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Finance Committee Calls for Updated, More Extensive Form 990

(June 4, 2007) Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), the chair and ranking member of the Finance Committee respectively, have asked the U.S. Department of the Treasury to update the Form 990, the annual charity reporting form, and include more information about fundraising.

In a letter to the Secretary of the Treasury sent on May 29, 2007, the two senators state that the Form 990 has not kept pace with changes in charitable organizations and “is not adequate to encompass vital information regarding major parts of the nonprofit sector—especially hospitals and universities.” The letter points to seven specific areas where the senators believe are in critical need of greater reporting and transparency:

  1. Executive compensation
  2. Endowments
  3. Related organizations
  4. Joint ventures
  5. Governance
  6. Dollars raised vs. dollars for charity
  7. Hospitals

Regarding how much money raised goes to charitable programs, the letter says this:

“There is probably no greater interest of the public then wanting to understand the answer to this question when they make a donation: how much of their money is actually going to a charitable activity (and not including money spent on more mailings). The IRS [Internal Revenue Service] should seek to make this information easily and clearly available for the public.”

Programs Commensurate with Funding

The letter also calls for greater transparency regarding charitable endowments, noting the public concern about charities “that have billions of dollars in the bank—or as is more common now, in investments offshore in places such as the Cayman Islands—and at the same time the entity provides only pennies on the dollar to the charitable goals of the organizations.”

The senators seem to be pushing the Treasury Department to look at the programs offered by charities with regard to the amount of funding and resources they have on hand, referring to the commensurate test. The commensurate test is sometimes used by the IRS to determine whether an organization is acting as a charity, and essentially states that a charity should be “carrying on through such contributions and grants a charitable program commensurate in scope with its financial resources.”

The updated Form 990 should make it easier for the IRS and the public to determine how a charity is meeting the commensurate test, according to Baucus and Grassley. This new focus on the commensurate test may be targeted at universities and their endowments, an issue that the Finance Committee has discussed in the past but not taken any action on.

The letter also calls for clearer disclosure of charity leaders’ total compensation packages and charity care policies for nonprofit hospitals.

Baucus and Grasley have asked for a response from the Treasury Secretary by the end of June. The complete text of the letter is available on the Senate Finance Committee’s website.

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