December 2011

In this issue:

  • Congress has passed H.R. 674, which provides tax credit for hiring veterans. The IRS has made it clear that the opportunity to obtain the tax credit for hiring a veteran extends to and includes tax-exempt organizations.
  • The District of Columbia’s new nonprofit law goes into effect on January 1, 2012. Tax-exempt organizations domiciled in the D.C. area would be well advised to review their articles of incorporation and bylaws as to ensure compliance. (If you need guidance concerning the new nonprofit law, please feel free to contact us).
  • The Detroit Free Press reported that many people stuck with homes they cannot use, sell or maintain are now trying to unload them by making gifts to charitable organizations. As a result of the volume of offers, charities are developing stricter guidelines for acceptance.

Attorneys' Comments
Read additional comments related to this newsletter.


Federal

UNITED STATES POSTAL SERVICE.
In early December, the USPS announced plans to cut first class mail deliveries, starting as early as Spring, 2012.  Presumably this will save them billions of dollars, but causes great concern in the marketing industry.  The USPS is also proceeding with its appeal for the exigent postal increase.  The Direct Marketing Association has urged the USPS to withdraw its request.

VETERAN LEGISLATION.
Congress has passed H.R. 674, which provides tax credit for hiring veterans.  The IRS has made it clear that the opportunity to obtain the tax credit for hiring a veteran extends to and includes tax-exempt organizations.

State

CALIFORNIA.
The state has released a report on the activities of commercial fundraisers in California.  According to the report for-profit fundraisers raised $362.9 million in 2010, of which charitable organizations received approximately 45%.  This report represents an increase from the 2009 total of less than 43%.  The report is issued by the Registry of Charitable Trusts.

CONNECTICUT.
The money managers who shared a $250 million jackpot made good on their word.  A donation of $1 million was split among five veterans’ service organizations.

DISTRICT OF COLUMBIA.
The District of Columbia’s new nonprofit law goes into effect on January 1, 2012.  Tax-exempt organizations domiciled in the D.C. area would be well advised to review their articles of incorporation and bylaws as to ensure compliance.  While the intent of the law is to create more flexibility, it also imposes some specific standards.  (If you need guidance concerning the new nonprofit law, please feel free to contact us).

FLORIDA.
A technical correction to the disclosure requirements in the State of Florida has been proposed in a new bill that has been filed with the legislature.  It would change very slightly the written disclosure that is required to be made.  We will track the bill through the legislative process.

INDIANA.
The Indiana Department of Revenue has issued an opinion that all property owned by the National Football League and its affiliates, as well as its revenues, expenditures and transactions that are incurred in connection with the Super Bowl event scheduled to be played in Indianapolis will be exempt from state taxation for all purposes.

MICHIGAN.
The Detroit Free Press reported that many people stuck with homes they cannot use, sell or maintain are now trying to unload them by making gifts to charitable organizations.  As a result of the volume of offers, charities are developing stricter guidelines for acceptance.

Comment: The issue of accepting donated real estate by a charitable organization is a complicated one.  There are a number of factors to consider, including without limitation: (1) the status of the title; (2) liens or encumbrances; (3) real estate taxes due; (4) environmental impact concerns; and (5) the ability to liquidate the property if it is not part of the program service of the charitable organization.  There are also other considerations, such as the necessity of obtaining an appraisal and the revision of the contribution if the property is sold by the charity for a lesser amount in specified period of time.

NEVADA.
According to a published report, some Las Vegas charities have started asking families to show identification cards in order to get toys, food and sustenance.  Charitable officials point to a long history of abuse by families reselling donated bicycles and/or families getting several holiday turkeys.

NEW HAMPSHIRE.
The New Hampshire Supreme Court has ordered the state to pay more than $3.5 million to seven family services charities.  The decision resolved a seven-year dispute involving billing for residential care provided by the agencies.

NEW YORK.
A billionaire hedge fund manager has promised the 92nd Street Y in New York City that he will personally make up out of his own pocket any losses the organization suffers as a result of its investment in funds he manages, which could amount to $7 million.

Comment: Every charity should be so lucky.

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A settlement agreement has been reached with a telemarketing company that raised money for public safety groups in the state.  The state alleged, in a lawsuit filed in 2010, that the company engaged in misrepresentation and high pressure tactics.  As part of the settlement., the company will no longer be allowed to solicit charitable donations in the state.  The company has agreed to pay $1.2 million, and the principal of the company has agreed to $40,000.
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The New York Times reported that a federal jury declared a mistrial in the corruption case of a city councilman, who had been charged in an elaborate scheme to direct more than $1 million in New York City taxpayers’ money to a network of nonprofit organizations he controlled.  The state alleged that the groups were used to funnel more than $600,000 to family members of the defendant.  The U.S. Attorney announced he will retry the case.

OKLAHOMA.
Four major relief agencies in Oklahoma City have teamed up to create what they call “The Christmas Connection.”  The program will allow agencies to track individuals by names and dates of birth in order to prevent them from hopping from one agency to another.  So far out of 800 applications, nearly 10% in overlap has been discovered.  The goal is to make the system more efficient so that more families are helped.

PENNSYLVANIA.
The Department of State has named Michael L. Patterson as Director of the Bureau of Charitable Organizations.  Mr. Patterson previously served as Vice President of Operations for Alzheimer’s Disease and Related Disorders Association, and has an extensive background in accounting and finance in directing nonprofit organizations. 
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An auction owner in the Commonwealth has been charged with “operating and conspiring to operate a scheme to defraud charities who use the auto exchange to sell vehicles donated by private individuals for charitable purposes.”  The charges were brought by the U.S. Attorney’s Office for the Middle District of Pennsylvania.  The defendant allegedly created fictitious bills of sale, indicating that vehicles had been sold at less than the actual price and pocketing the difference.

TEXAS.
According to an article in an Austin newspaper, a Texas university professor has joined with several other faculty members to get a Dallas-based nonprofit group, which promotes a biblical review of creation of science, removed from the state-employee donation list of qualified organizations.

Other

COURT OPINIONS.
An appellate court upheld the dismissal of the exemption case brought by the Christian Coalition of Florida.  The organization sought a refund and a determination that it was entitled to exemption under § 501(c)(4) of the Internal Revenue Code.  The IRS had previously turned down the exemption application because it found the organization was not an advocacy organization, but was formed to intervene in elections.  The court agreed with the IRS that the case was moot because the refund sought by the organization had been previously granted.

DOMAIN NAME PROTEST.
An alliance of eighty-seven business groups and companies has been formed to protest January’s planned expansion of the twenty-two generic top-level domain names, such as “.com” and “.org” to an almost limitless number.  The complaint being that the move will force business and organizations to spend larger amounts of time and resources to protect their brands.

Comment: What initially seemed liked a good idea now does not seem so good.

LOWER ANNUITY RATES.
The American Council on Gift Annuities announces new suggested maximum annuity rates, effective January 1, 2012.  The new rates are 0.6% - 0.8% lower than the ones they replace at typical annuitant ages of 70 or above for immediate payment annuities.  The decrease is based, in large part, on the investment performance and the poor economy we have sustained.

MODEL PROTECTION OF CHARITABLE ASSETS ACT.
In July of this year, the Commissioners on Uniform State Laws voted to approve this Act.  It is now up to the individual states to adopt it.  The Act was, in large part, a subject of an article that appeared in a recent edition of the ABA Journal, giving both the pros and cons.  The Act gives state attorneys general jurisdiction to investigate charities to ensure their assets are being used in accordance with their mandates.  Most interestingly, it requires charities with more than $50,000 in assets in a state to register with the authorities in that state if the charity maintains it principal place of business in that jurisdiction.  In general, state regulators applaud the Act and supported its passage, while many in the industry have been critical that it will prove to be burdensome and subject to abuse.

NEW REPORT ON THE POTENTIAL OF ITEMIZED DEDUCTIONS.
The Center on Philanthropy of Indiana University prepared a study for Campbell & Co. on the potential impact of legislation that would cap itemized deductions.  Its conclusions were that it would have a disproportionate impact on the larger segment of individual charitable givers, to-wit: upper income families.  It also concluded that in the current economic status where funding is less, such a measure would further encumber the nonprofit movement in its attempt to meet its social responsibilities when clearly we are in a time of increased need.  Also recently, Bloomberg wrote an editorial on how ending the charitable tax deduction will hurt the poor the most.  The editorial stated in part, “The deductability of contributions affects peoples’ willingness to give.”

NEW YORK TIMES OPINION PIECE.
“Donor-advised funds are the fastest-growing charitable vehicle in the United States; they hold an estimated $25 billion.  There are twice as many as there are private foundations.”  The opinion piece, appearing in the New York Times, notes with concern the fact that many who contribute to donor-advised funds and get an immediate charitable deduction are not seeing those funds being directed within a reasonably short period of time to charitable recipients.  Indeed, many families use these kinds of funds to warehouse money to create a long-term legacy.  The editorial opines that new legislation should be pursued to require the use of those monies within a reasonably short period time, given the inability of government to take care of so many needs, and its over-reliance on the nonprofit community.

Comment: This is a subject we have opined on ourselves.  In reality, the donors are getting their tax deduction now, but the money is not getting to its ultimate destination for years, if not decades.

SENATOR GRASSLEY SPEAKS OUT.
Senator Charles E. Grassley (R-IA), leading voice of the Senate Finance Committee, has criticized the Treasury report on supporting organizations and donor -advised funds.  Among the points made are the age of data and the failure of the reports to focus on the many abuses he believes exist.

CANADA.
According to a report issued by Charity Intelligence Canada, an independent agency which launched its first of a kind search engine to help Canadians decide where to donate, nineteen of the country’s hundred largest charities did not release their full audited financial statements to the public, or to the new agency.  The new “watchdog” agency criticized the lack of transparency by nineteen that refused to provide the financial information. 

UNITED KINGDOM.
According to a published report, a survey by the Office of National Statistics found that a larger number of adults in the UK were making charitable contributions but, on average, their gift was slightly smaller.

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From the attorneys and staff, we wish everyone the very best for the holiday season.
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Commentary

The Fiesta Bowl and Tax-Exempt Status