April 2015

Federal

INTERNAL REVENUE SERVICE (IRS).
The Department of Justice has announced it will not prosecute Lois Lerner, the former IRS official in charge of the Tax Exempt Organizations Division, for her refusal to testify before Congress.

1023-EZ UNDER ATTACK.
Earlier this month, the New York Times ran an article listing the concerns from different quarters over the Internal Revenue Service’s more streamlined approach  to obtain tax-exempt status.  A representative of the National Association of State Charity Officials is quoted as saying that the process will create even more nonprofits, which will strain already overburdened regulators.  The CEO of the National Council of 
Nonprofits noted that in some places  it takes longer to get a library card than to get tax-exempt status.  The criticism, in large part, is based on the fact the streamlined application does no inquiry or screening on issues concerning governance, transparency, conflict of interest, and other considerations.  So far 95% of all Form  2013-EZ applications have been approved.

Items of Interest

CHARITY NAVIGATOR MAKES CHANGE.
Ken Burger has led this “private watchdog” agency since 2008.  We were all surprised to learn that the agency and Ken Burger separated ways at the end of March.  Few explanations were forthcoming concerning the separation.  The agency indicated that it was changing its focus more to technology, which necessitated the change.  
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The California Association of Nonprofits is asking the “watchdog” organization to broaden its search for a new CEO in order to find someone with a wide range of experience in nonprofit work.  The Association joins others in asking those who evaluate the overhead of charities to adopt a more realistic approach in their evaluations.

GROWTH IN THE NONPROFIT MOVEMENT.
The IRS recently announced that the agency approved 94,000 applications for tax-exempt status in 2014.  This is more than double the amount from 2013.  The agency credits the new streamline procedures for the increase.  There are currently more than 1,568,454 § 501(c)(3) charitable organizations in existence.

VOLUNTEER TIME.
What is the value of a volunteer’s time?  Independent Sector estimates it is $23.07 per hour for 2014.  This is a jump of 52 cents from 2013.

CANADA.
A union-backed charity that wants Canadian mining companies held accountable for overseas misdeeds is among the latest to be targeted by The Canada Revenue Agency (CRA)  for political activities.   The CRA has audited the charitable organization, but has yet to deliver its decision of whether it will revoke the organization’s charitable status.

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The Saskatchewan government said that “stripping” will be allowed once a year for charity at certain entertainment venues, but never for profit or at bars.

CHINA.
According to Reuters, a new draft law for charities to register with the government is in process.  It is believed it will make it easier for charities in China to raise funds and gain tax exemptions while addressing public fears about the way they are operated, following on the heels of several major high profile scandals.  China ranks 133 out of 135 countries rated by the World Giving Index, largely because of public mistrust of charities.

States

CALIFORNIA.
The sponsor of controversial Assembly Bill 556 held a discussion on the Bill on March 26, 2015, that included a representative from the Charitable Trusts Section of the Attorney General’s office and other interested parties.   The proposed Bill continues to undergo drafting changes.
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According to the Los Angels Times, Los Angeles County officials continue to fund a foster care nonprofit with millions of dollars in taxpayers’ money, even though investigations conducted by government officials repeatedly warned of problems with the organization, including allegations of financial misconduct and child abuse.  Criminal charges are pending against the directors of the organization accusing them of embezzling more than $460,000 of government funds.  (Comment: The  irony here is that at the same time the state is working on legislation to require more disclosures about participation of fundraising consultants who provide numerous services to charitable organizations, abuses like these continue to  be much more prevalent and  significant).

CONNECTICUT.
The attempt to make the University of Connecticut Foundation subject to the state’s Freedom of Information Act has died in the legislature.  (Comment:  The significance of the effort was to make an independent tax-exempt organization subject to the same requirements as state institutions.  After a hearing in committee, it was decided not to put the bill to a vote, which effectively killed the effort). 

FLORIDA.
The city of Palm Beach is considering amending its charitable solicitation code to allow more events and impose harsher penalties on individuals or  organizations that fail to obtain permits for those events.  For many years, Palm Beach has limited events per charity to two per year.  There is now some discussion of relaxing that restriction and allowing as many as three.  (Comment: Because charitable appeals are intertwined with advocacy and therefore entitled to  full speech protection, it is not likely that such a restrictive ordinance, if challenged, could survive).

MAINE.
The Governor has proposed a tax reform package that would all but eliminate the property tax exemptions for secular charities.
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In what may be the first case of its kind the state, a charity, United Mid-Coast Charities, will recover $4.6 million from its former president.  The charity brought a civil suit alleging embezzlement, and the case has now been settled.  The charity also settled its claim with the bank that allegedly allowed checks made payable to the charity to be deposited into a personal account.

MASSACHUSETTS.
The Boston Globe reported that a state initiative to encourage charitable donations is working.  The new Community Tax Credit offers a 50% credit to anyone who donates money to a community development corporation.  In 2014, the first year of the initiative, it is believed residents donated $4.8 million.

NEW JERSEY.
According to the New Jersey State Supreme Court, the doctrine of charitable immunity does not extend to injuries occurring on properties owned by nonprofit hospitals and their affiliates.

NEW YORK.
The head of a nonprofit that was dedicated to recovering abducted children was arrested by the FBI and has been charged with wire fraud.  The Manhattan  U.S. Attorney said that the defendant, “fed a pack of lies to desperate parents,” which convinced them to fund non-existent rescue missions.
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A real estate heir left a significant trust, whereby the income was to support the lifestyle of the grantor’s wife during her lifetime, and then her sister and husband upon her demise.  A corporate trustee allowed the last surviving family member to invade the corpus and spend more than $3.5 million on non-essential items including entertainment, hotels, etc.  Now the residuary beneficiary, United Jewish Appeal, is suing the trustee.    (Comment:  Obviously, there is more to the story than is set forth, but it opens the door to a very interesting case).
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The Office of the Attorney General has sued two Brooklyn charities and their trustees for mismanagement and seeks to put the charities into receivership.  The charities removed homeless and low income families from two brownstones so that they could be sold at an enormous profit.  The New York Post said the two organizations raked in at least $26 million in federal funding alone on top of city funding from the Department of Homeless Services.  The lawsuit alleges that some trustees gained personally from the real estate sale.  The allegations, so far, have been met with outright denial.

NORTH CAROLINA.
A legislator has found another way to increase income without raising taxes at the expense of the nonprofit industry.  In this case the state senators want the nonprofits to pay sales tax up to a certain point.  The North Carolina Center for Nonprofits issued a statement stating that, “tax reform should not be achieved at the expense of nonprofits, many of which struggle to meet the needs of the communities they serve.”  

OREGON.
The state has issued a notice of hearing on new rule making.  Among the proposals in the new rules is to implement Oregon’s statutes that deny state income tax deductions for donations to charities that do not meet certain efficiency standards, and to increase penalties from $1,000 to $2,000 for violation of charitable registration and reporting requirements.  The first hearing date is May 8, 2015.

PENNSYLVANIA.
An attempt to put to a vote a more restricted definition of charitable organizations for purposes of qualifying for tax-exempt status has apparently died in the House after gaining quick approval in the Senate.  

TEXAS.
Police in Austin are asking for the public’s help to locate whoever donated a human skull to a Goodwill thrift store.  The skull was not discovered until  employees started sifting through packages that were left.  The police have indicated the skull is that of an adult, but do not suspect foul play.

VERMONT.
Lawmakers in the state are looking for additional sources of income (no surprise).  They are targeting the nonprofit industry by proposing to raise part of that income by putting a new cap on the itemized deductions taken by some income tax filers.  Resident nonprofits are looking to the State Senate to reverse the cap that was passed by the House in late March.  Among those leading the charge against the change are representatives of the United Way, who point out that the nonprofit sector is being relied upon to provide services that government otherwise cannot provide.