Tax-Exempt Sector:
Governance, Transparency, and Oversight Are Critical for Maintaining Public Trust
GAO-05-561T: Published: Apr 20, 2005. Publicly Released: Apr 20, 2005.
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The tax-exempt sector under section 501(c) of the Internal Revenue Code covers over a million-and-a-half entities of varying sizes and purposes. Its diversity allows it to address the needs of many citizens. To help it do so, Congress and some in the tax-exempt sector itself encourage good governance practices by exempt entities. Transparency over exempt entities' activities is aided by public access to their annual tax returns. As the nation's tax administrator, the Internal Revenue Service (IRS) has a key role in overseeing this sector. Oversight can help ensure adherence to exempt purposes, protect against abuses, and sustain public support for the sector. The Chairman of the House Committee on Ways and Means asked GAO to address (1) the growth of the section 501(c) tax-exempt sector; (2) the role of governance and transparency in ensuring that tax-exempt entities function effectively and with integrity; (3) IRS's capacity for overseeing the exempt sector, including its results and efforts to address critical compliance problems; and (4) states' oversight and their relationship with IRS in overseeing the tax-exempt sector.
The section 501(c) tax-exempt sector has grown steadily in reported assets, revenues, and expenses. For example, between 1998 and 2002 (the most recent year of data), its reported assets grew to over $2.5 trillion---with 12 percent growth for 501(c) charities and 22 percent growth for other 501(c) entities (noncharities). Accordingly, this tax-exempt sector comprises a significant part of the nation's economy and workforce. For example, spending in this sector appears to be about one-tenth of our economy and the paid exempt workforce appears to be comparable in size to some of the largest sectors of the U.S. civilian workforce, such as food and lodging. Good governance and transparency are essential elements to help provide assurance that exempt entities operate with integrity and effectiveness in meeting their missions. Good governance facilitates well-run operations that dissuade abusive behavior. Transparency sheds light on entities' practices, which enhances ethical and effective operations and facilitates oversight by the public and others. With recent concerns about abuses in the tax-exempt sector, renewed attention is being given to improving governance practices and increasing the transparency related to the sector. Staffing trends and insufficient data have contributed to IRS being challenged in executing its oversight role. IRS has begun to increase staffing, obtain better data on tax-exempt entities, and increase its capacity to analyze and use the data it obtains. For the critical compliance issues IRS has identified, it has started special initiatives to improve compliance. States often oversee tax-exempt entities, frequently focusing on protecting the public from fraudulent activities and guarding against misuse of charitable assets. States and the IRS believe that more data sharing would make their oversight more efficient and effective. Consistent with our earlier recommendations, IRS has improved its processes for sharing its oversight data with the states, and Congress is considering expanded data sharing.
Mar 1, 2021
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Tax Filing:
Actions Needed to Address Processing Delays and Risks to the 2021 Filing SeasonGAO-21-251: Published: Mar 1, 2021. Publicly Released: Mar 1, 2021.
Jan 14, 2021
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Tax Administration:
Better Coordination Could Improve IRS's Use of Third-Party Information Reporting to Help Reduce the Tax GapGAO-21-102: Published: Dec 15, 2020. Publicly Released: Jan 14, 2021.
Nov 18, 2020
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IRS Reorganization:
Planning Addressed Key Reform Practices, but Goals and Measures for the Plan Have Not Been FinalizedGAO-21-18: Published: Oct 19, 2020. Publicly Released: Nov 18, 2020.
Nov 9, 2020
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Opportunity Zones:
Improved Oversight Needed to Evaluate Tax Expenditure PerformanceGAO-21-30: Published: Oct 8, 2020. Publicly Released: Nov 9, 2020.
Oct 19, 2020
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Tax Administration:
Opportunities Exist to Improve Oversight of Hospitals' Tax-Exempt StatusGAO-20-679: Published: Sep 17, 2020. Publicly Released: Oct 19, 2020.
Sep 23, 2020
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Taxpayer Service:
IRS Could Improve the Taxpayer Experience by Using Better Service Performance MeasuresGAO-20-656: Published: Sep 23, 2020. Publicly Released: Sep 23, 2020.
Aug 31, 2020
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Abusive Tax Schemes:
Offshore Insurance Products and Associated Compliance RisksGAO-20-589: Published: Jul 30, 2020. Publicly Released: Aug 31, 2020.
Jun 29, 2020
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Taxpayer Compliance:
More Income Reporting Needed for Taxpayers Working through Online PlatformsGAO-20-366: Published: May 28, 2020. Publicly Released: Jun 29, 2020.
Jun 16, 2020
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Tax Exempt Organizations:
IRS Increasingly Uses Data in Examination Selection, but Could Further Improve Selection ProcessesGAO-20-454: Published: Jun 16, 2020. Publicly Released: Jun 16, 2020.
May 1, 2020
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Management Report:
Improvements Are Needed to Enhance the Internal Revenue Service's Internal Control over Financial ReportingGAO-20-480R: Published: May 1, 2020. Publicly Released: May 1, 2020.
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