Tax-Exempt Sector: Governance, Transparency, and Oversight Are
Critical for Maintaining Public Trust (20-APR-05, GAO-05-561T).
The tax-exempt sector under section 501(c) of the Internal
Revenue Code covers over a million-and-a-half entities of varying
sizes and purposes. Its diversity allows it to address the needs
of many citizens. To help it do so, Congress and some in the
tax-exempt sector itself encourage good governance practices by
exempt entities. Transparency over exempt entities' activities is
aided by public access to their annual tax returns. As the
nation's tax administrator, the Internal Revenue Service (IRS)
has a key role in overseeing this sector. Oversight can help
ensure adherence to exempt purposes, protect against abuses, and
sustain public support for the sector. The Chairman of the House
Committee on Ways and Means asked GAO to address (1) the growth
of the section 501(c) tax-exempt sector; (2) the role of
governance and transparency in ensuring that tax-exempt entities
function effectively and with integrity; (3) IRS's capacity for
overseeing the exempt sector, including its results and efforts
to address critical compliance problems; and (4) states'
oversight and their relationship with IRS in overseeing the
tax-exempt sector.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-561T
ACCNO: A21981
TITLE: Tax-Exempt Sector: Governance, Transparency, and
Oversight Are Critical for Maintaining Public Trust
DATE: 04/20/2005
SUBJECT: Data collection
Federal regulations
Federal taxes
Federal/state relations
Information resources management
Labor force
Noncompliance
Regulatory agencies
Strategic planning
Tax administration
Tax administration systems
Tax exempt organizations
Tax exempt status
Tax law
Tax violations
Government and business
Transparency
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GAO-05-561T
United States Government Accountability Office
GAO Testimony
Before the House Committee on Ways and Means
For Release on Delivery Expected at 10:30 a.m. EST Wednesday April 20,
2005
TAX-EXEMPT SECTOR
Governance, Transparency, and Oversight Are Critical for Maintaining Public
Trust
Statement of David M. Walker Comptroller General of the United States
A
GAO-05-561T
[IMG]
April 20, 2005
TAX-EXEMPT SECTOR
Governance, Transparency, and Oversight Are Critical for Maintaining Public
Trust
What GAO Found
The section 501(c) tax-exempt sector has grown steadily in reported
assets, revenues, and expenses. For example, between 1998 and 2002 (the
most recent year of data), its reported assets grew to over $2.5
trillion---with 12 percent growth for 501(c) charities and 22 percent
growth for other 501(c) entities (noncharities). Accordingly, this
tax-exempt sector comprises a significant part of the nation's economy and
workforce. For example, spending in this sector appears to be about
one-tenth of our economy and the paid exempt workforce appears to be
comparable in size to some of the largest sectors of the U.S. civilian
workforce, such as food and lodging.
Good governance and transparency are essential elements to help provide
assurance that exempt entities operate with integrity and effectiveness in
meeting their missions. Good governance facilitates well-run operations
that dissuade abusive behavior. Transparency sheds light on entities'
practices, which enhances ethical and effective operations and facilitates
oversight by the public and others. With recent concerns about abuses in
the tax-exempt sector, renewed attention is being given to improving
governance practices and increasing the transparency related to the
sector.
Staffing trends and insufficient data have contributed to IRS being
challenged in executing its oversight role. IRS has begun to increase
staffing, obtain better data on tax-exempt entities, and increase its
capacity to analyze and use the data it obtains. For the critical
compliance issues IRS has identified, it has started special initiatives
to improve compliance.
States often oversee tax-exempt entities, frequently focusing on
protecting the public from fraudulent activities and guarding against
misuse of charitable assets. States and the IRS believe that more data
sharing would make their oversight more efficient and effective.
Consistent with our earlier recommendations, IRS has improved its
processes for sharing its oversight data with the states, and Congress is
considering expanded data sharing.
Assets Reported by Section 501(c) Entities in 2004 Constant Dollars, Tax
Years 1998-2002
United States Government Accountability Office
Chairman Thomas and Members of the Committee:
I am pleased to participate in today's hearing about the tax-exempt sector
and oversight of it. The sector recognized under section 501(c) of the
Internal Revenue Code (IRC) covers a diverse group of over 1.5 million
entities with varying sizes and exempt purposes (see app. I for types of
section 501(c) exempt entities). The breadth and diversity of the
taxexempt sector allows it to address the specific needs of many of our
citizens and the general needs of society. The exempt sector, and those
who volunteer to assist, also supplements government programs to meet
various needs. For example, charities can supplement programs by providing
comfort to the aging, health care to the uninsured, and education to the
uneducated.
As the nation's tax administrator, the Internal Revenue Service (IRS) has
a key role in overseeing the tax-exempt sector. Oversight can help sustain
public faith in the sector and ensure that exempt entities stay true to
the purposes that justify their tax exemption. It also can help protect
the entire sector from potential abuses initiated by a small minority.
Before discussing the work we did for the Committee, I want to frame
today's hearing within a broader context. GAO recently issued a report
entitled, 21st Century Challenges: Reexamining the Base of the Federal
Government. 1 This report provides examples of a number of key questions
that need to be explored in light of our current and projected fiscal
imbalances as well as other changes and challenges. It highlights the need
for a re-examination of all major federal policies and programs in light
of 21st century realities. Although that report did not specifically cover
the tax-exempt sector, the sector is a microcosm of the issues raised in
the report. While the provisions granting federally recognized tax-exempt
status and associated policies have been layered upon one another to
respond to challenges at the time, a comprehensive re-examination of the
tax-exempt sector has not been done in recent times. On a broad scale, a
comprehensive re-examination could help address whether exempt entities
are providing services to our citizens commensurate with their favored tax
status, whether the current number and nature of exemptions continue to
make sense, whether restrictions on the activities of tax-exempt entities
remain relevant, and whether the framework for ensuring that exempt
entities adhere to the requirements attendant to their status is
satisfactory.
1 GAO-05-325SP.
Today's hearing provides an excellent forum to launch such a
reexamination. Some of the more specific issues that may merit
reexamination for the tax-exempt sector include:
o Should the criteria for granting exempt status be reconsidered and do
we need as many types of tax-exempt entities?
o Do we need to modify the model used in overseeing tax-exempt entities
to ensure that the tax-exempt purpose is met and that fraud or other
misuse is deterred?
o What governance standards should apply to the tax-exempt sector, and
should particular types of exempt entities have more specific standards?
o Are the operations and activities of tax-exempt organizations
sufficiently transparent to support oversight by the public, news media,
and federal, state, and local governmental agencies?
o Beyond revoking tax-exempt status and various currently available
intermediate sanctions, do we need more intermediate sanctions to deter
abuse and enhance accountability while minimizing any damage to those
served by the exempt entity?
o Should certain federal audit and internal control requirements apply to
tax-exempt entities, and if so, how should the requirements vary according
to entities' size or other characteristics?
o Is there sufficient transparency over the total compensation package
and its justification for executives and other officials at tax-exempt
entities?
o What should be the allowable "lobbying and political" activities in
which different types of tax-exempt entities can engage and how should
such activities be reported?
o What are the differences between nonprofit and for-profit entities that
perform similar missions, such as nonprofit and for-profit hospitals, and
do the nonprofit entities provide sufficiently different services to
justify their exemption?
Based on your request, I will discuss
o the growth of the tax-exempt sector, focusing on those entities whose
tax-exempt status falls under section 501(c) of the IRC;
o the roles of sound governance practices and transparency in ensuring
that tax-exempt entities function with integrity and perform their
missions effectively;
o IRS's capacity for overseeing those exempt from taxation under section
501(c), results of its oversight activities, and efforts to address
critical compliance problems; and
o the states' role in overseeing tax-exempt entities and their
relationship with IRS in conducting oversight.
To summarize the growth of the tax-exempt sector, we analyzed data filed
annually with IRS by section 501(c) entities. To summarize governance
practices and transparency in the tax-exempt sector, we reviewed documents
published by IRS and others, and official statements made in testimony
before Congress. To summarize IRS's oversight capacity, results, and
efforts to deal with critical compliance problems, we reviewed IRS's data
and interviewed IRS officials. To summarize the role of states and their
relationship with IRS, we reviewed our previous reports2 and outside
articles and reports. To the extent possible, we sought data from 1998
through the most recent year available for all descriptive statistics. We
reviewed the reliability of the data used and found them reliable for our
purposes. We did our work from December 2004 through March 2005 in
accordance with generally accepted government auditing standards.
Let me begin by highlighting key points I will make.
o The 501(c) tax-exempt sector has grown steadily in reported assets,
revenues, and expenses. For example, between 1998 and 2002 (the most
recent year of available data), their reported assets grew 15 percent to
over $2.5 trillion. Accordingly, the tax-exempt sector comprises a
2 See Tax-Exempt Organizations: Improvements Possible in Public, IRS, and
State Oversight of Charities, GAO-02-526 (Apr. 30, 2002); Political
Organizations: Data Disclosure and IRS's Oversight of Organizations Should
Be Improved, GAO-02-444 (July 17, 2002); and Vehicle Donations: Benefits
to Charities and Donors, but Limited Program Oversight, GAO-04-73 (Nov.
14, 2003).
significant part of the nation's economy and workforce. For example,
spending in the tax-exempt sector appears to be about one-tenth of our
economy and the paid exempt workforce appears to be comparable in size to
some of the largest sectors of the U.S. civilian workforce, such as food
and lodging. The sector's significance in the economy might be greater
because the asset, revenue, and expense data are likely understated to
some unknown amount. For example, the data do not include all tax-exempt
entities under section 501(c) because not all entities are required to
file, such as religious entities, and some entities do not file required
Form 990.
o Good governance and transparency are essential elements to ensure that
tax-exempt entities operate with integrity and effectiveness in carrying
out their missions. Governance facilitates well-run operations that
dissuade abusive behavior. Transparency sheds light on entities'
practices, which enhances incentives for ethical, efficient, and effective
operations and facilitates oversight by the public and others. With recent
concerns about abuses within the tax-exempt sector, renewed attention is
being given to improving governance practices and expanding and increasing
the transparency of the sector's operations.
o Staffing trends and insufficient data have contributed to IRS being
challenged in executing its oversight role. IRS has begun to increase
staffing during 2005, which results in 467 full-time equivalents (FTE) to
examine the compliance of about a half million section 501(c) entities
that file Forms 990. However, IRS does not know the extent to which these
entities comply. Recognizing this, IRS started efforts in 2002 to obtain
compliance data for various segments of the exempt sector but had to
suspend most of these efforts to use those resources on higher priorities
such as pursuing known types of noncompliance. For example, IRS has
ongoing special compliance initiatives dealing with critical issues such
as excessive compensation and abusive tax transactions involving exempt
entities. IRS is also seeking ways to access and better analyze existing
data at IRS or elsewhere on exempt entities.
o States often oversee tax-exempt entities, frequently focusing on
protecting the public from fraudulent activities and guarding against
misuse of charitable assets. States and IRS believe that more data sharing
would make their oversight more efficient and effective. Consistent with
our earlier recommendations, IRS has improved its processes for sharing
data and Congress has been considering a
legislative proposal to expanded IRS's authority to share data with
specified state officials under appropriate restrictions and protections
related to using the data.
My statement today will address each of these topics in turn. Before that,
I will provide some background on the tax-exempt sector and IRS's
oversight of it.
Background Internal Revenue Code (IRC) section 501(c) specifies 28 types
of entities that are eligible for tax-exempt status and over 1.5 million
entities have been recognized as exempt as of 2003.3 Section 501(c)
entities are involved in a variety of activities and exempt purposes.
Congress authorized the tax exemption for each type of entity to meet
specific purposes, such as health care for the uninsured.
Almost two-thirds of these entities--over 960,000 in 2003--were classified
as 501(c)(3) charities, which have exempt purposes such as serving the
poor; advancing religious, educational, and scientific endeavors;
protecting human rights; and addressing various other social problems.4
About another 20 percent of exempt entities were social welfare
organizations, labor unions, and business associations--501(c) (4 through
6), respectively. The remainder covered an array of types of exempt
entities with varying purposes and numbers. In 2003, such types included
15 teacher retirement funds, over 10,000 cemetery companies, over 4,000
state-chartered credit unions, an employee-funded pension trust, 20
corporations to finance crop operations, and over 35,000 veteran
organizations.
An entity that believes it meets the requirements set by Congress must
apply to IRS to obtain tax-exempt recognition by submitting the following:
5
3 Other types of tax-exempt entities are authorized under other Section
501 subsections such as for cooperative hospital service or educational
investment organizations or under other sections such as Section 521
(farmer cooperatives) and Section 527 (political organizations), among
others.
4 Taxpayers may deduct from their taxable income the value of donations to
charities, unlike for almost all other types of tax-exempt entities.
5 Entities that are not required to apply include those that are not
private foundations and that have gross receipts of less than $5,000 as
well as churches and church-affiliated entities.
o Form 1023 (Application for Recognition of Exemption under Section
501(c) (3) of the Internal Revenue Code) or Form 1024 (Application for
Recognition of Exemption under 501(a));
o organizing documents, such as the Articles of Incorporation, Articles
of Association, Trust Indenture, Constitution, or other enabling
documents;
o 4 years of financial data;6 and
o a full description of the purposes and the activities of the entity.
After receiving tax-exempt recognition, many entities must annually file a
Form 990 to report their financial transactions and activities for a "tax
year" (see app. II for a copy of Form 990) if annual gross receipts are
normally more the $25,000. Those that have less than $100,000 in gross
receipts and year-end assets of less than $250,000 may use Form 990-EZ.
Generally, entities with gross receipts below $25,000 are not required to
file. Certain types of entities such as churches and religious
organizations also are not required to file. Form 990 has information on
revenues, expenses, and assets. For 2003, the form had 105 line items on 6
pages as well as 46 pages of instructions plus two schedules. Schedule A
covers several areas such as compensation, lobbying, and revenue sources.
Schedule B covers the source of contributions to charities and certain
other exempt entities, such as IRC Section 527 political organizations.
IRS oversight relies on two activities. First, IRS reviews applications
for tax-exempt status to determine whether a tax-exempt purpose is
envisioned. IRS can approve or deny the application. Once an application
is properly completed, the criterion for approving or denying the
exemption is whether the applicant provides sufficient evidence that its
operations will match an allowable exempt purpose. Second, IRS annually
examines some Forms 990 to determine whether selected exempt entities meet
various requirements (such as restrictions on political activities). In
general, IRS attempts to select entities that it believes are likely to
have violated requirements. IRS can accept the Form 990 as filed or change
the
6 If the entity has operated for less than a year or has not begun
operations, a proposed budget for two full accounting periods and a
current statement of assets and liabilities will be acceptable. Otherwise,
entities that have operated for less than 4 years should report data for
those years.
status of the entity, impose excise taxes for certain types of violations,
or revoke the exempt status if the violations are serious enough. IRS can
also assess taxes if an entity has not fully paid employment taxes or
taxes on unrelated business income.
Given concerns about the tax-exempt sector, the Senate Committee on
Finance asked that a panel of experts make recommendations to Congress to
improve oversight, transparency, and governance in the sector. To do so,
the Independent Sector7 convened a Nonprofit Sector Panel in October 2004,
which includes 24 nonprofit and philanthropic leaders.8 It provided an
interim report of findings and recommendations in March 2005 and plans to
issue a final report in June 2005.
Tax-Exempt Assets, Revenues, and Expenses HaveGrown, Making It A Significant
Sector In The Nation's Economy
The tax-exempt sector is growing. During 1998 through 2002, more entities
have been filing Forms 990 and reporting higher amounts of assets,
revenues, and expenses. These reported amounts indicate that the taxexempt
sector is a significant part of the economy and the civilian workforce.
The data on the growth in assets, revenues, and expenses reported on the
annual Form 990 are likely to be understated because not all tax-exempt
entities under section 501(c) are included. Entities below certain asset
or gross receipt tolerances are not required to file. Nor are various
types of religious entities. Further, an unknown number of tax-exempt
entities do not file the required Form 990. The number and finances of
those not included are unknown.
Tax-Exempt Entities Have For tax years 1998 through 2002, the number of
section 501(c) exempt Reported Increased Assets, entities filing a Form
990 grew from about 450,000 to 465,000--about 3 Revenues, and Expenses
percent (see table 1 in app. III). These Forms 990-of which between 63
and 65 percent are filed by charities--have been reporting higher asset
amounts. Figure 1 shows the growth in reported assets for tax years 1998
to 2002 (the most recent year of data). The reported assets grew 15
percent
7 The Independent Sector is a national coalition of nonprofit
organizations, private foundations, and corporate-giving programs that is
to support the tax-exempt sector.
8The panel is assisted by over 100 nonprofit executives and other experts
on five work groups.
to over $2.5 trillion-about 12 percent growth for section 501(c)(3)
charities and about 22 percent growth for the other 27 types of
noncharities covered under section 501(c). (See table 2 in app. III.)
Figure 1: Assets Reported by Section 501(c) Entities in 2004 Constant
Dollars, Tax Years 1998-2002
Dollars (trillions)
3.0
2.5
2.0
1.5
1.0
.5
0 1998 1999 2000 2001 2002
Tax year
Total assets
501(c)(3) assets (charities)
Non-501(c)(3) assets (noncharities)
Source: Tabulation of data from IRS's Return Inventory Classification
System, 1998-2002.
The reported revenue and expense amounts also grew from tax years 1998
through 2002 (see tables 3 and 4 in app. III). However, the amount by
which reported revenues exceeded expenses has been closing for exempt
entities filing Forms 990---from about 9 percentage points in 1998 to 2
percentage points in 2002 (see fig. 2).
Figure 2: Revenue and Expenses Reported by Section 501(c) Entities in 2004
Constant Dollars, Tax Years 1998-2002
Dollars (trillions) 1.4
The growth in the tax-exempt sector indicates that it has become a major
part of our economy and workforce. From 1975 to 1995, the real assets of
entities filing Forms 990 more than tripled while the economy grew 74
percent during the same 20-year period, according to an IRS study.9 More
recently, based on data reported on Forms 990 during 1998 through 2002,
spending by tax-exempt entities was roughly 11 to 12 percent of the U.S.'s
gross domestic product (GDP).10 (See table 5 in app. III.) Because the
taxexempt sector is not measured as a specified GDP sector, its percentage
of GDP cannot be compared to official GDP sectors such as medical care or
housing, which likely include spending by tax-exempt entities. Even so, no
single sector accounted for more than 15 percent of the GDP in 2002.
9 A 20-Year Review of the Nonprofit Sector, 1975-1995, Compendium of
Studies of Taxexempt Organizations, Volume 3, IRS Statistics of Income.
10Gross domestic product is the market value of all goods and services
produced within a country during a given time period.
1.2
1.0
0.8
0.6
0.4
0.2 0
1998 1999 2000 2001 2002 Tax year
Tax-exempt entities' total revenues
Tax-exempt entities' total expenses Source: Tabulation of data from IRS's
Return Inventory Classification System, 1998-2002.
Tax-Exempt Sector Is a Significant Part of the Economy and Civilian
Workforce
Figure 3 indicates that tax-exempt entities appear to account for a major
portion of the civilian workforce. Data from the U.S. Census indicates
that over 9.6 million employees in the tax-exempt sector accounted for
about 9 percent of the civilian workforce in 2002. Although generally
aligned with section 501(c), the Census definition of a tax-exempt entity
excluded certain types of entities (such as universities, labor unions,
religious organizations, and public administration), which means that the
number of tax-exempt employees is understated.
Figure 3: Paid Employees by Economic Sector as Percentage of U.S.
Workforce, 2002
Tax-exempt entities
Waste management and remediation
Food and lodging
Retail
Manufacturing
Other
Source: U.S. Bureau of the Census, 2002 Economic Census.
Note: "Other" category includes 13 economic sectors that individually
accounted for less than 8 percent of the workforce in 2002, including
educational services such as technical, driving, and other specialized
training schools; mining; utilities; construction; and real estate.
In addition to paid workers, one study11 suggests that the number of
volunteers at certain tax-exempt entities (which account for at least 60
percent of the sector) grew about 27 percent from 4.5 million in 1982 to
5.7 million volunteers in 1998.
Strong Self-governance And Transparency Are Essential Elements For A Thriving
And Effective Exempt Sector
Strong self-governance and transparency are essential elements to help
provide assurance that tax-exempt entities operate with integrity and
effectiveness in meeting their missions while maintaining public trust. A
number of requirements help establish governing structures while required
public disclosure of information about exempt entities enhances
transparency. However, recent concerns about abuses in the tax-exempt
sector have prompted consideration of and support for enhanced governance
and transparency.
Good Governance Helps Provide Assurance that a Tax-Exempt Entity
Effectively Manages Funding and Programs
Governance can be viewed as the collective policies and oversight
mechanisms in place to establish and maintain sustainable and accountable
organizations that achieve their missions while demonstrating stewardship
over resources. Good governance helps ensure that tax-exempt entities are
well run and that abusive behavior is minimized. Generally, an
organization's board of directors has a key role in governance through its
oversight of executive management, corporate strategy, risk management and
audit processes, and communications with external stakeholders. This is
implicitly recognized in some of the statutory and regulatory requirements
for the tax-exempt sector.
For example, to obtain federal tax-exempt recognition, applying entities
must include charters and bylaws with their application. The states in
which they are established specify what must be included in the charters
and/or bylaws and the states' requirements help create a basic governance
structure for exempt entities. Some states, for instance, have
requirements for audited financial statements of tax-exempt entities. For
example, in one state, charities with gross revenue in excess of $100,000
and not more than $250,000 are required to file financial statements
accompanied by a
11IRS does not transcribe data on the numbers of paid workers and
volunteers. The Independent Sector issued a nonprofit almanac with data
through 1998 on volunteers at entities classified as 501(c) (3) charities,
501(c) (4) social welfare and civic organizations, and religious
congregations.
report from a licensed certified public accountant. If gross revenues
exceed $250,000, the state requires an audited financial statement with an
independent auditor's report.
In addition, Congress and IRS have various requirements to help ensure
that tax-exempt entities do not engage in activities that are inconsistent
with their exempt purpose and to promote stewardship over the use of the
funds. For instance, to ensure that tax-exempt assets are for public
rather than private benefit, IRS has issued regulations affecting
tax-exempt entities on "excessive compensation" to officers, directors, or
other employees. IRS requires market comparability studies and a review of
compensation by boards of directors. If excessive compensation is found,
excise taxes under section 4958 for charities and section 4941 for private
foundations can be levied against the overpaid individual and certain
managers who knowingly approved the payments. (See app. V for an
explanation of such excise taxes imposed against private foundations and
other tax-exempt entities.)
The federal government also has certain accountability requirements that
affect some tax-exempt entities. OMB Circular A-133, for instance,
requires those entities, including tax-exempt entities that receive
federal awards of $500,000 or more per year, to perform an audit of
federal funds received and expended and of the programs for which the
funds were received.
Transparency Complements Good Governance
While strong governance practices can help ensure that tax-exempt entities
operate effectively and with integrity, public availability of key
information about the entities--i.e., transparency--can both enhance
incentives for ethical and effective operations and support public
oversight of tax-exempt entities, while helping to achieve and maintain
public trust. Recognizing the importance of transparency for tax-exempt
entities, Congress provided for substantial transparency regarding
tax-exempt entities by making their Forms 990 publicly available
documents. This is in stark contrast to the strong protections for the
privacy of individuals' tax returns.
Since tax exemptions are granted to entities so that they can carry out
particular missions or activities that Congress judged to be of special
value, the public availability of the entities' Forms 990 is one means to
help ensure that the public has information to judge whether those
missions are carried out properly. Presumably, when "sunshine" is let in,
inappropriate activities are less likely to occur. In the particular case
of charitable organizations, the availability of their Forms 990 provides
some
information for individuals to use in judging whether to make a donation.
Thus, publicly available information helps establish a "free market" in
which charities compete for donations, which should encourage efficiency
and effectiveness.
At various times, Congress has reinforced the commitment to transparency
over the operations of tax-exempt entities. For instance, when some exempt
entities were found to be imposing inappropriate fees or other
requirements on those seeking to obtain a copy of their Form 990, Congress
modified the law to provide that copies must be provided without charge to
the individual other than a reasonable fee for any reproduction and
mailing costs.12
Recent Concerns about Abuses Have Led to Support for Enhanced Governance
Processes and Transparency
With recent concerns about abuses in the tax-exempt sector, attention has
been renewed on improving the sector's governance and transparency. Among
the proposals being considered for improved governance are enhancing the
controls and processes for determining executive compensation, guarding
against other misuse of charitable assets, and forestalling tax-exempt
entities' participation in tax avoidance schemes. Proposals for enhanced
transparency include requiring more information in a more timely and
user-friendly fashion on the Form 990.
In recent years, media accounts have publicized certain alleged abuses in
the tax-exempt sector that speak to failures in tax-exempt entities'
governance. For example, a series of articles in 2003 highlighted possible
misuse of foundations and trusts, citing numerous cases of excess
compensation, insider loans, self-dealing, extravagant perks, and other
questionable activities.13 The articles cited, for instance, alleged
abuses such as:
o A foundation in New York more than tripled its president's compensation
to over $900,000 between 1997 and 2001.
12 See IRC Section 6104(d) and changes made by the Tax and Trade Relief
Extension Act of 1998, P.L. 105-277.
13 The Boston Globe ran a series of articles between October and December
of 2003 that uncovered questionable practices among foundations and
trusts.
o A family-based foundation in Chicago paid two family members over $1
million during a 5-year stretch and donated only $175,000 to charities.
Another series of articles pointed to the apparent misuse of easements.14
An easement is when an owner voluntarily restricts changes to real
property, such as to preserve historic buildings and the environment.
Donation of the easement to an exempt entity provides an income-tax break
to the donor. In some cases, insiders at the charities charged with
policing the restrictions imposed by the easements on development may have
benefited the most. In other cases, individuals may have claimed tax
deductions for easement donations even though local or other laws already
required preservation of the property.
Concerns about excessive compensation and whether some tax-exempt entities
provide sufficient services to justify their exempt status have surfaced
regarding nonprofit hospitals. An example of concerns in these areas has
been offered by the Minnesota Attorney General who recently testified on
such abuses.15 Among other things, his office found that certain
tax-exempt health care systems paid for trips to vacation resorts by
executives and board members without a clear business purpose, and that
some nonprofit hospitals provided inadequate levels of "charity" care to
patients without the resources to pay. Across the United States, little is
known about the extent to which these potential abuses involving excess
compensation and the level of services provided by nonprofit hospitals
occur. More information about the practices employed by exempt entities to
compensate executives and others, and by nonprofit hospitals to serve
their patients, would be valuable.
Even as these abuses were surfacing, some organizations within the
taxexempt sector were seeking to improve the governance and transparency
within the sector. For example, in recent years, the National Association
of State Charity Officials (NASCO), the Independent Sector, and the
National Committee for Responsive Philanthropy, among others, have called
for revisions to the Form 990.
14 The Washington Post has been running periodic articles about alleged
abuses within the tax-exempt sector. The most recent series, in December
2004, concerned the alleged donation of historic facade easements to
obtain inflated charitable contributions.
15 Testimony of Mike Hatch, Attorney General for State of Minnesota,
before the Senate Committee on Finance, April 5, 2005.
Others have taken the initiative to establish self-regulatory standards
independent of those set by IRS. For example, the Better Business Bureau
has established a seal of approval program to help donors make informed
decisions and foster public confidence in charities. Charities
participating in the program are to provide documentation that the bureau
uses to determine whether its 20 standards have been met. These standards
address governance and oversight, effectiveness, finances, and public
information materials. For example, 5 standards are used to measure
governance and oversight such as through an active and independent
governing board, and 7 standards are used to ensure that spending is
honest, prudent, and in accordance with fund-raising appeals.
Concerns about abuses in the tax-exempt sector also have spurred
congressional interests. This House Committee on Ways and Means' hearing
exemplifies that interest. In June 2004, the Senate Committee on Finance
released a discussion draft of proposals for tax-exempt reforms. The draft
discussed more than three dozen proposals to generate comments about
possible legislation. The proposals addressed conflict of interest,
federal-state coordination, transparency, governance, best practices,
funding for enforcement, among many others. Such proposals mirror similar
types of recent requirements to increase accountability and oversight of
other types of large public and private organizations, such as
corporations, in which ethical, financial, and other abuses have occurred.
The Panel on the Nonprofit Sector responded to such proposals in its March
2005 interim report. In discussing governance and ethical conduct, the
report pointed to the need for best practices, accepted standards,
selfregulation, and education. To improve governance, the report
recommended that charities enforce a conflict-of-interest policy, select
board members with some financial literacy, and encourage disclosure of
illegal practices. The report also advocated more transparency to enable
public oversight and confidence in tax-exempt entities. It concluded that
IRS should promote transparency while recognizing the burdens that
reporting more data can place on exempt entities that are small and lack
resources. The report supported revising the Form 990, mandating
electronic filing in coordination with the states for the Forms 990 and
1023, and increasing the sanctions for not filing an accurate or timely
Form 990. The report acknowledged that these steps would not fully
dissuade those who want to violate standards, and concluded that some
government oversight is necessary.
More specifically, among the proposals being considered to improve
governance and transparency are:
o Governance proposals:
o Require that compensation for all management positions at a charity
must be approved annually and in advance, and must be justified in a
manner that can be understood by those with a basic business background.
o Require the board of directors of a charity to establish a
conflict-ofinterest policy, a compliance program to address regulatory and
liability concerns, and program objectives and performance measures, among
other duties.
o Prohibit board membership to those not permitted to serve on the board
of a publicly traded company.
o Establish a prudent investor rule for the investment activities of
charities.
o Transparency proposals:
o Require the chief executive officer of a tax-exempt entity to sign
under penalty of perjury that the Form 990 and other forms filed comply
with the Internal Revenue Code and that reasonable assurances were given
of the accuracy and completeness of the information reported.
o Require disclosure of relationships of a tax-exempt entity with other
exempt and nonexempt entities, including the formation of taxable
subsidiaries and transactions with these other entities.
o Require disclosure of annual performance goals and measures by
charities with over $250,000 in gross receipts.
o Require disclosure of investments by public charities.
IRS Has Been Challenged to Oversee Tax-Exempt Entities and Is Beginning Steps
to Enhance Its Oversight Capacity
Staffing and insufficient data have constrained IRS's oversight of the
taxexempt sector. IRS is in the midst of increasing tax-exempt staffing in
fiscal year 2005 and improving its data on tax-exempt entities as well as
enhancing its ability to analyze data to help in targeting compliance
efforts. IRS has identified compliance problems it deems critical and is
taking actions to address them.
IRS Oversight Resources Have Been Relatively Flat Until Recently
Based on a 1997 IRS memorandum and more recent data, it is apparent that
the staffing level for the functions that are now within the Tax Exempt
and Governmental Entities (TE/GE) division has been essentially flat since
1974-2,075 in 1974 versus 2,122 in 2004. These are total staffing levels
for all of the work done within the current TE/GE, which includes
reviewing employee pension plan issues and certain other matters. Although
we did not obtain a measure of the overall change in TE/GE workload from
1974 to 2004, the number of 501(c) tax-exempt entities increased from
around 670,000 to over 1.5 million.
From fiscal year 2000 through 2004, IRS staffing for overseeing tax-exempt
entities stayed relatively flat as measured by the number of FTE staff
assigned to oversee tax-exempt entities.16 For fiscal year 2005, IRS
increased the number of FTEs assigned for such work. The assigned FTEs
dropped about 4 percent from fiscal years 2000 through 2004 but increased
about 11 percent for fiscal year 2005, resulting in a 7 percent increase
in assigned FTEs overall (see fig. 4). This 2005 increase is due to the
FTEs assigned to do examinations since the FTEs assigned to do
determinations of exempt status stayed relatively flat. As of 2005, IRS
assigned 467 FTEs to examine the hundreds of thousands of entities who
generally file Forms 990 (see table 6 in app. IV).
16 An FTE equals 2,087 hours in a year. IRS did not have comparable FTE
data for its exempt activities back to 1998 due to its reorganization in
2000. FTEs assigned are what IRS budgets for this work. We were unable to
obtain reliable data on the FTEs used for taxexempt oversight in time for
this testimony. However, because IRS may not use the FTEs assigned to
examination or determinations for those purposes, the number of hours that
staff charge to these oversight tasks may be a better indicator of the
level of effort.
Figure4: Assigned FTEs byType of IRS Activity, Fiscal Years 2000-2005
FTE
900
800
700
600
500
400
300
200
100
02000 2001 2002 2003 2004 2005
Fiscal year
Total FTE
Examination FTE
Determination FTE
Other FTE
Source: IRS Exempt Organization officials.
Note: "Other FTE" includes technical staff who issue rulings, the
Director's staff, and education and outreach.
Competition within IRS for resources helps explain why resources for
taxexempt oversight have not increased much until fiscal year 2005. IRS
has many other priorities in collecting the proper amount of tax from tens
of millions of individuals and businesses. IRS's budget emphasizes areas
that produce tax revenue rather than areas that are regulatory. IRS
oversight of the exempt sector is primarily regulatory rather than revenue
producing. IRS exempt officials also said that an ongoing issue is the
proper mix of resources budgeted for oversight versus other activities
such as providing guidance or education. Beyond tax-exempt entities, TE/GE
must also budget resources to deal with pension plans, Indian tribal
governments, and other types of government entities.
Congressional tax-writing committees have attempted to provide dedicated
funding for exempt oversight. For example, in 1969, Congress added section
4940 to the Internal Revenue Code, which imposes an excise tax on the net
investment income of private foundations (see app. V for an explanation of
this tax and tax rates). The legislative history indicates that the tax
committees intended for the amounts collected from the excise taxes would
operate as user fees to fund IRS oversight of exempt entities. To date,
congressional appropriation committees, which have jurisdiction over
annual funding, have not earmarked these tax collections for this
17
purpose.
IRS has not maintained data on how much excise tax it has assessed or
collected under Section 4940 (or any other excise tax that can be assessed
against tax-exempt entities either overall or by type of excise tax).
However, IRS did have data that showed tax-exempt entities reported owing
(i.e., self-assessed), in 2004 constant dollars, at least $247 million in
this excise tax annually (about $1.5 billion overall) for 2000 through
2003 (see table 10 in app. V). For comparison, the fiscal year 2003 budget
for all of TE/GE (i.e., not just tax-exempt oversight functions) was
around $205 million.
IRS's Oversight Caseload Has Been Increasing in Recent Years and IRS Has
Had Difficulties Sustaining Its Oversight
For section 501(c) entities, IRS's oversight caseload has been increasing.
In its determinations' work involving applications for tax-exempt status,
in fiscal years 1998 through 2004, applications increased about 17 percent
from 78,358 to 87,080, with some annual fluctuations (see table 7 in app.
IV). IRS officials said that IRS must review each application to make a
determination of exempt status. IRS's potential tax-exempt examination
universe has grown more slowly. As mentioned earlier, the number of exempt
entities filing a Form 990 grew from about 450,000 to 465,000 during tax
years 1998 through 2002-or about 3 percent.
IRS has had difficulty sustaining a consistent examination rate for
taxexempt entities. As figure 5 shows, the rate at which IRS examined
filed Forms 990 fell from 1.8 percent in 1998 to 1.1 percent in 2002
before rising to 1.3 percent in 2003 (see table 8 in app. IV).
17The Nonprofit Sector Panel interim report concluded that Congress should
increase resources, and earmark some penalty, fee, and excise tax amounts
for IRS exempt oversight and education.
Figure5: IRS Examination Rates for Section 501(c)Entities, Fiscal Years
1998-2003
Exam rate percentage
6
5
4
3
2
1
0 1998 1999 2000 2001 2002 2003
Year
Exam rate of noncharities
Overall exam rate
Exam rate of charities
Source: GAO tabulation of IRS's Audit Information Management System and
IRS's Return Inventory Classification System, 1997-2002.
IRS officials said that the declining examination rates primarily resulted
from a decline in FTEs for examinations and an increase in the average
hours spent per examination. The number of tax-exempt entities that IRS
examined decreased from 8,290 in fiscal year 1998 to 5,889 in 2004, or
about 29 percent, after dropping as low as 5,423 examinations in 2002. IRS
officials said that they have examined more returns since 2002 because
they used more of their examiners to examine Forms 990 rather than help
elsewhere such as with determinations, and expedited examinations, such as
by limiting their scope and depth.
In terms of determinations' results, during fiscal years 1998 through
2004, IRS annually denied about 1 percent of the applications while the
approval rate was 74-80 percent (see table 7 in app. IV).18 Denials occur
when IRS determines that an applicant has not met the statutory
requirements for
18The rest of the applications included those for which IRS had not made a
determination for reasons such as applications that were withdrawn or
incomplete.
exemption. In accordance with the statutory guidance on qualifying for
tax-exempt status, IRS is not likely to deny the recognition of tax-exempt
status as long as the applicant provides all required documents, files a
complete Form 1023, and provides an appropriate statement about its intent
to serve an approved exempt purpose.
Regarding examination results, during fiscal years 1998 through 2003, IRS
revoked exempt status in 1.2 percent of its examinations. Revocations
occur when IRS determines that the entity omitted or misstated a material
fact, operated materially different from its stated exempt purpose, or
engaged in a prohibited transaction in conflict with its exempt purpose.
IRS does not often revoke tax-exempt status because the need for
revocation often does not arise and when it does, IRS focuses more on
getting the taxexempt entity to comply with federal laws rather than on
taking away its exempt status.
Beyond revocations, IRS examinations can produce one or more other
changes19 such as in the section 501(c) paragraph,20 foundation status of
a 501(c)(3) entity,21 and assessed tax.22 Changes in paragraph are
important because of rules governing permissible activities. For example,
a taxexempt entity classified as a charity under 501(c)(3) can accept
donations that are tax deductible for the donor, unlike those classified
as a social welfare entity under Section 501(c)(4). However, such
charities are more restricted in their ability to lobby and engage in
political activity compared to social welfare entities. Changes in
foundation status are important because foundations generally are
subjected to more requirements than
19IRS examiners can make 12 "other" types of changes such as those
involving related returns, delinquent returns, appeals, closing
agreements, referrals to other IRS divisions, and claims.
20 "Paragraph" refers to the types of 501(c) entities such as (c)(3) or
(c)(4). When an entity applies for exempt status, it must tell IRS the
section 501(c) paragraph under which it qualifies.
21 An entity that qualifies under section 501(c)(3) is a private
foundation unless it meets the criteria for a public charity, such as
having broad public support. Beyond an examination, status can be changed
when (a) an entity requests an IRS determination letter on its status, and
(b) 5 years have elapsed for an entity that has been permitted to be a
public charity for its first 5 years.
22 Tax-exempt entities could owe employment taxes, various types of excise
taxes, or income taxes if they operate a business activity not related to
their exempt purpose.
public charities, such as in the requirement to annually distribute a
minimum amount of income towards its exempt purpose.
Figure 6 shows that the percentage of examinations that produced no change
rose from 31 percent in fiscal year 1998 to 39 percent in 2004, with
higher rates in 2002 and 2003 (see table 9 in app. IV). In general, IRS is
not likely to find a change in every examination given the focus on
getting exempt entities into compliance and the need for better data to
select the most noncompliant entities for examination. Higher no-change
rates mean that IRS spends resources examining compliant entities. IRS
officials said that they are working to reduce the no-change rate to or
below the 1998 level.
Figure 6: No-Change Rate for Examinations of Forms 990, Fiscal Years
1998-2004
No-change rate 60
50
40
30
20
10 0
1998 1999 2000 2001 2002 2003 2004 Fiscal year
Examinations resulting in no change Source: Tabulation of data from IRS's
Audit Information Management System, 1998-2004.
IRS Has Had Insufficient IRS has acknowledged that it lacks sufficient
data to effectively find and Reliable Information to address noncompliance
among tax-exempt entities. At the same time, IRS Guide Oversight Efforts
but is aware that improvement to the Form 990 data made available to the
public could better support public, media, and others' oversight of tax-Is
Working to Obtain Better exempt entities. To better enable it to collect
and analyze such data, IRS is Information
taking a number of steps. IRS is also trying different actions to enhance
its ability to address critical and other types of noncompliance.
To help identify noncompliance, IRS is revising the data requested on the
Form 990. IRS has determined that the Form 990 does not provide sufficient
data to identify tax-exempt entities that merit an examination due to
noncompliance. Nor can IRS easily compare Form 990 data with data reported
on the Form 1023.23 For example, the current Form 1023 requests data on
hospitals and low-income housing that are not captured in the Form 990.
Being able to compare similar data on both forms would better enable IRS
to see whether the stated exempt purpose is being pursued and met.
To enhance the usefulness and ease of preparation of the Form 990, IRS
officials stated that the IRS is undertaking a large-scale revision. IRS
officials said that the revision process has key steps to be taken before
IRS shares the specific changes. However, IRS officials identified some
general changes being developed. To ease preparation, IRS is attempting to
write all questions in plain English and group questions related to an
issue. Further, IRS officials explained that the revised Form 990 is to
consist of one form applicable to all tax-exempt entities and a series of
organization and activity schedules. The organization schedules would be
tailored to filers such as hospitals or veteran's organizations while the
activity schedules would be tailored to issues such as compensation
packages and grant making that may be financing terrorism.
An IRS team completed a first draft of the revised Form 990 in December
2004. Before setting milestones for publishing the Form 990, IRS wants to
allow for review by various parties inside and outside IRS. IRS also plans
to consider recommendations on the Form 990 of the Nonprofit Sector Panel
to be presented in its final report in June 2005. Finally, IRS plans to
make the revised Form 990 suitable for electronic filing in a
cost-effective manner.
IRS has also recognized that it has insufficient data on the extent or
causes of noncompliance for segments of the tax-exempt sector. IRS has
done a few studies to measure the compliance of exempt entities filing
Forms 990
23IRS revised Form 1023 in 2004 to provide information that helps identify
potential problems early in the application process, including potentially
abusive situations involving tax-exempt entities such as those claiming to
provide credit counseling.
and reporting items such as the unrelated business income tax owed. IRS
did these studies in the 1970s, except for a smaller compliance study done
during the 1980s.
To alleviate such data shortcomings, in 2002, IRS began over 30 studies of
"market segments," which are homogeneous groups of tax-exempt entities
such as charities, social clubs, and business leagues, or of exempt issues
such as business income unrelated to an exempt purpose. These studies were
to develop reliable data on the types and extent of compliance problems.
IRS planned to use the data to refine selection criteria for identifying
noncompliant returns for examination as well as help identify other
strategies to improve compliance such as through improved guidance or
instructions. However, IRS has had to delay most of these studies due to
higher priorities (such as dealing with abusive tax transactions).
Given its concern about insufficient data, IRS also is taking steps in
fiscal year 2005 to improve its capabilities to analyze data. IRS has been
establishing a Data Analysis Unit to provide trend analysis intended to
improve the selection of tax-exempt entities for examination and the
identification of compliance issues to pursue. The unit is to make better
use of internal and external databases.24 A driving force in creating the
unit was the lack of research tools and staff trained in using data. As
described below, IRS has several other efforts underway or planned to
improve the use of electronic data on the tax-exempt sector.
24 The Data Analysis Unit plans to use data-mining techniques to identify
patterns and establish relationships to uncover compliance issues. For
example, by comparing state bingo databases to IRS files, IRS could
identify entities with gross receipts in excess of the $25,000 filing
threshold that failed to file a required Form 990.
o IRS plans to expand electronic filing of returns, which could help IRS
to more quickly identify noncompliance and improve public access to Form
990 data.25 IRS began accepting the Form 99026 electronically on a
voluntary basis in 2004, and plans to expand voluntary electronic filing
to Form 990-PF filed by private foundations in 2005 and to create a single
point for electronic filing of federal and state returns in 2006. IRS
plans to require electronic Form 990 filing for exempt organizations with
assets in excess of $100 million for 2006 and in excess of $10 million for
2007. Private foundations would be required to file electronically for
2007 regardless of the amount of their assets. 27
o IRS's Exempt Organizations Electronic Initiatives Office28 is
developing a "Better Data Initiative" intended to synthesize IRS's
electronic data for compliance purposes, such as examination selection and
compliance trend analysis. The goal is to have an effective database
management infrastructure in place by 2007. This office also is to help
find and use electronic data sources that would be useful for trend
analysis.
IRS Has Identified Priority Compliance Issues and Is Working to Address Them
Because of increasing concerns about specific types of noncompliance, IRS
has created initiatives to address specific abuses across the tax-exempt
sector. IRS also is attempting to build a stronger enforcement presence
during 2005 through new processes to supplement examinations of compliance
among exempt entities.
25 IRS has a network to image the paper Forms 990 filed by charities. The
imaged forms, minus sensitive data such as social security numbers and
donor names, are sold to groups that want such data. Due to resource
limitations, IRS transcribes little data from Forms 990 into electronic
databases. To have more electronic data from Forms 990, IRS has a contract
to have the imaged Form 990 data keypunched.
26 IRS is developing electronic filing for Form 1023, which is used to
apply for tax-exempt status. IRS hopes to begin accepting the electronic
Form 1023 by 2007.
27 Consistent with IRC section 6011(e), only large organizations,
including exempt organizations and private foundations, that are required
to file 250 or more returns with IRS will be required to file their Form
990 electronically. Such returns include Forms 990, annual employee wage
and tax statements (Form W-2), quarterly payroll tax returns (Form 941),
and annual information returns, such as payments to vendors for services
(Form 1099 MISC).
28 The Electronic Initiatives Office manages the development and
implementation of automation efforts on exempt organizations in support of
the strategic plan.
IRS has identified four critical compliance problems, which it plans to
address through enforcement during fiscal year 2005, as follows.
o Anti-terrorism-examine a sample of exempt entities that make foreign
grants to ensure that the funds are used for the charitable purpose and
not for terrorist activity.
o Credit counseling-examine credit counseling and consumer credit
organizations that appear to operate as businesses rather than provide the
educational or charitable services required under tax-exempt status.
o Excessive compensation-conduct compliance checks and examinations of
charities and private foundations to identify potential excessive
compensation paid to insiders.
o Abusive tax avoidance transactions-focus on four types of transactions
that are intended to exploit tax-exempt status for personal gains,
including:
o using non-life mutual insurance companies29 and producer-owned
reinsurance companies30 to earn tax-free profits;
o establishing donor-advised funds31 to generate questionable deductions,
benefits to donors, or management fees for promoters;
o misusing tax-exempt entities that are to support other exempt entities
by, for example, making large loans to the founder of the supported entity
or by not providing the required tax-exempt support; and
o abusing Department of Housing and Urban Development programs such as
through personal use of program property.
29 Insurance companies or associations that provide other than life
insurance are generally tax exempt under IRC section 501(c)(15) if their
gross receipts do not exceed $600,000 and more than 50 percent of their
receipts consist of premiums.
30 A producer-owned reinsurance company provides reinsurance for a
producer group's business; reinsurance transfers part or all of the risk
from one insurer to another.
31 Donor-advised funds allow donors to advise how the charitable
contribution is to be used.
IRS plans to address other compliance problems as well. The problems to be
addressed involve charitable gaming, disaster relief organizations whose
distributions result in private benefit or fraud, tax-exempt political
organizations that fail to annually report all required information, and
prohibited political intervention by charities.32 In addition, IRS is
addressing excess deductions for conservation easements, vehicle
donations, and other noncash contributions, as well as abuses involving
charitable trusts, and a "corporation sole".33
To enhance enforcement overall, IRS has been developing new units or
processes. For example, IRS created the Exempt Organization Compliance
Unit in 2004 to help deal with growth in the number of tax-exempt entities
coupled with the limited examination resources. It is to check exempt
entities' compliance with record-keeping and information-reporting
requirements via correspondence rather than a review of books and records
in an examination. During fiscal year 2004, the unit sent over 2,000
letters to check compliance and over 8,000 letters to educate the entities
about how to comply. If an entity does not respond or has questionable
activity identified in the compliance check, IRS could initiate an
examination.
IRS also is developing a Financial Investigations Unit to specialize in
complex fraud and tax-avoidance schemes involving the exempt sector. IRS
recognized that it lacked staff in its tax-exempt unit trained to trace
funds through complex transactions but was being asked to ensure that
charitable assets are not diverted for illegal purposes. IRS plans to hire
specialists that can identify fraud and track foreign grants. Furthermore,
IRS has established a group to review exempt applications for names of
individuals that appear on a Department of the Treasury Office of Foreign
Assets Control listing of suspected terrorists or that IRS knows to be
taxscheme promoters as well as for types of entities with a history of
noncompliance, such as in credit counseling. The presence of such names or
entities would likely result in a referral to the examination group, or
for a suspected terrorist, to IRS Criminal Investigation group.
32 IRS plans to contact over 100 charities identified as having
potentially violated the prohibition, to educate the organizations and
prevent future violations of the law.
33 A corporation sole is an entity authorized under state law to allow
religious leaders to hold property and conduct business for the benefit of
a religious entity.
States Play an Important Role in Overseeing Tax-Exempt Entities and May
Benefit from Additional Coordination With IRS
In addition to IRS oversight, states oversee tax-exempt entities, often
focusing on potential fund-raising fraud and misuse of charitable assets.
The states believe that their oversight could be more effective if IRS
were able to share additional information with them. We have previously
recommended that IRS work with states on data-sharing proposals that
Congress could consider.
States Provide Critical Oversight
Many states oversee some aspects of the tax-exempt sector through their
attorney general and/or state charity offices. Although some overlap in
responsibility with IRS exists, state oversight differs. IRS focuses on
whether the tax-exempt entities meet tax-exempt requirements and comply
with federal laws. States have an interest in whether tax-exempt
charities' fund-raising is fraudulent and whether the entity is meeting
the purpose for which it was created.
In general, exempt entities are to incorporate in a state or the District
of Columbia. State attorneys general have broad power to regulate the
charities that are established or operate in their states. States monitor
charities for compliance with statutory and common-law standards, and can
correct noncompliance through litigation and other means.
States can impose requirements on tax-exempt entities incorporated or
operating in their jurisdictions that specifically affect governance or
transparency. For example, some states require fund-raisers to register
and file information regarding fund-raising or monitor charity
solicitations through their consumer protection bureaus to protect against
fraud. Through its Nonprofit Integrity Act of 2004, California established
governance requirements for financial audits, audit committees, disclosure
of audited statements, and review and approval by the board of directors
of compensation paid to the chief executive officer and chief financial
officer. The act also established requirements related to fundraising.
Coordination between IRS and the States in Sharing Data About Tax-Exempt
Entities Could Enhance Oversight and the Use of Limited Resources
State officials believe, and IRS officials agree, that state oversight of
taxexempt entities could benefit if IRS and states coordinated on sharing
IRS's data. IRS is working on improved data sharing consistent with
recommendations we made in 2002.34 First, we recommended that IRS consult
with state charity officials on how to regularly share IRS data that
federal law allowed to be shared (e.g., data on denials or revocations of
taxexempt status). State charity officials told us that IRS has
implemented this recommendation and has been open to input from the states
on how to better share the data on a regular basis.
Second, we recommended that IRS work with state charity officials and the
Department of the Treasury to identify other types of IRS data that states
would find useful and provisions to protect the data from improper
disclosure or misuse, and to develop a legislative proposal that would
expand state access to such IRS data. State and IRS officials believe that
revising statutes to allow IRS to share more data, such as about ongoing
and closed examinations of charities, would help IRS and states to better
use limited resources and the states to more quickly respond to
noncompliance. Congress is now considering a proposal to allow IRS to
share more information with the states, including their charity
regulators.
Concluding Observations
Tax-exempt entities provide an incredibly diverse set of services to our
equally diverse population. Our lives are enriched and improved through
the work of this sector. In sum, the tax-exempt sector has become an
indispensable part of American life. Yet, like all organizations run by
human beings, tax-exempt entities' operations can at times be flawed.
Ensuring that tax-exempt entities run as effectively and efficiently as
possible, and in line with the purposes for which Congress established
their tax exemption, can best be accomplished through a series of
complementary controls. At the organization level, a sound governance
structure can establish the set of checks and balances that help steer an
entity towards result-oriented outcomes consistent with their purposes
while also guarding against abuses. Transparency over the operations of
the exempt entity provides an incentive to help ensure the governance
practices function as intended and when they do not, transparency helps
increase the chances that inappropriate behavior will be detected and
34 See GAO-02-526.
corrected. Oversight by IRS and the states brings to bear the powers of
government to investigate errors made among tax-exempt entities, to change
the rules when necessary, and to provide consequences when rules are not
followed.
Regarding oversight by states, IRS and states believe greater sharing of
federal data would help states target their enforcement efforts and
minimize unnecessary overlap with federal oversight of exempt
organizations. As we recommended, we look forward to IRS, the Department
of the Treasury, and states identifying the specific information that
should be shared and procedures for sharing it consistent with taxpayer
privacy rights, to help Congress in deliberating changes to current
restrictions on IRS sharing such data with the states.
Ultimately, Congress determines what activities should benefit from tax
exemption and what organizations must do in exchange for that advantage.
Periodic congressional oversight is therefore critical to ensuring that
the exempt sector remains a vibrant contributor to the quality of American
lives and operates with integrity in achieving results commensurate with
the tax-favored status it has been granted. As noted earlier, the hearing
today provides an excellent forum from which to launch a comprehensive
re-examination of this vital sector as we work to address the challenges
arising in the 21st century. We stand ready to assist Congress as it
considers such a re-examination and continues its oversight of this
critical sector of our national economy.
Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions you or other Members of the committee may have.
For further information on this testimony, please contact Michael Brostek
at (202 512-9110) or [email protected]. Individuals making key
contributions to this testimony include Perry Datwyler, George Guttman,
Shirley Jones, Bob McKay, John Mingus, Jeff Schmerling, and Tom Short.
Appendix I
Types of Tax-Exempt Entities under Section 501(c)
The following lists the 28 types of tax-exempt entities under the
subsections of section 501(c) of the Internal Revenue Code.
1. Corporations organized by Act of Congress; Central Liquidity Facility
for Federal Credit Unions; Resolution Trust Corporation; Resolution
Funding Corporation
2. Title-holding corporations
3. Public charities, private foundations, religious, charitable,
scientific, testing for public safety, literary, or educational, fostering
national or international amateur sports competition, prevention of
cruelty to children or animals
4. Civic leagues, social welfare organizations, local associations of
employees dedicated to charitable, educational, or recreational purposes
5. Labor unions, agricultural, or horticultural organizations
6. Trade associations, professional football leagues
7. Social and recreational clubs
8. Fraternal benefit societies providing payment of certain benefits to
members
9. Voluntary employees' beneficiary associations providing payment of
certain employee benefits
10. Domestic fraternal societies whose net earnings are devoted to
religious, charitable, scientific, literary, educational, and fraternal
purposes, which do not provide benefits to members
11. Teachers' retirement fund associations
12. Benevolent life insurance associations, mutual ditch or irrigation
companies, mutual or cooperative telephone, electric, or water companies
13. Cemetery companies
Appendix I
Types of Tax-Exempt Entities under Section
501(c)
14. Credit unions
15. Small mutual insurance companies
16. Corporations to finance crop operations
17. Supplemental unemployment benefit trusts
18. Pre-June 25, 1959 trusts to fund pension benefits
19. Veterans' groups
20. Group legal service organizations
21. Black lung benefit trusts
22. Multi-employer pension plan trusts
23. Armed Forces insurance organizations established before 1880
24. ERISA trusts for certain terminated plans
25. Multi-parent holding companies
26. State-sponsored, high-risk insurance organizations
27. State-sponsored worker compensation reinsurance organizations
28. National railroad retirement investment trust
Appendix II
Copy of Form 990
Appendix II
Copy of Form 990
Appendix II
Copy of Form 990
Appendix II
Copy of Form 990
Appendix II
Copy of Form 990
Appendix II
Copy of Form 990
Appendix III
Form 990 Data
The following tables summarize data reported on the annual Form 990 by
tax-exempt entities under section 501(c) of the Internal Revenue Code. The
tables cover reported assets, revenues, and expenses overall and, where
appropriate, broken out by charities and the rest of the section 501(c)
entities (i.e., noncharities).
Table 1: Form 990 Returns Filed by Section 501(c) Entities, Tax Years
1998-2002
Number of returns filed
Tax year Charities Noncharities All entities
1998 281,228 168,309 449,537
1999 299,204 173,239 472,443
2000 301,612 168,963 470,575
2001 301,359 171,006 472,365
2002 302,464 162,134 464,598
Source: Tabulation of data from IRS's Return Inventory Classification System,
1998-2002.
Table 2: Assets Reported by Section 501(c) Entities in 2004 Constant Dollars,
Tax Years 1998-2002
All entities Charities Noncharities
Assets (in Percent Assets Assets Percent
Tax year millions) change (in millions) Percent (in millions) change
change
$2,208,676 N/A $1,509,209 N/A $699,467 N/A
$2,413,917 9.3% $1,664,857 10.3% $749,059 7.1%
$2,474,471 2.5% $1,696,064 1.9% $778,407 3.9%
$2,552,606 3.2% $1,733,734 2.2% $818,872 5.2%
$2,545,189 -0.3% $1,694,435 -2.3% $850,754 3.9%
Source: Tabulation of data from IRS's Return Inventory Classification System,
1998-2002.
Appendix III Form 990 Data
Table 3: Revenues Reported by Section 501(c) Entities in 2004 Constant Dollars,
Tax Years 1998-2002
All entities Charities Noncharities
Revenues (in Percent Revenues Revenues Percent
Tax year millions) change (in millions) Percent (in millions) change
change
$1,121,387 N/A 844,224 N/A 277,163 N/A
$1,214,807 8.3% 925,849 9.7% 288,958 4.3%
$1,240,216 2.1% 944,131 2.0% 296,085 2.5%
$1,258,046 1.4% 953,841 1.0% 304,205 2.7%
$1,250,914 -0.6% 941,197 -1.3% 309,718 1.8%
Source: Tabulation of data from IRS's Return Inventory Classification
System, 1998-2002.
Table 4: Expenses Reported by Section 501(c) Entities in 2004 Constant
Dollars, Tax Years 1998-2002
All entities Charities Noncharities
Expenses (in Percent Expenses Expenses Percent
Tax year millions) change (in millions) Percent (in millions) change
change
$1,017,582 N/A $768,280 N/A $249,303 N/A
$1,091,788 7.3% $826,572 7.6% $265,215 6.4%
$1,145,280 4.9% $867,063 4.9% $278,217 4.9%
$1,210,670 5.7% $912,200 5.2% $298,470 7.2%
$1,221,859 0.9% $917,528 0.6% $304,330 2.0%
Source: Tabulation of data from IRS's Return Inventory Classification
System, 1998-2002.
Table 5: Section 501(c) Entities' Reported Expenses as a Percentage of
U.S. Gross Domestic Product, 1998 -2002
Section 501(c) Section 501(c) entities'
entities' expenses as a
Year U.S. GDP (in expenses (in percentage of U.S GDP
Millions) millions)
1998 8,747,000 $1,017,582 11.6%
1999 9,268,000 $1,091,788 11.8%
2000 9,817,000 $1,145,280 11.7%
2001 10,128,000 $1,210,670 12.0%
2002 10,487,000 $1,221,859 11.7%
Source: Tabulation of data from IRS's Return Inventory Classification
System, 1998-2002 and U.S. Department of Commerce figures
Appendix IV
IRS Data on Its Tax-Exempt Oversight
The following tables summarize data provided by IRS on its oversight
activities involving tax-exempt entities under section 501(c) of the
Internal Revenue Code. The tables cover resources, applications,
examinations, and examination results.
Table 6: Assigned FTEs as IRS Budgeted for Exempt Activities, Fiscal Years
20002005
Fiscal year Examination FTE Determination FTE Other FTE Total FTE
2000 424 342 32
2001 432 347 33
2002 421 351 44
2003 394 370 38
2004 378 348 43
2005 467 347 42
Source: IRS Exempt Organization officials.
Note: "Other FTE" include technical staff who issue rulings, director's
staff, and education and outreach. FTEs assigned are what IRS budgets for
this work
Table 7: Actions Taken on Applications for Tax-Exempt Status, Fiscal Years
1998-2003
Fiscal year Total applications Approved Percent approved Denied Other
78,358 58,162 74.2% 593 19,603
73,605 59,264 80.5% 585 13,756
82,707 67,267 81.3% 482 14,938
81,636 65,409 80.1% 646 15,581
87,342 70,214 80.4% 557 16,571
2003 91,439 72,092 78.8% 1,192 18,155
2004 87,080 69,315 79.6% 1,050 16,715
Source: GAO Analysis of IRS's Exempt Determination System, 1998-2004.
Note: The "Other" category includes applications withdrawn; applications
that did not provide the required information; incomplete applications;
IRS refusals to rule on applications because the information submitted was
insufficient to conclude whether to approve the exemption request; and
applications forwarded to other than the IRS National Office.
Appendix IV IRS Data on Its Tax-Exempt Oversight
Table 8: Examination Rate of Section 501(c) Entities, 1998-2003
Returns filed in Returns examined
Fiscal year previous year in fiscal year Examination rate
1998 458,014 8,290 1.8%
1999 449,537 8,780 2.0%
2000 472,443 6,866 1.5%
2001 470,575 5,471 1.2%
2002 472,365 5,423 1.1%
2003 464,598 5,964 1.3%
Source: GAO Tabulation of IRS's Audit Information Management System and IRS's
Return Inventory Classification System, 1997-2002.
Table 9: Examinations Resulting in No Change to Forms 990 Filed by Section
501(c) Entities, Fiscal Years 1998-2004
Examinations resulting in
Fiscal Year Examinations no change No-change rate
1998 8,290 2,552 30.8%
1999 8,780 3,191 36.3%
2000 6,866 2,431 35.4%
2001 5,471 2,112 38.6%
2002 5,423 2,445 45.1%
2003 5,964 2,965 49.7%
2004 5,889 2,299 39.0%
Source: GAO analysis of IRS's Audit Information Management System, 1998-2004.
Appendix V
Tax-Exempt Excise Taxes by Code Sections
Over the years, Congress has imposed various excise taxes that affect
taxexempt entities, particularly private foundations under Section
501(c)(3). Private foundations differ in several ways from public
charities. Public charities have broad public support and tend to provide
charitable services directly to beneficiaries. Private foundations are
often tightly controlled and receive a significant portion of their funds
from a small number of donors, and tend to make grants directly to other
entities rather than directly provide charitable services. Since these
differences create the potential for self-dealing or abuse by a small
group, private foundations are subject to anti-abuse rules not applicable
to public charities. In addition, public charities and private foundations
generally are prohibited from engaging in certain types of transactions.
Excise taxes are to be levied on public charities and private foundations,
as well as a few other types of taxexempt entities, that violate the
rules. Details on these rules and excise taxes follow.
Section 4940 Excise Tax on Private Foundation Investment Income
Section 4940 was added by the Tax Reform Act of 1969, P.L. 91-172. The
related Senate Report1 described the excise tax as an "audit fee tax" that
was believed to be necessary to cover IRS's costs for increased
supervision over private foundations under the act. Section 4940 imposes a
2 percent excise tax on the net investment income of tax-exempt private
foundations. Net investment income includes income from interest,
dividends, and net capital gains that is reduced by the expenses incurred
to earn it. This tax is 1 percent if a private foundation meets certain
distribution requirements. Private foundations that meet the requirements
to be an "exempt operating foundation" are not subject to this excise tax.
Among these requirements are stipulations that the foundation be publicly
supported for at least 10 years and that it have a governing body that is
broadly representative of the general public. Private foundations that are
not exempt from taxation are subject to this excise tax and unrelated
business income tax.
Section 4941 Excise Tax on Because a tax-exempt entity cannot operate to
confer a benefit on private Private Foundation Acts of parties, Section
4941 was enacted by the Tax Reform Act of 1969. Self-Dealing According to
the Senate Report, generally prohibiting self-dealing
transactions would minimize the need to apply the subjective arm's-length
standard that was used for loans, payments of compensation, and
1S. Rep. No. 91-552 (1969).
Appendix V Tax-Exempt Excise Taxes by Code Sections
preferential availability of services under the 1950 amendments. Section
4941 imposes a 5 percent excise tax on acts of self-dealing between a
private foundation and disqualified persons. This tax is to be paid by the
disqualified person who participated in the self-dealing. An additional
tax equal to 200 percent of the amount involved is to be imposed if the
selfdealing is not corrected during the taxation period. A separate tax
equal to 2- 1/2 percent of the amount involved is to be imposed on the
foundation's manager if that manager knowingly participated in the act of
self-dealing. If this additional tax has been imposed on the foundation
manager and that manager refuses to agree to part or all of the
correction, an additional tax equal to 50 percent of the amount is to be
imposed. Acts of self-dealing include sales, exchanges, or leases of
property; lending of money or other extensions of credit; and payment of
compensation. Disqualified persons include substantial contributors to the
foundation, foundation managers, an owner of more than 20 percent of a
business enterprise that is a substantial contributor, and certain
government officials.
Section 4942 Excise Tax on Private Foundation Failure to Distribute Income
Section 4942 was enacted by the Tax Reform Act of 1969. Prior to it, a
private foundation could lose its exemption if it failed to make
distributions towards its charitable purposes instead of just accumulating
income. According to the Senate report, the committee believed that loss
of exempt status as the only sanction was often ineffective or harsh, and
that substantial improvement could be achieved by providing a graduation
of sanctions if income is not distributed. Section 4942 imposes a 15
percent excise tax on the undistributed income of a private foundation for
any taxable year in which the required amount has not been distributed
before the first day of the next taxable year. If an initial tax has been
imposed under section 4942 and the income remains undistributed at the end
of the taxable period, a tax equal to 100 percent of the remaining
undistributed amount is to be imposed. This excise tax does not apply to
private operating foundations that meet distribution requirements or to
the extent that the failure to distribute is due solely to an incorrect
valuation of assets as long as other requirements are met.
Excise Tax on Private Section 4943 was enacted by the Tax Reform Act of
1969. According to its Foundation Excess Senate Report, the use of
foundations to maintain control of a business Business Holdings (Section
appeared to be increasing, and some who wished to use a foundation's
stock holdings to control a business were relatively unconcerned
about4943) producing income for charitable purposes. Where the charitable
ownership predominated, the business could unfairly compete with
Appendix V Tax-Exempt Excise Taxes by Code Sections
businesses whose owners were required to pay taxes on their business
income. The committee concluded that a limit on the extent to which a
private foundation may control a business was needed. Section 4943 imposes
a 5 percent excise tax on certain excess business holdings of a private
foundation. Permitted holdings generally include up to 20 percent of the
voting stock of an incorporated business enterprise (reduced by the
percentage of the voting stock owned by all disqualified persons). Similar
holdings are also permitted in partnerships and other unincorporated
enterprises (except sole proprietorships). If the excise tax has been
imposed, foundations that fail to make the required divestiture of excess
holdings above the permitted amounts are subject to an additional tax
equal to 200 percent of the excess holdings. In certain cases, foundations
are allowed a 5-year period to dispose of the excess holdings and may
receive an additional 5-year extension.
Excise Tax on Private Foundation Investments which Jeopardize Charitable
Purpose (Section 4944)
Section 4944 was enacted by the Tax Reform Act of 1969. Under prior law, a
private foundation could lose its exemption if it invested in a manner
that jeopardized its exempt purpose. In the Senate Report, the committee
concluded that limited sanctions were preferable to the loss of exemption.
Section 4944 imposes an initial 5 percent excise tax on the amount
involved if a private foundation invests in a manner that jeopardizes its
exempt purpose (e.g., investing with the purpose of income production or
property appreciation). If such a tax is imposed on the foundation, a
separate 5 percent excise tax is to be imposed on the foundation manager
if that manager knew that making the investment would jeopardize the
foundation's exempt purpose. If an initial tax is imposed, an additional
tax equal to 25 percent of the amount of the investment is to be imposed
on the foundation if the investment is not withdrawn within the taxable
period. An additional tax equal to 5 percent of the amount of the
investment is to be imposed on the foundation manager if the investment is
not withdrawn.
Excise Tax on Private Foundation Taxable Expenditures (Section 4945)
Section 4945 was enacted by the Tax Reform Act of 1969. Under prior law,
the only sanction against prohibited political activity by a foundation
was loss of exemption. The Senate committee report noted that the
standards for determining the permissible level of political activity were
so vague as to encourage subjective application of the sanction. As a
result, section 4945 was added to clarify the types of impermissible
activities and provide more limited sanctions. Section 4945 imposes an
initial 10 percent excise tax on each taxable expenditure made by the
foundation. An additional 2- 1/2 percent excise tax is to be imposed on
the foundation manager if that
Appendix V Tax-Exempt Excise Taxes by Code Sections
manager knowingly participated in the taxable expenditure. Taxable
expenditures include amounts paid to carry on propaganda or otherwise
influence legislation or the outcome of a public election, or to directly
or indirectly carry on a voter registration drive. If the expenditure is
not corrected within the taxable period, an additional tax equal to 100
percent of the amount of the expenditure is to be imposed on the
foundation and additional tax equal to 50 percent of the amount of the
expenditure is to be imposed on the foundation manager.
Excise Tax on Section 501(C) (3) Political Expenditures (Section 4955)
Section 4955 was added by the Revenue Act of 1987, P.L. 100-203. According
to the House Report2 for the act, the committee believed that the excise
tax applicable to private foundations for making prohibited political
expenditures (section 4945) should also apply to a public charity. Section
4955 imposes an initial 10 percent excise tax on each political
expenditure of a section 501(c) (3) organization. An additional 2- 1/2
percent excise tax is imposed on the organization's manager if the manager
knew that it was a political expenditure. Political expenditures include
any amounts paid or incurred by the organization in any participation or
intervention in any political campaign on behalf of any candidate for
public office. If an initial tax has been imposed regarding a political
expenditure and that expenditure is not corrected, an additional tax equal
to 100 percent of the amount is to be imposed on the organization. An
additional tax equal to 50 percent of the amount of the expenditure is to
be imposed on the organization's manager if that manager refuses to agree
to part or all of the correction.
Excise Tax on Section 501(C) (3) and (4) Excess Benefit Transactions
(Section 4958)
Section 4958 was added in 1996 by the Taxpayer Bill of Rights 2, P.L.
104168. According to the related House Report,3 this excise tax was added
to ensure that the advantages of tax-exempt status benefit the community
and not private individuals. The act provided for this intermediate
sanction (i.e., something short of a loss of tax exemption) to be imposed
when nonprofit organizations engage in transactions with certain insiders
that result in private inurement. Section 4958 imposes an initial tax of
25 percent on each excess benefit transaction entered into between a
disqualified person and tax-exempt organizations under sections 501(c)(3)
2 H. Rep. No. 100-391 (1987). 3 H. Rep. No. 104-506 (1996).
Appendix V Tax-Exempt Excise Taxes by Code Sections
and (4). The initial tax is to be paid by this disqualified person,
including any person who at any time during the 5-year period ending on
the date of the transaction was in a position to exercise substantial
influence over the organization, a member of such person's family, and a
35 percent controlled entity. Such an entity exists when a disqualified
person owns more than 35 percent of the voting power of a corporation,
more than 35 percent of the profit interest of a partnership, or more than
35 percent of the beneficial interest of a trust or estate. If an initial
tax is imposed on the disqualified persons, an additional tax of 10
percent is to be imposed on the organization's manager if that manager
participated knowing that it was an excess benefit transaction. If the
excess benefit transaction is not corrected within the taxable period, a
tax equal to 200 percent of the excess benefit transaction will be imposed
on the disqualified person. Private foundations are not subject to this
excise tax.
Abatement of Taxes When Corrective Action Taken (Sections 4961 - 4963)
Sections 4961-4963 provide for abating the various excise taxes described
above. Section 4961 stipulates that additional taxes shall not be assessed
if corrective action is taken within the applicable correction period.
Similarly, it stipulates that if the additional tax is already assessed,
it will be abated if corrective action is taken. For example, the
additional tax of 200 percent for self-dealing shall not be assessed if
corrective action is taken within the applicable period. Section 4962
provides that excise taxes shall not be assessed if the event that gave
rise to the excise tax was (1) due to reasonable cause, (2) not due to
willful neglect, and (3) corrected within the applicable period. If
already assessed under these circumstances, the excise tax shall be
abated. Section 4963 sets out the instances in which the abatement
provisions apply.
Excise Taxes Owed for IRC Violations
IRS did not maintain data on how much excise tax involving tax-exempt
entities was ultimately assessed or collected either overall or by the
various types of violations. These assessments can result from IRS
examinations but IRS's system did not maintain information on these types
of assessments. These assessments may also arise from tax-exempt entities
"self-assessing" excise taxes by reporting the violations to IRS. IRS did
record excise taxes owed for certain types of IRC section violations as
reported by tax-exempt entities on Form 4720, Return of Certain Taxes on
Charities and Other Persons Under Chapters 41 and 42 of the Internal
Revenue Code and on Form 990-PF, Return of Private Foundation or Section
4947(a) (1) Nonexempt Charitable Trust Treated as a Private Foundation.
Appendix V Tax-Exempt Excise Taxes by Code Sections
As table 10 shows, tax-exempt entities reported self-assessments of at
least $247 million in 2004 constant dollars each year or about $1.5
billion in 2004 constant dollars for tax years 2000 through 2003.
Table 10: Excise Tax Amounts That Tax-exempt Entities Self-Assessed on
Forms 4720a and 990-PFb by Code Section, Tax Years 2000-2003 (2004
Constant Dollars in Thousands)
Tax year Code section 2000 2001 2002 2003 Total Taxes on organizations Taxes on
individuals Tax on net investment income
Section 4942 -Undistributed income $2,196 $4,608 $3,802 $2,421 $13,027
Section 4943 -Excess business
holdings;
Section 4944 -- Investments that
jeopardize,
otherc 385 178 196 35
Section 4945 -Taxable expenditures 1,112 702 408 316 2,538
Section 4955 -Political expenditures 1 4 8 0
Subtotal 3,694 5,492 4,414 2,772 16,372
Section 4941 -Self-dealing 438 665 415 204 1,722
Sections 4944, 4945, 4955, and Section 4958
-Excess benefits 70 46 35 46
Subtotal 508 711 450 250 1,919
Section 4940 -Investment Income 683,767 320,811 242,187 244,627 1,491,392
Total 687,969 327,014 247,051 247,649 1,509,683
Source: GAO analysis of IRS data.
aReturn of Certain Excise Taxes on Charities and Other Persons Under
Chapters 41 and 42 of the Internal Revenue Code.
bReturn of Private Foundation or Section 4947(a)(1) Nonexempt Charitable
Trust Treated as a Private Foundation.
cIncludes Section 4911 - Excess Lobbying Expenditures and 4912 -
Disqualifying Lobbying Expenditures.
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