On May 16, 2012, the U.S. House of Representatives Ways and
Means Subcommittee on Oversight (the "Subcommittee") held
what will be the first in a series of planned hearings on the
oversight of the tax-exempt sector. This hearing showcased a
general effort on the part of the Subcommittee to learn more about
the sector and glean information regarding different types of
tax-exempt status, the IRS Form 990, and general ideas for
improvement of regulation of the sector.
The witnesses at the hearing were: Roger Colinvaux
(Associate Professor, Columbus School of Law, The Catholic
University of America); Diana Aviv (President
& Chief Executive Officer, Independent Sector); Joanne
DeStefano (Vice President for Finance and Chief Financial
Officer, Cornell University, testifying on behalf of NACUBO);
Michael Regier (Senior Vice President of Legal and
Corporate Affairs, VHA Inc.); and Bruce R. Hopkins
(Senior Partner, Polsinelli Shughart). Each witness offered a short
statement and then the members of the Subcommittee each asked three
to four questions of the witnesses. The hearing was relatively
short, starting at 10:00 a.m. and ending promptly at 11:30
a.m.
Overall, the purpose of the hearing was mostly informative. The
topic given the most attention seemed to be the redesigned Form
990. Many of the witnesses stressed the redundancy and complication
of the main body of the Form, schedules, and instructions. Regier
went so far as to display the blank Form 990 and related schedules
that his organization must complete as visual evidence of the
volume of reporting responsibility. The Subcommittee also was
interested in the process that organizations undergo in completion
of the Form. DeStefano suggested that the increased complexity of
the Form led to less robust discussion amongst the organizational
leadership reviewing the Form 990.
The Subcommittee also asked about the general interactions of the
sector with the Internal Revenue Service (the "Service").
Overall, the witnesses reported positive interactions with the
Service in seeking input from the sector and responding to formal
comments, although Hopkins qualified, in his experience, that the
general level of satisfaction varies amongst types of tax-exempt
entities.
The Subcommittee also briefly inquired into the process involved in
the Service's compliance projects. U.S. Rep. Jim McDermott
(D-WA) asked about the time and staff resources which were devoted
to Cornell's efforts to respond to an audit as part of the
Service's Nonprofit Colleges and Universities Compliance
Project. DeStefano responded that it was a two-year process
involving up to 15 staff members in which "every
transaction" from 2008 was examined.
Several of the questions posed indicated an effort on the part of
Subcommittee members to educate themselves on the legal
distinctions within the sector. For example, members of the
Subcommittee asked the witnesses for clarification on the
prohibitions imposed on private foundations versus public charities
as well as the differences between Section 501(c)(4) entities and
Section 527 organizations.
There were also a few comments offered during the testimony that
provided insights into potential reform of the sector. Colinvaux
remarked that Congress has become frustrated with the breadth of
501(c)(3) organizations and has begun a trend of imposing
additional requirements on certain types of entities, such as
credit counseling organizations and hospitals (with the enactment
of Internal Revenue Code Sections 501(q) and 501(r), respectively).
Chairman Charles Boustany (R-LA) posed the question to all
witnesses whether it would be a good idea to "disaggregate the
tax-exempt sector."
Chairman Boustany closed the session by thanking the participants
in the hearing and indicating that subsequent hearings will be
planned. Venable will continue to monitor and provide updates on
the House Ways and Means Oversight Subcommittee's activities
related to tax-exempt organizations.
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