Tax News

CCH (cch.taxgroup.com) reports:

A government auditor told House lawmakers on July 24 that charitable organizations were responsible for nearly $1 billion in unpaid federal taxes in 2006. Gregory D. Kutz, managing director of the Government Accountability Office (GAO)'s Forensic Audits and Special Investigations Office, testified before the House Ways and Means Oversight Subcommittee that nearly 55,000 tax-exempt organizations were responsible for 85 percent of unpaid taxes.
"About 1,500 of these entities each had over $100,000 in federal tax debts, with some owing multi-million dollars in federal taxes," Kutz said. "The majority of this debt represented payroll taxes and associated penalties and interest dating as far back as the early 1980s."
According to Kutz, the GAO investigators found abusive and potentially criminal activity, including repeated failures to remit payroll taxes withheld from employees. Officials at tax-exempt organizations paid themselves salaries over $1 million and accumulated substantial assets, such as multimillion-dollar homes and luxury vehicles.
The subcommittee hearing was called to review the current state of the charitable sector, said Subcommittee Chairman John Lewis, D-Ga. He said that tax-exempt organizations have spent over $1 trillion on directly serving those in need.
According to the IRS, approximately 1.6 million exempt organizations operate in the U.S. IRS Tax Exempt and Government Entities (TE/GE) Division Commissioner Steven T. Miller said that 55,000 tax-exempt organization with unpaid federal taxes represent just a fraction of the charitable sector.
However, Miller acknowledged that unpaid taxes is only one of the typical problems confronting these 55,000 organizations. For example, the directors are typically involved in fraudulent activities with other federal programs, such as Medicare. They also have unpaid state and local taxes, suspicious cash transactions and excessive fees paid to companies controlled by the directors.
In response to questioning by Lewis, Miller said that, in general, charitable organizations are law-abiding. He said the incidence of wrongdoing is similar to the rate observed in the general small business sector.
Subcommittee ranking member Jim Ramstad, R-Minn., expressed surprise at the number of exempt organizations with unpaid federal taxes. Kutz told Ramstad that no change in federal law is needed to address the problem; rather, he said that the IRS needs a more aggressive seizure and levy system for tax-exempt organizations.
Miller responded that it would be a burden on the Service to complete background checks on key individuals in tax-exempt organizations. He said that it would slow down the determination letter process.
By Stephen K. Cooper, CCH News Staff
SFC Memo on Charitable Sector Tax Abuse
GAO Testimony: Tax Compliance --Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes (GAO-07-1090T)
GAO Report: Tax Compliance --Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes (GAO-07-563)