OVE RSIGHT ON FED ERAL INCORPORATIONS =—= - --------------------------------------------------- ----- N GOVERN MEN! —-------------- Storage ' ^ U * ' T N T S FEB 4 iy/6 ^ nsa s ^ u « ^ , H E A R I N G BEFORE TH E SUBCOMMITTEE ON ADMINISTRATIVE LAW AND GOVERNMENTAL RELATIONS OF TH E cO COMMITTEE ON THE JUDICIARY : un J-D i z r HOUSE OE REPRESENTATIVES J J NIN ETY-F OU RTH CONGRESS ! o □ FIR ST SESSION : -U ON ■ rA :<-a ■ < t OVERSIGHT ON FED ERA L INCORPORATIONS JUNE 11, 1975 Serial No. 20 Printed for the use of the Committee on the Judiciary U.S. GOVERNM ENT PRINT ING OFFICE 62-172 O WASHINGTON : 1975 COMMITTEE ON TH E JUDICIARY PET ER W. RO DINO , J r., New Jersey, Chairman JA CK BR OOKS, Texas EDWA RD HU TC HI NS ON , Michigan RO BER T W. KA ST EN MEIER , Wisconsin ROBER T McC LOR Y, Illinois DON EDWA RDS, California TOM RAILS BA CK, Illinois WILL IAM L. HUNGATE , Missouri CH ARL ES E. WIG GIN S, California JO HN CO NYE RS , J r., Michigan HA MILTON FIS H, J r., New York JOSH UA EIL BERQ, Pennsylvania M. CA LDWE LL BU TLER , Virginia WA LT ER FLO WE RS, A labam a WILL IAM 8. CO HE N, Maine JAMES R. MANN, South Carolina CARLOS J. MO ORHEAD, California PA UL S. SAR BA NES, Maryland JOHN M. ASHBROOK, Ohio JO HN F. SE IB ERLIN G, Ohio HENRY J. HY DE , Illinois GEO RG E E. DA NI EL SO N, California THOMAS N. KIND NE SS, Ohio RO BER T F. DRI NAN, Massachusetts BA RB AR A JO RD AN, Texas RAY THORN TO N, Arkansas EL IZAB ET H HOLTZMAN, New York EDWARD ME ZVINS KY, Iowa HE RM AN BA DILL O, New York ROMANO L. MAZZOLI, K entu cky EDWA RD W. PAT TISO N, New York CHRIS TOPH ER J. D OD D, Connecticut WILLIAM J. HU GHES , New Jersey MA RTIN A. RUS SO, Illinois Earl C. D udley, Jr., General Counsel Garner J. C lin e , Sta ff Director H erbert F uchs, Counsel William P. S hattuck, Counsel Alan A. P arker , Counsel J ames F. F alco, Counsel Maurice A. B arboza, Counsel T homas W. H utchison, Counsel Arthur P. E ndres , Jr., Counsel D aniel L. C ohen , Counsel F ranklin G. P olk, Counsel T homas E. M ooney , Counsel Alexander B. C ook, Counsel Constantine J. Gekas, Counsel Alan F. C offey , Jr., Counsel K enneth N. K le e , Counsel R aymond V. S mietanka , Counsel Subcomm ittee on A dm inist ra tiv e L aw and G overnmental R elation s WA LTER FLO WE RS, Alabam a, Chairman GEO RG E E. DA NI EL SO N, California CARLOS J. MO ORHEAD, California BA RB AR A JO RD AN. Texas THOMAS N. KIND NE SS , Ohio ROMANO L. MAZZOLI, Kentucky EDWA RD W. PA TT ISON , New York William P. S hattuck, Counsel J ay T. T urnipseed , Assistant Counsel Alan F. C offey , Jr., Associate Counsel (H ) CONTENTS Witnesses— pag e Lawton, Mary C., Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice________ 2 Scantlebury, D. L., Director, Division and General Management Studies, General Accounting Office_________________________ 17 Schoenfeld, Howard M., technical adviser to the Assistant Com­ missioner for Employee Plans and Exempt Organizations, Internal Revenue Service__________________________________ 22 Prepared statement_________________________________________23 Tedesco, Joseph A., director, Exempt Organizations Division, Internal Revenue Service_____________________________ 22 Prepared s tatement__________________________ 23 Additional material— “How To Apply for Recognition for an Organization,” publication 557, Internal Revenue Service___________________________ _____ 27 Memorandum on Standards for Federal Chartering of Private Non­ profit Organizations______________________________ ’ 3 (in) OVERSIGHT ON FEDERAL INCORPORATIONS WED NE SD AY , JU N E 11, 1975 H ouse of Representatives, Subcommittee on Administrative Law and Governmental Relations of th e 1 Committee on th e J udiciary, Washingt<m, D.C. The subcommittee met, pursuant to notice, at 10:17 a.m., in room 2237, Rayburn House Office Building, Representative Walter Flowers [chairman of the subcommittee] presiding. Pre sen t: Representatives Flowers, Jordan, Moorhead, and Kindness. Also present: William P. Shattuck, counsel; and Alan F. Coffey, Jr. , associate counsel. Mr. F lowers. We will call this meeting to order. We are conducting today a session by this subcommittee, prompted by an interest in the matter of Federal charters, as included in the jurisdiction of this subcommittee. My experience as the chairman of this subcommittee indicates to me tha t the subcommittee could be inundated by bills in behalf of various organizations seeking Federal charter status. This situation raises a number of questions. We have been asked whether the bills are the result of attempts to avoid more strict laws of State which, at this time, have jurisdiction over certain of these organizations. On the other hand, we may ask does the effort to secure such a charter stem from a sincere desire on the part of organizations to obtain some broader status such as the Federal charter might suggest? Still, the various areas that we are interested in, cannot be particularly circum­ scribed because we want to receive everything tha t the witnesses might have to tell us on this subject. It is my judgment th at Federal charters ought to be given only with a good showing that it would be help ful; that it would be beneficial to the organization; tha t it would certainly not harm the public interest; tha t it would not circumvent the application of more stringent or strict State laws that might otherwise be applicable to the particular organization. These are the kinds of things tha t I am interested in as we conduct this somewhat informal discussion, asking you people from the Depart­ ment of Justice, the General Accounting Office, and the Treasury Department on this subject. It is a search—a sincere search by the members of this subcommit­ tee—to establish a foundation on which to judge whether we ought to report out bills granting Federal charters to any organizations who (1) 2 hav e petition ed us in this Con gress, or if we ought to condu ct a review of tho se who might have been gran ted Fe de ral c ha rte rs in the past. I wou ld now like to yie ld to my dis tin guish ed colleague from Ca li­ fornia, Mr. M oorhead, fo r any comments he w ould like to make before we beg in the hea rin g. Mr. M oorhead. From wha t I have rea d on the sub ject of Fe deral ch arters, the y rea lly have very lit tle meani ng othe r th an the pre stige value to these indiv idual g roup s th at receive them. For th at reason, pro bably , they should be lim ited to trul y national org aniza tio ns, th at are well know n th roug ho ut the country. Th e advanta ges the y get from the variou s State s, of course, usua lly depen d on the St ate laws in which the y are op erating, even tho ugh they h ave the Fe de ral ch arter. It is, to a great exten t, dep endent upo n wh eth er they are actu ally inc orpo rat ed or not. Some of them are inc orpo rat ed in the Distri ct of Columbia and some of them in one or an othe r of the various St ates in the country, bu t it is the pre stige value, as I see it, th at is the real advanta ge of the Fe deral ch arter, to begin with. I would like to be adv ised, if in your view there are o ther organiza­ tio ns of natio nal importance which sho uld be gran ted a Fe deral ch arter. We will be very intere ste d in the comments th at are made here tod ay. I will not be able to be with you all morning because we are in a marku p at I nter stat e and Fo reign Commerce on the ene rgy bill, and th at has a hi gh prior ity righ t now. Bu t, this is an are a th at this committee has been assigne d and it is one th at we are all intere ste d in. We wa nt to be sure th at we have the fac ts before we m ake any fut ur e determina tions. Mr. F lowers. Th an k you, very much, M r. Moorhead. To begin, the n, I would like to inv ite Mary C. Lawton, De pu ty As sis tan t At torney G enera l, o f the Office of L egal Counsel, to come up an d tal k w ith us about th e D ep artm en t’s view of this m atter. We would like to welcome you, Ms. L aw ton , an d we will be d elighted to h ea r w hat you might hav e to offer to us. TESTIMONY OF MARY C. LAWTON, DEPUTY ASSISTANT ATTORNEY GENERAL, OFFICE OF LEGAL COUNSEL, DEPARTMENT OF JUSTICE Ms. L awton. Th an k you, M r. C hairm an. I a pprecia te the op po rtu nity to p artic ipate in this b ackgrou nd h ea r­ ing.