The Internal Revenue Service will be revising the Form 990 used by tax-exempt organizations such as charities in an effort to uncover fraud and hidden sources of funding.
The goal is to provide clearer reporting on the activities of tax-exempt organizations that operate under Section 501(c)(3) of the Tax Code, including government contracts, government grants, and fiscal sponsorship arrangements, to detect misconduct. The Treasury said that clearer reporting would help the IRS and the public better understand the sources and uses of funding from government contracts and grants to support proper revenue classification, and reduce the risk of fraud, abuse, and misuse of taxpayer dollars.
The Treasury seems to be especially interested in fiscal sponsorship arrangements in which a tax-exempt organization supports charitable projects and initiatives. It said recent congressional oversight has “raised concerns that some fiscal sponsorship arrangements may be used to obscure who is operating a project, who controls project funds, and how those funds are being used.” It contends that increased reporting will help address those concerns and make it more difficult for “rogue organizations to hide behind opaque arrangements.”
The Treasury and the IRS expect to publish proposed regulations and provide an opportunity for public comment before any reporting changes are finalized, and said they will consider “administrative feasibility, proportionality, and reporting burden” as they develop the proposal.
“Tax-exempt status is not immunity from scrutiny,” said Ken Kies, a Treasury assistant secretary and acting IRS chief counsel, in a statement. “If an organization receives public funds or tax-deductible donations, it should be prepared to show who controls the money and where it goes.”
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.
