Nonprofit Organizations' Eligibility for Reduced Third-Class Postal Rates

Published by the Government Accountability Office on 1977-06-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                         t.~M-ED STATES GENERAL P,CCOWY::G                 OFFICE
                                                   wASHlNz=i    --x--a,D.C.   23:&3
                                                                                       ./I.-. 1377
                                                                                      _.   * 1
3   GC%ERAL        CX%FPtKM~-i-

              The Honorable      Richardson     Preyer
              Chairman,     Scbcom;,littee   on Government
                Information      and Individual       Rights
              Committee     on Government     Operations
              House of Zepresentatives
              Dear        :-it,   Chairman:
                      On September          7, 1916, the Subcornqittee                    requested        an
              audit     of the third-class             nonprofit         classif       ication      to determine
              whether       all organizations            presently         using preferential               postal
              rates     should     le~itimazely          be doing        so,       Et wzs subsequently
              agreed      that    our review       would be done at the Baltimore                          Service
              Center      and limited         to determine          (I.) the criteria             used by
              the Postal        Service       in granting         reduced        third-class          rates     to
              nonprofit        orqanizations,          (2) whet’ler          selected         organizations
              were qua1 if ied for reduced                 rates,       and (3) the number and
              nature      of requests         for reduced         rates      that     were rejected           by
              the BalLimore          Postal      Service      Cknter       and appealed           to Postal
              Service       Headquarters.
                     From June 21, 1975, to September                   30, 1976,       the Baltimore
              Post Office       received      $23 million         in revenues     from third-class
              permit    mailings.        Thirteen      perceilt--$3      mill ion--of       this
              revenue    came from mailings            by nonprofit        organizations         who
              are entitled        to reduced      rates.      (See app. I.)
                     Our reviews of the file            folders      for 110 selected          nonprofit
              organizations       showed that        the Service         followed     its criteria
              for granting      reduced     third-class         rates.        We could     not deter-
              mine,    however,    how many applications               r’or reduced      rates    were
              denied     by the Baltimore        Center      and subsequently           approved     at
              the Postal      Headquarters.
                         The results          of our work      are    discussed            in    greater    detail
              in      the following           sections.

creatinc~        tne United         States       Postal      Service      states       that     the
responsibility             for establishing               classes     of mail and setting
appropriate           rates     for their          delivery       and transportation                is
vested       with     the ?ostal          Service       Eoarci of Governors.                 Under
this     author ityr         certain        categories         of nonprofit          organizations,
when approl.ed p are permitted                      to mail at reduced               second-        and
third-clacs           postage       rai’ies.       The reduced        rates      for     third-class
bulk nonprofit             postage        are about one -third              the rate         for reg-
ular     third-class          mail.          (See app. 1.) TLe Postal                  Serli;e
estimated          that    revenue        foregone        1/ in fiscal         year 1976 <or
third-class           bulk reduced            rate    mailings       amounted        to about
$293 million.              This znount           was included         in the Service’s
.rievenue Foregone            Appropriations              for riscal        year 1976.

        The Postal    Service requirements        and procedures                           for
application     for and approval      of reduced     third-class                           rates       are
published    in the Postal    Service     Hanual.      To qualify,                           an
organization      must
        --not   be organized      for profit.
        --not  have any net income benefiting         private                           stockholders
           or individuals,       and
        --meet   the definitions      for one of the eight                            categories
           of organizations       set forth   in the Manual.

        The definitions             of the eight          kinds     of organizations
that    may qualify         (religious,         educational,            scientific.
philanthropic,          agricultural,           labor3        veterans,         and fraternal]
are described         in the Service            Hanual.           The Hanual          alto    contains
the provision         that      organizations.            although         properly        defined
in any of the first               four nonprofit            categories           (religious,
educational,        scientific,          philanthropic),              will      not qualify         if
a substantial         part      of their       activity         is politically             related.
Appendix       II lists       ewmples       of organizations                 that     may and those
that    may not qualify             ior reduced         third-class            postal      rates.

l/Revenue   foregone   refers                 to the amount appropriated       amually
To the Service     by Congress                  as reimbursement   for revenue    not
recxived  by it in providing                     certain   postal services   at reduced

          The Festal          Service      requires        an applicant        to cubmis,
cv ide:-kce cfiowing           the:    the organization            is nonprofit        and,
if 2vc?ilable           * a certificate            of Fxesption        fron    Federal
iTiCGiZfZ    t2X.      The Festal Service also suggests                      the ap~PiP;llt
      .*     eviri~non,
                    .d_        such as a cozy of the oraanization’s                       charter,
constitution,             bylaws,      bulletins,          or progress*        as proof     of
eh.igibiLity           for reduced         ?ostal       rates.     %hen a~ organization
submits        proof      it has received             income tax exerr.ption         I?ndcr
26 u.s.c,           501(c)(3),        (5).     (81, or (191,         it will      be considered
as qualifyir,g            for special          third-class       rates      unless   some other
evidence          discloses       some basis          for disqualificat;on.
(See app, III.)

        To determine         whether       the Postal        Service      followed       its
criteria      for granting       reduced third-class      rates,     we seiected
(1) 100 organizations            randomly     from the 1,841 nonprofit
organizations        approved      since   1952 and authorized       to deposit
third-class       reduced     rate mail at the Baltimore          Post Office
and (2) the LO largest             volume nonprofit    organizations       mailing
from Baltimore         dcring    1976.    (See app. IV for a list       of
selected      organiza+ions,)
         Eased on the information                contained      in the organizations'
individual          files,     all the organizations            meet the Service’s
criteria       for reduced         third-class       rates.       None of the files
contained        any disqualifying            evidence.        Records at the
Baltimore        Post Office         showed that 70 organizations            received
tax    exemptions          from the Internal         Revenue Service and 59
organizations            submitted      charters     or bylaws as evidence of
their     eligibility          for reduced postal           rates.
       The PostaP Service uses a Hailing          Fee Notice as its
primary method to insure continuing          eligibility         of nonprofit
organizations     authorized   to use special       reduced third-class
bulk rates.      A12 mailers   are annually      required      to complete
and sign the Wailing Fee Notice and to remit a fee (currently
$40) for the privilege       of using a bulk meter,           permit    imprint,
or Frecanceled     stamp permits.       The Notice includes          a question
as to whether the purpose,        function,    and nonprofit         status of
the organization      and the exempticn     status       for Federal tax
purposes have changed during the preceding                 12 months.      If an

organization         indicates     that      such a change          has   occurreds        it
must provide         an explanation          of the chanqe.

           The Posta!.   Service      also    relies  on custcmer        conplaints,
inspection          of mailings      by rccervinq     clerks*      and quality
control       tests    of processed        mail to insure      revenue      Fjrotectioit
and cozq31. iance with          requirements.        Baltimore      Post Office
OffiCiCilS       advised     us that     no records     were maintained          at
Baltimore        on i,roblens      or abuse of reduced         third-class         rates.
        Our samlIe of 110 nonprofit                   organizations           included
3& who mailed          at reduced thirti-class               rates     during      1976.
Baltimore       Post Cffice         records      showed that         a13 48 had paid
the required         mailing      fee;    however,       22 iailed        to zespond
to the questions            as to whetter         the organizations’               function
had changed during             the year.         The other         58 mailers        answered
that    thsre     were no changes           in the nonprofit            status       during
the period e Baltimore                Post Office        officials        advised       us that
their     primary      concern      had been with         the receipt           of the fee.
As a result        of c’ut inquiry,           the Baltimore          Post Office
established        followup       procedures        to insure        the completeness
of returned        notices.
       The Baltimore    Post Office      retains  those applications
for  reduced third-class       rates which are ultimately        denied.
There is no separate      accounting       for appeals that are approved
at hsadquarters.       The files    of organizations      with successful
appeals are incorporated        with the files      of all other
authorized   nonprofit    organizations.
       Our review showed that 32 rejected                applications       were
on file    at Baltimore     covering      the ;?eriod      I.979 to 1976.
Only two of these applicants            had appealed to Postal Service
Headquarters.       Their appeals were denied.                 The resulting
denial    decisions    for both applicants          indicate      that the
organization     s w*re classified        by the Internal         Revenue
Service as civic       leagues,     under 26 U.S,C. SOP(c)[Q),              and
as such did not qualify         fo, r third-class        reduced rates
under Postal Service criteria.

                (June 21. 1975,     tc September   ?O, 1976)
                            Per-                    Per-                Per-
                Revenue     cent       Pieces      cent      Pounds     cei-it
   cial       $20,3;8,146     87     206,130,629     56    47,577.130    79
   profit       2,973,411     13     159.970.308     44    12.563.008    2
      Total   $23,251,557            366.100.937                        100
                                                   Z100    60.140.138
               a-            100

                     THIRD-CLASS POSTAL FGITES

          Examples   ef Orsanizati~ns       That Msy Qualify
Mason5                                         Mosques
Knights of Columbus                            Museums
Elks                                           zoos
College fraternities                           Planetariums        .
Churches                                       Symphony orchestras
Synagogues                                     Employee associations

     ExsmDles of Oroanizations          That Pray Not QudlifJ!
Automobile    clubs                            Professional    associations
Business leagues                               Service clubs:
Chambers of comm@Kce                                Civitan
Citizens'   an4 civic                               Kiwanis
   improvement    associations                      Optimist
Individuals                                          RotaKy
Mun;cipal,    counky. or State                 Social and hobby clubs
   governmental     bodies                     Rural electric
Mutual insurance      associations                cooperatives
Political   organizations                      Trade associations



APPENDIX 114                                                                APPENDIX III

PRS                                                                    Postal          Service
!?Y?,mc )      Twe       or nature   of orqanization                 nopinrofit         categorq
     1         Instcumentalities          of U.S.
     2         Title     holding   corporation        for
                   exempt organization                                  I
     3         Relioious,       ducationah,       charitable,
                   scientific,     literary,      public
                 - safety p SPCA                                            R, E,      S,   P
     4         Civil     leagues,     social  welfare,                         *
                   local employees association
     5         Labor, agricultural,          horticultural
                  organizations                                             L,   A
     6         Business      leagues,      chambers      of
                  commerce,        real estate      boards
     7         Social    and recreation          clubs
     8         Fraternal       beneficiary       societies
                  and associations                                          F
     9         Voluntary       employees’      beneficiary
 10            Domestic      fraternal      societies       and
 11            Teachers’       retirement      fupld aSSOciatiOR
 12           Benevolent      insurance      associations,
                 mutual ditch or irrigation             companies
              Cemetery companies
  ;a          State   chartered      credit    unions,      mutual
  15          Mutual    insurance      companies
 16         . Cooperative       organiaatioa      to finance
                 c*.op operations
 17       ** Supplemental        unemployment       benefit
               Employees@ funded     pension          trusts
               Posts or organizatPons        of       war
                 veterans                                                   w
Nonprofit             cateqories
R-       Religion                     P-    PhflaRthropfc                   V-       Veterans      [I,$
E-       Edueationrl                  A-    Agricultural                    F-       Fraternal     1-1
S-       Scientific                   L-    Labor

           Random Sample of A~uroved            Organizations
                     Name                                                (note a)
AFGE Local 23113 (American Federation                    of
   Government Enl~loyees)                                                   L
Ahtrua Gurild, Inc.                                                         P
American Cheaical. Society                                                  S
American Heart Association,                 Inc.                            S
American Psychological             Association                              E
Amicable Lodge, t25 W,F. and A.M.                                           F
Art?ns Players,        Inc.                                                 E
Association       of the Hiracu%ous Medal                                   R
Baltimore      Building      and Construction          Trade Council        L
Baltimore      City Lodge #3 Fraternal              Order of Police         F
Baltimore      6‘ounty Lodge f-4 Fraternal             Order of Police      F
Baltimore      Beritage.      Inc.                                          E
Baltimore      Ostomy Association,             Inc.             a           E
Baltimore      Urban Coalition,           Inc.                              E
Betty Berkowich Fund for Cancer                                             P
Bishop Neumann Council 425421 Knights of Columbus                           F
Boys Town of &xyland                                                        E
Private    Wm. J. Buhl 3217 Veterans of Foreign Wars                        V
Cardinal     Gibbons Council $2521 Knights of Columbus                      F            '
Catholic     Bigh School of Baltimore                                       E
Center for Community Organization                                         . E
Chesapeake College                                                          E
Christ    Episcopal       Church                                            R
Chtistus     Victor      Evangelical        Lutheran,Church                 R
Church of the Boly Apostles                                                 R
Citizens     for Washington         Bill,      Inc.                         E
Commission on Chronic Illness                                               E        *
Contact Baltimore           Teleministries                                  R
Danish Seamens Ourch of Baltimore,                     Inc.                 R
Dumbarten Junior High School                                                E
East Baltimore         Church of God                                        R
Edith Rosen Strauss Organization.                   Inc.                    P
English     Speaking Union of Maryland                                      E
Evangelical       Luth$rran Church of Our Savior                            R
z/See   page 12.
                                                                      APPENDIX    IV

                                                                          Yonprof it
                                                                          (note    a)
Fedar;;l     ;.aw Enforcement           Loo;e 2 Fraternal     Order
    of Police                                                                    F
First      English     Even. Lutheran          Churcfr                           l-4
Franklin       Stseet      Presbyterian        Church                            R
General      John Stricker          Junior     High School.                      E
Grace Bible          Baptist    Church                                           a
Greater      Baltimore        Medical Center                                     S
Hamilton        Presbyterian        Church                                       R
Hebrew Noble Ladies             Society      of Baltimore,    Inc.               E
Holy Nstivity          Lutheran       Church                                .    R
Hungarian        Freedom Fighters           Federation                           E
Institutes         of Religion        end Health                                 R
Israel      Baptist      Church     of 3altimore       City                      R
Yohn Hopkins          Lung Project                                               S
Junior      Board of Union Hospital
The Xorean Presbyterian                 Church                                   E
The Lewis and Harriet               Lederer Foundation,       Inc.               a
Linden      Heights Methodist          Church                                    R
Lovely      Lane Methodist                                                       R
Lutheran      Social     Services   of Maryland                                  R
Mars Hill      Baptist      Church                                               R
Maryland      ChildZen’s       Aid Society                                       P
Maryland      English     Journal                                                E
Maryland      Public     Health     Association                                  S
Maryland      State     Firemen's     Association                                P
Memorial      Church     (Episcopal)                                             R
Metropolitan       Senior Citizen5        Center,   Inc.                         B
Monroe Street Methodist            Church                                        a
Mt. Olivet      Christian     Church                                             w
National     Bird Watching        Society                                        E
National     Rifle Association                                                   E
Newman Bookstore         of Baltimore                                            R
Northwest     Health Services,         Inc.                                      P
Operation     H.E.L.P.,      Inc.                                                R
Our Lady of Victory          Homes of Charity                                    R
Parent Teacher Guild of the Catholic                High School
   of Baltimore                                                                  E
Patapsco United Methodist             Church                                     w
Philadelphia       Baptist    Convention,      Inc.                              R
Polynesian       Youth Crusade                                                   R
Randall St. Christian           Church                                           R
Rockefeller       University      Press                                          s
St. Agnes Council 84449 Knights of Columbus                                      F
St.-Benedict       Church                                                        R
St. Francis       Xavier Catholic        Church                                  R
St. Johns The Evangelist             Church                                      R
St. Mathews Lutheran Church                                                      R
g/See      page 12.
~BPENDIX IV                                                         APPFYDPX
                                                                        .    IV
                                                                          N@r;pEOfi    c,
                      -u_ n e                                        (note
                                                                      ---     a)
St. bukes's Church                                                         t)
St. Pauh*S Lutheran Church                                                 ii
St, Thomas F!ore Church                                                    R
Santa Cls;is Anonymotls                                                    P
Self Eelp, Inc.                                                            B
Shrine of the F>cred Heart                                                 R
so'2 iety for Technical               Communications                       E
Stra$gbf-;dcc. .sl:rina Associations                                       R
Tecpm.Fters - ,:a1 %r..'.:,n if311                                         b
Toastyyzss         ; Intcrnakional        District   18                 . E
Trinirsr:            IT--'-*i=r~
                       .<                                                  R
unicl:i .-e-L i                0,rta.l.                                    P
trnitecr .;.~' ci. . 'ddgdi ansldtilte                                     E
University*       or ;.:tesburgh                                           E
P,TatCh%OW@iT     Bible and Tra+z'. Society                                R
xestside       Church OE Christ                                            R
~omn's        Auxiliary        of Hercy Hospital                           P
Yeshiva Shearitk              Hapleita                                     E
AUW, Inc.                                                                , E
Alumnae Association               College OL &~otre Dame of Maryland       E
American Cancer Society                                                    P
         &seal   Service rbvei?ue for 100 erg-.iizations
           (January P t.z~ Deeemher 31. 1976)                             $35,857.52
                             Large ;t Volume Organizations
                                          Nor.profit            (January 1 to
                                          category           October 31, 1976)
~allstirte         Fathers                    R                 $649;511.51
Korean Relief,      Inc.                      E                     89.080.90
Trinity    Mission                            R                     65,285.X
Holy Trinity      Fathers                     R                     34,187.45
World'Mercy      Fund                         R                     27.957.56
Jesuit    Seminary Gl;ilB                     E                     ' 8,051.90
Washington Cathedral                                                  7,286.3-I
The Cmferexxe       Board                     s"                      6.669.85
Missionhurst                                  R                       4p590.78
Augcstinian      Recollect
   Fathers                                    R                     4.279.77
                                                                589b , 303 34  l

@kxqro~it               categories
    R-       Religion                P-      Philanthropic     V-    7eter;fns
    E-       Educational             a-      Agricultural      F-    Frsizrnal
    s-       Science                 L-      Labor