IRS and Non-Profit Organizations - Essay Example

? The national tax collection agency, IRS, has come under intense pressure for its involvement in the affairs of nonprofit making organizations. The Internal revenue service (IRS) has recently been meddling in the management of nonprofit organizations. The nonprofit organizations and other people see this as the IRS acting beyond its scope of work. The IRS however claims it is justified to monitor the leadership of these organizations despite them falling outside its scope. IRS and Non Profit Organizations The Internal Revenue Service (IRS) is the government agency charged with the responsibility of tax collection. Taxation is one of the main ways in which the government gets money to fund its budget and offer service to the citizens. IRS is therefore a very important department of the government as it facilitates the government to collect funds from both individuals and corporations. IRS is also involved in formulating tax laws to help the government improve its tax collection methods and look in to new ways of helping the government get more finances through taxation (Malamut and Blach, 2008). Both corporations and individuals have the legal obligation of paying taxes to enable the government in its operations. There are however other institutions, individuals and corporations that have been legally exempted from paying taxes for various reasons. Since the IRS is only concerned with tax collections, it is expected that those exempted from paying taxes fall outside the legal mandate of the Internal Revenue Service. Among those exempted from paying taxes include Non Profit Organizations (NPO). These are organizations whose main objective is to serve the community through offering goods and services that help improve the living standards and the lifestyle of the people. Nonprofit Organizations are involved in activities such as sensitizing the community on health issues, enlightening the community with respect to their legal obligations, fighting discrimination among other issues. Unlike other organizations, the nonprofit organizations do not have profit making as their prime objective. Due to the good work these organizations are engaged in within the community, the law exempts them from paying taxes so as to motivate them to carry on with their good work. Despite profit not being their main objective, nonprofit organizations often report huge profits from their activities. Questions have arisen over whether these organizations ought to be taxed in such cases where they make huge profits (Malamut and Blach, 2008). A move to tax the organizations has been vehemently opposed with most people being of the view that the profits only help the organizations improve the quality of their services. This has maintained the nonprofit sector outside the scope of the IRS. The national tax collection agency, IRS, has come under intense pressure from various sections of the country for its involvement in the affairs of nonprofit making organizations. The Internal revenue service (IRS) has recently been meddling in the management of nonprofit organizations (Chait & Taylor, 2005). The nonprofit organizations and other people see this as the IRS acting beyond its scope of work. The IRS however claims it is justified to monitor the leadership of these organizations despite them falling outside its scope. IRS has stated that its monitoring of the management affairs of nonprofit organizations is meant to ensure they comply with tax laws of the country (Hopkins, 2011). The organizations fall under the scope of the tax collection institutions since they are required by law to adhere to observe tax regulations by strictly engaging in charitable missions within the community. The Internal Revenue Service aims at ensuring the organizations operate exclusively for charitable works. There is also great need to ensure that these organizations use their assets, including profits they earn, to help them accomplish charitable ends. By insisting on good governance, the IRS hopes to increase the likelihood that these organizations will work in accordance with tax laws, protect the assets they have and in the long run offer citizens the best service. The IRS, begun its insistence on the governance of nonprofit organizations with significant alterations to Form 990. After these substantial changes, IRS has insisted on the position that good governance the most important aspect of the nonprofit sector. The Tax Exempt and Government Entities Division (TE/GE) identifies various elements that constitute good governance. These include having an informed, engaged, transparent and independent board with clearly defined practices and policies. The TE/GE division of the Internal Revenue Service has focused its resources in ensuring all nonprofit organizations comply with these standards (Hopkins, 2011). The organization hopes to expand its supervision of the nonprofit sector in the near future by deploying independent auditors on the ground to assess the performance of the charitable organizations and help identify certain instances of shortfalls in internal controls as well as blatant noncompliance of tax laws. Certain people may raise concern over why the Internal Revenue Service has suddenly realized the importance of the nonprofit organization and the need to ensure there is proper governance in these organizations that are tax exempt. The tax exempt sector of the economy is one of the largest sectors of the country’s economy. This alone is reason enough for need to monitor this sector. The huge amount of assets in the tax exempt organizations as well as the impact of that this sector has on the economy and on local communities. Statistics indicate that there are about 1.9 million organizations exempted from tax in the country, excluding religious organizations (Fremont, 2004). The number is bound to increase exponentially in the near future since there are about 200 organizations applying to be approved for tax exemption each day. IRS found out that some of the nonprofit making organizations were not complying with tax laws by operating within their mandate. Some of the organizations are taking advantage of their tax exemption to engage in other activities that are not aimed at fostering their charitable endeavors (Weston, 2011). Such activities ought to attract tax since they are not related to the objectives of the nonprofit organizations. The other area of concern is the poor leadership that has led mismanagement of most of the nonprofit organizations that were once recognized as great supporters of the local communities. Charitable organizations play such a vital role in the community. The local community depends a lot on these organizations. Mismanagement leads to embezzlement of funds and other assets of the organizations thus hampering the ability of these organizations to deliver their charitable works to the community (Weston, 2011). Bad governance also leads to misplaced priorities among most of these nonprofit organizations. Such cases make locals lose trust and become skeptical of these community organizations. The Internal Revenue Service seeks to restore the dignity of nonprofit organizations by requiring them to adhere to set guidelines for good governance. There is need to avoid a conflict of interest in the operations of nonprofit organizations by ensuring they operate within the stipulated framework for tax exemption (Weston, 2011). A conflict of interest is likely to occur in a case where the organization wants to further its charitable works alongside the need to raise more funds to support these works. Intense scrutiny of nonprofit organizations by the IRS is aimed at providing them with advice and strategies that will help them improve their service delivery as they operate within their legal framework. It is therefore necessary for the Internal Revenue Service to engage with these organizations even though they are tax exempt. References Chait, R., Ryan, W., & Taylor, B. (2005). Governance as leadership: Reframing the work of nonprofit boards. Hoboken, NJ: John Wiley & Sons. Fremont-Smith, M. (2004). Governing nonprofit organizations: Federal and state law and regulation. Cambridge, MA: Belknap Press of Harvard University Press. Hopkins, Bruce R. (2011), The Law of Tax-Exempt Organizations (10 ed.). Hoboken, NJ: John Wiley and Sons. Malamut, Michael E. and Blach, Thomas J. (2008). ABA Code Revision Raises Concerns for Democracy and Parliamentary Law in Nonprofits. National Parliamentarian, Volume 69, No. 1. Weston, A. (2011). A practical companion to ethics. New York: Oxford University Press. Read More