February 2013

In this issue:

  • According to a recent Letter Ruling by the IRS, bylaws are not a requirement to obtain or maintain registration of tax-exemption. The Letter Ruling said that states may have different requirements and the nonprofit laws of the respective states should be consulted.
  • The Office of the Secretary of State of Georgia recently began refusing to process charitable organization and professional fundraiser applications without proof of U.S. citizenship of either the applicant or the persons that sign the form.
  • Sporting Kansas City has canceled its licensing agreement with Lance Armstrong’s charity “Livestrong,” which would have paid the cancer organization up to $7.5 million over six years.

Federal

CONGRESSIONAL ACTION.
H.R. 8 provides a two-year retroactive extension of the IRA Charitable Rollover provision which lapsed on December 31, 2012.

FEDERAL TRADE COMMISSION (FTC).
The FTC has issued its final rule amendments, updating regulations that implement the Children’s Online Privacy Protection Act (COPPA) Rule.  In large part, the update is being effected to keep pace with technological developments.

INTERNAL REVENUE SERVICE (IRS).
Final regulations regarding Type III supporting organizations have been issued and went into effect as of December 28, 2012.
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According to a recent Letter Ruling by the IRS, bylaws are not a requirement to obtain or maintain registration of tax-exemption.  The Letter Ruling said that states may have different requirements and the nonprofit laws of the respective states should be consulted.  (See INFO 2012-0064).
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Each year the IRS issues what is called a “Priority Guidance Plan.”  The Plan delineates the priorities for allocation of resources in areas which the agency wishes to develop or impact.  The Plan for 2013 focuses on such issues as clarification on deductibility, and providing additional guidance for supporting organizations, as well as some focus on donor-advised funds.

Office of Personnel Management (OPM).
The Office of Personnel Management is responsible for the administration of the Combined Federal Campaign (CFC).  According to the Washington Post, the agency is considering a new rule that would eliminate the use of cash, check and money order contributions.  The new rule will require that all donations be made electronically.  Critics have acknowledged that while the change could streamline the process, participants who are unfamiliar with such technology will be lost.  In support, the critics cite the fact that in 2011 - only 22% of the money pledged was donated electronically.

State

ALABAMA.
The Department of Revenue has updated a rule which lists the charitable organizations that are exempt from sales and use tax.  These exemptions were granted by a special act of the state legislature.

ALASKA.
Our office has received notice from the Department of Law that all documents related to paid solicitors should now be sent to the Anchorage office and not to the Juneau office.

ARIZONA.
House Bill 2457 alters some of the definitions in the state’s charitable solicitation law.  The changes do not appear to be substantive.  One provision that is substantive is to make violations of certain provisions of the law by a contracted fundraiser a Class 6 felony.
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The fall out with IRS and the Fiesta Bowl continues.  The former CEO has been ordered to make substantial restitution to the organization for expenses that were determined to be personal in nature.

FLORIDA.
Once again politicians and nonprofits are not mixing.  According to the Orlando Sentinel, a state-based public advocacy group charged that former Governor Jeb Bush’s educational foundation is “distorting democracy” by shaping state education policies to benefit its private corporate donors.

GEORGIA.
The Office of the Secretary of State of Georgia recently began refusing to process charitable organization and professional fundraiser applications without proof of U.S. citizenship of either the applicant or the persons that sign the form.  In support of this demand, the state cites a law that requires every agency or political subdivision in Georgia to verify the lawful presence in the United States of any applicant for “public benefits.”  Public benefit includes any business certificate, license or registration.

Comment: As applied, the law has the practical effect of violating the right of free speech of charities under the First Amendment to the United States Constitution.

HAWAII.
Legislation to restore a charitable deduction tax incentive in the state is under consideration.  Senate Bill 1091 would reverse steps taken by the legislature in 2011.  The Hawaii Alliance of Nonprofit Organizations is one of the many sponsors of the much-needed legislation.
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House Bill 790 has been introduced that would require commercial co-venturers to file notices prior to engaging in activity. Failure to do so is a fine of $20 per day up to a maximum of $1,000.

ILLINOIS.
House Bill 135 would reduce the penalty for late filings from $200 to $25.  Likewise, the penalty for a trustee or organization filing a late financial report would be reduced from $100 to $50.

KENTUCKY.
Legislation has been introduced in the state senate to amend the point-of-solicitation disclosures and to regulate disclosures placed on receptacles in public view.  If passed, clothing bin operations operated by professional solicitors would require the following statement, “Items donated here support, in part, a for-profit professional solicitor.”

MAINE.
The Maine Supreme Court heard argument on whether a nonprofit boarding school is exempt from property taxes on the income-generated uses of its facilities.  The focus is the rental of the facilities to outside groups.  (Hebron Academy v. Town of Hebron).

MICHIGAN.
New legislation has been passed which makes it clear that charities buying goods or services for the purpose of pursuing their mission are not subject to sales tax.

MISSISSIPPI.
Senate Bill 2787 would reenact the Mississippi Telephone Solicitation Act, as amended.  The Act does cover charitable solicitation activity.

MISSOURI.
Sporting Kansas City has canceled its licensing agreement with Lance Armstrong’s charity “Livestrong,” which would have paid the cancer organization up to $7.5 million over six years.
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The Kansas City Star ran an article in a Sunday issue voicing the thoughts of critics who say charities for hard-core homeless are doing more harm than good.  The essence of the complaints from critics is that it perpetuates life on the streets as compared to living in shelters.  Police have voiced concern that the homeless camps lead to unacceptable levels of trash, theft, and vandalism.  Some social service providers believe that handing out food and supplies on the streets undermines their work, which is to link the homeless with housing aid, job training and substance abuse treatment.

NEW MEXICO.
A New Mexico appellate court has held that the conservation of property can constitute a charitable use and qualify for a property tax exemption under state law.  The court stated in part, “There can be little question that conservation of land in its natural and undeveloped state generally benefits the public.”

NEW YORK.
Senate Bill 2156 was introduced in mid-January and creates a mechanism for certification of completion of certain courses.  The Act would amend the Executive Law as to provide for the issuance of a certificate of ethics course completion to professional fundraisers and charitable organizations who complete a course of instruction in the law on ethics of fundraising.  Those who complete the course would be entitled to note same on future applications.

Comment: Presumably this would be done to separate those who complete the course from those who do not.  There are a number of practical issues pertaining to the implementation if this legislation is passed, to-wit: Who would be the teacher? Who would decide what constitutes a complete course to qualify for certification?  Where would these courses be offered?  Would applicants have to appear in person or could it be accomplished online?  Would this process unduly favor those who are in close proximity to physical locations where the courses are offered, as compared to those who are not able to access?

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A plan to build an Islamic community center near the World Trade Center just became more controversial.  A donor has filed a lawsuit claiming the Inman has used millions of dollars for his own personal use.

NORTH DAKOTA.
House Bill 1404 would exempt from sales tax the gross receipts from sales made by a thrift store owned and operated by a nonprofit corporation that is otherwise exempt from federal income taxation under § 501(c)(3) of the Internal Revenue Code.

OREGON.
House Bill 2060 has been introduced which will allow the Oregon Attorney General to issue an order disqualifying a charitable organization from receiving contributions that are deductible for the purposes of the state income tax and corporate excise tax, if the attorney general finds the organization has failed to expend at least thirty percent of its total annual functional expenses on program services when the expenses are averaged over the most recent three fiscal years.  The bill also gives the attorney general discretion not to issue the disqualification if mitigating circumstances exist.

Comment: This is not the first time this bill has been introduced in Oregon.  The last time it was defeated by a coalition of nonprofits in the state.  It is not a good bill for a number of reasons, not the least of which is the subjective power it places in the hands of the attorney general when dealing with otherwise protected freedoms under the First Amendment.

PENNSYLVANIA.
Senate Bill 116 is a complete restatement of the Commonwealth’s charitable solicitation law.  One change of note is that charities will be given a 10-day right of contract cancellation without penalty.  The bill also restates point-of-solicitation disclosures requirements.
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House Bill 247 would create additional exemptions to charitable registration requirements.  The focus is youth athletic organizations and volunteer firemen organizations that do not use professional fundraisers to raise money.
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House Bill 359 would restate the deadline for filing reports.
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House Bill 416 would require the Office of the Secretary of State to develop an electronic filing system for documents and information required to be filed with the Department of State, to be operational no later than January 1, 2015.

SOUTH CAROLINA.
House Bill 3367 amends the charitable solicitation law pertaining to definitions and incorporates a registration requirement for commercial co-venturers.  The bill would also require professional solicitors to provide additional information as part of the filing process.

TENNESSEE.
The legal counsel for the Division of Charitable Solicitation and Gaming is Marnie Huff.

Other

GIFTS-IN-KIND.
Operation Compassion Church Relief Group is considering lowering the value of its gifts-in-kind over the last four years by more than $250 million after an article appeared in Forbes magazine alleging discrepancies and problems with valuations.

INDUSTRY NEWS.
Blackbaud, a major force in making fundraising software for the industry, recently announced layoffs of one hundred fifty of its personnel.  Marc Chardon, the CEO, has announced that he will be stepping down either by the end of 2013, or upon the announcement of his retirement.