Experts propose alternative changes in nonprofit regulation

As the Senate Finance Committee prepares legislation to curb recent abuses in the nonprofit sector, two nonprofit consultants offer their own suggestions in an article in the Stanford Social Innovation Review.

Jan Masaoka and Jeanne Bell Peters, both of CompassPoint Nonprofit Services, a San Francisco-based nonprofit consulting firm, propose eight changes they say would increase accountability while strengthening the ability of nonprofits to spur social change.

The article says religious organizations should be required to submit information filings with the IRS, as do all other tax-exempt groups, and notes that religious groups receive more than one-third of all charitable donations.

Nonprofits and foundations, which share the same 501(c)3 classification, should have separate designations recognizing their distinct functions, the article says.

It also says smaller, grass-roots nonprofits and large institutions, such as hospitals and universities, should have separate classifications.

Compensation of board members should be prohibited, the article says, and at least 51 percent of board members should be independent, meaning they are not related to paid staff.

The amount of assets that foundations are required to pay out should include only dollars granted, not internal expenses, the article says, and donor-advised and type III supporting organizations should both be reclassified to reflect their true roles as private foundations, and taxed accordingly.

Finally, the authors recommend that state associations of certified public accountants set training and ongoing education standards that nonprofit auditors must meet to improve nonprofit accountability.

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