Thousands of nonprofit organizations owe nearly a billion in payroll taxes? Truth is, a few multi-million-dollar scofflaws will account for most of the problem.
The headline of the Government Accounting Office report seems to tell the story: Thousands of Organizations Exempt from Federal Income Tax Owe Nearly $1 Billion in Payroll and Other Taxes. The report used a computer matching of taxpayer identification numbers from the IRS Master File of exempt organizations with the IRS's file of unpaid assessments. They found 55,000 organizations that owed nearly $1 billion altogether.
But on page three of the report we find a more accurate representation of the data: a mere 1,500 organizations that owed more than $100,000 each were responsible for $600 million of the shortfall.
And it goes on. The report profiled 25 selected cases, which I summarize in the table (click for a pop up of the full sized chart). These are presented as examples and aren't necessarily the worst cases, but it's noteworthy that this tiny group accounts for about 10% of the entire $1 billion liability. It shows that there are cases where the organization owes more than $10 million (the worst is a health-care related facility with a $30 million bill).
This analysis also shows that it's not an across-the-board issue for nonprofit organizations. The problems are concentrated in the health-care field, which is not surprising because hospitals account for about half of the employment in the charity industry.
Another finding that puts a different color on the conclusions in the report: of the twenty-five cases, all but two already had tax liens filed against them (the two that didn't were the only two under $500,000). In addition, for sixteen of the twenty-five, the IRS had also imposed trust fund recovery penalties against officers of the organizations, which hold the individuals responsible for the unpaid payroll taxes. So it is not as if the IRS has overlooked these cases. It's just that, for whatever reason, they have been unable to collect.
This report is very similar to one we talked about last year regarding unpaid payroll taxes by charities participating in the Combined Federal Campaign. In both cases, the GAO trumpeted widespread noncompliance costing huge amounts of money. But the truth is more nuanced: there is widespread minor noncompliance, and just a handful of major abusers who are bilking the tax man big time. It's an important difference, though, because it suggest a different solution—not more resources but better tools to help the IRS collect from the big time scofflaws.