IRS paperwork doesn’t usually make waves in national newspapers. However, glaring flaws in the agency’s vetting process for prospective charities were front and center in a New York Times investigation published this past weekend – 76 Fake Charities Shared a Mailbox. The I.R.S. Approved Them All.
The full article is well-worth a read for anyone with a stake in the future of the charitable sector, which should be everyone! It details a breathtakingly simple six-figure scheme that was only possible because – in the words of former National Taxpayer Advocate Nina E. Olson – “Nobody’s watching the store.” An alleged scammer created fake charities that sounded like major brand names, pocketing donations from those who found these organizations on online giving platforms. Notably, this individual became much more prolific once he started utilizing the “fast-track process” allowed by Form 1023-EZ for organizations that expect to remain under $50,000 in annual receipts along with other conditions.
Since Form 1023-EZ was created, the IRS’ own National Taxpayer Advocate has continually raised concerns that an alarmingly high percentage of ineligible applications are nonetheless approved. In addition to hurting law-abiding taxpayers and diverting resources away from legitimate charities in the near-term, this swiss cheese approval process risks undermining public trust going forward. While the vast majority of its people and organizations are committed to upholding the highest legal and ethical standards, even a few bad actors can do lasting damage to the charitable sector’s most precious asset: public trust.
Thankfully, this past weekend’s piece also highlights an important solution to this problem: repealing Form 1023-EZ and replacing it with something more adequate, as proposed by the Nonprofit Sector Strength and Partnership Act. While there is no shortage of suggestions for supplementing the information on this form, it is even more important that an eventual replacement be developed in close collaboration with the sector. In the meantime, nothing would prevent legitimate applicants from filling out the more complete Form 1023.
Independent Sector is proud to have worked with Congresswoman McCollum (D-MN) and Congressman Upton (R-MI) in the crafting of this important legislation. And we are encouraged to see more than 600 nonprofit organizations from across the Nation endorsing this bill. Make sure essential funding is not diverted from your mission. Make sure you are one of the hundreds of nonprofit organizations signaling to policymakers that our sector’s integrity is critical – as it is key to the trust the public holds in nonprofit institutions. If you haven’t already, please take a few minutes to learn more about this critical proposal and join the letter of support today.