A bill doubling the legal penalties for nonprofits that run afoul of federal regulations — and a plan to spend the fines to offset taxes — has nonprofits up in arms.
Currently, fines generated by nonprofits that violate IRS provisions are used within the agency to monitor and enforce charity compliance. Under the bill, the fees would be used to help make up for revenue lost by cutting excise taxes on telephone bills.
This would be the first time penalty proceeds would be used outside of the nonprofit sector — a move that has the charitable community howling.
“We are opposed to the bill as voted out by the committee,” said Luis Maldonado, director of government relations and public policy for the Council on Foundations. “We oppose the use of charitable revenue for non-charitable purposes, which is what this bill does,” Maldonado told The Examiner.
Sen. Rick Santorum, R-Penn., sponsored the legislation, S.1321, more than a year ago. The bill was stalled until Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, took an interest.
Grassley has been concerned that many nonprofits skirt IRS regulations and he has been looking for ways to toughen enforcement.
He agreed to move the bill to a committee vote after inserting reform provisions that strengthened enforcement but also made it easier for nonprofits to comply.
For example, the bill would allow electronic filing of nonprofits’ tax returns, and permit organizations that do not have to file tax returns at all to provide the IRS with general information only every three years.
The approach garnered unanimous support from committee Democrats and Republicans. They approved the measure just before the July Fourth holiday recess.
A spokesperson for the committee, Jill Kozeny, said the new fines were an essential part of the bill.
“The chairman considers this a good government bill, with these revenue provisions,” Kozeny told The Examiner. “The IRS penalties on nonprofits haven’t been raised in years,” she added.
The legislation will have to compete for attention during the last days of the congressional session. The bill also has another problem. By imposing new fees, the bill creates new revenue.
The U.S. Constitution requires all revenue laws to originate in the House of Representatives. Maldonado suggested the bill could be vulnerable to a challenge on its legal validity should it ever become law.
But Sen. Santorum’s spokesperson, Robert Traynham, said they planned to deal with that issue before the Senate’s summer recess.
“We hope that the Senate will pass it, and the House will pass a version as well, and we will merge the two in conference,” Traynham told The Examiner, a process he called “Blue Slipping” the bills together.
Have information about area nonprofits? Contact Frank Sietzen at [email protected].
