Wednesday, May 16, 2012

Live Blogging the Ways and Means Oversight Hearing

So this is a bit of an experiment this morning. I'll be watching the streaming coverage of the Oversight Subcommittee of the House Ways and Means Committee Hearing on tax-exempt organizations, found at Thomas (here). According to what is scrolling on my screen right now, related documents will be available on the Committee's website once the hearing starts. It is giving this address for the documents - I'll try to link the full address when the committee goes live.

Below this post on the Nonprofit Law Prof Blog, you'll see there is a place for Comments. As the hearing starts, I'll be typing up my thoughts on the hearing in the Comments section to this post. Hopefully, that means they will be in order as the hearing goes on. I don't know if I have the ability to proofread the comments, so I'm going to beg your forgiveness right now for the typos that will occur.

I am going to get some more coffee and then let the experiment begin in about 10 minutes (10 EST)!


Update at 11:30 EST - hearing is over - see my comments below.

Boustany opening statement

October 6, 2011 letter from Boustany to Shulman

USHR09 Thomas Video

Witnesses written testimony

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This is a test comment.. let's see if this works!

Posted by: Elaine Wilson | May 16, 2012 6:56:23 AM

So one issue already... I have to type in one of those blurry words to comment and then the moderator needs to approve the comment, so there may be a delay in posting.

Posted by: Elaine Wilson | May 16, 2012 6:57:25 AM

So far it looks like only audio but that should be okay. Intro to the hearings now by the chair I believe... important to the economy and control vast resources - 10% of the work force is employed by tax-exempt organizations. As a result, the public should be confident, especially in governance. Congress must insure that the the IRS has the information that it needs to oversee them propertly.

He says in October of last year, he sent a letter regarding IRS compliance to Commissioner Shulman regarding various issues. This board is to follow up on that letter.

Posted by: Elaine Wilson | May 16, 2012 7:07:28 AM

Mr. Lewis - ranking member. He is worried about cuts in budget and affects on administration of the tax laws.
In the light of the budget, some tax preferences need to be eliminated but chartiable giving should be encouraged. Interesting protective statement

Posted by: Elaine Wilson | May 16, 2012 7:10:12 AM

Ah, I have video now. Prof. is up first - vital but also a sector with vested interets and bad actors. He is concerned that there is no clear federal policy on exempts as the law is getting more complicated. UBIT, political limits, and requirements of application for c3 status were not in the original law. Over time, Congress has put negative limits on charities but not required anything affirmative of c3s. Legal standards facilitate growth but are hard to oversee. Too many c3s associated with scandals and as a result we get more legislation.

Congress is frustrated by the breath of standard - hospitals for example get more regulations. Some c3s are treated differently results in disaggregation. Congress is also willing to blur the line between public charities and private foundations - the old way is less relevant today than currently. Should we redefine the difference totally. Congress is showing a preference for brighter enforcement lines and less facts and circumstances with harsher penalties.

Posted by: Elaine Wilson | May 16, 2012 7:17:58 AM

Aviv now - impact of economy on charitable giving and on the need for services in the sector. Charities have not returned to pre-recession levels. 78% increase in demand in social services organization. Congress can help by passing incentives for giving including charitable IRA rollover. Look for ways to enhance incentives.

Giving depends on a high level of public trust - mentions the panel on the nonprofit sector and the governance report. PPA and redesigned Form 990 included some of the governance recommendations.

Does good governance lead to compliance? She says initial studies show correlation. Notes the importance of self-regulation through the governance principles. Strenghtened governance improved oversight and accountability.

Posted by: Elaine Wilson | May 16, 2012 7:23:58 AM

DeStefano on behalf of NACUBO - 3 points - Many institutions have policies in place with regard to stewardship. Public and private institutions have compliance requirements outside the IRS. Tax compliance is a factor in cost for eduction. Cornell just went through an audit with a very small adjustment over 2 years, and it cost signficant amounts to comply.

Form 990 - parntership investment issue reporting. Previously reported consistently with prior data - new forms ask for inconsistent reporting.

Posted by: Elaine Wilson | May 16, 2012 7:28:16 AM

Regier - VHA - national network of hospitals and non-acute health care providers. Two topics - new hospital requirements under affordable care act and comprehensive tax reform.

Affordable care act - during the last two years, the IRS has issued only informal guidance but no proposed and final regulations (EWW says - of course not. We are still waiting on PPA regs - seriously.) Concerns about the way Sched. H for hospitals and community health needs assessment requirements. Worried about financial impact of compliance with paperwork.

Tax reform - avoid any action that would jeopardize exemption for hospitals, income/gift/estate tax deductions, and bond financing.

(EWW Interesting that there is focus on protecting tax deductions from a number of folks...)

Posted by: Elaine Wilson | May 16, 2012 7:34:28 AM

Hopkins - basics of the law in this area. Talks about how the sector is broken down and the various criteria for exemption - more detail in written materials. In addition to Section 501(c)(3), he thinks that there should be a focus on Section 501c4 (social welfare) and 501c6 (line of business requirements.

I just lost my audio here ....

Posted by: Elaine Wilson | May 16, 2012 7:36:56 AM

We are back up... discussion of extenders and existing reg projects pending. Will just take questions for the subcommittee.

Boustany - increasing complexity of the sector to get a better understanding of the sector as they contemplate tax reform. He wants to focus on Form 990 specifically. For the panel - Regier and DeStefano particularly - new 990 gives more opportunity to explain activities but also give more information. How is this process working from their perspective?

- DeStefano - Cornell shares with the audit committee. Used to have in depth converations, now its so complicated that the trustees don't know where to start so they don't get a lot of meaningful question. She thinks it needs to be streamlined - focus on key areas. She thinks F, I and K are problematic and don't know the value. I requires grants and other assistance within the US - Cornell's reponse is 20 pages long and almost all federal government subcontracting that OMB already audits. (EWW- is this public?)

- Regier - does make more information available but doesn't make filing easier. You need outside specialized help.

- Hopkins - greatly enhanced his law practice.

- Colinvaux - prior 990 was very outdated and was seen as not providing enough information. Form 990 is important as an enforcement tool and one of the few ways that we have actual oversight. The too much information problem is a problem that they are trying to work out with stakeholders. Complexity of the form is very correct, but it reflects the complexity of the sector.

- Aviv - only vehicle that donors/public can find out the whats going on. The revised form gives a really good picture so lets be mindful of the benefit.

Posted by: Elaine Wilson | May 16, 2012 7:44:49 AM

Boustany - Colinvaux - should we disagregate? Big elephants are universities/hospitals - disagregation is already happening as per the Form 900 - the whole form isn't relevant to many organizations.

Booustany asks Colinvaux - comprehensive tax reform is looking at exemptions - he was at the joint committee when PPA was passed. Anything to keep in mind from his PPA experience. Colinvaux says keep conducting hearings because it calls the sector together and reiminds the sector to do good. Also, PPA focused on correcting abuses ... open issue, what is the role of the federal government with regard to c3s? Do we continue with anti-abuse roles or do we ask what do ask of charities as a consquence of exemption.

Posted by: Elaine Wilson | May 16, 2012 7:48:21 AM

Lewis asks Hopkins - asks about IRS resources with regard to compliance. Hopkins - IRS is doing a very good job with the resources it has especially in applications and audits.

Lewis - does Hopkins get feedback from his newsletter? Is the sector satsified with IRS? Hopkins - depends on the entity. People that are unhappy are alot of times been denied and alot of times rightfully so. Form 990 discussion is a different matter.

Lewis to Aviv - what has happened with service demands? Aviv - public funding/state funding and donor funding is down at the same time people need help. Some coped by doing more with less but you can only do so much. Mostly they have to turn people away.

Lewis to Aviv - what can Congress do to assist? Aviv - extenders, esp. IRA rollover.

Posted by: Elaine Wilson | May 16, 2012 7:54:41 AM

Rep. Black to Regier - discussion to Schedule H and how receptive has the IRS been to working with VHA. Regier - they are open to getting input and in fact, agreed with their recommendation to make certain information optional for a short period. They have had some success in shaping the form.

Black - what other specific concerns - expanded detail in ths schedule - incrase in filing responsibility. (EWW - no discussion of community benefit standard changes through the form... interesting).

Black - Affordable care act community benefit standard - do you propose an alternative standard. Regier - the concern isn't meeting the community benefit standards it is the process in doign so. The guidance is very detailed - for example, listing who you consulted. Other concern - how is this done in multi-hospital systems when the statute is on a hospital by hospital basis. He would like system flexibility (EWW - how do we define community for "community benefit"?)

Posted by: Elaine Wilson | May 16, 2012 8:00:56 AM

Rep. Jenkins - to Colinvaux - cite his article and the collapsing distinction between public charity and private foundation. Colinvaux - historically, the shape of limited funding of a private foundation is more likely to result in abuse and therefore disfavored. This is collapsing because in 1969 it was an anti-abuse regime but now more abuses are in public charities and Congress has looked to the private foundation rule to apply them to public charities. Looks to 4942 per se rules versus exces benefit (EWW - doesn't this undermine his argument - they are different). He doesn't think they should be the same but we should look at the abuses and see if they matter and have a uniform rule between private foundations and public charities, but not based on funding streams.

Rep. Jenkins - Florida Tax Review Articles - look at ownership of for-profits by public charities. Please elaborate. Why would they do that? He doesn't know how prevalent - there is a rule against it for private foundations (EWW - sort of but not really - EBH rules don't totally prohibit it).. but it something we havne't thought about.. should we encourage it?

Posted by: Elaine Wilson | May 16, 2012 8:05:55 AM

Mr. Reed to DeStefano - elaborate on the K-1 reporting issue. The 990 reconciles with financial statement - the K-1 data is not part of the financial statement data. (EWW note - I've done this review for endowments - it is heavy lifting for Form 990-T.)

Reed to Destefano - asks about the audit. She had 2 years and 15 staff members. Looked at every transaction for 2008. Significant time educating the IRS on the industry. They thought that the Form 990 and the 990-T didn't provide sufficient information to determine what should be audited.

Posted by: Elaine Wilson | May 16, 2012 8:09:23 AM

Rep. Kind - He has the impression that the IRS has not been responsive to suggestions and simplification. Is that right? Regier - he doesn't want to leave the impression that the IRS isn't responsive, they have been. There has been clarification on some issues. That says, some remain. Actual regulations would help.

Aviv - when PPA was passed, they invited us in to talk to us, when we offered comments, they followed up. When they did 990-N they went out of the way to inform people. They respond in a serious way. That is different then the question of burden.

Kind - we ask them to offer more with less.

Kind to Hopkins - the Section 501c4 questions and political activity. Should we pay attention? Hopkins - Absolutely. Substantial number of applications and some have a signficant amount of political activity - the IRS position is that if that's the primary purpose you don't qualify. Kind - require disclosures? Hopkins - not the current law. Other organization do require disclosure. Hopkins, this is one of the principal reasons why c4s are used. This is within Congress' power - its a policy issue - the consequences is that is may discourage contributions but maybe that's the intent. It will increase transparency. Should other organizations have the same level?

Posted by: Elaine Wilson | May 16, 2012 8:16:16 AM

Rep. Paulsen to Colinvaux - is this a resources issue or is there another problem? Colinvaux - are they providing a public good (EWW - he says there is no requirement to provide a public good.. he talks about the organizational test but forgets about the operational test).

Paulsen - should the new hospital rule provide a model on how we require a charity to provide a public good. Possibly, but the new rules don't change the community benefit rule, just put in a new process rule as a substitute.

Rep. Becerra to Colinvaux - statistics about audits on TEOs - 1% of organizations. Coinvaux - sounds about right. Becerra - is that enough with the fuzzy rules in the IRS. We have so many applying. The sector doesn't self police and the IRS can't do more. Is this the reason for the increase in abuses? Do we need brighter lines? Give me a tangible example - information on outcomes etc.

Colinvaux - in part the current system means a lot can qualify as exempt but then don't do anything. Should we shift away from purposes and look at activities - and minimal activities ( EWW - don't we do this? Again, operational test???) Also, should we coordinate better with 170 and tie to the types of activities we want to discussion. Becerra - taxpayers should have some sense that they are doing something with the money. Colinvaux - the federal interst is strong in 170.

Becerra - wants more hearings on c4s and political activities.

Posted by: Elaine Wilson | May 16, 2012 8:24:17 AM

Rep. Marchant to Aviv on the 33 principles - are they reflected in the Form 990. Aviv - many are but the point was that they are voluntary not a government compliance area. The more the sector steps up the less the IRS has to. Marchant - are there any that should be?

Marchant to Hopkins - difference between a c4 and a 527. 527 is primary political campaign activity - c4 can't have it as primary. Donor disclosure rules differ. 527 are taxable on non-exempt functions; c4s on UBIT only. Reporting is more complex for 527s. Marchant - is the IRS putting a paperwork burden on c4s? Is the IRS saying that they are 527s? Hopkins - yes. Marchant - He is getting complaints from constituants but they are being singled out. Hopkins - IRS scrutiny seems new because new phenomenom because the most 501c4s don't file - and because of the upsurge in organizations. Marchant - why is there a new focus.

Posted by: Elaine Wilson | May 16, 2012 8:30:02 AM

Conclusion of hearing. My off the cuff thoughts -

1. There is a big distinction between hospitals and universities and the rest of the sector.
2. Lots of focus on 990 compliance but really no discussion of whether the IRS is asking what it asks for a reason - do the costs justify the burden.
3. We will see more on 501c4s, at least hearings but I don't see much in the way of action. Poor Commissioner Shulman.
4. Lots of worry in the sector about tax reform taking away charitable exemptions and deductions.

And I'm out for this morning. Discuss!!!

Posted by: Elaine Wilson | May 16, 2012 8:33:06 AM

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