REGULATION

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Part VI

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Page The Rationale for Government Oversight of Philanthropy . . . 2576 Touchstones in Considering the Federal Oversight Roie 2577 Summary of Recommendations 2578 II The Internal Revenue Service . . 2581 Statutory Framework 2581 Organization of Internal Revenue Service 2583 General . . 2583 Exempt Organizations . . . . 2584 Determinations of Exempt Status 2585 Substantive Analysis . . 2586 Initial Determinations . . . ' 2592 District Level . 2592 National Office: Exempt Organizations

Branch, Technical 2595 National Office: Office of the Chief Counsel 2598 Revocation and Modification 2599 Advance Rulings on Proposed Transactions 2602 Compliance Functions 2604 Organization of Compliance Activities 2604 National Office Audit Division 2604 Field Level 2606 Incidence and Results of Exempt Organization Audits . . . 2610 Independence and Objectivity . 2613 The Service's Record . 2614 Relevant Organizational Factors 2618 Coordination with State Authorities 2619 III Effect of the New Assistant Commissioner 2620 The Statutory Changes 2620 Effect on the Organizational Structure of Exempt

Organization Administration 2622 National Level 2622 District and Regional Levels 2627 IV Philanthropy and the Gvil Service Commission, Postal

Service, and Agency for International Development 2631 Civil Service Commission 2631 Eligibility Standards 2631 Specific Requirements 2633 Comments . 2634 Postal Service . 2635 Reduced Rate Classes . . 2635 Eligibility Standards 2636 Eligibility Determination and Appeal Procedure 2637 Agency for International Development's Advisory

Committee on Voluntary Foreign Aid . • 2638

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V Alternatives to the Internal Revenue Service as

the Federal Oversight Agency 2640 Proposals for a National Commission on Philanthropy 2640 Evaluation 2642 VI Federal Regulation of Interstate Fund Raising 2644 The Need for Federal Regulation 2644 The Current Role of the Internal Revenue Service 2646 Audits 2646 Disqualification for Excessive Fund-Raising Costs 2646 Public Information 2647 Public Warnings 2647 Pending Proposals for Federal Legislation 2648

H.R. 1123 2648

Truth in Contributions Bill 2649 Some Comments on These Proposals 2652 A Recommendation for Federal Regulation of Charitable

Solicitations and Professional Fund Raisers 2653

Location of the New Agency 2653

Scope of the Disclosure Regulation 2654

Nature of the Disclosure Regulation 2656

What Should the Solicitation Statement Disclose 2656

Accounting Standards 2656

Anti-Fraud Provisions 2657

Remedies and Enforcement 2658

Registration of Professional Fund Raisers 2658

VII Judicial Remedies 2658

Equity Enforcement Powers 2658

Judicial Review of Adverse Status Determinations 2660

VIII Recommended Administrative Actions Within the Service 2661

Dissemination of Data on Philanthropy 2661

The Need for Data on Philanthropy 2661

Categories of Data Needed 2662

The Service's Role 2664

Specific Administrative Actions 2664

Status Determination and Rulings 2664

Compliance Procedures and Practices 2665

Personnel and Training 2665

Public Informaton 2666

Organizational Structure 2666

Appendix 2667

Footnotes 2668

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Judicial Remedies and Related Topics Adam Yarmolinsky and Marion R. Fremont-Smith (1975) 2697

I Improving the Judicial Remedies for Correcting Abuses and

Determining Exempt Status 2698 II Private Benefit 2699 HI Speculation 2701 IV Solicitation 2702

Uniform Accounting and Full Disclosure to Internal

Revenue Service 2703 Availability of Information 2703 Federal Trade Commission 2703

The Status of State Regulation of Charitable Trusts, Foundations, and

Solicitations Office of the Ohio Attorney General (1974) 2705

Introduction and Summary Findings 2705

Charitable Trusts and Foundations 2705 Charitable Solicitations 2707 Specific Recommendations 2708 Charitable Trusts and Foundations 2708 Charitable Solicitations 2709 I The Regulation of Charitable Trusts and Foundations 2710

The Common Law Power of the Attorney General with

Respect to Charities 2710 Comparative Analysis of State Charitable Trust and

Foundation Statutes 2712 The Office of the Attorney General 2726 Federal-State Relationships 2733 Reporting Requirements 2733 Publicity of Information Required from Certain Exempt

Organizations and Certain Trusts Under IRC §6104(c) . . . . 2734 Abuses in the Administration of Charitable Trusts and

Foundations 2736 The Feasibility of Uniform Charitable Trust and

Foundation Legislation 2742 II The Regulation and Supervision of Charitable

Solicitations 2752 Comparative Analysis of Charitable Solicitation Statutes

and State Regulatory Agencies 2752 Analysis of The Model Solicitations Act and Proposed

Revisions 2763 The Religious Organization Issue 2771 Appendix A: Selected Citations to Cases From Twenty-Three

Jurisdictions Holding That the Attorney General

Retains His Common Law Powers 2773

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Appendix B: Selected Citations to Cases From Twenty-Eight Jurisdictions Recognizing the Attorney General's

Common Law Power to Enforce Charities 2774 Footnotes 2776 Self-Regulation in Private Philanthropy Peter G. Meek (1974) 2781

Introduction 2781 I Self-Regulation in Philanthropy: Overview and Selected

Examples of Private Efforts with Regulatory Potential 2781 Standard-Setting and Accreditation 2782 Accreditation and the Role of the Federal Government 2783 Standard-Setting to Guide and Encourage Public Support 2784 Standard-Setting Within Single Organizations 2784 The Advertising Council 2785 The National Council on Philanthropy 2786 Contributor Protection at the Community Level 2786 Self-Regulation of Fund Raisers 2787 National Society of Fund Raisers, Inc 2787 National Association for Hospital Development 2788 American Association of Fund-Raising Council, Inc 2788 II The Ad Hoc Committee (1959-1961) 2789 Background 2789 Action on Recommendation for a National Commission on

Voluntary Health and Welfare Agencies 2792 Action on Recommendation for Development of Uniform

Accounting and Financing Reporting for Voluntary

Agencies 2801 Development and Publication of the Standards 2804 Implementation of the Standards 2804 Establishment of Ongoing Promotion and Supervision

of Public Financial Reporting 2805 Other Outcomes of the Report of the Ad Hoc Committee 2808 III The National Information Bureau 2809 IV Council of Better Business Bureaus: Philanthropic

Advisory Department 2815 V United Way of America: Committee on National Agency

Support 2817 Committee on National Agency Support (CONAS) 2819 National Budget and Consultation Committee (NBCC) 2821 National Agency Review Board (NARB) 2823 Standard-Setting by Local United Way Organizations 2824 VI The National Health Council: Membership Standards

Program for Voluntary Health Organizations 2825 VII National Accreditation Council for Agencies Serving

the Blind and Visually Handicapped 2829

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VIII Self-Regulation in Private Philanthropy Other Than

Voluntary Health and Welfare Organizations 2832 Council on Foundations 2833 Joint Commission on Accreditation of Hospitals 2836 Self-Regulation in Higher Education 2838 American Association of Museums 2840 IX Issues in Self-Regulation for Consideration by the

Commission on Private Philanthropy and Public Needs 2842 General Observations 2842 Issues for the Commission 2844 Appendix A: Better Business Bureau Standards for Charitable

Solicitations 2846 Appendix B: National Budget a/id Consultation Committee Standards

for National Voluntary Health, Welfare, and

Recreation Agencies 2850 Appendix C: List of Organizations Described in Report 2854 Footnotes 2855 Preserving the Private Voluntary Sector: A Proposal for a Public Advisory Commission on Philanthropy Adam Yarmolinsky and Marion R. Fremont-Smith (1976) 2857

A Study of the Inadequacies of Present Financial Reporting by Philanthropic Organizations Accounting Advisory Committee (1974) . . 2869 Introduction 2869 Importance of Meaningful Financial Statements 2869 Authoritative Pronouncements 2869 Scope of Study 2870 Summary of Conclusions and Recommendations 2871 I Financial Reporting for Philanthropic Organizations 2872 Present Financial Statements are Difficult to Comprehend 2872 Present Accounting and Reporting Practices Are Subjective

and Varied 2872 A Single, Uniform Set of Accounting Principles Should

Be Adopted 2873 Recommended Accounting Principles and Reporting Concepts . . . 2876 Summary 2877 II Federal and State Regulatory Reporting 2883 Jurisdictions Have Different Reporting Requirements 2883 Usefulness of Financial Information in State Reports 2883 Usefulness of Financial Information in Federal Reports 2883 Recommended Standard Accounting Report (SAR) 2884 Advantages of the SAR 2884 Arguments Against the SAR 2888 Summary 2888

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The Fund-Raising Percent As a Quantitative Standard for Regulation of Public Charities, With Particular Emphasis on Voluntary Health and Welfare Organizations Arthur Jack Grimes (1975) 2889 Introduction 2889 I Findings and Recommendations 2891 II Measuring Productivity by a Fund-Raising Percentage 2895

Perspective . 2895

Technical Influences 2897 Situation Influences 2897 Management Influences 2898 Identity Influences 2906 III Overview 2907 Appendix A: Sample of Health and Welfare Organizations Registered

in New York State 2907 Appendix B: Choice of a Base for Comparing Fund-Raising Cost

Percentages • 2908 References 2912 Deductions for Lobbying by Public Charities: Constitutional Issues, Public Policy, and the Tax Reform Act of 1976 Editor's Note 2915 Legislative Activities of Charitable Organizations Other Than Private Foundations, With Addendum on Legislative Activities of Private

Foundations Pepper, Hamilton & Sheetz 2917 I Summary of Present Law 2917

Section 501(c)(3) 2917 Regulations: Section 1.501 (c)(3)-1 2917 Case Law 2918 Section 162(e) 2919 II Summaries of Arguments 2919 Major Arguments in Favor of Corrective Legislation 2920 Uncertainty of Present Law Should Be Corrected 2920 Charities Should Be Heard From by Governmental Bodies

(Federal, State, and Local)—Both Volunteer Members

and Staff 2920 Charities Should Be Allowed Basically the Same Rights

As Trade Associations . . . 2921 The Right to Communicate with Members is Critical to the

Proper Functioning of Most Charities . . 2922 Major Arguments Against Corrective Liberalizing Legislation . . . . 2923

The Right to Lobby Should Be Restricted Rather

than Increased 2923 Although it Might Well Be That the Law Should Be

Clarified, the Clarification Should Not Result in

Charities Being Allowed Additional Rights 2923

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There is No Need for Change: This Is One Area of

the Law in Which Vagueness is an Attribute 2924 Major Arguments In Favor of Careful Restriction of

Any Corrective Legislation 2924 The Right to Lobby Directly Should Be Severely

Restricted (Though Allowed Under More Definite Rules Than at Present)-Otherwise There Would Be Available a Gigantic "Slush Fund" for Charitable

Lobbying 2924 The Right to Deal With Members Should be Restricted,

for Fear of "Grass Roots" Lobbying 2924 Any New Legislation Should be Carefully Structured

to Impose Narrow Limits on "Grass Roots" Lobbying . . . 2925 Public Charities That Lose Their Section 501 (c)(3)

Exemption Should Not Be Allowed to "Walk Away" With

a Large Endowment Created With Tax Deductible Dollars . 2925 Areas of Apparent Agreement 2925

Areas of "Self Protection"—Analogy to Provision for

Private Foundations 2925 Providing Technical Advice to Governmental Bodies 2925 Making Available Research Results 2925 Influencing Elections 2926 III Recent Legislative Proposals 2926 IV Conclusion 2928

V Recommendations: Legislative Activities of Charitable

Organizations Other Than Private Foundations 2929 Appendix A: Text of H.R. 13720, H.R. 5095 and H.R. 12037 2931 Appendix B: Legislative Activities of Private Foundations 2940 Footnotes 2942 Limitations on Lobbying by Charitable Organizations An Analysis Prepared for the Commission on Private Philanthropy and Public Needs (1977) 2945

I Background: Recent Legislative and Litigating Activity 2945 II The Statutory Framework 2946 III No Preference For Business Lobbying in Present Law 2948 IV Constitutionality: The Doctrine of Unconstitutional

Conditions 2949 V Constitutionality: Equal Protection 2953 VI Constitutionality: Vagueness 2956 VII Constitutional Questions Raised by Allowing Deductions

for Personal-Choice Lobbying 2959 VIII Public Policy Issues 2962 Footnotes 2965

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Part II