Do highly publicized scandals involving tax exempt organizations prove a systemic problem?

Forbes Magazine recently published an op/ed by Howard Gleckman, a Senior Fellow at the Tax Policy Center. Here is what he thinks about the recent spate of bad press for charities:

In recent weeks, we’ve seen four different stories that raise questions about the state of tax-exempt organizations. They make me question the ability of the IRS to manage Section 501(c) of the tax code or even whether the special privileges of tax-exemption are worth keeping—at least as currently designed.

• • A consultant uses tax-deductible contributions to bribe college officials to enroll his client’s children into prestige schools.
  • An advocacy group uses its non-profit status to collect tax-deductible contributions to engage in what, for all the world, looks like lobbying.
  • As college basketball’s Final Four reminds us, many of those universities—themselves tax-exempt– are in the highly profitable business of providing televised entertainment as well as fodder for gamblers.
  • A self-described church may be using its status to protect exclusionary practices that would be illegal in a secular organization or for-profit business.

The author speculates on some of the underlying problems allowing the problems he identifies and concludes:

One last issue to consider: The 2017 Tax Cuts and Jobs Act may have fundamentally changed the calculus of 501(c)(3) status. Because the law significantly expanded the standard deduction and limited the state and local tax (SALT) deduction, it largely turned the tax-deduction for charitable giving into a benefit for a relatively small number of mostly high-income households. According to Tax Policy Center estimates, the law cut the number of those itemizing their charitable contributions by more than half, to about 16 million. The share of middle-income households claiming the charitable deduction fell by two-thirds, from about 17 percent in 2017 to just 5.5 percent in 2018.

What can policymakers do about all this? They could give the IRS more resources to police the tax-exempt sector. They could proscribe how tax-exempt funds are used by, for instance, limiting the amount that goes to athletic department salaries. Or they could limit tax-exempt status to public charities only. But one thing is clear; The current model is not working.

Is the charitable sky falling?  Maybe we should remember that there are at least 1.5 million charities recognized by the IRS and only a relatively few are engaged in scandalous behavior.  

Darryll K. Jones