Yesterday the House Ways and Means Subcommittee on Oversight, led by Chairman John Lewis (D-GA), held a hearing on tax-exempt charitable organizations. Chairman Lewis set the overall tone with his opening statement praising the work of nonprofits. "These organizations play such an important role in our country. Charities and foundations make up the very fabric of our communities. They know the deepest human needs of our friends and neighbors and they know the solutions that work." All other committee members emphasized their appreciation for the nonprofit sector as well. Members commented that far too often the "bad apples" are the focus in the media and in legislation.

A new Government Accountability Office (GAO) report was released in conjunction with the hearing that has an alarming title; "Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes." The GAO study reports that "nearly 55,000 exempt organizations had almost $1 billion in unpaid federal taxes as of September 30, 2006," and after establishing just how many exempt organizations there are, Rep. Stephanie Tubbs Jones (D-OH) wanted a clarification. "Don't you think it would have been good to tell us there are 1.8 million exempt organizations when you threw out that 55,000 number? It's your job to get the numbers right." This GAO title seems to be a clear misrepresentation.

Ranking member Jim Ramstad (R-MN) said the vast majority of exempt groups pay their taxes "and are contributing a great deal to people in need in this country." Not only were the Members of the committee very pleased with the sector, Steven Miller, Internal Revenue Service (IRS) Tax Exempt and Government Entities Division commissioner, told the panel that the vast majority of charities are very compliant when it comes to obeying tax laws.

However, a contradicting story came from the Senate side the day before as leaders of the Senate Finance Committee expressed concern over charitable abuse. The IRS supplied follow-up answers to questions leaders of the Finance Committee asked in March on the worst compliance problems facing the exempt sector. And naturally, the negative made the news.

The Internal Revenue Service (IRS) has published a chart outlining seven federal tax law characteristics of 501(c)(3),501(c)(4), 501(c)(5), 501(c)(6) and 527 organizations. The chart indicates whether such organizations may receive tax-deductible contributions, contributions or fees deductible as a business expense, engage in legislative advocacy, engage in candidate election advocacy, or engage in public advocacy not related to legislation or election of candidates.

The House Ways and Means Oversight Subcommittee has announced a July 24 hearing covering an overview of tax-exempt organizations, specifically 501(c)(3) charities and foundations. Most likely witnesses representing the nonprofit sector (from the Council on Foundations and Independent Sector) will urge Congress to extend several tax breaks for donors and put forward their opinion on information that charities must disclose to the Internal Revenue Service (IRS). The witnesses will include a representative from the IRS and the Government Accountability Office (GAO), and as mentioned, Independent Sector and the Council on Foundations. The hearing will focus on the Pension Protection Act of 2006 and the changes to Form 990. Reportedly, there are also plans for a second hearing to focus on the services that urban and rural organizations provide. For more information on the hearing, visit the committee's website.