An article in BNA Money and Politics ($$) reports that the new Form 990 requires organizations to provide more information to the Internal Revenue Service (IRS) on their political activities.

Referencing a recent court decision that determined that the IRS should not have revoked the tax exempt status of a 501(c)(4), Craig Engle of the law firm Arent Fox, commented that the "IRS has a mixed record in being able to back up its efforts in court. . . . [the decision] might encourage similar [501(c)(4)]groups to increase their political involvement."

The four-page Schedule C of the new Form 990 requires filers to describe their "direct and indirect political campaign activities." It also asks for detailed information about Section 527 political organizations to which a filer has contributed. Another part of the schedule asks for detailed information about a filer's lobbying activities, including direct lobbying to influence legislation, as well as "grass roots" lobbying to influence public opinion.

When the draft Form 990 was released OMB Watch submitted comments on the political activities section, Schedule C.

Last week the Democratic Congressional Campaign Committee (DCCC) filed a second complaint with the Federal Election Commission (FEC) against the organization Freedom's Watch. Now the DCCC has asked the Internal Revenue Service (IRS) to investigate whether the group should lose its tax-exempt status. The DCCC believes the group should instead file as a 527 political organization rather than a 501(c)(4).

Freedom's Watch spokesman Ed Patru was quoted in the Politico, describing the IRS filing as a "massive case of selective indignation.' Patru said the DCCC is suffering from both a 'fundamental misunderstanding of the regulations governing 501(c)(4) communications' and an agenda that isn't popular with voters."

"The IRS, on the other hand, has signaled that it is closely monitoring the political activities of nonprofit groups this year, which means there may be more traction for the DCCC's charges there [as opposed to the FEC]."

The 501(c)(4) organization, U.S. Term Limits, now has some more trouble. The Democratic Senatorial Campaign Committee (DSCC) has filed a complaint with the Internal Revenue Service (IRS) claiming that the group violated the law by not disclosing on its Web site that contributions made to the group are not tax-deductible.

Roll Call ($$) reports that the "complaint against U.S. Term Limits comes as the Internal Revenue Service is stepping up its enforcement of nonprofit organizations that engage in political activity, particularly 527s and 'social welfare' groups that register under section 501(c)(4) of the tax code. The DSCC's complaint to the IRS is the first time that the committee has sought to strip an outside political group of its tax-free status."

Meanwhile, the Democratic Congressional Campaign Committee (DCCC) filed a second complaint with the Federal Election Commission (FEC) against the organization Freedom's Watch. The DCCC complaint alleges that Freedom's Watch ran a television "attack ad that directly and illegally advocates the defeat of a Democratic candidate and also for failing to disclose the names of the donors funding that ad."

Robert Lenhard, one of the Democratic nominees for the Federal Election Commission (FEC), has withdrawn his name from consideration. This latest news means it could be even longer until the FEC is up and running with six commissioners.

However, this editorial from RollCall ($$) suggests that "the way out would be for the White House to nominate - and the Senate quickly confirm - two new commissioners, giving the panel four members, two from each party, and the ability to get work done this election year."

Senate Majority Leader Harry Reid (D-NV) sent White House Chief of Staff Joshua Bolten a letter saying Lenhard made this decision because of the Senate's delay in confirming the nominees. Reid's letter stated that "given the complete unwillingness among Republicans to constitute a functional FEC, I could not assure him of timely confirmation. This development now makes a resolution of this conflict more difficult because I have lost an exceptional leader for the FEC who will need to be replaced. That will necessitate a search for a new Democratic nominee and a new nomination process. That process typically takes at the least several months. "

The Internal Revenue Service (IRS) released draft instructions for the redesigned Form 990 and is requesting public comments through June 1. In its announcement, the IRS notes that the instructions include "highlights lists indicating certain items in the instructions on which the IRS would especially like to receive public comments. As with comments received on the draft Form 990, the IRS plans to post comments on the instructions on its Web site." The IRS also included some resources to make filling out the 990 easier, including a glossary of terms, a list to help determine the order in which to fill out the form, and some examples.

These instructions, available on the IRS Web site, are important for understanding how to fill out the new form.

A report released by the Treasury Inspector General for Tax Administration (TIGTA), found that the Tax Exempt/Government Entities Division of the Internal Revenue Service (IRS) examines fewer than 1 percent of the 70,000 applications from groups applying for tax-exempt status each year.

BNA Money and Politics ($$) reports that; "One of the solutions discussed has been to periodically check on whether the organizations are still meeting their tax-exempt purposes and filing requirements. For instance, Congress has discussed the possibility of requiring informal filings by some charities on their fifth anniversary of being recognized as tax-exempt. The advisory committee to the Tax-Exempt and Government Entities unit at IRS recommended an operational review at three years, five years, or some other interval after tax exemption to focus on actual operations, charitable accomplishments, relationships with insiders, and lobbying and political activity."

Could these recommendations be a slippery slope, leading to the IRS assessing a charities' performance?

In November Senator Charles Grassley (R-IA) began investigating six evangelistic ministries for the possible illegal use of donations to finance lavish lifestyles. Four of the six have not responded to Grassley's inquiries and now, Senator Max Baucus (D-MT) the Senate Finance committee chair has joined the effort. Baucus and Grassley sent letters to the groups with a March 31 deadline urging them to cooperate. Some of the targeted ministries argue that their financial information is private and of no concern to the Senator. Importantly, Baucus has subpoena power, which may be the only way to get the information. Their letter states; "One of the roles of the Finance Committee . . . [is] the exercise of oversight over . . . the Internal Revenue Service to make sure that its rules and procedures meet the purpose and intent of the revenue code, including those rules applicable to non-profit organizations. In order to do this effectively, the Committee needs to understand clearly and specifically how non-profit organizations are structured and operate."

The Internal Revenue Service (IRS) has released two important fact sheets for tax exempt organizations. One is on the IRS complaint process, and the other is on the examination and compliance checks process. The referral form to make a complaint against a tax exempt organization can be found here.

Last week the California Assembly passed a bill that would require big foundations ($250 million in assets and more) to disclose the race, gender and sexual orientation of their board, staff, and even grantees and business contracts. The bill is now headed to the State Senate. The Chronicle of Philanthropy ($$) outlines what is included in the bill.

• The number of grants and percentage of dollars going to organizations where at least 50 percent of the board, of staff members, are members of ethnic minorities, or are lesbians, gays, bisexuals, or transgender people.
• A breakdown of the number of grants and percentage of dollars that go to organizations that serve different ethnic groups or sexual orientations, as well as the percentage of contracts awarded to businesses owned by members of those groups.

Reportedly, the measure was put forth by the Greenlining Institute, a public-policy organization in Berkeley that says foundations are too secretive about their giving and not enough awards go to organizations led by minorities. Many have come out in opposition, arguing that it would result in burdensome reporting requirements, and violate privacy rights.

For example this LA Times opinion piece claimed that if the Bush administration were to propose such a measure; "The criticism would be swift and unambiguous: This is absurdly intrusive and a violation of privacy. Foundations would organize to oppose any such legislation. . . . Imagine being the employee who has to ask each co-worker about his or her sexual identity and history. Many of these foundations have relatively small staffs; there won't be many secrets if this bill becomes law."

An editorial in the Wall Street Journal reports that the Greenlining Institute has already begun lobbying House Ways and Means Chairman Charlie Rangel (D-NY) for Congressional hearings. Orson Aguilar, associate director of the Greenlining Institute, was quoted in the Chronicle of Philanthropy article to say this "is just the first step in the group's plans to get lawmakers involved. 'We're definitely going to be putting pressure on Congress and the new [president] to look at this,' he said."

Nina E. Olson, the taxpayer advocate, released the annual report to Congress, which addressed a need for the Internal Revenue Service (IRS) to help small nonprofit groups understand its rules. "Smaller EOs frequently lack professional tax guidance. The IRS has increased enforcement actions against EOs [tax-exempt organizations] and the resources dedicated thereto. However, resources devoted to EO education and outreach, which were never adequate, have continued to decline."

Furthermore, "the National Taxpayer Advocate believes the IRS can and should do more to help EOs, particularly small organizations, comply with the complex requirements to which they are subject. The National Taxpayer Advocate urges the IRS to conduct research to assess the service needs and preferences of the spectrum of EOs and to develop a strategic plan to enhance the scope and effectiveness of its outreach to these organizations.

To read the report, click here.

The Internal Revenue Service (IRS) has announced the release of the redesigned Form 990, the form that public charities and other tax-exempt organizations are required to file annually. The new form will be used for the 2008 tax year starting in 2009 and will be phased in over a three year period for smaller organizations. Many changes have been made since a draft was released after the IRS received more than 650 public comments.

The IRS press release states; "For the 2008 tax year (returns filed in 2009), organizations with gross receipts over $1.0 million or total assets over $2.5 million will be required to file the Form 990. For the 2009 tax year (returns filed in 2010), organizations with gross receipts over $500,000 or total assets over $1.25 million will be required to file the Form 990. The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year. Also, starting with the 2010 tax year, the IRS will increase the filing threshold for organizations required to file Form 990-N (the e-postcard) from $25,000 to $50,000.

In regards to Schedule C on political campaign and lobbying activity, the same concerns OMB Watch discussed in its comments remain.

The 2008 Form 990 and other background materials are available on the IRS Charities and Nonprofits Web site.

Democratic presidential nominee Senator Barack Obama (D-IL) has proposed expanding existing national-service programs like the Peace Corps and AmeriCorps. Obama has also promised increased federal government help for nonprofits. Obama said he would create a Social Investment Fund Network to provide money to encourage innovative nonprofit projects, including for example the funding of specific community-identified priorities, and creating a Social Entrepreneurship Agency. Read his proposal here.

Barack Obama will create a Social Investment Fund Network. This will be a government-supported nonprofit corporation, similar to the Corporation for Public Broadcasting, that will use federal seed money to leverage private sector funding to improve local innovation, test the impact of new ideas and expand successful programs to scale. The fund will operate through a network of funds that will be rooted in the private sector at the community level, with local decision-making informed by a shared network of best practices.

During a speech in Iowa, Obama said; "The non-profit sector employs 1 in 12 Americans and 115 nonprofits are launched every day. Yet while the federal government invests $7 billion in research and development for the private sector, there is no similar effort to support non-profit innovation. Meanwhile, there are ideas across America - in our inner cities and small towns; from college graduates to folks making a career change - that could benefit millions of Americans if they're given the chance to grow."

Senator Charles Grassley (R-IA), the ranking Republican on the Senate Finance Committee, is investigating six evangelistic ministries to determine whether they have illegally used donations to finance lavish lifestyles. Senator Grassley sent letters to each of the ministries requesting documents to answer questions regarding expenses, executive compensation, housing allowances, checking and savings accounts, cars, airplanes and overseas trips. They have until Dec. 6 to respond. Grassley's press release states, "The inquiry is part of Grassley's long-standing interest in making sure tax-exempt organizations are accountable to donors." Read the story in the New York Times here.

The Internal Revenue Service (IRS) has released this new pamphlet, Compliance Guide for 501(c)(3) Public Charities. The packet includes information on activities that may risk a group's exempt status, information on recordkeeping, changes to be reported to the IRS, required public disclosures, and more resources for charities. And also see this brochure for charities.

The Panel on the Nonprofit Sector, a committee appointed by Independent Sector, has released Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations. The document outlines 33 practices or principles that charities and foundations can use to evaluate their organization's policies to ensure that they are keeping with the law. A review of more than 50 self-regulation systems took place before this process was complete. The Chronicle of Philanthropy ($$) reports that "some nonprofit officials at the National Committee for Responsive Philanthropy and elsewhere questioned whether self-regulation was the best way to make organizations more accountable, as well as how the principles could be enforced. They suggested that the emphasis should be on shoring up existing legislation and regulations. For more information, click here and to download the guide, click here.