January 2013

In this issue:

  • The USPS has filed a new application to increase standard flat rates more than originally proposed. If accepted, new rates could be effective as early as January 27, 2013.
  • The NY Attorney General's Office has sent letters to 75 nonprofits that are involved in fundraising activities related to Hurricane Sandy in an effort to promote transparency and donor confidence, and to ensure the funds are being properly used.
  • We are pleased to announce that Kellie Mitchell has joined the firm. She attended Northwestern University Medill School of Journalism and recently graduated from University of Kansas School of Law.

Federal

INTERNAL REVENUE SERVICE (IRS).
The IRS will launch examinations of governance practices of hundreds of charities and social welfare organizations in 2013.  This announcement came at the Western Conference on Tax-Exempt Organizations, and was delivered by Holly Paz, one of the top officials in the agency’s tax-exempt section.  In her presentation, she indicated that two hundred charities and two hundred social welfare organizations would be examined during the coming year.  Ms. Paz also stated that other organizations may be subject to compensation arrangement examinations.

UNITED STATES POSTAL SERVICE (USPS).
A new application has been filed with the Postal Regulatory Commission (PRC) to increase standard flat rates more than originally proposed.  If the PRC accepts the proposed revised rate increases, new rates could be effective as early as January 27, 2013.

State

CALIFORNIA.
The California Attorney General’s Office has released a report that in 2011 commercial fundraisers in the state raised $338.5 million of which 51% went to the nonprofits they represented.  The report indicates an increase from 44.4% of the money raised that went to charities.
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New Senate Bill 1341 requires the Franchise Tax Board to mail a revocation exemption notice to a charitable corporation that has not filed a registration or report.  It also modifies tax payment requirements and provides a mechanism to reestablish the revoked exemption.

CONNECTICUT.
It did not take long for more than a dozen charities to appear to raise money for the shooting victims of the Stony Hook School tragedy.  Some of the organizations were specially created in response to the shooting.  Regulators (and justifiably so) are concerned about the possible misuse of the donated funds.

ILLINOIS.
Reacting to an avalanche of criticism, particularly from the religious community, the city aldermen of Chicago signed on a plan to restore free water service for nonprofit institutions that provide community services.

MAINE.
Long-time administrator, Marlene McFadden, has left the Office of Licensing & Registration.  Her temporary replacement is Jennifer Hawk.
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The Maine Association of Nonprofits forecasts a loss of $20 million in donations to charities in Maine if Congress puts a cap on charitable deductions.

MISSISSIPPI.
The Attorney General has written an opinion letter that a county tax collector should refund taxes erroneously paid by a tax-exempt organization that was entitled to an exemption from same.  The caveat being, the refund would be subject to three-year statute of limitations.

MONTANA.
The Department of Justice has introduced legislation that would impose requirements on “paid solicitors.”  It would add requirements that must be contained in a contract, and require certain point-of-solicitation disclosures.  The bill has just been introduced and has not yet been assigned to a committee.  If the legislation was to go into effect, it would not be until July, 2013.  What is noteworthy about the bill is that it does not require registration (Montana is one of the few states that does not require charities or fundraisers to register).  What the state does do is give the attorney general the right to enforce certain standards of telemarketing fundraising.

NEW YORK.
The New York Office of the Attorney General has sent letters to seventy-five nonprofits that are involved in fundraising activities related to Hurricane Sandy.  In the press release issued, it said it is being done as an effort to promote transparency and donor confidence, and to ensure the funds are being properly used.  An online report is promised.

Comment: When a charity raises money for a specific purpose, it has an obligation to those who donate to segregate that money from general use and dedicate it to the extent net proceeds are received in furtherance of the cause for which it was solicited.  In this case, some of America’s best charities are among those which will receive letters and be subject to this peremptory review to determine whether there has been any misuse of funds.  While the step taken by the Office of the Attorney General may build public confidence it will, in some instances, increase the expenses of a charity simply based on possible speculation.

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The Office of the Attorney General has announced the settlement of a claim against the founder of Educational Housing Services, along with his wife and board members.  The allegations were that the officers and directors used a series of shell companies to syphon off money that was to be used to provide affordable housing to college students in the City of New York.  They are have agreed to repay $5.5 million.  The Attorney General’s Office said the board acted with reckless disregard of their responsibilities, and they have all agreed as part of the settlement not to serve or work with any other nonprofit organization.  This was a civil matter in which there was no finding of wrongdoing. 
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The benefit performance for the super storm Sandy featured a wide range of top notch entertainment.  The concert was to benefit a charity, but somehow scalpers were able to profit from elevating the cost of tickets.  Now a New York legislator has introduced legislation that would prohibit the scalping of tickets for charity benefit performances. 
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The Office of the Attorney General has issued its annual report, “Pennies for Charity,”  on the cost of fundraising when conducted by professional fundraisers.  It is available on the website of the Attorney General’s Office.
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The Attorney General’s Office now wants to require any tax-exempt organizations that are influencing elections to file and report to that office.  Any group that spends more than $10,000 would have to report.

Comment: Setting aside jurisdictional and legal issues, the practical challenge seems extremely high.  What activity will fall within these proposed parameters?  When it comes to First Amendment freedom, discretion in a governmental regulator is frequently found to be unconstitutional.  Additionally, §501(c)(3) organizations are absolutely prohibited from engaging in electioneering activities.

OHIO.
Once again money and politics are mixed.  According to the Cleveland papers, a top ranking state senator sponsored legislation that allowed an agency to give more than $400,000 to a nonprofit organization he helped found in his home county.  Perhaps the incentive was the fact that he, as an individual, guaranteed a loan for the nonprofit.  The legislator involved claimed he avoided any conflict by severing his ties with the nonprofit before he introduced the legislation.

OKLAHOMA.
Larry Jones, the founder and deposed president of Feed the Children has dismissed his lawsuit that claimed his dismissal was engineered by a billionaire family connected to Hobby Lobby.

TEXAS.
An event to honor wounded veterans and their spouses in Midland, Texas turned into a tragedy when a float carrying the veterans to a benefit dinner was hit by a train.  Four people died and seventeen people were injured.

Comment: Every charitable organization involved in any form of special event needs to do an analysis of inherent dangers involved in the activity, and be sure they are proceeding safely and with adequate liability insurance coverage.

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A federal court has ruled that it does not have the power to make a defendant in a criminal case make contributions to fund charitable work which, in this instance, involved an environmental issue.  The court pointed to the Sentencing Act as being restrictive.  (U.S. v. Citgo Petroleum).
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The Texas Cancer Research Institute, a state agency approved by the legislature in 2007, was funded with $3 billion to spend on cutting edge cancer research and treatments.  It is now the subject of scrutiny and concern.  According to a published report almost half of the private money raised to help the agency is being spent on costs, fees, and wages.  In addition, the Traverse County District Attorney has announced a criminal probe after reports surfaced that the agency awarded $11 million to a company without proper outside review.  Since the announcement of the probe, a series of top officials associated with the agency have resigned.

TENNESSEE.
Scott Sloan, Acting Director of the Division of Charitable Solicitation and Gaming, is leaving his position effective January 1, 2013.

VERMONT.
The Attorney General’s annual report, showing that professional fundraisers received approximately 75% of the funds contributed by state residents to charities, has been challenged by the president of a local public safety organization.  The criticism being that the report appears to indicate that all the professional fundraiser gets is profit when in fact there are significant expenses, and that the report distorts the reality to prospective supporters.

Comment: The report issued by the Vermont Attorney General’s Office is similar to those issued by a number of states which simply report the net proceeds to the charitable organization, and implies the professional fundraiser is profiting from the rest.


WASHINGTON.
The city council of Tacoma voted unanimously to levy a full business and occupational tax on its two largest nonprofit hospital networks as a way to close the city’s budget deficiency. 

Other
GUIDE FOR INTERNATIONAL CHARITIES.
The Department of Justice and the Securities Exchange Commission have released a resource guide to U.S. Foreign Corrupt Practices Act. Download the PDF.  It is a 130-page document, which attempts to clarify the interpretation of key provisions of the Act.  Nonprofits providing international relief should be familiar with the Act and this resource.

INDEPENDENT SECTOR.
This important trade association announced that Geoffrey Plague has been named Vice President of Public Policy at Independent Sector.

NEW COALITION.
A new coalition has been formed, “Charitable Giving Coalition,” for the purpose of imposing limits on charitable contribution deductions in the forthcoming financial overhaul the country faces.

NEW YORK TIMES.
In an editorial published in the New York Times on December 15, 2012, it stated, “That whatever else we do about the tax code, we need to save the charitable deduction, which has done so much good in our country and springs directly from some of our deepest values.”

Comment: Well said!

AUSTRALIA.
The government is now soliciting concepts and ideas to draft regulations for the new financial reporting framework for charities that are registering with the Australia Charities and Non-For-Profit Commission.  The deadline for comments is February 15, 2013.

FIRM NEWS.
We are pleased to announce that Kellie Mitchell has joined the firm.  She attended Northwestern University Medill School of Journalism and recently graduated from University of Kansas School of Law.

THE QUANDARY OF 2013.
Will the economy grow and giving increase?  Will raising taxes and/or limiting the charitable deduction discourage giving and hurt those who need help the most?

On behalf of all the attorneys and staff at Copilevitz & Canter, we wish you the best for 2013.