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Tax Exempt Organizations Hearing Committee on Ways TAX EXEMPT ORGANIZATIONS HEARING BEFORE THE SUBCOMMITTEE ON OVERSIGHT OF THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION MAY 16, 2012 Serial No. 112–OS13 Printed for the use of the Committee on Ways and Means ( U.S. GOVERNMENT PRINTING OFFICE 80–259 WASHINGTON : 2013 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Mar 15 2010 23:35 Apr 29, 2013 Jkt 080259 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 I:\WAYS\OUT\80259.XXX GPO1 PsN: 80259 ccoleman on DSK8P6SHH1PROD with HEARING COMMITTEE ON WAYS AND MEANS DAVE CAMP, Michigan, Chairman WALLY HERGER, California SANDER M. LEVIN, Michigan SAM JOHNSON, Texas CHARLES B. RANGEL, New York KEVIN BRADY, Texas FORTNEY PETE STARK, California PAUL RYAN, Wisconsin JIM MCDERMOTT, Washington DEVIN NUNES, California JOHN LEWIS, Georgia PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts GEOFF DAVIS, Kentucky XAVIER BECERRA, California DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas CHARLES W. BOUSTANY, JR., Louisiana MIKE THOMPSON, California PETER J. ROSKAM, Illinois JOHN B. LARSON, Connecticut JIM GERLACH, Pennsylvania EARL BLUMENAUER, Oregon TOM PRICE, Georgia RON KIND, Wisconsin VERN BUCHANAN, Florida BILL PASCRELL, JR., New Jersey ADRIAN SMITH, Nebraska SHELLEY BERKLEY, Nevada AARON SCHOCK, Illinois JOSEPH CROWLEY, New York LYNN JENKINS, Kansas ERIK PAULSEN, Minnesota KENNY MARCHANT, Texas RICK BERG, North Dakota DIANE BLACK, Tennessee TOM REED, New York JENNIFER SAFAVIAN, Staff Director and General Counsel JANICE MAYS, Minority Chief Counsel SUBCOMMITTEE ON OVERSIGHT CHARLES W. BOUSTANY, JR., Louisiana, Chairman DIANE BLACK, Tennessee JOHN LEWIS, Georgia AARON SCHOCK, Illinois XAVIER BECERRA, California LYNN JENKINS, Kansas RON KIND, Wisconsin KENNY MARCHANT, Texas JIM MCDERMOTT, Washington TOM REED, New York ERIK PAULSEN, Minnesota ii VerDate Mar 15 2010 23:35 Apr 29, 2013 Jkt 080259 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 I:\WAYS\OUT\80259.XXX GPO1 PsN: 80259 ccoleman on DSK8P6SHH1PROD with HEARING C O N T E N T S Page Advisory of May 16, 2012 announcing the hearing .............................................. 2 WITNESSES Mr. Roger Colinvaux, Associate Professor, Columbus School of Law, The Catholic University of America, testimony ........................................................ 6 Ms. Diana Aviv, President & Chief Executive Officer, Independent Sector, testimony .............................................................................................................. 16 Ms. Joanne M. DeStefano, Vice President for Finance and Chief Financial Officer, Cornell University, Testifying on behalf of the National Association of College and University Business Officers, testimony ................................... 27 Mr. Michael Regier, Senior Vice President of Legal and Corporate Affairs, VHA Inc., testimony ............................................................................................. 33 Mr. Bruce R. Hopkins, Senior Partner, Polsinelli Shughart, testimony ............. 43 SUBMISSIONS FOR THE RECORD American Association of Museums ......................................................................... 65 American Bankers Association ............................................................................... 68 American Hospital Association ............................................................................... 75 Association for Healthcare Philanthropy ............................................................... 77 Catalogue for Philanthropy ..................................................................................... 84 Cause of Action ........................................................................................................ 85 Charity Navigator .................................................................................................... 91 CharityWatch ........................................................................................................... 92 Community Catalyst ................................................................................................ 99 Credit Union National Association ......................................................................... 104 Jewish Federations of North America ................................................................... 107 National Association of Federal Credit Unions ..................................................... 115 National Council of Nonprofits ............................................................................... 117 The Community Foundation for Greater Atlanta ................................................. 121 MATERIAL SUBMITTED FOR THE RECORD Question for the Record: Ms. Diana Aviv ........................................................................................................ 123 iii VerDate Mar 15 2010 23:35 Apr 29, 2013 Jkt 080259 PO 00000 Frm 00003 Fmt 0486 Sfmt 0486 I:\WAYS\OUT\80259.XXX GPO1 PsN: 80259 ccoleman on DSK8P6SHH1PROD with HEARING VerDate Mar 15 2010 23:35 Apr 29, 2013 Jkt 080259 PO 00000 Frm 00004 Fmt 0486 Sfmt 0486 I:\WAYS\OUT\80259.XXX GPO1 PsN: 80259 ccoleman on DSK8P6SHH1PROD with HEARING TAX EXEMPT ORGANIZATIONS WEDNESDAY, MAY 16, 2012 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT, Washington, DC. The subcommittee met, pursuant to call, at 10:05 a.m., in Room 1100, Longworth House Office Building, the Honorable Charles Boustany [Chairman of the Subcommittee] presiding. [The advisory of the hearing follows:] (1) VerDate Mar 15 2010 23:35 Apr 29, 2013 Jkt 080259 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 I:\WAYS\OUT\80259.XXX GPO1 PsN: 80259 ccoleman on DSK8P6SHH1PROD with HEARING 2 HEARING ADVISORY Boustany Announces Hearing on Tax Exempt Organizations Wednesday, May 16, 2012 Congressman Charles W. Boustany Jr., MD (R–LA), Chairman of the Sub- committee on Oversight of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing examining operations and oversight of tax-exempt organizations. This will be the first in a series of hearings by the Sub- committee on the tax-exempt sector and IRS oversight of tax-exempt activities. The hearing will take place on Wednesday, May 16, 2012, in Room 1100 of the Longworth House Office Building, beginning at 10:00 A.M. In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consider- ation by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow. BACKGROUND: Tax-exempt organizations have long played an important role in the United States. Since the first income tax was imposed in 1913, certain organizations have been exempt from taxation, including those organized and operated for religious, charitable, scientific, or educational purposes. Such organizations remain the most common types of exempt organizations and are defined in section 501(c)(3) of the Internal Revenue Code (‘‘IRC’’). In addition to the longstanding exemption for such organizations under section 501(c)(3), there are 28 other types of organizations that may qualify for tax-exempt status. As of 2008, 1.85 million organizations qualified for tax-exempt status, and 1.18 million qualified as charitable organizations under section 501(c)(3). In 2008, chari- table organizations had $2.5 trillion in assets. It is estimated that tax-exempt orga- nizations employ approximately 10% of the U.S. workforce (charitable organizations employ 7% of the U.S. workforce). Tax-exempt organizations are subject to a variety of rules to ensure compliance with Federal tax law and limit abuses, including rules that prevent private inurement, limit certain activities, and subject business income related to for-profit activities to income tax. On October 6, 2011, Chairman Boustany sent a letter to the Internal Revenue Service (IRS) seeking information related to the agency’s administration and over- sight of tax-exempt organizations (including charitable organizations). The letter sought information on a variety of topics to help the Committee understand the cur- rent state of relations between the IRS and tax-exempt entities, and provide a foun- dation for further engagement in overseeing this important sector of the U.S. econ- omy. The letter focused on a number of issues related to corporate governance and compliance, requested information related to new reporting requirements for tax-ex- empt hospitals, and asked for an update on the ongoing Colleges and University Compliance Project that was launched in 2008. In announcing this hearing, Chairman Boustany said, ‘‘Oversight of the tax-ex- empt sector is an important priority for the Subcommittee, and it has been an area that both Republicans and Democrats agree needs greater atten- tion. In my letter to the IRS last October, I asked the IRS about recent ef- forts to address certain concerns that have been raised regarding the oper- ation of tax-exempt organizations, including corporate governance issues and mishandling of funds by officers. It is now time for the Subcommittee to hear from members of the tax-exempt community for a more complete picture of the current state of affairs. This review allows us to examine the VerDate
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