Tuesday, May 27, 2008

When is a nonprofit not a nonprofit?

How much wealth can an organization accumulate and still be considered a charity? The New York Times
Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.

One issue is the growing confusion over what constitutes a charity at a time when nonprofit groups look more like businesses, charging fees and selling products and services to raise money, and state and local governments are under financial pressure because of lower tax revenues.

And there are others: Does a nonprofit hospital give enough charity care to earn a tax exemption? Is a wealthy university providing enough financial aid?
Congress has threatened to impose a requirement that wealthy universities make minimum payouts from their endowments and raised questions about whether nonprofit hospitals are really all that different from their for-profit — and tax-paying — competitors.

And, concerned about the way some churches are spending money, the Senate Finance Committee has asked for detailed financial information from six evangelical ministries asking them to justify their tax exemptions.

Others are questioning whether some tax-exempt nonprofits, primarily universities and hospitals, have accumulated so much wealth that they should no longer be considered charities. In Massachusetts, where Harvard’s endowment has reached $35 billion in assets, legislators are weighing whether to impose a 2.5 percent annual assessment on universities with endowments of more than $1 billion.

The idea behind tax exemptions is that the organizations provide a public service or substantially reduce the burdens of government. Standards from property-tax exemptions are set by the states, while the federal exemption means charities are not taxed on their income.
Donors may ask the same questions. Why give to an organization that is accumulating wealth rather than using it?

Carroll Bogert, the associate director of Human Rights Watch, and a member of the Harvard class of 1983, in an op-ed in the New York Times
At Harvard, where I’m on my way for my 25th reunion, I’d have to be drunk to fall for their pitch. The university’s endowment stands at $35 billion and is likely to hit $100 billion in a decade.
If you ask Harvard’s president, Drew Gilpin Faust, why in the world she needs your $1,000 — as I did recently, at one of those pre-reunion cocktail parties in someone’s staggering Fifth Avenue duplex — she has a ready answer: alumni giving covers one-third of Harvard’s operating budget. What she doesn’t mention is that earnings from the endowment last year could cover the entire operating budget while still growing at a healthy rate.
A few hundred alumni have formed Harvard Alumni for Social Action, to try to channel 25th-reunion giving to destitute universities in Africa. In three years, we’ve raised $425,000 — a lot for the University of Dar es Salaam but hardly a match for our annual class “gift.” And evidently not enough to win the respect of President Faust, who has begged off meeting the group. Harvard clearly doesn’t like any effort that might divert a dollar away from its Cambridge coffers.
And what about churches that spend more on inreach than outreach -- where inreach includes plush facilities that make it difficult to distinguish the institution from a private club? Some churches do -- in my opinion -- abuse the tax privileges afforded them under the cover of separation of church and state.

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