Tuesday, February 23, 2010

Who Regulates the Non-Profit Sector?

Tuesday, February 23, 2010
The last tax blog is a tough act to follow. Who can compete with the non-profit BLOB? Is this the same Blob from the 1988 movie which consumes everyone in its path? I certainly hope not.

Some of you who are involved with non-profit organizations may think there is a so-called Blob in the non-profit world; the Internal Revenue Service (IRS). I wouldn’t go as far as saying that the IRS “consumes everyone in its path,” but the IRS does monitor and regulate the activities of all non-profit organizations.

Some responsibilities of the Internal Revenue Service’s Division on Tax-Exempt and Government are:

• Reviewing applications for tax exempt status (Forms 1023)

• Granting tax exempt status

• Revoking tax exempt status

• Reviewing and auditing the Forms 990 filed

• Enforcing the tax code

• Asserting penalties

As you can see, the IRS has many responsibilities and limited resources to monitor all non-profit organizations. The public cannot depend on the IRS alone to govern the non-profit sector.

State governments have their own laws governing nonprofit organizations. In most states, the attorney general is responsible for regulating non-profits. Many states have filing requirements in addition to the federal filing requirements. States are responsible for enforcing their laws and investigating complaints of consumers. In order to figure out the requirements of your state refer to the IRS’ State Links, which is a collection of state government websites for tax-exempt organizations.

The most important regulators of the non-profit world are the donors. Would you give your hard-earned money to anyone who asks? I think not. I would need more information in order to make an educated decision. How do they intend to use the money? Have they used the money as intended in the past? Is anyone profiting? These are just some of the questions you may ask before giving an individual money, so ask the same questions before supporting a non-profit organization. The IRS may provide us with valuable tools to monitor and review, such as the Form 990, but the responsibility for oversight is truly the donors.



I have a related question I was hoping you could address: who regulates misleading advertising claims of a national non-profit organization? Since it is non-profit, donations are not trade and therefore seem to fall outside of the jurisdiction of the FTC, so if a national non-profit is misleading people into donating based on a particular set of expectations as to what will be done with the resources, who would investigate or prosecute?

Nonprofit Bloggers

Anonymous -
As mentioned in the blog, the attorney general in most states deals with legal and other matters regarding the regulation of nonprofits in their state. Additionally, states generally have their own regulations for charities and separate departments that provide enforcement of these provisions. New Jersey, for example, has The Charitable Registration & Investigation Section (of the Office of Consumer Protection) which administers and enforces the provisions of the Charitable Registration & Investigation Act , which regulates fundraising activities within New Jersey.

In the "court of public opinion" there's always "watchdog" groups that monitor the activities of nonprofit organizations and provide information aimed at helping donors make informed decisions.

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