Monday, June 13, 2011

National Association of State Charity Officials Submits Comments re IRS Information Sharing

  In comments submitted to the IRS today, the National Association of State Charity Officials expressed disappointment in the manner in which IRC 6104(c) has been implemented to date, as well as proposed regulations issued earlier this year.  Enacted as part of the 2006 Pension Protection Act, IRC 6104(c), allows the Service to notify state officials of certain adverse actions regarding (c)(3) organizations.  NASCO's primary concern relates to the administrative burdens imposed on state officials necessary to receive information from the Service.  In the interest of full disclosure, I should mention that the proposed regulations were drafted primarily by my former University of Pittsburgh Law Student, Casey Lothamer. Of course, he could not comment on NASCO's specific complaints.  NASCO believes that the net effect of the proposed regulations is that information sharing between the Service and the states will actually decrease under the proposed regulations.

NASCO members were hopeful that enactment of the PPA would enhance their ability to exercise their state law responsibilities by working more cooperatively with the IRS to overseetax-exempt entities and ensure the proper administration of charitable assets. It was anticipated that greater ability to work jointly and share information would allow for enhanced enforcement by the IRS and ASOs. As discussed below, however, the limitations placed on both the IRS and the states by the Code have, in fact, significantly reduced those possibilities. . . . There are important synergies among the IRS and state charity officials that can only be fully realized through robust information sharing and coordinated enforcement efforts. At present, however, neither the PPA nor the subject regulations advance that cause in any appreciable way.  It is toward that end that NASCO welcomes the opportunity to meet with staff of the Department of the Treasury, the IRS and members of Congress to discuss further amendments to the disclosure provisions at issue.

The regulation and supervision of charities is, as everyone knows, notoriously lax on both the state and federal level.  Its ironic then, that a statute designed to facilitate the enforcement of both federal and state laws designed to protect the charitable sector would be applied and interpreted to actually decrease enforcement.  We know too that charitable scandals have the most negative effects on legitimate, law-abiding charities, who have to work even harder to avoid the taint left behind by the outliers.  Scandals and legal violations in the charitable sector typically follow the "one bad apple" rule, at least in the minds of the donating public.  So let's hope the feds heed the comments coming from the state officials and, in the words of NASCO come up with a means to facilitate "robust' information sharing for the benefit of the entire sector. 


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