Saturday, January 8, 2011

Regulating Charities: Should the How (and Who) Be Changed?

The St. Petersburg Times, using the U.S. Navy Veterans Association scandal (see previous post) and a recent Stanford study (see previous posts here and here) as starting points, is calling for reconsideration of how charities are regulated, and by whom.  The U.S. Navy Veterans Association appears to have been the creation of a single individual, who created the false impression of a long-established organization with numerous members and state chapters and then used that vehicle to raise tens of millions of dollars in contributions and gain access to powerful politicians during the past decade.  The Stanford study found that almost all applications for tax-exempt status sent to the IRS are approved, although as noted in an earlier post, that approval rate did not take into account the over 30 percent of applications that are withdrawn, never completed, or not processed because of a lack of a required filing fee, with the former two conditions occurring in many cases because of pointed IRS questionning of the applicant based on my personal experience.  The St. Petersburg Times articles cite a proposal by Marc Owens (Caplin & Drysdale) to ceate a new public-private agency to oversee nonprofits.  For a more comprehensive list of suggestions, including a new proposal for federal funding of state oversight, see Regulating Charities in the Twenty-First Century: An Institutional Choice Analysis, authored by Brendan Wilson (Akin Gump) and me and published in the Chicago-Kent Law Review.  Finally, for critical commentary on the St. Petersburg Times article, see Jack Siegel's blog post ("We Get the Government That We Fund").


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