These Intermediate Sanctions regulations are a big deal. First because they give the IRS long-awaited powers to deal with misuse of tax-exempt status for personal gain. And second because the new regulations will affect the operations of all nonprofits, even those where the temptation to abuse charitable status never casts even the smallest shadow.

Before the passage of the Taxpayer Bill of Rights in 1996, the IRS faced a Hobson's choice when dealing with a tax-exempt organization where abuses had occurred. The service could challenge the organization's recognition as a 501(c)(3) and, if successful, strip it of its tax-exempt status. Or the tax agents could negotiate with the organization's leadership, attempting to establish operating procedures which would prevent further abuses. Since lifting tax-exempt status can be a long process, and the outcome is uncertain, there were relatively few instances where that "ultimate" sanction was imposed.

The Intermediate Sanctions law allows the IRS to act directly against individuals who profit dishonorably from the operations of a tax-exempt organization without challenging its basic tax-exempt status. The law provides for substantial taxes which can be collected from the offenders when a tax exempt organiztion pays "excess benefits" to employees, contractors or others in a position to influence its activities.

The problem, of course, is defining "excess benefits." That's what uses up 84 typewritten pages.

The further problem is that all nonprofits, not just those where questionable practices have taken root, will now need to make sure they do not run afoul of the standards by which the IRS will determine if excess benefits have fallen into the hands of insiders. So every organization which enjoys tax-exempt status will need to pay attention to these new regulations. Thanks to the Chronicle of Philanthropy and the Internet, reviewing the actual text of the Treasury's draft regulations will be as easy as clicking on a link for everyone who reads these notes online.

The Chronicle's text and accompanying story are available through http://www.philanthropy.com Enjoy!

Speaking of the Chronicle of Philanthropy, Putnam Barber's latest column appeared in the July 30th issue. This one examines troubling aspects of the rapidly growing practice of accepting used cars (and other big-ticket items) as donations in support of nonprofits' operations. The column can be read online at http://www.nonprofit-info.org/misc/9807chron.html

Several new items have been added to the FAQ in recent weeks. Notably four thought-provoking writings about the practical, legal and technical questions that arise from efforts to solicit donations for charitable causes through the World-Wide Web. They are all in the "New Items" section of the FAQ.

Behind the scenes, we are working to replace the outline-style structure of this website with a more flexible approach based on the keyword table. If you haven't explored the material here using that tool, you will be favorably surprised when you try it out. Let us know if there are subjects you believe should be included among the keywords. One of the last steps before shifting over to relying more directly on the keyword approach will be a final review of the contents of the keyword table. Suggestions for clarification or additions will be especially welcome at that time.

Long-term visitors to this site may have noticed that we recently added a request for donations to our pages. Support from users of this material is important to our ability to maintain and upgrade the service. Please consider how you can help each time you find something of value here.

Putnam Barber
August 2, 1998