(Washington, D.C., March 1, 2005)—The Panel on the Nonprofit Sector, comprised of leaders of nonprofit organizations across America, today proposed to the U.S. Senate Finance Committee a series of recommendations designed to strengthen charitable organizations and their operations.

In its Interim Report, the Panel calls upon the nation’s 1.3 million charities and foundations to implement a series of measures to improve their governance and financial disclosure. It also suggests enhancing government oversight of charitable organizations through actions by Congress and the Internal Revenue Service.

“This report is a large step on a journey the nonprofit community has been taking for some time,” said M. Cass Wheeler, co-convener of the Panel and CEO of the American Heart Association, based in Dallas, Texas. “Charitable organizations touch lives in every part of America and every corner of the world. This set of recommendations demonstrates our sector’s continuing commitment to the highest ethical standards, which are vital to maintaining the public trust that enables us to serve the common good.”

The Panel made recommendations in 15 major areas, including actions to be taken by the sector itself, by the IRS, and by Congress.

To ensure that nonprofit organizations follow the highest ethical standards, the Panel encourages all charities and foundations to:

• Adopt and implement a conflict of interest policy;
• Ensure its board includes individuals with financial literacy skills; and
• Develop specific practices and procedures to encourage and protect whistleblowers.

To help make the operations of charitable organizations more transparent to donors, government regulators, and the general public, the Panel supports stronger disclosure rules, such as:

• Suspension of the tax-exempt status of any organization that fails to file required annual Form 990 series returns with the IRS for two or more consecutive years after notice from IRS.
• A requirement that chief executive officers or other high-ranking officials certify that their IRS Form 990 returns are correct and complete.
• Mandatory electronic filing of the IRS Form 990 to improve the accuracy and timeliness of information.
• A requirement that charitable organizations conduct an independent audit of their finances if they must file a Form 990 return with the IRS each year and have total annual revenues of $2 million or more.
• A requirement that charities with $25,000 in annual revenues complete an annual notice supplying basic information.

The Panel also made a number of proposals about “donor-advised funds,” which are special funds administered by public charities in which donors make recommendations on grants. These six proposals are intended to ensure that that donor-advised assets are used exclusively to advance charitable purposes.

The Panel also urged Congress to improve enforcement of existing regulations by encouraging states to incorporate federal tax standards for charitable organizations into state law as appropriate; by increasing resources allocated to IRS for oversight of charitable organizations; and by allowing state attorneys general and other state charity officials the same access to IRS information that state revenue officers currently have.

“The leaders of the Senate Finance Committee’s have demonstrated their commitment to a thoughtful and systematic examination of methods for improving accountability within the nonprofit sector,” said Paul Brest, co-convener of the Panel and president of the William and Flora Hewlett Foundation of Menlo Park, California. “That approach also has guided the Panel’s work. Our preliminary recommendations strike the right balance between self-regulation and government regulation.”

Convened by Independent Sector, a coalition of approximately 500 charities and foundations, at the encouragement of Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Max Baucus (D-MT), the 24-member Panel was assisted by more than 150 experts and leaders with a wide range of experience in the nonprofit sector. The Panel also solicited input from hundreds of other organizations from across the country. It will follow this interim report with further recommendations in the spring.

“The vast majority of nonprofits operate in a legal and ethical manner, but the abuses of even a few affects us all,” said Diana Aviv, executive director of the Panel and president and CEO of Independent Sector. “This report represents substantial progress toward a policy of zero tolerance for abuses. As we look for solutions we also will be mindful of the importance of preserving the creativity and independence of the sector.”

In the next phase of its work, the Panel on the Nonprofit Sector will focus on an even broader range of issues affecting charitable organizations. Among the topics it will explore in order to make further recommendations to the Senate Finance Committee in the spring are:

• Standards for compensation and travel policies for board members and executives.
• Revisions to IRS Form 990 returns.
• Uniform and appropriate accounting standards.
• Valuation of non-cash contributions.
• Regulation of charitable solicitations.

A copy of the Interim Report and other details are available at www.NonprofitPanel.org.

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The Panel on the Nonprofit Sector is an independent panel of 24 leaders from a wide range of the country's public charities and private foundations. Convened by Independent Sector at the encouragement of the U.S. Senate Finance Committee, the Panel is developing recommendations to improve the governance, ethical conduct, and oversight of nonprofit organizations. A Citizens Advisory Group, an Expert Advisory Group, and five specialized Work Groups are assisting the Panel, which also invites input from charities and foundations of all sizes serving diverse missions and geographic locations. The Panel will give to the Senate Finance Committee its interim report in early March, followed by a final report in the spring, and further observations in the fall.

Learn more about the Panel at www.NonprofitPanel.org .

Independent Sector is a nonprofit, nonpartisan coalition of approximately 600 charities, foundations, and corporate philanthropy programs, collectively representing tens of thousands of charitable groups in every state across the nation. Its mission is to advance the common good by leading, strengthening, and mobilizing the nonprofit community.