Congress is reviewing proposals for legislation in the non-profit area that could have a significant effect on the way non-profit organizations may operate. Much of the impetus for these proposals comes from perceived abuses by some non-profits involving executive compensation and the lack of vigorous government oversight. Because Sarbanes-Oxley provisions are largely not applicable to non-profits, many in Congress and IRS believe more oversight is necessary, especially since the non-profit sector has grown so large. PDF. -->

Reform proposals have been introduced in the form of a Draft Document written by the professional tax staff of the Senate Finance Committee. Some provisions are highlighted below, and may be of particular concern to you:

• Five-Year Exempt Status Review. The proposal would require each exempt organization's tax-exempt status to be reviewed by IRS every five years. Information would have to be submitted to allow the IRS to decide if the organization should remain tax-exempt.
  
• Disclosure of Tax Returns on Websites. The Draft proposes Form 990 would be disclosed on an organization's website. In addition, the Draft suggests all tax returns, including the Form 990-T and tax returns of affiliated entities would be subject to public disclosure.
  
• Influence of CEO. Organizations would disclose to the IRS the number of times the Board of Directors met without the CEO. This is part of an initiative to establish "best practices" for tax-exempt organizations that could affect whether an organization can be awarded a government contract.
  
• CEO Certification of Unrelated Business Income. The CEO would be required to sign Form 990 and certify, under penalty of perjury, that the organization has reported all unrelated business income.
  
• Form 990 Reporting of Compensation and Other Transactions. The proposal increases penalties for omitting, or providing incorrect, information on Form 990. An organization with gross receipts over $2,000,000 could pay penalties up to $100,000 per return. IRS is also currently reviewing Forms 990 for compliance regarding the reporting of compensation and transactions with individuals who have a conflict of interest.

In addition, the Draft would limit the travel, hotel and meal expenses for 501(c)(3) personnel and would revoke a charity's exemption if it participated in an abusive tax shelter.

For more information, please contact:

Connie A. Raffa
212.484.3926
raffa.connie@arentfox.com