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Nonprofit Sector Panel Proposes Solicitation, Compensation Recommendations to Congress

(May 1, 2006) The Panel on the Nonprofit Sector, which was created to provide Congress with guidance in developing oversight of America’s charities, has released a supplement to its final report that contains additional recommendations related to charitable solicitations, compensation and other issues.

The Panel on the Nonprofit Sector is an independent panel of 24 leaders from a wide range of the country's public charities and private foundations. The panel was convened in October 2004 and provided to Congress in June 2005 a final report that includes more than 120 recommendations to improve charitable oversight and accountability. AFP leaders and representatives participated in several of the panel’s working groups and subcommittees.

The Supplemental Report contains recommendations in nine areas where the panel felt additional discussion and analysis was needed:

  1. International Grantmaking
  2. Charitable Solicitations
  3. Compensation of Trustees of Charitable Trusts
  4. Prudent Investor Standard
  5. Nonprofit Conversion Transactions
  6. Taxation on Sales of Donated Property
  7. Consumer Credit Counseling Organizations
  8. Disclosure of Unrelated Business Activities
  9. Federal Court Equity Powers and Standing to Sue

Charitable Solicitations

Under the section on charitable solicitations, the panel focused on the issues of excessive compensation of for-profit fundraisers and the challenges charities face in trying to register in multiple states with different registration and oversight systems.

The panel recommended that Congress authorize funding to create a national uniform electronic filing system for charitable solicitation registration and annual reporting. However, the panel believes that states should continue to be the primary regulators of charitable solicitation activities. The system should be administered by the Federal Trade Commission and be designed in consultation with state regulators and the charitable sector so that central filings would satisfy the requirements of all states in which the charity solicits.

The panel also reiterated that the Internal Revenue Service should enforce firmly the current legal prohibitions against private inurement, private benefits and provision of excess benefits, particularly in the context of charitable solicitations.

Trustee Compensation

For compensation of trustees of charitable trusts, the panel proposed that Congress direct the Secretary of the Treasury to:

  • Amend the self-dealing regulations applicable to private foundations to clarify that when evaluating the reasonableness of a trustee’s compensation, the fact that the compensation is specified in a trust instrument or otherwise authorized by a state or local legislative body, agency, or court is not determinative of whether such compensation is excessive.
  • Amend the intermediate sanctions regulations applicable to public charities to clarify that when evaluating the reasonableness of a trustee’s compensation, the fact that the compensation is specified in a trust instrument is not determinative of whether such compensation is excessive.

The panel also counseled the Internal Revenue Service to revise the Form 990 series returns to require that charitable organizations distinguish compensation of institutional trustees from compensation paid to individual trustees.

Next Steps

The panel will continue its work this year to develop recommendations on financial reporting standards, improvements to the Forms 990 and 990-PF, self-regulation by charitable organizations and sample governance policies. AFP has provided comments to the panel throughout the process and will continue to do so as issues arise and are discussed.

Congress is under no obligation to consider any of the recommendations from the panel, but several of the ideas have been included in the current legislation being considered by Congress.

Both the Supplemental Report and the Final Report can be found on the Panel on the Nonprofit Sector’s website.

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