A smaller and weaker Internal Revenue Service (IRS) has led to weaker oversight and more attempts at using nonprofits for fraudulent purposes.
Karen Hensel and Douglas Moser filed this report for NBC Boston:
“It’s definitely a problem that could get worse, and that is getting worse,” said Ray Madoff, a law professor at Boston College who researches charity policy. She said she worries that cuts to the IRS’s budget and staffing mean the agency is pulling back its oversight, and potentially opening the door to more fraud.
The IRS’s budget has been cut 17 percent since 2010, dropping from $13.8 billion in 2010 to $11.5 billion in 2017, according to data from the IRS. Those budget figures are adjusted for inflation. IRS staff is down by nearly a quarter in the last two decades, from about 101,000 in 1997 to 76,800 in 2017. “And if you think about what’s happening in the country over that same 20 year period, everything’s become more complex,” Madoff said.
Those cuts increased a backlog in charity applications for tax-exempt status, she said. To tackle the backlog, and to streamline the approval process for smaller charities, the IRS changed how those applications are evaluated.
One significant change included allowing applicants to just check a box promising they will actually do charitable work, rather than requiring them to file documented proof up front. That shifted the approval process from a proactive policy requiring up-front documentation to a reactionary policy that just requires a promise with follow up when problems arise. “This is part of the problem with a lack of enforcement, you then get into a culture of noncompliance,” Madoff said.
So how can you know that a charity you’re interested in is on the up and up? One of the best ways is to stay local so you can talk to the people involved. “Those are ones where really the donor has the best information because they can see what’s being done and whether they’re being run by good people,” Madoff said.