Three panels of witnesses testified before the Senate Finance Committee on June 22, addressing a wide range of issues on governance, accountability and enforcement of tax laws. Committee Chair Charles Grassley (R-IA) said he expects to introduce comprehensive legislation on these issues in the fall, but that some proposals may move separately and possibly sooner. He said the hearing was the beginning of a dialog with the nonprofit sector, and that more hearings may follow. The Finance Committee held the hearing in response to scandals involving well-known charities like United Way and The Nature Conservancy, as well as abuse of charitable deductions by donors using tax shelters and other schemes. Internal Revenue Service (IRS) Commissioner Mark Everson's testimony described the growth in the nonprofit sector, the need for "enhanced governance" of tax-exempt organizations and various schemes by taxable individuals or corporations to avoid taxes through questionable donations. Everson said there are about 3 million tax-exempt organizations, including nearly 1 million charities and 1 million employee plans, with the remainder including everything from local governments to business leagues. He urged the Committee to support the President's proposed 4.8 percent budget increase for the IRS, which would be "used to restore and reinvigorate our enforcement presence." He described current enforcement initiatives, including:

• Beginning this summer, a project to "explore the seemingly high compensation paid" to some nonprofit employees, contacting hundreds of organizations of different sizes to get "detailed information and supporting documents on their compensation practices and procedures." The goal is to help identify problem areas for the IRS examination program.
• A study of different categories of private foundations, focusing on about 400 foundations to "gauge its compliance with the tax laws."
• Greater coordination with state governments, the Federal Trade Commission and the U.S. Postal Service.
• Revising the application for tax-exempt status (Form 1023) by the end of the year, to include questions on compensation, governance, and conflict-of-interest policies. A sample conflict of interest policy is being developed in conjunction with this effort.
• Publish a plain-language brochure in the fall with sample best practices in good governance, ethics and internal oversight.

Much of Everson's testimony discussed donors claiming charitable deductions for "abusive" financial transactions, describing several schemes in detail. There were two anonymous witnesses, sitting behind a screen and talking through voice modification machines. One described how deductions for vehicle donations often exceed the sale price going to the charity. The other described how a low-income homeownership program diverted millions to its founders. Sen. Charles Grassley (R-IA) said specific legislation dealing with donation abuses may be introduced in the fall, and could be used to offset the cost of other tax measures, such as extending the $1,000 child tax credit, elimination of the "marriage penalty" and expansion of the 10-percent tax bracket. For example, legislation-tightening rules of deductions of intellectual property have passed in the Senate and the House Ways and Means Committee and there are proposals to limit deductions for car donations. Witnesses from the nonprofit sector -- Diana Aviv of Independent Sector, Rick Cohen of the National Committee for Responsive Philanthropy and Art Taylor of the Wise Giving alliance -- all urged greater disclosure. NCRP has released a statement calling for increased accountability, which includes issues addressing self-dealing and compensation of foundation trustees, imposing payout requirements, donor-advised funds, and more. The day before the hearing committee staff issued a report with proposals for reform in governance, conflicts of interest, grant-making, federal-state coordination, reporting and disclosure, boards of director responsibilities, best practices and funding for enforcement. (See summary for details.)

• Staff Discussion Draft: Tax Exempt Governance Proposals
• Hearing Panel and Grassley and Baucus statements
• Diana Aviv testimony
• Rick Cohen testimony