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The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesAPPENDIX 4. TRANSPARENCY AND DISCLOSURE REQUIREMENTSIn 1972, the Filer Commission, a commission convened with congressionalencouragement to recommend ways of strengthening charitable giving and the“voluntary sector,” explained how transparency can lead to flourishing public charitablegovernance:[I]n the case of nonprofit institutions and of philanthropy, there hasnever been a mechanism as simple, as comprehensible, in theory, atleast, as voting or buying that is supposed to keep this area in tune withpublic purposes… . The proposals that the Commission hasconsidered … may be all the more important for the world of voluntaryorganizations and philanthropy, because they are at the heart of aprocess that does, after all, exist to guide this world toward filling publicneeds… . For this process to work well, in terms of filling social needs,there must be as much openness, as much give and take asfunctionally possible. There must be freedom of access for thoseseeking funds, for instance, to make known their needs and to attemptto persuade fund providers of the priority of those needs. There mustbe a free flow of information between donor and donee, betweenvoluntary groups and the public at large, including government,between fund-solicitors and the public. There must also be a widerange of choice for those who give time and money, as to where theywill give and why. And there must be a genuine willingness to considernew avenues and new goals. 207The Filer Commission recommended a series of reforms—including public detailedannual reports, uniform accounting measures, annual public meetings for largecharities—designed to improve transparency in the sector. According to the report, theCommission believed that increased transparency would signal successful publicgovernance of charities.The Filer Commission concluded that transparency and public oversight is critical toenabling charities to serve the public interest most effectively. Without input from thegeneral public, charities risk having a narrowness of vision. Transparency enables a“free flow of information” and allows charities the opportunity to “consider new avenuesand new goals.” 208 In so doing, transparency strengthens the charitable sector in ademocratic society whose public institutions advance the interests of the country’scitizens.To achieve the virtues of transparency in the nonprofit sector, Congress enacted twoprovisions of the Code, sections 6033 and 6104, to require tax-exempt organizations tofile and publish information returns and other foundational documents. Section 6033207Commission on Private Philanthropy and Public Needs, Giving in America: Toward a Stronger Voluntary Sector (1975), at 160(the “Filer Commission Report”).208Id. at 161.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 90
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issuesrequires tax-exempt organizations to file information returns and details the informationthat such organizations must provide as part of this process. Section 6104 provides forthe public inspection and dissemination of information from tax-exempt organizations,including both the Form 990 (Annual Information Return) and Form 1023 (Applicationfor Tax-Exempt Status).The legislative history of sections 6033 and 6104 reveals Congress’s efforts to requiretax-exempt organizations to disclose information both to the IRS and to the public. Thelegislative history of these provisions often recites the view that increased disclosure ofthe activities of tax-exempt organizations encourages compliance with the law,enhances accountability, and facilitates IRS oversight. The legislative historydemonstrates Congress’s view that in addition to the IRS, “State officials” and the“public,” broadly defined, have a substantial stake in the workings of tax-exemptorganizations, and that federal tax law should provide each category of stakeholderswith access to certain information about these organizations.Congress first required that certain tax-exempt organizations file information returnsunder the Revenue Act of 1943 as a reaction to concern about widespread commercialactivities on the part of tax-exempt organizations. 209 Congress hoped that requiringthese organizations to file information returns would contribute to “closing this existingloophole and requiring the payment of tax, and the protection of legitimate companiesagainst this unfair competitive situation.” 210 The Revenue Act of 1943 implementedsection 54(c) of the 1939 Code to provide that certain tax-exempt organizations mustfile annual information returns known then, as now, as “Form 990.” The legislationtreated these returns as public records, but at that time, members of the public couldonly access Forms 990 by authorized order of the President. 211In the Revenue Act of 1950, Congress expanded the information required to be includedon the Form 990 and permitted members of the public to inspect the Form 990 bysubmitting a written request to the Service, again in response to perceived problem ofabuses on the part of tax-exempt organizations. 212 In an address to Congress,President Truman asserted that “the exemption accorded charitable trust funds hasbeen used as a cloak for speculative business ventures, and the funds intended forcharitable purposes, buttressed by tax exemption, have been used to acquire or retaincontrol over a wide variety of industrial enterprises” 213 Following President Truman’sremarks, the House <strong>Committee</strong> on Ways and Means sponsored a series of hearings onabuses in the tax-exempt sector, and at these hearings, several witnesses spoke in209Revenue Act of 1943, Pub. L. No. 78-325, sec. 117 (1943). See also Joint <strong>Committee</strong> on Taxation, Study of Present-lawTaxpayer Confidentiality and Disclosure Provisions As Required by section 3802 of the Internal Revenue Service Restructuring andReform Act of 1988. JCS-1-00 (Jan. 28, 2000).210H.R. Rep. No. 78-841, at 24-25 (1943).211IRC section 55(a)(1)(1939).212Revenue Act of 1950, Pub. L. No. 81-814, sec. 75 (1950).213Message from the President, January 23, 1950.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 91
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