House Trying to Force Nonprofits to be "Effective"

March 11, 2014 Posted by Jessica Shofler in Lobbying, News, Policy

Can a new tax plan make nonprofits more “effective”? That’s what the House is hoping. A draft bill recently announced by the House Ways and Means Committee would penalize nonprofits for activities that the Committee has determined are not effective uses of charitable funds.

Specifically, the bill would:

•    Impose a 25% surtax on nonprofits that compensate any of their top five highest paid employees more than $1 million.
•    Require money put into a donor-advised fund be paid out to a charity within five years. Any money remaining in the fund after 5 years would be subject to a 20% excise tax.
•    Levy a 1% excise tax on private colleges and universities’ investment income where an institution’s assets are greater than $100,000 per enrolled student.

Last year, ways to measure a nonprofit’s effectiveness was a hot topic. Do you think these proposed penalties would make a nonprofit more effective?

While not expected to pass during this mid-term season, the draft bill gives us insight into some of the arguments we can expect to see in the future. Another reminder that the nonprofit community must work closely with its government representatives to influence legislation.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits, 4705 Laurel Canyon Blvd, #306, Studio City, CA 91607

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