The IRS Had the Right Idea

By Ken Stern, The Daily Beast - May 25, 2013

A little context is warranted. There are more than 1.5 million nonprofit organizations in this country, a number that reliably grows by more than 50,000 each year. It’s an incredibly important sector of our economy—not just because it represents more than $1.5 trillion in annual revenues and close to 15 percent of the American workforce, but also because nonprofits dominate critical fields such as education, health care, social services, arts, and, yes, politics. Yet, despite the critical nature of these organizations and their services, the Exempt Organizations Division, the group within the IRS charged with regulating the field, plays only the most passive of roles with respect to the nonprofit sector. How passive? The approval rate for applications to form public charities (and charities account for more than two thirds of the nonprofit sector) stands in excess of 99.8 percent. It takes little more than a reasonable facility with government forms, a small check, and the patience to wait a few months to start a federally approved charity. And the problem has only grown worse in recent years, as the IRS budget and staffing have been repeatedly pruned (by more than $1 billion) and the number of applications for nonprofit status has continued to surge. The IRS’s role in the review process is almost entirely ministerial: a quick review of forms, a flurry of stamps and signatures, and a letter of endorsement.

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