Internal Revenue Service Efforts To Enforce Tax-Exempt Private Foundation Reporting Requirements

Testimony was given concerning Internal Revenue Service (IRS) efforts to enforce Internal Revenue Code (IRC) reporting requirements which are applicable to tax-exempt private foundations. A GAO review has shown that the information which private foundations are required to submit to IRS is important both for public information and tax administration purposes. Private foundations generally comply with the reporting requirements that are important to IRS; however, IRS has devoted little attention to reporting requirements for information that would be useful to the public and to Congress. Consequently, most foundations do not comply as well with those requirements. GAO stated that, to ensure the availability of all information mandated by law, IRS needs to: (1) place more emphasis on public information reporting during existing correspondence and routine foundation examination programs; (2) revise the Internal Revenue Manual to clarify the responsibility of examiners to secure compliance with IRC public information reporting requirements; (3) collect sufficient information to monitor and assess private foundation progress in making complete public information disclosures; and (4) develop procedures for implementing enforcement sanctions to compel compliance with the reporting requirements. Congress has provided IRS with the authority to assess a penalty against those who file incomplete returns, but IRS has not yet attempted to use the penalty. The penalty should be used if foundations refuse to provide required information after IRS has taken systematic actions to secure compliance.