Nonprofit Regulations: Does Accountability Discourage Helping Others?
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Linda-Marie Sundstrom & Mark Kling
In recent years, there has been a significant increase in the creation of new charitable organizations forming to help those in need as well as organizations designed to help bring about societal change. Organizations have been created for a wide variety of reasons—from helping medical professionals pay their bills during Covid, to the Defund the Police movement. However, the desire for nonprofit organizations to quickly form and operate in order to serve emerging societal needs seems to have resulted in some basic questions about the role of the federal government’s oversight.
Is federal government involvement really required when groups of citizens simply want to join together to help others? Is there a perception that government enforcement of rules and regulations can discourage these efforts?
Recently, there was an allegation by a major nonprofit organization about federal government regulations, such as the mandatory filing of an annual IRS Form 990. The organization claimed the complexity of IRS compliance was a passive way for the government to dissuade the nonprofit’s efforts. Could this be true? We’ll explore government involvement in charitable organizations, including its history and purpose.
The Tradition of American Charitable Giving
Americans freely giving to help each other is a practice that goes back to the founding of the country. In 1831, Alexis de Tocqueville observed: “I have frequently admired the endless skill with which the inhabitants of the United States manage to set a common aim to the efforts of a great number of men and to persuade them to pursue it voluntarily.” In 1889, Andrew Carnegie, one of the richest men in history, set forth in his essay The Gospel of Wealth, that a wealthy individual should “consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community.”
The action of giving to others is not a new enlightened epiphany. In addition, the action of voluntary giving to help the community (as opposed to giving to individuals), resulted in such things as schools, infrastructure construction, museums, hospitals and social welfare organizations long before any tax-funded government responsibility was imposed. Ironically, it was desired by the federal government to encourage private charitable efforts that led to the creation of the government-sanctioned nonprofit system. In most countries, there is a government sector and a private sector. But in the United States, we have created a robust and powerful third sector—the charitable nonprofit sector.
Enter Government Regulation
There is a key point here that cannot be emphasized enough. Anyone in this country, at any time, can use their resources to help others. They do not need permission from the government.
In addition, anyone can ask others to donate money or resources to an organization in order to help others. The complexity arises when “tax deductions” are involved. If a person wants to donate to an organization AND get a tax write-off, then certain rules must be followed. If an organization wants to receive income that is “tax free” (tax exempt), then certain rules must be followed.
Not long after the federal income tax law was enacted to encourage continued charitable efforts, it was decided to grant charitable organizations the greatest gift government could bestow on an organization—an exemption from paying federal income tax. But in order to prevent abuse or fraud, checks-and-balances were put in place to ensure that only legitimate organizations and activities qualified for tax-exempt status.
Accountability and the Path Forward
Anyone who believes that IRS nonprofit rules and regulations are unfair or designed to hinder their charitable activities should consider a couple of things.
The first is to remember that the only reason for government involvement in a charitable activity or cause is if the organization asks to not pay taxes on donated income, especially when the donor is also receiving a tax deduction.
The second is to understand what the rules are designed to accomplish—or more importantly, prevent. For example, the IRS Form 990 is where nonprofit organizations report their relevant financial information to the IRS. The IRS uses this information to ensure the nonprofit is working properly towards its stated goal(s) and merits continued tax-exempt status. It is a basic tool to ensure organizations are not claiming one thing and doing another. Ensuring transparency and accountability to all the other taxpayers who are essentially subsidizing tax-exempt organizations is an important mission.
As with many things generated by the government, there might be more rules, regulations and red tape than is desirable or even necessary. But this could be another area where review, reform and improvement should be encouraged rather than assuming bad intent. Our government has historically demonstrated its commitment to assisting charitable organizations. We should expect that there are means to protect against tax fraud and abuse. The government should welcome input on how to make the nonprofit regulation more efficient, effective and expedient for people doing great things to help others.
Author: Dr. Linda-Marie Sundstrom is a former Fulbright Scholar who taught Public Administration in eastern Ukraine. She worked for 20 years as a grant writer and consultant for government, nonprofit, educational and tribal agencies. She has taught in Master of Public Administration Programs for nearly two decades and is currently the MPA Program Director for California Baptist University in Southern California. Email: [email protected]
Author: Dr. Mark Kling has been in law enforcement for 35 years, 14 as police chief. He has taught both Public Administration and Criminal Justice courses for the past 20 years. He is currently the Criminal Justice Program Director for California Baptist University and came out of retirement to transition the Rialto Police Department to new innovative executive leadership. Email: [email protected] / [email protected]
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Nonprofit Regulations: Does Accountability Discourage Helping Others?
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Linda-Marie Sundstrom & Mark Kling
In recent years, there has been a significant increase in the creation of new charitable organizations forming to help those in need as well as organizations designed to help bring about societal change. Organizations have been created for a wide variety of reasons—from helping medical professionals pay their bills during Covid, to the Defund the Police movement. However, the desire for nonprofit organizations to quickly form and operate in order to serve emerging societal needs seems to have resulted in some basic questions about the role of the federal government’s oversight.
Is federal government involvement really required when groups of citizens simply want to join together to help others? Is there a perception that government enforcement of rules and regulations can discourage these efforts?
Recently, there was an allegation by a major nonprofit organization about federal government regulations, such as the mandatory filing of an annual IRS Form 990. The organization claimed the complexity of IRS compliance was a passive way for the government to dissuade the nonprofit’s efforts. Could this be true? We’ll explore government involvement in charitable organizations, including its history and purpose.
The Tradition of American Charitable Giving
Americans freely giving to help each other is a practice that goes back to the founding of the country. In 1831, Alexis de Tocqueville observed: “I have frequently admired the endless skill with which the inhabitants of the United States manage to set a common aim to the efforts of a great number of men and to persuade them to pursue it voluntarily.” In 1889, Andrew Carnegie, one of the richest men in history, set forth in his essay The Gospel of Wealth, that a wealthy individual should “consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community.”
The action of giving to others is not a new enlightened epiphany. In addition, the action of voluntary giving to help the community (as opposed to giving to individuals), resulted in such things as schools, infrastructure construction, museums, hospitals and social welfare organizations long before any tax-funded government responsibility was imposed. Ironically, it was desired by the federal government to encourage private charitable efforts that led to the creation of the government-sanctioned nonprofit system. In most countries, there is a government sector and a private sector. But in the United States, we have created a robust and powerful third sector—the charitable nonprofit sector.
Enter Government Regulation
There is a key point here that cannot be emphasized enough. Anyone in this country, at any time, can use their resources to help others. They do not need permission from the government.
In addition, anyone can ask others to donate money or resources to an organization in order to help others. The complexity arises when “tax deductions” are involved. If a person wants to donate to an organization AND get a tax write-off, then certain rules must be followed. If an organization wants to receive income that is “tax free” (tax exempt), then certain rules must be followed.
Not long after the federal income tax law was enacted to encourage continued charitable efforts, it was decided to grant charitable organizations the greatest gift government could bestow on an organization—an exemption from paying federal income tax. But in order to prevent abuse or fraud, checks-and-balances were put in place to ensure that only legitimate organizations and activities qualified for tax-exempt status.
Accountability and the Path Forward
Anyone who believes that IRS nonprofit rules and regulations are unfair or designed to hinder their charitable activities should consider a couple of things.
The first is to remember that the only reason for government involvement in a charitable activity or cause is if the organization asks to not pay taxes on donated income, especially when the donor is also receiving a tax deduction.
The second is to understand what the rules are designed to accomplish—or more importantly, prevent. For example, the IRS Form 990 is where nonprofit organizations report their relevant financial information to the IRS. The IRS uses this information to ensure the nonprofit is working properly towards its stated goal(s) and merits continued tax-exempt status. It is a basic tool to ensure organizations are not claiming one thing and doing another. Ensuring transparency and accountability to all the other taxpayers who are essentially subsidizing tax-exempt organizations is an important mission.
As with many things generated by the government, there might be more rules, regulations and red tape than is desirable or even necessary. But this could be another area where review, reform and improvement should be encouraged rather than assuming bad intent. Our government has historically demonstrated its commitment to assisting charitable organizations. We should expect that there are means to protect against tax fraud and abuse. The government should welcome input on how to make the nonprofit regulation more efficient, effective and expedient for people doing great things to help others.
Author: Dr. Linda-Marie Sundstrom is a former Fulbright Scholar who taught Public Administration in eastern Ukraine. She worked for 20 years as a grant writer and consultant for government, nonprofit, educational and tribal agencies. She has taught in Master of Public Administration Programs for nearly two decades and is currently the MPA Program Director for California Baptist University in Southern California. Email: [email protected]
Author: Dr. Mark Kling has been in law enforcement for 35 years, 14 as police chief. He has taught both Public Administration and Criminal Justice courses for the past 20 years. He is currently the Criminal Justice Program Director for California Baptist University and came out of retirement to transition the Rialto Police Department to new innovative executive leadership. Email: [email protected] / [email protected]
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