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51 Tax Law. 571 (1997-1998)
The Form 990 as an Accountability Tool for 501(c)(3) Nonprofits

handle is hein.journals/txlr51 and id is 581 raw text is: THE FORM 990 AS AN ACCOUNTABILITY TOOL FOR 501(c)(3) NONPROFITS Peter Swords* I. INTRODUCTION This .Article examines how useful the Federal Form 990 can be for efforts to improve nonprofit accountability. It concludes that the 990 can be quite useful for addressing abuses such as self-dealing, although, because of the weaknesses of the enforcement system, its potential for addressing these problems has not been fully realized. Efforts at improving the system for arresting these kinds of abuses are referred to below as negative accountability. In contrast, efforts designed to determine whether an organization is doing anything useful or whether it is doing it effectively are referred to positive accountability. The Article for the most part addresses the 990's usefulness as a tool for negative accountability and, while the point is not belabored, it questions the 990's effectiveness as a tool for positive accountability. A note on what this Article covers and what it does not. It examines the 1997 Form 990 (Federal Return of Organization Exempt From Income Tax) as it applies to organizations exempt from federal income taxes under section 501(c)(3) which are not private foundations.' Code section 501(c)(3) organizations which are public charities in addition to filing the Form 990 must also file Schedule A (Organization Exempt under Section 501(c)(3)) to the Form 990.2 This Article covers both the 1997 Form 990 and the 1997 Schedule A. In reading this Article, it may be useful to have a recent Form 990 at hand. Because the Article does not deal with private foundations, no examination is made of Form 990-PF, which private foundations must file each year. Nor does it deal with Form 990-EZ which can be used by public charities with gross receipts of less than $100,000 and total assets of less than $250,000. Analysis of these forms is omitted largely because of constraints of time and space.' However, much of what is contained in Forms 990-PF and 990-EZ is identical to what is found in the Form 990. The 'Executive Director, Nonprofit Coordinating Committee of New York. Harvard College, A.B., 1957; Columbia University, LL.B., 1962. This Article was first delivered as a paper at the New York University Conference on Governance of Nonprofit Organizations: Standards and Enforcement held by the National Center on Philanthrophy of the Law on October 30-31, 1997. Section 501(a) exempts organizations formed and operated exclusively for religious, charitable and educational purposes that do not engage in more than an insubstantial amount of lobbying, no part of the net income of which inures to any private individual who is an insider of the organiza- tion in a position of control. Section 509 presumes that all 501(c)(3)s are private foundations unless they qualify under sections 509(a)(1), (2) or (3). Organizations that so qualify are frequently referred to as public charities. 2 Private foundation organizations exempt under section 501 (c)(3) need not file Schedule A. 'There is another reason why the 990-PF is not examined. The recently enacted Taxpayer Bill of Rights 2 in effect de-emphasizes the need to disclose 990-PFs. See supra note 52. Part of the new law requires that public charities mail their last three 990s and Form 1023 (Application for Recogni- tion of Exemption) within 30 days after receiving a request to do so. See I.R.C. § 6104(e)(1). This requirement will become effective sixty days after the Treasury has promulgated regulations under section 6104 that will explicate that part of section 6104 (e)(1) that provides that if a public charity Tax Lawyer, Vol. 51, No. 3

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