March 2015

States

ARKANSAS
Our office has just been informed that there is a new procedure for amending a charitable organization’s registration, whether it is a new contact person, change of address, custodian of contributions, or name change. All must now be submitted to the Attorney General on a Form CR-01.  

CALIFORNIA
On February 15, 2015, a federal judge issued a temporary restraining order blocking the state from compelling disclosures of donors by the Americans for Prosperity Foundation, a conservative advocacy group with close ties to the billionaire industrialists Charles and David Koch.  The lawsuit was filed in December, and alleged that requiring disclosure of donor identities would chill free speech and expose funders to criticism and threats.  The reader should recall that California, along with New York, has begun to try and require filing Schedule B, which lists the five largest donors to a charitable organization as part of a charity’s registration.   The state has responded to criticisms by saying that they would never disclose Schedule B to a third party, but the court rejected that argument saying there is no law prohibiting the state from disclosing to third parties.  The attorney general deems the provision important to somehow combat fraud.  It is only speculation, but if this lawsuit is decided adverse to the Attorney General (who is a U.S. senate candidate), it is possible the legislature will change the law to prohibit the state from providing the information to third parties.
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New legislation has been introduced that would require fundraising consultants to make a written disclosure that they are providing services to a charitable organization.  Under current California law only professional fundraisers are required to make this disclosure.  In introducing the legislation, the Attorney General and an Assembly member pointed to other cases where California consumers were unaware that a large portion of their donations were going to “fundraising consultants” and not to the charitable organization.  In addition, it would require the notice to be in 12-point type.  (Comment: This is an ill-conceived provision.  People know that it costs money to send a mail piece.  How far does the definition of a consultant reach?  Could it also include copywriters?)
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The Los Angeles Times has written an article questioning the use of charitable nonprofits by political leaders to fund various activities.  In this case the mayor established a fund for Los Angeles, and the concern is that large donors will assume they are getting access to the mayor’s office which otherwise might not be available.  

COLORADO
The Denver Business Journal reported that the founder of Boobies Rock! Incorporated has been ordered to return $1.89 million, pay $4 million in additional civil penalties, and agree never to work for a charity again according to the Colorado Attorney General.  The Attorney General alleged that the charity was not legitimate.  Models were hired to sell merchandise at bars and tailgating events with the promise that some of the funds would go to breast cancer charities when none of the funds actually did go to charities.

CONNECTICUT
A Connecticut grand jury has indicted a Nashville, Tennessee resident who organized marathons to aid those affected by the school shooting in New Town, Connecticut.  It turns out that most of the money allegedly went for personal use.

FLORIDA
The Wall Street Journal reported that the Jeb Bush Foundation paid $3 million to a firm run by his top political advisor, Mike Murphy.  The payments were made over a three-year period, seeking the assistance of this political ally to promote the educational agenda of the former governor.  

ILLINOIS
The Bernie Mac Foundation has made numerous changes to improve its governance following an audit by the Office of the Attorney General.  The audit was prompted as the result of a series of articles published by the Chicago Tribune, which noted how little of the income was being spent for the Foundation’s charitable purpose.  Among the reforms is an amendment to the bylaws of the Foundation prohibiting compensation to board members.

KANSAS
Public employees in the state would no longer be able to pay union dues or make charitable contributions via pay roll deductions under a bill recently approved by the state senate’s commerce committee.

MAINE
According to a published report, a state senator has introduced a bill that would require certain nonprofits to disclose their contributors for two years when they engage in political activity in the state.  (Comment: An example would be an animal welfare group in the state lobbying against or for certain legislation).
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The founder of a Maine charity, Operation Tribute,  that was praised by the governor and the first lady committed suicide in February.  Now the public has learned, the charity will be investigated by federal and state authorities and it appears the founder was syphoning off hundreds of thousands of dollars that were intended to purchase gifts for children of veterans. 

MICHIGAN
The state has recently has revised the charitable solicitation renewal form, which can be  found on the state’s website.  The renewal form can be submitted in PDF format with other attachments if necessary.

MINNESOTA
The state is taking the position that if a charity receives contributions from Minnesota, even from a passive website, then the charity must register to solicit in the state.  (Comment: The state statute talks in terms of soliciting individuals in the state which would not seem to apply to a passive website, but the state apparently disagrees.  The position of the state also seems contrary to the Charleston Principles).

NEW JERSEY
The New Jersey Advance Media reported that the Office of the Attorney General is investigating a dispute between a housing nonprofit and a state legislatore’s husband whom the charity claims sought Hurricane Sandy relief funds to make improvements to his shore bungalow.  The charity paid money to demolish it and the owners then applied to increase the size of the bungalow, and make it far more “luxurious” according to the report.

NEW YORK
The Office of the Attorney General has issued a warning to residents of the state about contributing to charitable causes on websites known as “crowdfunding.”  The caution given is to use reputable well established websites with a known track record, and understand that many of the laws regulating charities do not apply to postings on crowdfunding websites.
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The New York Times ran a story stating that the Mayor of the City of New York is ramping up fundraising  for the Campaign for One New York, which reportedly is operated by political consultants with close ties to the Mayor.  The paper speculates the purpose of the fundraising is to fund a public opinion campaign to support the Mayor’s agenda for housing and other issues.
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An appellate court in the state has ruled that a local taxing authority does not have to give notice to the Office of the Attorney General of an impending tax sale of charitable real estate.  The court ruled in part that the Attorney General is not a party and therefore does not have a legal right to notice.

OHIO
Previously, the Office of the Attorney General prosecuted the officers and directors of a high school athletic fund that was intended to provide scholarships for student athletes in Mansfield, Ohio.  The Attorney General’s Office seized certain assets and sold the building, and recently announced that a new scholarship trust has been established for graduating student athletes of Mansfield Senior High School, using the proceeds from the previous fund and the sale of the building.  (Comment: This is a great example of correcting a wrong by re-instituting all that was good about the inception of the fund).
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Faced with increased competition, charities in the state that rely on bingo have formed a coalition.  The coalition points out that the monies charities receive from bingo games has dropped following the opening of  such things as internet cafes and casinos in the state.  The goal of the coalition is to get changes in the state law that will allow the charities to compensate bingo workers, sell electronic instant bingo tabs, and let patrons bring their own alcohol to the games.

PENNSYLVANIA
By a vote of 30 to 19, the Republican controlled state senate gave the chambers final approval to a proposal to change the State Constitution to allow lawmakers, and not courts, decide which tax-exempt organizations qualify for state tax exemption from real estate and sales tax. (Comment: This, of course, is another incident involving the plight of local government that loses income from charitable institutions that enjoy real estate exemptions in their community.  This will be a hotly contested issue in the upcoming elections and, thereafter, if passed, it is likely some kind of judicial challenge will be made).
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The Pennsylvania Supreme Court has agreed to hear a case that must be one of first impression.  The issue is whether an attorney has an obligation to report to the Office of the Attorney General when he or she is representing a charitable organization which he or she believes is wasting assets.  What is at contrast here is the Rules of Professional Responsibility that provide for confidentiality as compared to the fiduciary duty owed under a public trust theory.  According to a published report, the specific question to be considered is whether the attorney may disclose to the Attorney General without violating the Canons of Professional Ethics pertaining to confidentiality.  (Comment: This case is under seal, and very little details are available.  Stay tuned for an interesting result).

Federal

INTERNAL REVENUE SERVICE (IRS)
A federal district court in Texas has ruled that A conservative organization that sought to sue former director of the IRS, Lois Lerner, in Texas over the handling of the organization’s tax-exempt status lacked standing to file.  The organization alleged that Ms. Lerner as Director of the IRS and supervisor of Texas-based offices violated the First and Fifth Amendment rights of the organization in the handling of its application.

UNITED STATE POSTAL SERVICE (USPS)
An attempt by the USPS to raise the rates on nonprofit periodicals was rejected by the Postal Regulatory Commission.  The new rates were scheduled to take effect in April.

 

Other News

INDEPENDENT SECTOR
This important industry organization recently released an update to its 2007 Guideline titled, “Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations.”  The new guidelines are more flexible on the issue of overhead.  A welcome addition.  

INDUSTRY REPORT
The Huffington Post reported that the nonprofit sector is expected to grow at a faster rate than the commercial sector by adding more and more new jobs as the economy continues to improve.

URBAN INSTITUTE HACKED
The Urban Institute provides research and tax services to charities throughout the country.  Recently, it started notifying charities that its system for filing tax returns  had been penetrated and information may have been lost.  
    
OTHER COUNTRIES
NORTHERN IRELAND
As of mid-October 2014, the Charities Regulatory Authority was established by ministerial order.  The purpose of the new agency is to maintain a register and to accumulate information to provide to the public, as well as to investigate complaints about charities.

NEW ZEALAND
Of the 27,500 charities registered in New Zealand, more than 2,000 have failed to file their annual return for at least two years.  The government is now warning these charities if they do not make their filings, they will be taken off the register of approved charities.

UNITED KINGDOM
A major committee has backed a proposal to give the Charity Commission more powers to ensure effective regulation of the charitable sector.  In doing so, the committee also recognizes the necessity of safeguards to protect the interest and the rights of the charities.