February 2011

In this issue:

  • FTC asks for comments on potential rules modifications
  • Postal Regulatory Commission considers 5.6% exigent rate increase
  • IRS reports deductions for charitable contributions in 2006 actually declined when adjusted for inflation.
  • Washington HB 1485 has been introduced that would make substantial changes to the state’s charitable solicitation law.

Federal

FEDERAL TRADE COMMISSION (FTC).
The FTC has asked for written comments concerning the potential modification of the rules in the Telemarketing Sales Rule pertaining to caller identification. Our firm, on behalf of our client base, has responded with comments concerning some of the ideas proposed.  If you would like to see a copy of our comments, please contact Errol Copilevitz of this law firm at: ec@cckc-law.com.

INTERNAL REVENUE SERVICE (IRS).
The new Form 990 instructions have been amended and it now states that reportable revenue no longer includes donations of advertising or broadcast air time.  (Editorial Note: For many years there has been an issue as to whether public service announcements could be included on the Form 900 as income.  This clarifies the issue.  However, these donated services can still be included on the organizational financial statements, as well as the audit.  Consult your auditor on this change, if necessary.)

OVERSIGHT OF CHARITABLE ASSETS ACT.
This controversial bill was addressed by Mark Fitzgibbons, Esq. in a guest editorial that appeared in the Chronicle of Philanthropy.  The Act is currently in the drafting stage as a model Act, which would then be considered by the various states.  Mr. Fitzgibbons presented well reasoned opposition to the Act and the article is suggested reading. 

UNITED STATES POSTAL SERVICE (USPS).
The Affordable Mail Alliance, the Alliance of Nonprofit Mailers, and other mailer groups filed a legal brief on January 14, 2011, in support of the Postal Regulatory Commission’s decision to reject the proposed 5.6% exigent rate increase.  The case is pending before the United States Court of Appeals for the District of Columbia.  The court will hear arguments on March 15, 2011. 

State

CALIFORNIA.
Fines generated by a small California community’s red light cameras will be donated to local charities. 

DISTRICT OF COLUMBIA.
Hillcrest Children’s Center, funded by Congress for orphans of the War of 1812, have sued Gibralter Asset Management Group and its officers and attorneys, alleging they syphoned off more than $7.6 million for personal gain leaving the organization with $200. 

LOUISIANA.
The long fight by the descendants of Sophie Newcomb to acquire Tulane College to maintain a separate women’s school is apparently over.  A state court of appeals ruled that the university can go forward with its plan to use the endowment for women’s studies, but is not obligated to maintain a separate school for women only.  (Editorial Note: This case has a long and interesting history involving descendants of a Will more than 100 years later over the intended use of the endowment.)

MARYLAND.
The Washington Post reported that there are now fifteen “benefit corporations” that have been recognized under the new Maryland law.  The legal designation is intended for businesses which designate themselves as being socially conscious, with a commitment to same being a part of the charter.  Maryland is the only state to adopt this new concept.

MASSACHUSETTS.
An out going chief executive of a major medical center in the Boston area received up to $1.6 million in severance pay according to the Boston Globe.  His leaving was called a “negotiated departure” in which he was paid the equivalent of two years’ salary.  The hospital reported the amount would be reduced if he took another job. 

MISSISSIPPI.
SB 2581 has been introduced which would carve out an exemption from registration to solicit charitable contributions for charities that raise funds through bingo under the charitable bingo laws.  If a charity that conducts fundraising through bingo violates the state’s charitable bingo laws, then the organization would lose its exemption and would be required to register with the Mississippi Secretary of State’s Office to engage in charitable appeals.  (Editorial Note: The exemption is unclear as to whether charities that conduct fundraising through bingo and other means (i.e. mail, telefundraising) would be required to register.

MISSOURI.
A bankruptcy court in St. Louis held that a charitable gift annuity is excluded from a bankruptcy estate and cannot be reached by creditors.  The court ruled that the annuity qualified as a spendthrift trust under the Uniform Trust Code and therefore is excluded by state law.

NEBRASKA.
The United States District Court of Appeal for the Eighth Circuit unanimously affirmed the trial court decision in the lawsuit brought by Wounded Warrior Project against an organization that was then known as Wounded Warriors.  In the trial, the jury returned a verdict awarding the Wounded Warrior Project $1.695 million for unjust enrichment, unfair compensation and deceptive trade practices by the defendant.  (Editorial Note: Wounded Warrior Project was represented by Errol Copilevitz of our law firm working with the law firm of Kutak Rock in Omaha.  We believe the monetary award is the largest of its kind in the nonprofit community.  For more information contact Errol Copilevitz of this law firm.) 

NEW JERSEY.
According to a nonprofit writer with The Record, an analysis of 131 of northern New Jersey’s leading nonprofits showed that the compensation differential between female and male executives is as much as $40,000 on average.  The article said the discrepancy shows up across the board in both large and small organizations. 

OKLAHOMA.
Just when you think it could not get any worse, it has been reported that the Oklahoma Attorney General’s Office announced that it was conducting a criminal investigation into possible violations of the law during Larry Jones’ tenure as president of Feed the Children.

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On another note, according to the Oklahoman, Feed the Children and Larry Jones have settled their legal battle over his termination. 

OREGON.
House Bill 2930 has been introduced which provides that tax-exempt charitable organizations would be subject to corporate excise tax if an organization’s expenditures on its program service do not exceed 30% of the sum of charitable contributions and other income for the tax year.  If passed as written, the law will become effective on January 1, 2012.  (Editorial Note:  Here again, a form of tax is being imposed on speech.  If this ill-conceived legislation were to pass it would appear, at least to us, to be blatantly unconstitutional.  Tell everyone you know in the state to oppose such legislation.)

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New legislation has been introduce in the Senate which would allow the Attorney General to issue an order disqualifying charitable organizations from receiving contributions that are deductible for the purpose of the Oregon Income Tax Corporate Excise Tax if the Attorney General’s office finds that a charitable organization has failed to expend at least 30% of the total annual functional expenses on program.  The law would give the Attorney General the latitude to decline the disqualification under certain mitigating circumstances.  (Editorial Note: Giving an enforcement agency the discretion to determine what donations, based upon subjective standards will be deductible under state law would seem to raise a considerable number of constitutional issues.  Charitable organizations are urged to oppose this legislation.)

PENNSYLVANIA.
Tracy Boak has left her position as Director of the Bureau of Charitable Organizations, and has gone into private practice.  Congratulations to Tracy in her new position with our friends at Perlman and Perlman. 

SOUTH CAROLINA.
Bills to legalize charitable raffles will be considered by the state senate.

TEXAS.
The appeal filed by the Texas Attorney General resulting from our victory challenging the state’s new law imposing unconstitutional limitations on the appeal for public support pertaining to the use of unattended clothing bins, is scheduled for oral argument in the United States Court of Appeal for the Fifth Circuit on February 28, 201l in New Orleans.  The case will be argued by Errol Copilevitz, senior partner in the firm.

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The Dallas Morning News wrote a story last month targeting inefficiency found in the operations of local sports figures’ own charities. 

UTAH.
According to a report in the Salt Lake City Tribune, the executive director of the Community Foundation of Utah told state legislatures that the state’s nonprofit agencies are “running on empty,” and many are on the brink of collapse.  The report indicated that 46% of those surveyed had lost major funding since January.  The state has more than 5,000 registered public charities. 

VIRGINIA.
Senate Bill 1235 has been introduced to amend the Virginia Solicitation of Contributions Act, which currently exempts from the registration requirements veterans’ posts or veterans’ organizations that have been granted tax-exempt status under § 501(c)(19) of the Internal Revenue Code.  If passed, § 501(c)(19) veterans’ organization would be required to register to engage in charitable appeals in Virginia.

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Proposed legislation to fund several charitable initiatives in Virginia have run into a major roadblock.  The Virginia Attorney General has issued a legal opinion which opines the state’s Constitution does not permit giving state money to private charities.  Among those affected would be Virginia Special Olympics.

WASHINGTON.
HB 1485 has been introduced that would make substantial changes to the state’s charitable solicitation law.  More details will follow as the legislation progresses.  One of the proposed improvements is to mandate a period of time for review and approval of registrations.

WEST VIRGINIA.
If passed, HB 2055 would prohibit charitable organizations from soliciting contributions on public highways and prescribes penalties for violations.  A warning citation would be issued for the first violation with the charity’s name being forwarded to the West Virginia Secretary of State to investigate whether it is lawfully registered to engage in fundraising in the state.  The charity’s name would also be forwarded to the WV Department of Revenue to ensure compliance with the state’s tax laws.  A second offence would result in a misdemeanor upon conviction and the individual would be fined not less than $50, but no more than $500.  (Editorial Note: The law is under inclusive, e.g., if a person went on a public highway to ask for money to buy a new computer, this would not be a violation because it is not a solicitation for a charitable purpose.)

Other

CHRONICLE POLL.
According to a poll recently released by the Chronicle of Philanthropy, 35% of the charities polled said they were currently raising as much funds as they did prior to the onset of the recession.  (Editorial Note: Good news indeed.)


UNITED KINGDOM.
Britain’s government said it is considering plans to ask the public to donate to good causes each time they use an ATM.  Ministers confirmed they are consulting with banks on the idea, which is common in Columbia and Mexico, to allow customers to give money to charities when they withdraw cash or check their balance.

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According to a report issued by the British Forces News, a number of new charities set up to support the military in the United Kingdom has tripled each year since 2005.  There are now approximately 2,000 armed services fund-raising groups that have an estimated joint income of £800 million.