February 2012

In this issue:

  • The IRS released its fiscal 2012 exempt organization work plan this month.... One unusual note is the indication that organizations enjoying tax exempt status under § 501(c)(4) could receive a comprehensive questionnaire to ascertain whether their status is proper.
  • In Florida, organizations which receive more than two-thirds of their funding from the state may soon see a salary cap in place. A senate committee has voted to proceed with such legislation.
  • The New Hampshire state senate has produced a bill mandating that charitable organizations domiciled in the state send at least one board member to a training session, with a heavy focus on fiscal management and ethics.

Federal

CONGRESS.
In an interview with The Chronicle of Philanthropy, Congressman Charles Boustany, who heads a subcommittee of the Ways and Means Committee overseeing the IRS, said he is asking the IRS to step up enforcement and become more active in regulating tax-exempt organizations.

IRS
The agency released its fiscal 2012 exempt organization work plan this month.  The work plan clearly reflects the intention of the Service to use the information from the new IRS Form 990’s to make further inquiry in several designated areas.  One unusual note is the indication that organizations enjoying tax exempt status under § 501(c)(4) could receive a comprehensive questionnaire to ascertain whether their status is proper.

U.S. POSTAL SERVICE. (USPS).
According to the Alliance of Nonprofit Mailers, the USPS announced that contract negotiations with two key labor partners have come to an impasse.
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On January 20, 2012, The National Association of Letter Carriers announced their support for maintaining a delivery schedule that includes Saturdays.

State

CALIFORNIA.
A major charitable organization and a bank are the targets of a class action lawsuit, claiming that personal data from entrants in special events was obtained and distributed without the knowledge and consent of those involved.

COLORADO.
The introduction of House Bill 1117 would empower local government, in its discretion, to allow nonprofit and charitable organizations to solicit contributions from motorists for a maximum of five calendar days per year.

FLORIDA.
Organizations which receive more than two-thirds of their funding from the state may soon see a salary cap in place.  A senate committee has voted to proceed with such legislation.

IDAHO.
Senate Bill 1286 has been introduced to increase the amount of money charities operating bingo pay for administrative costs.

ILLINOIS.
A charity icon is closing its doors. The Hull House, founded by Jane Adams in 1889, announced it could no longer maintain operations.

Mississippi
As a result of a rule change, it is no longer necessary to file a commercial co-venture promotion agreement 30 days before institution of the promotion.  The rule now changes the time frame to 7 days and now contemplates arrangements that may last more than 1 year.

MISSOURI.
Legislation has been introduced to put veterans’ organizations that are tax-exempt under § 501(c)(19) parallel with other organizations operating under § 501(c)(3) when it involves zoning issues pertaining to resale facilities.

Comment: This was brought to our attention by a Missouri chapter of the Disabled American Veterans.  Rather than hiring a lobbyist, we wrote to every member of the Missouri House of Representatives and Senators pointing out the inequity and the problems with the statute.  We received a number of positive responses, and the legislation is now a reality and is expected to pass without opposition.


NEVADA.
A lawsuit has been filed in Las Vegas by the former executive director of Sunrise Children’s Foundation.  The Executive Director was recruited from the United Way, and relied upon representations as to the fiscal good health of the Foundation.  However, she discovered there were irregularities which posed serious threats.  When they were brought to the board she was ultimately fired, in spite of her two-year contract.  The lawsuit seeks damages for breach of contract, misrepresentation, fraud and other claims.

NEW HAMPSHIRE.
The state senate has produced a bill mandating that charitable organizations domiciled in the state send at least one board member to a training session, with a heavy focus on fiscal management and ethics.

Comment: If this law passes, it would be one of initial impression. The concept of requiring some additional education or qualification for charity executives is an intriguing one.  It is best done at the IRS level.  Errol Copilevitz of this law firm recently wrote an essay on the subject, which will appear in Dan Pollatta’s new book.

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House Bill 1625 has been introduced that is designed to clarify the responsibilities of fundraising consultants with reference to reporting to their charitable clients and the maintenance of records.

NEW YORK.
Victims of September 11th are expressing outrage at a severance package given to a former employee of one of the charities memorializing the tragedy.
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Assembly Bill 1279 has been introduced making it unlawful to solicit contributions or transfer funds to organizations that support terrorism.
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The Charities Bureau sent out electronic notices in January which will grant the same extensions given by the IRS for charities with filing dates in January or February.

OKLAHOMA.
A lawsuit was filed by country star, Garth Brooks, alleging a $500,000 donation he made to a medical center was conditioned upon the center placing his mother’s name on one of its buildings.  The center did not comply with his wish, claiming the gift was unconditional.  A settlement could not be reached and the case went to trial.  The jury found for Brooks and the court ordered the medical center to refund his donation.

Comment: Once again, problems of this nature can be avoided by memorializing any conditional or restricted donation in a written agreement.

PENNSYLVANIA.
According to the Washington Post, approximately ten years ago, Senator Rick Santorum launched a charity, Operation Good Neighbor, to improve the lives of low income residents in his home state.  The article goes on to accuse the organization of having spent most of its funds to run itself, including hundreds of thousands of dollars in fees for fundraising, administration, and office rental paid to Santorum’s political allies.  The paper also reported that many of the primary donors were businesses and industries seeking Santorum’s support in the Senate.

Comment:  Here again is another classic example of the possible misuse of tax-exempt status by a political figure seeking to do indirectly that which cannot be done directly.

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A former board member of the scandal-plagued The Second Mile Charity has sued the organization for the return of his $250,000 donation, which the charity no longer intends to use to build a recreation center.  The lawsuit, which was filed in Harrisburg, also names the Pennsylvania Attorney General.  The future of the organization remains in doubt.

TENNESSEE.
Senate Bill 3753 has been introduced that would require any charitable organization soliciting contributions or selling items using the name “veteran”  to provide no less than 25% of the proceeds to veterans’ organizations or direct assistance to veterans themselves.

Comment: Requiring some element of financial efficiency in fundraising ignores prior U.S. Supreme Court decisions and the reality that sometimes fundraising is conducted to acquire donors, educate, and create name recognition.  If this bill goes into law and is challenged, it would be deemed unconstitutional.

TEXAS
Governor Rick Perry has given $80,000 in tainted campaign donations to El Paso charities after the original donor was convicted of bribery and fraud.

VERMONT.
While not requiring registration, House Bill 730 would expand the amount of point-of-sale disclosures required to be made in charitable sales promotions.

Comment: The amount of detail required by this legislation would, in most instances, so burden the message of the seller as to encumber the entire process.  There are serious issues involving this form of compelled speech – it goes too far.

VIRGINIA.
The state announced a settlement with a telefunding agency that raised money for the United States Navy Veterans Association.  It is a compromise settlement with no finding of wrongdoing made in which the agency agreed to make some refunds and pay money to the state.  This case drew particular attention in Virginia because the current Virginia Attorney General had accepted donations from the organization which was later found not to be a legitimate organization.  The Attorney General donated the campaign contributions to another charity and did not participate in negotiations that resolved the matter.

Other

GIFTS-IN-KIND PENALTY.
A major aid organization has been sent a letter by the IRS assessing a $50,000 fine for over-valuating deworming medicine in 2008, with the alleged intention of misleading would-be donors.

Comment: The value of deworming medicines has been a frequent subject of debate.  Presumably, the allegations being that the medicines were bought for pennies in the international market, but some organizations then placed an American value of several dollars on them as if they had been bought in the United Sates.

POTENTIAL MERGER.
According to a report published in The New York Times, a major merger between Blackbaud and Convio may be in the works, which could be worth $275 million.  The companies are the leading suppliers of software to the nonprofit community.

THINGS LOOKING BETTER?
According to The Wall Street Journal and several major organizations, an increase in funding in the last half of 2011 was seen.  This has led to optimism that 2012 will be a better year for charities in general.

CANADA.
A massive class action lawsuit has been certified by an Ontario superior court judge.  The target of the lawsuit involves the issue whereby Canadians received worthless over-inflated tax receipts which Canada Revenue refused to accept.  Taxpayers who were informed by the agency that their deduction was worthless were then assessed outstanding tax and penalties.  More than 10,000 Canadians participated in what now is being called a “ scheme.”

CHINA.
It appears scandals over the misuse of funds are not unique to the Western Hemisphere.  The Red Cross Society of China has lost public trust over the posting of a 20-year old woman claiming to hold a senior position with the Red Cross demonstrating a lavish lifestyle.  The scandal went national, and many charities in the emerging nonprofit market in China felt a substantial loss of confidence, which resulted in an extremely large drop in the amount of donations received.

NORTHERN IRELAND.
The Charity Commission of Northern Ireland, established in November 2009, has issued a report noting the 100th inquiry the agency has received.  In categorizing the inquiries, the four leading areas of concern are: (1) poor governance; (2) poor financial control; (3) lack of transparency; and (4) the damage of disputes.