Tax Debt:

Some Combined Federal Campaign Charities Owe Payroll and Other Federal Taxes

GAO-06-887: Published: Jul 28, 2006. Publicly Released: Jul 28, 2006.

Additional Materials:

Contact:

Gregory D. Kutz
(202) 512-9505
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

The continued success of the Combined Federal Campaign (CFC), which is administered by the Office of Personnel Management (OPM), is predicated on donor confidence that each donation reaches a legitimate charitable organization. The Ways and Means Committee's review of tax-exempt entities has led to concerns that charities listed in CFC are failing to remit payroll and other taxes to IRS as required by law. Specifically, GAO was asked to determine whether and to what extent (1) charities listed in the 2005 CFC have unpaid payroll and other taxes; (2) selected charities, their directors, or senior officers are abusing the federal tax system; and (3) OPM screens charities for federal tax problems before allowing them to be listed with CFC.

More than 1,280 CFC charities, nearly 6 percent of charities in the OPM-administered 2005 campaign, had tax debts totaling almost $36 million as of September 30, 2005. While the majority of this debt represented payroll taxes, penalties, and interest dating back as far as 1988, the debt also included amounts from annual reporting penalties, excise taxes, exempt organization business income taxes, unemployment taxes, and other types of taxes and penalties. Most of the 1,280 tax delinquent charities (79 percent) owed less than $10,000. Further, at least 170 of the charities with tax debt received about $1.6 billion in federal grants in 2005. All 15 of the charities that we selected for detailed audit and investigation had abusive and potentially criminal activity related to the federal tax system. Specifically, rather than fulfill their role as trustees of this money and forward it to the IRS, the directors and senior officers diverted the money for charity-related expenses, including their own salaries, some of which were in excess of $100,000. Although exempt from federal income tax, charities as employers are required to forward payroll taxes withheld from their employees' wages to the IRS. Willful failure to remit payroll taxes is a felony under U.S. law. We referred all 15 of these charities to the IRS for consideration of additional collection or criminal investigation. OPM does not screen CFC charities for federal tax problems or independently validate with the IRS whether the charity is truly a tax-exempt organization. Federal law prevents OPM from accessing taxpayer information required to screen for tax delinquency. Consequently, OPM was unaware of the charities that owed federal tax debt and cannot provide assurance that the more than 22,000 participating charities are tax-exempt organizations. To demonstrate the vulnerability of this process, GAO created a fictitious charity and successfully applied to three large local campaigns.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In 2008, OPM implemented the CFC comprehensive database of participating charities nationwide and began to verify with IRS the tax-exempt status of all new charities to be included in the CFC. These new verification procedures will help ensure that only legitimate tax-exempt organizations are approved to participate in the CFC.

    Recommendation: To help ensure continuing donor confidence and improve control over participation in CFC, the Director of the Office of Personnel Management should direct the Director of CFC Operations to create and maintain a comprehensive database of all local, national, and international charities that participate in CFC.

    Agency Affected: Office of Personnel Management

  2. Status: Closed - Implemented

    Comments: For the 2007 CFC campaign, OPM began to confirmed OPM began to verify the tax-exempt status of all charities applying to be included in the CFC. Local campaigns provided OPM with a list of all their participating organizations and new applicants. This information was entered into a database. OPM was provided with an electronic file from the Internal Revenue Service (IRS) listing the 501(c)(3) public charities in their Business Master File (BMF). This file was uploaded into the database. The Employer Identification Number (EIN) and Name of each organization in the database was compared to the IRS file to ensure that they still have tax-exempt status.

    Recommendation: To help ensure continuing donor confidence and improve control over participation in CFC, the Director of the Office of Personnel Management should direct the Director of CFC Operations to verify with IRS the tax-exempt status of all charities applying to be included in CFC.

    Agency Affected: Office of Personnel Management

 

Explore the full database of GAO's Open Recommendations »

Aug 11, 2014

Jul 29, 2014

Jul 22, 2014

Jul 18, 2014

Jul 7, 2014

Jul 2, 2014

Jun 13, 2014

May 30, 2014

May 20, 2014

Apr 21, 2014

Looking for more? Browse all our products here