In Charities We Trust

The IRS takes nonprofits at their word

The most powerful asset a charity has isn’t always heart or vision. Sometimes it’s tax deductibility. And as of July 1, any group with a little cash and a computer will have a much easier time getting it.

A year after the IRS was first accused of targeting right-wing nonprofits for heightened scrutiny, the agency has decided it’s not worth vetting approximately 80% of the groups seeking tax-exempt charitable status each year. Now, instead of a 26-page application and supporting documents, organizations raising less than $50,000 a year need fill out only a three-page online registration and submit a $400 fee to be allowed to collect tax-deductible donations.

IRS Commissioner John Koskinen says the change will result in “efficiencies [that] will translate into a faster and better review” of bigger nonprofits while clearing the backlog of some 66,000 applications that led to yearlong waits for new groups. The agency’s budget has been cut by about $900 million, or more than 7%, since 2010, and the GOP-led House voted this month to cut its enforcement division by $1.2 billion, or 25%. The expedited form, known as a 1023-EZ, will mean 40,000 to 50,000 fewer applications to review each year, though Koskinen says budget cuts are not behind the change.

The IRS adopted the new process on the recommendation of a team composed largely of frontline workers from the division of exempt organizations, the section at the center of the political targeting scandal. Koskinen says the IRS isn’t abandoning oversight: the short form requires a registrant to accept the rules under penalty of perjury, and the agency will scrutinize some applications and monitor their volume for spikes.

Some are worried about abuse. “It’s easier to get tax-exempt status under 1023-EZ than it is to get a library card,” says Tim Delaney, president and CEO of the Council of Nonprofits. That means bad actors “will be able to operate in the name of the charity, and the IRS will never be the wiser because they’re not looking at the underlying documentation.”

Others fear that without anyone monitoring small charities for political activity, which is barred by the federal tax code, the groups will come to serve the same purpose as the powerful nonprofit organizations at the heart of the IRS scandal, known as 501(c)(4)s. Fueled by anonymous donations that are not tax deductible, those groups have become potent players in political campaigns at the federal level. Local races may not be far behind. Once small charities launch without oversight, says Marcus Owens, a former director of the IRS’s exempt-organizations division, the agency “is going to have trouble even tracking what happens to these organizations.”

This appears in the July 28, 2014 issue of TIME.
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