In this issue:
- IRS: In 2011, it appears there will be more scrutiny of the tax-exempt community by the IRS.
- Michigan: Senate Bill 1528 has passed both Houses and is expected to be signed into law.
- According to a study done by OneStar Foundation at John Hopkins University, 400,000 Texans worked for nonprofits in 2008, with earnings of over $16.8 billion.
INTERNAL REVENUE SERVICE (IRS).
The IRS announced that Robert Choi and Roberta Zarin will be leaving the Exempt Organizations Division to assume new positions inside the agency. Holly Paz will serve as Acting Director of EO Rulings & Agreements, beginning in January 2011.
* * * * *
In 2011, it appears there will be more scrutiny of the tax-exempt community by the IRS. According to the IRS 2011 Continuing Professional Education Plan, among the areas highlighted is compliance with employment taxes, with particular emphasis on W-2s and filing the Form 941. Likewise, loans to officers, directors and key employees will also be subject to increased scrutiny. The IRS’ concern over governance issues will now expand to § 501(c)(4) organizations. According to published figures, the IRS issued 366 rulings and agreements, and conducted 549 examinations.
* * * * *
The new IRS Form 990, Part VI, asks about governance policies. One of the changes is a clarification on Line 2 asking about related party transactions. The instructions will now clarify that the filer should answer “yes” only if the relationships are between current, not former, personnel.
SENATE FINANCE COMMITTEE.
On January 6, 2011 the Committee’s staff released a review of the activities and practices of six media-based ministries. The review from staff contains a summary of findings. Senator Charles Grassley (R-IA) was quoted as saying, “These staff reviews set the stage for a comprehensive discussion among churches and religious organizations. I look forward to helping facilitate this dialogue and fostering an environment for self-reform within the community.” In response to the report that came about as the result of a three-year investigation, the Evangelical Council for Financial Accountability has set up a commission to study some of the issues raised, which include whether religious organizations, such as those studied by the Committee, should be required to file a Form 990.
UNITED STATES POSTAL SERVICES (USPS).
Oral argument is now set for March 15, 2011, on the appeal by the USPS resulting from the refusal of the Postal Regulatory Commission to approve an exigent rate increase. (Editorial Note: Assuming the USPS loses the appeal, what then will be its strategy for an increase, given these recessionary times?)
* * * * *
A public forum was conducted by the Postal Regulatory Commission on January 11, 2011 to receive comments on the state of current laws and policies, and for recommendations on improvement. The PRC is required to make a report every five years to Congress.
New Governor Dan Malloy has created a cabinet-level position to represent the interests of nonprofits. The title of the new position is “Community Nonprofit Human Services Cabinet.” This is a step which the Connecticut Association of Nonprofits has advocated for some time.
DISTRICT OF COLUMBIA.
The Washington Post reported that a major grocery store chain restricted the number of hours that charitable groups could operate in front of the stores. As a result, the Salvation Army said its receipts were down 25% from last year. No doubt the economy is partly to blame, but the decreased exposure also contributed.
Governor-Elect Brownback wanted the excess proceeds left over from his inaugural ball to go to charity, but a state law prevents it. Under state law, money left goes to the state to pay for the cost of the formal proceedings. The incoming governor plans to go to the legislature to try and change the law.
The state has announced that nearly $325,000 has been raised by state workers and retirees to benefit charities in Maine and beyond. The state employee combined charitable appeal is designed to benefit 500 charities.
* * * * *
The Maine Association of Nonprofits has issued a report noting that nonprofits employ one in seven workers, making the sector the second largest employer in the state, trailing only retail.
The website of the Attorney General’s Office has released a report on professional solicitations for charities in 2009 in the Commonwealth. Overall the report found that charities received 43% of the proceeds from charitable campaigns. The website has complete listings as well as suggestions to charitable donors.
* * * * *
The Boston Globe has reported the results of a two-year study by a mayoral task force to determine what the contribution should be by Boston’s many nonprofit organizations for basic services. Starting in July 2011, hospitals, universities, museums, and major nonprofits will be asked to contribute to help the city pay for police, fire, and other basic city services.
* * * * *
The Attorney General’s Office has entered into an agreement with a local charitable organization that provides hospital flights for sick patients. In January 2010, the Boston Globe reported that the founder of the organization summarily fired the board of directors over a dispute involving the hiring of the founder’s daughter for a salary of $80,000. Under the agreement, the organization will have an independent board of directors. It will also be required to comply with other good governance practices.
Senate Bill 1528 has passed both Houses and is expected to be signed into law. The bill, as previously reported, will give additional rights of supervision to the Attorney General over charitable solicitation activity in the state. (For more details contact our firm.)
Local Jewish charities in the Minneapolis/ St. Paul area are defendants in “claw back” lawsuits brought by the Trustee in the Madoff scandal. These lawsuits seek to recover fictitious profits, but threaten the viability of a number of local family foundations.
* * * * *
According to the most recent Minnesota Nonprofit Economy Report issued by the Minnesota Council on Nonprofits, nearly one-half of Minnesota’s nonprofits reported an operating deficit in 2009.
The Division of Taxation has published an opinion that there is no provision in state law for the deduction of a car donated to a charitable organization.
The New York Association for Retarded Children has been successful in two separate state actions where affiliates tried to leave the organization and keep their assets. The basis for the court rulings were the bylaws and articles of incorporation pertaining to the relationship between the primary organization and its affiliates. These cases are an important reminder that when creating chapters or affiliates, authority must be vested in the proper place in order to maintain control in ownership of funds and assets that are created at the local level.
* * * * *
A charitable foundation has sued the principals and the accountant of the North Hills Fund, who allegedly assisted the convicted fund manager in defrauding the foundation and the trustees of more than $9.75 million. (Editorial Note: Here again is an example of a Ponzi scheme in which charitable foundations were victims.)
* * * * *
Federal charges have been brought against the executive director of a state-funded community organization with strong ties to a veteran assemblyman, who allegedly lied to federal authorities investigating the nonprofit’s finances. The charges accuse the defendant of producing falsified records in response to a grand jury inquiry into payments received from the organization, which receives government grants.
SB 2137 was introduced January 5, 2011, which would add a sales and use tax exemption for gross receipts from sales by thrift stores owned and operated by nonprofit corporations tax-exempt under § 501(c)(3) of the Internal Revenue Code.
The Tulsa World reported that the Tulsa Community Foundation, in an unusual move, donated almost $1 million to Oklahoma City government to help underwrite the cost of public works and enhancement projects. (Editorial Note: Most community foundations purposely avoid donations in the public sector, but in this instance, the Foundation’s head said, “That lessening the burden of government was a charitable activity.”)
* * * * *
The saga of Feed the Children continues. Larry Jones’ spouse, Frances, has reached an agreement to terminate her employment contract of $200,000 per year, and has left the organization. Her last day was December 31, 2010. On December 19, 2010, her son, Alan, committed suicide. He had been sued by the organization and subsequently declared bankruptcy.
Federal indictments have been issued to a Texas couple and the head of an Oregon charity which, for nine years, allegedly secretly sent millions of dollars to an Iranian bank and to a contact in Iran. The charity, Child Foundation, allegedly funneled money that was meant for food and other assistance to the cousin of the director of the charity, who ran an organization in Iran.
According to a study done by OneStar Foundation at John Hopkins University, 400,000 Texans worked for nonprofits in 2008, with earnings of over $16.8 billion. Those earnings exceeded the payroll of workers in state government, as well as other major industries located in the state. Nonprofit employees, the study said, paid $1.6 billion in state and local taxes.
* * * * *
A number of charities in the Dallas area have acquired Super Bowl tickets through independent commercial vendors and packaged them into a raffle. The Dallas Morning News reported that Catholic Charities is selling up to 2,000 raffle tickets at $50 per ticket as a fundraiser. The value of the prize is nearly $7,000.
The Institute for Wisconsin’s Future issued a report on December 21, 2010, stating that lawmakers could raise additional property tax revenue, or lower the tax burden on families, by reducing the number of exemptions granted to tax-exempt organizations. According to the report, exemptions are costing the state approximately $700 million dollars annually. Another suggestion made by the report was that the state ask tax-exempt organizations to make payments in lieu of taxes.
According to the annual report provided by Giving USA, in 2009 Americans donated $303.75 billion, which is 2.1% of the gross domestic product.
NATIONAL TAX ADVOCATE.
Each year the nation’s National Taxpayer Advocate, Nina Olson, reports to Congress. This year her report advocated a change on the statute of limitations regarding revocations. Ms. Olson recommended that Congress create a statute of limitations on revocation of a charities exemption that would run concurrently with the limitation on assessment.
THE PEPSI CHALLENGE.
The company’s online fund-raising contest that features a $20 million giveaway for charitable causes is now once again facing charges that the system is being abused. The New York Times reported that nonprofit groups are saying that recent winners used, “A mysterious service to propel themselves into the winning ranks. . .”. This is in direct violation of the sponsor’s ban on proxy voting, and votes from international sites. (Editorial Note: What started out to be worthwhile promotion to benefit charities has seemingly been significantly tarnished.)
The Canada Revenue agency is considering big changes in the way charities issue donation receipts, after internal probes found widespread problems. Agency officials may be proposing stricter rules because standard paper receipts are too easily faked, forged, or finessed to cheat the Federal Treasury out of millions in taxes.