Tuesday, April 14, 2009
The IRS has posted the text of remarks made by Lois Lerner, Exempt Organizations Director for the IRS, at the Georgetown Law CLE on April 6. Her topic, "Maintaining Public Trust in Charities During the Economic Downtown," is a concern for charities as well as the IRS, and it is interesting to see the view of the IRS on how it hopes to help charities maintain that trust.
After noting the economic troubles facing most charities, Ms. Lerner said that the IRS does not want to exacerbate the problems inadvertently through needless inflexibility and the IRS will be aware of the difficulties exempt organizations are facing. The IRS is concerned that during times of economic hardship, there is often a rise in questionable or even fraudulent activity, aggressive or inappropriate fundraising activity, and shady tax avoidance schemes. The IRS intends to monitor carefully exempt organizations, seeking to curtail abuse. The IRS will pay particular attention to mortgage-assistance nonprofits, aggressive fund-raising tactics and valuation manipulations, and increases in unrelated-business activity. She also suggested that charities themselves could do a number of things to keep public trust in the sector. Increased transparency through the new 990 should help, and she cautioned charities (and their advisors) to take care in presenting themselves positively through the 990. She recommended that charities focus on governance practices, to make sure that good policies are in place, and she suggested that charities review executive compensation packages to make sure they can withstand public scrutiny. Ms. Lerner also spoke about a likely increase in merger and reorganization activity, not typical in the nonprofit sector. Although many of the issues involved, including donor intent issues, fall within state law, she offered assistance from the IRS to help charities work through potential merger issues. Finally, Ms. Lerner noted that the EO Division will be hiring additional staff, to make the scrutiny she discussed feasible.