Charities Rise, Costing U.S. Billions in Tax Breaks

The NY Times reported that the number of organizations that can offer their donors a tax break in the name of charity has grown more than 60 percent in the United States, to 1.1 million, in just a decade.

Experts say nonprofits are skillfully exploiting the tax code’s broad and elastic definition of what constitutes such a charity, making it difficult for the Internal Revenue Service, which must bless them, to say no. The agency approved 99 percent of the applications for public charity status last year, according to a new study by students at Stanford University — or more than one every 10 to 15 minutes.

Take the Woohoo Sistahs, a social club that won approval last year. Its 50 or so members meet regularly over drinks and dinner in the Hampton Roads area of Virginia and raise money for cancer research and other causes through walkathons and sales held in retailers’ parking lots.

What the Sistahs do is not so different from what the Shriners have done for decades to raise money for their hospitals — except that the Sistahs can offer their donors a tax break that the Shriners cannot because decades ago they registered as a different type of charity with the I.R.S. (Direct donation to Shriners hospitals are deductible.)

The $300 billion donated to charities last year cost the federal government more than $50 billion in lost tax revenue.

“Especially during these tough economic times, it’s troubling to hear we are increasing the number of these organizations at such a rapid pace,” said Representative Xavier Becerra, a California Democrat who is one of the few members of Congress to pay attention to the nonprofit sector.

“It’s not free,” Mr. Becerra said, “and so we need to do something to make sure taxpayers are getting a big enough benefit in return.”

Timothy Delaney, chief executive of the National Council of Nonprofits, agreed that the rapid increase in charities was an issue but said that addressing it would be extremely complicated.

“What are we going to do?” Mr. Delaney asked. “Have some bureaucrat establish a quota for arts organizations? Or after-school programs?” Read more here.