Senate Finance Committee activity on nonprofit regulation is picking up steam as the projected date for introduction of the long-awaited reform bill approaches. Conservative groups and Sen. Rick Santorum (R-PA) have expressed concern about the impact some proposals could have on small nonprofits and that there is inadequate resources to enforce existing laws. The committee’s staff report on land donations was released June 7, and a June 8 hearing took an in-depth look at ways future abuse in this area can be avoided. However, the scope of the bill will likely be much broader, although details remain unknown. Meanwhile, the IRS has changed its selection process for audits, focusing on areas of high risk for abuse. On May 20, a Senate Finance Committee staffer told the American Bar Association (ABA) Section on Taxation that a comprehensive bill addressing governance of tax exempt organizations is likely to be filed in June or July. Charles Grassely (R-IA), the Finance Committee chair and the staffer’s boss, said it will be “comprehensive charitable governance reform.” A staff draft paper released last year recommended changes in standards for exempt status eligibility, conflicts of interest, grantmaking, federal-state coordination, reporting and disclosure, boards of director responsibilities, best practices and funding for enforcement. (see a summary here.) But there are differing views on how comprehensive the legislation will be. Finance Committee ranking member Max Baucus (D-MT) said some changes in the law regulating nonprofits is necessary, but told reporters, “I don’t know what yet.” In late April a letter signed by 72 conservative groups, including the Philanthropy Roundtable and Focus on the Family, wrote to Senate majority leader Bill Frist (R-TN) expressing concern over the impact staff proposals could have on small charities. The conservative groups’ letter said these proposals would “substantially increase the regulatory burden on public charities. These proposals, if enacted, would severely reduce the ability of public charities to play their historic role of addressing public needs with private resources. Indeed, with regard to the large number of charities that are small institutions, it could put many of them out of business, while simultaneously discouraging the formation of new charitable organizations.” The letter also argued that we do not now put adequate resources into enforcement of existing laws and suggested that creation of new laws without adequate enforcement is a mistake. On May 31, Santorum and 20 other Republican senators wrote Grassley and Baucus expressing similar concerns. Santorum is the leading sponsor of the CARE Act, which focuses on incentives to increase charitable giving. That bill has been held up pending committee action on accountability, and both giving and reform issues are likely to be merged into one bill. The Santorum letter praised the committee’s efforts to “root out wrongdoers in the charitable sector,” but said, “we are very concerned that some of these proposals would have the unintended consequence of overburdening small organizations and/or creating disincentives to contribute to legitimate charitable activity at a time we are asking more of this community, not less.” The senators asked Grassley and Baucus to take five factors into consideration as they draft their bill:

• The IRS should enforce existing law,
• Give more consideration to the impact on small organizations,
• The impact of contributions should be more fully vetted,
• One size fits all is not a workable approach, and
• Encourage philanthropy by families.

It is rumored that the reform bill will likely include provisions on private foundations, supporting organizations, land conservation easements as well as the charitable giving incentives pending in the CARE Act. The Finance Committee gave close scrutiny to conservation easements in the June 8 hearing, which capped a two year investigation into the Nature Conservancy and some land trusts. Staff findings were published the day before in a report that found some land conservation programs raised potential tax issues, including insider benefits. The report, titled The Tax Code and Land Conservation: Report on Investigations and Proposals for Reform, recommends reform in the appraisal process that determines the size of the tax deduction donors of conservation easements may take. It also says insider transactions that benefit board members and poor record keeping were a problem at the Nature Conservancy. Both the Nature Conservancy and the Land Trust Alliance (LTA) have called for reforms in the appraisal process. LTA released a joint report with the American Society of Appraisers and the American Society of Farm Managers and Rural Appraisers calling for development of “uniform and clear professional guidelines” and a certification process for appraisers dealing with conservation easements. At the June 8 hearing Senators heard from Republican and Democratic tax counsels, the Internal Revenue Service (IRS), land trusts, the Nature Conservancy and others. The testimony and statements by Grassley and Baucus are online. Grassely predicted that conservation easement reform would be part of the larger bill. The IRS testified it currently has a team looking for patterns of abuse in this area. The result is audits of 240 donors and seven organizations. Four more organizations are in the pipeline for audits. These enforcement actions are consistent with a larger shift in the IRS’ to greater enforcement targeting high risk areas. Martha Sullivan, the IRS Exempt Organizations Director, told the ABA meeting that their goal is to combat abuse practices, and four areas have been targeted: executive compensation, credit counseling agencies, donor-advised funds.