Want to know how an American charity is spending your donated dollars overseas?
That’s the effect of an Internal Revenue Service rule change that is making it increasingly difficult for donors and watchdogs to track American not-for-profit dollars after they leave the United States.
Former IRS officials have criticized the little-noticed 2008 change, which lifted the requirement that charities in the United States report to the IRS and the public the identities of overseas charities to which they have sent money.
Charities still have to tell the IRS and the public the names and amounts they donate to other American charities. When American charities send money out of the country, however, they need to say only the region of the world where they sent it and the amount they gave.
That means that an American charity such as One Israel Fund, which in 2003 reported sending tens of thousands of dollars to settlements in the West Bank, now needs only to acknowledge that it sent grants to the “Middle East” for “Security,” among other purposes, as One Israel Fund did in its 2010 disclosure.
Though the rule change isn’t new, it’s been little-noted outside of not-for-profit compliance circles. Some tax law experts contacted this March by the Forward were still unaware of the change.
“That’s just the opposite of what we were moving towards, which was more accounting responsibility,” said Sheldon Cohen, who led the IRS during the 1960s.
Marcus Owens, who led the IRS’s charities section, known as the Exempt Organizations Division, from 1990 to 2000, said that the rule change does not just leave donors in the dark. “It reduces the amount of information available to the IRS,” he said.
The loosened requirements mean less oversight of foreign grants, which are sometimes exploited by fraudsters and, in Israel, by politicians whom American donors support while taking a tax deduction at the same time.