AS LAWMAKERS in Oregon consider a bill that would crack down on charities
that spend too big a share of
their revenue on fund raising
and overhead costs compared
with their programs, they prob
ably expected that it would be
easy to find out how nonprofits
spend their money.
But it turns out that many
nonprofits don’t report how
much they spend on charitable
programs, even though the In
ternal Revenue Service requires
them to show that information
on tax forms and to make it
available to the public.
In a scan of more than
100,000 nonprofits The Chron-
icle conducted using the Guide
Star database of tax forms,
more than onefifth would not
have met the guidelines of the
Oregon bill. Of that group,
nearly 96 percent wouldn’t have
passed Oregon muster because
they left the sections on their
IRS forms blank where they
were supposed to report how
much they spent on programs
or else they filled in a zero.
To figure out how many char
ities nationwide would be af
fected by the rule if it were in
place nationwide, The Chronicle
Its goal: To disqualify donors from
deducting on their state income taxes
donations to charities that devote
less than 30 percent of their
expenses to charitable programs.
HOW OREGON’S LAW WOULD WORK
Its status: Passed by the Oregon
Senate and under consideration in
What would count for program expenses: Average spending
on programs on a group’s three most recent annual financial
How potential donors would be informed: If the charities don’t
qualify, they would be required to tell potential donors before
they contribute. The attorney general would publish the list of
“disqualified” nonprofits online.
Groups that would be covered: Many charities with annual
revenue of at least $200,000.
Organizations that would not be affected:
n Private foundations, community trusts or foundations, or
charitable remainder trusts.
n Organizations that receive less than 50 percent of their total
revenue from contributions or grants—for example, groups
like hospitals or schools that get most of their money from
n Charities that have operated for four years or less.
n Organizations that do not otherwise qualify to receive tax-deductible gifts or are not required to file annual reports with
the attorney general.
Under certain circumstances, groups can get waivers. The
attorney general could decide to lift the rules if groups:
n Are accumulating money for a specific purpose, for example
a capital campaign.
n Make payments to affiliates that should be considered when
calculating program expenses.
n Present other “mitigating circumstances.”
Penalties for violating the law. Charities that violate the law
by failing to disclose their tax-exempt status to donors could
be fined up to $25,000 per violation under Oregon’s Unlawful
Trade Practices Act.
asked GuideStar for the records
of charities with that much in
revenue. The 2009 forms, the
most recent and complete avail
able, show 100,664 nonprofits in
that category, and of that total,
23,189, or about onefifth, would
not have met the Oregon stan
But since so many didn’t re
port program spending costs,
it’s impossible to tell much about
whether they would be affected
by the Oregon law.
Dan Moore, a vice president at
GuideStar, said that the incom
plete information on the forms
highlights a weakness in how
the IRS regulates nonprofits.
“If you can get away with not
answering these questions, then
it undermines the utility of the
990 as an important disclosure
document,” Mr. Moore said.
In many cases, charities de
liberately omit the data, says
Ken Berger, head of the watch
dog group Charity Navigator.
“If a nonprofit is up to no
good, there are an infinite num
ber of ways for them to scam the
system,” he said.
Nonprofits are also failing to
fill out their tax forms because
they do not understand the
rules, he said. And while the
IRS should play a greater role
in making sure charities dis
close required data, Mr. Berg
er says it’s up to the nonprofits
themselves to be accurate.
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