Numerous Charities in CFC Owe Millions in Payroll Taxes
(May 30, 2006) More than 1,000 charities involved in the Combined Federal Campaign (CFC) have tax debts reaching nearly $36 million, according to an investigation by the General Accounting Office.
The CFC is the federal government’s annual workplace giving campaign and is administered by the Office of Personnel Management. It involved more than 22,000 charities and raised more than $250 million in 2005.
A majority of the debt held by the charities—$28 million—is in payroll taxes, penalties and interest dating back as far as 1988. Another $8 million represents annual reporting penalties, excise taxes, exempt organization business income, unemployment taxes and other types of taxes and penalties.
Most of the 1,280 organizations involved—about 6 percent of the total number of charities in the CFC—owe less than $10,000. However, an in-depth study by the General Accounting Office, the investigative arm of Congress, of 15 charities found that they “engaged in abusive and potentially criminal activity related to the federal tax system.” Most of the abuses involved repeatedly underpaying payroll taxes, diverting payroll taxes to pay for employee salaries or simply failing to remit the taxes to the Internal Revenue Service (IRS). All of these abuses are felonies under U.S. law, and the General Accounting Office has referred all 15 of the cases to the IRS for additional examination and penalties.
The investigation, highlighted at a hearing of the House of Representatives’ Ways and Means Oversight Subcommittee, noted that oversight of the workplace giving campaign by the Office of Personnel Management is minimal and problematic.
Despite numerous eligibility requirements (including the submission of a charity’s Form 990 and other documents), the General Accounting Office was able to create a fictitious charitable organization that successfully applied to three large local CFC drives across the country.
The Office of Personnel Management stated in its written comments that it does not screen CFC charities for federal tax problems, and federal law prohibits the agency from accessing taxpayer information required to check for tax delinquency. The agency is currently examining a number of proposals to review its CFC screening process, including checking every applicant against existing IRS data.
However, future legislation in this area may be coming. The IRS testified that failure to remit payroll taxes would probably not be sufficient grounds to revoke an organization’s tax-exempt status. The Oversight Subcommittee could move to address this issue, although at this point no language has been drafted and no timetable scheduled.
AFP will continue to monitor this issue and alert members of future developments.
For a copy of the report about the investigation, go to the General Accounting Office’s website.
To review the written comments of the Office of Personnel Management, General Accounting Office and the IRS, click to the Oversight Subcommittee’s website.
Related AFP ResourcesCanadian Public Policy Issues
Charitable Reforms Face Roadblock in the House
Congressional Committee Proposes New Limits on Charitable Deductions
Will U.S. Senate Hearing on Charity Abuses Spark Additional Legislation?
U.S. Federal Issues: February 2004 Public Policy Update