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April 26, 2012 at 10:32 AM
Public charities are exempt from taxes, but they are not exempt from the diversion of their assets from their intended charitable purpose, often involving embezzlement or theft.
Now, the IRS is readying a program to address this concern, Lois Lerner, the director of exempt organizations, said in a recent speech at Georgetown University Law School.
In her wide-ranging address, Lerner focused part of her discussion on the “Significant Diversion of Assets” question on the Form 990 informational tax return nonprofits file every year. She said the Review of Operations unit in a preliminary study had examined tax filings and publicly available information on the 285 nonprofits that reported a significant diversion of assets in 2009.
Initial research found the following:
- Analysts identified approximately $170 million in significant diversions.
- Many of the cases involved theft or embezzlement, though in many other cases, the taxpayer did not explain the significant diversion, as Schedule O requires.
- Several cases involved Ponzi schemes.
- Eighty-two cases resulted in civil or criminal charges against the responsible party. These charges were brought by the organizations involved, or by local authorities; they were not IRS charges.
- Forty-seven individuals were jailed or served probation for the diversion of the assets. Again, these dispositions did not arise from IRS actions.
- In nine cases, restitution was paid in full.
- In 11 cases, there was partial restitution.
Lerner said the IRS now plans to conduct an examination program in this area. “While organizations aren’t normally selected for exam based on the answer to any particular question on the Form 990, a significant diversion of assets is noteworthy and we need to get a better understanding of these events.”
