Baucus and Grassley Letter to Paulson

Ever since the push for better compliance began in the late '90s, a focus of Congress has been on increased disclosure and transparency as the primary tool to encourage compliance.  The corporate tax shelter regulations, codified in the American Job Protection Act of 2004, were an important example.  Now, the disclosure drive is pushing hard against the charitable organization industry.  Senators Baucus and Grassley have put their concerns into a May 25 letter to Treasury Secretary Henry Paulson.  The gist of the letter is the need for enhanced transparency for tax exempt organizations--especially large institutions such as hospitals and universities--through an updated Form 990.

The letter expresses several specific concerns that have been in the news lately.

1. executive compensation:  exempt organizations' CEOs have begun to receive high pay commensurate with many private companies, and that pay has taken various forms--travel percs, housing, deferred compensation, loans--that make it harder for the public to understand the full extent of the pay.
2. endowments:  many exempt organizations have raised substantial endowments, but it is not clear that those endowments are being used for exempt purposes to the extent that one would think would be required under the "commensurate" test.  Worse, endowment funds are now often held offshore, beyond the reach of US taxes.
3. related organizations and joint ventures:  these organizations raise concerns of potential misuse of the charity for private benefit.
4. governance: charities sometimes are "off track" because of fiduciary failures
5. dollars raised vs dollars used for charity:  Baucus and Grassley consider this a key statistic that must be transparent to taxpayers.
6. hospitals:  there is particular need for more detailed reporting about hospitals, in light of their complexity.

Baucus and Grassley end with the plea to move expeditiously to improve transparency for tax exempts.

"[A] new and improved Form 990 and supplemental information should be a top priority to be completed and implemented. While we always hear that sunshine is the best disinfectant, sunshine can’t do its work unless we open the blinds. The sooner we open those blinds the better."