None of these latter expenditures is illegal per se.
The IRS stipulates only that fees for the board of directors or hired
professionals have to be “reasonable.” State laws vary, but generally they rely
on a similar standard of what constitutes reasonableness. Attorneys general and
the IRS, however, evaluate the propriety of these activities on a case-by-case
basis, which means a foundation has to be investigated before the government
determines what “reasonable” means in that particular instance. That is what the
Massachusetts attorney general began doing after the Cabot case hit the papers.
But watchdog organizations such as the National Committee for Responsive
Philanthropy in Washington are lobbying for a quantifiable definition. The
rapid growth in the number of foundations over the past decade and the failure
of the regulatory apparatus to keep pace with them has multiplied the number of
cases like Cabot’s. Still, this issue is not new. The problem of trustee
compensation dates back as far as the creation of foundations themselves, to the
mid-19th century. The regulatory overload merely brings an old question to the
fore: Who will prevent a trustee from voting on his own raise? The IRS lacks
both the technology and manpower to proctor these activities, particularly since
the departure of some of its senior experts in tax-exempt institutions in a
mid-1990s agency shakeup. Private foundations are required to file a special tax
form outlining their revenues and expenses, including salaries, and these
documents are available to the public. But these forms have yet to be stored
digitally, and 60,000 of them flood in each year. It is rumored that IRS
staffers only look at the first page of the filings, and the risk of a
foundation being audited is less than one-fifth of 1 percent. Meanwhile, state
attorneys general, while somewhat more diligent, have lately shown a tendency to
allow the news media to lead the chase, concentrating their efforts on those
foundations that have hit the headlines.
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