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The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance Issuessupport of increased public disclosure from exempt organizations. 214 Congressresponded to this public attention by enacting the Revenue Act of 1950, whichmandated that tax-exempt organizations already required to file information returnsprovide additional information on those returns, including: (i) the organization’s grossincome for the year; (ii) expenses attributable to such income; (iii) disbursements out ofincome within the year for the organization’s exempt purposes; (iv) accumulation ofincome within the year; (v) aggregate accumulations of income at the beginning of theyear; (vi) disbursements out of principal in the current and prior years for its exemptpurpose; and (vii) a balance sheet showing assets, liabilities, and net worth of thebeginning of each year. 215Congress further expanded the disclosure and information reporting rules for exemptorganizations, as part of the Technical Amendments Act of 1958. In addition torequiring filers to report the total of contributions and gifts received during the year onthe Form 990, the legislation provided for public disclosure of the applications for taxexemption and supporting documents, such as the Form 1023, at the IRS NationalOffice and the appropriate IRS field service office. 216 The legislation carved out anexception for information that “might be harmful to the organization or to nationaldefense.” 217 The Senate report for the bill explained that making the Form 1023applications available to the public “will provide substantial additional aid to the IRS indetermining whether organizations are actually operating in the manner in which theyhave stated in their applications for exemption.” 218The Tax Reform Act of 1969 was yet another response by Congress to perceivedabuses on the part of tax-exempt organizations. In the years leading up to the Act’spassage, the Treasury issued a report on private foundations, and severalcongressional committees held extensive hearings focused in particular on the activitiesof private foundations. Many members of Congress emerged from these hearings withthe view that “prior law had been inadequate to prevent the use of foundations forcontrolling business enterprises and benefiting substantial contributors [at] the expenseof charitable programs.” 219 For this reason, Congress broadened the filing anddisclosure requirements to include new exempt organizations. The House Reportexplained that “the primary purpose of these requirements is to provide the IRS withinformation needed to enforce the tax laws. The experience of these past two decadeshas indicated that…more information is needed, on a more current basis, from moreorganizations, and that information must be made available to more people, especiallyState officials.” 2202142000 JCT Study, supra note 97.215Revenue Act of 1950, Pub. L. No. 81-814, sec. 341 (1950).216Technical Amendments Act of 1958, Pub. L. No. 85-866, sec. 75 (1958).217Id. at 4884.218S. REP. No. 1983 (1958), at 4883.2192000 JCT Study supra note 97, at 125.220H.Rep. 91-413 at 224.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 92
The Appropriate Role Of The Internal Revenue Service With Respect To Tax-Exempt Organization Good Governance IssuesThe Tax Reform Act of 1969 required virtually all tax-exempt organizations to fileinformation returns. 221 In addition, the law broadened the scope of the Form 990 toinclude “the names and addresses of all substantial contributors, directors, and trustees,and other management officials—all of whom are ‘disqualified persons’ for the purposeof the new self-dealing rules and other provisions—and of highly compensatedemployees. Compensation and other payments to managers and highly compensatedemployees also must be shown.” 222 The House report explained that “[t]his change isintended to facilitate meaningful enforcement of the limitations imposed by the bill,especially when combined with the publicity provisions and the sanctions for failure tofile timely returns.” 223 The new publicity provisions required that the Forms 990 bemade available to State officials and that private foundation filers allow public inspectionof their information returns at the foundation offices for at least 180 days. 224 In addition,private foundations had to publicize these forms’ availability. However, the legislationalso provided that exempt organizations other than private foundations should notdisclose to the public the names and addresses of contributors. 225The next two decades saw several minor changes to the reporting requirements in thespirit of further increasing disclosure, a goal that continued to resonate acrossgovernment and parts of the private sector. For example, following the Tax Reform Actof 1969, John D. Rockefeller III, with the encouragement of several government figuresincluding then chairman of the House Ways and Means <strong>Committee</strong>, Wilbur D. Mills, andSecretary of the Treasury George P. Schultz, formed the “Filer Commission,” a privatelyfunded citizens’ panel designed to study the philanthropic giving and the U.S. voluntarysector and to make recommendations to strengthen both of these. The FilerCommission included a disclosure recommendation “that all larger, tax-exemptcharitable organizations except churches and church affiliates be required to prepareand make readily available detailed annual reports on their finances, programs, andpriorities.” The Commission believed that increased public accountability would improvethe general reputation of the sector, which the Commission described as crucial:One of the conventional wisdoms of the 1970’s is that virtually allinstitutions, public and private, have declined in popular esteem andtrust, especially those that exercise substantial economic or politicalpower… A major source of this skepticism is said to be the widespreadfeeling that our institutions are beyond society’s control, that they areoperating for their own purposes which are often at odds with the publicinterest…it is likely that the [voluntary] sector’s institutions are includedto some degree in Americans’ doubts. Indeed, voluntary sectorinstitutions would appear to be particularly susceptible to concerns221Id.222Id.223Id.224Tax Reform Act of 1969, Pub. L. No. 91-172, sec. 101(a)(1969).225Id.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 93
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