The International Journal
of Not-for-Profit Law

Volume 2, Issue 3, March 2000

A quarterly publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor


Introduction: "Codes of Conduct for Partnership in Governance: Texts and Commentaries"
By Tatsuro Kunugi and Martha Schweitz

On the Establishment of Social Organizations Under Chinese Law
By Ge Yunsong

Australia's Nonprofit Taxation Reforms
By Myles McGregor-Lowndes


Codes of Conduct for Partnerships in Governance: Text and Comments
Edited by Tatsuro Kunugi and Martha Schweitz
Reviewed by Catherine Shea

Case Notes

Central and Eastern Europe: Croatia | Poland | Serbia

Middle East and North Africa: Egypt

Newly Independent States: Azerbaijan

North America:
the United States

South Asia:

Country Reports

Asia Pacific:
| East Timor |
New Zealand
| the Philippines | Vietnam

Central and Eastern Europe: Regional | Kosovo | Romania

Latin America:
Regional | Belize | Brazil | Venezuela

Newly Independent States:
Russia | Ukraine

Middles East and North Africa: Sudan

North America:
| Mexico |
the United States

South Asia:

Sub-Saharan Africa:
Cameroon | Kenya |
Sierra Leone
| South Africa | Tanzania | Zimbabwe

Western Europe:
France | Germany |
the United Kingdom

Self Governance

Law and Governance-- A Lesson in Limits
By Leon Irish and Karla Simon

Trends in Self-Regulation and Transparency of Nonprofits in the U.S.
By Robert O. Bothwell

The Role of Governing Boards in Fostering Accountability
By Crispin Gregoire

Financial Implications Affecting Nonprofit Nongovernmental Organizations Today
By Michael A. Freedman

International Grantmaking

Grantmaking by U.S. Foundations in Canada: A Canadian Lawyer Provides a Plain Language Primer
By Blake Bromley

Community Philanthropy

Community Philanthropy Initiative of the European Foundation Centre

Transatlantic Community Foundation Network

New Website


General | Brazil | Kenya | Russia

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Editorial Board

Subscription Information

Previous Issues

ICNL Homepage

Country Reports: North America


Revenue Canada has issued three new guides on registering a charity, giving to charity, and the charitable status of community development programs.

(Registering a charity for income tax purposes, T4063(E) (00), 21 January 2000; Tax advantages of donating to charity, RC4142(E), 4 October 1999; Registered charities: Community economic development programs, RC 4143(E), December 1999)


On 31 December 1999 the Tax Reform Law 2000 was published in the Official Gazette. The changes, which take effect from 1 January 2000, add a new category to the list of organisations that are exempt from income tax: nonprofit entities that are exclusively engaged in the conservation of protected or endangered species and/or the conservation of their habitat.

The tax reform law also provides that tax exempt organisations that are authorised to receive charitable contributions from foreign donors cannot receive "excessive" amounts for the purposes of generating investment income, rentals or royalties or for activities not related to their stated purposes. The law itself does not define "excessive" amounts, but a subsequent regulation limits such contributions to one-third of annual income (this limit corresponds to the limit set in 1999 regarding donations from Mexican residents).

(Tax Notes International 24 January 2000; Resolucion miscelanea fiscal para 2000, 29 February 2000)

the United States

1.  Legal Framework

Two recent reports prepared by the staff of the Joint Committee on Taxation (JCT) indicate the extent to which the tax treatment of not-for-profit organizations (known sometimes as tax exempt organizations or EOs in the United States) has become a sensitive political issue. The first, a “Study of the Present-Law Taxpayer Confidentiality and Disclosure Provisions (as required by Section 3802 of the Internal Revenue Service Restructuring and Reform Act of 1998),” deals with the question of whether the current tax law’s disclosure requirements are adequate to allow public oversight over EO activities. It has evoked considerable outrage from the not-for-profit community, as reported in the March 9 issue of the Chronicle of Philanthropy (see “Tax Report Shakes Up Charities,” page 1). However, many US NPOs are beginning to be more analytical about the proposals and have now suggested that they may be appropriate, at least to some extent. See, e.g., the Independent Sector web site, and the statement presented there.

The second report, which came out in March, is a “Report of the Investigation of Allegations Relating to Internal Revenue Service Handling of Tax-Exempt Organization Matters.” This report clears the IRS of any wrong-doing with respect to allegations of inappropriate, partisan conduct with reference to the handling of requests for tax exempt status, etc. But the fact that such an investigation was required is indicative of a fear that the tax reporting agency has been used to support partisan political activities in recent years.

Both of these reports raise issues about how much oversight there should be of NPOs and who should exercise that oversight. They also make clear the need for accountability mechanisms to ensure that the oversight agency itself operates according to rules and in a fair and just fashion.

NPO Oversight. Against this background it is useful to consider the basic good practices that should be heeded with respect to reporting requirements for NPOs as well as the basic standards that should apply to government good conduct. With respect to accountability and transparency, the World Bank Handbook on Good Practices for Law Relating to Nongovernmental Organizations (World Bank, 1997) makes clear that any NPO having significant public benefit activities or with substantial public support should be required to file appropriate reports, at least annually, on its finances and operations with the appropriate government agency that is responsible for general supervision of NPOs. On the other hand, it is important to remember that the Handbook also makes clear that all reporting requirements should contain appropriate provisions to protect the legitimate privacy interests of donors and recipients of benefits as well as the protection of confidential or proprietary information.

In the United States the agency with the most significant oversight over NPOs is, of course, the IRS. Thus, the fact that the IRS is thought of as the proper agency to receive more elaborate reports is not surprising. While there is some merit to the suggestion that the context of greater reporting should not be tax exemption, that begs the question of how appropriate oversight should be done by the 51 state jurisdictions whose attorneys general and secretaries of state lack adequate resources to properly oversee NPOs. One also wonders how adequate oversight could be done uniformly throughout the country if the IRS were not involved. Certainly the proposals in the JCT report that favor disclosure by the IRS of information it collects to state officials and agencies will greatly enhance oversight by those officials and agencies. By and large, then, it seems that the new reporting requirements proposed by the JCT report are not significantly intrusive and do not warrant NPO outrage. While they will pose significant costs, those costs should be weighed against the benefits obtained by better accountability.

The JCT report also discusses the need for disclosure of information to the public, and it is in this area that the proposed new rules have been seen as most provocative. Nevertheless, the Handbook makes the point that the public is in fact the best watchdog over the NPO sector. It states that any NPO with significant activities or assets or with substantial public support should be required to publish or make available to the public a report of its general finances and operations. But it suggests also that the public report may be less detailed than the reports filed with the general supervisory agency and should permit anonymity for donors and recipients of benefits in addition to protecting confidential or proprietary information.

Whether it is necessary to make public, as the JCT report suggests, the applications for tax exempt status and the results of tax audits of tax exempt organizations are not matters discussed in the Handbook. However, extrapolating from the Handbook’s discussion, it seems appropriate to require more public disclosure than is done at present. As the Handbook says, “The public at large has a legitimate interest in the activities of PBOs and MBOs with significant public interest activities. Moreover, interested members of the public or the media are often more likely to detect and disclose impropriety than overworked government regulators. It should be emphasized that what is at stake is not simply the financial integrity of an organization. Adequate disclosure can also go far towards providing the public a base of knowledge against which it can determine whether and the extent to which an advocacy NGO really listens to and speaks for the group it purports to represent and benefit and whether it has a solid base in research and experience for the claims and statements that it makes. All of this requires that the public and the media have access to adequate and accurate information about NGOs. A leading regulator in Australia has said that, ‘The best regulation is ensured by open databases and a free press.’”

As long as the JCT report’s suggestions are developed with these caveats in mind, it seems appropriate to speak in their favor. Accountability and transparency are the watchwords that ensure the public’s trust in the NPO sector, and the JCT report tends to enhance those requirements.

Oversight of the Government. Government oversight of any institution must be even-handed and fair and the public must perceive that the oversight is exercised in that fashion. Too frequently members of the public come to mistrust government officials because they see them as acting unfairly, and that can lead to a general lack of respect for government institutions. When it comes to the government agencies with oversight over NPOs, this situation needs even more careful attention, because those organizations are the vehicles through which the public exercises its freedoms of speech and association. Thus, the JCT report shows a means by which the legislative branch can effectively exercise oversight over the NPO oversight agency that deserves attention.

In general it seems to be a good development that agencies such as the IRS contain their own internal oversight mechanisms (the Inspector General’s office, for example). But there is also a need for legislative oversight from time to time, as here, when there was a general perception of misconduct by the IRS. This type of investigation, while clearly uncomfortable for the agency, is nonetheless going to be necessary from time to time.

2. Tax Framework

The government's Budget proposals for 2001 include several measures to promote philanthropy:

(The Chronicle of Philanthropy, 27 January & 8 February 2000)


Copyright 2008 The International Center for Not-for-Profit Law (ICNL)
ISSN: 1556-5157