July/August 2014

Federal

INTERNAL REVENUE SERVICE (IRS)

The IRS has now released the forms and instructions for the new Form 1023-EZ captioned, “Streamlined Application for Recognition of Exemption Under §501(c)(3) of the Internal Revenue Code” for eligible organizations.  In order to use this process, applicants must answer a worksheet.  The criteria, basically, is whether the applicant projects income of $50,000 or has assets in excess of $250,000.  If the answer is “yes,” then the process is not available.

THE IRS GETS SUED AND LOSES

According to the Association Press, a federal court has ordered the IRS to pay $50,000 to The National Organization for Marriage (NOM), which brought the lawsuit last year alleging its confidential information concerning its donors ended up being published by a political opponent.  NOM discovered that its donors appeared on the website of an organization that supported gay rights.

UNITED STATES POSTAL SERVICE (USPS)

The Alliance of Nonprofit Mailers continues with its effort to have the USPS’ 4.3% exigent surcharge defeated.  After briefing is done, the next step will be oral argument.

STATES

ARKANSAS

The Office of the Attorney General has announced the filing of a Consent Agreement, settling its case against the National Police Defense Fund.  The settlement involves the cessation of solicitation activities and restitution.  The original suit sought relief against both the organization and its professional fundraiser.  To date there has been no settlement in the claim against the fundraising firm.  

CONNECTICUT

The Office of the Attorney General has issued a sixty-six page report, indicating that people from the state and across the nation have donated more than $28 million to charities in the wake of the shootings at Sandy Hook Elementary School.  The report goes on to say, according to the Associated Press, that more than $15 million has been distributed to causes ranging from direct donations to the victims’ families to collateral activities for families that were affected.  The report said unspent sums have been set aside by various organizations for long-term community needs, including mental health services, scholarships and memorials.

DISTRICT OF COLUMBIA

The District’s oldest art gallery, The Corcoran Gallery of Art, announced a plan of reorganization.  It was quickly met with opposition by a group which petitioned a court to intervene to stop the planned breakup of the art collection.  A superior court judge in the District held that the group does have a special interest in standing to enter the case in opposition to the reorganization plan.

GEORGIA

One candidate criticizes another’s qualifications in a statewide race.  David Purdue said Michelle Nunn’s candidacy should not be considered seriously based upon her lack of experience.  He discounts her work as a nonprofit executive!

IDAHO

Two for-profit health clubs appealed to the ADA County Board of Equalization that the West Boise YMCA was running programs like its for-profit competitors, and as a result should not receive tax-exempt status.  The Board of Equalization first agreed and reduced the real estate tax exemption from 100% to 19%.  On appeal the Board voted unanimously to restore the Y’s 100% real estate tax exemption.  (Comment: A similar effort was made in the Kansas legislature to also limit the exemption, but so far the legislation has not passed).

ILLINOIS

A federal judge sentenced a man to five years in prison and ordered him to pay $122,000 in restitution.  The defendant set up a calling program for two charities that did not exist and used the proceeds to pay himself and his callers.

KENTUCKY

Pleas were made and sentences handed down as a result of the misuse of $1.4 million of a 140-year old religiously affiliated foundation that sponsored college scholarships.  

MARYLAND

Registration fees will increase in the state on October 1, 2014.  Charities with an income of over $500,000 will see their registration fee raised to $300.  Professional solicitors will see an increase from $300 to $350, and fees for fundraising counsel will increase from $200 to $250.

MINNESOTA

Salaries being paid by a private foundation in St. Paul have come under scrutiny.  The National Committee for Responsive Philanthropy has written to the Minnesota Attorney General’s Office asking the office to review salary raises which seem to be “suspicious and potentially illegal.”  The three trustees of the Otto Bremer Foundation went from annual draws of approximately $42,000 ten years ago to more than $450,000.  The trust was established in 1944 and has significant assets.
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The Department of Revenue has revoked an outdated notice that ruled charities that do not qualify for a property tax exemption cannot get a sales tax exemption.

NEW JERSEY

Apparently, to fend off a lawsuit brought by Princeton residents, Princeton University agreed to pay the state $24 million  over seven years.  The lawsuit alleged that the university was not entitled to real estate tax exemption.  

NEW YORK

The Office of the Attorney General announced the entry into an Assurance of Discontinuance with major fundraising consulting firms and a veterans organization.  The primary focus of the document pertains to the high cost of fundraising that was associated with a “funded program” on behalf of start-up organization.  The charity involved was cited for failure to provide oversight, and the original board of directors was required to resign. The consulting firms and vendors agreed to new standards when engaging in a funded program and debt forgiveness.
    
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Another new requirement in New York is one of disclosure.  If communications of a charitable organization includes certain words, e.g., “vote,” “oppose,” and other similar words, then an additional requirement of disclosure of those expenditures in pursuit of same will be required.
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A new lawsuit has been filed in New York challenging the requirement of charities filing Schedule B on the Form 990 as condition to registration.  The lawsuit has been brought by Citizens United and raises a number of significant issues.  This is an important case and one which needs to be supported.
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The score is one to one on court decisions as to whether the state’s attempt to limit nonprofit compensation is legally sustainable.  The state enacted legislation that said that nonprofit contractors who receive more than $500,000, where 30% of their revenue comes from the state, cannot pay an executive more than $199,000 annually in state money to the executive’s salary.  In April a Supreme Court judge ruled against the law; whereas in another case in state court, a judge ruled in favor of it.  An appeal is inevitable.

OHIO

Diane Oates, head of the Charitable Law Section, is leaving and will be replaced by Yvonne Tertel.

SOUTH CAROLINA

The state has now made available new registration and joint financial reports and notices of solicitation forms, which are required under South Carolina law for commercial co-venture or cause-related marketing activity.

TENNESSEE

Brent Culberson, Director of the Division of Charitable Solicitations and Gaming, has reminded registrants of the changes in fees that went into effect on July 1, 2014 in Tennessee.  The state has reduced fees across the board.  Fees for charitable organizations are based on gross revenue, and the formula was reduced by approximately twenty percent.  The filing fees for professional solicitors have been reduced from $800 to $250, and the fee for fundraising consultants has been reduced from $250 to $100.  

TEXAS

The City of Texarkana has come up with a unique approach in an attempt to limit the proliferation of unattended clothing bins in the city.  Under the new ordinance that has been proposed, licenses would only be issued to nonprofits who have a physical presence in the city.  The bins can only be placed on land owned by the nonprofit.  Only one bin can be placed at each location.  (Comment: We have provided the City of Texarkana with an opinion letter that such restrictions, to-wit: favoring one speaker over another by government based upon local presence, is of questionable First Amendment  validity).

WASHINGTON

A nonprofit rescue dog organization has been sued by the state for violating the state’s charitable solicitation act and consumer protection act.  The suit alleges that although hundreds of thousands of dollars were raised the organization never bothered to register with the state or track how charitable donations were being spent.  Shortly after the lawsuit was filed, the operator of the organization apparently turned over the assets to another organization and closed his organization.  

OTHER

DIRECT MARKETING ASSOCIATION NONPROFIT FEDERATION.
This important trade association has announced the creation of a new tool for prospective donors.  The goal is to educate donors on the value of donor acquisition fundraising as being important beyond the financial rewards.  When fully operational, the system will display up to three years of data about the number of people served, along with total revenue and expenses  incurred.  As expected, representatives of the private watchdog groups have criticized the new system as lacking scrutiny and accountability.

ICE BUCKET PLUNGE

Big charities employ consultants and development directors to come up with fundraising ideas, but sometimes it is done by someone who just wants to help.  In the case of the ALS Association, it was a patient that came up with the challenge.  So far the ALS Association has received more than $13 million and the number continues to grow.  Suddenly, everyone is energized to find the next great idea.

KEYNOTE ADDRESS

In mid July, Steve Nardizzi, the Chief Executive Office of Wounded Warrior Project, delivered the keynote address at the Bridge Integrated Marketing fundraising conference.  The keynote address was news worthy because of his criticism of the many private “watchdog” agencies, which he called in part ineffective and misinformed.  

CANADA

Canada Revenue Agency (CRA) just delisted the last of the foreign charities they were willing to recognize as registered Canadian charities to which Canadians could donate and be treated the same for tax purposes.  This list was short and historically arbitrary.  CRA continues to accept applications from foreign charities, but none have been approved to date.

SPAIN

Just days after her brother was proclaimed king, Spain’s Princess Cristina was indicted on tax fraud.  The princess and her husband had been under investigation for years with allegations of embezzlement of about $8 million in public money through a charitable sports foundation they ran.  (Comment: It would seem that misappropriation of  money by insiders is at record levels, and should be more of a focus by the regulatory community).

UNITED KINGDOM

According to a recent report published by the Charity Commission, national charities are the most likely to be mistrusted by the public.  The research was carried out on a randomly selected basis of over 1,100 people in England and Wales.  The most trusted domestic organization was found to be Cancer Research UK.