Congressional tax writers have issued a subtle warning to charities and other nonprofit organizations: Start placing a heavier emphasis on serving diverse communities, or you may risk losing your tax-exempt status.That was the veiled threat leveled at tax-exempt organizations during a round of hearings before the House Ways and Means Oversight Subcommittee. In announcing the hearing, Chairman John Lewis, D-Ga., noted that while "charitable organizations play a key role in our country's ability to respond to the needs of its communities, those communities are becoming increasingly diverse."

Lewis, whose subcommittee oversees the Internal Revenue Service, told charities pointedly that they "must do more to serve all Americans no matter where they live, and match charitable resources with the needs of diverse communities."

In addition to the risk of being stripped of their current tax-exempt status, charities that fall out of favor with Congress could find themselves locked out of lucrative federal programs, grants or contracts.

Indeed, witnesses at the House hearings cited estimates that the government provides not-for-profits with a whopping $317 billion in grants and contracts for education, research, and a variety of human and health-related services - money that could be withheld from charities that rate poorly in terms of service and support to diverse areas.

Based on testimony at Lewis' hearing, America's charities have plenty of room for improvement in that arena.

Princeton University Professor Emeritus Julian Wolpert, Ph.D, told Congress that "charitable organizations are woefully short of resources commensurate with [the] needs" of recent Hispanic and Asian immigrants, Native-Americans, inner-city blacks or the rural South. "Little charity or volunteerism passes from wealthy suburbs to inner cities or rural areas or Appalachia, and local charity in those needy communities, no matter how generous, makes only a small dent."

Wolpert's concern was that charity not only begins at home, but that it also largely stays at home. His research suggests that, "Only somewhere between 10 to 30 percent of charitable contributions are targeted to the 'stranger,' (i.e., outside one's own social group and locale)."

Elizabeth Boris, director of the Urban Institute's Center on Nonprofits and Philanthropy, suggested that Congress consider new reporting requirements for tax-exempt organizations that would make it easier to identify charities that fail to support diversity goals. The problem, she said, is that the Form 990 that nonprofits annually file with the IRS doesn't require them to report the demographics of the people they serve.

Significantly, however, even advocates of more charitable services to diverse communities cautioned against heavy-handed government efforts to dictate how nonprofits spend their funds. As Wolpert put it, "We would not want to maim the golden goose that has accomplished so much on behalf of our cultural, educational and religious life."

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