A recent IRS report revealed significant problems in how nonprofit organizations reported the compensation of their executives, prompting a key senator to call for more disclosure and concern that the IRS’ reporting procedures were confusing and needed a revision.
The IRS surveyed 1,826 charities and foundations to look at how they reported executive compensation when they filed their annual 990 forms. The report found reporting errors by a third of the organizations.
The IRS also sought fines of more than $20 million against 25 organizations in cases where executives were paid excessively. The names of the nonprofits sampled and those the IRS sought to fine were not disclosed.
“The lack of transparency is inexcusable,” said Sen. Chuck Grassley, R-Iowa, chair of the Finance Committee, in a statement Thursday. “Public disclosure is supposed to be a pillar of accountability in the charitable sector. Unfortunately, that pillar is crumbling.”
Grassley has reviewed of a number of nonprofit reporting practices.
The IRS described the problems with reporting as a combination of compliance violations and mere reporting mistakes.
“I think that everyone that works in this area, including the IRS, agrees that the form needs to be revised,” said Suzanne Ross McDowell, a partner who focuses on tax-exempt organizations in the D.C. office of law firm Steptoe & Johnson LLP.
McDowell said that the documents that nonprofits must file do not clarify how to report things such as fringe benefits, pensions and other incentives beyond salary.
“Clearly there is a need for the IRS to improve its form and its education of organizations in this area, and there is also a need for organizations to be more attentive,” McDowell said.
