June 2011

In this issue:

  • The FTC has announced a public comment period as it considers revising its guidance to businesses regarding disclosure of online advertising.
  • The IRS has ruled that the transfer by a charitable organization of certain assets to its for-profit subsidiary did not jeopardize the charity’s tax-exempt status and did not create taxable business income.
  • According to the Bloomberg News, Lance Armstrong's cancer foundation could lose more than $10 million in expected support as a result of allegations against him involving drug use.

Federal

FEDERAL TRADE COMMISSION (FTC).
The FTC has announced a public comment period as it considers revising its guidance to businesses regarding disclosure of online advertising.  (While the FTC has no jurisdiction over nonprofits, it has exerted jurisdiction when it has been able to allege that the nonprofit is either not a bona fide organization, or it is engaging with others in deceptively commercial activities.  The second level of concern is that practices adopted by the FTC tend to become standards across the board, and therefore could indirectly impact the nonprofit community).  The public comment period closes on July 2011.  If this is something of interest to you, please contact Bill Raney, a partner with our law firm.

INTERNAL REVENUE SERVICE (IRS).
The IRS is now listing organizations on its website that no longer qualify as charitable organizations.  At the same time, the IRS has issued guidance explaining how these organizations can apply for reinstatement if they lost their status by failing to file their annual returns.

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The IRS has ruled that the transfer by a charitable organization of certain assets to its for-profit subsidiary did not jeopardize the charity’s tax-exempt status and did not create taxable business income.

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The IRS is once again seeking public comment as it considers changes to the Form 990.  One area of focus is compensation reporting.  The agency also reported two revocations.  One involved an organization that failed to produce records demonstrating it was operated exclusively for exempt purposes.  The other pertained to private inurement of the president and his wife from the organization.

Comment:  Issues like investment, public support and being operated exclusively for tax-exempt purposes are key to maintaining tax-exempt status.  If you would like more information, contact us; we can help you understand and hopefully avoid these issues

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UNITED STATES POSTAL SERVICE (USPS).
The USPS has received permission from the Postal Regulatory Commission to promote mobile bar coding with a temporary price adjustment.  Most interestingly, the order directs the USPS to make the discount available to nonprofit mailers that meet all of the other requirements.  This could amount to a 3% discount according to the Alliance of Nonprofit Mailers.

State

CALIFORNIA.
Family Radio is an outlet of doomsday profit, Harold Camping.  No doubt you saw the publicity regarding the prediction of the end of the world on May 21, 2011.  It now appears that Family Radio, a tax-exempt organization registered with the various states to solicit donations, had previously filed an extension request in Minnesota to delay its filings until November 15, 2011!

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Assembly Bill 232 would extend the sales tax exemption for thrift stores operated by nonprofits for health and social services.  The exemption is scheduled to expire in 2012.

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The state is contemplating closing as many as 33 state parks next year, but there may be help on the way.  According to the Wall Street Journal, a number of California-based nonprofit organizations may participate in partnership with the Department of Parks and Recreation to help keep some of the parks open to the public.

FLORIDA.
Legislation aimed at unattended clothing bins died in the last legislative session.

ILLINOIS.
According to the Illinois Times, the state may be involved in a bit of misrepresentation to prospective donors to charitable causes.  The State Department of Revenue invites taxpayers to donate a portion of their tax funds to certain charitable causes.  These “check offs” are supposedly earmarked for that purpose, but that is not what is happening.  Because of budget difficulties the state has, on occasion, swept money out of these reserve accounts and put them into the general fund.

Comment: If the state caught a charity representing that money was going to be used for a specific purpose, but instead was used for a different purpose there would be a problem.  The other issue here is the confidence of the state’s donors.  Now that this information is out, how many Illinois residents will agree to make contributions?  The answer is: less than there use to be.  The next time the Illinois state regulators (heaven forbid) ask you about your representations when raising funds you might respond by asking them about theirs.

MASSACHUSETTS.
According to the Boston Herald, Attorney General Martha Cokely is stepping up her crackdown on nonprofit health insurers and other public charities that pay their board of directors.  She is proposing a budgetary amendment that would ban the controversial practice as early as July 1, 2011.  Most interestingly, the legislation does provide for a waiver if the charity can provide a compelling argument why the board members should be paid.  The bill is moving forward and has passed the Senate.

MINNESOTA.
The state has fined Bobby Thompson, the fugitive founder of U.S. Navy Veterans Association, $21,000 for making illegal campaign contributions.

Comment: Apparently, the man known as Bobby Thompson stole that identify, and now cannot be found.  He also faces federal inquiries and other state actions - if ever located).

MONTANA.
Attorneys for the plaintiffs in the class action suit brought against Greg Mortenson, his publisher and Central Asia Institute are considering dismissing the charity from the lawsuit.


NEW JERSEY.
Among the new features of the Division of Consumer Affairs’ website is a listing of the ten most inquired about charities.  No doubt some are for good reasons and some are not.  Thomas Calcagni is the Acting Director of the Division of Consumer Affairs.

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A court has ruled that the charitable immunity provision in New Jersey law did not shield a legal services agency or its lawyers from malpractice suits.

NEW YORK.
Bill No. 782 has been introduced in the Assembly that would amend the Penal Law and the Not-For-Profit Corporation Law, by prohibiting the funding and support of terrorist activities in organizations.

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Senate Bill 1236 would place limitations on the use of donated proceeds to charitable organizations.  This unusual legislation would prohibit the use of such proceeds to pay for the costs of creating confidentiality or closed settlement agreements.

Comment: This bill has been introduced in the past, but not seriously considered by the legislature to date.

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A research foundation aligned with SUNY is under investigation.  The foundation allegedly provided a job for a state senator’s daughter for $70,000 a year, who rarely bothered to go to her office.

NORTH CAROLINA.
Legislation is winding its way through the legislature that would require any nonprofit which receives taxpayers’ dollars to provide financial statements upon written demand from any member of the public.  The bill passed the House 93-12 and is now pending before the Senate.  While the legislation seems somewhat ominous, the reality is that under the bill any nonprofit that receives public funding would only have to make available its latest IRS Form 990.  That form can be posted on the website, or otherwise be widely available to satisfy the requirement.

OHIO.
Senate Bill 169 has been introduced and, if passed, it will amend the charitable solicitation law to permit veterans, fraternal and supporting organizations to conduct charitable electronic instant bingo.
         
OREGON.
Controversial legislation that would deny state tax deductibility to charities which spend less than 30% of their budget on programs appears to be somewhat stalled in the Senate House Revenue Committee.  A number of critics of the legislation have stepped forward and described the legislation, in part, as a “slippery slope.”  This will be an interesting situation to watch.

TENNESSEE.
Proposed House Bill 1135 would require periodic filings on behalf of disaster relief organizations that solicit money for relief of the disasters in the state.  The only exemptions are for bona fide religious institutions.

TEXAS.
A former nonprofit executive director pleaded guilty to three counts of theft in Austin and was sentenced to 25 years incarceration.  The theft involved more than $1 million from three different Austin-based charities.

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According to the Bloomberg News, Lance Armstrong’s cancer foundation could lose more than $10 million in expected support as a result of allegations against him involving drug use.

WASHINGTON.
According to a published report, a Seattle charity has turned down a grant from Comcast cable television after the company threatened to pull the grant as a result of a tweet by an employee.  When challenged, the company backed down and said the threat to pull the grant was not sanctioned and was never in jeopardy, but nonetheless, the nonprofit has refused the grant.

Other

A SAD NOTE.
We learned last month of the sudden passing of Jerry Lease of the United States Postal Service.  Jerry was one of the most knowledgeable and understanding representatives of the agency, and always a friend to the nonprofit community.  Jerry was about to retire and his death comes as a shock to everyone.  We will all miss him.


INDUSTRY GROWTH SLOW DOWN.
According to a report in the Chronicle of Philanthropy, the IRS is expecting a major slow down in the growth of the nonprofit world.  The number of new organizations applying has slowed considerably and, at the same time, the IRS expects to rescind the charitable status of smaller organizations that have failed to file their information returns on a timely basis.  The industry may have reached its peak in 2010 when there were nearly 1.3 million charitable organizations.  This figure is double that of fifteen years ago.         

NAAG/NASCO.
The 2011 meeting of the National Association of Attorneys General/National Association of State Charity Officials will be held on October 3, 2011 at the Crown Plaza Hotel in Silver Spring, Maryland.  The theme of this year’s meeting of regulators and the public sector will be to “explore emerging charitable regulatory issues.”  Representatives of our law firm will be attending.


TAX COURT DECISION.
A year ago, the Tax Court heard a case brought by an individual who was denied the right to take a charitable deduction for taking care of 70 stray cats.  Now the Tax Court has ruled in her favor.  The decision (Van Dusen v. Commissioner) will allow for volunteers of animal rescue organizations to deduct expenses not reimbursable that are in furtherance of the organizations’ mission.

Comment: The natural question arising from this court decision:  is there any limit to its application?  What about volunteers for disability organizations or environmental organizations, etc?  Stay tuned, I am sure the fight will come.


OTHER COUNTRIES

SCOTLAND.
A new code of conduct has been drawn up to restrict the rights of street solicitors working on behalf of charities.  They will be limited to the time and place in the center of Edinburgh, and be required to tell those whom they are soliciting if they are being paid by the charity to do so.

UNITED KINGDOM.
According to the “Thirdsector,” the Charity Commission is proposing to create an index determining how much registered charities spend on their causes.  The chairperson of the Charity Commission stated that it is her belief the public’s main concern about charities is the amount they spend directly on their mission.