JANUARY 2015

STATES

ARIZONA.
Supervisors in Pima County (Tucson) have traditionally been allowed to donate money to nonprofits and other outside agencies in their discretion.  These donations will now end as supervisors are enacting restrictions to prohibit spending of office funds for items not related to running their offices.  

CALIFORNIA.
A judge in San Diego has ordered a lawyer to pay four prominent nonprofit groups $4.3 million for using “undue influence” in arranging to inherit money a client originally meant to leave for charity.  The lawyer involved denies exerting undue influence and claims that he was unaware of the change until after the passing of the decedent.  He has indicated he will appeal.  
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As of January 1, 2015, the Office of the Attorney General has been granted additional authority to investigate charities.  More fees and resources will be provided to the Office of the Attorney General to enforce the existing charitable laws.
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In order for a charity to register in the state, a copy of the Form 990 must be filed.  Recently, the state took the position that the requirement of filing the Form 990 meant that the entire 990 has to be filed including Schedule B.  This is the schedule that lists major donors to a charitable organization and is not a matter of public record.  In some instances the state has refused to register organizations who failed to provide Schedule B.  In another case it refused to accept a registration where Schedule B was included, but the confidential information was redacted.  The Center for Competitive Politics challenged the Office of the Attorney General over its policy.  The case was appealed to the United States Court of Appeals for the Ninth District which ruled, “The Attorney General shall take no action against the Center for Competitive Politics for failure to file an un-redacted IRS Form 990 Schedule B pending further order of this court.”  While this is not a final victory, it is a big victory.  Other states have also begun making the same claim that Schedule B be provided.

INDIANA.
A move is afoot in the legislature to increase prizes and make it legal to pay volunteers of charity gaming events.  According to published reports, last year a VFW post was fined $1,000 for allowing workers to accept tips.  A second VFW post was fined $3,500 for failing to maintain accurate records and allowing an operator to participate in a gaming event while working.  The proposed legislation is in response to these fines.

MAINE.
Like many, this state is suffering from budget shortfalls.  In order to address it the governor announced a plan to achieve savings through a number of methods.  Among them, the governor’s budget proposes that larger communities could compensate for lost state aid by collecting property taxes from nonprofit organizations with valuations greater than $500,000.  The proposal is that these organizations would be taxed at 50% of the current property tax rate for assessed value above $500,000.

NEBRASKA.
The State Supreme Court, reversing a lower court decision, ruled that the records held by Falls City Economic Development and Growth Enterprise, Inc., a Nebraska nonprofit corporation, were not public records and therefore not subject to disclosure.  Like many states, the Nebraska disclosure laws require disclosure if certain tests are met relative to removing the burden of government or in association with other governmental entities.

NEVADA.
A recently passed charitable solicitation law is under review and will possibly be amended in the upcoming session of the state legislature.  Assembly Bill 50 is moving forward through the legislature and includes the entire charitable solicitation law with numerous changes.  (Comment: As it moves forward, we will track the changes being made and whether they are material to charitable registration or charitable activity).

NEW JERSEY.
A state appeals court has ruled that donors in the state who give to charities, only to have the charity use the money for purposes other than that intended by the donor, are due a refund.  This may well be a case of first impression in the state, but does not create a variance from decisions in other jurisdictions.  In this particular case a “no-kill” animal shelter solicited high dollar donors to support plans for expansion.  The plaintiffs in the case committed to $50,000 over three years.  In the second year of the program, the shelter announced it was merging with another organization and as a result the expansion of the shelter was going to be abandoned.  The donors demanded a return of their donation but were denied, hence the institution of the lawsuit.  (Comment: As noted, this is not a particularly unusual decision in that courts in many jurisdictions hold that charities which make certain representations on how the donations will be used must honor those representations, or face claims for refund.  This case is a further highlight of the necessity of carefully written donation documents, either in the form of agreements or solicitations.  These documents can provide opportunities to address unforeseen future circumstances).
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A Newark youth organization that sold products door-to-door has been sued by the Office of the Attorney General.  Among the allegations are that there was some degree of self-dealing and little to no money went to the charitable purpose.  More importantly, the state alleged that all the fundraising conducted by the group  was without proper registration, despite making claims on its website that it was fully registered with the state.  As a result a state superior court judge froze the organization’s assets and ordered it to temporarily cease its door-to-door solicitation.

PENNSYLVANIA.
Leaders in local communities in several different areas of the state are pushing for a constitutional amendment to give authority to the legislature to interpret the state Constitution and to determine whether tax-exempt organizations should be exempt from property tax.  A 2012 court ruling tried to give the authority to the judiciary and take it away from the legislative branch.  The constitutional amendment would restore the right to the legislature.  (Comment: This is the age old debate on whether charitable institutions should be given tax exemption from real estate taxes because they perform services the government would not otherwise provide.  Municipal governments are complaining because they are losing hundreds of millions of dollars a year that they could use for services).
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The National Museum of Industrial History has struggled for eighteen years to turn a century old Bethlehem steel shop into a museum to display its collection of artifacts.  The Office of the Attorney General has stepped in and negotiated a consent agreement that gives the museum two more years to either accomplish its mission, or merge with another nonprofit, or dissolve so that someone can take over the project.  According to a release by the Attorney General’s Office, the agreement would provide, “An important foundation for the museum’s success by increasing oversight, creating achievable time lines for important decisions and ensuring the museum is an effective steward of charitable donations.”  The investigation by the Attorney General’s Office began last year on the recommendation of a grand jury after the museum failed to get its footing over the eighteen-year period in which it raised $15 million.  

No finding of wrongdoing or misuse of the funds was found.  (Comment: This is a perfect example of a case where the public interest demanded the entry of government to come in and straighten out a situation that seemed bound to go on forever without achieving any measurable results).

WYOMING.
The Department of Revenue is moving forward to amend the rules on property tax exemption standards to reorganize and remove information on charitable societies and associations.  The new rules will also clarify the ability of the department to deny property tax  exemptions when it finds the usage is for private property or investment, or primarily for commercial purposes.

OTHER MATTERS

AMERICAN RED CROSS AND SENATOR GRASSLEY.
As the result of a joint investigation by Pro Publica and NPR, Senator Grassley is asking the American Red Cross to substantiate its claims that 91 cents out of every dollar goes to program service.  Specifically, the senator has asked the organization to provide him with information on how it calculates figures showing the allocation to service from its gross income.  (Comment:  This is not the first time Senator Grassley has raised issues over pronouncements from the American Red Cross referencing its financial efficiency.  Previous inquiries came after September 11, 2001 and the terrorist attacks in 2006).

CHARITY DEFENSE COUNSEL.
Bill boards have started to appear in the Boston area with the message of the Charity Defense Counsel, to-wit: “Don’t ask if a charity has low overhead.  Ask if it has a big impact.”  The organization is headed by Dan Pallotta.

INTERNAL REVENUE SERVICE (IRS).
The IRS announced the rates that have been adjusted for inflation in calendar year 2015.  The value of low cost items that may be exchanged for donations without generating unrelated business income will rise from $10.40 in 2014 to $10.50 in 2015.  Likewise, the mileage rate for business use of vehicle for a charity will increase to 57.5 cents per mile, which is up 56 cents per mile from the previous year.  

GOVERNMENT ACCOUNTABILITY OFFICE REPORT.
GAO has issued a new report titled “Tax Exempt Organizations:  Better Compliance and Indicators Data, and More Collaboration with State Regulators Would Strengthen Oversight of Charitable Organizations.”  The report lobbies for congress to pass legislation to require electronic filings for IRS § 501(c)(3) Form 990.  The report suggests that such a mandate would save the government more the one million dollars in labor costs over a three-year period, and assist donors in making informed giving decisions.  The Aspen Institute, in its report, further stated that, “Representatives from across the nonprofit and law enforcement community with whom we spoke support this reform as a strategy for improving transparency and accountability.”

UNITED STATES POST OFFICE (USPS).
The Alliance of Nonprofit Mailers reports that the USPS announced its filing with the PRC, seeking a 1.966% price increase that would be effective April 26, 2015.  The increase is aimed at products which so far have produced a loss that includes standard mail flats and periodicals, which are used extensively by nonprofit mailers.  

OTHER COUNTRIES

CANADA.
Revenue Canada has moved to revoke the charitable status of “Dying With Dignity,” finding that its original registration as a charity was in error.  The agency claims the organization is more political than charitable and as a result has annulled its registration which means, in effect, it was never registered to begin with.  According to the Toronto Star, executives with the organization have decided not to contest the ruling by the agency, but to adopt a more direct political tone by the organization in the future.

NEW ZEALAND.
In the category of “we are not alone,” cyber criminals targeted two New Zealand charities in automated attacks in an attempt to validate large numbers of stolen credit cards.  

UNITED KINGDOM.
The Charity Commission is under fire from the government and charities.  There will be an upcoming report on the effectiveness of the Commission to regulate the charitable community.  One suggestion is to charge charities for regulation, thus solving the funding problems which have arisen as the result of budget cuts.