March 2013

In this issue:

  • A California state senator has proposed legislation that would revoke the tax-exempt status of any Boy Scout chapter and any other youth organization that bars gay participation.
  • In Hawaii, House Bill 1020 provides for the assessment of a fine on commercial co-venturers who fail or refuse to file a written consent when conducting a promotion where a charity is a beneficiary of a portion of the sales.
  • Legislation passed in Missouri makes it an unfair business practice by for-profit entities to operate unattended clothing bins, unless there is a specified statement in bold letters at least two inches high and two inches wide, notifying potential donors that the goods are not being solicited for a charitable purpose and will be resold.

Federal

HOUSE, WAYS AND MEANS COMMITTEE.
The fight to preserve the charitable deduction goes on.  In mid February, representatives of major trade associations and nonprofits provided testimony before the Committee, which is conducting hearings on proposals to modify the charitable deduction.

INTERNAL REVENUE SERVICE (IRS).
Applications for tax-exempt status are supposed to be confidential.  However, there have been a number of instances where applications and subsequent filings have been published by various media outlets.  This has raised a concern among practitioners in the tax-exempt area and the IRS. The IRS’ chief counsel has promised to look into the matter.  Others believe it is a matter of clerical error and not as a result of an intentional disclosure.
* * * * *
The IRS continues to make changes in the instructions and in the actual Form 990.  According to a recently published report, the IRS has dropped the requirement of providing addresses of key employees, officers and directors, and again cautions charities against putting social security numbers on the return.  Another interesting change is that charities are now being told that when they tally their fundraising costs, they should also include preparation of applications for grants and other assistance.

States

ARIZONA.
The City of Phoenix is considering new ordinances to regulate and license unattended donation receptacles.  City council members have expressed a concern about the proliferation of clothing bins and other forms of receptacles.  Under the current proposal operators of same would be required to be registered and pay a fee of $135 per bin/receptacle.

CALIFORNIA.
The first female mayor of San Diego acknowledged in court that she misappropriated more than $2 million from her late husband’s foundation to fund her casino gambling habit.
* * * * *
A state senator has proposed legislation that would revoke the tax-exempt status of any Boy Scout chapter and any other youth organization that bars gay participation.

CONNECTICUT.
According to a Hartford newspaper, a new nonprofit group has begun overseeing the distribution of the more than $9 million which has poured into the Newtown fund since the tragedy.

Comment: The focus here is to get the funds administered by people who know where the money is needed the most.  Other tragedies in other communities have seen a less than efficient collection and disbursement of the generosity of their fellow Americans who have come to the aid of these communities.

DISTRICT OF COLUMBIA.
The Washington Business Journal reported that CEOs of nonprofits in the District of Columbia are by far the highest paid. According to research from GuideStar, the report said that local nonprofit chief executive officers earned a median of $151,000 in 2010, which was eleven percent more than CEO’s in other locales.

FLORIDA.
House Bill 7023 would make a number of improvements to the charitable solicitation law, but continues the necessity of an organization disclosing its registration number on every form or printed solicitation, confirmation or receipt.  It would also require the state to send out renewal notices within sixty days of the due date.  (Historically, the renewals have been sent out late causing a problem meeting deadlines).  It also broadens the definition of who may sign forms on behalf of charities, and would allow any “authorized official” to sign.  Most troubling is the language that requires the 990 to contain “all attached schedules.”  This could mean the forced enclosing of Schedule B, which is the schedule listing major donors that is not otherwise a matter of public record.  The saving grace is that a charity can complete a Florida financial form in lieu of the 990, if that is in fact the interpretation that would be placed upon this provision if the bill passes.

GEORGIA.
According to the Atlanta Journal-Constitution, the founders of Angel Food Ministries, a defunct Georgia-based nonprofit, pled guilty to federal charges for money laundering and other improprieties, including the use of the ministries’ money for personal purposes.  At its height, the organization brought in $140 million a year and sold boxes of low-cost food through a nationwide network of churches and civic organizations.

HAWAII.
House Bill 1020 provides for the assessment of a fine on commercial co-venturers who fail or refuse to file a written consent when conducting a promotion where a charity is a beneficiary of a portion of the sales.  The fine is $20 per day to a maximum of $1,000 per day, unless it can be shown that the failure was due to reasonable cause.  The legislation would also require commercial co-venturers to maintain financial records.

MICHIGAN.
This major state became the latest to issue a report on fundraising campaigns that employed the services of professional fundraisers.  According to the press release, sixty-five percent went to the cost of the appeals in the state.

MINNESOTA.
Of all things, a bill has been introduced in the House that would require the highest paid directors, officers and employees of an organization and related organizations be included in the annual report filed with the state.  In addition, the law would require the disclosure of a toll-free number, e-mail address or website where the information could be obtained.

MASSACHUSETTS.
Every year there are bills introduced in several legislatures that are blatantly unconstitutional.  House Bill 291 is an example.  This bill would require professional telemarketers who do not deliver forty percent or more of total donations to their clients, to record their calls and make them available for review and audit by the Office of the Attorney General.  The solicitor would also be required to state either, “verbally or in writing, that they are soliciting money for profit. . .”
* * * * *
Once again legislation has been introduced (House Bill 190) that would extend the do-not-call law to calls made on behalf of charitable organizations if the calls are made by professional solicitors.  (The initiative to add this to the ballot a year or so ago failed.  This is a new legislative attempt.)

MISSOURI.
Legislation passed in Missouri makes it an unfair business practice by for-profit entities to operate unattended clothing bins, unless there is a specified statement in bold letters at least two inches high and two inches wide, notifying potential donors that the goods are not being solicited for a charitable purpose and will be resold.

NEW JERSEY.
The Division of Consumer Affairs is busy these days trying to track down “pop up” organizations that raised money for victims of Hurricane Sandy.  In some cases they are fictitious and others do not have tax-exempt status and/or are registered with the state as required by law.  In one case an organization claimed that it did have tax-exempt status, and even listed the Governor’s wife as being part of the effort.
* * * * *
Local papers report that in response to Hurricane Sandy a charity chaired by the Governor’s wife has raised more than $32 million, but it has yet to dispense any aid.  The Governor’s wife has countered the criticism by noting the prolonged process of starting a new charity, and the goal of the organization being to provide long-term assistance rather than immediate aid.

* * * * *
The Star Ledger reports that a state audit found a series of foster care facilities which receive state funds are guilty of spending at least ten percent of the state’s money on extravagant or impermissible expenditures.

NEW YORK.
The New York Post reported that the former financial director of an American Red Cross chapter in the state was sentenced to seven years in prison for embezzling more than$274,000 from the chapter.
* * * * *
A New York museum has been sued by a member and tourist claiming that the “suggested fee” for entry is misleading.  Under the terms of its existence, the museum must allow free entry, but may make suggestions for voluntary donations.  A court action seeks to require the museum to make the entry policy clearer.
* * * * *
The New York Attorney General wants to propose new regulations to require tax-exempt organizations that spend funds trying to influence elections in the state, to disclose the source of the funds.  The attorney general contends that these regulations ensure transparency and discourage illegal conduct by nonprofits.  In making his proposal, the attorney general pointed to the influx of money as a result of the Citizens United v. Federal Election Commission decision by the United States Supreme Court.

OKLAHOMA.
Senate Bill 372, which is on its way to passage, would negate the necessity of a charity, in its initial registration, having to file a copy of its 990.
*****
A federal appellate court ruled that T. Boone Pickens and Oklahoma State University athletic backers do not have a right to a trial by jury over their claims that they were defrauded out of tens of millions of dollars in an insurance investment scheme designed to enrich the university’s sports program by the use of insurance on elderly alumni.

PENNSYLVANIA.
A constitutional amendment has been proposed that would prohibit local governments from challenging the tax-exempt status of charities.

Comment: Cities desperate for revenue have targeted a number of nonprofit hospitals and other institutions in the state in an attempt to impose real estate tax.  This proposal, if successful, would create a constitutional amendment that would prohibit the cities from doing so.  A state senate committee has endorsed the amendment.  The path to passage, however, may take two years or more.

* * * * *
A bill has been proposed in Philadelphia that would require the city’s nonprofits to go through an annual process in order to ensure they qualify as a “purely public charity,” and thus are eligible for the municipal tax break that is given.

SOUTH CAROLINA.
The Office of the Secretary of State announced the passing of Ed Brown after a seven-year battle with cancer.  Ed retired several years ago as the lead investigator for the Office of the Secretary of State.  Ed was active in NAAG/NASCO, and represented everything that was good in a regulator.  Condolences to everyone who knew him. 
* * * * *
The Office of the Secretary of State has announced a settlement with a telemarketing firm, which agreed to pay a $30,000 penalty with no finding of wrongdoing.  According to the press release the penalty was assessed as a result of failing to register individual callers and failing to give point-of-solicitation disclosures as required by law. 
* * * * *
House Bill 3398 adds a provision that raises a significant question.  The purpose of the bill is to exempt public schools from filing a registration, even if they work with professionals.  However, the exemption would require the professionals to meet the registration and filing requirements.  The argument is that if the nonprofit is exempt from any filing requirements, then requiring the professional working with the exempt organization to file frustrates the legislative intent of granting an exemption to the nonprofit organization. The Florida Attorney General’s Office issue an the attorney general’s opinion where this very question was posed with reference to fundraising being conducted on behalf of the American Red Cross. The Florida Attorney General concluded that requiring the professional to register and report was a form of improper legislative action by the Executive Branch.

VIRGINIA.
The State Tax Commissioner has ruled that in order for a tax-exempt organization’s purchases to qualify for sales tax exemption, payment must be made by the organization.  The use of an organization’s credit card, checks or cash would entitle an otherwise qualified organization to the exemption.  The question arose in this instance whether the exemption applied to a purchase by an employee of a tax-exempt organization using their own credit card.  The ruling said it would not qualify.