Behind closed doors: sector discussions need open air.

The story in the Washington Post on April 5, 2005 read:

Charities and other nonprofits exempted from taxes because they serve a public purpose have become a hotbed of tax evasion and abuse, according to the head of the Internal Revenue Service.

Meanwhile the National Panel on the Nonprofit Sector, created by Independent Sector, has filed an "Interim Report." And like a juggernaut headed downhill, the organization is moving toward making additional recommendations to Congress for "reform" of the ways nonprofits operate in the United States.

And, not far behind this plummeting comet are the politicians. The Senate Finance Committee and the Joint Committee on Taxation seem to be encouraging this race for reform as if the battle was one against terrorism, rather than against the extraordinarily rare abuse of nonprofit status.

There is a complete lack of objective evidence of the need for reform or of widespread abuse. That doesn't seem to matter to the Washington Beltway crowd. And rather than resisting this false impression, Independent Sector and its National Panel have bought into the idea espoused by headline-hungry politicians that change is urgently needed. Let me illustrate these points.

* Reports collected by the FBI, the Federal Trade Commission, the U.S. Postal Service, State Attorneys General, and even watchdog groups such as the Better Business Bureau show that reports of charity fraud are less than 1 percent of all complaints of fraud (not all complaints of crimes). See http://www. consumer.gov/sentinel/pubs/Top 10Fraud2003.pdf.

* In fact the government's statistical overview of crime in the United States doesn't even contain the word "charity." Not once. See http://www.ovc. gov/ncvrw/2005/pdf/statistical.pdf

* Independent Sector released the National Panel Report to the Senate Finance Committee before even members of the working groups could read it, apparently accepting the idea that it must therefore be urgent for Congress to act swiftly.

* Independent Sector is taking its National Panel Report "on the road" much like President Bush trying to sell his Social Security program. They are urging everyone to "sign-on" to the Interim Report in a series of sales seminars around the country. Yet, there is no opportunity provided on paper or on the Independent Sector Web site to express dissenting views or to disagree--a glaring error in light of the haste with which the report was drafted.

* Independent Sector's hand picked National Panel includes 14 grant-making institutions as opposed to "operating charities." It also includes several very large nonprofits, such as the United Way of America, which are not representative of the broader sector. Even those supposedly there to represent the typical charity are associations of nonprofits and not operating charities.

So, we proceed with haste and with these premises:

1) That a rampant problem is afloat in the sector and is in urgent need of a solution; and,

2) That Independent Sector's National Panel is the proper representative group to propose such solutions to our Congressional representatives.

And, by all outward appearances, Sen. Charles Grassley's Senate Finance Committee and its staff, and the Joint Taxation Committee of the Congress, are listening and studying proposals for radical change to the regulation of the already over-regulated charity sector. To see the dangers that lurk from this confluence of events, it is instructive to see the recommendations of this carefully selected National Panel and the issues being considered by these two congressional committees. So here is a list of some of the things under consideration.

* Periodic accreditation of charities by the IRS or by some national group (which is going to substitute its judgment for that of your board as to whether you are doing an adequate job);

* Mandatory periodic review and re-granting of tax-exempt status by the IRS. This pretty much means you have to re-apply for your exemption every five years or so.

* Limiting or eliminating deductions for "gifts-in-kind." (Note to Sen. Grassley--a farmer could not donate land for a park. Likewise, a cereal company could not donate food for the poor; an alumnus could not donate land to expand a school's campus and expect a deduction at the fair market value.)

* States are given authority to enforce federal tax laws. This will give us 51 different interpretations (some by attorneys general who are running for governor) of the complexities of intermediate sanctions, just as we now have 40+ different registration regimes.

It appears that all of these issues and more will be discussed between Independent Sector's National Panel and our representatives in Congress. Yet, despite the National Panel's call for "transparency" in charitable activities, the meetings of its National Panel and workgroups are closed to the public and are even closed to dues-paying members of Independent Sector and the broader nonprofit community.

The head of Independent Sector said in testimony before the Senate Finance Committee:

"Preventing, discouraging and eliminating unethical and illegal practice within the voluntary sector will require a multifaceted approach that depends upon the involvement of both government and the voluntary sector. ... We believe that changes are necessary to ensure that donors are not taking excessive deductions for charitable donations."

It seems that this conclusion was already in the minds of the staff of Independent Sector before the National Panel was even convened for its deliberations. However, that agenda is further revealed in a later statement in the same testimony:

"The time has come to explore a more holistic, national-local federated system that provides, where it makes sense, consistent standards of governance and practice and effective disincentives to wrongdoing."

I, too, truly believe in transparency and in the avoidance of even the appearance of conflicts of interest. So in the spirit of the rubric "physician heal thyself" I have a modest recommendation:

* Independent Sector--Take a pledge that whatever legislation results, your organization agrees that you will not apply for nor indirectly receive federal funds for doing accreditation or "research" or other activities about which you are currently actively lobbying. We would hate to believe that along with all of the other anecdotal evidence of wrongdoing, that you were feathering your own nest in the process.

* National Panel--Open your meetings and de liberations to the public, not with a series of "sales" meetings like politicians hold, but with serious efforts to secure different points of view. Allow dissenting views to be published on your Web site.

* Members of the National Panel and its workgroups (e.g., the BBB's Wise Giving Alliance and the Standards for Excellence Institute)--Take the same pledge. Agree to rely upon the munificence of the donating public and not a federal handout to meet your institutional goals.

This way the sector can be assured that whatever advice you give to Congress is not unduly influenced by private motives.

Charities are being encouraged to sign Independent Sector's Interim Report. I respectfully dissent. I suggest instead that charities, fundraisers, and others in the sector carefully read the report and the public documents of the Senate Finance Committee. I further suggest that charities make it known to Independent Sector and its National Panel that they do not speak for you.

Then I urge other groups in the community: Association of Fundraising Professionals, Interaction, the DMA-Nonprofit Federation, the National Catholic Development Conference, the American Association of Museums, CASE, and many others to resist the creation of false "urgent needs" and the hijacking of the agenda to meet those needs. Speak your own mind on these issues and be wary of others who presume to speak for you.

Geoff Peters is pro-bono general counsel to American Charities for Reasonable Fundraising Regulation and has acted as pro-bono outside counsel to the Association of Fundraising Professionals regarding Independent Sector's National Panel project. Mr Peters' opinions are his own and not necessarily those of ACFRFR or AFP Because of the confidentiality rules regarding their project, the information used in this article is based solely on public information and not on documents deemed confidential by Independent Sector.