IRS Needs to Boost Its Role in Racial Justice

The IRS lack of resources has created chaos for tax season, including slow refunds, lack of personnel, and lack of adequate technology. President Biden has proposed giving the Internal Revenue Service extra $80 billion over the next 10 years to help crack down on individuals and institutions who fail to pay taxes to help raise $400 billion in tax revenue. That additional revenue is expected to go towards assisting families and workers and helping us meet our climate goals.

The additional tax revenue would also be critical to the administration’s major racial justice goals. One of the components of the executive order on advancing racial equity is for the federal government to allocate resources to address the historic failure to invest sufficiently and equally in underserved communities. Investing in the IRS can yield this result.

The Issue Now Is How to Track Funding

Historically, nonprofits that are led by racial or ethnic minorities or that serve people of color have been underfunded in comparison to White-led nonprofit organizations. Funding to racial and ethnic minorities ranges between 9% to 12% of overall philanthropic funding in the U.S annually.

Funding specifying a focus on Black communities is about 2% of overall philanthropic funding in the U.S., despite the Black population being about 13%. And these nonprofits are fighting for some of the most critical social justice issues of our time, including mass incarceration and homelessness.

This funding inequality seemed to have reversed itself after the murder of George Floyd in 2020, when many corporations and private foundations made public commitments to fund nonprofit organizations that address racial justice. From 2011 to 2019, philanthropic giving for racial equity was $3.3 billion in those nine years combined.

In 2020 alone, funding and commitments to race equity was $4.2 billion. Philanthropic giving for racial equity was 22% more in 2020 than the previous nine years combined.

While all of these pledges seem positive, the issue now is how to track those commitments to make sure they are fulfilled and how to sustain funding over time so that racial philanthropy is not just a fad. Part of the problem is that we do not currently have any standard defining a minority-led or serving nonprofit organization.

Two Changes to Disclosure Requirements Needed

A modification of IRS requirements for nonprofits, particularly charities, can address these problems nationally and create uniformity across the board. It would require two simple changes to current disclosure requirements for nonprofit charities.

The first is to establish a threshold for what a minority-led or serving nonprofit organization is and require that nonprofits disclose the race and ethnicity of those who run their organizations. For example, the IRS can have a rule that a nonprofit that provides services to 50% people of color, or that has a person of color leading it, fulfills the threshold.

The IRS currently requires nonprofit organizations to publicly disclose the names and addresses of their executives and boards of directors on IRS Form 990. Anyone can find a nonprofit organization’s Form 990 online with the list of who runs the organization.

Form 990 can be modified to include the race and ethnicity of those executives, and their board members, and a narrative of the race equity work the organization does. This would show annually whether a nonprofit is led by minorities or serves communities of color.

The second is to make the names of institutional donors to nonprofits public. Publicizing donors is a controversial issue that the U.S. Supreme Court has weighed in on and refused to permit on First Amendment freedom of association grounds.

However, the Supreme Court precedent as it currently stands does not restrict the disclosure of institutional donors. This is because institutional donors already publicly announce their donations. Most institutional donors, such as corporations and private foundations, want the public to know about their donations.

To be sure, the IRS is already overwhelmed and has high need for the additional revenue—if the revenue raisers work. However, these modifications do not require much enforcement from the IRS.

The Goal: Make Data Public

The goal is for the IRS to collect the data and make it public. Once the IRS collects and makes race, ethnicity, and donor information public, this allows watchdog organizations like Candid, which already collect annual 990s, to gather that information on an annual basis and make it easily accessible on their websites as a source for anyone that wants to donate to a minority nonprofit.

This would provide the public with an accurate picture of nonprofits that are led by or that serve communities of color, or engage in race equity work, and track how well philanthropic commitments are being met on a yearly basis. This also would allow thousands of nonprofits that serve people of color but are passed up for philanthropic gifts because of lack of social networks, national reach, or popularity, to have access to those sources of funding.

The IRS already has broad authority to collect information deemed necessary for the administration of the tax code and for good governance and management for tax-exempt organizations. Racial justice is part of good governance for any nonprofit organization.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Atinuke O. Adediran is an associate professor of Law at Fordham University School of Law who researches and writes about inequality in nonprofits, corporations, and law firms. Her work centers on how the law influences these institutions, how they influence the law, and how to use the law to effect change toward racial, gender, and other forms of equity within and outside of these institutions.