March 2012

In this issue:

  • Find key information about tax-exempt organizations by going to one location on the IRS site and selecting the tax-exempt organization to check its filings and status. (See IR-2012-34).
  • The former head of the Fiesta Bowl (a § 501(c)(3) charitable organization) has entered into a plea arrangement with federal authorities to plead guilty to a felony that involved inducing and reimbursing employees for making political contributions.
  • According to a report published in The Chronicle of Philanthropy, most of the largest foundations in America do not expect to increase the amount of grants they will be making in 2012.

Federal

INTERNAL REVENUE SERVICE (IRS).
The IRS has made it even easier to find key information about tax-exempt organizations by going to one location on the IRS site and selecting the tax-exempt organization to check its filings and status. (See IR-2012-34).

POSTAL LEGISLATION.
According to published reports, there is at least a chance that Senate Bill 1789, intended to overhaul the U.S. Postal Service, will be taken up before the April recess.  In its recent newsletter, the DMA announced support of the legislation as one that will help the postal service obtain financial viability.  Most interestingly, a debate has commenced to influence the postal service to reduce its rates in order to increase volume as one of the ways to address its ongoing situation.  Senator Brown (R-MA), is one of the proponents of the bill.

State

ARIZONA.
The former head of the Fiesta Bowl (a § 501(c)(3) charitable organization) has entered into a plea arrangement with federal authorities to plead guilty to a felony that involved inducing and reimbursing employees for making political contributions.
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The Alliance of Arizona Nonprofits released a report indicating that state-based nonprofits had their best year in 2011 since the recession, but things are still not good.  Approximately 45% of the nonprofits surveyed will have to reduce their budgets in 2012, and as much as 30% expected a budget deficit.  Meanwhile revenue losses are moderating.
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Unusual times call for unusual solutions, which apparently is the case in Phoenix.  Nonprofit leaders in the city have created the “Fast Pitch Social Innovation Expo,” which pits leaders of local nonprofits against each other to vie for funding, board members and recognition.  This year nineteen nonprofits have signed up.
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Another elected official has pled guilty to fraud and tax charges arising from his improper relationship with his own nonprofit. He is pleading guilty to stealing the proceeds from the sale of a building owned by the tax-exempt organization.

CALIFORNIA.
The Office of the Attorney General commenced an investigation of a “fiscal sponsor,” which was an umbrella organization for some 400 smaller charities.  The fiscal sponsor, without much warning, shut down, claiming to have assets of only $10,000 instead of $877,000 it was supposedly holding for the organizations that used its services.  The umbrella organization, for a fee, handled administrative duties for charities that used its services.

HAWAII.
The Hawaii Alliance of Nonprofit Organizations are making a push to have lawmakers eliminate a cap that was placed on how many itemized deductions some taxpayers can claim on their charitable donations.  The limitation came about as a result of a law passed in 2011.  Senate Bill 2544 would repeal that part of the law containing the cap on deductions.

LOUISIANA.
There was an interesting case in New Orleans involving whether a nonprofit’s liability carrier was required to pay for the cost of defense when damages were not being sought.  The essence of the matter was that a theater in New Orleans, having suffered damage after the hurricane, wanted to sell off part of its assets, but a board member disagreed and filed a lawsuit seeking an injunction.  When the case was settled the charity tried to collect against the carrier, but the court ruled that the policy only applied to claims for “money damages.”

Comment: Directors and officers liability insurance is a tricky subject.  Ideally, every organization should have it to protect its board and its officers.  Sometimes the costs are high and the coverage is small.  Being aggressive in finding a good policy is a necessity.

MASSACHUSETTS.
The Office of the Attorney General released its annual report on fundraising expenses in the state for the year 2010.  The report showed a consistent finding that approximately 45% of funds raised by professional fundraisers went to their nonprofit clients.
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Two bills introduced in the House may or may not have any legs.  One would prohibit solicitation through the use of mobile devices, and the other would require the disclosure of the “true name” of the solicitor.

MINNESOTA.
Rich Cowles, Executive Director of the Charities Review Council since 1999, has announced he is retiring.  The organization has long been a leader in Minnesota providing information about charitable organizations, and encouraging best practices to charitable organizations.

MISSISSIPPI.
House Bill 1434 would increase the amount of disclosures that must be made on solicitations by telephone, fax or text.

MISSOURI.
The Better Business Bureau (BBB) won a lawsuit in St. Louis by defeating a claim for libel.  A commercial entity sued the BBB because of the grade it received and the listing of complaints.

Comment: The BBB is a nonprofit and is entitled to express its opinion. Its ratings are simply its opinion and are protected by the First Amendment.

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In another case, a court found injuries sustained in a charity golf tournament were not compensable under the state’s worker’s compensation law.  The case turned on the fact that the member of the organization was not using employment time while he participated in the golf tournament.

NEW JERSEY.
A reminder that the contract provision requirements for professional fundraisers and fundraising consultants have been amended in the state.  Numerous provisions are no longer required, particularly if the fundraising consultant or fundraiser does not have custody or control of the proceeds at any time. [See N.J. A.C. 13:48-9.1(b) 1-6].
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The Star-Ledger, an influential New Jersey newspaper which frequently writes on issues facing the tax-exempt community, has editorialized against any loss of the wealthy to take a deduction for charitable contributions.  The editorial, in part, states: “Instead of reducing the tax incentives. . . of charitable giving, every effort should be made to incentivize wealthy Americans - those who can afford to give generously - to continue donating to tax-exempt organizations of their choice, especially those charities providing services to the needy.”  The editorial writer was Andy Germak, who is the executive director of the Institute for Families and a lecturer on nonprofit and management at Ruckers University School of Social Work.

NEW YORK.
Bureau Chief, Jason Lilien, issued a news release promoting the announcement made by the Office of the Attorney General regarding a new comprehensive plan to revitalize the state’s nonprofit sector.  The plan includes legislation that will reduce burdens on nonprofits and enhance oversight and accountability.  It will also seek to strengthen governance practices, and can be accessed through website of the Office of the Attorney General.
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The Village Voice recently profiled a New York social service organization that, while closing facilities, continued to give to its chief executive raises totaling more than 80%.  During the same period the organization suffered significant losses in its capital investments.  The paper categorized the organization as one of charities’ “one percent.”

Comment: Assuming all the facts are true, one has to wonder where the board is in the exercise of its fiduciary capacity.  While there may be facts and circumstances that justify it, on its face there are none.  The image of the charitable community is important to all of us who work within it.

NORTH CAROLINA.
State officials have threatened to shut down a prominent Raleigh charity that collects shoes for third world countries.  The essence of the complaint is the charity’s failure to account for funds which the state believes were improperly spent.  The state has filed a formal proceeding to show cause why the charity’s authority to raise funds in the state should not be revoked.

OKLAHOMA.
Oklahoma State University has lost an important round in federal court.  The University sued to get a return of premiums paid to an insurance company under a unique fundraising program.  Twenty-seven boosters agreed to have the University take out life insurance policies on them with the University as a beneficiary.  When the program did not go well, the University attempted to recoup the $33 million it had paid in premiums, but the federal court ruled that the University was not entitled to recovery.  The University is also pursuing a state court action.

PENNSYLVANIA.
House Bill 2054 would place limitations on what a board member may be paid by a nonprofit for service.
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The City of Philadelphia has been ordered to pay the Boy Scouts nearly $900,000 in legal fees after failing to evict the organization from their headquarters over anti-gay policies.  A federal judge also denied the city’s request for a new trial in the case, which has dragged on for nearly a decade.

TENNESSEE.
The state continues to issue enormous fines for filing deficiencies, and in some instances for conduct deemed to have violated state law.
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Todd Kelley, Director of the Division of Charitable Solicitations and Gaming was injured in a skiing accident during Spring break.  We wish him a speedy recovery.

VERMONT.
A legislative proposal to amend the state’s charitable solicitation law to clarify the definition of what constitutes a “commercial co-venturer,” along with inserting point-of-sale disclosure requirements and record keeping, appears to be on track.  The attorney general’s proposal has been shared with nonprofit leaders who have been able to effectively impact the process.

VIRGINIA.
According to an article in the Washington Post, the attempt by former governor, Douglas Wilder, to build the U.S. National Slavery Museum has received a further setback.  The IRS has revoked the museum’s tax-exempt status, and although money has been raised over a number of years, the museum has never been built. Creditors have forced the organization into bankruptcy and a plan for reorganization is being pursued.  IRS officials indicated that the revocation is based upon the failure of filings, but the organization may be able to apply to regain its tax-exempt status in the future.

Other

“CHARITY RATINGS KILL INNOVATION.”
Phillip Haid, the Founder and CEO of Public, Inc., recently wrote an editorial in the Huffington Post, carrying the above headline.  He joins a small group of other writers on the subject, who also criticized the media and the public’s fixation on financial efficiency of charitable organizations.  He states in part in his editorial, “My problem with charity ratings is that by focusing on the relative spend between mission (program) and operating, charities are reluctant (some are even scared) to spend money on innovating the way they engage the public.”  He also stated that, “Charities…seem too focused on expense ratios and not enough on impact.”

GRANT-MAKING PROSPECTS IN 2012.
According to a report published in The Chronicle of Philanthropy, most of the largest foundations in America do not expect to increase the amount of grants they will be making in 2012.  The article stated that most experts think grant making will stay flat for the remainder of this year.

CANADA.
A major supplier of international gifts-in-kind has been accused by Revenue Canada of allowing donors to receive inflated tax breaks, and revoked its tax-exempt status.