More Scrutiny for Political-Oriented Nonprofits

A group of five House Republicans, led by Ways and Means committee member Eric Cantor (VA) and including my representative Marsha Blackburn, have asked IRS Commissioner Mark Everson to tighten up the regulations associated with "527" organizations. The Treasury Inspector General for Tax Administration indicated that Section 527 groups arguably owe over $15 million in taxes and penalties between underreporting of income and insufficient disclosure of donor sources. They acknowledged that a loophole in the present law may allow tax-exempt status in some cases for these organizations, which raised over half a billion dollars for the 2004 elections. Proposed legislation would limit the maximum contribution per contributor to a 527 to $5,000 for federal and $25,000 for nonfederal elections. In a related story today, Tax Analysts is reporting that Greenpeace was allowed to keep its tax exemption, but strongly warned that it could lose the exemption without better reporting.

On the heels of criticism of political activities by Democratic-leaning black churches and Republican-leaning white evangelical churches, it looks like increased scrutiny of the tax-exempt sector is almost a certainty. This should lead larger tax-exempt organizations to be looking for more tax help.