The International Journal
of Not-for-Profit Law

Volume 8, Issue 1, November 2005

Bill Landsberg is an attorney and the Executive Director of The Pikes Peak Foundation for Mental Health:

Reading Mr. Eisenberg’s article reminded me again of the special yet fragile position that nonprofit organizations hold in our society. He asks if too many organizations are given tax-exempt status and notes that “such disparate institutions as hospitals and universities, social service agencies, grass roots activist groups, cemeteries, trade associations, a few insurance companies, cooperatives in fraternal organizations” are all included in the nonprofit sector. As Mr. Eisenberg points out, one of the distinguishing characteristics of the nonprofit sector is “missions that serve the public interest.” He notes that many of these organizations today do not meet that test.

I agree. Traditionally, we in the United States have valued nonprofit organizations for providing our society with the services that are considered vital yet unprofitable and therefore of no interest to the for-profit sector, or those that lack a sufficient political constituency and are therefore of no interest to the government. Organizations that do not fit within these parameters, yet seek tax exempt status, are attracting the scrutiny of government regulators more than ever and, in the process, threatening the sector as a whole.

We in the nonprofit sector are feeling the pressure from both houses of Congress articulated by Senator Charles Grassley and IRS commissioner Mark Everson. Recent and proposed legislation and the administration of substantive tax laws as they relate to nonprofit tax-exempt organizations make this an era of enforcement not seen since the beginning, when tax dollars were first permitted to be diverted away from the Federal Government and placed in the hands of nongovernmental organizations. While the tax reform act of 1969 represented a response to a relatively limited number of perceived abuses, primarily in the area of private foundations, this new era of enforcement seems more broadly hostile and skeptical, and fueled in large part by the media’s perception of abuse.

We make a grave mistake if we forget the traditional nonprofit models and their advantages to society, and allow nontraditional models to dilute and distort our sector. It is within these traditional models that nonprofit organizations possess their intellectual, moral, and practical effectiveness. Here, nonprofits provide services recognized by our society as vital. The American public will continue to value and support the nonprofit sector as long as it satisfies these needs.

I take slight exception to Mr. Eisenberg’s assertion that the nonprofit sector is paying little attention to matters of governance, excessive compensation of officers and executives, conflicts of interest, and lack of public accountability. The nonprofit executives and board members I know are acutely aware of this hostile atmosphere and are scrambling to deal with possible abuses in the areas of “commerciality,” “private benefit,” and “private inurnment.”

Mr. Eisenberg claims that nonprofit leaders such as Independent Sector have failed to exercise their responsibility in these areas. I would refer him to Mark W. Everson’s letter of March 30, 2005, to Senate Finance Committee Chairman Charles Grassley. In that letter, Mr. Everson praises the Independent Sector, the sponsor of the National Panel on Nonprofits, for a “thoughtful and constructive report to our committee,” which encouraged government enforcement of the law and called for tougher rules for charities and foundations.

Mr. Eisenberg cites transparency and public accountability as the most pressing need in the nonprofit sector. However, Mr. Everson, in the same letter, claims that a positive development in recent years is the improvement in “transparency” within the tax-exempt sector. Specifically, he praises increased press and public scrutiny of nonprofit organizations’ tax Forms 990.