
the IRS. This danger is coming from the Congressional Joint Committee 
on Taxation which is recommending possible laws that could seriously 
impact churches. I believe the purpose of this intrusion seems to be to 
frighten the churches and keep pastors away from expressing their 1st 
Amendment Rights.
    I call upon The Joint Committee not to adopt changes, requirements, 
or proposals as you have considered below.
    1. Provide information about their lobbying activities on their 
annual tax form (Form 990), described in the Joint Committee's report 
as ``a detailed description of the legislation addressed in their 
lobbying efforts and the manner in which organizations engaged in 
lobbying activities.'' Currently 501(c)(3)s that have elected to use 
the 501(h) expenditure test for lobbying need only report their 
lobbying expenditures, and non-electing 501(c)(3)s must provide a 
narrative description of their lobbying that is probably less detailed 
than the report envisioned by the Joint Committee's proposal.
    2. Disclose the amount of money the organization spends on 
activities under the ``self-defense'' exception to the lobbying rules. 
Currently advocacy involving legislative proposals that effect a 
501(c)(3)'s rights or existence are not considered lobbying and need 
not be reported. Under the Joint Committee's proposal, self-defense 
advocacy would still not count against a 501(c)(3)'s lobbying limits, 
but 501(c)(3)s would now have to report all such expenditures.
    3. Disclose expenditures for nonpartisan research and analysis if 
the research or analysis includes a ``limited `call to action.' '' 
Currently under the exception for nonpartisan research and analysis, a 
``full and fair'' discussion of an issue that provides sufficient 
information for readers to come to their own conclusions about this 
issue will not be considered lobbying, even if it includes an 
``indirect'' call to action. An indirect call to action is identifying 
certain legislators that will vote on the issue. The Joint Committee's 
proposal would require 501(c)(3)s to report expenditures for this 
educational activity.
    In short, these proposals would create burdensome new record 
keeping requirements for non-profit organizations, such as churches.

            Sincerely,
                                         Pastor Chris Paine
      

                                


                     First German Congregational Church    
                                          Lincoln, NE 68522
                                                      March 7, 2000
A.L. Singleton, Chief of Staff, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth
Washington, DC 20515

    Dear Sir:

    I have just been informed of proposals from the IRS regarding 
reporting requirements for 501(c)(3) organizations. It seems to me that 
charitable organizations do their members a favor to inform them and 
invite their participation in the political process when legislation 
that affects their functions are proposed. And the IRS has been trying 
to persuade us that they are seeking to make the job of reporting to 
them easier, that they are trying to serve the public! The latest 
proposals to require reporting of all efforts by charitable 
organizations to involve the public in public policy with legislators 
is one of the most onerous requirements ever put forward by this 
elitist organization.
    This is a gross violation of free speech rights. Does the 
Constitution of this great country mean nothing to the IRS? This is by 
far not the only attempted violation of Constitutional provisions from 
the IRS. The fact is, our government has created a monster that it 
hardly controls. And the citizens are made to feel that we no longer 
have government ``of the people, by the people, for the people.''
    If the IRS has its way, we will no longer be able to tell our 
people what legislative actions need their response to their 
congressman and/or senator without the messy business of reporting it. 
With stupid laws like this, are you really interested in raising up new 
levels of lawbreaking, even if it is inadvertent? And is adhering to a 
law that grants freedom on the one hand to be overturned by another law 
by a subsidiary of the government? We know that such laws get passed 
because they are slipped into a larger package in the hope that they 
won't get noticed. Why lay such stupidity on the courts to resolve when 
it can be properly handled in committee before it ever slips into law?
    It is my sincere hope that your committee will keep the IRS from 
tyrannizing 501(c)(3) organizations. Our political process is good, but 
we need to keep using it as intended. Thank you for your attention.

            Sincerely yours,
                                        Rev. James Pedersen
                                                             Pastor
      

                                


                                            Los Angeles, CA
                                                     March 12, 2000
A.L. Singleton
Chief of Staff
Committee on Ways and Means
House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

    Dear Mr. Singleton:

    I am writing in response to the Committee's advisory of February 2 
requesting comments on the Joint Committee on Taxation's Disclosure 
Study hereafter referred to as JCT Study. I am writing as a private 
citizen with both a public interest and very personal interest in 
disclosure provisions relating to tax-exempt organizations.
    In summary, my positions are:
    1. In strong support of the Joint Committee staff's recommendations 
for full public disclosure without redactions by the IRS of all audits, 
closing agreements, determinations, and background file documents.
    2. In strong support of full public disclosure of all Form 990s for 
section 501(c)(3) organizations including salaries of their officers.
    3. In support, in general principle and with some modification, of 
the suggestion made by John D. Anderson in his comments in Vol. III of 
the JCT Study that Form 990s should be expanded to include detailed 
information on all federal grants made to the organization. I would 
favor a summary of how many grants an organization has from various 
departments/entities within the federal government and full posting of 
these at an appropriate government website. As government is re-
invented/downsized, etc., it is even more important that disclosure be 
made in a similar fashion for all federal contracts held by tax-exempt 
organizations.
    4. In support of the comments made by Dr. Lee Lillard of the 
Michigan Retirement Research Center to make available to researchers, 
with strict confidentiality protection in plans approved by 
Institutional Review Boards, IRS data for use in linked data research. 
The working paper presented by Dr. Lillard deals with aging research; 
however, researchers studying younger populations also have similar 
needs.
    I hope my comments will be especially helpful because they involve 
a current and real case study related to the JCT Study's 
recommendations. No one regrets more than I that they must be made in 
the only capacity in which I can speak as a ``disgruntled former 
employee alleging.'' However, I believe that this and subsequent 
related information will assist the Ways and Means Committee, the 
Appropriations Committee, the Committee on Government Reform, and the 
Committee on Education and the Workforce in the 107th Congress.
    In November 1996, I went to the Pension and Welfare Benefits 
Administration (PWBA) of the U.S. Department of Labor (DOL) and filed a 
complaint against my former employer, the RAND Corporation, a tax-
exempt 501(c)(3) organization. I alleged that
    1. I was misclassified as an independent contractor and thus 
illegally denied benefits in violation of ERISA
    2. That I represented a class of unknown size of RAND employees who 
were similarly misclassified and denied benefits in violation of ERISA
    3. That Section 510 of ERISA was violated against me, i.e., I was 
threatened, harassed, and ultimately terminated from employment while 
attempting to clarify my eligibility for ERISA benefits.
    For the past 33 months the PWBA has been conducting an audit/
investigation as a result of those allegations that are very similar to 
the ones in the Vizcaino v. Microsoft and Herman v. Time Warner. I 
provided the PWBA with a large amount of documentary evidence at that 
time and subsequently. As Members of Congress are well aware, while an 
audit by DOL, IRS, or any government agency is in progress, nothing can 
be known or revealed until the investigation is completed. I am 
providing the only thing I can know to the Committee, i.e., the audit/
investigation case number is 72-12099. It is not my purpose herein to 
in any way interfere with or influence the audit or to rehash material 
that already is in the hands of the appropriate enforcement agency.
    Everything that I present herein either as fact, theory, or opinion 
already has been communicated to the PWBA. No one has assisted me in 
writing this document except one close family member. Since I learned 
of this request for comments only on March 3, I have not had time to 
ask anyone's permission to use his/her name; therefore, no one's name 
will appear unless publicly identified and then only law firms that are 
publicly named as legal counsel in federal courts. I am attempting to 
write with the objectivity of a professional with a background in 
government, research and public policy. At the same time, I am writing 
with the subjectivity of a citizen with a very personal and vested 
stake in these issues. I hope it will be clear when I switch from one 
of these perspectives to the other. Finally, while I will cooperate 
fully with government agencies and Congressional staff, I will make no 
further public comment while the PWBA audit is in progress.
    All the research I have done for my case in the past three and a 
half years has been done from available public information from the 
media, the Internet, or public libraries. I have never had access to a 
law library or Lexis-Nexis. Obviously I have learned a great deal about 
RAND and a great many topics. I am not including references or doing 
footnotes; however, I can provide sources of all data to the 
Committee's staff.
    Indeed it is amazing how much can be learned about a high-profile 
tax-exempt organization from public sources; however, I am advocating 
for even more public information and access. Tax-exempt status is 
granted only for specific purposes to benefit the public good. It is 
given in the name of the federal government and all citizens. I learned 
from the JCT Study that the charitable donation tax deduction for 
individual income tax was enacted in 1917. There always has been a 
strong ethos of charity and volunteerism in our country as well as a 
suspicion of government as a ``necessary evil'' about which Garry Wills 
recently has written in depth. Therefore, we as a society should and do 
expect more of tax-exempt organizations and those who manage them.

       1. Public Disclosure of IRS Audits and Closing Agreements

    Please note that this section is lengthy and could benefit 
from some subheadings. I have spent the most time and effort on 
it because I know that the JCT Report's recommendation is a 
large change that probably will be opposed by tax-exempt 
organizations and their associations on general principle.
    A key issue in my case is whether or not members of my 
class and I were employees as defined by IRS criteria. (Please 
excuse me if I forget to include ``alleged'' all the time and 
understand that it always should be assumed.) Since I had 
previous management experience and was responsible for 
regulatory compliance (including Medicare) for a large home 
health agency, I had a working knowledge of the IRS criteria 
long before I came to RAND. I also thought that everyone knew 
IRS had been cracking down in this area since at least the late 
1980s. I had worked as an independent contractor, done my own 
tax returns, etc.
    Therefore on coming to RAND in September 1995, I questioned 
why I was required to complete a W-4 if I was considered an 
independent contractor. As a ``consultant'' (RAND's term for 
independent contractors), my income should be reported to IRS 
on a Form 1099. Someone in RAND's personnel department by 
telephone answered my question: RAND was caught by either the 
Franchise Tax Board or the IRS two years earlier, i.e., in 
1993, and that I was legally an employee. Over a year later 
when speaking with lawyers and the PWBA, I could not recall 
whether she said that it was the Franchise Tax Board or the 
IRS. I still don't know which it was. It would have been 
helpful for me to have access to IRS audits and closing 
agreements regarding this matter.
    However, I knew that I was an employee. A year later I had 
a W-2, W-4, pay stubs showing that RAND paid its share of FICA, 
and even evidence that the California was paying me an 
unemployment compensation claim that RAND never challenged. I 
also met every single other one of the 15-20 IRS criteria for 
being an employee. Although RAND's ERISA plans had two 
different types of employees, I should have been given the 
benefits package of at least one of them. Instead I was told a 
lot of strange things such as in a pre-employment interview 
that I would get benefits unless I already had them through a 
university appointment or a spouse. I said that I had neither 
and needed benefits because I had COBRA. But they still didn't 
give me benefits. I wondered if they ask men in pre-employment 
interviews about benefits from a spouse. I still don't know. I 
do know that there was nothing about that in RAND's ERISA 
plans, nor was there anything that said that RAND would not 
give benefits to a new employee who came with COBRA benefits 
from prior employment.
    My supervisor promised me that I'd get benefits in two 
months. When that time came, my supervisor and an 
administrative person told me very different things. The 
supervisor, who was the principal investigator on the National 
Cancer Institute grant on which I was the study director, told 
me that she wanted to give me benefits but RAND wouldn't let 
her. The administrative person told me that RAND wanted to wait 
to give me benefits because my boss had high turnover of 
persons on her projects and she was not satisfied with my job 
performance. Suffice it to say, that none of the above are 
provisions in RAND's ERISA plans.
    By then I also knew that the person before me in the same 
position of study director on the same NCI grant had benefits. 
And after I was gone, the person who succeeded me in that 
position had benefits. Good human resources and administrative 
practices, whether for ERISA, federal grants or any other 
purposes, deal with positions and persons in positions. Once 
they start being about a specific person, they can become 
arbitrary, chaotic, unfair, and possibly discriminatory and 
illegal.
    I wanted to know a lot of things that I still don't know, 
and having IRS or FTB audit reports would have helped. I don't 
think the woman in personnel would have told me the tax 
authorities caught RAND if it weren't true. Later I asked 
someone at IRS what happens when they find a case of 
misclassification. I'm not sure I recall the time IRS goes back 
(three years perhaps) to assess the employer's part of FICA 
that should have been paid for each misclassified person plus a 
pretty hefty fine or penalty. I wondered about issuing revised 
W-2s so that the misclassified people could file amended 
returns and get back the half of FICA they overpaid. The IRS 
person told me that they require the employer to do that but 
don't really have the staff to know if it is ever done. I don't 
think the government should keep that extra FICA and that the 
employee should not only get a revised W-2 but also advice on 
how to file amended returns to get that money refunded. So I 
also am suggesting that when there are misclassifications, the 
IRS notify each employee.
    Obviously, IRS presently needs more staff to even assure 
that cases is has under investigation can be completed before 
statutes of limitation expire. Later in this document I will 
make a very strong case for additional funding and staffing for 
PWBA. Since I don't often have the opportunity to address many 
members of Congress, I might as well add my opinion that 
enforcement of federal civil laws is not something that can be 
privatized or contracted out. Not only the IRS and PWBA, but 
also many other federal agencies, for example, the Office of 
the Inspector General of HHS, do excellent work. They are cost-
effective, and the dollars they spend generate more revenue, 
prevent waste/abuse/fraud, and protect citizens' rights.
    I still don't know what happened at RAND in 1993. Maybe the 
FTB caught them, and RAND just told their employees that there 
was some change in government regulations or something and the 
employees never knew that they had been misclassified. Or if it 
was the IRS that caught RAND, I don't know whether or not 
revised W-2s were issued. Most of these people still were being 
called ``consultants/ independent contractors.'' I would like 
to know this information. I also asked if IRS notifies PWBA 
when it finds misclassifications as there might be ERISA 
violations, or if it even shares internally with EP/EO. That 
isn't happening, and I doubt IRS and PWBA have enough staff to 
follow-up anyhow. While I don't see much logic for having EP/EO 
together (except in this rare example where an EO is violating 
terms of its EP), I do hope that the elimination of EP/EO will 
not lead to lower appropriations for each of these functions.
    PWBA would not be auditing RAND for 33 months if my basic 
premise (that I was an employee and as such should have had 
benefits under RAND's plans) was in error. It doesn't take 33 
months to determine that. Even then RAND continued to fight me 
about the employee/independent contractor issue with great 
effort and expense. As far as I can discern, their efforts made 
no common sense except in the context of the employers' usual 
response to claims or litigation against them by employees, 
i.e., deny/deny/deny, stall/stall/stall, pay lawyers/lawyers/
more lawyers. Employers use this strategy in tax-exempt 
organizations as well as for-profit businesses.
    Between November 1996 and September 1997, RAND also had to 
deal with a small claim of approximately $3300 as penalty for 
paying my last paycheck late, a simple matter handled by the 
California State Labor Commissioner, hereafter referred to as 
LC. I know that my cost to represent myself in this matter 
(mostly involving 8 trips to various LC offices since I had to 
file papers, get information, etc. for mileage and parking fees 
plus some copying of documents) was $189. I estimated based on 
legal fees of $350 an hour for RAND's legal counsel plus 
travel, etc. that they spent approximately $15,000. 
Unfortunately if that figure is correct, the US taxpayers 
picked up 85% of RAND's costs as part of their federal grant 
and contract overhead. Legal fees and related costs to defend 
against lawsuits or claims by current or former employees are 
allowable in overhead calculations. Since 85% of RAND's income 
is from federal grants and contracts, then the federal fisc 
paid for 85% of these totally unnecessary and wasted costs. I 
don't think we would have had to bother with this silly side 
issue if I had access to IRS audits and closing agreements or 
to those of the FTB.
    Initially, I was represented by a former boss and friend of 
many years who is a health lawyer, does mostly administrative 
health law, knows little ERISA, and is not a litigator. During 
the summer of 1996, while I was still working at RAND and being 
harassed, threatened with termination of my employment, etc., 
he warned RAND several times in writing of Section 510 
including warnings to my immediate supervisor, RAND's Director 
of Personnel, and RAND's legal counsel, Cooley Godward, a very 
large and prestigious firm headquartered in San Francisco but 
without an office in the Los Angeles area. The documentation is 
in the PWBA files. But these warnings did not prevent my 
termination from employment in September 1996.
    The first three-judge decision of the 9th Circuit Court of 
Appeals on Vizcaino v. Microsoft came down in early October 
1996, and my attorney sent it to Cooley Godward. However, by 
November 1996, we were getting nowhere; so I went to PWBA. My 
attorney also suggested that I file a claim for late payment of 
last pay with the California LC to get RAND's attention. The 
first step in these claims is a conference, mostly to get rid 
of frivolous claims. If the employee doesn't appear for the 
conference, the claim is dropped. Appearance by the employer or 
his representative is optional. Most employers don't appear as 
it is a waste of time and money. At the conference on December 
12, 1996, I appeared but did not bring legal counsel and was 
opposed by RAND's legal counsel, an associate from Cooley 
Godward flown down from San Francisco to litigate against me. 
They sent a Boalt Hall educated litigator for this 15-30 minute 
conference at which RAND did not even need to be represented. 
The only issue argued was whether or not I was an employee, and 
I had W-2, W-4, pay stubs showing RAND paid its share of FICA, 
and documentation of approval of my claim for California 
unemployment compensation that RAND never challenged. I 
prevailed, and the case would be scheduled for a hearing.
    The hearing was scheduled for August 7, 1997. But a lot 
happened in those intervening months. In mid-March 1997, PWBA 
told me that they were investigating my claim further. I told 
them to go ahead and that I would be contacting the Inspector 
General of DOL because I feared that RAND would try to use its 
influence to stop the audit. I knew that a former Secretary of 
DOL was on RAND's Board of Trustees as well as many other 
politically influential and powerful people on not just their 
Board of Trustees but also the Board of Overseers of RAND's 
Institute for Civil Justice and other subunits' advisory groups 
as well. I also was aware that RAND had a ten-year $10 million 
contract from the PWBA (from September 1988 to March 1997) to 
establish a Center for the Study of Employee Health Benefits. 
The center's work was done by RAND analysts in collaboration 
with analysts from The Urban Institute and Harvard University.
    A month later in April 1997, my PWBA case was turned over 
to an auditor/investigator in preparation for an audit of 
RAND's ERISA compliance. I agreed to cooperate fully even 
though after months of no negotiations or contact between my 
attorney and RAND's lawyers, they suddenly were making an offer 
to settle with me for about $7335, a good reference, and 
withdrawal of my LC late pay claim--and of course, my silence. 
In fact, if I had any qualms about going forward and 
cooperating with PWBA, that settlement offer quickly erased 
them. I don't need to buy references. Even adding in the $3300 
for the late wage claim would hardly amount to a settlement for 
a totally frivolous claim. Obviously RAND was still claiming 
that I was not an employee and didn't want the LC to declare 
that I was one. Furthermore, I considered that offer to be in 
exchange for my First Amendment rights that definitely are not 
and never will be for sale. That also is why Section 510 is 
important.
    The PWBA audit began sometime in June 1997. From that point 
on to this very day, it was under seal. No one including me can 
know anything until the investigation is completed. Since RAND 
has only 1000 workers total, it is clear to me that RAND 
probably is using its legal counsel to make PWBA subpoena every 
document and is stalling so that all statutes of limitation 
will be gone. In July 1997, the 9th Circuit Court of Appeals 
issued its en banc decision for the plaintiffs in Vizcaino v. 
Microsoft. (Since then, Microsoft appealed to the U.S. Supreme 
Court that refused to hear the case and let the 9th Circuit's 
decision stand.) I also knew that RAND had added Paul, 
Hastings, Janofsky & Walker to its legal team. An attorney from 
the Los Angeles office of that firm had written the amici 
curiae in the Vizcaino case on behalf of the American 
Electronics Association, California Chamber of Commerce, 
California Employment Law Council, and The Employers Group. I 
also was aware that the U.S. Supreme Court in May 1997 in a 
unanimous decision written by Sandra Day O'Connor in Inter 
Modal Rail Employees Association v. Acheson, Topeka & Santa Fe 
Railway Co. had ruled that Section 510 of ERISA applied to 
welfare (i.e., health benefits) as well as vested pension 
benefits.
    So I mistakenly thought that this time RAND just wouldn't 
show up for the August 7, 1997 LC hearing. I didn't think I 
could waste any attorney's time for $3300 to represent me. I 
planned to argue the case, if I had to, from paper, i.e., all 
the documentation of my being an employee, the date on the copy 
of my last paycheck, and the postmark on the envelope in which 
it was mailed to me. I really wasn't thinking about it much as 
my father passed away on July 12, 1997, and I was in Ohio for 
three weeks arriving back in California just a few days before 
the hearing. This time RAND not only had the same attorney from 
Cooley Godward flown down from San Francisco, but he had come 
down the day before to prepare his witnesses, the 
administrative person who had dealt with me during my last days 
at RAND and the CFO of RAND, the only officer of RAND whom I 
have ever met. Actually I was interested in meeting him because 
he was the study director of the RAND Health Insurance 
Experiment, the study that put RAND on the map in health 
research in the late 1970s and early 1980s.
    I'm not a lawyer, and anything more about my background is 
not important. We had a hearing officer recording the 
proceedings on a boom box. Obviously it is never a good idea to 
represent one's self, though it is frequently done in these 
informal LC hearings, and surely not against a top litigator 
who objected quite a lot. The hearing took about 90 minutes. 
The RAND witnesses were well prepared with appropriate ``I do 
not recalls.'' Of course, RAND argued that I was not an 
employee, but the CFO did state under oath that RAND complies 
with all laws. Well, I was determined to get something on the 
record, but I didn't know what to do when RAND's legal counsel 
objected to my questions (e.g., if RAND had ever been audited 
by the IRS or FTB regarding misclassification of employees and 
how much RAND was paying its legal counsel.) It took what I now 
recall as 4-5 times to get my most important question in the 
appropriate form, ``Do you have any idea why so-and-so in 
personnel told me that RAND was caught by the tax people for 
misclassifying employees and that I was an employee?'' Of 
course, he replied, ``I have no idea.''
    The LC's decision was in two parts: The hearing officer 
mooted the question of whether or not I was an employee but 
ruled that I had not shown intent to pay me late. An appeal 
would mean going to Municipal Court and paying all RAND's legal 
fees if I lost. That wasn't worth the risk for $3300. I did 
want to get a copy of the tape of the hearing and requested it 
immediately, but it took a long time to get and then about 15-
20 minutes was missing. I don't know for sure how long and 
can't resist saying that it may have been 18 minutes. It took a 
long time, many months, help from my State Assemblyman to get 
someone at LC to listen to the original master tape, to confirm 
that a portion of the hearing tape was missing, and to 
apologize to me. The missing portion happened to include the 
entire testimony of the RAND CFO!
    All this is a pretty silly example of how far employers 
will go to cover up what might be in an IRS audit or closing 
agreement. The taxpayers of the United States paid 85% of 
RAND's costs. The taxpayers of California paid the costs of the 
hearing and all my calls and complaints about the lost tape. On 
the one hand, this is silly, and on the other is a sad way for 
a large and prestigious tax-exempt organization to conduct its 
business.
    The classification of workers as employees creates tax 
costs for the employer as well as costly obligations regarding 
federal and state legal protections and rights for workers. 
I've looked at Thomas for the last several years, and there 
have been many bills about this issue. It's not very hard to 
tell if the bills favor employers or employees by which Member 
of Congress introduces and who co-sponsors them. Some are 
puzzling and amusing such as H.R.19, the Caddie Relief Act of 
1999 introduced by Mr. Burton.
    I do want to see two kinds of legislation passed eventually 
as a result of my experiences, and the first ones are three 
related bills, H.R. 769, 770, and 771 which Mr. Lantos 
introduced in the 105th Congress with Mr. Campbell and Mr. 
Shays as the only co-sponsors. All three bills relate to 
federal procurement and misclassification of employees by 
federal contractors. The sponsors appeared to be motivated by 
some constituent employers who wanted to give all their workers 
benefits and were at a competitive disadvantage to win federal 
contracts if they did so. These ideas should be revisited as we 
should not contract away good federal jobs with benefits to 
those private contractors who won't give some or all of their 
workers health insurance, vacation, paid holidays, or sick 
leave or call them employees so that they can take advantage of 
the Family and Medical Leave Act. At a time when so many 
workers are uninsured or underinsured for health care, this 
makes sense as good public policy.
    RAND may well have violated the nondiscrimination part of 
ERISA for pension law by misclassifying mostly workers at the 
lower ends of its pay scale. I was making about $55,000 and was 
one of the higher paid members of my class. According to the 
Pittsburgh Post Gazette on September 28, 1999, regarding the 
opening of an office of RAND in Pittsburgh, ``half of its 
(RAND's) workers are researchers who make an average of 
$85,000.'' Nondiscrimination in pensions has nothing to do with 
civil rights laws but with assuring that the highest paid 
people don't get more than their fair share of pension funds, 
ability to put away so much tax-sheltered v. lower paid 
employees. Ways and Means undoubtedly is familiar with this as 
it's the main part of ERISA that is very complex and much like 
tax code law.
    Of course, health benefits in ERISA have no 
nondiscrimination requirements. An employer can write his 
health plan to include or exclude whomever he wishes so long as 
he doesn't discriminate by civil rights protected categories 
and then consistently and fairly administers whatever standards 
he set. I wonder if, perhaps there shouldn't be a non-
discrimination clause for benefits for federal contractors, for 
example, if they aren't going to provide health benefits for 
10% of the workers on a federal contract or grant, perhaps it 
should always be the highest paid people who can best afford to 
buy their own coverage. I'm not so sure that this isn't a good 
idea for all ERISA health benefits. For example, RAND (at the 
time I was there) paid 100% of the premium for the worker, 
better than the federal employees plan you all have. But that 
meant they paid about $300 for the highest paid workers who 
could afford the higher deductibles for the fee-for-service 
plan and only $150 for each worker who took an HMO. It wasn't a 
set amount or percent for each worker. The management of RAND 
definitely designed its health benefits to give more to the 
higher paid workers including themselves. And then there were 
some of us who worked right beside them doing the same kinds of 
jobs who didn't get any health benefits and whom I allege were 
illegally denied them.
    Maybe if we made the employers who already do give health 
benefits to their workers and aren't going to stop doing so, 
meet some nondiscrimination standard, then we wouldn't have to 
have CHIP or continue Medicaid for workfare people at the 
bottom of the pay scale--and we could save some tax dollars. 
That seems fairer to me. And maybe any tax-exempt organization 
that gets federal grants and/or contracts should be required to 
give all its workers basic benefits. For example, university 
presidents are overhead, have good salaries, and always get 
benefits. So why shouldn't their janitor and laundry workers 
who also are overhead also have benefits? These have been 
issues at numerous universities including USC, and just in the 
past week at Johns Hopkins.

                       2. Full Disclosure of 990s

    I hold the officers of RAND responsible and accountable for 
their actions. Since my alleged Section 510 violation happened 
just after the Taxpayers Bill of Rights legislation was passed 
in 1996, I waited for the regs to come out so that I could go 
over to RAND to get their 990 to learn how big their salaries 
are. By the start of 1999, I realized that I didn't care to 
know. I learned from the JCT Study that the regs came out in 
June 1999. I still don't care. But I think the public has a 
right to know. I don't think it will stop anyone from serving 
as an executive in a tax-exempt organization. The public knows 
your salaries and those of other high government officials. The 
salaries of major executives of for-profit corporations are 
published all the time. I volunteer in the development office 
of a tax-exempt organization that subscribes to a weekly 
publication, Chronicle of Philanthropy Once a year it publishes 
the 100 or so highest salaries in tax-exempt organizations. 
It's not surprising that presidents of large universities, 
conductors of major symphony orchestras, and the CEO of the 
American Red Cross make high salaries.
    We are shocked or concerned only when they are paid so much 
and don't do their jobs appropriately or act in some illegal 
way. When they do, they harm the organization and all its 
employees and its mission. For example, about ten years ago 
there was such a scandal in Los Angeles involving the head of 
United Way. For a number of years thereafter donations to 
United Way were diminished. That hurt a lot of needy people who 
are served by United Way agencies.
    Only a month after I came to RAND, I was surprised by an 
article in Los Angeles magazine that described how RAND had 
lobbied for zoning changes in Santa Monica. These changes had 
to be approved by the voters and would prevent zoning changes 
RAND wanted in order to develop its land commercially. 
Obviously some employee at RAND was upset about this as that 
person leaked an internal memo in which the CEO of RAND talked 
about the need ``to ensure that our property rights are 
upheld.'' Indeed, as a tax-exempt organization, RAND did not 
pay property taxes on that land. RAND spent $200,000 to win 
that vote (The zoning changes had been put on the local Santa 
Monica ballot as an initiative.), and the opposition spent only 
$8000. Last fall I read an article in the American Journal of 
Public Health that detailed the very complex rules regarding 
lobbying by tax-exempt organizations. I know a little now about 
self-defense lobbying. RAND also got its employees to call 
voters on their own time after work. The lobbying expenses had 
to be reported on RAND's 990, and I'm sure that the opposition 
in Santa Monica was watching. So I know RAND and their 
attorneys were very careful to obey very complex lobbying laws. 
I only wish that they were as careful in complying with their 
ERISA plans.
    As a footnote to that, RAND didn't commercially develop the 
land they got from Santa Monica for $250,000 in about 1950. It 
was a bargain even then as they were able to borrow $1 million 
on it. But four years after Los Angeles magazine reported these 
15 acres of prime land to be worth $41 million, RAND sold 11.3 
acres back to the City of Santa Monica for $53 million in 
October 1999 and retained 3.7 acres to build a new 
headquarters.
    I believe that RAND now is complying with ERISA. RAND 
probably has rewritten its ERISA plans and either is or is not 
giving more people benefits. Whatever it is doing, it is 
complying with the law. However, when I alleged that RAND was 
violating ERISA, the officers of RAND were the fiduciaries of 
its ERISA plans. The situation is similar to that in DOL's suit 
against Time Warner in which DOL asked that the fiduciaries be 
held responsible and be removed from those positions in the 
ERISA plans.
    In June 1997, RAND hired a highly qualified new head of 
Human Resources. It probably was time to clean up their 
personnel department that had been neglected for several years 
if not longer. The PWBA audit was beginning and still is 
ongoing. Only seven months earlier in November 1996 a sex 
discrimination case had been filed against them in U.S. 
District Court in DC. I am a declarant in that case which is 
under seal. I haven't spoken with my attorneys at Sprenger and 
Lang who represent the plaintiffs, but I am pretty sure I can 
say that and no more about it. I can say what is public 
knowledge, i.e., the case is still active with several motions 
being considered by the judge.

              3. Public Disclosure of Grants and Contracts

    While I agree with Mr. Anderson in principle, I think how 
much extra data would be required on the 990s for a place like 
RAND. Adequate alternatives should be explored. It is important 
also to know about federal contracts awarded to tax-exempt 
organizations.
    The RAND situation also relates to this item. I prepared 
the following material over a year ago for Sprenger and Lang to 
share with attorneys who were considering representing me in 
ERISA litigation. It shows the motive for RAND's not giving 
some employees benefits.

     Benefits and Overhead Rates on Government Contracts and Grants

    Benefits are an allowable expense on all federal government 
grants and contracts. The benefits rate is figured as a percent 
of salary or pay. RAND had a very generous benefits package for 
employees with a rate of 49% in 1995. Most universities also 
have generous packages but have rates around 25-33%. Overhead 
rates for government grants and contracts are negotiated 
annually between each organization and the government. They 
include rent, utilities, basic telephone, management, upkeep, 
and all supportive services (personnel, library, accounting, 
janitorial services, etc.). There are many pages of federal 
regulations governing how these rates are negotiated. Most 
university overhead rates are around 50%. In 1995 RAND's was 
79%. I think these figures are correct, and RAND lowered them 
some in 1996 to 47% for benefits and 72% for overhead. These 
are approximate but very close figures. I can't really explain 
the high overhead given RAND owns its land and has a building 
which surely has been paid off for many years. RAND also has an 
$84 million endowment.

               Calculation of Grant and Contract Budgets

    In most research, the biggest single budget category always 
is salaries. (The major exception is nuclear or other high tech 
research that requires lots of expensive equipment.) Other 
categories beside salaries might be some computers or office 
equipment, travel money to go to professional meetings or 
research sites, maybe some extra postage or phone lines for 
surveys or incentives to pay respondents to surveys, etc. For 
salaries, first you apply the benefits rate and then you take 
the overhead rate to get the cost billed to the government. So 
let's look at the calculations in 1995 two ways:
    Take $100 worth of salary. A ``consultant'' got 14% more in 
lieu of benefits or $114. Then with overhead, take 179% of that 
or $204 (rounded to nearest dollar). An employee got $100 plus 
49% benefits or $149. Then take 179% of $149 that is $267. The 
``consultant'' is illegally denied benefits, and RAND charges 
the government $64 less for $100 worth of work. That adds up. 
Let's do the same now for my salary for one year with all 
figures rounded to even thousands. As a consultant, I got 
$55,000 and with 79% overhead, that is $98,000. As an employee, 
I'd get $49,000 base pay that with benefits would be increased 
by 49% to $73,000 on which you then figure the 79% overhead for 
a total of $131,000. That's a difference of $33,000 a year for 
my salary only! And I am just one person in the class!
    Most grants have ceilings of how much will be paid; so one 
needs to stay under them. On contracts where there is 
competitive bidding, misclassifying employees as consultants 
gives one a competitive advantage. Of course, RAND's rates are 
so high that really all it did, was decrease its competitive 
disadvantage. Both grantees and contractors are supposed to 
obey all federal labor laws including ERISA. Of course, RAND 
now probably is just using all the ERISA loopholes to do the 
same thing but be in compliance with ERISA.
    There are a lot of people in my ERISA class who were 
misclassified for only 3-6 months so that they didn't notice or 
didn't care and actually were grateful and happy to become 
employees. Deny someone benefits for a year, and he/she 
notices. Deny four people benefits for three months each, and 
they don't care--but it's still one year of ERISA violations. 
If the grocer wants to cheat and he's smart, he puts his thumb 
on the scale of a lot of people rather than resting his elbow 
on the scale for one person.
    Some of the best ERISA attorneys in California reviewed my 
ERISA case to consider representing me in litigation. If their 
names were known, everyone is ERISA circles would say, ``If so-
and-so says she has a case, she does.'' But there are no 
punitive damages or pain and suffering in ERISA--so legal 
counsel for employees must consider the financial risk of 
representing clients on contingency versus the potential 
damages involved. We don't know the size of the class, and we 
doubt there are many people with large vested pension 
interests. I am pretty sure that the class is at least 100 in 
size. Proportionately to the Time Warner class size estimated 
in DOL's suit, the RAND class is bigger as RAND has only about 
1000 workers. So no one wanted to take that risk. Some didn't 
want to deal with a Section 510, but Sprenger and Lang's 
attorneys were ready to litigate that part. They don't do ERISA 
and don't practice in California where the case would have to 
be filed. But they do wrongful terminations all the time and 
believed my Section 510 case was strong.
    As a result of all the victories by the attorneys for the 
Microsoft plaintiffs in the 9th Circuit, there has been a 
plethora of ERISA class actions here. But all the cases are 
filed against large employers such as ARCO and PacBell. RAND 
with 1000 workers is not a particularly small employer at all, 
but with only the worth of illegally denied benefits to be 
recovered, it is not large enough to obtain legal counsel on 
contingency. It is unlikely that anyone who works for a smaller 
employer with an ERISA case that is mostly health benefits 
denials is going to get legal counsel. There aren't that many 
ERISA attorneys for plaintiffs anyhow unless one is a member of 
a union.
    I also looked into possible qui tam litigation as RAND was 
under billing the government and gaining a competitive 
advantage by not giving its employees benefits. The multiplier 
factor is astounding. I came to the NCI 36-month grant on which 
I worked in its 16th month. The study director before me for 
the first 15 months had benefits. Shortly after I started, I 
learned the study already was over six months behind schedule. 
I was not able to recover that time in the year I was there and 
was without benefits. I was sure that the project was not going 
to meet its goals, mostly because of enormous problems with a 
sample gathered months before I began work on the project. I 
also was sure that the principal investigator would take a one-
year no-cost extension, and that happened. The $33,000 saved by 
not giving me benefits went toward paying the salaries of the 
principal investigator and other staff in the added no-cost 
year. I consulted the Government Accountability Project and a 
qui tam attorney. Qui tam usually deals with over billing the 
government, and no one knew how one might apply it to the RAND 
situation. Of course, it is just as egregious and against 
public benefit. And in some ways, it is worse as RAND cheated 
its own employees.
    The statutes of limitation for my class and me are gone or 
rapidly going, and I believe RAND and its attorneys want to 
stall the audit until they all are gone. However, I haven't 
worried about that for the past six months since I looked into 
cost accounting principles and federal procurement laws and 
regulations for government grants and contracts for salaries 
and wages. All grantees and contractors must obey all federal 
laws, particularly labor and civil rights ones. They also must 
treat people working on federal funds consistently with those 
who are not. RAND receives approximately 85% of its annual 
budget (about $125 million) from the federal fisc or about $106 
million a year. Whatever the size of my class, one then can 
project that 85% of their time was charged to federal funds. So 
85% of the ERISA violations also are violations of federal 
procurement law. The Secretary of Labor is responsible for 
labor standards on all federal grants and contracts and has the 
power to withhold federal funds for such violations. Therefore, 
I think this ERISA case also is a case about federal 
procurement law. I checked this out with quick and unofficial 
opinions from the people at the Office of Federal Procurement 
Policy at OMB, and they saw no problem with this reasoning. 
Obviously it needs to be examined further which I am sure DOL 
is doing. The audit will go on for some time more yet.
    I have feared that all statutes of limitation would be 
gone; RAND would be in compliance with ERISA; and some closing 
agreement would be made with PWBA behind closed doors. So 
perhaps nondisclosure for tax-exempt organizations should 
involve PWBA audits and any other federal investigations of the 
organization. I don't fear RAND's getting away with settling 
this matter behind closed doors any more. The audit may not be 
settled until we have a new President, but it doesn't matter 
who is President or Secretary of Labor. They will be honorable 
people and will take seriously their oaths to uphold the laws 
of the United States. I hope that they will require, as part of 
any settlement, to make restitution to every member of my class 
and to me.
    The saddest thing to me is how RAND deceived its own 
employees. The Microsoft plaintiffs worked next to others for 
years watched them get benefits and become wealthy on stock 
options that they did not receive. I know how they felt. For a 
year I watched other people after a few months of work become 
employees and get health benefits. I was reminded every month 
when I wrote my check for COBRA premiums. Then when COBRA ran 
out and I had to take lesser conversion coverage with no 
prescription drug benefit, I still had that monthly premium 
check as a reminder. But the thing that bothered me the most is 
that the people who became employees were pleased as it was an 
acknowledgment of their good work and performance. They were 
good enough to be employees at RAND. They were not likely to 
complain to the government or anyone else. They didn't know 
that during those first months they worked at RAND they already 
were employees and entitled to benefits. They are a part of my 
class. They deserve to know and to be compensated for that loss 
even if it is only for a few hundred dollars each.
    While researching federal procurement law, I learned 
something else of interest that I mentioned earlier: As part of 
overhead, RAND could include legal and related costs for 
defending any litigation brought by an employee or former 
employee. Since 85% of its income comes from the federal 
government, that would be an 85% matching by the tax payers of 
any legal defense funds RAND spends from its other income that 
also derives from its tax-exempt status. I am very glad that I 
didn't get legal counsel on contingency for ERISA litigation. I 
would not want to see them have to litigate for me on 
contingency with their funds against federally subsidized legal 
counsel. However, in audits/investigations by the government, 
RAND can be reimbursed for legal and related costs only if the 
government allows it as part of a settlement. RAND has plenty 
of other funds to fight the government and can go on doing that 
for a long time if it wants to do so.
    Last but surely not least, in November 1999, I learned the 
most astounding thing of all when I looked at PWBA's 
appropriation for FY99 that was $90 million. RAND gets about 
$106 million annually from the federal government. PWBA's FY00 
appropriation is $101.8 million. However, I must say to both 
parties in Congress that the PWBA appropriation levels are 
disgraceful. They are almost ludicrous compared to the extra 
few billions you give NIH each year. When this problem with 
RAND began four years ago, PWBA was responsible for ERISA and 
COBRA for everyone in the country in 15 offices around the 
country. Since then, Congress has added HIPAA, NMHPA, MHPA, and 
WHCRA to PWBA's responsibilities that include administration, 
education of employers and employees, and enforcement. Most 
people who have health insurance in this country get it under 
ERISA--125 million or more. That isn't even $1 per person. I 
don't even know what figure to suggest it should be, but the 
Appropriations Committee surely should look at this.

                             4. Linked Data

    While this item would seem to have nothing to do with RAND, 
it does because Dr. Lillard's name looked familiar. Indeed 
while I did not know him, Dr. Lillard was at RAND at the same 
time I was. That coincidence provides me with an opportunity to 
express to him and the many other fine researchers at RAND my 
deep regret that they will be harmed in any way by this whole 
affair. I always believed that this matter should have been 
handled and solved internally. The PWBA has documented evidence 
of my efforts and those of my legal counsel to get RAND to talk 
with us as well as written evidence of warnings about Section 
510. If the officers of RAND violated Section 510 of ERISA 
against me as I allege, then they did so with impunity.

                            Closing Thoughts

    I do wish to bring to the attention of Congress one additional 
ERISA issue. I don't think anyone really has many good ideas about what 
to do about ERISA. We'll know by June what the U.S. Supreme Court 
thinks in the Herdrich case it heard a few weeks ago. My best guess is 
that they won't want much to do with this messy law and gladly will 
throw it back to you in Congress. Maybe ERISA should only be about 
pensions. I surely am not that wise, but I will be asking my 
Congressman to introduce one very limited piece of ERISA legislation 
next year to revise Section 510 and to make some technical changes in 
the law. A couple months ago a leading ERISA advocate told me about a 
man, I believe in the 7th Circuit area, who just lost his Section 510 
case on appeal. I hope that his Representative in Congress will join in 
co-sponsoring this bill, and I hope that his representative is of the 
opposite party from mine, as I would like to have a bipartisan bill. 
While it is probably hoping too much, I would love to see it stand 
alone rather than be tacked on to some big bill because I would like 
every member of Congress to consider it and vote for it.
    A statement about Section 510 must be included in every pamphlet 
describing ERISA benefits for every worker who is covered by an ERISA 
plan. As presently constituted, it surely is not worth all that paper 
on which it is written. This is one part of ERISA that requires some 
penalties/fines/punitive damages/whatever. Perhaps the statutes of 
limitations also should be increased for Section 510. ERISA cases are 
heard in federal court by judges, but Section 510 is one part that 
should have jury trials. Federal judges are and should be appointed for 
life. No one should be harassed or fear loss of work, references, or 
employment merely for speaking out about violations of the ERISA law or 
asking for clarification of his/her ERISA rights. However, I think 
wrongful terminations might be handled more appropriately by juries of 
peers whose jobs aren't guaranteed for life than by judges with 
lifetime appointments.
    The technical modification would amend many sections of ERISA by 
changing ``welfare'' to ``health'' wherever it appears. Those ERISA 
welfare benefits are health benefits. And they are how most working 
people in this country get their health insurance. ``Welfare benefits'' 
is a confusing term. I don't know the legislative history, but I am 
very curious about how Congress came up with this term originally.
    I have tried to weave a great many disparate strands together and 
surely have left many loose ends and threads. I regret that I could not 
create a more seamless tapestry or write more clearly. I hope my 
comments have been of assistance. Thank you for your time, attention, 
and consideration.

            Sincerely yours,
                                              Linda Fishman
      

                                


                                      Reed & Brown, LLP    
                                               Pasadena, CA
                                                     March 13, 2000
A.L. Singleton, Chief of Staff, Committee on Ways and Means

Re: Comments on Joint Committee on Taxation Staff Report--Dated January 
        28, 2000

    This Memorandum is intended to comment on the proposals contained 
in the Study of Disclosure Provisions Relating to Tax-Exempt 
Organizations (``the Report'') prepared by the staff of the Joint 
Committee on Taxation, dated January 28, 2000 and, in particular, the 
section addressing lobbying expenditures by tax-exempt organizations, 
commencing on page 106 of the Report.
    This Memorandum concerns the Report's three recommendations stated 
at pages 118 and 119. Each of the recommendations is designed to 
increase charities' reporting obligations and to expand the information 
that charities must provide in their annual IRS filings. Specifically, 
staff suggests modifying Schedule A to IRS Form 990 (``Schedule A'') to 
require ``both electing and non-electing [under Code Sec. 501(h)] 
public charities to provide a detailed description of the legislation 
addressed in their lobbying efforts and the manner in which 
organizations engaged in lobbying activities.'' Secondly, staff 
suggests that Schedule A be changed to require charities to disclose 
amounts attributable to self-defense lobbying (direct lobbying 
concerning an issue affecting the organization's existence or powers). 
Third, staff suggests Schedule A be further modified to require 
charities to disclose all non-partisan study, analysis and research 
that contains ``a limited call to action.'' The Report defines the term 
``limited call to action'' to mean those actions listed in Regulation 
Sec. 56.4911-2(b)(2)(iii)(D). The Report would require disclosure of 
all non-partisan studies that identify ``one or more legislators who 
will vote on the legislation as ``opposing the communication's view...; 
being undecided ...; being the recipient's representative in the 
legislature; or being a member of the legislative committee or 
subcommittee that will consider the legislation.'' Id. Under existing 
law, communications of self-defense and non-partisan study do not 
constitute lobbying.
    We respectfully object to the proposed changes to the Internal 
Revenue Code (the ``Code'') suggested in the Report for the following 
reasons:
    1. The recommendations effectively expand the definition of 
lobbying. Detailed Regulations already define grass roots and direct 
lobbying and require amounts spent on such lobbying to be reported. 
Staff recommendations add new categories of disclosure (self-defense 
and non-partisan study) that are now expressly not reportable lobbying.
    2. The recommendation to regulate ``limited calls to action'' is 
onerous and unjustified. The well-accepted understanding of the Code 
and Regulations among exempt organizations has been that a 
communication from an exempt organization to its constituents or others 
which expresses a view on legislation, but does not include a call to 
action, is not a lobbying communication and is not reportable by the 
exempt organization. The Report moves substantially beyond that 
position, in that it proposes to impose reporting requirements even for 
those communications which it describes as including a ``limited call 
to action'' which it defines as being a communication which identifies 
one or more legislators who will vote on the legislation as (i) 
opposing the organization's views with respect to the legislation, (ii) 
being undecided with respect to the legislation, (iii) being the 
recipient's representative in the legislature, or (iv) being a member 
of the legislative committee or subcommittee that will consider the 
legislation. The staff argues that such activities constitute a form of 
advocacy of which the public should be aware. The Staff admits that 
such activities do not constitute lobbying [page 119 of Vol. II of the 
Report], but conclude that the mere fact that the activities do not 
constitute lobbying does not eliminate the public interest in access to 
information concerning such expenditures. The Report fails, however, to 
explain what the basis for that interest may be, other than mere 
curiosity or the unstated interest of the government in further 
regulating the lives of its citizens. If Congress believes that 
communications which do not contain a call to action should be 
regulated, Congress should explain the reason for such regulation. It 
appears to us that, at its root, this proposal really grows from the 
conviction on the part of some that tax-exempt status is really a gift 
from the government and represents a tax subsidy. We believe that 
reasoning has been rejected by Congress and should not be reintroduced 
through the means of the Report.
    3. The recommendations needlessly increase complexity of already 
intricate regulations. Lobbying regulations are already cumbersome and 
difficult to understand. The Staff recommendation would create yet 
another division within the maze of regulations--lobbying that is not 
reportable lobbying, but still must be disclosed on the organization's 
Form 990.
    4. The recommendations will add new record keeping requirements and 
increase expense to exempt organizations. The Report proposes changes 
to the existing law which will further complicate an already 
complicated portion of the law, forcing tax-exempt organizations to 
spend ever more of their resources analyzing their communications, 
calculating the percentages of those communications which constitute, 
or may hereafter constitute, lobbying communications, or ``limited 
calls to action'' and compiling reports to the IRS.
    5. The recommendations are contrary to the clear direction of the 
Congress, especially Senate Finance Chairman Roth, toward tax 
simplification. These recommendations will add reports and expense 
whereas the Senate Finance Committee has championed the reduction of 
reports and the simplification of record keeping. Changes to existing 
regulations should not be considered unless they simplify and decrease 
burden and expense.
    6. The recommendations risk misleading the public about the 
lobbying activities of exempt organizations. By requiring disclosure 
and reporting of activities that are expressly not lobbying, the 
recommendations may mislead the public by portraying lobbying 
activities in too large a scale. The recommendations are apt to confuse 
more than inform.
    7. The recommendations will further chill the voice of non-profits 
in the public square. The Internal Revenue Code, Treasury Regulations 
and IRS activity in the area of lobbying and political activity already 
exert an ``in terrorem'' effect that causes non-profits to withhold 
communicating their views for fear that the IRS will impose sanctions. 
Non-profit speech is thereby artificially curtailed by IRS activity. 
The issue that should be addressed is how to bring clarity to IRS 
actions and regulations in this area. Increasing the burden and threats 
to non-profits that express views on legislation only exacerbates the 
existing problem.
    In 1999, both houses of Congress voted, as part of the 1999 Tax 
Bill, to eliminate the statutory difference between grass roots and 
direct lobbying. Both houses recognize that the distinction is 
artificial, does not advance any legitimate governmental goal, and that 
removing the distinction will help simplify the Code. The Report's 
recommendations are diametrically opposed to simplification and, if 
enacted, will further complicate the Code. We respectfully urge that 
the recommendations of the Report contained on pages 118 and 119 be 
rejected.

            Respectfully submitted,
                                           Stephen W. Reed,
                                                   General Counsel,
                    Focus on the Family and Family Research Council
      

                                


Statement of Free Speech Coalition, Inc., McLean, Virginia

                              INTRODUCTION

    The Free Speech Coalition, Inc. is pleased to submit these 
comments along with other organizations and companies with 
respect to the Joint Committee on Taxation's Study of 
Disclosure Provisions Relating to Tax-Exempt Organizations. 
This study comprises the second volume of a three-volume Study 
of Present-Law Taxpayer Confidentiality and Disclosure 
Provisions which was published on January 28, 2000, pursuant to 
Section 3802 of the IRS Restructuring and Reform Act of 1998.
    The Free Speech Coalition, Inc. (``FSC''), founded in 1993, 
is a nonpartisan group of ideologically diverse nonprofit 
organizations and the for-profit organizations which help them 
raise funds and implement programs. Our purpose is to protect 
First Amendment rights through the reduction or elimination of 
excessive regulatory burdens which have been placed on the 
exercise of those rights.
    FSC is joined in these comments by several concerned tax-
exempt organizations and for-profit companies, including: 
Accuracy in Media; American Center for Law and Justice; 
American Conservative Union; American Preventive Medical 
Association; American Target Advertising, Inc.; APMA Legal & 
Educational Foundation; Bruce W. Eberle & Associates; Citizens 
Against Government Waste; Citizens United; Coalition to Stop 
Gun Violence; English First; Freedom Alliance; Gun Owners of 
America; High Frontier; The Leadership Institute; National 
Center for Cardiac Information; National Rifle Association; 
National Right to Life Committee; Policy Analysis Center; 
Public Advocate; 60 Plus Association; Squire & Heartfield 
Direct, Inc.; Tri-State Envelope Corporation; United Seniors 
Association, Inc.; United States Border Control; and U. S. 
Taxpayers Alliance.

                                SUMMARY

    FSC and its co-commenters fully support efforts to ensure 
accountability within the nonprofit community, and reasonable 
oversight of that community by the Internal Revenue Service. 
While the road to the Joint Committee's study may have been 
paved with good intentions, several of the study's 
recommendations are badly flawed. Indeed, it is difficult to 
conclude that certain of the important matters dealt with in 
the study were truly ``studied.''
    Specifically, we are concerned that, in trying to ensure 
the provision of more complete information regarding tax-exempt 
organizations to the general public, enactment of the study's 
findings would instead inhibit the orderly resolution of 
audits, guarantee the diversion of charitable assets from tax-
exempt purposes to legal defense purposes, and facilitate 
greater opportunity for IRS abuse of its oversight authority 
through the publication--and transmission to state 
authorities--of interim (read unbalanced and incomplete) 
findings and analyses in the determination and audit process.
    To its credit, the study acknowledges the existence of a 
tension between tax-exempt organizations' right to privacy, 
arising in part out of their concern about misuse of private 
information, and the study's purported principal objective--the 
public's right to know.
    Curiously, there is no indication that the general public 
has even the slightest interest in the additional information 
proposed to be compelled to be released at substantial expense 
under the study's recommendations. Even the provision in the 
statute (Section 3802) which called for the staff study was in 
neither the House nor Senate bill, arising spontaneously in the 
conference committee's version--probably at the urging of 
regulators seeking greater power over the independent sector of 
the economy. Yet the study finds that ``information regarding 
tax-exempt organizations ... should be disclosed unless there 
are compelling reasons for nondisclosure that clearly outweigh 
the public interest in disclosure.'' (Vol. II, pp. 6, 80-81.)
    FSC and its co-commenters urge the Committee to consider 
alternatives to proposing new legislation. If, however, it 
deems new federal legislation appropriate, such legislation 
should focus more on scrutinizing the enforcement activities of 
the IRS, thereby reducing the Service's vulnerability to 
charges of abuse in its exercise of authority over the 
nonprofit community.

                                COMMENTS

1. Requiring the disclosure of more documents relating to 
audits and closing agreements will reduce the chance of 
anything being resolved short of litigation.

    Audits of tax-exempt organizations are perceived within the 
nonprofit community as designed to ensure compliance with 
applicable law, and to obtain effective corrective action where 
necessary. Closing agreements have been the principal vehicle 
that the IRS has used over the past decade to resolve cases and 
obtain compliance by tax-exempt organizations.
    Currently, tax-exempt organizations have strong incentives 
to resolve an audit as quickly and painlessly as possible. 
While such incentives do not preclude occasional gamesmanship, 
or strategic withholding of information, they certainly promote 
prompt and complete responses to appropriate requests. Further, 
if a closing agreement would not be made public, counsel for 
the tax-exempt organization may be far more likely to accept an 
admission of liability on an issue that is questionable (or 
capable of being litigated effectively).
    By contrast, the prospect that documents will be publicly 
released, as the study recommends, would lead to posturing by 
both sides, substantially diminishing the likelihood of 
settlement. Negotiations would be conducted as if everything 
will be reported in the newspaper. The exempt organization's 
counsel will seek to assess how each document could be ``spun'' 
for greatest journalistic (or, as regards information provided 
by the IRS to state attorneys general, greatest political) 
impact.
    The study observed, speciously we would submit, that:

        There are a variety of reasons why both the IRS and a tax-
        exempt organization may wish to settle a matter that are 
        independent of whether the activity will be disclosed. These 
        include the costs of litigation, as well as the likelihood of 
        ultimate success on the merits. Further, if a tax-exempt 
        organization chooses not to settle a matter, the only option 
        will be litigation, which also will result in public 
        disclosure. With respect to the effect of disclosure on 
        voluntary compliance, the Joint Committee staff notes that it 
        would be inconsistent with an organization's exempt purposes 
        and fiduciary responsibilities to continue to engage in 
        activity that violates the law. Thus, tax-exempt organizations 
        should continue to have an interest in voluntary compliance and 
        correction of inappropriate activity regardless of whether such 
        activity is disclosed publicly. [Vol. II, p. 86.]

    However, the Joint Committee staff's analysis lacks mature 
consideration of several points. To begin with, speaking 
bluntly, the IRS' assertion of a finding does not make it true. 
Further, the IRS has been known to experiment with aggressive, 
untested legal theories upon unsuspecting tax-exempt 
organizations, based on iterations of their famous ``facts and 
circumstances'' test, which at least one federal appeals court 
has called ``no standard at all.'' United Cancer Council, Inc. 
v. Commissioner of Internal Revenue, 165 F.3d 1173 (7th Cir., 
1999).
    As noted above, under current law, with a private 
agreement, the balancing of costs between paying the penalties 
of the settlement and those incurred by litigating the issues, 
with consideration of the likelihood of ultimate success, may 
lead an organization to prefer settlement over defense of its 
rights in court--even where such a defense would likely prove 
successful. On the other hand, if the nonprofit's donors are 
likely to hear of the organization's essentially false 
admission, the cost becomes far higher. The study simply does 
not deal with that truth.
    Further, while public disclosure may occur pursuant to 
litigation, such disclosure--e.g., the IRS alleges that the 
nonprofit has engaged in X practice, but the nonprofit denies 
the allegation and is fighting the IRS in court--lacks the 
impact of a public admission of impropriety. Thus, it would 
normally be in the tax-exempt organization's best interests to 
defend its innocence, when the only recourse would be public 
disclosure of admitted tax violations.
    Likewise, the Joint Committee staff's assertion that a 
nonprofit should cease any activity that the IRS does not 
favor, on the IRS' word alone, presumes a deference that the 
IRS has not earned.
    Clearly, one likely consequence of the enactment of the 
study's findings would be that most disputes will wind up in 
court--thereby increasing the cost of handling audits for both 
exempt organizations and the IRS. Given the current environment 
of limited resources dedicated to exempt organization 
oversight, the study's proposals (issued with the intent of 
facilitating greater oversight of tax-exempt organizations) may 
logically result in fewer audits and less oversight.
    While the Joint Committee staff proffered its proposals 
with the justification that ``public oversight of tax-exempt 
organizations generally is viewed as increasing compliance with 
Federal and State laws'' (id., p. 65), it is far from self-
evident that these proposals would result in improved public 
oversight of tax-exempt organizations. As the study itself 
acknowledged:

        Some argue that increased disclosure will not result in an 
        increase in the quality and quantity of information received. 
        It has been suggested that tax-exempt organizations may attempt 
        to manipulate publicly available information so that the public 
        perceives the information in a more favorable way, and that 
        persons who misuse tax-exempt organization funds will actively 
        conceal information. Some argue that organizations may be 
        reluctant to bring violations of the law to the attention of 
        the IRS or work with the IRS to correct a problem if they know 
        that the violation will be made public. [Id. at 66.]

    Having acknowledged the risk that tax-exempt organizations 
would become less forthcoming if the Joint Committee's 
recommendations are enacted, the staff express confidence that 
yet other burdens on the tax-exempt community--further reducing 
``flexibility regarding characterization of expenses,'' and 
modifying penalties for violations of the law--would somehow 
ensure the success of their scheme. Again, the cycle of greater 
legal fees, fewer charitable services, and reduced oversight of 
the tax-exempt community can be expected to result.

2. Increasing the complexity of IRS Form 990 reporting will 
increase the administrative cost, as well as accounting cost, 
of preparing and filing these annual forms, with no real 
benefit to anyone.

    As the Joint Committee staff acknowledges, ``[m]ore 
information is not necessarily better; rather, information 
needs to be tailored to those who will use it.... Any proposals 
relating to disclosure should be examined to determine whether 
they will in fact serve the purposes for which disclosure is 
made.'' Id., p. 67.
    The Joint Committee staff recognizes this as a significant 
concern with the Form 990. They cite comments which stated that 
``the current Form 990, while containing valuable information, 
may also be confusing, particularly to members of the general 
public.'' Id. Nevertheless, the staff recommend that the Form 
990 be modified to include ``information regarding how well an 
organization accomplishes its exempt purposes that may not be 
relevant to whether the organization is complying with the 
Federal tax laws.'' Id., p. 90.
    Evidently, the staff's view that ``information regarding 
tax-exempt organizations ... should be disclosed unless there 
are compelling reasons for nondisclosure that clearly outweigh 
the public interest in disclosure'' is not even limited to 
materials with at least an arguable relationship to legal 
compliance. Tax-exempt organizations would be obliged to 
present a compelling reason to limit disclosure of any 
information that could conceivably be asked, so long as such 
information is allegedly ``relevant to the public in order to 
oversee the tax-exempt sector'' id., p. 90--at least, such is 
the goal of the Joint Committee staff.
    Not that such demands are cost free. The Joint Committee 
staff observes that there are direct costs of disclosure which 
should be taken into account--costs which may be quite 
burdensome to smaller organizations. Id., p. 67. They further 
suggest analysis of whether the cost of the disclosure is 
appropriate relative to the public benefit of the disclosure. 
Id.
    Thereafter, the study ignores such observations and 
suggestion. In the staff's detailed recommendations regarding 
changes to Form 990, the significant cost of increased 
disclosure was not even discussed, and relief from such burdens 
is dismissed out of hand. Id., pp. 92-93. Only the interests of 
state regulators and of those entities which serve as self-
appointed guardians of the nonprofit community were deemed 
worthy of consideration.

3. The public disclosure of pending applications for exempt 
status (and supporting documents) can be expected to lead to 
the further politicization of the IRS

    The Joint Committee staff expressed concern that ``an 
organization may be in operation and the public may believe the 
organization is tax exempt and, in the case of purported 
section 501(c)(3) organizations, incorrectly assume that 
donations to the organization are tax deductible.'' Id., p. 87. 
Thus, the Staff concluded public disclosure of pending 
applications should be necessary.
    That is an extremely weak argument for increased 
disclosure. It might be more persuasive if the IRS did not 
already provide a publication (and Internet access) allowing 
prospective donors to determine the tax-exempt status of a 
prospective donation recipient, but there is clearly no need 
for ``reform'' in this area. At least the study does not point 
to any need.
    Further, the Joint Committee staff appear oblivious to the 
resultant danger that this practice would lead to the further 
politicization of the IRS. Imagine a press report regarding a 
pending application for tax-exempt status by an organization 
addressing abortion, or global warming, or international trade. 
At once, competing interest groups begin to lobby Members of 
Congress and Administration officials to intervene, either in 
support of, or opposition to, the application. Or consider the 
well-connected tax-exempt organization that wishes to avoid 
competition in representing a given viewpoint. Perhaps an 
influential public figure demonstrates his unhappiness with an 
existing organization by seeking to quash the application of a 
new group affiliated with the existing organization.
    What benefits would result from this publicity which would 
in any way justify such risks and costs?

4. The provision of preliminary findings to state officials 
during the IRS audit process facilitates further harassment of 
tax-exempt organizations.

    The Joint Committee staff has recommended that the IRS be 
permitted, prior to a final determination to deny or revoke 
tax-exempt status, to disclose to State Attorneys General and 
other nontax State officials or agencies audit and examination 
information concerning tax-exempt organizations. In addition, 
the Joint Committee staff has recommended that the IRS be 
permitted, either upon request or on its own initiative, to 
share audit and examination information concerning tax-exempt 
organizations with nontax State officials and agencies with 
jurisdiction over the activities of such organizations when the 
IRS determines that such disclosure may facilitate the 
resolution of cases. Id., at 104.
    Purportedly, these recommendations would: (1) enhance the 
combined efforts of the Federal and State governments to 
protect the public by promoting the continued flow of 
information from State officials to the IRS; (2) improve the 
ability of State officials to monitor compliance with nontax 
State laws affecting tax-exempt organizations and to enforce 
and pursue correction of violations of such laws; and (3) 
facilitate the participation of both the IRS and State 
officials in the resolution of cases involving significant 
charitable and fiduciary violations by making more complete 
information available in earlier phases of such cases to both 
State officials and the IRS. Id., at 104-05.
    Admittedly, this practice would make the punishment of tax-
exempt organizations far more efficient. It would certainly 
``facilitate the resolution of cases'' by encouraging state 
bureaucrats to ``pile on'' tax-exempt organizations while they 
are already investing scarce resources in responding to the IRS 
audit.
    But what of the accused? Does the tax-exempt organization 
become guilty until proven innocent--before two jurisdictions 
concurrently? What if the organization lacks resources to 
defend both at once?

                               CONCLUSION

    FSC strongly opposes the Joint Committee Staff's 
recommendations because the additional burdens which would be 
imposed upon tax-exempt organizations (and upon the IRS) would 
be infinitely greater than any possible public benefit arising 
from their implementation.
    The Joint Committee Staff, while recognizing a tax-exempt 
organization's right to privacy, appears oblivious to the 
effect of compelled disclosure on these organizations' First 
Amendment rights. The U.S. Supreme Court has long recognized 
``that significant encroachments on First Amendment rights of 
the sort that compelled disclosure imposes cannot be justified 
by a mere showing of some legitimate governmental interest. 
Since NAACP v. Alabama we have required that the subordinating 
interests of the State must survive exacting scrutiny. We also 
have insisted that there be a `relevant correlation' or 
`substantial relation' between the governmental interest and 
the information required to be disclosed.'' Buckley v. Valeo, 
424 U.S. 1, 64 (1976), addressing the constitutionality of the 
Federal Election Campaign Act of 1971. Thus, the Joint 
Committee Staff's recommendation that exempt organizations be 
forced to disclose information on the Form 990--information 
that expressly has no relation to enforcement of the laws--
would appear to explicitly violate the First Amendment 
protections accorded exempt organizations.
    We welcome the opportunity to work with the Committee on 
this matter so that it may better understand the adverse 
effects of new burdens being placed upon the nonprofit sector.

                                


Free Speech Coalition, Inc.

Accuracy in Media
American Center for Law and Justice
American Conservative Union
American Preventive Medical Association
American Target Advertising, Inc.
APMA Legal & Educational Foundation
Bruce W. Eberle & Associates, Inc.
Citizens Against Government Waste
Citizens United
Coalition to Stop Gun Violence
English First
Freedom Alliance
Gun Owners of America
High Frontier
The Leadership Institute
National Center for Cardiac Information
National Rifle Association
National Right to Life Committee
Policy Analysis Center
Public Advocate
60 Plus Association
Squire & Heartfield Direct, Inc.
Tri-State Envelope Corporation
United Seniors Association, Inc.
United States Border Control
U. S. Taxpayers Alliance
      

                                




      

                                


Statement of Independent Sector

                            I. Introduction

    Independent Sector (``IS'') is a coalition of more than 700 
national organizations and companies representing the vast 
diversity of the nonprofit sector and the field of 
philanthropy. Its members include many of the nation's most 
prominent nonprofit organizations, leading foundations, and 
Fortune 500 corporations with strong commitments to community 
involvement. This network represents millions of volunteers, 
donors, and people served in communities around the world. IS 
members work globally and locally in human services, education, 
religion, the arts, research, youth development, health care, 
advocacy, democracy, and many other areas. No other 
organization represents such a broad range of charitable 
organizations and activities.
    America's ``independent sector'' is a diverse collection of 
more than one million charitable, educational, religious, 
health, and social welfare organizations. It is these groups 
that create, nurture, and sustain the values that frame 
American life and strengthen democracy. In 1980, a group of 
visionary leaders, chaired by the Honorable John W. Gardner, 
became convinced that if the independent sector was to continue 
to serve society well, it had to be mobilized for greater 
cooperation and influence. Thus a new organization, named to 
celebrate the independent sector's unique role apart from 
government and business, was formed to preserve and enhance and 
protect a healthy, vibrant independent sector.
    Independent Sector and the many charities it represents 
have a keen interest in ensuring that charities provide public 
disclosure of key information to help ensure that they operate 
strictly in the public interest and not for private benefit. 
Charities depend on public trust to raise money and carry out 
their missions, and transparency is essential to maintaining 
that trust. For this reason, IS supports twelve of the nineteen 
recommendations for additional disclosure made in the Joint 
Committee on Taxation Study on Disclosure by Tax-Exempt 
Organizations (hereafter, ``the JCT Report'').
    In particular, IS strongly urges Congress to adopt the JCT 
recommendation that electronic filing for exempt organizations 
be greatly accelerated and that the Form 990 be redesigned to 
be far more understandable for members of the public. A 
substantial amount of information about charities is already 
available, but it is not as easy to find and to use as it 
should be. Of all the proposals made, IS believes this proposal 
has by far the greatest potential to improve public oversight 
of charities and to ensure that they are serving public and not 
private purposes.
    IS does, however, take issue with the JCT Report concerning 
the appropriate analytic framework for evaluating proposals for 
additional disclosure. IS believes that charities' disclosure 
obligation derives from their role in serving public interests, 
not from their tax treatment. Many taxable taxpayers receive 
exemptions for part of their income or tax benefits of 
comparable value. The JCT Report correctly recognizes that 
these tax benefits do not justify mandatory disclosure of 
return information by taxable entities and individuals; the 
result should be no different for charities and other exempt 
entities.
    Charities must operate with a high degree of transparency 
to ensure the public trust essential to the performance of 
their social role. However, charities are fundamentally private 
entities and as such are entitled to a substantial zone of 
privacy with respect to their internal decision-making process. 
Moreover, in certain key contexts confidentiality is also 
essential to fair and efficient tax administration. Finally, 
the burden of additional disclosure with respect to public 
policy related activities will create an undue chilling effect 
on charities' participation in the development of public 
policy, an effect that is not in the public interest. 
Accordingly, weighing the costs and benefits of additional 
disclosure, IS strongly opposes seven of the JCT 
recommendations, including the three recommendations for 
increased reporting on charities' participation in the public 
policy process.

                       II. Framework for Analysis

Independent Sector has long advocated public disclosure by 
charities of substantial information related to programs and 
finances as a key mechanism for ensuring that charities meet 
their obligation to operate strictly in the public interest. 
Consistent with this long-standing commitment, IS supports many 
of the recommendations offered in the JCT Report.

    Public trust is charities' most important asset. 
Maintaining public trust requires a high degree of transparency 
in charities' operations. As a collective voice for charities 
across the country, Independent Sector has consistently 
supported initiatives to guarantee the public broad access to 
information about the financial and programmatic operations of 
charities. For example, IS strongly supported the recent 
legislation requiring charities to mail copies of their Forms 
990 and 990-PF on request. Likewise, IS has consistently 
supported increased funding for IRS review of Forms 990 and 
990-PF to ensure that all charities are fully and accurately 
meeting current disclosure requirements. Finally, IS also 
strongly supports electronic filing and related initiatives to 
give the public immediate on-line access to all Forms 990 and 
990-PF.
    Consistent with this long-standing commitment, IS welcomes 
the opportunity to present its views to the Ways and Means 
Committee on additional federal tax disclosure by charities. IS 
supports the majority of the specific recommendations contained 
in the Joint Committee on Taxation's recent report.

2. IS believes that charities' public disclosure obligations 
derive from charities' fundamental nature as voluntary 
associations formed by private citizens to advance the public 
good--not from charities' receipt of favorable tax treatment.

    The JCT Report suggests that charities' public disclosure 
obligations derive principally from charities' favorable tax 
treatment--i.e., tax exemption and the right to receive 
deductible contributions--which the Report regards as the 
equivalent of a government subsidy. Independent Sector 
disagrees with this premise in two important respects.
    First, IS believes that charities' public disclosure 
obligations derive from charities' fundamental nature as 
voluntary associations formed by private citizens to advance 
the public good--not from charities' receipt of favorable tax 
treatment. By definition, going back to their origins in the 
English common law, charities are organized and operated for 
the benefit of the community. To qualify as a charity, an 
organization must dedicate all of its income and assets, in 
perpetuity, to serving the disadvantaged or otherwise providing 
goods and services for the benefit of the public at large. 
Charities were recognized as separate entities with legal 
rights and responsibilities long before there was a federal 
income tax code. The need for disclosure stems from charities' 
unique social role. A charity must be transparent enough to 
make donors, volunteers, and partners confident that the 
charity will, in fact, advance public rather than private 
interests. This need for disclosure as a means of ensuring 
public trust is conceptually independent of the receipt of 
favorable tax treatment.
    Second, IS takes issue with the JCT Report's 
characterization of tax exemption and the charitable deduction 
as government subsidies and the Report's view that the receipt 
of those subsidies creates a strong presumption in favor of 
increased disclosure. The Report treats tax exemption and the 
charitable deduction as tax benefits because they enable 
charities and their donors to avoid paying tax they would 
otherwise have to pay. There have been years of serious 
academic debate over whether the charitable exemption and 
deduction are appropriately viewed as special benefits or as 
structural necessities of a properly calculated income tax.\1\ 
A sound tax policy case can be made that neither the charitable 
tax exemption nor the charitable contribution deduction are 
properly characterized as government subsidies.
---------------------------------------------------------------------------
    \1\ In the principal article with respect to the charitable 
exemption, Boris Bittker and George R. Rahdert, argues that the 
exemption for nonprofit organizations is consistent with the 
fundamental principles of an income tax and is not a special exception 
or subsidy. See Boris I. Bittker and George Rahdert, ``The Exemption of 
Nonprofit Organizations from Federal Income Taxation,'' 85 Yale Law 
Journal 299 (1976). The arguments for treating the charitable 
contribution deduction as a subsidy are somewhat stronger. It is 
treated as a tax expenditure. However, there has also been scholarly 
debate over whether this treatment is appropriate or whether the 
deduction is an essential element in measuring the normal income tax 
base. As Professor William D. Andrews argued more than twenty-five 
years ago in the Harvard Law Review, amounts contributed to charity are 
no longer available for either present or future personal consumption 
and, therefore, should not be included in defining taxable income. 
William Andrews, ``Personal Deductions in an Ideal Income Tax,'' 86 
Harvard Law Review 309 (1972). See also, Adam Yarmolinsky, ``The 
Charitable Deduction: Subsidy or Limitation?'' 29 Nonprofit and 
Voluntary Sector Quarterly 173 (2000) (arguing that the charitable 
deduction is best viewed as a Congressional limitation on federal 
taxing power instead of as a subsidy). The only benefit that can come 
back to the taxpayer is a psychic sense of satisfaction. Any more 
tangible quid pro quo of value will reduce the taxpayer's charitable 
contribution deduction. See, United States v. American Bar Endowment, 
477 U.S. 105 (1986). Furthermore, two-thirds of American taxpayers are 
nonitemizers who still give substantial amounts to charity. Their 
contributions do not carry any tax-based subsidies with them because 
they cannot claim an itemized deduction.
---------------------------------------------------------------------------
    Furthermore, the logical extension of the JCT Report's 
treatment of the charitable exemption and deduction as tax 
benefits \2\ would be to treat every deduction, credit or 
exemption as a tax benefit. If the public is viewed as having 
an interest in all tax benefits accorded under Federal law, as 
the Report suggests,\3\ then disclosure should be required of 
all taxpayers who receive tax benefits in any form. Following 
this view, every taxable corporation with a business expense 
deduction or net operating loss carryover, or every individual 
receiving a child care credit, should likewise be required to 
disclose their tax returns. Plainly, the Joint Committee Staff 
is not prepared to adopt this general approach. Indeed, the 
first volume of the JCT Report explicitly recognizes that 
confidentiality of tax return information is essential to 
fostering voluntary compliance with the system.\4\ Clearly 
then, the receipt of tax benefits--whether in the form of the 
charitable exemption and deduction or the many benefits 
received by taxable entities and individuals--does not create a 
general presumption in favor of disclosure.
---------------------------------------------------------------------------
    \2\ Staff of Joint Committee on Taxation, 106 th Cong., 2d. Sess., 
Study on Present Law Taxpayer Confidentiality and Disclosure Provisions 
As Regional By Section 3807 of the Internal Revenue Service 
Restructuring and Reform Act of 1998 Vol. II, 47 (Comm. Print 2000) 
(hereinafter ``JCT Staff Report'').
    \3\ JCT Staff Report, Vol. II, 80.
    \4\ ``This confidentiality is based on persons' right to privacy, 
as well as the view that voluntary compliance will be increased if 
taxpayers know that the information they provide to the government will 
not become public.'' JCT Staff Report, Vol. I, 5.
---------------------------------------------------------------------------
    Finally, it is significant to note that even government 
entities funded entirely with public subsidies enjoy a 
significant zone of privacy.\5\ Clearly, Congress has 
recognized that even in the case of publicly funded 
governmental entities, where the case for public accountability 
is strongest, unlimited disclosure can be counter-productive.
---------------------------------------------------------------------------
    \5\ The Freedom of Information Act was established to insure 
accountability of federal government actions through disclosure of 
records. Nonetheless, it provides eight categories of exemptions that 
allow the government to avoid disclosure of records. For example, the 
Freedom of Information Act includes specific exceptions that allow 
government employees to have extensive, candid, and confidential 
discussions while they are formulating policies. See 5 U.S.C. 
Sec. 552(b)(5) (1988). Moreover, the Federal Advisory Committee Act and 
other sunshine laws provide for exemptions from public scrutiny under 
certain circumstances. If government agencies are entitled to some 
privacy, charities, as private entities, a fortiori are entitled to a 
zone of privacy and a far greater one than government agencies enjoy.

3. While IS supports a high degree of transparency for 
charities, IS believes that it is extremely important to avoid 
reporting requirements that could have an undue chilling effect 
---------------------------------------------------------------------------
on charities' participation in the public policy process.

    Because of their unique role in mobilizing citizens and 
communities to address issues of common concern, charities make 
an important and valuable contribution to the development of 
public policy. Charities are on the front lines of the struggle 
against the most significant social problems, including hunger, 
poverty, discrimination, and disease, and are also the vanguard 
of many significant social innovations. The hands-on experience 
charities derive from their day-to-day work for the public good 
can help legislators make more informed and enlightened 
decisions on the full range of issues that come before them. 
Key members of Congress explicitly and repeatedly recognized 
the important contribution charities make to the legislative 
process in the course of developing the landmark 1976 
legislation clarifying and liberalizing the lobbying rules for 
public charities.\6\ The clear premise of this legislation--a 
premise IS believes should continue to guide Congress--is that 
the public interest is served by encouraging more rather than 
less participation by charities in the public policy process.
---------------------------------------------------------------------------
    \6\ Illustrative of the tenor of the Congressional debate that led 
to the enactment of section 501(h) and section 4911--the Internal 
Revenue Code provisions that define the lobbying rules for public 
charities--are the following statements by key supporters of the 
legislation:
     Senator Dole (R-KS): ``Charities can be and should be 
important sources of information on legislative issues.'' 121 Cong. 
Rec. 42032 (1975).
     Representative Conable (R-NY): ``The role of charities in 
a pluralistic society--something we are all dedicated to--is 
constructive and the charities should not be muzzled.'' 119 Cong. Rec. 
42632 (1973)
     Senator Nelson (D-WI): ``[Charities] represent the public 
in many important areas such as health, education, and the environment. 
These groups have much information to contribute and a wide range of 
helpful experience that could greatly assist the consideration and 
enactment of this country's laws.'' 119 Cong. Rec. 5749 (1973).
     Senator Muskie (D-ME): ``It makes no sense to decide that 
these organizations operate in the public interest and grant them tax-
exempt status and then silence them when they attempt to speak to those 
who must decide public policy.'' 117 Cong. Rec. 8517 (1971).
---------------------------------------------------------------------------
    As a practical matter, one of the chief barriers to such 
participation by charities in the public policy process is the 
complex set of federal and state rules governing lobbying by 
charities. Charities are subject not only to the federal tax 
law rules on lobbying but also to the federal Lobbying 
Disclosure Act, the separate lobbying restrictions related to 
the receipt of federal grant funds, and to various state lobby 
disclosure statutes. The regulations interpreting the federal 
tax limitations on lobbying alone total more than 40 pages in 
the Code of Federal Regulations. The complexity of these rules 
has a substantial, and highly undesirable, chilling effect on 
participation in the democratic policymaking process, both for 
smaller organizations with limited staff and access to legal 
counsel and for larger organizations that must establish and 
maintain complex record-keeping systems. IS opposes additional 
reporting requirements that could further deter charities from 
participating in the public policy process. Such a chilling 
effect would be particularly troubling because charities are 
often the only parties able to speak on behalf of the least 
fortunate in our country.
    Congress must assess any new disclosure requirements 
against a complex legal landscape. Not only are the rights to 
free speech and association implicated; freedom of religion 
must also be given proper deference. The charitable community 
includes many churches and other religious organizations, and 
the JCT Report implicitly recognizes the importance of freedom 
of religion. Even though the JCT Report's arguments about tax 
subsidies and the public interest would apply equally to these 
religious entities, the JCT Report recommends no changes in the 
current rules exempting churches and their integrated 
auxiliaries from the basic reporting requirements. IS believes 
that similar and explicit consideration must be given to the 
effect of additional disclosure on other constitutional 
considerations, including, most importantly, the chilling 
effect on free speech.
    Thus, absent a finding of an absolutely compelling public 
interest in additional disclosure, IS believes Congress should 
avoid imposing additional reporting burdens in this important 
and constitutionally sensitive area. IS did not find any 
discussion in the JCT Report of any abuses that the staff 
believed needed to be addressed with respect to charities' 
participation in the policy formation process. Given the 
growing disaffection of many Americans from our public policy 
process, Congress should be doing everything possible to 
encourage, rather than discourage, active participation from 
all quarters of American society, including most especially the 
charities, in the public policy arena.

4. The scope of charities' overall reporting obligations should 
be determined through a careful cost-benefit analysis that 
weighs the public interests advanced by disclosure of 
particular information against those public interests 
undermined by additional disclosure.

    IS agrees with the JCT Report that proposals for additional 
mandatory disclosure should be evaluated under a careful cost-
benefit analysis that weighs the public interests advanced by 
disclosure against the public interests that may be undermined 
by the proposed additional disclosure. In the constitutionally 
sensitive area of charities' participation in the public policy 
process, IS believes that the chilling effect on free and open 
speech, association and participation can be outweighed only if 
additional disclosure is the only way to safeguard an important 
public interest. In other areas, the costs and benefits may be 
more evenly matched, but each must still be given its due 
weight.
    IS believes that the principal interests advanced by 
disclosure are as follows:
     Increasing the public's ability to oversee tax-
exempt organizations for the purpose of verifying that the 
organizations are serving the public and not private interests, 
and are remaining faithful to the goals of their contributors 
and other supporters;
     Increasing compliance with Federal tax (and other 
applicable) laws;
     Promoting the fair application and administration 
of the Federal tax laws; and
     Encouraging charitable giving, volunteerism, and 
collective activity.
    This list of purposes to be served by exempt organization 
disclosure is substantially similar to the list of policies the 
JCT Report articulated,\7\ although there are some very notable 
clarifications. IS disagrees with JCT's view that disclosure 
necessarily ``improves the efficiency'' of the exempt sector. 
In fact it questions why the government is concerned with 
efficiency rather than accountability in the nonprofit sector. 
IS also does not believe that additional public disclosure 
necessarily increases public accountability. There is a nearly 
infinite amount of information that charities could be required 
to provide to the public. Substantially increased disclosure 
necessarily entails substantially increased costs. These are 
costs measured in the time and resources needed to learn about 
new legal requirements, change record-keeping systems, gather 
and store additional information, and deal with harassment from 
adversaries who use the required disclosure as an opportunity 
to distract the charity from its real work.\8\ Time and 
resources spent on government paperwork are time and resources 
not spent on providing food, clothing, shelter, medical care, 
child care and other vital services to the charity's 
beneficiaries. Congress should impose such administrative costs 
only when it is clear that they will produce a commensurate 
increase in meaningful public accountability.
---------------------------------------------------------------------------
    \7\ See JCT Staff Report, Vol. II, 80.
    \8\ Congress recognized the possibility of harassment arising in 
connection with mandatory disclosure when it revised section 6104 in 
1996. Section 6104(e)(3) specifically relieves exempt organizations of 
the burden of producing copies of their core tax documents when they 
receive a request that is part of a ``harassment campaign.''
---------------------------------------------------------------------------
    IS believes that the principal interests that may be 
adversely affected by increased mandatory disclosure are as 
follows:
     Avoiding imposition of excessive reporting costs 
that drain resources from activities that further a charity's 
mission;
     Avoiding a chilling effect on constitutionally 
protected rights to freedom of speech and freedom of 
association;
     Protecting the privacy interests of donors, 
members and other taxpayers whose personal information is in a 
charity's possession;
     Ensuring competitive equality for unrelated 
business activities;
     Promoting increased voluntary compliance and 
efficient tax administration; and
     Protecting appropriate privacy interests of exempt 
organizations in seeking determinations and rulings on proposed 
organizations and transactions.
    Again, the JCT Report has identified many of these same 
factors as bearing on the cost-benefit analysis for proposed 
new mandatory disclosures. However, IS believes that in 
weighing the costs and benefits of a number of the disclosure 
proposals--especially those that relate to a charities' 
communications with the IRS, unrelated business activities, and 
lobbying activities--the JCT Report significantly 
underestimates the negative effects of increased disclosure.

5. IS believes that in working to ensure appropriate 
transparency of charitable organizations, policy-makers should 
recognize the very substantial amount of information that 
charities already disclose and should give high priority to 
making this information more readily available, in user-
friendly form, to the public.

    The existing disclosure requirements that apply to 
charities under the Federal tax law generate a substantial 
volume of publicly available information. With the finalization 
of the regulations under section 6104 last year, incentives are 
in place for more and more of that information to be readily 
available and easily searchable over the Internet. 
Unfortunately, much of the most valuable information for the 
public is hidden among the more than 400 separate pieces of 
data (not including attachments and schedules) that are found 
on the six page Form 990. To illustrate, from the Form 990, any 
member of the public can already see the following information:
     Detailed Description of Activities Furthering the 
Charitable Mission Including Discussion of any Significant 
Changes in Activities Since the Application for Exemption or 
last Form 990 was filed
     Total Revenues
     Total Expenses
     Names and addresses of all officers, directors, 
trustees and key employees
     Compensation of officers and directors, trustees 
and key employees
     Compensation of the five most highly paid 
employees other than officers, directors or trustees
     Average hours per week these individuals devote to 
their positions
     Other payroll, including fringe benefits
     Professional Fundraising Fees
     Legal Fees
     Accounting Fees
     Travel
     Conferences, Conventions and Meetings Expenses
     Assets
     Liabilities
     Fees and Contracts Received from Government 
Agencies
     Investment Income
     Membership Fees received
     Whether the organization had unrelated business 
income tax liability
     Names of taxable subsidiaries and percentage 
ownership
     Whether the organization engaged in lobbying
     If so, lobbying expenditures made by the 
organization
     Transfers to and Transactions with Exempt 
Organizations that are not charities, including section 527 
political organizations
    Without an understandable user's guide--and no such guide 
exists--the public derives little benefit from much of the 
information already reported by charities. Thus, there is a 
deep need for tools to help the public understand the 
information that is already disclosed. We believe that 
oversight of the charitable sector by both the government and 
the public could be dramatically improved by revising the Form 
990 so that it highlights critical information and facilitates 
the reader's understanding of the significance of the 
information being presented. A top priority for the IRS in this 
regard should be providing, either directly or through non-
governmental intermediaries, on-line access to all Forms 990.

               III. Comments on Specific Recommendations

A. Overview

    The JCT Report makes nineteen separate recommendations with 
respect to disclosure by exempt organizations. Independent 
Sector's position on these proposals is summarized below.

Recommendations IS Supports

    IS supports the following eight JCT recommendations:
     Accelerated electronic filing and redesign of Form 
990
     Disclosure of third party communications re 
written determinations
     Confidentiality of taxpayer identification numbers
     Disclosure of annual returns by section 527 
organizations
     Disclosure of names under which exempt entities 
conduct their operations
     IRS notification of public availability of Form 
990
     Mandatory disclosure and IRS reporting of exempt 
entities' web page
     Increased preparer penalties for preparers of 
exempt entities' returns

Recommendations IS Supports But That Require Further Study or 
Refinement

    IS supports the goals of the following four JCT 
recommendations, but IS believes these recommendations need 
further study or refinement:
     Greater flexibility for IRS information sharing 
with state charity regulators
     Increased reporting re transfers among section 
501(c)(3), section 501(c)(4), and section 527 organizations
     Permitting private foundations to report only 
summaries of their investment transactions and assets
     Annual notice requirement for small exempt 
entities

B. Recommendations That IS Opposes

    IS strongly opposes the following seven JCT 
recommendations:
     Non-redacted disclosure of written determinations 
and related file documents
     Non-redacted disclosure of closing agreements and 
audit results
     Non-redacted disclosure of exemption applications 
at the time of filing
     Non-redacted disclosure of Forms 990-T and 1120
     Narrative description of lobbying by charities 
reporting under section 501(h)
     Reporting of self-defense lobbying expenses
     Reporting of expenses for nonpartisan analysis 
containing limited calls to action

B. Recommendations that IS Supports

    1. The Joint Committee Staff recommends that the Form 990 
and related forms: (1) should be accepted by the IRS for 
electronic filing for returns filed after 2002; and (2) should 
be revised to ensure that the forms provide relevant and 
comprehensible information to the public as well as the IRS.
    IS emphatically endorses these recommendations. The 
capacity to distribute this information economically and 
swiftly depends increasingly on having it available in 
digitized form. Furthermore, as IS stated in comments submitted 
to Treasury last fall, the Form 990 is already rich with 
information. However, most readers find it difficult to locate 
the most important information or to assess the significance of 
the information provided. IS stands ready to work with the IRS 
in developing a more useful form that will increase meaningful 
access to information.\9\
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    \9\ The IRS regularly encourages outside parties familiar with the 
Form 990 to suggest improvements. Two organizations are beginning a 
substantial project to do exactly that. They are Philanthropic Research 
Inc. (the nonprofit that operates the Guidestar web site) and the 
National Center for Charitable Statistics located at the Urban 
Institute.
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    2. The Joint Committee Staff recommends that rules similar 
to the disclosure rules that apply to third-party 
communications under section 6110 should be applied to third-
party communications relating to written determinations and 
exemption applications subject to disclosure under section 
6104.
    Section 6110 generally requires that communications to the 
IRS by third parties relating to a specific taxpayer or 
taxpayers must be disclosed to the public. The purpose of this 
requirement is to put the public on notice when third parties 
attempt to influence the IRS to take action to benefit, or to 
harm, a particular taxpayer. IS agrees that the same rules 
should also apply--for the same reasons--to third party 
communications related to tax-exempt organizations.
    3. The Joint Committee Staff recommends that the taxpayer 
identification number of tax-exempt organizations should not be 
subject to disclosure.
    IS appreciates the JCT Report's concern about the possible 
misappropriation of taxpayer identification numbers. To the 
extent that the record developed by the JCT Staff indicates 
that such misappropriation constitutes a significant threat to 
tax-exempt organizations or the tax system, IS would support 
this recommendation. IS notes, however, that exempt 
organizations have been routinely disclosing this information 
for many years on the first page of the Form 990. IS is not 
aware of any problems that have arisen from this disclosure.
    4. The Joint Committee Staff recommends that the scope of 
section 6104 should be expanded to require the disclosure of 
the annual return filed (Form 1120-POL) by political 
organizations described in section 527. The Joint Committee 
staff also recommends that section 527 organizations should be 
required to file an annual return even if such organizations do 
not have taxable income and that the annual return be revised 
to include more information concerning the activities of such 
organization.
    IS believes that the involvement of section 527 
organizations in partisan, election-related activities creates 
a legitimate public interest in disclosure of the financial 
information contained on the Form 1120-POL. Accordingly, IS 
supports this recommendation. IS notes that the Form 1120-POL 
requires disclosure of investment income and expenses and 
certain other financial income, but does not require disclosure 
of donors or political contributions received.
    5. The Joint Committee Staff recommends that tax-exempt 
organizations should be required to provide both their legal 
name and the name under which they do business on the Form 990.
    IS supports this change and believes that it will help 
reduce public confusion about the identity of some charitable 
organizations. IS believes the public would find it useful to 
be able to find the names under which charities do business not 
only on a charity's return but also in the IRS list of exempt 
organizations.
    6. The Joint Committee Staff recommends that the IRS notify 
taxpayers in instructions and publications that Form 990 is 
publicly available.
    IS agrees that more public education will lead the public 
to take greater advantage of the access they already have to 
information about exempt organizations.
    7. The Joint Committee Staff recommends that the World Wide 
Web site, if any, of a tax-exempt organization should be 
included on Form 990 and that the IRS should be required to 
publish such addresses.
    IS agrees that having this information readily available 
will increase the general public familiarity with specific tax-
exempt organizations.
    8. The Joint Committee Staff recommends that the present-
law tax penalty imposed on tax return preparers should be 
expanded to apply to willful or reckless misrepresentation or 
disregard of rules and regulations with respect to Form 990.
    IS believes it is appropriate for return preparers to be 
held to a comparable standard of accountability when preparing 
returns for tax-exempt organizations as currently applies to 
the preparation of returns for taxable organizations. However, 
to ensure that charities will still be able to obtain the 
services of return preparers at a fair price, and the volunteer 
services of return preparers who help many smaller charities, 
IS asks that it be clear that preparers of exempt organization 
returns will be subject to penalties only where the IRS can 
demonstrate that they acted willfully, recklessly and without 
reasonable cause in preparing the return. The differences 
between the Form 990, which is an information return that does 
not state an amount of taxable income or amount of tax due, and 
the basic tax returns other taxpayers file could make it 
problematic to apply the same preparer penalties with respect 
to exempt organization returns as apply to returns filed by 
taxable taxpayers.

C. Recommendations that IS Supports in Principle But that Need 
Further Study or Refinement

    1. The Joint Committee Staff recommends that the IRS should 
be permitted to disclose to Attorneys General and other non-tax 
State officials or agencies audit and examination information 
concerning tax-exempt organizations with respect to whom the 
State officials have jurisdiction and have made a specific 
referral of such organization to the IRS prior to a final 
determination with respect to the denial or revocation of tax 
exemption. In addition, the Joint Committee staff recommends 
that the IRS should be permitted to share audit and examination 
information concerning tax-exempt organizations with non-tax 
State officials and agencies with jurisdiction over the 
activities of such organizations if (1) the State officials 
regularly share information with the IRS, and (2) the IRS 
determines that such disclosure may facilitate the resolution 
of the case.
    Independent Sector believes that increased collaboration 
between the IRS and state charity regulators merits full and 
careful exploration. Fostering such collaboration could result 
in valuable improvements in overall accountability for 
charities. However, relaxing the current confidentiality rules 
also raises complex policy issues related to taxpayer privacy 
and equity between tax-exempt and taxable entities.
    In order to develop a statutory framework that strikes the 
appropriate balance between enhanced enforcement capabilities 
and protection of charities against harassment or unjustified 
burdens, IS believes Congress needs input from a task force 
comprised of current and former federal and state charity 
regulators and representatives of charities who have been 
through federal and state enforcement actions. A dialogue among 
these parties is essential to producing statutory language that 
is effective and fair. IS would gladly convene such a task 
force to provide Congress with this essential input as rapidly 
as Congress's timetable demands.
    2. The Joint Committee Staff recommends that the Form 990 
report more information concerning the transfer of funds among 
various organizations so that the public and the IRS can better 
assess whether contributions to tax-exempt organizations are 
being used to fund political activities.
    Part VII of Form 990, Schedule A already requires charities 
to provide detailed reporting with respect to such transactions 
with non-charitable exempt entities. The JCT Report does not 
make clear what additional reporting the Joint Committee Staff 
is recommending or why the current reporting requirements are 
inadequate. However, to the extent the Joint Committee Staff 
can share any record they have developed that supports the 
conclusion that current reporting requirements are inadequate 
to prevent potential abuses, IS would support appropriate 
additional reporting requirements.
    3. The Joint Committee Staff recommends that private 
foundations reporting capital gains and losses on Form 990-PF 
should be permitted to disclose a summary of those capital 
transactions. A full listing of the transactions would be 
required to be filed with the IRS and to be provided to the 
public upon request.
    IS agrees that disclosure of such voluminous information 
does not necessarily benefit the public, and may in fact reduce 
the level of meaningful disclosure by obscuring other important 
information. However, the real burden comes in having to file 
the detailed information with the IRS in the first place, 
especially because the IRS has indicated that it does not use 
the information except in the rarest of cases. The same problem 
arises with respect to Part II of Form 990-PF on which 
foundations are required to submit a detailed listing of all 
foundation assets.
    For large foundations with extensive and highly diversified 
investment portfolios, the required schedules of investment 
transactions giving rise to capital gains and losses can be 
thousands of pages long. The Form 990-PF similarly requires 
foundations to attach a detailed schedule of all foundation 
assets, which, likewise, can be extremely lengthy.
    When the media or members of the public at large ask to 
examine these parts of the Form 990-PF--and few ever do--they 
are stymied by the sheer volume of information. IS believes 
they are interested in the information that a summary would 
provide. Thus, neither the IRS nor the public derives any 
significant benefit from these highly burdensome reporting 
requirements. Moreover, requiring the submission of these 
voluminous records is a major impediment to electronic filing 
of the Form 990-PF.
    As the detailed information contained on these assets or 
capital transactions schedules could conceivably be relevant in 
the case of an audit, IS recommends that private foundations be 
required to keep the information on file as long as the 
relevant statute of limitations remains open. However, IS 
further recommends that foundations be permitted to submit 
summary statements of their assets and capital transactions 
instead of the detailed schedules currently required. This 
change would not jeopardize any enforcement interests, would 
actually improve the public's ability to understand the 
information that is disclosed, and would substantially reduce 
the reporting burdens on private foundations.
    4. The Joint Committee Staff recommends that tax-exempt 
entities (other than churches) that are below the filing 
threshold of the Form 990-EZ should be required to file 
annually a brief notification of their status with the IRS.
    While IS agrees that there might be some public benefit in 
enabling the IRS to maintain complete and current information 
about smaller organizations, IS believes the costs of enforcing 
such a rule, particularly for the IRS, far outweighs the 
benefits. Small organizations tend to be staffed by volunteers 
who may well not be familiar with the rules for annual filing. 
Frequent changes in volunteer leadership results in frequent 
changes of address and a pervasive lack of awareness of IRS 
reporting requirements. Imposing penalties on these tiny 
charities for failure to file would be impractical where 
changes of address made it impossible for the IRS to contact 
the organizations. More broadly, absent any pattern of abuse, 
it is difficult to see what compliance gains would justify the 
substantial costs to the IRS of trying to find these small 
entities in order to enforce an annual reporting requirement. 
Considering all of these factors, IS urges Congress to maintain 
the current rules while encouraging the IRS to develop simple 
flexible methods--perhaps using a national toll-free telephone 
number or a web site--small organizations could use voluntarily 
to inform the IRS of their whereabouts.

C. Recommendations that Independent Sector Opposes

    1. The Joint Committee Staff recommends that all written 
determinations and background file documents involving tax-
exempt organizations should be publicly disclosed. In general, 
the Joint Committee Staff recommends that such disclosure be 
without redactions
    IS strongly opposes this recommendation.
    If taxable taxpayers so request, the IRS must redact their 
names, addresses and other identifying details from private 
letter rulings and technical advice memoranda and related 
background file documents before they are released 
publicly.\10\ The JCT Report provides no convincing rationale 
why a different rule should apply to charities and other tax-
exempt entities. Accordingly, IS believes that exempt entities 
should have the benefit of the same redaction rules that apply 
to taxable entities.
---------------------------------------------------------------------------
    \10\ See IRC Sec. 6110(c)(1).
---------------------------------------------------------------------------
    Charities are private entities formed by private 
individuals. As such, they have the same competitive interests 
in privacy that taxable organizations do. For example, a 
charity considering a joint venture with a taxable entity may 
feel the need to obtain an IRS ruling that the joint venture 
will not adversely affect its exempt status. Requesting such a 
ruling allows the charity to identify in advance potential 
areas of disagreement with the Service, and frequently enables 
the charity to modify the proposed transaction to address any 
Service concerns. Thus, the private letter ruling process is an 
important means of encouraging voluntary compliance.
    However, in considering such ruling requests, the IRS 
frequently requires exempt entities to make extensive 
disclosures related to both current and future operations at a 
level of detail far beyond that required by the Form 990. If 
faced with the prospect of non-redacted disclosure of this 
detailed, and sometimes quite sensitive, operational 
information, many charities would simply decline to seek 
advance rulings. Charities face competitive pressures in their 
sphere comparable to what for-profit entities face in the 
business world. Charities compete for funding and strategic 
advantages among their peers. The cost of being forced to 
disclose not only the proposed transaction that is the subject 
of the ruling request but any other operational information the 
IRS may seek may far outweigh the benefit of gaining IRS 
assurance that the IRS sees the transaction as being in 
compliance with the law.
    Even more than the specific charity, it is the IRS and the 
public that loses if charities are deterred from seeking 
rulings. IRS enforcement can be more efficient and more 
effective when government officials can see transactions before 
they happen and shape them, where appropriate, to comply with 
the law. With the advantages of foresight, the IRS can even 
help ensure that particular records are kept to make subsequent 
audits swifter and easier. It would be far more costly for the 
IRS to have to review most of these transactions after they 
have happened. Moreover, because the rulings process is 
prospective and the audit process is retrospective, the rulings 
process can alert the IRS to problem areas when they are 
getting started and enable them to put out public guidance to 
avert abuses. The public benefits from this proactive work and 
will lose this benefit if charities are deterred from seeking 
advance rulings.
    Equally serious problems would arise if Congress mandates 
non-redacted disclosure of technical advice memoranda and 
related background file documents. In the case of a disputed 
audit issue, the exempt organization and the agent will have to 
wrestle with a set of costs and benefits wholly unrelated to 
getting technical resolution of the issues. The negotiating 
balance between both sides will be skewed because raising the 
possibility of technical advice necessarily would entail 
raising full disclosure. Charities who believe an agent has 
simply made errors of law in his or her analysis will be put in 
the untenable position of choosing between getting the benefits 
of a correct legal interpretation to which they are legally 
entitled and protecting the confidentiality of their internal 
decision making processes and strategic plans. For these 
reasons, requiring disclosure will not support efficient tax 
administration and will discourage exempt organizations and 
agents from seeking the best technical input available from the 
experts in the National Office.
    Finally, there is no public interest being served. The fact 
that technical advice is being requested provides no basis for 
suspecting the organization of wrongdoing or requiring 
disclosure. The whole point of the process is to encourage 
agents to recognize honestly where the law is not clear and 
request assistance from experts in the National Office who are 
not directly responsible for the audit.
    Disclosure of identifying information in these written 
determinations is not necessary to promote fair application and 
administration of the Federal tax law. The public can clearly 
see how the IRS is applying the law from a redacted document as 
has been demonstrated by years of experience with written 
determinations issued to taxable taxpayer under the rules of 
section 6110(c) which provides for redaction of identifying 
information. What is far more urgently needed to improve fair 
application and administration is a substantial increase in the 
amount of guidance published by the IRS on specific legal 
questions affecting exempt organizations. Written 
determinations issued to a single exempt organization operating 
under a specific set of facts can never offer as much help in 
understanding how the law applies to exempt organizations as 
published guidance can.
    In sum, the costs of this proposal would be significant and 
would include impairment of charities' capacity to operate 
effectively; reduced opportunities to encourage voluntary 
compliance through the private letter ruling process; and 
damage to the public credibility of charities subject to audits 
that include technical advice, even if the charity ultimately 
prevails. The costs can be eliminated and the benefits of this 
proposal can be achieved by simply requiring release of written 
determinations subject to the same redaction rights enjoyed by 
taxable taxpayers, including the rights to appeal decisions 
about the drafting of the technical advice memorandum and the 
redactions to be made.
    2. The Joint Committee Staff recommends that the IRS 
disclose the results of audits of tax-exempt organizations. In 
addition, the Joint Committee staff recommends that all closing 
agreements with tax-exempt organizations should be disclosed. 
In general, the Joint Committee staff recommends that such 
disclosures should be made without redaction. Closing 
agreements should be disclosed ``regardless of whether the 
agreement arose as a result of an audit.''
    IS strongly opposes this recommendation.
    IS disputes JCT's view that release of closing agreements 
serves the public interest. The IRS has had the discretion to 
require disclosure of closing agreements as a condition of 
settlement, but has actually cooperated with public release as 
a term of settlement in only two of the thousands of agreements 
it has signed with exempt organizations. Closing agreements are 
simply negotiated resolutions compromising disputed issues, and 
contain no detailed statement of facts or of the Service's 
legal position. Therefore, they have virtually no educational 
value in clarifying the Service's interpretation of the 
law.\11\ The two closing agreements that were cited by the JCT 
staff as having been publicly released--in the Hermann Hospital 
and Bishop's Estate cases--had highly unusual fact patterns 
that the IRS believed would be instructive to the public. 
Obviously the IRS has not had a similar view with respect to 
most of the other closing agreements it has entered. It follows 
that mandating disclosure of all closing agreements would 
provide the public with little information of use or interest 
in ensuring that charities serve public interests while 
imposing substantial costs on the affected charities.
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    \11\ The JCT Staff concurs in this view. The Report states, ``In 
general, the Joint Committee staff does not believe that closing 
agreements are an effective means to provide guidance to taxpayers 
regarding the law. Such agreements are negotiated, and they may not 
represent the IRS view of the law. Further, because such agreements may 
be fact specific and may not contain all relevant information, they may 
be misleading if relied upon by others.'' JCT Staff Report, Vol. II, 
85, n.186.
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    The Report's recommendation of mandatory disclosure of 
closing agreements would force certain cases to litigation even 
though the IRS would prefer to settle rather than commit scarce 
litigation resources to those cases. Charities may refuse to 
settle and accept disclosure because of the potential for the 
public to perceive the settlement as an admission by the 
charity of failure to comply with the law. Press coverage is 
unlikely to capture the fact that the settlement does not 
formally contain any such admission but will instead likely 
focus on the fact that the IRS has pursued an enforcement 
action. Litigation, though far more costly to the charity, the 
IRS and the overall system of tax compliance, preserves for the 
charity the ability to make arguments in its own defense.
    The JCT Report does not provide any reason why its proposed 
rule should be limited to exempt entities. To the extent the 
public has an interest in knowing the terms on which the 
Service has settled a disputed tax issue, it would seem that 
that interest would be at least as great in the case of a 
publicly traded company in which members of the public have 
made substantial financial investments. However, the JCT Report 
does not make a similar recommendation with respect to taxable 
entities because of the obvious adverse effect on voluntary 
compliance. There is no reason why exempt entities should be 
subject to a different rule.
    The JCT Report's recommendation would also have a highly 
adverse effect on voluntary compliance programs involving 
exempt entities. Under current law, an exempt organization that 
discovers that it is in violation of a tax law requirement can 
generally enter into a confidential settlement agreement with 
the Service typically involving a financial penalty, 
correction, and prophylactic steps to ensure future compliance. 
Mandatory public disclosure of such agreements would create a 
strong disincentive to come forward and take advantage of this 
highly desirable mechanism for promoting voluntary 
compliance.\12\ The cost of disclosure would be too high, 
particularly when evaluated against the likelihood of 
examination.
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    \12\ In this regard, IS urges Congress to see these closing 
agreements the same way it saw Advance Pricing Agreements last year 
when it passed legislation clarifying that APAs are confidential and 
may not be released as written determinations. In that case, Congress 
recognized that disclosure of APAs would threaten the continuation of 
the program because the program's success depended upon taxpayers' 
willingness to disclose substantial amounts of sensitive proprietary 
information. H. Rept. 106-344, 106 th Cong. 1 st Sess, 21.
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    IS would be interested in exploring the periodic release of 
audit results strictly on an aggregate basis. IS believes there 
could be considerable value in making this information 
available to the exempt sector provided that it can be done in 
a way that protects confidentiality. A similar approach was 
required in connection with last year's APA legislation.\13\ In 
this way, practitioners who participate in an exempt 
organization audit infrequently can get some useful information 
on the types of issues that the IRS may be willing to settle in 
a closing agreement and how common or rare it is to raise the 
issues his or her client is facing.
---------------------------------------------------------------------------
    \13\ Congress directed Treasury to publish an annual report 
regarding APAs, which is to provide extensive information on the 
program, including a model APA, the number of pending APAs executed and 
the number requested, and the transactions covered and the functions 
performed and risks assumed by the related organizations, trades or 
businesses involved Pub. L. 106-170 Sec. 201(b)(2) (December 17, 1999).
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    3. The Joint Committee Staff recommends that applications 
for tax-exempt status (and supporting documents) should be 
disclosed when the application is made. In addition, the Joint 
Committee staff recommends that any action taken on the 
application be disclosed.
    IS strongly opposes this recommendation.
    Disclosure is supposed to facilitate the public's ability 
to ensure that charities serve exclusively public purposes. 
Though various members of the public may have their individual 
reasons for being interested in particular applications, the 
public as a whole lacks a legitimate stake in the operations of 
an organization that has not yet been recognized as exempt. 
These same concerns apply with respect to applications that are 
rejected. There is no limit to public curiosity, but there must 
be a limit on satisfying it if we are to maintain consistency 
in disclosure standards, fair and efficient tax administration 
and protection for the legitimate privacy interests of non-
exempt parties.
    Furthermore, individuals contemplating the establishment of 
a charity have a legitimate interest in maintaining the 
confidentiality of their plans until they have a chance to 
obtain a determination of tax-exempt status from the Service. 
If their application were disclosed when filed, other 
individuals and institutions--like existing charities that 
would not have to disclose their plans prospectively--would 
have an unfair advantage in competing for funding, staff and 
other resources. Thus, mandatory public disclosure of pending 
applications might well prevent the successful launch of a new 
organization and thereby deny the public the benefits the new 
organization would have produced and the individuals founding 
the charity the opportunity to work collectively with the peers 
they have selected to accomplish their charitable mission.
    Of equal importance, public disclosure of the applications 
could result in abuse of the application process. Third parties 
who dislike the applicant or the applicant's views will have 
the opportunity to try to influence the review process by 
sending information to the IRS. The IRS will have no capacity 
to evaluate the veracity of information that third parties will 
likely submit in connection with applications they support or 
oppose. Furthermore, IRS employees will be subject to pressure 
from public opinion when evaluating applications from very 
unpopular organizations. The process of being considered for 
exemption should be a strict application of the law to the 
facts as represented by the organization, and every 
organization deserves equal treatment. A confidential process, 
as exists currently, is the best way to ensure even-handed 
treatment of all applicants for exempt status.
    4. The Joint Committee Staff recommends that the scope of 
section 6104 should be expanded to require the disclosure of 
all Forms 990-T and any forms (including forms 1120 and 1065) 
filed by affiliated organizations of tax-exempt organizations.
    IS strongly opposes this recommendation.
    Disclosure of a charity's Form 990-T (its unrelated 
business income tax return) runs counter to the policy behind 
UBIT, which is to create a level playing field between taxable 
and tax-exempt organizations, not one tilted toward the taxable 
entities. When a tax-exempt organization is paying tax on its 
unrelated trade or business activities, it should be entitled 
to the same confidentiality that a taxable business enjoys. As 
the JCT Staff acknowledged in the first volume of their study, 
confidentiality in this context promotes voluntary compliance. 
It would be thoroughly unfair to a tax-exempt organization to 
force it to show its competitors its business tax return when 
it does not have the corresponding right to see its 
competitors' returns.
    The JCT Report states that disclosure of this information 
will ``facilitate comprehensive oversight'' by the public of 
exempt organizations. Disclosure is not provided for 
disclosure's sake, and oversight is not for oversight's sake. 
Disclosure has costs associated with it, and before those costs 
are imposed, they must be justified. Disclosure must serve a 
purpose, and where charities are concerned, that purpose is to 
ensure the charities operate strictly for public purposes and 
not private purposes. Where a charity is paying tax in 
connection with its business activities, it has acknowledged 
that the activities generating the taxable income do not serve 
charitable purposes. The public's concern with respect to these 
activities, therefore, is in seeing that the revenues generated 
are ploughed back in to charitable activities. Knowing the 
technical details of how a business reports its income does not 
move the public any closer to knowing whether the charity is 
serving public rather than private ends.
    Finally, the proposal is clearly overreaching. No 
definition is provided of what constitutes an affiliated 
organization. It would be unfair and unjustified to require a 
taxable entity to disclose its tax return simply because it had 
been generous enough to form a corporate foundation or had some 
overlapping board members with a charity.
    5. The Joint Committee staff recommends that public 
charities (both electing and non-electing charities) should be 
required to provide a general description of their lobbying 
activities on Schedule A to Form 990.
    IS strongly opposes this recommendation.
    Public charities play an invaluable role in the legislative 
process. They are the principal vehicle through which 
individual citizens can come together to work for public policy 
changes that they believe will advance the greater good. 
Whether the issue is how to reduce drunk driving, promote 
literacy, strengthen families, or revitalize blighted 
communities, public charities are on the front lines of the 
effort in communities across America. Their unique experience 
has led several legislators to urge that private charities, and 
faith-based organizations in particular, serve as models for 
various public policy initiatives. The expertise charities 
derive from this front-line experience can be of tremendous 
value to legislators at the federal, state, and local levels--
but only if charities are free to participate in the 
legislative process.
    In 1976, Congress enacted section 501(h) of the Internal 
Revenue Code precisely to encourage such participation. Prior 
law had prohibited charities from ``substantial'' lobbying, but 
had provided no clear definition of either ``substantial'' or 
``lobbying.'' The resulting uncertainty had a profound chilling 
effect on charities' participation in the legislative process 
that remains to this day. In an effort to dispel this chilling 
effect, section 501(h) provided an alternative to the vague 
substantial test with specific lobbying expenditure limits and 
also established a much clearer, albeit fairly complicated, 
definition of lobbying.
    While section 501(h) was an important step toward 
reassuring charities that it is legal and proper for them to 
lobby, the overall set of federal and state laws and 
regulations governing lobbying by charities remains a 
substantial deterrent to charities' participation in the 
legislative process. The section 501(h) rules, while reasonably 
clear, are also quite complex. The relevant regulations fill 
more than 40 pages of the Code of Federal Regulations. 
Charities electing to be subject to section 501(h) must 
establish complicated record-keeping systems to track their 
direct and grassroots lobbying expenses, and must continually 
invest significant staff time and resources in maintaining 
these systems. Charities that receive federal grant funds must 
comply with a different, and comparably complex, set of 
lobbying restrictions contained in OMB Circular A-122. Further, 
charities are also subject to the Federal Lobbying Disclosure 
Act and to various state lobbying reporting statutes.
    Unfortunately, many charities read into these complex and 
stringent requirements a signal that participation in the 
legislative process is a suspect activity that they undertake 
at their peril. That impression runs directly counter to 
Congress's own deliberate efforts, through the enactment of 
section 501(h), to send the opposite message, that lobbying is 
an appropriate rather than a suspect activity. Similarly, the 
IRS even states in the Internal Revenue Manual that making the 
section 501(h) election tends to be a sign of compliance with 
laws; the IRS has observed that the election gives charities a 
clear set of standards to apply to their lobbying and feel 
comfortable that they can lobby and be in compliance with the 
law.\14\ Nevertheless, many charities are deterred from 
participating in the policymaking process by the sheer cost and 
complexity of complying with these complicated, overlapping 
regulatory regimes. The cost of this chilling effect is 
profound, and it is borne ultimately by the public who loses 
the benefit of charities' participation in the public policy 
process.
---------------------------------------------------------------------------
    \14\ See I.R.M. Sub-Section 7925; Letter from Marcus Owens, 
Director, Exempt Organizations Division, IRS to Bob Smucker, Charity 
Lobbying in the Public Interest dated February 11, 1999.
---------------------------------------------------------------------------
    The JCT Report's recommendations for imposing yet more 
reporting requirements on charities' participation in the 
legislative process must be evaluated against this backdrop. 
The substantial complexity of the existing rules already has a 
profound chilling effect. The JCT recommendations would only 
exacerbate this serious problem.
    The JCT Report's first recommendation is that public 
charities that have elected to be subject to the section 501(h) 
lobbying rules should be required to provide a detailed 
description of their lobbying activities and the manner in 
which they conducted those activities, all in addition to 
reporting the amount of their lobbying expenditures as required 
by current law. Three key facts bear note in relation to this 
proposal:
     This is a solution in search of a problem. The JCT 
Report does not provide any hard evidence or arguments that 
this additional reporting would serve any important public 
purpose. Instead, the Report merely asserts that ``staff 
believes that the public has a significant interest in 
understanding and monitoring the lobbying activities of a 
public charity ...'' The Report makes no effort to explain why 
the public has a different or greater interest in monitoring 
lobbying by charities as opposed to monitoring the much more 
substantial lobbying of the business community.
     Congress has already addressed the need for 
greater access to information on lobbying expenditures by 
enacting the Lobby Disclosure Act. Under this Act, charities 
that exceed the registration and reporting thresholds must file 
semi-annual reports to Congress identifying the legislation on 
which they have lobbied. Most states have similar lobbying 
registration and reporting statutes that require charities to 
report on state-level lobbying. Given that both Congress and 
most state legislatures have already established comprehensive 
lobby reporting regimes for both taxable and exempt entities, 
it is difficult to see the rationale for embedding additional 
lobby reporting requirements in federal tax law. In fact the 
IRS has made other changes to the form to address enforcement 
concerns, but has never seen the need for such a narrative.
     Finally, the proposed additional reporting is 
absolutely unnecessary to enable the IRS to assess electing 
charities' compliance with the section 501(h) lobbying 
expenditure limits. Charities are already required to report 
their lobbying expenditures, and must also maintain in their 
files, subject to IRS audit, detailed records substantiating 
their reported lobbying expenditures. The IRS has always had 
the authority to require a narrative description of lobbying 
activities by organizations subject to section 501(h) but has 
never seen the need to do so. In fact, the IRS has made other 
changes to the form to address enforcement concerns, but has 
never seen the need for such a narrative.
    As these facts make clear, there is simply no compelling 
rationale to support the proposed requirement for a narrative 
description of lobbying activities, and certainly no rationale 
that can justify the additional chilling effect on 
participation in the development of public policy that such a 
requirement would certainly entail.
    6. The Joint Committee staff recommends that public 
charities should be required to disclose expenditures for self-
defense lobbying.
    IS strongly opposes this recommendation.
    Congress has long recognized that charities, like all other 
individuals and entities, have a fundamental right to respond 
when their existence, powers, duties, or tax treatment are the 
subject of a legislative debate. Charities are entitled to 
correct the record when inaccurate statements are made about 
them and to provide their own views in contrast to the views of 
their legislative adversaries. Accordingly, the federal tax law 
definitions of lobbying applicable to both public charities and 
private foundations contain express provisions excluding self-
defense activities from the definition of restricted 
activities.
    Presumably, a charity's members, donors, and beneficiaries 
fully expect the charity to defend itself when its tax 
exemption or ability to raise deductible contributions is under 
attack. The JCT Report cites no evidence that these stakeholder 
groups have any desire to require the charities they support to 
report the amount of their self-defense expenditures. Nor is 
there evidence that the public at large perceives itself as 
having a vital interest in having information on charities' 
self-defense activities.
    A charity's opponents might, of course, be interested in 
having such information, but their private interest in gaining 
a strategic advantage in the debate by burdening the charities 
hardly constitutes a legitimate public interest justifying the 
imposition of an additional reporting burden. After all, the 
opponents have not provided--and have no intention of 
providing--any of the resources the charity is using to fund 
its self-defense efforts. The charity clearly owes them no duty 
of disclosure with respect to these expenditures.
    Nor does the IRS need information on the amount of a 
charity's self-defense expenditures, since spending on self-
defense is not relevant for purposes of enforcing the 
requirements of section 501(c)(3).
    And finally, it is difficult to see why legislators need 
information on the amount of a charity's self-defense 
expenditures. The self-defense exception only applies to direct 
lobbying--that is, to direct communications with legislators by 
an organization and/or its members. If a charity engages in a 
substantial self-defense campaign, legislators, of all people, 
will not need to see the organization's Form 990 to gauge the 
scope and intensity of the effort.
    In short, requiring charities to track and report the cost 
of their self-defense activities would not advance any 
significant public purpose. It would, however, impose quite 
substantial administrative costs and burdens on charities. 
Charities would be required to train their staffs on what does 
and does not fall within the scope of the self-defense rule. 
Charities would also have to establish time reporting and cost 
allocation systems to track self-defense costs. Given this 
substantial administrative burden on the one hand, and the lack 
of any significant public benefit from the reporting of these 
self-defense costs on the other, this proposal clearly fails 
the cost-benefit test. Accordingly, IS strongly opposes this 
recommendation.
    7. The Joint Committee staff recommends that public 
charities should be required to disclose expenditures for 
nonpartisan study, analysis, and research if such study, 
analysis, or research includes a limited ``call to action.''
    IS strongly opposes this recommendation.
    The JCT Report's recommendation would require charities to 
track and report the expenses of preparing and distributing so-
called ``nonpartisan study, analysis, and research.'' if that 
nonpartisan analysis contains an ``limited `call to action'.'' 
Under the relevant tax rules, a communication that refers to 
and reflects a point of view of a legislative proposal 
qualifies as nonpartisan analysis if it contains a full and 
fair exposition of the issues it addresses and provides 
sufficient information to allow the recipient to form an 
independent view on the issues discussed.\15\ Under the JCT 
recommendation, such nonpartisan analysis contains a ``limited 
`call to action' '' if it specifically identifies one or more 
legislators as (1) opposing the organization's view with 
respect to the legislation; (2) being undecided with respect to 
the legislation; (3) being the recipient's representative in 
Congress; or (4) being a member of the legislative committee or 
subcommittee that will consider the legislation.\16\
---------------------------------------------------------------------------
    \15\ Treas. Reg. Sec. 53.4945-2(d)(1).
    \16\ See concept of a ``limited'' or ``indirect'' call to action is 
defined in the existing regulations implementing the public charity 
lobbying rules under section 4911. See, Treas. Reg. Sec. 53-4911-
2(b)(2)(iii) and (iv).
---------------------------------------------------------------------------
    This recommendation would impose a substantial and 
unproductive record-keeping burden on the many charities that 
produce valuable policies analyses of legislative issues. The 
fact that an otherwise purely educational report lists the 
names of legislators on a committee with jurisdiction over one 
or more legislative proposals or provides readers with help in 
identifying their representatives is an entirely arbitrary way 
of sorting what merits reporting. For example, when a health 
organization produces literature to educate the public about 
the importance of finding a cure for cancer or insuring that 
children get vaccinations, it should not have to accept a 
special record-keeping and reporting burden simply because it 
gives the public a list of all the legislation that has been 
introduced to help accomplish its health goals and mentions the 
members of Congress who have jurisdiction over the legislation. 
This kind of nonpartisan research and analysis confers a clear 
public benefit by making both the public and legislators better 
informed about issues of general public concern. Imposing 
disclosure burdens will only hurt the public and Congress by 
making it harder for charities to provide them with fair and 
detailed discussions of issues raised in specific legislation.
    Educational institutions and other charities provide 
instruction and training on every conceivable topic, including 
topics relating to public policy. Indeed, for educational 
institutions in particular, this is the reason they exist. To 
force colleges, universities, schools, and other charities to 
scrub every article, study or other piece of scholarship that 
relates to a public policy matter and contains a ``limited call 
to action'' would be overwhelmingly burdensome and a huge waste 
of resources. To determine the amount of the institution's 
expenditures on that particular article--when funding for 
faculty work is often provided from multiple sources--would be 
complex to the point of impossibility. For example, under this 
proposal, a college would have to report on a professor who 
writes an article on the history of agriculture, drops a 
footnote citing a newly introduced bill that would change 
federal law on genetically engineered crops, mentions the name 
of the legislator who introduced it and the fact that he chairs 
the committee that will have jurisdiction over the bill, and 
simply states that he supports the bill because he supports any 
effort to address the subject. More to the point, the college 
would have to report on every professor who publishes any 
article or study that mentions any bill, a view on the bill and 
otherwise benign information about legislators who are working 
on the bill. Even worse, the college would then need to 
determine the expenditures it had made to contribute to the 
production of these articles. The faculty members who write 
these pieces, along with their scholarly colleagues at many 
other charities devoted to public education, were not 
attempting to influence the legislative process, yet the JCT's 
overly broad recommendation would cover all of this activity. 
The effort that would be required to comply would overwhelm 
educational institutions and drain vast resources that could 
otherwise be used productively.
    It is difficult to see what possible public interest would 
be served by this disclosure requirement. The fact that one 
policy paper discussing a legislative proposal identifies the 
members of the relevant legislative committees while another 
does not hardly seems like a rational basis for requiring 
reporting of expenses related to the first report but not the 
second. The reference to the legislative committees is 
completely irrelevant to IRS enforcement efforts since both 
reports clearly qualify, and would continue to qualify, as non-
lobbying communications. Moreover, it seems equally clear that 
the public is neither asking for, nor would derive any benefit 
from, this expenditure data. And once again, the JCT staff has 
not presented any information to suggest that this disclosure 
requirement would address any known existing abuses. 
Accordingly, IS firmly believes that this recommendation 
clearly fails the requisite cost-benefit analysis.
      

                                


Statement of International Health, Racquet & Sportsclub Association, 
Boston, Massachusetts

    Mr. Chairman and Members of the Committee:
    The International Health, Racquet & Sportsclub Association 
(IHRSA) submits this statement in response to the Committee's 
notice seeking comment on the Joint Committee on Taxation staff 
recommendations (the recommendations) to increase disclosure of 
information relating to tax-exempt organizations.
    IHRSA represents over 3000 proprietary health clubs and 
fitness facilities. The provision of health and fitness 
services is one of those areas of our economy in which there is 
significant growth and intense competition, both among 
proprietary firms, and increasingly with large and amply funded 
entities which enjoy tax exempt status. Whether those tax free 
competitors are appropriately carrying out their charitable 
responsibilities, or using their charitable status as an 
umbrella to shield them from taxes while pursuing an 
essentially commercial market, is a major concern of our 
members.
    IHRSA firmly endorses the proposed recommendations to 
increase the level of disclosure of tax exempt organization 
reporting. Increased public discussion and awareness of the 
nature of exempt organization activities is a necessary 
condition of the increasing scope of services that are 
sheltered from taxation. The credibility and fundamental 
fairness of our tax system is at risk, unless we take steps to 
recognize and promote the public discussion of such issues, not 
just in the context of general theories, but in relation to the 
specific activities of organizations in local communities. 
Allowing more sunshine to illuminate tax exempt activities is a 
very small burden, given the significant advantages which 
exempt firms have over proprietary firms.

               General Principles Relating to Disclosure

    The recommendations state clearly and accurately the 
important reason to discuss disclosure of exempt organization 
information. In our system, we have recognized the role of non-
government organizations in carrying out activities which may 
otherwise be governmental in nature, and we encourage that role 
through tax exemption. These organizations are not ``owned'' by 
particular parties; their central purpose is public in nature. 
The public supports them, directly through deductible 
contributions and indirectly by giving them a pass from the tax 
system which burdens all businesses and individuals. This 
special status must be earned by performance of the appropriate 
exempt functions.
    Whether and how these entities carry out their charitable 
purposes is a legitimate matter of public information. IHRSA 
therefore absolutely endorses the recommendation that an 
essential framework for discussion is that ``disclosure of 
information regarding tax-exempt organizations is appropriate 
unless there are compelling reasons for nondisclosure that 
clearly outweigh the public interest in disclosure.''

                  Disclosure of Written Determinations

    The recommendations suggest public disclosure of a number 
of types of IRS decisions involving exempt organizations, 
including audit results, applications, and third party 
communications. IHRSA endorses those recommendations. Whether 
in the context of general public oversight of exempt 
organizations, or more specifically, to improve public 
understanding of the IRS decision process regarding such 
organizations, it is time to remove the veils which keep the 
public and other entities shielded from the exact outlines of 
questions involving exempt organizations.
    IHRSA particularly urges adoption of the recommendation for 
disclosure of the exempt organization application. We urge the 
Committee to look at this from a practical perspective. Most 
exempt organizations applications are granted, and once 
granted, it is very rare for the Service to remove the 
exemption. In contrast to the very scant information on 
charitable mission now required in the annual 990 form, it is 
in the application form that the organization must describe, in 
some detail, the planned scope of its activities, and how they 
will fulfill the charitable purpose. The possibility for public 
review of the application would be an important factor in 
ensuring that potential exempt organizations clearly fulfill 
their exempt purposes.
    Some have criticized this recommendation as likely to 
burden the IRS by unleashing a torrent of correspondence to the 
IRS by critics of applicants, where there might be a difference 
of philosophy or apparent political perspective. Even if that 
unlikely result occurs in isolated cases, the underlying tax 
law principles which the IRS must apply will not be changed by 
any disclosure. The Service will presumably reach its decision 
on granting exemption based on the facts and circumstances of 
the application, and not on the weighing of the mail.
    From IHRSA's perspective, our members are not interested in 
judging the political philosophy of an organization. We are, 
however, interested in seeing that entities which claim 
charitable purpose and activity do, in fact, make good on those 
claims. The current system, in which only the annual summary 
990 information is disclosed, does not allow a serious analysis 
of whether an organization has clearly stated how it intends to 
carry out its charitable purposes, and if it is in fact doing 
so after the application is granted.

      Disclosure of 990-T forms and annual returns of affiliated 
                             organizations

    IHRSA strongly agrees with the recommendations that 
disclosure of annual 990 forms be extended to 990-T and 
affiliated organization 1120 returns. The current system, 
requiring disclosure by an exempt organization of only part of 
its operations, is not adequate to allow the public any 
comprehensive view of the complete scope of activities of 
exempt organizations. At its most basic, the 990-T Form may be 
regarded as a detail, a report on the presumably slight level 
of unrelated business income of organizations pursuing 
charitable purposes. But it is clear that this benign view is 
probably no longer accurate. ``Probably'' is the only possible 
word to use, because the public does not have any knowledge of 
the scope of an exempt organization's unrelated activities 
under the present system. Major levels of growth in unrelated 
income have been suggested by some recent IRS analysis. And it 
is clear, for example, that the public does not know how 
particular tax exempt organizations pay their executives and 
allocate their costs between charitable and unrelated 
activities. There is no reason not to regularly make such 
information available.
    By the same token, we believe that the concerns of some 
critics of the recommendations about proprietary data are 
overstated. The 990-T's report a scope of economic activity, 
not customer information. The 990-T's will still contain 
largely summary information, whose disclosure is less likely to 
represent any competitive value and more likely to reveal 
essentially how such unrelated activities compare to the 
pursuit of the underlying charitable purpose. Trade secret 
concerns can be accommodated with 990-T disclosure.
    The recommendation's alternate of folding the 990-T into 
the 990 is a very useful suggestion, as is the recognition that 
the issue of disclosure should not be affected by the nature of 
the legal organization relating the affiliate to the sponsoring 
tax exempt organization.

                                Summary

    IHRSA strongly supports the recommendations of the Joint 
Committee regarding disclosure. As many observers have noted, 
the sharp divisions between proprietary and tax exempt 
activities have become much less sharp, especially within the 
past decade. At the same time, the economic scope of activities 
of the tax exempt sector has mushroomed. The nature of those 
activities is often difficult or impossible for the public to 
discern, notwithstanding the fact that they are carried out 
from a platform which originally was established for specific 
charitable purposes. IHRSA is neither condemning nor endorsing 
these developments in the abstract. However, the public has the 
right to know about them in some meaningful way. Only if that 
occurs can we be assured that tax exempt organizations are in 
fact aggressively pursuing their charitable mission and not 
utilizing the exemption as a shield to deter taxation of 
essentially commercial non-charitable economic activity.
    We urge the Committee and the Congress to enact the 
appropriate changes in the Internal Revenue Code which will 
effect the Joint Committee recommendations. We would be happy 
to supply the Committee with any further relevant information.
      

                                


                                                     April 26, 2000

Hon. Rep. Bill Archer, Chairman
Hon. Sen. William V. Roth, Jr., Vice Chairman
Attn: Lindy L. Paull, Chief of Staff
Joint Committee on Taxation

    Dear Joint Committee on Taxation:

    The Joint Committee on Taxation is doing long-neglected and long-
needed work to require disclosure of lobbying and political activities 
by non-profit organizations.
    There is a broad misconception that all non-profits are charities, 
doing charity work, or that non-profits somehow are non-political. But 
charities are only a sub-group of non-profits. America's most active 
and vocal lobbying and political pressure groups have organized as non-
profits, hoping to gain a charitable image by mixing among true 
charities. Many of these political groups also depend heavily on 
``grants'' of taxpayers' money to finance their group.
    For many years, a huge effort has been underway to persuade non-
profits to use their special tax status not to perform works of public 
service, but to launch political agendas and to focus on political 
advocacy. Both lawmakers and the general public are the targets of 
these major propaganda efforts. Free speech must be protected, of 
course, but that does not require giving huge tax advantages to some 
while denying it to others. (For example, 1993 legislation greatly 
limited political speech by profit-making groups, by restricting their 
tax deductions for lobbying, while not placing equal restrictions on 
lobbying by non-profits.)
    When Congress in 1995 examined political advocacy and lobbying by 
non-profit organizations, we discovered that 57% of lobbying by non-
profits comes from just 3% of 501 (c) 3 grantees. We also discovered 
that lobbying activities conducted by other non-profit organizations 
who receive government grants is not being disclosed under current law. 
Clearly, taxpayers have a right to know how their funds are being used.
    The Joint Tax Committee is performing a valuable service by 
examining the issue, and recommending greater disclosure. The public 
needs to know about the activities of special interest organizations 
who receive tax exemptions. More information certainly should be 
reported on the Form 990, which is the key public record filed by these 
groups, but which does not now require sufficient disclosure.
    The Joint Committee's staff recommendations clearly show they 
understand the problems with lobbying by tax-exempt organizations, 
which has become a backdoor subsidy for political activists, giving 
them a louder voice than tax-paying groups.
    Public charities should welcome the opportunity to distinguish 
themselves from advocacy groups. Disclosure of lobbying efforts is a 
key way to identify the difference. This should include lobbying and 
advocacy thinly-disguised as studies, analysis, and research, when they 
are actually used to attract media attention and support for a group's 
political agenda. Too often, the media fail to report the political 
motives which underlie supposedly impartial studies.
    In addition to the Committee staff's recommendations, I hope the 
Form 990 will also be revised to require disclosure of grants from 
taxpayers' money, separate and distinct from disclosure of privately-
funded grants, and distinguishing between federal, state and local 
grants from public funds.
    The acceptance of the Joint Committee staff's recommendations will 
help the tax-exempt non-profit community to police themselves better. 
The IRS will receive appropriate information. Contributors will know 
that their contributions are being used as outlined in an 
organization's charter, and not to finance political advocacy instead.

            Sincerely,
                                      Ernest J. Istook, Jr.
                                                 Member of Congress

EJI/wad
      

                                


Statement of William J. Lehrfeld, Bethesda, MD

                                   I.

    Except for provisions relating to increased disclosure of 
lobbying information, the recommendations of the Joint 
Committee staff to disclose substantially all interaction 
between exempt organizations and the Internal Revenue Service 
is deserving of Congressional support. As the staff analysis 
makes clear, the degree of benefits available to the exempt 
organization sector generally, and the 501(c)(3) sector 
particularly, justifies these modest intrusions on what 
otherwise might be considered areas of corporate privacy. A 
501(c)(3) exempt organization has no private constituency, per 
se, in that it purports to serve and operate in the public 
interest in the historic sense of charity.\1\ But there are 
thousands of 501(c)(3) organizations that have users, even as 
vendees, and these users, as with any consumer orientation, 
bring to the relationship a desire for continuity of service or 
function, undeterred by anyone's oversight other than their 
own. Establishing oversight for the operation of a school, 
church, hospital or other charity is a subjective task in that 
most enjoy their privileges and immunities not by reason of the 
success achieved for their limited population, but by the fact 
that as a whole, such institutions provide broad public 
services--and stability--that is appropriate and necessary to 
our open, co-dependent society. But a gas station and a dry 
cleaner are appropriate and necessary for society as well, so 
there must be some justification for the direct and indirect 
largesse offered by the Congress to these organizations through 
a variety of deduction incentives, exclusions, exemptions, or 
credits. In return, at the very least, in this marketplace, an 
alert public expects these organizations to perform their roles 
with an overriding sense of responsibility to the public. Some 
private profit or benefit must be involved since good help is 
hard to come by, especially in certain TV markets where college 
athletics prime many a pump.
---------------------------------------------------------------------------
    \1\ Bob Jones University v. United States, 461 U.S. 574 (1983).
---------------------------------------------------------------------------
    Congress is fully justified in demanding a full and fair 
accountability of the totality of subsidies. Accountability for 
charitable organizations especially is historic and, in fact, 
it was the lapses and failures of many charities that led to 
the Statute of Charitable Uses in 1601 creating a ``reform'' of 
the charitable sector in England. There has been no equivalent 
``reform'' much less analysis and understanding of the public 
sector here in the United States and, but for the Internal 
Revenue Service, there is no single private or public entity 
that assumes responsibility for assuring that 501(c)(3) 
organizations turn square corners. And surely no one, nowadays, 
believes the Internal Revenue Service has manpower, the money 
or the stomach to vigorously address and remedy the fault lines 
running through the nonprofit sector. That leaves the public--
meaning the media--to press the sector for inside information 
about its affairs.

                                  II.

    In 1965, the United States lost a decision involving taxes 
imposed on International Business Machines.\2\ The case 
involved the discriminatory effect a private letter ruling had 
on competitors selling a comparable product. The text of the 
decision is unimportant and it is noted here solely because of 
the notions spread in the petition for certiorari filed by the 
United States; the petition claimed that if the IBM case were 
allowed to go unreviewed by the Supreme Court, the entire 
private letter rulings process of IRS would collapse. It also 
alleged that, unless the Supreme Court reversed the IBM case, 
the government would be forced to shut down the private letter 
ruling process because it would be unable to administer a 
program subject to the wild vagaries of court review. As it 
turns out, the hyperbole of the United States was so far wrong 
it now seems almost quaint. The private ruling process not only 
prospered but became a valuable, sometimes irreplaceable tool 
for all forms of tax planning, so much so that Congress took 
the initiative, in 1976, to make sure that all America had 
access to the facts, law, arguments, rationale and conclusions 
found in substantially all private letter rulings.\3\
---------------------------------------------------------------------------
    \2\ International Business Machines Corp. v. United States, 343 
F.2d 914 (Ct. Cl. 1965).
    \3\ See, IRC 6110, enacted to create boundaries against the law 
being created in Fruehauf Corp. v. Internal Revenue Service, 522 F.2d 
284 (6th Cir. 1975), vacated by 429 U.S. 1085 (1977) as a result of the 
Tax Reform Act of 1976.
---------------------------------------------------------------------------
    Private letter rulings are a gateway when planning ``iffy'' 
transactions, because counsel is edgy, the employer is 
uncertain, and the law could be read as easily against as for 
the transaction. Private rulings issued by the National Office 
(in the form of technical advice) upon review of issues raised 
during audits, also disclose the application of law and 
regulations on completed transactions raised during an 
examination. It would be extremely helpful for the public to 
know and benefit from not only the offensive or defensive 
thinking of the exact exempt organization seeking IRS 
assistance and comfort when eliciting a ruling on a proposed 
transaction, but also in the context of the who and the why of 
it. More can be gleaned from who a petitioner is than what is 
revealed today by background file documents in closed, 
confidential files. It is also an important accountability 
consideration that technical advice memoranda, especially 
relating a to proposed revocation, be made public so that 
organizations which have failed to conform their corporate 
behavior to the norms expected by law and regulations, have the 
arguments and rationale analyzed by the press and the public 
for a more important judgment, blessing or sanction. Congress 
correctly noted that there should be limited exceptions to 
disclosure, especially where national security or trade 
considerations are involved.\4\ Even these rules today seem 
anachronistic. There is no justification for refusing to 
disclose, as completely as possible, the entire work file of 
any private ruling or any technical advice memorandum. The 
party seeking assistance or relief wants the continuation of 
its subsidies. The public needs to know--is it still prudent, 
or efficient, or relevant that these subsidies remain 
supportable. If IRS needs a complete picture for a ruling or 
technical advice task, so it is that the public does as well. 
More information, accessible on a more timely basis and from 
IRS sources, allows a better-informed judgment about the 
entity, its corporate behavior and the extent it is meeting the 
public's expectation of its mission.
---------------------------------------------------------------------------
    \4\ IRC 6110(c)(2) and (4).
---------------------------------------------------------------------------
    It is also important that IRS disclose their own postures 
in audit cases since the text of private rulings traditionally 
are quite modest in their description or explanation of the 
facts, description or explanation of the law and regulations, 
and description or explanation of the rationale which justifies 
the conclusion. The Joint Committee staff did not recommend a 
statute which requires the IRS to write intelligible private 
letter rulings; that would be an exercise in mischief. But the 
idea has merit.
    The Committee staff did not demand IRS reveal its work 
product--conference reports, interoffice memos, opinions of IRS 
personnel, which eventuated in the ruling or technical advice. 
This disclosure is also necessary so the public can judge 
whether IRS is driven by justifications serving no policy or 
revenue purpose, or may be acting vindictively or is even 
politically motivated. Whatever the audit or ruling file 
contains should be disclosed even if ordinarily privileged. Let 
the system decide and give IRS some insight from outsiders. 
Look back at the original purpose of the Freedom of Information 
Act and make that the measure for IRS disclosure.
    It comes as no surprise to anyone that the staff of the 
Joint Committee has, on a number of occasions, been called upon 
to evaluate whether or not there was invidious selection and/or 
political discrimination in the audit and ruling process 
involving conflicts or controversies between taxpayers and the 
IRS. Despite the Chairman's desire to have a report by 
September 15, 1997 concerning the potential political influence 
on the IRS by the Administration or Members of Congress, he has 
not seen fit to explain publicly to the press, or to anyone, 
why the report has not been made public, as of the date of 
these comments. This is important because many times the 
Congress itself is the party responsible for intruding upon an 
exempt organization audit or ruling process either strongly 
opposing or strongly supporting the exempt organization. Under 
the proposals, these congressional letters would have to be 
associated with the case file and not filed someplace else.\5\ 
Complete disclosure of private ruling letter ruling requests, 
the names and identifying details in private letter ruling 
requests, or audits, might early on decrease the number of 
rulings requested by exempt organizations with respect to 
proposed transactions. That is not necessarily a bad thing 
since many rulings are merely for taxpayer comfort, and not due 
to any lack of counsel's confidence that the transaction is out 
of bounds. What is important is that full disclosure will give 
some shape and meaning to the administration of the law and by 
knowing who is involved, what the IRS thought, what third 
parties were interested, and how a favorable or unfavorable 
ruling will implicate related transactions. Such full 
disclosure will not only allow the public to gain more insight 
and value from a ruling, but also discern whether the proposed 
transaction, after the ruling, is accurately reflected in the 
events that come to pass. IRS does no follow-up on its rulings, 
but if the press is looking, a measure of accountability can be 
achieved that is now ignored or lost.
---------------------------------------------------------------------------
    \5\ In Lehrfeld v. Richardson, 132 F.3d 1463 (D.C. Cir. 1998), 
there was testimony by Internal Revenue Representatives that 
congressional records involved in a particular exemption application 
would not be kept in the same file as the exemption application itself. 
This needs to change by redefining the application file. See, IRC 
6104(d)(5).
---------------------------------------------------------------------------

                        III. Closing Agreements

    Closing agreements are an important aid in resolving 
controversies involving all taxpayers but especially exempt 
organizations. The problem with closing agreements is that the 
Service is just now beginning to appreciate the value which 
closing agreements have on regulating prospective behavior by 
previously errant organizations rather than merely quickly 
resolving a tax dispute involving certain dollars, for certain 
years, for certain issues. During my six years of service in 
the IRS National Office, I remember seeing one, perhaps two, 
closing agreements that passed through the Branch on the way up 
to the Commissioner. Prior to the mid-nineteen nineties, I had 
little personal experience with closing agreements, perhaps 
less than a dozen in 30 years. In the last five years, however, 
I have seen closing agreements come up in the ordinary course 
of negotiating settlements because the government can not only 
fix a ``tax'' for the resolution of the years in issue, but can 
also formulate a plan for corporate behavior over the horizon 
that requires the entity's conformance to the rules set out in 
the closing agreement. In the last several years only one of my 
closing agreements (out of five) would have faltered if IRS 
insisted on any disclosure of any sort about the agreement. 
Because the organization strongly disagreed with the IRS 
position but felt that it could get in and out of its situation 
without significant expense, signing the closing agreement 
seemed a quick and practical solution. But that case was 
unusual, involving an educator and an overheated revenue agent, 
and the relationship was so venomous that the Inspection 
Service was always nearby. For other clients, signing a closing 
agreement has been a useful tool to settle private foundation 
tax liabilities, unrelated business tax liabilities, and exempt 
status issues. These settlements work because of the imposition 
of conditions subsequent in the closing agreement unrelated to 
the actual behavior of the organization leading to the 
assertion of tax liability in the first place. These conditions 
guide the entity and act as a way of reducing revisits by 
agents, since management and counsel can cooperate to protect 
the entity from donors, directors, or others (like politicians) 
from going off-task.
    If there is a particular problem today with respect to the 
closing agreement program, it is that it is selectively applied 
when it comes to the disclosure of the agreement itself or the 
existence of the agreement. It appears, from both personal 
experience and industry gossip, that the Internal Revenue 
Service has, as a rule, sought to impose some form of 
disclosure on closing agreements relating to church 
organizations and not to impose a comparable requisite on non-
church organizations. Press releases were required of Jimmy 
Swaggart, Jerry Falwell, Church of Scientology, and several 
others entities and there seems to be no notice or demand that 
the Internal Revenue Service, in the implementation of a 
closing agreement process, expects publicity in other cases or 
circumstances. It is as if churches have been singled out by 
the Internal Revenue Service for additional repentence in the 
form of an acknowledgement of their alleged political activity 
or other untoward behavior.
    This forced disclosure problem is exacerbated by the fact 
that, based upon depositions taken in the Tax Analysts case,\6\ 
Internal Revenue Service is not certain where its closing 
agreements are filed, retains no generalized index, and its 
senior management is uncertain whether or not there is any 
consistency in the textual explications of closing agreements, 
other than the format provided by the revenue procedure. See 
Rev. Proc. 68-16, 1968-1 C.B. 770. The chaotic approach to 
closing agreement administration, evidenced by these 
depositions,\7\ indicates there is no ``master plan'' nor any 
guidelines that are easily accessible to IRS senior management 
in dealing with CEP cases, or just plain ``large'' cases, or 
sensitive cases, or cases in which a publicity demand is being 
pressed by IRS for reasons that it will never share with the 
affected entity or be known to the public.
---------------------------------------------------------------------------
    \6\ Tax Analysts v. Internal Revenue Service, 53 F. Supp. 2d 451 
(D.D.C. 1999).
    \7\ Depositions are available for disclosure to Joint Committee 
staff upon request.
---------------------------------------------------------------------------
    The notion that disclosure of the text of a closing 
agreement contents will impede their utility is nonsense. A 
closing agreement is often the first, best route to be taken by 
an exempt organization with compliance problems, because it 
immediately resolves the liability issue for prior years, it 
creates over the horizon boundaries which are readily 
referenced by the agreement, and is executed perhaps by the 
same persons who had complicity with the orginal dysfunction. 
Such agreements reduce the likelihood of a protracted and very 
expensive investigation, appeal and litigation; it allows a 
controversy to be resolved and not to stay within public 
earshot. Both parties can use the power and effect of time and 
distance brought by an agreement to their own advantage. While 
disclosure of an agreement may sometimes be irksome or even 
painful, the process has so many benefits weighed in its favor 
that its utility would almost never be undermined by its 
disclosure.
    Disclosure also means that the organization facing that 
prospect would have, it would appear, a strong bargaining tool 
to moderate inappropriate langugage which the government might 
seek to impose in the ordinary nondisclosure case. Disclosure 
of the closing agrteement also allows the organization to make 
a clearer choice on whether it wishes to directly confront the 
government's argument on noncompliance. Certainly if an issue 
addressed by Internal Revenue Service is not a continuing 
issue, and has little or no future significance, a closing 
agreement can be utilized to promptly dispose of the asserted 
liability and create a series of negotiated promises concerning 
future behavior. On the other hand, if there is a continuing 
issue with larger liability over the horizon, publicity of the 
closing agreement may be the one factor that causes the 
organization to face up to the desirability (apart from the 
cost) of confronting the Internal Revenue Service through a 
notice of deficiency or refund suit on the integrity of the IRS 
argument.

                 IV. Additional Disclosure Suggestions

    There are some matters which the staff did not deal with 
and the purpose of this part of the submission is to suggest 
that additional disclosure could prove useful.
    1. Disclosure of Certain Contributors. Under present law 
private foundations must list on Form 990PF the names of their 
grantees. This information seems to be useful in allowing 
commercial publishers and others to create reference books on 
the missions of various foundations. It is suggested that the 
names of private foundations which are donors to 501(c)(3) 
organizations, or others, be disclosed on Form 990. The 
information is already in the public domain and its disclosure 
on the return of the donee organization would facilitate public 
awareness of the types of support received by certain 
organizations.
    2. Disclosure of Corporate Contributors. There are 
expectations of privacy under many circumstances, especially 
where governmental units might use membership lists or donor 
lists as a way of harassing an organization. There is also some 
concern on the part of donors that if their names are 
disclosed, many potential donees will seek them out for 
contributions and create a form of friction between the 
charitable sector and donors which could possibly reduce 
contributions. However, with respect to contributions to non-
501(c)(3) organizations, these organizations should be required 
to disclose donors which are related, affiliated or controlled 
organizations (i.e., where the 501(c)(4) is a mere piggy back) 
or where they receive contributions from corporations so that 
the public becomes aware if the organization is carrying out a 
business purpose of the donor, rather than an exempt purpose of 
the donee. To the extent that a corporate donor could 
reasonably expect to claim a business expense deduction for its 
contribution to support a 501(c)(4), (c)(5), (c)(6) 
organization, it is not unreasonable to expect that disclosure 
of this information may assist in determining whether or not 
the organization is in compliance with the expectations of its 
exempt status. In other words, if an organization is seen as 
being a mere conduit for a group of business corporations which 
use the conduit as a way in which it can disguise corporate 
involvement in a particular program, project or cause, then it 
is in the public interest to know exactly why a particular 
social welfare organization or trade association is immediately 
involved and whether or not the integrity of the organization 
can be impugned because of the financial controls that may be 
exercised over the organization's policies through the medium 
of financial support.
    3. In the 1992 tax bill, Congress chose to alert charities 
of their financial stake in a charitable remainder trust. The 
need for this proposed legislation was indirectly grounded in a 
decision of the Wyoming Supreme Court which held that a charity 
could not rescind a sale of property from a charitable 
remainder trust that apparently was sold to a person related to 
a fiduciary at below its fair market value. Charities thereupon 
went to Congress and successfully argued that if a remainderman 
had early notification of its financial stake in a charitable 
remainder trust it could assume a role of oversight and 
accountability with respect to its financial interest, given 
the fact that there is almost no Internal Revenue Service 
oversight of charitable remainder trusts. The common law of 
charitable remainder trusts allows the charity oversight and 
accountability.\8\ To the extent that the charity learns of its 
interests immediately, it is able to be responsible so that its 
financial stake in the trust is protected from erosion, arising 
out of fiduciary nonfeasance or misfeasance. Given the slovenly 
way in which IRS approaches charitable remainder trusts,\9\ it 
is strongly recommended that the committee enact the proposal 
that was provided for in 1992 as a way of sending additional 
signals\10\ to the ``planning'' community that the 
opportunities for manipulation and mal-administration will no 
longer be tolerated.
---------------------------------------------------------------------------
    \8\ Shriners Hospital for Children v. Smith, 385 S.E.2d 617 (Va. 
1989).
    \9\ IRS has no notion of how much is in the corpus of charitable 
remainder trusts; IRS has never sought to impose any kind of a civil 
penalty for failure to file a timely or complete return; and IRS has an 
indifferent attitude with respect to the examination of these trusts as 
part of its responsibility of assuring the integrity of the exemption 
and deduction provisions which create the incentives for establishing 
such trusts.
    \10\ Recent regulation amendments make it clear regulations are 
addressing abuse issues.
---------------------------------------------------------------------------
    4. Part of better accountability can be achieved for 
charitable remainder trust by Congress overturning Reg. Section 
1.170A-13(c)(7)(v)(B) and (C) and Reg. Section 1.170A-
13(f)(13). These two regulations allow the trustee of a 
charitable remainder trust to substantiate the contribution of 
a donor to the trust, rather than having the charity, as called 
for by law, do the substantiation. It seems that if the charity 
itself is the enterprise which is required to substantiate the 
contribution made by a donor by knowing what property was 
gifted and the terms in the text of the trust, it would be able 
to provide a mechanism to assure that the substantiation rules 
operate as effectively as Congress first designed them to do, 
especially in light of the fact that many charitable remainder 
trustees are the donors themselves, as well as the income 
beneficiaries. When a donor is both an income beneficiary and a 
trustee of a charitable remainder trust, there is great 
temptation to utilize the trust to exploit the trust to points 
not contemplated by the statute or the regulations because of 
the significant tax advantages that can accrue to a manipulated 
trust when trusteed by the person who gains the initial stake 
in the trust. Altering these two regulations by statute would 
be an abrupt notice to these donors and fiduciaries that they 
must turn square corners with respect their philanthropic 
intentions.
      

                                


        National Association of State Charity Officials    
                                             Harrisburg, PA
                                                     March 14, 2000

A. L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D. C. 20515

    Dear Mr. Singleton:

    The National Association of State Charity Officials (NASCO) is the 
national organization of the various state officials responsible for 
administering and enforcing over three dozen state charitable 
solicitation statutes. On behalf of the NASCO board, I submit the 
following comments concerning the Joint Committee on Taxation staff 
report dated January 28, 2000.
    The NASCO board commends the Joint Committee staff's thorough 
research and well-documented report. We strongly support, with one 
exception, the Joint Committee staff's recommendations because they 
will significantly enhance the ability of NASCO members to fulfill our 
statutory mandates to protect the public from charitable solicitation 
fraud and improve both the quantity and quality of the information 
available to the public concerning tax-exempt organizations.
    The Joint Committee staff's most important recommendation is the 
one recommending that the IRS be permitted to disclose to State 
Attorneys General and other nontax state authorities audit and 
examination information from both completed and ongoing IRS audits and 
investigations of tax-exempt organizations.
    In at least 38 states, NASCO members, like the IRS, are charged 
with overseeing the activities of tax-exempt organizations. 
Notwithstanding this fact, the IRS has not been permitted to share 
information with state authorities who, in many cases, were conducting 
simultaneous investigations or audits of the same tax-exempt 
organizations the IRS was investigating or auditing.
    This current prohibition on the IRS sharing information with state 
authorities having similar oversight responsibilities is especially 
frustrating in those cases where state authorities have specifically 
referred a matter to the IRS and the IRS is prohibited from even 
confirming that it is conducting, or will conduct, an investigation or 
audit.
    For these reasons and others, implementation of this recommendation 
alone would significantly improve the ability of NASCO members to 
perform our oversight responsibilities more effectively. If 
implemented, unnecessary duplication of effort would be eliminated, 
unscrupulous organizations would be prosecuted more expeditiously by 
both the IRS and state authorities, and the public would be protected 
more effectively and efficiently.
    The NASCO board's only concern about this particular recommendation 
is that it appears to limit the IRS's ability to share information 
concerning its audits and investigations to those states which have 
made specific referrals to the IRS or have a history of making such 
referrals. We believe the IRS should be permitted to share information 
concerning tax-exempt organizations even with states which have not 
made specific referrals or have a history of making such referrals. In 
other words, if the IRS completes a major audit or investigation of a 
tax-exempt organization located in Pennsylvania, it should be required 
to notify the appropriate Pennsylvania authorities even if they did not 
make a specific referral to the IRS concerning the organization in 
question and have never made any referrals to the IRS. Otherwise, the 
Pennsylvania authorities' ability to protect their residents will be 
significantly diminished.
    The NASCO board is also strongly in favor of the Joint Committee 
staff's recommendation to increase the penalties imposed upon tax 
return preparers who knowingly or recklessly make material 
misrepresentations, falsifications, or omissions on 990s.
    Given the significant number of material falsifications and 
omissions several states have documented on 990s, it is imperative that 
tax return preparers who knowingly or recklessly prepare and submit 
false or misleading 990s be appropriately disciplined and/or 
prosecuted.
    The 990 is the primary public document the IRS and state 
authorities have used, and will continue to use, to conduct our 
oversight responsibilities. It is also the primary document the general 
public relies upon to help them make better, more informed charitable 
giving decisions. As a result, it needs to be accurate, complete, and 
free from material misrepresentations, falsifications, and omissions.
    This is especially true now that thousands of 990s are widely 
available on the Internet through the Guidestar web site. This recent 
technological innovation has the potential to revolutionize 
accountability in the tax-exempt community. However, if many of the 
990s submitted by organizations contain material misrepresentations and 
falsifications, the value of having them widely available on the 
Internet will be significantly diminished. Those responsible for 
preparing these important tax documents must be held accountable for 
any knowing or reckless falsifications or misrepresentations.
    The NASCO board is also very much in favor of the Joint Committee 
staff's recommendation to have the IRS accept electronic filings of 
990s after 2002.
    The only Joint Committee staff recommendation the NASCO board does 
not agree with is the one to no longer make the taxpayer identification 
numbers of tax-exempt organizations disclosable. The reasons for our 
disagreement with this recommendation are several. First, many state 
authorities routinely use this information for tracking, retrieval, and 
investigative purposes. Second, it would be cumbersome and costly to 
have this currently public information deleted from 990s before they 
are posted to the new Guidestar web site or routinely disseminated by 
state authorities to the general public. Third, we are not aware of any 
instances where this number which has been available to the public for 
years has been used by third parties to the detriment of any tax-exempt 
organization. Indeed, the Joint Committee staff report did not cite any 
specific instances of actual misuse. It simply stated that the staff 
believed ``the potential for misuse may be increased.'' And, lastly, to 
now make organizations' taxpayer identification numbers nondisclosable 
would only benefit new organizations since the taxpayer identification 
numbers of thousands of existing tax-exempt organizations have been 
routinely disclosed and available to those who could potentially misuse 
them for years.
    In closing, the NASCO board appreciates the opportunity to submit 
these written comments to your Committee and again commends the Joint 
Committee on Taxation staff for its exemplary work on this important 
topic. Do not hesitate to contact me if you have any questions 
concerning our comments.

            Sincerely,
                                            Karl E. Emerson
                                                          President
      

                                


Statement of National Club Association (NCA)

    The following comments are submitted for the record by the 
National Club Association (NCA).

                              Introduction

    NCA is the trade association representing the legal, 
legislative and business interests of private social, 
recreational and athletic clubs. Member organizations include 
country, golf, city, yacht, tennis, and athletic clubs. The 
scope of these clubs ranges from small clubs with limited 
membership and facilities to larger, full-scale operations with 
dining and extensive recreational facilities. Some clubs 
operate on a seasonal basis while many are open year-round.
    The majority of the clubs NCA represents are tax exempt 
under section 501(c)(7). These clubs are organized for social 
activities, recreation and other nonprofit purposes. This 
exemption reflects the recognition by the government that these 
clubs are not-for-profit mutual endeavors by their members.
    These comments are submitted in response to a study 
released by the Joint Committee on Taxation on January 28, 
2000, entitled a Study of Present Law Taxpayer Confidentiality 
and Disclosure Provisions as Required by Section 3802 of the 
Internal Revenue Service Restructuring and Reform Act of 1998. 
We are specifically responding to the recommendations made in 
Volume II relating to disclosure provisions for tax-exempt 
organizations.

                          Overview of Comments

    NCA has been interested in the issue of the public 
disclosure of Form 990 and related documents by tax-exempt 
groups as well as what we consider to be redundant and often 
unnecessary requirements for information on the Form 990. As a 
result, we are concerned with many of the sweeping and far-
reaching recommendations for changes to existing public 
disclosure requirements for tax-exempt organizations as 
contained in the Joint Committee's January 28 report.
    We agree with the Joint Committee that the issue of public 
disclosures requires a balancing of an organization's right to 
privacy and concerns about misuses of information and the 
legitimate public interest in information regarding charitable 
organizations. However, we believe the Joint Committee's 
recommendations will cause the pendulum to swing too far in one 
direction, thereby upsetting this delicate balance.
    Many of the recommendations are overreaching and 
unprecedented in that they would apply to no other tax 
reporting groups. We believe that other recommendations, such 
as disclosing an application of an entity that has been denied 
tax-exempt status, fail to have any relevance to the goal of 
proper public disclosure. Finally, we believe that the 
recommendation to disclose unredacted tax audits and closing 
agreements would have, in some instances, a chilling effect on 
voluntary taxpayer compliance. NCA's specific comments on these 
points are outlined below:

Recommendations are Overreaching

    The JCT study recommendations for further public disclosure 
of tax-exempt organizations across the board are a substantial 
overreaction to public concerns regarding charitable 
organizations.
    These recommendations are not warranted when applied to 
certain types of tax-exempt organizations, particularly those 
that are not classified as 501(c)(3) charitable organizations. 
The public interest concerning 501(c)(3) organizations is far 
different that than for 501(c)(7) social clubs or for trade 
associations organized under 501(c)(6). As a result, in many 
instances disclosure by tax-exempt groups other than 501(c)(3) 
organizations would promote more of a voyeur interest rather 
than the protection of the public.
    For example, we fail to see what public purpose is served 
by disclosing the application of an entity that is denied tax-
exempt status. Furthermore, procedural or administrative 
hurdles (that may be overcome later by an applicant) may have 
prompted the denial. The disclosure of an application that is 
denied by the IRS could be misconstrued by the public and put 
the entity in an unfair or prejudicial position when applying 
for exempt status at a later date.

Written Determinations and Background Documents

    The JCT study recommends that all written determinations 
and background file documents involving tax-exempt groups be 
disclosed. We believe this recommendation has serious 
implications and could create a chilling effect for groups 
seeking private letter rulings (PLRs) from the IRS to clarify 
certain issues.
    The publication of unredacted PLRs would discourage 
organizations from seeking advice before proceeding with 
certain actions. PLRs, although only applicable to the entity 
seeking the advice, have served as a key compliance tool for 
the tax-exempt community concerning the IRS's position on 
certain issues. Public disclosure of the name of an 
organization that is merely seeking advice on a proposed action 
would not serve the public good and might impede it.

Privacy Concerns Regarding Salary Disclosures

    The JCT study recommends that exceptions to any public 
disclosure requirements be made on a case-by-case basis. This 
would be both time-consuming and expensive and places an unfair 
burden on the tax-exempt organization. NCA believes that 
further consideration should be given to a broader basis for 
limiting disclosures on certain issues.
    For example, NCA believes that the public airing of 
salaries and benefits of certain key personnel on the Form 990 
serves no vital public interest with respect to 501(c)(7) 
social clubs. Such disclosures raise a number of issues 
relative to the privacy concerns of individual citizens 
(serving in a nonpublic capacity). In communities where several 
tax-exempt social clubs exist, the disclosure of salaries 
serves little purpose other than to raise awareness of a purely 
confidential personnel matter. In addition, it may also serve 
to drive up wage costs for those clubs that may not be 
competitive. NCA recommends that such disclosures only be 
required for excessive salaries that far exceed the industry 
norm.

Disclosure of Audits and Closing Agreements

    The recommendation that audits and closing agreements be 
disclosed unredacted is particularly troublesome and could have 
a negative effect on various components of the audit process.
    Closing agreements, for example, are confidential documents 
and represent, in effect, a negotiated agreement between the 
taxpayer and the IRS on issues raised in the audit. The ability 
to negotiate and settle tax issues that are in dispute could be 
impeded and ultimately affect the negotiating process if public 
disclosures are to be made. As a result, a greater number of 
cases may end up in the court system, thereby adding time and 
cost burdens for both the taxpayer and the government.
    Tax audits usually involve extensive supporting documents, 
questionnaires and often Field Service Advice (FSA) inquiries 
made by IRS agents requesting IRS clarification on key issues. 
The public disclosure of these documents, especially unredacted 
FSA inquiries, may work at cross purposes and chill voluntary 
disclosure and early resolution of outstanding tax issues. 
Furthermore, during an audit many inquiries and the 
accompanying answers or explanations provided by the taxpayer 
are oral, leaving the written record incomplete and potentially 
creating confusion for the general public.
    Furthermore, tax issues for tax-exempt groups are unique 
and complex, and often have legislative histories that may be 
unknown to the general public. As a result, the public 
disclosure of such tax documents could be misconstrued and used 
for the wrong purposes.

Disclosure of Form 990-T

    The JCT study recommends that in addition to Form 990, tax-
exempt groups should also publicly disclose their Form 990-T, 
which is essentially a corporate income tax return. We believe 
that such a disclosure is another onerous regulatory burden. 
Such a requirement is unprecedented and it is unfair to require 
it of tax-exempt groups and not others which pay corporate 
income taxes.
      

                                


              New York State Office of the Attorney General
                                                     March 14, 2000

Mr. A.L. Singleton
Chief of Staff
Committee on Ways and Means
House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515-6345

RE: Study of Disclosure Provisions as Required by Section 3802 of the 
        Internal Revenue Restructuring and Reform Act of 1999

    Dear Mr. Singleton:

    We are writing to comment on the January 28, 2000 report of the 
Joint Committee on Taxation, Study of Present Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by Section 3802 
of the Internal Revenue Restructuring and Reform Act of 1999 (``The 
Report'').

                            I. Introduction

    We strongly support the Report's recommendation of 
increased disclosure to state charity regulators, including 
Attorneys General, of information relating to tax-exempt 
organizations gathered under the Internal Revenue Code. The 
Joint Committee's goal to enhance efforts to protect the public 
by promoting the flow of information between the IRS and the 
states will improve the ability of the states to enforce state 
laws and will facilitate the cooperation of the states and the 
Internal Revenue Service in cases involving breaches of 
fiduciary duties by charitable organizations and their managers 
and disqualified persons.
    The Charities Bureau of the New York State Department of 
Law is charged with the responsibility to oversee charitable 
entities that conduct activities in New York and/or solicit 
contributions from New York State residents. We audit and 
investigate such entities. When we discover violations of the 
Internal Revenue Code, we forward information to the Internal 
Revenue Service for its action.
    As the Report points out, state charity regulators 
currently are not advised as to whether the IRS has taken 
action based on our referrals. This is extremely frustrating 
and can result in duplications of effort or no effort on our 
part where the issues are multi-state or primarily federal. As 
with the IRS, our resources are limited (nineteen lawyers and 
seven accountants), and we have to prioritize. Nevertheless, we 
believe our law enforcement efforts are significant and enclose 
a draft of our 1999 annual report to indicate the scope and 
results of our efforts.
    In an effort to remedy this situation, we met in Washington 
with the new exempt organization leadership of the IRS last 
Spring. We have referred to them issues of exclusive or primary 
concern to the IRS and some that we believe warrant joint 
efforts. We have been unable to obtain a meaningful response 
from the IRS.
    We do not think the legal restrictions on disclosure are 
the only obstacle. If we have one general criticism of the 
Report, it is that it appears to assume that greater states/IRS 
cooperation will follow from increased disclosure. This may be 
true, but in our experience the mindset of the IRS is 
antithetical to cooperation. This we know has also been the 
experience of some United States Attorneys offices. If their 
and our experience is typical, the IRS's mindset, particularly 
at the national level, also has to be changed, dramatically and 
decisively.
    In at least one recent case, we have been able, at the 
district level, to cooperate with the IRS to a point that we 
feel we are on the brink of achieving a significant result in 
the case of a foundation whose actions implicate violations of 
both state and federal law. A for-profit disqualified person 
bought shares of its stock held by the Foundation. The 
Foundation needed to sell such shares to avoid the assessment 
by the IRS of substantial excise taxes for excess business 
holdings. The IRS seemingly had ignored the self-dealing 
issues.
    The Charities Bureau became aware that the Foundation had 
received offers from parties other than the company to purchase 
the Foundation's company stock for significantly more than what 
was paid by the company. The Bureau is working with the IRS to 
assess penalties on the Foundation managers and the company for 
self-dealing rather than to impose an excess business holdings 
excise tax on the Foundation itself. Under state law, Bureau is 
seeking restitution from the company to the charity.
    If this experience could be replicated nationwide, we 
believe both the states and the United States will have taken a 
significant law enforcement step forward.

                      II. Specific Recommendations

    The Report recommends that the IRS be authorized to provide state 
regulators with information concerning its actions with regard to 
referrals. To be effective, such disclosure must be prompt. Otherwise 
the states will not know how to proceed and may encounter state statute 
of limitations issues.
    The language of the Report (page 104) should be strengthened. The 
IRS should not be ``permitted'' to disclose, but should be authorized 
and directed to disclose. Nor should the IRS have the exclusive power 
to determine whether or not ``disclosure may facilitate resolution of 
cases.'' If this escape clause is retained, experience tells us that 
disclosure by the IRS to the states will be rare.
    Disclosure by the IRS to the states of documents relating to the 
imposition of intermediate sanctions, private foundation excise taxes, 
revocation of exempt status and other proceedings would assist greatly 
in enforcement of state laws that regulate the disposition of 
charitable assets and solicitation of contributions from the public. 
Although, from time to time, we receive notification of the revocation 
of exempt status, there does not appear to be any systematic procedure 
by which we are advised of such determinations even though such 
disclosure is now required by Section 6104(c) of the Code. As we 
observed in our letter of September 30, 1999, printed at pp 296-297 of 
volume III of the Report, the now permitted IRS disclosure to state 
officials discussed at pages 36-37 of the Report should be required to 
be prompt and consistent.
    Information concerning the failure to grant or the denial of exempt 
status is very helpful to the states. For example, entities may, in the 
course of soliciting charitable contributions from New Yorkers, claim 
that they are tax exempt when they have not been granted tax-exempt 
status or such status has been revoked.
    Likewise, information concerning pending IRS proceedings to impose 
taxes and/or penalties on charitable entities might be relevant to our 
oversight of trustees' management of charitable assets. Early 
intervention on state law issues might prevent future misuse of 
charitable funds.
    In this connection, we wish to make two points of substance. Both 
the intermediate sanctions and private foundation excise tax Code 
provisions generally provide for taxation of both the exempt 
organization and its managers. From the point of state regulators 
anxious to maximize charitable assets and mindful of the fact the 
exempt organizations act by their managers, the federal taxation of the 
exempt organizations is not consistent with state policy. The excise 
tax burden should generally fall on the managers, not on the charity. 
Correction is triggered in either case.
    Particularly counterproductive are the provisions of the 
regulations that provide a blanket exception to self-dealing for 
indemnification of foundation managers for excise taxes paid under 
chapter 42. This makes no public policy sense whatsoever. It violates 
Congress's intent to make foundation managers financially responsible. 
In the situations where an excise tax is also imposed on the charity, 
the indemnification exemption could lead to the absurd result of the 
charity paying twice and its managers not at all.
    The Report recommends that charitable entities be required to 
disclose forms 1120 and 990T which report their for-profit income. More 
and more tax-exempt entities are developing relationships with for-
profit entities, including the establishment of for-profit 
subsidiaries. Some tax-exempt organizations try to conceal some of 
their activity behind for-profit companies. In order to have a full 
understanding of the financial activities of tax-exempt organizations, 
knowledge of related for-profit activities is essential. We support the 
proposal to make such information available to the public.
    Currently, charitable organizations that do not normally have 
income of less than $25,000 are exempt from filing any report with the 
IRS and most states. The Report recommends that such organizations be 
required to file with the IRS an annual notification of their status. 
In New York, we find that small organizations that were, at one time, 
exempt from filing often fail to file when their income rises above 
$25,000. Other organizations that were exempt from filing cease 
activity but, since no annual filing was required, fail to notify us of 
that fact. Requiring an annual notification of status would go a long 
way to solving these problems if such notice will also promptly shared 
with the states by the IRS.
    This Bureau receives numerous 990's of all types that contain 
material omissions, errors in preparation and misrepresentations. We 
support the Report's proposal to increase penalties imposed on 
preparers. We anticipate that increased penalties will reduce the 
number of incomplete and incorrect filings and, consequently improve 
accountability and decrease the amount of time state offices spend in 
seeking amended reports.
    More important, exempt organization reports and returns that are 
materially incomplete should be rejected by the IRS, and penalties 
against foundation managers for late filing should be levied unless the 
exempt organization promptly refiles. The states should get notice of 
such rejections.
    The Report's support of electronic filing is welcomed. We are 
trying to develop our technology to implement electronic filing. We are 
pleased that the report encourages making technology issues a high 
priority for the IRS.
    We do not support the Report's recommendation to exempt the 
taxpayer identification number from disclosure to the states. That 
number is used by many of the states to identify their registrants and 
to cross-reference numerous other databases maintained throughout the 
country. We are not aware of any instances in which the taxpayer 
identification number has been misused by the states, and the Report 
does not give any reason why the TIN should not be disclosed. We are 
certain that its exemption from disclosure to the states will deprive 
the states of a valuable tool.
    Nor is it clear to us why the Report recommends limiting disclosure 
of the TIN at all. Most state and private databases use the TIN as the 
identification/registration number of tax-exempt organizations and the 
TIN is routinely disclosed to the public. Many databases of information 
concerning tax-exempt organizations are available on the Internet. We 
are unaware of any instances of abuse resulting from disclosure. 
Exempting the TIN from disclosure would deprive the states and the 
public of an important method of following the activities of tax-exempt 
organizations.
    The Report recommends permitting disclosure to a state by the IRS 
when there has been a specific referral by the state and/or the state 
regulator regularly makes referrals to the IRS. While a relaxation of 
the restrictions on disclosure will likely encourage the states to 
refer matters to the IRS, making such disclosure a quid pro quo may 
result in inefficient use of resources when the states and the IRS 
separately investigate and litigate the same or similar issues and may 
result in lost opportunities to conduct cooperative enforcement 
efforts. Therefore, we recommend that the IRS be also directed to refer 
to the states matters that raise primarily state law issues and/or 
affect a state's charitable assets.
    Foreign exempt organizations that apply for federal income tax 
exemption under the Code probably do not qualify to do business or 
register in states where they should. The Report does not appear to us 
to address the issue of how a foreign exempt organization should notify 
the IRS, when it applies for exemption, what state or states should be 
notified of its application. This may not be a significant issue for 
many states, but it is for New York and presumably also for California 
and Florida.
    There is a similar issue, also apparently not addressed in the 
Report, with respect to domestic exempt organizations engaging in 
activities in states other than the state of incorporation or situs 
that under applicable state law should require them to qualify to do 
business or register in states other than the state of incorporation or 
situs. The 1023s and 990s should require such organizations to indicate 
the other states in which they have activities, and the IRS should 
notify all such states, not just the state of incorporation or situs.
    Nondisclosure of information that might harm the national defense 
is discussed briefly at pp 35-36 of the Report but otherwise apparently 
not considered. We are aware of at least one situation that might 
involve such disclosure where nevertheless we believe it could be to 
the advantage of the IRS to be cooperating with New York and another 
state. The tax committees should consider arrangements, similar to the 
cross-swearing arrangements frequently made between United States and 
state prosecutors, under which carefully screened state charity 
officials could be security cleared to participate in these matters.
    New York strongly favors disclosure of all of the items mentioned 
on pages 64-65 of the Report, especially fund raising practices and how 
much of the donation will be used to support charitable purposes and 
how much will be retained by professional fund raisers. This Bureau 
regularly publishes ``Pennies for Charity, Where the Money Goes.'' A 
copy of the December 1999 issue is enclosed. It shows that on the 
average only 29 percent of money raised by telemarketers goes to the 
charity, which, of course, will in turn spend some of that amount on 
its own administrative expenses.
    New York strongly favors IRS disclosure of audit results and 
closing agreements to the concerned states. Report, pages 84-86.
    We also favor specific IRS disclosure of enforcement actions to the 
concerned states, but this is not specifically mentioned in the Report.
    The Report apparently does not discuss vested charitable remainder 
trusts. They normally do not apply for exemption or register with the 
states until the noncharitable beneficiaries' interest has terminated. 
In our experience, the charitable remainder has too often been 
dissipated by then, even though the settlor took a charitable deduction 
on the creation of the trust. To alert state charity enforcement 
officials to the existence of vested charitable remainder trusts, the 
IRS should notify them of form 1023 or 5527 or of final forms 1041 or 
1041A that reflect no charitable disposition. Forms 1023 or 5527, 1041 
and 1041A should require the trusts to disclose the states where they 
have activities.
    If we can provide any further information or be of any further 
assistance in the implementation of the Report and on further 
recommendations, please contact us.

            Sincerely,
                                          William Josephson
                               Assistant Attorney General-in-Charge
                                                   Charities Bureau
                                           Karin K. Goldman
                                         Assistant Attorney General
                                         Registration Section Chief
                                                   Charities Bureau

Encl.

CC: The Honorable Eliot Spitzer, Attorney General of the State of New 
York
Michele Hirshman, First Deputy Attorney General
Dietrich Snell, Deputy Attorney General


    [An attachment is being retained in the Committee files.]
      

                                

        Northwest Federation of Community Organizations    
                                          Seattle, WA 98144
                                                     March 15, 2000

A.L Singleton
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth
Washington D.C. 20515

    The Northwest Federation of Community Organizations (NWFCO) 
respectfully submits the enclosed comments in opposition to the recent 
proposals related to ``Lobbying Expenditures'' contained in the Study 
of Disclosure Provisions Relating to Tax-Exempt Organizations prepared 
by the staff of the Joint Committee on Taxation.
    The Northwest Federation of Community Organizations was founded in 
1993 to facilitate the needs of grassroots organizations and their 
community leaders across Montana, Idaho, Washington, and Oregon. 
Together the five organizations that are affiliated with NWFCO--Idaho 
Community Action Network; Montana People's Action; Washington Citizen 
Action; Oregon Action; and the Coalition of Montanans Concerned with 
Disabilities--represent approximately 100,000 members. These members 
include retirees, farmers, farm workers, professionals, blue-collar 
workers, and welfare recipients. They are African-Americans, Native 
Americans, Latinos, and whites.
    The Northwest Federation of Community Organizations and our 
affiliates share a commitment to advocacy by nonprofits. We appreciate 
the Joint Committee staff's effort in exploring the many issues related 
to disclosure and formulating recommendations regarding lobbying and 
other areas. Although our organization supports various other 
recommendations in the staff's report, the three lobbying proposals 
seem to us to be an overly broad solution to a problem that does not 
exist.
    We oppose the lobbying proposals because we believe they would:
     chill the vital contribution that nonprofits make to the 
public policyprocess;
     impose unnecessary bureaucratic reporting obligations on 
nonprofits,reducing the resources available to address core charitable 
needs; and
     provide little information not already publicly available 
that would beuseful to charitable regulators or the public.
    The attached comments are excerpted from comments prepared by 
Independent Sector addressing the complete list of proposals contained 
in the staff's report. The Northwest Federation of Community 
Organizations has focused on the advocacy-related proposals in these 
comments because they directly implicate our mission. These more 
focused comments demonstrate the consensus of the nonprofit sector in 
opposition to these proposals in particular.
    The Northwest Federation of Community Organizations stands ready to 
assist the Committee in any way we can as you consider these flawed 
proposals. If the Committee decides to proceed with legislation 
implementing these proposals, we request that hearings be held to allow 
the nonprofit sector and the public we serve to respond to the 
legislation. In the meantime, we would be delighted to provide you with 
further information regarding our concerns and, in particular, the 
impact these proposals would have on our organizations.

            Sincerely,
                                                LeeAnn Hall
                                                 Executive Director
      

                                


    The nonprofit sector has an essential role to play in the 
policy process. By their very nature, charities have direct 
experience in meeting society's needs and proven knowledge of 
effective ways to meet those needs. In addition to this unique 
expertise, nonprofits also have the credibility that is 
inherent in their independent status to encourage responsible 
civic engagement and advance the causes of the disadvantaged 
and under-represented members of our society.
    Although the value of nonprofits' participation in the 
policy process is clear, the threat that these proposals seek 
to address is not. There is no evidence of systemic problems 
with current disclosure practices or malicious failure to 
comply with lobby laws. Nonetheless, the Joint Committee staff 
has made proposals that would consume charitable resources that 
could otherwise be used to serve the public. These proposals 
are a burdensome solution in search of a problem.
    We urge the Committee in the strongest possible terms to 
reject the staff's recommendations. All three of these 
proposals would chill the valuable participation of nonprofits 
in the policy process because the increased scrutiny would 
suggest Congressional skepticism about the value of that 
participation. All three of these proposals would drastically 
increase the burdens on nonprofits that engage in these 
educational and advocacy activities, consuming resources for 
needless bureaucracy when might be better spent in meeting the 
needs these charitable organizations werecreated to address. 
There is no compelling need for these new requirements that 
justifies the negative impact on core, first amendment speech.
    Furthermore, each of the individual proposals has 
additional flaws. The proposal to require 501(c)(3)s that make 
the 501(h) election to provide a detailed description of its 
legislative concerns and activities provides little additional 
information beyond what is already publicly available in state 
and federal lobbying disclosure statements. The proposal to 
require reporting of self-defense lobbying challenges the right 
of 501(c)(3)s to respond to legislative threats to their rights 
or existence. The proposal to require reporting of certain 
nonpartisan studies, analyses, and research would regulate 
speech that improves, rather than taints, the quality of policy 
deliberations.
      

                                


                         Oklahoma Family Policy Council    
                                     Bethany, OK 73008-3458
                                                     March 10, 2000

Mr. A.L. Singleton
Chief-of-Staff
Joint Committee on Ways and Means
U.S. House of Representatives
1102 Longworth HOB
Washington, DC 20515

    Dear Mr. Singleton:

    As volunteer board members and officers of a charitable 
organization, we are writing to vigorously register our strong 
disapproval of certain concepts presently contained in Volume II of the 
Committee's report entitled ``Study of Present-Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by Section 3802 
of the Internal Revenue Service Restructuring and Reform Act of 1998.''
    From our reading of your report, we understand the Joint Committee 
to be recommending substantive and material changes in the ways in 
which the Internal Revenue Service would relate with--and provide 
oversight of--exempt organizations under the Internal Revenue Code of 
the United States.
    Specifically, it is our understanding that the Committee is 
considering the following:
    1) a material change to Schedule A to IRS Form 990 to require 
``both electing and non-electing (under Code Sec. 501(h)) public 
charities to provide a detailed description of the legislation 
addressed in their lobbying efforts and the manner in which 
organizations engaged in lobbying activities.''
    2) a modification of Schedule A to IRS Form 990 to require 
disclosure of amounts attributable to direct lobbying by an 
organization concerning an issue affecting the organization's existence 
or powers; and to also require disclosure of amounts spent on 
membership communications that encourage members to engage in direct 
lobbying that would meet the definition of self-defense lobbying if 
conducted by the organization.
    3) a change to Schedule A to IRS Form 990 to require disclosure of 
non-partisan study, analysis and research that contains ``a limited 
call to action.'' By the term ``limited call to action,'' Committee 
staff is referring to the actions listed in Regulation Sec. 56.4911-
2(b)(2)(iii)(D). Essentially, this staff recommendation would require 
disclosure of all non-partisan study that identifies ``one or more 
legislators who will vote on the legislation as ``opposing the 
communication's view ...; being undecided ...; being the recipient's 
representative in the legislature; or being a member of the legislative 
committee or subcommittee that will consider the legislation.'' Id. The 
quoted material is the so-called ``limited call to action.'' Under the 
Regulations, such non-partisan study with a limited call to action does 
not constitute grass roots lobbying.
    Mr. Singleton, if our understanding of what the Committee is 
proposing is correct, then we must register our strongest disapproval 
for the following reasons:
    1. The proposals implicitly change the definition of lobbying, 
something that is not really needed since very detailed regulations 
already define grass roots and direct lobbying in U.S. law and 
reasonably require amounts spent on such lobbying to be reported.
    2. The recommendations needlessly increase complexity of already 
intricate regulations. Lobbying regulations are already cumbersome and 
difficult to understand. The Staff proposal would create yet another 
division within the maze of regulations--lobbying that is not 
reportable lobbying, but still must be disclosed on the organization's 
Form 990. Does this make sense? We think not.
    3. The recommendations will add burdensome new record keeping 
requirements and substantially increase expenses to exempt 
organizations. As you know, exempt organizations do not now need to 
keep track of self-defense and non-partisan analysis activities. If the 
recommendations are adopted, then organizations such as the Oklahoma 
Family Policy Council will need to track these activities in sufficient 
detail to comply with whatever reporting requirements may be imposed, 
incurring significant financial hardship. As volunteer board members, 
who have each given sacrificially to fund important work such as that 
conducted by an exempt organization such as ours, we really must object 
to new onerous and unnecessarily burdensome regulations coming at us 
from our own government.
    4. The recommendations are contrary to the clear direction of the 
Congress, to move the IRS and the Code toward tax simplification. We 
well remember the televised hearings into IRS abuses, and questioning 
by our own Sen. Don Nickles, the assistant majority leader. The Senator 
favors IRS simplification, as does the Committee's chair, Mr. Roth. 
These proposed recommendations will add many new reports and expense 
whereas the Senate Finance Committee has championed the reduction of 
reports and the simplification of record keeping for the American 
people.
    5. The recommendations risk misleading the public about the 
lobbying activities of exempt organizations. This is a very serious 
infringement on our First Amendment rights, and the First Amendment 
rights of all charitable organizations. By requiring disclosure and 
reporting of activities that are expressly not lobbying, as defined and 
interpreted by the IRS and the courts, the proposed recommendations may 
grievously mislead the public by portraying lobbying activities in too 
large a scale. The recommendations are apt to confuse more than inform, 
which would be shameful. If the general public--as a result of this 
proposal--comes to wrongly see nonprofit organizations as simply 
lobbying organizations, and withdraws support, than much good 
charitable and educational work will no longer be accomplished.
    6. Regulations imposed on non-profits are already too complex and 
the recommendations just add to the complexity and burden of operating 
a nonprofit. Changes to existing regulations should not be considered 
unless they simplify and decrease burden and expense.
    7. The recommendations will further chill the voice of non-profits 
in the public square, and our society will be much worse for it. As you 
know from the hearings that have previously been held, the Internal 
Revenue Code, Treasury Regulations and IRS activity in the area of 
lobbying and political activity already have an ``in terrorem'' effect 
that causes non-profits to withhold communicating their views for fear 
that the IRS will impose sanctions. Increasing the burden and threats 
to non-profits who legally express their views on legislation is only 
enhancing the existing problem.
    Too often in these days in which we live, government--our U.S. 
government--comes at the people, rather than springing forth from them. 
This appears to be the situation here. There has been no public 
groundswell to further complicate our tax laws. Rather the opposite is 
true, as you well know.
    Absent any real need to impose additional burdensome regulations on 
public charities, which are operating legally under U.S. laws, we beg 
you to choose another path.
    The Joint Committee staff, for whatever reason, appears to have 
``run amuck'' in their thinking related to the concepts and 
recommendations contained in Volume II of the study. Possibly it is 
because they do not have to live under the rules they propose to the 
Committee members. We do. As volunteer board members and officers, who 
often struggle mightily to pursue this work, we know that the proposal, 
herein described, will have serious negative consequences for the 
nonprofit sector. Therefore, the proposed recommendations should be 
rejected as a policy option for the Joint Committee at the earliest 
opportunity.
    Thank you for considering what we hope are thoughtful, worthy, and 
helpful comments to you, the Joint Committee staff, and the full 
membership of the Committee on Ways and Means.

            Sincerely,
                                   Lloyd G. McAlister
                                           Chairman
                                   Alan Mauldin
                                           Treasurer
                                   Michael L. Jestes
                                           Executive Director
                                   William Donovan
                                           Board Member
                                   David C. Dunn
                                           Research and Project 
                                               Director
                                   Stephen Prentice
                                           Board Member
                                   Jeanne R. Young, CPA
                                           K.E.E.P. Program 
                                               Administrator
                                   Velonia Jestes
                                           OFPC Receptionist
      

                                


                           Philanthropic Research, Inc.    
                                     Williamsburg, VA 23185
                                                     March 14, 2000

The Honorable Bill Archer, Chairman
Joint Committee on Taxation
1015 Longworth House Office Building
Washington, DC 20515-6675

    Dear Chairman Archer:

    Philanthropic Research, Inc. (PRI) is a 501(c)(3) public charity 
whose mission is to promote philanthropy by helping donors, 
institutional funders, and charities become more informed, effective, 
and efficient. PRI publishes the GuideStar Web site (``http:/
/www.guidestar.org), which includes the most comprehensive database of 
charity information available to the general public.
    In addition to our Internet presence, we work closely with the 
National Center for Charitable Statistics at Urban Institute (NCCS), 
the National Association of State Charities Officials, and the IRS to 
improve the quality of Form 990 reporting. We are currently undertaking 
a sector-wide project to explore ways to improve the Form 990. An 
outline of this program is attached.

            Comments on the Joint Committees Recommendations

Non-disclosure of Taxpayer Identification Number

    PRI generally supports the recommendations made by the 
Joint Committee regarding disclosure by tax-exempt 
organizations. However, we believe that the Joint Committee's 
recommendation regarding non-disclosure of taxpayer 
identification numbers (TIN) of tax-exempt organizations would 
actually work against the Joint Committee's finding that the 
public should know more, rather than less, about the operations 
of tax-exempt organizations. Increasingly, the public learns 
about tax-exempt organizations through public sources such as 
the GuideStar Web site, which receives an average of 1.8 
million hits each week. The information that resides in the 
GuideStar database is compiled from many sources, including the 
IRS Business Master File, the IRS Returns Transaction File, 
actual Forms 990 filed by organizations, and information 
provided by the organizations directly to PRI. The only 
foolproof way to link the information from these various 
sources into a coherent whole is through the use of the TIN.
    As a simple example of the problem created by the absence 
of TINs, consider that there are six distinct organizations 
listed in the IRS Business Master File with the name ``POP 
WARNER LITTLE SCHOLARS INC'' in Tucson, AZ. In this situation, 
matching data from different sources in the correct way 
requires human intervention. The human intervention becomes 
much more intensive and expensive (perhaps even impossible) 
when it comes to the 4,328 affiliates of Ducks Unlimited, most 
of which use the corporate address in Memphis, TN, regardless 
of their actual location.
    Redaction of the TIN from official IRS documents before 
they are provided to the public will also create a burden at 
the IRS that can only decrease their responsiveness to 
legitimate queries from the public. While a relatively small 
percentage of tax-exempt documents currently available to the 
public through the IRS must be redacted, the non-disclosure of 
the TIN would mean that essentially all of these documents 
would have to be redacted. And, in many cases, such as most 
software-prepared Forms 990, the TIN is printed on each page, 
which would require greatly increased redaction efforts.
    Given the absence of documented, widespread misuse of the 
TIN by third parties, we believe the Joint Committee should 
reconsider this recommendation.

Acceleration of Electronic Filing of Form 990

    We strongly endorse your recommendation to accept 
electronic filing of Form 990 after 2002. In addition to the 
inefficiencies created in the Federal and State systems by the 
absence of electronic filing, there are many expensive efforts 
in both the for-profit and nonprofit arenas to provide this 
information in the absence of a stronger Federal presence. PRI 
and NCCS will spend more than $2 million in 2000 on data entry 
and image processing of Forms 990.

Notification Requirement for Entities not Currently Required to 
File

    We believe that this will be of great value to both the IRS 
and the general public. The IRS itself estimates that more than 
20% of the tax-exempt organizations on its master file are no 
longer in existence. Further, even if an organization that is 
not required to file is still in existence, as time passes and 
addresses change, it is difficult if not impossible for the IRS 
to locate these organizations if the need arises.
    Thank you for the opportunity to comment on these recommendations. 
We believe that, on the whole, they are positive steps toward more 
openness in the tax-exempt sector that will benefit the public and tax-
exempt organizations alike.

            Sincerely,
                                     Arthur W. Schmidt, Jr.
                                                          President

AWS:cem
Att.
      

                                


Improving the Quality of Reporting on Forms 990

    Scanned images of all IRS Forms 990 filed by public 
charities, an essential and widely used source of information 
on the nonprofit sector, are now easily and instantly 
accessible on the Internet. The Urban Institute's National 
Center for Charitable Statistics (NCCS) and Philanthropic 
Research, Inc. (PRI) with its GuideStar Web site have 
worked together on this project to create the most accessible 
data on the sector ever available.
    The Form 990, which has been long subject to public 
scrutiny, is the primary source of information about the 
nonprofit sector. The June 1999 implementation of new Federal 
disclosure regulations, as well as the posting of the forms on 
the Web through the joint NCCS/PRI project, has made these 
documents more easily available than they have ever been and 
highlighted the quality problems that nonprofit sector 
representatives have been addressing for many years.
    NCCS and PRI, with the support and advice of nonprofit 
sector representatives from a broad range of interested 
organizations, are launching an effort to review the Form 990 
itself--its format, instructions, and the information 
requested--to help ensure that the nonprofits provide the 
highest quality information possible on the form.
    There are a number of approaches to helping improve the 
quality of reporting. First and foremost, nonprofits must pay 
more attention to the forms, filling them out completely and 
accurately. Improvements in the software used to prepare the 
forms could help eliminate arithmetic and omission errors and 
prompt the need to attach supplemental statements with all the 
necessary information. A more standardized approach to 
accounting practices in the sector to better align reporting 
with the Form 990 as well as the various government and 
professional requirements would also help reduce the burden of 
reporting.
    But a review of the form itself and the instructions is 
also essential to this effort. The joint NCCS/PRI project will 
include the following steps:
     Drafting a working paper outlining the various 
issues related to the form (clarification of the form and the 
corresponding instructions, format changes, and items that 
should be added or changed, etc.) in March.
     Circulating the paper for comments to: Sector 
representatives, including Independent Sector and other 
national organizations, such as National Council of Nonprofit 
Associations (NCNA), National Association of Attorneys-General, 
National Association of State Charity Officials, United Way of 
America, National Health Council, National Association of State 
Arts Agencies, Alliance of Information and Referral Services, 
Foundation Center; Government representatives, including the 
Internal Revenue Service, Office of Management and Budget, 
General Accounting Office, Department of Health and Human 
Services, as well as the National Association of Attorneys-
General/National Association of State Charity Officials, (NAAG/
NASCO); and Preparers of Forms 990, including State CPA 
societies, led by Greater Washington Society of CPAs and 
California CPAs.
     Posting the draft for comment on various listservs 
and Websites, including cyber-accountability, NCCS 
(nccs.urban.org), PRI (``http://www.guidestar.org) and Quality 
990 (``http://www.qual990.org), a web site hosted by NCCS that 
serves as a communication tool and resource for nonprofit 
organizations, the accounting profession, and government 
charity regulators.
     After the comments from nonprofit sector 
practitioners and researchers have been incorporated, the 
recommendations for changes in the Form 990 will be presented 
at the annual NAAG/NASCO-IRS meeting in May 2000, hosted by 
NCCS at the Urban Institute.
     Continuing to meet with IRS, NAAG/NASCO, and 
sector representatives to work to implement the recommended 
changes in Form 990.
    As the sector's size and role continue to grow, policy 
makers, practitioners, researchers, and the public must have 
better information about nonprofits. While the focus of this 
effort is the Form 990, including the Form 990-EZ, there are 
new disclosure regulations that will give the Forms 990-PF 
filed by private foundations the same wide visibility. As we 
learn more about these forms, NCCS and PRI believe that a 
similar process of review must be initiated to help ensure that 
the newly accessible data are of the highest quality possible. 
Such efforts are essential to improving reporting on all 
versions of Form 990 and the quality of information available 
on the nonprofit sector.
      

                                


Statement of Piercy, Bowler, Taylor & Kern (CPAs), Mr. Gil Hyatt, and 
others, Las Vegas, Nevada

    This statement is being made on behalf of Piercy, Bowler, 
Taylor & Kern (CPAs), Mr. Gil Hyatt, and others in response to 
House Ways and Means Committee Press Release FC-18 on the study 
and recommendations released on January 28, 2000 by the Joint 
Committee on Taxation (``JCT''), JCS-1-00, concerning 
disclosure of Federal tax returns and return information (``the 
JCT Disclosure Study''). The JCT Disclosure Study was required 
by Congress as part of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (P.L. 105-206).
    First, we applaud Congress and the JCT for addressing the 
serious matter of breaches of taxpayer confidentiality and 
unauthorized disclosure of tax return information. Next, while 
we support many of the statements and recommendations contained 
in the JCT Disclosure Study, we believe the study falls far 
short in addressing the area of breaches of taxpayer 
confidentiality and unauthorized disclosure of tax return 
information by state tax agencies. The JCT relies on a GAO 
survey of safeguard deficiencies reported by State taxing 
authorities and states that ``[A]lmost all of the surveyed 
State taxing authorities reported some discrepancy of one type 
or another.'' See, JCT Disclosure Study, Vol. I (p. 168). 
Despite this troubling self-admission by the States, the study 
does not recommend adequate remedies to address this serious 
problem.
    We submitted numerous facts and documents to the JCT as 
part of their study that overwhelming evidences this problem in 
the case of the California Franchise Tax Board. These 
submissions are contained in Volume III of the JCT Disclosure 
Study. See, JCT Disclosure Study, Volume III (p. 221-268). 
These comments include specific examples of misuse of 
confidential tax return information by the California Franchise 
Tax Board (``FTB''), as well as administrative and legislative 
recommendations.
    This problem has been highlighted by Congressman Brad 
Sherman who recently wrote two letters to the California 
Franchise Tax Board about their inappropriate use of training 
materials and of enforcement tactics used to create a culture 
where violations of taxpayer rights and privacy go unchecked. A 
copy of Congressman Sherman's letters is attached hereto as 
``Attachment 1.'' Also attached hereto is an outline of 
recommendations (``Attachment 2'') and a memorandum further 
highlighting recommendations and comments made herein 
(``Attachment 3'').
    As a guiding principle, we believe that any state or local 
tax agency, like the FTB, that does not have proper safeguards 
in place or that recklessly disregards safeguards designed to 
protect taxpayer information should be prohibited from 
receiving Federal tax returns and return information from the 
IRS. To implement this sound tax policy, we believe the House 
Ways and Means Committee should:
    1) Hold hearings on the JCT Disclosure Study;
    2) Further investigate abuses by State tax agencies, 
particularly the California Franchise Tax Board (``FTB''); and
    3) Pass legislation to do the following:

          a. Grant authority and provide direction to the IRS to 
        immediately cease sharing Federal tax returns and return 
        information with any state or local tax agency, such as the 
        FTB, that does not have proper safeguards in place or that 
        recklessly disregards safeguards designed to protect taxpayer 
        information, until identified abuses have been rectified and 
        the agencies have taken appropriate measures to prevent future 
        abuses; 
          b. Require that all state or local tax agencies that receive 
        Federal tax returns and return information, including the FTB, 
        should adopt and fully comply with the same reforms and 
        taxpayer rights protections imposed on the Internal Revenue 
        Service by the Internal Revenue Service Restructuring and 
        Reform Act of 1998 as a prerequisite for obtaining Federal tax 
        returns and return information from the IRS; and 
          c. Direct the IRS Taxpayer Advocate to establish a function 
        within his/her office to specifically address taxpayer 
        complaints regarding breaches of confidentiality relating to 
        Federal tax returns and return information by state and local 
        tax agencies as well as provide authority to the Taxpayer 
        Advocate to request that the IRS cease sharing Federal tax 
        returns and return information with any state or local tax 
        agency, such as the FTB, that does not have proper safeguards 
        in place or that recklessly disregards safeguards designed to 
        protect taxpayer information.

    Thank you for the opportunity to submit this written 
statement for the record and comments.
      

                                


                               Congressman Brad Sherman    
                                  24th District, California
                                                   February 7, 2000

Jerry Goldberg
Executive Director
Franchise Tax Board
P.O. Box 942840
Sacramento, CA 94240-0040

    Dear Mr. Goldberg:

    Its been a while since we have had a chance to talk and exchange 
letters here in Washington. From time to time I run across people who 
do not love the Franchise Tax Board as much as you do. Sometimes the 
FTB has a ``result oriented'' image as opposed to simply trying to get 
the fairest possible resolution of a tax matter. While I know you 
strive to avoid any basis for this image, the image itself is certainly 
not helpful to California's continuing efforts to recruit business.
    I have enclosed what I am told is the front cover of a FTB training 
manual. Its dated August 31, 1993. 1 am told that this same cover or 
approach may still be in use.
    I think you will agree that the picture on the cover is simply not 
an appropriate way to set the tone for FTB staff.

            Very truly yours,
                                               Brad Sherman

cc: Kathleen Connell, B. Timothy Gage, Dean Andal, Marcy Joe Mandal, 
Aleesa Islas, Jim Speed, Johan Klehs, Claude Parrish, John Chiang
      

                                



                               Congressman Brad Sherman    
                                  24th District, California
                                                   February 7, 2000

Jerry Goldberg

Executive Director

Franchise Tax Board

Sacramento, CA 94240

  

Kathleen Connell

State Controller

Sacramento, CA 95814

  

Kathleen Connell

ATTN: Marcy Joe Mandel

Culver City, CA 90230

  

B. Timothy Gage

Director

Department of Finance

State Capitol

Sacramento, CA 95814

Jim Speed

Executive Director

State Board of Equalization

Sacramento, CA 95814

  

Johan Klehs

State Board of Equalization

Sacramento, CA 94541

  

Dean Andal

State Board of Equalization

Stockton, CA 95219

  

  

  

Claude Parrish

State Board of Equalization

Sacramento, CA 90502

  

John Chiang

State Board of Equalization

Van Nuys, CA 91406

  

Office of Governor Davis

c/o Aleesa Islas

Constituent Affairs Representative

State Capitol

Sacramento, CA 95814

  

  


    Dear Friends:

    As you know, information provided by the Internal Revenue Service 
is critically important to the Franchise Tax Board and the Board of 
Equalization.
    On January 28, 2000, the staff of the Joint Committee on Taxation 
released a report entitled Study of Present--Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by Section 3802 
of the Internal Revenue Service Restructuring and Reform Act of 1998.
    Complete copies of this 3-volume study are available by simply 
contacting my office.
    I want to refer you to pages 168 through 173 of volume I (a copy of 
which is enclosed). This discusses efforts by state governments to 
safeguard the confidentiality provided to them by the IRS.
    As you know, I continue my dedication to effective tax 
administration that requires the exchange of information between the 
IRS and relevant state tax authorities. The more that can be done to 
ensure that federal information is kept strictly confidential, the 
easier it will be to convince Congress to continue to allow and 
facilitate these exchange of information agreements.
    If you want to delve into this issue further, I refer you to the 
letter dated January 12, 2000, which appears on page 221 of volume III 
of the study (a copy of which is enclosed). It addresses the issue of 
states keeping the information they receive from federal tax 
authorities confidential. It particularly focuses on the Franchise Tax 
Board.
    In setting policy, it is important to remember how dependent state 
authorities are on federal tax information, and the reluctance most 
members of Congress have in taking heat to collect revenue that 
Congress doesn't get to spend. I am sure you are familiar with the 
failure of Congress to overturn the Quill case, and the successful 
attempt by the electronic commerce industry to shape the debate on the 
taxation of the Internet to often include taxation of tangible personal 
properties sold through the Internet.
    Accordingly, it is very important that California do everything 
possible to maintain proper confidentiality of information obtained 
through the IRS, and avoid pressure in Washington to reduce the flow of 
this information, Not only does the continuing battle with direct mail 
and Internet sales indicate a reason for care in this area, but also 
you should remember that, here in Washington, Nevada has as many 
senators as California. Moreover, tax fighters tend to have more 
friends than tax collectors.
    I look forward to doing whatever is possible to have a working 
efficient exchange of information. I also trust that you will do 
everything possible to avoid instances that would make that effort 
difficult.

            Very truly yours,
                                               Brad Sherman
      

                                


ATTACHMENT 2

RECOMMENDATIONS

    Any state or local tax agency that does not have proper 
safeguards in place or that recklessly disregards safeguards 
designed to protect tax payer information should be prohibited 
from receiving Federal tax returns and return information from 
the IRS.
    To implement this sound tax policy, we believe the House 
Ways and Means Committee should:
    1) Hold hearings on the JCT Disclosure Study;
    2) Further investigate abuses by State tax agencies, 
particularly the California Franchise Tax Board (``FTB''); and
    3) Pass legislation to do the following:
    a. Grant authority and provide direction to the IRS to 
immediately cease sharing Federal tax returns and return 
information with any state or local tax agency, such as the 
FTB, that does not have proper safeguards in place or that 
recklessly disregards safeguards designed to protect taxpayer 
information, until identified abuses have been rectified and 
the agencies have taken appropriate measures to prevent future 
abuses; 
    b. Require that all state or local tax agencies that 
receive Federal tax returns and return information, including 
the FTB, should adopt and fully comply with the same reforms 
and taxpayer rights protections imposed on the Internal Revenue 
Service by the Internal Revenue Service Restructuring and 
Reform Act of 1998 as a prerequisite for obtaining Federal tax 
returns and return information from the IRS; and 
    c. Direct the IRS Taxpayer Advocate to establish a function 
within his/her office to specifically address taxpayer 
complaints regarding breaches of confidentiality relating to 
Federal tax returns and return information by state and local 
tax agencies as well as provide authority to the Taxpayer 
Advocate to request that the IRS cease sharing Federal tax 
returns and return information with any state or local tax 
agency, such as the FTB, that does not have proper safeguards 
in place or that recklessly disregards safeguards designed to 
protect taxpayer information.
      

                                


ATTACHMENT 3

MEMORANDUM

                            I. INTRODUCTION

    The Joint Committee on Taxation (``JCT'') was required to 
prepare a study on taxpayer confidentiality by the Internal 
Revenue Service Reform and Restructuring Act of 1998 (``the 
Act'') (P.L. 105-206). As part of their study, the JCT 
requested public comments on various issues of taxpayer privacy 
and the use of tax return information, including the impact on 
taxpayer privacy of sharing tax information for the purposes of 
enforcing State and local laws. On January 28, 2000, the JCT 
released the results of their study in a three-volume set of 
comments and recommendations (``the JCT Disclosure Study'').
    On February 3, 2000, the House Ways and Means Committee 
requested public comments on the JCT Disclosure Study in Press 
Release FC-18. Set forth herein is a memorandum supplementing 
comments made in response to Press Release FC-18.

                             II. BACKGROUND

    Congress has taken great steps to prevent abuses against 
taxpayers, in particular, violations of confidentiality with 
regards to Federal tax returns and return information. Federal 
tax returns and return information are shared with state tax 
agencies so long as those agencies abide by certain rules that 
protect confidential taxpayer information.
    State and local tax agencies must maintain safeguards that 
protect taxpayer privacy and confidentiality with respect to 
tax returns and tax return information. Agencies that do not 
maintain adequate safeguards or recklessly disregard such 
safeguards should be prohibited from receiving Federal tax 
return information.
    Congress has a strong interest in the policies and 
procedures of the state tax agencies that receive Federal tax 
returns and return information. Internal Revenue Code Sec.  
6103 makes it clear that state employees with access to Federal 
tax return information shall keep such information confidential 
and may not disclose it to anyone except for those properly 
authorized to view such information. Because Federal tax 
information is what is being shared, Congress must insure that 
tax information shared with State and local agencies is 
protected to the same degree called for by Federal law and that 
such agencies must be held to the same standard to which the 
IRS is held regarding Federal tax information, including full 
compliance with recent IRS reforms and ``taxpayer rights'' 
legislation.
    Congress should also insure that recent IRS reforms are not 
undermined by abusive state tax agencies misusing Federal tax 
information. Furthermore, Congress should also insure that the 
IRS is not a partner with abusive state tax agencies using 
Federal tax information improperly to coerce, threaten or abuse 
taxpayer's rights, including during state examinations or 
audits.

          III. VIOLATIONS OF CONFIDENTIALITY BY STATE AGENCIES

                              A. Overview

    Unfortunately, some state tax agencies do not have proper 
confidentiality safeguards for taxpayer information and many 
states that do recklessly disregard such safeguards in their 
zeal to collect as much tax revenue as possible, many in 
violation of taxpayer privacy and confidentiality of Federal 
tax returns and return information.
    While Congress addressed the issues of taxpayer privacy and 
abuse at the federal level in the Act, there may be just as 
many oppressive actions currently occurring throughout the 
country at the State level. Included in Volume III of the JCT 
Disclosure Study is an article from Forbes Magazine entitled 
``Tax torture, local style'' (July 6, 1998). See, JCT 
Disclosure Study, Vol. III, page 231. This article highlights 
the fact that ``[T]here are at least half as many revenue 
agents working for the states as the federal government'' and 
``[C]ollectively, they are just as oppressive as the feds.'' 
Moreover, many of these abuses and violations derive from 
information states receive from federal agencies under their 
information sharing arrangements.
    The Forbes article lists a number of state tax department 
problems including: (1) privacy violations by California, 
Connecticut, and Kentucky; (2) criminal or dubious activities 
by Connecticut, Indiana, Kentucky, New Mexico, North Carolina, 
Oklahoma, and Wisconsin; and (3) mass erroneous tax-due bills 
by Arizona, California, Indiana, Michigan, and Ohio.
    In another article included in the JCT Disclosure Study, 
the Los Angeles Times reported that the state taxing authority, 
the California Franchise Tax Board, ``is second in size and 
scope only to the Internal Revenue Service--and by all accounts 
the state agency is the more efficient, more aggressive and 
more relentless of the two'' and that ``there is little to stop 
the agency from becoming more aggressive.'' See, JCT Disclosure 
Study, Vol. III, page 233 ``State Agency Rivals IRS in 
Toughness,'' Los Angeles Times (August 2, 1999, page 1).
    The state tax agencies are also applying inconsistent rules 
resulting in inequitable treatment and unfair burdens on 
nonresident taxpayers. Another article included in the JCT 
Disclosure Study is entitled ``State Taxation of Professional 
Athletes: Congress Must Step In'' (Paul Barger, Tax Notes, 
October 11, 1999, p. 243). See, JCT Disclosure Study, Vol. III, 
page 235. It details the type of inconsistent and disparate 
treatment that some nonresident taxpayers face from state 
taxing agencies.
    Overall, serious violations of taxpayer confidentiality and 
taxpayer rights in the examination and audit process are 
presently occurring at an alarming rate at the State and local 
levels. In many cases these abuses involve the misuse of 
confidential Federal tax returns and return information.

B. Examples of Taxpayer Abuse and Misuse of Confidential Information at 
                     the State Level in California

    Recent cases evidence a total disregard of taxpayer 
protections and safeguards of confidential tax return and 
return information by the California Franchise Tax Board 
(``FTB''), the state's income tax collection agency, 
particularly with respect to residency audits.
    In a case involving Mr. Gil Hyatt, the FTB practiced 
indiscriminate breaches of taxpayers' confidentiality and 
improperly used the threat of disclosing taxpayer confidential 
information to exact additional taxes. The FTB blatantly 
disregarded the requirements for proper treatment of 
confidential information and then used the disclosure of 
confidential information to coerce settlement of an 
unreasonable tax assessment from a taxpayer. Among the FTB's 
more reprehensible actions was the public disclosure to 
newspapers and other public entities of Mr. Hyatt's name, 
social security number, and non-public address through quasi-
subpoenas during the state examination and audit process.
    The accounting firm of Piercy, Bowler, Taylor & Kern has 
represented a number of other clients in similar 
circumstances--all involving a total disregard of taxpayer 
protections and safeguards of confidential tax return and 
return information by the FTB. Other cases of abusive tactics 
and misuse of taxpayer information by the FTB are described in 
memorandums attached hereto. These memos by Mr. Gil Hyatt 
include descriptions of his case, the case of Mr. George Archer 
(a professional golfer), and the case of Mr. Joseph and Emily 
Gilbert. See, JCT Disclosure Study pages 245 through 267 
entitled ``Attachment C;'' ``Attachment D;'' and ``Attachment 
E.''

                 C. Facts in the Case of Mr. Gil Hyatt

    Mr. Gil Hyatt is a Nevada resident who is well known 
throughout the world for his innovations in computer 
technology. He is justly protective of the location of his 
office and research lab in view of the industrial espionage 
that is rampant in the industry marketplace in which he works 
and in view of established dangers from stalkers and other 
predators. He has taken great care to keep the address of his 
home, office, and research lab secret to protect against 
industrial espionage and stalking, including purchasing the 
property through a trust and taking other precautions so that 
his name was not connected with the property.
    Mr. Hyatt moved from California to Nevada in September 1991 
and still resides in Nevada to this present day with no 
intention of changing his Nevada residency. Even though Mr. 
Hyatt has physically moved away from California and intends to 
stay in Nevada indefinitely, the FTB refused to acknowledge the 
move for tax purposes, began an extensive tax examination and 
assessed him with what is tantamount to an ``exit tax'' of 
millions of dollars. Because of his particular need for 
confidentiality and privacy, the FTB with blatant disregard for 
both Federal and state laws, proceeded on a calculated program 
to intimidate and harass him by public disclosure of his 
confidential information (including shared Federal tax 
information) and by making threats of further public disclosure 
if he did not settle with the FTB over the amount of taxes 
owed.
    Because of the tortious conduct by the FTB, Mr. Hyatt filed 
a complaint in Nevada state court claiming violations of his 
right to privacy, fraud, and abuse of process. This case is set 
for trial in Nevada in November 2000. In spite of the claims in 
this case and the pending state court action, the FTB continues 
its tortious conduct, including continuing to disclose Mr. 
Hyatt's confidential information.
    In general, the facts in Mr. Hyatt's case involve an 
assessment by the FTB of millions of dollars in false penalties 
and intentional errors in income calculations, done in a manner 
consistent with the FTB's established practice of significantly 
increasing assessments in preparation for settlement 
negotiations. When Mr. Hyatt argued against the assessment, the 
FTB threatened that his confidential personal information would 
become public if he didn't settle his case. In other similar 
examples, taxpayers have been known to settle at the protest 
stage to keep their private information from becoming public.
    During the course of this ``residency'' examination, Mr. 
Hyatt was cajoled into giving his private address to the FTB 
only after the FTB provided assurances that it would keep it 
strictly confidential and that California law made it a crime 
for the FTB to disclose this information. As the examination 
proceeded, without notice to Mr. Hyatt and with total disregard 
for his privacy, safety, and confidentiality, the FTB, within 
weeks of receiving the information, began indiscriminately 
broadcasting the private address to the very entities from whom 
Mr. Hyatt sought to keep the private address confidential. The 
FTB sent out formal Demands for Information (quasi-subpoenas) 
to newspapers and to other public entities that keep large 
databases of information on citizens. A copy of this quasi-
subpoena (``Demand to Furnish Information'') is included in the 
JCT Disclosure Study. See, JCT Disclosure Study, page 243.
    These quasi-subpoenas disclosed Mr. Hyatt's name, social 
security number, and his non-public residence address to the 
very entities from which he sought to be protected. This 
without even noticing, servicing, or informing Mr. Hyatt or his 
attorney that such quasi-subpoenas were being sent out, thereby 
depriving him of his legal right to take legal action to quash 
these fraudulent quasi-subpoenas. When challenged about this 
disclosure of confidential information, the FTB argued that the 
private address need not be kept confidential because it was 
public--in spite of the fact that Mr. Hyatt was never publicly 
linked to this address.
    The FTB did not just disclose this confidential information 
accidentally or discretely. In fact, the FTB was very direct in 
using the Demands for Information form to indiscriminately 
disclose Mr. Hyatt's confidential information and cast him in a 
bad light, while at the same time getting the recipient's 
attention due to its formal, criminal-investigation type 
format. See, JCT Disclosure Study, page 243. While the FTB 
asserts that these quasi-subpoenas are intended only to demand 
information from uncooperative third parties, the FTB has 
adopted another use for them--as tools for embarrassing and 
intimidating taxpayers during the examination and audit process 
and disclosing the taxpayer's confidential information by 
indiscriminately sending them out in mass mailings.
    Another abuse in the Hyatt case occurred when the FTB 
located a check made out to a Dr. Shapiro. Instead of asking 
Mr. Hyatt for information on this Dr. Shapiro, the FTB located 
six Dr. Shapiros in the telephone book and sent out quasi-
subpoenas containing confidential information to all of them, 
thereby informing a group of professionals that Mr. Hyatt was 
under investigation, focusing more attention on him, and 
causing him even greater exposure and embarrassment. The FTB 
also sent quasi-subpoenas containing confidential information 
to several newspapers on a ``fishing expedition'' calculated to 
cause Mr. Hyatt even more exposure and embarrassment. These 
examples are strong indications that the FTB uses confidential 
taxpayer information to intimidate taxpayers in order to exact 
improper tax assessments and recklessly disregards safeguards 
with respect to tax information.

D. Other Generic Violations of Confidentiality By the FTB and the State 
                             of California

    A state tax agency that receives federal tax information 
should maintain a secure area for such information. The FTB, 
however, allows its auditors to carry such information in 
unsecured briefcases to locations outside of the FTB (e.g., an 
auditor's residence). Furthermore, all federal tax information 
should be provided only on a need-to-know basis and should not 
be commingled with other information or indiscriminately 
disseminated even within the recipient agency. At the FTB, in 
contrast, Federal and state tax information is commingled into 
a single audit file, which is then indiscriminately 
disseminated throughout the agency without proper protection 
for the federal tax information within. The FTB does not 
properly safeguard confidential federal taxpayer information, 
but instead often keeps such information in the offices, car 
trunks, and homes of FTB agents and even regularly misplaces or 
loses such information.
    In Mr. Hyatt's case, the FTB, without any indication of 
satisfying the special requirements of Federal law, 
intermingled Federal income tax returns with extensive state 
audit information in audit files, shipped those files to an 
unsecured agent's home in Arizona, and maintained the audit 
files (including the Federal tax return information) in this 
unsecured and illegal environment. The Federal tax returns and 
return information remains intermingled to this day with no 
indication that the FTB will ever provide safeguards for the 
Federal tax returns and return information.
    In addition, recent Federal tax reforms seeking to prevent 
individual's within agencies from inspecting a taxpayer's 
federal tax information without authorization (``illegal 
browsing'') have not been enforced at the state level in 
California. For instance, the FTB in some cases appears to 
practice a ``fishing'' tactic of browsing taxpayers' 
confidential tax information in order to determine which 
taxpayers would make good candidates for a state ``residency'' 
tax audit. These techniques fly in the face of recent 
Congressional legislation restricting such illegal browsing.
    Because the FTB does not distinguish between Federal 
confidential information and state confidential information, 
the FTB is no more likely to be careful with Federal tax 
information than it is with state tax information. For example, 
as evidenced above, the FTB indiscriminately discloses social 
security numbers and home addresses, regardless of the Federal 
or state tax return source, with the cavalier position that 
social security numbers and home addresses constitute public 
information and hence do not have to be protected. These 
activities are clear violations of Federal and state laws that 
specifically protect such information.
    In other areas, the State of California receives Federal 
tax return information for tracking down ``dead beat'' dads. 
The state uses this confidential information to obtain child 
support payments from out-of-state parents, but then misuses 
the fact that child support payments are made by nonresident 
parents as ``evidence'' to tax these nonresidents as residents. 
This issue is addressed more fully in a memo included in the 
JCT Disclosure Study. See, JCT Disclosure Study, page 265 
``Attachment E.''
    The receipt of Federal tax returns and return information 
from tax-sharing agreements with the IRS, whether used by the 
FTB in its ``residency'' and tax audits or by the state of 
California in other areas, should be subject to strict privacy 
safeguards. Unfortunately, there are cases under current law 
that show, regardless of the protections that the IRS provides 
for Federal tax returns and return information, these 
protections can be and are circumvented by the FTB and the 
state of California in a manner that recklessly disregards 
taxpayer protection safeguards.

                               E. Summary

    As evidenced in the Gil Hyatt case and other cases, the FTB 
is one of many state taxing agencies which relies upon IRS 
information for its taxing activities, but which recklessly 
disregards any safeguards protecting confidential tax returns 
and return information. Moreover, since the tax laws of 
California have not been conformed to the Internal Revenue 
Service Restructuring and Reform Act of 1998 (``the Act''), the 
reforms and taxpayer rights protections in the Act do not apply 
to any such inappropriate actions by the FTB or the state of 
California.
    Thus, while the IRS is required to operate under the 
taxpayer protections granted by the Act, State and local 
agencies, like the FTB, can and do end-run around the 
Congressionally mandated taxpayer protections and can reek 
havoc on unsuspecting taxpayers. Even worse, any safeguards 
that do exist are in some cases recklessly disregarded by the 
FTB, in effect blatantly violating State law with impunity. 
Again as evidenced in the Gil Hyatt case and other cases, 
nowhere is this truer than with the FTB's ``residency'' 
auditing department--the department responsible for going after 
former California residents now residing in other states.
    Examples of improper and/or illegal activities by the FTB 
include the same type of activities that were under scrutiny by 
the Congress at the Federal level in 1998 when it passed the 
Act. These include not only blatant disregard of the 
requirements for proper treatment of confidential tax 
information, but also actually using the disclosure of such 
confidential information as a threat to exact unreasonable tax 
assessments from taxpayers. There are also indications that the 
FTB in its training materials, encourages its agents to 
inappropriately assess penalties so that they can intimidate 
taxpayers and then later negotiate away the penalty to exact 
the unfair tax assessment originally desired. Many of these 
same issues were under scrutiny by Congress when it passed IRS 
reforms as past of the Act.
    Any State or local agency guilty of such improper acts, bad 
faith or breaches of taxpayer confidentiality should not be 
allowed to receive Federal tax returns and return information. 
Agencies, like the FTB, that are incapable of providing the 
safeguards necessary to protect shared tax returns and return 
information or that recklessly disregard such safeguards should 
be prevented from receiving Federal tax return and return 
information. Moreover, any evidence that a state tax agency is 
using Federal tax information in conjunction with any kind of 
improper and/or illegal state tax examination or audit 
activities should be grounds for immediate suspension of any 
sharing by the IRS with that state tax agency.

                             IV. CONCLUSION

    Congress should do whatever it can to protect the rights of 
U.S. citizens against overzealous State and local tax agencies 
that misuse confidential Federal tax return and return 
information.
    Any state or local tax agency, like the FTB, that does not 
have proper safeguards in place or that recklessly disregards 
safeguards designed to protect taxpayer information should be 
prohibited from receiving Federal tax returns and return 
information from the IRS.
    To implement this sound tax policy, the House Ways and 
Means Committee should make the administrative and legislative 
recommendations set forth in the attached document.
      

                                


                           Traditional Values Coalition    
                                       Washington, DC 20003
                                                     March 13, 2000

Mr. A.L. Singleton
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

RE: Opposition letter to the proposals made by the Congressional Joint 
        Committee on Taxation concerning additional reporting 
        requirements for 501 (c) (3) organizations.

    Dear Mr. Singleton:

    On behalf of Traditional Values Coalition's 43,000 member churches, 
I am submitting these comments.
    The Internal Revenue Service Restructuring and Reform Act of 1998 
was intended to consider methods to restructure the IRS to make it more 
responsive to the needs of Americans and less intrusive in their lives.
    Conversely, this report seems to be doing the opposite.
    There will be much more intrusion, record keeping and expense for 
non-profits once the recommendations are implemented from the Joint 
Committee on Taxation staff report entitled ``Study of Present Law 
Taxpayer Confidentiality and Disclosure Provisions as Required by 
Section 3802 of the Internal Revenue Service Restructuring and Reform 
Act of 1998, Volume II,'' which concerns disclosure provisions relating 
to tax-exempt organizations. Unfortunately, as so often occurs, it 
appears that while Congress gave with one hand, it decided to take with 
the other.
    The purpose for this increased intrusion seems to be the ludicrous 
notion that the public is anxious to know what non-partisan, non-
lobbying the non-profits are engaged in.
    It would appear the result of this report would be to tighten the 
noose around the neck of churches in an attempt to cut off any 
involvement in the culture outside of the church wall under the threat 
of losing their tax-exempt status. Non-profit speech is already 
artificially curtailed by IRS activity and churches currently are 
afraid to speak on issues that impact them because they live in terror 
of the IRS.
    In addition, I am concerned that these changes would needlessly 
effect the definition of lobbying and would make for very complex 
reporting of local church facility needs such as obtaining a 
conditional use permit or building permit from a city or county board. 
Furthermore, every time a church spoke with a public official about any 
issue it would have to be disclosed, requiring unneeded record keeping 
and paperwork.
    Forcing reporting requirements on non-profits even for those 
communications including a ``limited call to action'' is unnecessary.
    These recommendations are completely contrary to the previous 
direction of the Congress toward tax simplification. These proposals 
would create burdensome new record keeping requirements for non-
profits.
    Finally, I would like to have a count and also be able to see 
copies of the letters the committee has received previous to their 
January 28, 2000 release of the Committee on Taxation proposal that 
evidence an outcry of the public showing their great interest in 
further regulation of non-profits. Would you please be so kind as to 
accommodate this request? I will look forward to an immediate reply.

            Sincerely,
                                      Rev. Louis P. Sheldon
                                                           Chairman
      

                                


                                        Urban Institute    
                                       Washington, DC 20037
                                                     March 14, 2000

The Honorable Bill Archer, Chairman
Joint Committee on Taxation
1015 Longworth House Office Building
Washington, DC 20515-6675

    Dear Chairman Archer:

    The mission of the National Center for Charitable Statistics (NCCS) 
at the Urban Institute is to serve as a data repository for statistics 
and other quantitative information to help describe and define the 
nonprofit sector. NCCS serves as a bridge between practitioners and 
scholars, and a vital source of information for public policy decision 
makers. It has long been at the forefront of efforts to make IRS Forms 
990 data readily accessible to the general public, regulators, 
practitioners, and researchers. IRS data are available for 
noncommercial research purposes from our web site and on CD-ROMs. We 
work closely with state charity officials and state attorneys-general 
to provide them with electronic data from the Forms 990. A description 
of our project to help improve the quality of reporting on Forms 990 is 
enclosed for your reference.
    NCCS also has a contract with the IRS to obtain scanned images of 
all Form 990 returns filed by 501(c)(3) organizations. We are currently 
working with Philanthropic Research, Inc. (with its Guidestar web site) 
to make these images available to the public on the Internet.
    NCCS strongly supports all of the recommendations contained in the 
Joint Committee's report, with one exception: making the taxpayer 
identification number (TIN) of the exempt organization confidential.

            The Need for the Taxpayer Identification Number

    Unless some other system of unique identifiers is 
developed, making the TIN confidential would make the tasks of 
using and disseminating IRS data a nightmare. The TIN is the 
key for ensuring that data sets have a complete complement of 
organizations for a year. It is also necessary for matching 
organization data from the major public data sources such as 
the IRS's Business Master File, its Return Transaction File, 
and the Statistics of Income Division's Exempt Organization 
Sample.
    Tasks which are now relatively simple, such as making three 
years of Forms 990 available for a single organization (as 
required) would become much more difficult. Without the TIN, we 
would be left to match records using the names and addresses of 
the organizations. This is not a viable option because:
     Many organizations have similar names. For 
example, is the Hartzwell Foundation the same as the Hartzwell 
Family Foundation? Looking only at the names, one might think 
that the Form 990 preparer used a longer formal name one year 
and the shorter the next year. However, the two different TINs 
make it clear they are, in fact, different organizations.
     Organizations, especially the smaller ones that 
make up the majority of the exempt organization universe, move 
offices and addresses on a fairly regular basis. Thus, the 
address is not a reliable way to match organization returns.
    In short, the proposal to make the TINs confidential will 
make a relatively mechanical process for linking hundreds of 
thousands of records an expensive and tedious process requiring 
extensive verification. The process of developing samples and 
compiling accurate data sets would be greatly impeded.
    The use of exempt organization data by policy-makers and 
donors is increasing dramatically, much as the use of data on 
publicly-traded companies has grown in the past twenty years. 
The combination of increased societal wealth, the use of the 
Internet, the new exempt organization disclosure requirements, 
and the access to scanned images of Forms 990 on the web sets 
the stage for the development of many new efforts by 
consultants, financial service companies, the nonprofit sector 
and others to help donors make wise and efficient giving 
decisions. Easily accessible data also eases the burden on the 
state attorneys-general who are trying to monitor charities and 
ensure that charities are meeting their legal requirements.

                           Electronic Filing

    On a final note, NCCS is especially pleased to see that the 
committee is recommending the acceleration of the IRS's schedule for 
implementing electronic filing. We believe the public benefit of 
electronic filing will be immense since electronic filing will greatly 
reduce the cost of making data available.
    We appreciate the opportunity to comment on these recommendations.

            Sincerely,
                                   Eugene Steuerle,
                                           Senior Fellow
                                           The Urban Institute
                                           Former Deputy Assistant 
                                               Secretary of the 
                                               Treasury
                                   Elizabeth T. Boris,
                                           Director
                                           Center on Nonprofits and 
                                               Philanthropy
                                           The Urban Institute
                                   Linda M. Lampkin,
                                           Manager
                                           National Center for 
                                               Charitable Statistics
                                           The Urban Institute
      

                                


Improving the Quality of Reporting on Forms 990

    Scanned images of all IRS Forms 990 filed by public 
charities, an essential and widely used source of information 
on the nonprofit sector, are now easily and instantly 
accessible on the Internet. The Urban Institute's National 
Center for Charitable Statistics (NCCS) and Philanthropic 
Research, Inc. (PRI) with its GuideStar web site have worked 
together on this project to create the most accessible data on 
the sector ever available.
    The Form 990 is the primary source of information about the 
nonprofit sector. Although long subject to public scrutiny, the 
June 1999 implementation of new federal disclosure regulations, 
as well as the posting of the forms on the web through the 
joint NCCS/PRI project, has made these documents more easily 
available than they have ever been. And, also, highlighted the 
quality problems that nonprofit sector representatives have 
been addressing for many years.
    NCCS and PRI, with the support and advice of nonprofit 
sector representatives from a broad range of interested 
organizations, are launching an effort to review the Form 990 
itself--its format, instructions, and the information 
requested--to help ensure that the nonprofits provide the 
highest quality information possible on the form.
    There are a number of approaches to helping improve the 
quality of reporting. First and foremost, nonprofits must pay 
more attention to the forms, filling them out completely and 
accurately. Improvements in the software used to prepare the 
forms could help eliminate arithmetic and omission errors and 
prompt the need to attach supplemental statements with all the 
necessary information. A more standardized approach to 
accounting practices in the sector to better align reporting 
with the Form 990 as well as the various government and 
professional requirements would also help to reduce the burden 
of reporting.
    But a review of the form itself, and the instructions, is 
also essential to this effort. The joint NCCS/PRI project will 
include the following steps:
     Drafting a working paper outlining the various 
issues related to the form (clarification of the form and the 
corresponding instructions, format changes, and items that 
should be added or changed, etc.) in March.
     Circulating the paper for comments to: Sector 
representatives, including Independent Sector and other 
national organizations, such as National Council of Nonprofit 
Associations (NCNA), National Association of Attorneys-General, 
National Association of State Charity Officials, United Way of 
America, National Health Council, National Association of State 
Arts Agencies, Alliance of Information and Referral Services, 
Foundation Center; Government representatives, including the 
Internal Revenue Service, Office of Management and Budget, 
General Accounting Office, Department of Health and Human 
Services, as well as the National Association of Attorneys-
General/National Association of State Charity Officials, (NAAG/
NASCO); and Preparers of Forms 990, including State CPA 
societies, led by Greater Washington Society of CPAs and 
California CPAs.
     Posting the draft for comment on various listservs 
and websites, including cyber-accountability, NCCS 
(nccs.urban.org), PRI (``http://www.guidestar.org) and Quality 
990 (``http://www.qual990.org), a web site hosted by NCCS that 
serves as a communication tool and resource for nonprofit 
organizations, the accounting profession, and government 
charity regulators.
     After the comments from nonprofit sector 
practitioners and researchers have been incorporated, 
presenting the recommendations for changes in the Form 990 at 
the annual NAAG/NASCO-IRS meeting in May 2000, hosted by NCCS 
at the Urban Institute.
     Continuing to meet with IRS, NAAG/NASCO, and 
sector representatives to work to implement the recommended 
changes in Form 990.
    As the sector's size and role continue to grow, policy 
makers, practitioners, researchers, and the public must have 
better information about nonprofits. While the focus of this 
effort is the Form 990, including the Form 990-EZ, there are 
new disclosure regulations that will give the Forms 990-PF 
filed by private foundations the same wide visibility. As we 
learn more about these forms, NCCS and PRI believe that a 
similar process of review must be initiated to help ensure that 
the newly accessible data are of the highest quality possible. 
Such efforts are essential to improving reporting on all 
versions of Form 990 and the quality of information available 
on the nonprofit sector.
      

                                


                              Ventura Missionary Church    
                                          Ventura, CA 93003
                                                     March 20, 2000

A.L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth
Washington, D.C. 20515

    Dear Members of the Joint Committee,

    It has come to my attention that additional requirements may be 
imposed on churches that would require them to report to the IRS every 
time they urge their members to call or write their elected officials 
(local, state or federal) on any bill under consideration.
    If this report is true, it would be one of the most flagrant 
violations of the First Amendment that I can think of in recent 
history. I am personally seeing a growing intrusion by government into 
the life of churches across the nation. To me it is alarming and it 
needs to be opposed courageously.
    Please head this off now before it goes any further.

            Sincerely,
                                          Leonard W. DeWitt
                                                      Senior Pastor

LWD/lld
      

                                

Statement of Edward N. Goodman, Vice President, Public Policy, VHA Inc.

    VHA Inc. (formerly Voluntary Hospitals of America) 
appreciates the opportunity extended by Chairman Bill Archer to 
offer comments on the legislative recommendations contained in 
the Joint Committee on Taxation (``JCT'') Disclosure Study 
released on January 28, 2000.
    VHA is a nationwide network of community-owned health care 
systems and their physicians. VHA has more than 1,900 members--
including some of the nation's leading health care 
institutions:
     Baylor and Memorial Hermann Health Systems in 
Texas
     Bakersfield Memorial Hospital and Cedars-Sinai 
Health System in California
     INTEGRIS Health in Oklahoma
     BJC Health System in Missouri and Illinois
     Baptist Memorial Health Care System in Tennessee
     Allina Health System in Minnesota
    As ``community-owned'' health care organizations, VHA 
members affirm that their assets belong to the community, and 
that no individual shareholder or corporation makes any profit.
    VHA was founded in 1977 to help preserve the not-for-profit 
philosophy of providing health care. At that time, large, for-
profit health care systems were threatening the success of 
community-owned hospitals. These large investor-owned systems 
could demand purchasing discounts unattainable by individual 
not-for-profit organizations. To help preserve not-for-profit 
health care, VHA offers its members contracts on regional and 
national products and services in areas such as clinical 
effectiveness, information technology, learning networks and 
education, market-share development, performance improvement 
and supply-chain management.
    Accordingly, VHA's comments on the JCT staff's disclosure 
study are focused on those provisions recommending 
significantly increased disclosure of exempt organization tax 
information.
    In general, VHA supports increased public access to exempt 
organizations' financial and operational data through broader 
disclosure of tax filings and IRS determinations. VHA also 
strongly supports greater legal clarity through the release of 
material applying the law of exempt organizations to particular 
facts. However, VHA cannot support the creation of an unlevel 
playing field in which tax-exempt nonprofit organizations are 
subject to significantly greater disclosure and record-keeping 
burdens than those imposed on taxable for-profit entities.
    VHA believes that the goals of public access and legal 
clarity are generally well served by the JCT staff 
recommendations concerning exempt organization trade names, 
Internet addresses, notifications in IRS publications of Form 
990 availability, and the proposed termination reports. 
Moreover, the staff recommendation to release all exempt 
organization rulings (including those which deal only with 
exempt status issues) would result in significant increases in 
legal clarity and understanding of IRS positions.
    Many of the other JCT proposals, however, raise very 
serious concerns for nonprofit health care organizations. Set 
forth below is a list of such provisions, along with a brief 
description of VHA's concerns. We look forward to discussing 
our concerns in greater detail with the staff and Members of 
the Ways and Means Committee when your schedule permits.

            Disclosure of Pending Applications for Exemption

    Under current law, approved applications for exemption are 
subject to disclosure and public access. The JCT staff would 
extend the disclosure rule to pending applications for 
exemption.

VHA Concern:

    VHA believes that broader disclosure is necessary to 
facilitate public access only in those situations where a 
nonprofit organization represents to the public that it has 
filed a Form 1023 application in order to solicit charitable 
contributions or secure some other benefit. However, where a 
newly formed organization makes no public representation about 
its exempt status or eligibility for charitable contributions, 
disclosure of a pending application is potentially misleading 
to the public and disruptive to the efforts of both the IRS and 
the organization to complete the application process 
expeditiously and cost-effectively.

              Disclosure of IRS Rulings Without Redaction

    The JCT staff recommends that all written determinations  
(including private letter rulings and background file 
documents) involving tax-exempt organizations be publicly 
disclosed. In general, the staff recommends that such 
disclosure be made without redactions.

VHA Concern:

    VHA agrees with the JCT's recommendation to correct the 
anomaly in the disclosure law that prevents private letter 
rulings issued to exempt organizations from being released to 
the public unless they address tax issues beyond continued 
qualification for exempt status. VHA believes that all private 
letter rulings issued to both nonprofit and for-profit 
organizations should be released. Such a change levels the 
playing field.
    However, VHA disagrees that rulings issued to exempt 
organizations should be publicly disclosed without redaction. 
Such a change would distort the level playing field achieved by 
the first aspect of this JCT proposal. Moreover, it will be 
administratively burdensome to apply the exemptions from 
disclosure in Section 6110(c) (e.g., disclosure exemptions for 
trade secrets, commercial, and financial information), and such 
exemptions will be meaningless to the exempt organization if 
its name is released in connection with the ruling.

           Disclosure of Audit Results and Closing Agreements

    The JCT staff recommends that the IRS disclose the results 
of audits of tax-exempt organizations. In addition, the staff 
recommends that all closing agreements with tax-exempt 
organizations should be disclosed. Again, the staff recommends 
that such disclosure should be made without redaction.

VHA Concern:

    Mandatory disclosure of unredacted closing agreements and 
audit results will have a negative effect on potential 
settlements. When faced with the choice of litigating or 
settling an IRS audit issue, the current rule protecting the 
confidentiality of IRS settlements provides a strong incentive 
not to litigate. Moreover, the IRS always has the option to 
negotiate for disclosure as part of a settlement. Closing 
agreements are also used outside the audit context to deal with 
self-identified tax compliance problems. The proposed 
disclosure without redaction will clearly have a chilling 
effect on organizations' willingness to voluntarily step 
forward to correct tax problems in this context. Taxable 
corporations and individuals have comprehensive protection from 
disclosure in both the audit and non-audit contexts.
    Mandatory disclosure may also have a chilling effect on the 
IRS' willingness to enter into settlements. If all closing 
agreements are disclosed, the IRS will have to worry about 
whether a particular settlement will be interpreted as a 
general policy or enforcement position.

  Disclosure of Tax Returns for UBIT, Taxable Subsidiaries, and Joint 
                                Ventures

    The JCT staff recommends that the scope of 6104 should be 
expanded to require the disclosure of all Forms 990-T and any 
Forms (including Forms 1120 and 1065) filed by affiliated 
organizations of tax-exempt organizations.

VHA Concern:

    Mandatory disclosure of Form 990-T (UBIT tax returns filed 
by exempt organizations), Form 1120 (corporate tax returns 
filed by taxable affiliates), and Form 1065 (partnership tax 
returns filed by joint ventures) would create an unjustifiably 
unlevel playing field for the non-profit owners of such 
entities. In general, taxable corporations' returns are 
protected from disclosure. In the case of joint ventures and 
less than 100%-owned affiliates, there is also a concern that 
the privacy of the exempt organization's taxable partners could 
be jeopardized. Such individuals and entities are not subject 
to disclosure of comparable tax return information when they do 
business with for-profit parties.

  Disclosure of More Detailed Information Regarding Transfer of Funds 
                            Among Affiliates

    The JCT staff recommends that Form 990 require reporting of 
more information concerning the transfer of funds among various 
affiliated tax-exempt organizations. In particular, the JCT 
staff would require tax-exempt organizations to identify 
clearly conduit arrangements in which funds are being 
transferred among Section 501(c)(3), 501(c)(4), and 527 
organizations (e.g., PACs).
VHA Concern:

    Tax-exempt hospitals systems frequently transfer funds 
between exempt affiliates, but rarely use the 501(c)(3)-(c)(4)-
PAC conduit arrangement that the JCT staff is concerned about. 
This disclosure requirement is acceptable only if narrowly 
tailored to its purpose. If it is not so tailored, it will 
impose onerous reporting burdens on large multi-entity health 
systems that go far beyond the abuses it is intended to 
address.

       Disclosure of More Detailed Information Regarding Lobbying

    The JCT staff recommends that public charities (a category that 
includes most tax-exempt hospitals and health care organizations) be 
required to supply additional, more detailed information regarding 
lobbying on Schedule A of the Form 990 filed each year. Such 
information would include:
     a detailed description of specific lobbying activities and 
issues (e.g., legislation supported or opposed) at the Federal, State 
and Local levels
     expenditures for self-defense lobbying (a category that 
includes any efforts to protect an organization's tax or nonprofit 
status).
     expenditures for non-partisan study, analysis and research 
if such study, analysis, or research includes a limited ``call to 
action.''
    Under IRS regulations and rulings, self-defense lobbying and 
nonpartisan study, research and analysis (even when the latter includes 
a limited ``call to action'') are excluded from the definition of 
lobbying.

VHA Concern:

    Increased reporting of lobbying activities and issues will impose 
substantial additional recordkeeping and reporting burdens on nonprofit 
health care systems, particularly those multi-hospital systems with 
facilities in different states and local jurisdictions. To require 
reporting of activities that IRS regulations actually exclude from the 
definition of lobbying makes the proposal even more objectionable from 
a policy viewpoint. Reporting should be limited to categories of 
activities that have a particular legal significance.

                       Disclosure of Trade Names

    The JCT staff recommends that a tax-exempt organization be 
required to list on the Form 990 all trade names, as well as 
the organization's legal name.

VHA Concern:

    Large health systems with multiple ancillary providers may 
use a number of trade names to represent their numerous 
facilities and services. VHA recommends that organizations be 
required to provide all names under which the organization 
conducts substantial activities or solicits contributions. Such 
disclosure should be sufficient to address the concern of the 
JCT staff without requiring burdensome reporting of extraneous 
detail.
      

                                


Virginia Department of Agriculture and Consumer Services    

                                         Richmond, VA 23218
                                                     March 13, 2000

Mr. A. L. Singleton
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

    Dear Mr. Singleton:

    On behalf of the Virginia Department of Agriculture and Consumer 
Services, I respectfully submit for your consideration the following 
written comments regarding the Joint Committee on Taxation Disclosure 
Study regarding provisions related to tax-exempt organizations.
    We concur with all but one of the recommendations relative to the 
Disclosure of Internal Revenue Service (IRS) Materials. Specifically, 
we disagree with the recommendation that the taxpayer identification 
number (TIN) of tax-exempt organizations should not be subject to 
disclosure.
    While the TIN of a tax-exempt organization is routinely disclosed 
under present law, the study suggests that the potential for misuse may 
increase given the additional disclosures recommended. However, the 
study does not cite specific examples of misuse. We believe that the 
TIN is a critical piece of information for investigative and record 
management purposes that should continue to be subject to disclosure. 
For example, our staff uses the TIN for processing refunds of 
overpayment of registration fees, identifying organizations with sound-
alike names, requesting information from the IRS, and identifying the 
parent organization from an affiliate.
    Thank you for the opportunity to comment on the recommendations of 
the Joint Committee.

            Sincerely,
                                    J. Carlton Courter, III
                                                       Commissioner

cc: The Honorable Barry E. DuVal
Donald W. Butts, DVM
      

                                


                             The Whiting Law Firm, P.A.    
                                         Portland, ME 04101
                                                     March 13, 2000

A. L. Singleton, Chief of Staff
Committee on Ways and Means
U.S., House of Representatives
1102 Longworth
Washington, DC 20515

Re: Proposed Changes to Section 501(c)(3) Rules

    Dear Mr. Singleton:

     I represent about two dozen section 501(c)(3) groups here in the 
State of Maine. Many of them are involved in educating their members 
and the public as to the likely effects of proposed legislation, and 
concerning where political candidates stand on various issues.
     I understand that the Joint Committee on Taxation is considering 
proposals to make section 501(c)(3) organizations report on their 
annual 990 forms expenditures related to such educational activities. 
From what I have been told, these educational activities still will not 
be considered ``lobbying,'' and will not jeopardize a group's section 
501(c)(3) tax exempt status. Rather, the government is just curious as 
to how much is being spent on such activities, and believes the public 
should know how much a group is spending and for which issues.
     My clients and I are greatly concerned about those proposals for 
three reasons.
     First, such reporting requirements will chill the ``free speech'' 
rights of my clients and other section 501(c)(3) groups. See: McIntyre 
v. Ohio Elections Commission, 514 U.S. 334 (1995); FEC v. Massachusetts 
Citizens for Life, Inc., 479 U.S. 238 (1986); First National Bank of 
Boston v. Bellotti, 435 U.S. 765 (1978); and  Buckley v. Valeo, 424 
U.S. 1 (1976).
     This is especially true if section 501(c)(3) organizations are 
required to report which bills and/or political issues they spent money 
on. See: McIntyre v. Ohio Elections Commission, supra. As our U.S. 
District Court Judge here in Maine recently held in Yes For Life 
Political Action Committee v. Peter B. Webster, 74 F. Supp. 2d 37 (D. 
Me. 1999), at 42:

          ``I recognize that many people find anonymous statements on 
        controversial issues to be repugnant... But what the 
        Constitution protects and what good judgment or good policy 
        permits are often two entirely different things. The Supreme 
        Court has ruled that under the First Amendment anonymous 
        political messages deserve protection because in some important 
        instances the face of an unpopular speaker will otherwise 
        interfere with the legitimacy of the political message he/she 
        is sending. Ultimately, it is up to the voters to assess the 
        message and what weight to give it.''

     Second, we do not understand why section 501(c)(3) groups should 
have to report such expenditures if they are not considered 
``lobbying,'' and will not jeopardize a group's tax exempt status. Idle 
curiosity hardly seems sufficient justification for requiring 
organizations to report confidential and politically sensitive 
financial information... opening the door for those who oppose the 
group's views on those political issues to misuse that information to 
the detriment of the organization [which, again, is likely to chill the 
``free speech'' of the organization].
     And third, to my knowledge no section 501(c)(3) organization 
currently keeps a separate account of these expenses... which means 
that all such groups will have to revamp their recordkeeping and 
accounting systems to track and report these expenses separately. No 
doubt this will be an expensive and time consuming process; and keeping 
track of such expenses and reporting them separately will be a totally 
unnecessary accounting headache. In this age when the public is crying 
out to make the IRS and tax reporting more ``user friendly'' this 
proposal would be a big step in the wrong direction.
     I am enclosing six copies of this letter, along with a computer 
disk of this letter. I understand that this what is required to comment 
on proposals before the Joint Committee.
     Thank you for your consideration of our concerns.

             Very truly yours,
                                         Stephen C. Whiting

SCW/sr
Enclosures

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