Senate Finance Leaders Call for More Scrutiny of Colleges and Hospitals

May 30, 2007

Pressing for increased transparency into the operational complexities of tax-exempt organizations, Sen. Max Baucus (D-MT) and Sen. Charles Grassley (R-IA) are urging Treasury Secretary Henry Paulson to make changes to the Form 990. In the May 29 letter, Baucus and Grassley assert that the Form 990 should be updated to include supplemental information requests for large, complex nonprofits such as hospitals and universities.

Noting that the Form 990 is inadequate in terms of creating meaningful transparency with regard to "major parts of the nonprofit sector," Baucus and Grassley suggest that hospitals and universities be required to respond to additional detailed questions tailored to their industries. The letter identifies the following areas as critically in need of "greater reporting and transparency":

executive compensation (encompassing housing, first-class travel, spousal travel, deferred compensation, incentives and bonuses, fringe benefits, loans, and meals);

endowments (what funds are spent on, the percentage being spent, how funds are invested, the size of the endowment, what funds are restricted and for what purposes, and management costs);

related organizations

joint ventures

governance

dollars raised v. dollars for charity; and

hospitals' procedures for billing and debt collection and charity-care policies.

With respect to endowments, the letter also includes a tangential request for Treasury and IRS to develop guidance to "put more teeth" into the existing rules requiring charities to show that they are carrying on a charitable program commensurate in scope with its financial resources. Referred to as the "commensurate test," Baucus and Grassley suggest that the new Form 990 enable the IRS and the public to readily identify how the commensurate test is being satisfied.

The letter requests a response from Treasury within 30 days.

Senate Finance Committee May 29 press release and full text of letter