In this issue:
- On August 1, 2012, the USPS will have to make a $5.5 billion payment to its retirement fund. This is mandated by law. The USPS will not have sufficient funds to make the payment.
- The Center on Philanthropy at Indiana University has awarded five students with what we believe is the first undergraduate degree ever in philanthropic studies.
- There is a continuing concern over how fundraising consultants can comply with the requirements in the Form SR-2, now being required by the state. For more information about this issue, feel free to contact Nathan Thomas of this law firm.
SENATE FINANCE COMMITTEE.
This Committee, chaired by Senator Baucus (D-MT), in a letter dated May 23, 2012, requested information about a national veteran’s organization which has been the subject of a media report. The questions in the report pertained to the cost of fundraising.
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The Committee has reached out to the Department of Treasury and the Attorney General asking that an investigation be commenced into the activities of another veteran’s organization, describing the fundraising and business practices of the organization as having been, “characterized as dishonest, misleading and fraudulent….”
UNITED STATES POSTAL SERVICE (USPS).
In addition to postal reform, another deadline is quickly approaching. On August 1, 2012, the USPS will have to make a $5.5 billion payment to its retirement fund. This is mandated by law. The USPS will not have sufficient funds to make the payment. As a result, once again Congress will be faced with the issue of how to save the USPS.
In order to avoid a lawsuit, Facebook has agreed to a $10 million settlement to five Facebook members, who alleged the social media site exerted control over their names, photos and likenesses without the authority to do so in violation of California law.
The Denver District Attorney’s Office has charged a woman in the theft of $243,000 from a children’s charity which sells calendars featuring “hunky” firefighters. She is also charged with three counts of filing a false tax return and two counts of failure to file a tax return. The defendant created a nonprofit organization called “Fired Up For Kids” in 2004 to raise money for a burn unit at Children’s Hospital Colorado by selling the calendars. She allegedly used most of the funds for her own benefit.
State-funded human service providers are having new limitations imposed on them. A new contractual provision, going into effect on July 1, 2012, will bar grantees from using state money to engage in direct or indirect lobbying activities of any kind.
Comment: See the cross reference to Massachusetts, where limitations are being placed on paying board members.
The state has made some changes in its charitable registration process. One of the changes is the requirement that the Form 990 be submitted on a CD. You can now also check the status of currently registered charities and private foundations on the website of the Office of the Attorney General.
The state has passed legislation which exempts certain calls made on behalf of certain public safety organizations from the state’s very restrictive do-not-call law. The exemption applies to public safety organizations that are tax-exempt under § 501(c)(5) of the Internal Revenue Code, and who are composed entirely of public safety personnel, the majority of whom are state residents calling from a location within the state.
The Boston Herald reports that the state senate has approved a bill that would ban public charities from paying their board of directors.
Comment: This bill only targets entities that receive taxpayer money, and otherwise does not affect independent charitable organizations. Still, it is clear the vast majority of charitable organizations exist with volunteer boards.
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House Bill 2704 falls within the category of “won’t they ever learn?” The bill would require professional fundraisers, whose clients receive less than 40% of a total donation, to make a series of disclosures that they are “soliciting money for profit.”
Comment: As the legislative session winds down, bills like this pop up periodically. It seems every year there is a comparable bill introduced in the state that simply dies on the floor.
Legislation was passed by both Houses that will extend the exemption for thrift stores from local zoning to veterans groups enjoying tax-exempt status under §501(c)(19) of the Internal Revenue Code.
The New Jersey Attorney General has announced a new smart phone application designed to help New Jersey consumers make better informed decisions about donating to charity. Users of iPhone and other Apple iProducts can now type in the name of a charity or nonprofit to see total revenues and expenses. The Division of Consumer Affairs will update the application on a weekly basis with information.
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There is a continuing concern over how fundraising consultants can comply with the requirements in the Form SR-2, now being required by the state. To deal with the situation, Bob Tigner of the Association of Direct Response Fundraising Counsel (ADRFCO) convened a group of practitioners dealing with regulatory issues, which includes this law firm. The problem arises because the form requires disclosures of costs and results from fundraising consultants who never have custody or control of the proceeds. For more information about this issue, feel free to contact Nathan Thomas of this law firm.
Governor Cuomo proposed a new regulation to limit the pay of nonprofit executives. The rule would cap the amount at $199,000 per year (with some limited ability for variance). The new rule would only apply to nonprofits that receive 30% of their overall funding from the state of New York.
Comment: On its face, the rule for organizations that receive their primary funding from state or government seems sustainable and may even be a good idea to the public. The problem, however, is it starts a “slippery slope.” As these kinds of restrictions become more popular, you can expect legislators somewhere to pass a bill creating similar types of limitations as a condition to raising funds in their state.
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Senate Bill 7431 has been introduced in the state senate. The bill would amend the Not-For-Profit Corporation Act and would, in effect, require all organizations that register in the state to solicit to affirm they have a conflict of interest policy, whistle blower policy, and three board members to oversee audits and other requirements.
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Senate Bill 7624 has also been introduced. This bill would amend the Executive Law to provide for the issuance of a certificate of completion of an ethics course for professional fundraisers and charitable organizations. Those who complete the course would have their names published by the Office of the Attorney General.
Comment: While this is an unusual bill and not likely to pass, it does raise an issue which Errol Copilevitz wrote about, to-wit: the lack of standards or requirements for those who are engaged in the tax-exempt community.
The Institute for Nonprofit Management at Portland State University and the Nonprofit Association of Oregon recently issued a report on the status of the nonprofit sector in the state.
The Second Mile Foundation has filed a formal request to dissolve and to forward $2 million for oversight of its programming to a religious-based organization in Houston. The Foundation was started in 1977 by Jerry Sandusky, assistant football coach at Penn State, for at-risk youth.
Comment: Sandusky has been accused of sexually abusing children throughout this period, and as a result, the charity feels it no longer can persevere.
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Senate Bill 1520 has been introduced that would amend and restate the “Solicitation of Funds for Charitable Purposes Act.” The bill itself is 47 pages long, and while providing some consolidation, it continues to incorporate provisions of concern. For example, under the bill the definition of a “professional fundraising counsel” includes those who, “. . .prepare material for or with respect to the solicitation….”
Comment: Such overbroad definitions as these inevitably cause problems. Authority like this in the wrong hands could result in printers being called to task for failure to register.
The Fort Worth Star-Telegram reported that $6.1 million in damages was awarded by a court to Bat World Sanctuary, located in Mineral Wells, Texas, as the result of a defamation lawsuit it brought against a former intern of the charity. The charity claimed that in 2010 the former intern made libelous statements and videos about the organization and its leader. The former intern also made false reports to state and local regulatory agencies about the charity.
House Bill 730 has been signed into law. The effect of the new provision will require commercial co-venturers to make certain point-of-solicitation disclosures consistent with those required in other jurisdictions. One additional requirement being that the disclosure must include the maximum amount that will benefit the charitable organization or purpose. In addition, commercial co-venturers are required to maintain records that are sufficient to demonstrate compliance with the requirements of the law and their agreements.
Comment: There is, however, no statement with reference to how long the records must be maintained.
THE CENTER ON PHILANTHROPY AT INDIANA UNIVERSITY.
The Center on Philanthropy at Indiana University has awarded five students with what we believe is the first undergraduate degree ever in philanthropic studies. The Chronicle of Philanthropy reports that the school expects the number enrolled in the program in the next two years to reach as many as seventy-five. The aim of the program is to develop professional managers for the coming generation of nonprofit and tax-exempt organizations.
DONOR-ADVISED FUNDS REPORT.
According to a recent report published in the Chronicle of Philanthropy, donor-advised funds are continuing to grow at an impressive rate. The report said the amount of funds “warehoused” in donor-advised funds has increased by 10% from 2007 to 2011.
Comment: On one hand this is a good sign for charitable organizations which ultimately will be the beneficiaries. On the other hand, it is not uncommon for people of means to warehouse money in a donor-advised fund over a long period of time. They receive the immediate benefit of the tax deduction, but can warehouse and accumulate the money to perpetuate the existence of their individual charitable trust. What this means is that there are charitable dollars being donated for which tax deductions are being given, but in fact the money is sitting in an account waiting to be distributed at an unknown future date.
The 57th annual report of Giving USA disclosed a growth rate of 4% in current dollars, and 0.9% in inflation-adjusted dollars. New figures for 2011 indicate that total charitable contributions (including donations, bequests, grants and foundation grants) were $298.42 billion.
NO FUNDRAISING COSTS!
According to a study just released by the Scripps Howard News Services, 41% of nearly 38,000 charities and other nonprofit groups that report income of $1 million or more are showing they have no cost of fundraising. The study noted that 48 of Goodwill Industries’ 127 major affiliates reported raising $387 million at no cost.
The Australian Charities and Not-For-Profits Commission will begin operations on October 1, 2012. A spokesperson for the agency announced that the governance standards will be phased in with the first step being effected on July 1, 2013. The agency has represented that it will work with the nonprofit sector to help develop ongoing standards.
The Chancellor of the Exchequers bowed to political pressure and scrapped proposals to include charitable donations in a cap on tax relief, which would have limited tax relief to £50,000 or 25% of income. Charities had protested and warned they could lose a significant part of their income.