Washington, DC - Tim Delaney, President and CEO of the National Council of Nonprofits, which advocates on behalf of charitable nonprofits nationwide, released the following statement in response to action today by the House Ways and Means Committee approving legislation to impose an electronic-filing mandate on charitable and other nonprofit organizations:

“The National Council of Nonprofits has long supported the provisions in H.R. 5443 requiring charitable nonprofits and other tax-exempt organizations to file their tax returns electronically. Mandatory electronic filing of Form 990s and other forms will likely improve accuracy and timeliness, thereby protecting public trust in the integrity of charitable nonprofits. The related provision directing the U.S. Treasury to make that information available to the public in machine readable format will promote transparency, which is essential for continuing trust.

“But the House Ways and Means Committee needs to take further action to more directly protect the public and the nonprofit community. We call on the Committee to pass legislation instructing the Internal Revenue Service to live up to its duty to enforce the law. In particular, the IRS must stop using its truncated Form 1023-EZ and its negligent screening process that have proven to be ineffective, with the IRS granting tax-exempt status to ineligible organizations and perhaps bad actors that seek to exploit improper tax-exempt status for personal gain. Legislation should further instruct the IRS to consult with charitable organizations, foundations, and state charity regulators to develop a streamlined form that continues to collect the information that is essential for the IRS to protect the public from scam artists and ensure that it grants tax-exempt status only to organizations that are eligible under the law.”

Additional Background

In 2014, the IRS radically eviscerated its application and approval process for certain organizations seeking tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. In doing so, it ignored strong opposition from its own Advisory Committee on Tax Exempt and Government Entities, the National Association of State Charity Officials (state regulators of nonprofit entities), and the National Council of Nonprofits, among others. One warning said, “Handing out charitable status like candy at Halloween is a bad idea.” And that is what has happened. According to the Taxpayer Advocate, IRS use of the Form 1023-EZ and the rubber-stamp approval process have resulted in the IRS erroneously awarding tax-exempt status at rates of 37 percent, 26 percent, and 42 percent during 2015, 2016, and 2017, respectively. These failings by the IRS now enable thousands of unqualified and perhaps unethical organizations to prey on the public, hurting those who give and diminishing trust in legitimate charitable nonprofits upon which so many people rely.

• Comments to the Discussion Draft: Taxpayer First Act, National Council of Nonprofits, April 6, 2018
• Comments Regarding the Taxpayer First Act, Former Presidents of the National Association of State Charity Officials, April 6, 2018

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The National Council of Nonprofits (Council of Nonprofits) is a trusted resource and proven advocate for America’s charitable nonprofits. Connecting the policy dots across all levels and branches of governments, the Council of Nonprofits keeps nonprofits informed and empowered to create a positive public policy environment that best supports nonprofits in advancing their missions. Working with and through the nation’s largest network of nonprofits – with 25,000-plus organizational members - we identify emerging trends, share proven practices, and promote solutions that benefit charitable nonprofits and the communities they serve.