May 2012

In this issue:

  • By a 2-1 decision, a U.S. court of appeals panel in Washington refused to stay a ruling by a lower court requiring organizations that run election-related television ads to disclose their donors. The Los Angeles Times called the decision, “. . .a significant victory for campaign finance reform. . .”. The hearing on the appeal of the ruling will take place this Fall.
  • The American Institute of Philanthropy has changed its name to “CharityWatch.”
  • The Alaska Veterans Outreach Boxes For Heroes, organized to raise money to send deployed soldiers care packages from Alaska, has been indicted for allegedly running a “charity scam.” The charity allegedly raised $140,000 between April and October 2011. The indictments charge the founder with using the money for his own personal benefit.

Attorneys' Comments
Read additional comments related to this newsletter.


Federal

CONGRESSIONAL HEARING.
The Oversight Subcommittee of the House, Ways and Means Committee heard testimony on May 16, 2012, from five nonprofit experts for the purpose of the subcommittee examining several issues related to the IRS’ oversight of tax-exempt organizations.  Representative Charles Boustany (R-LA) heads the oversight committee and called the hearing.  The testimony offered, in most respects, praised the IRS and the work it does in providing oversight.

COURT DECISION.
By a 2-1 decision, a U.S. court of appeals panel in Washington refused to stay a ruling by a lower court requiring organizations that run election-related television ads to disclose their donors.  The Los Angeles Times called the decision, “. . .a significant victory for campaign finance reform. . .”.  The hearing on the appeal of the ruling will take place this Fall.

INTERNAL REVENUE SERVICE (IRS).
Lois Lerner, Director of Tax Exempt Organizations, told attendees at a presentation she made at the Georgetown University School of Law on tax-exempt organizations, that the agency believes there is a correlation between good governance and compliance with the Tax Code.
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The IRS has announced that Holly Paz has been named as Director of Exempt Organizations Rulings and Agreements, effective May 6, 2012.

UNITED STATES POSTAL SERVICE (USPS).
The USPS has announced a new strategy to preserve some of the nation’s smallest post offices.  This is coupled with an aggressive downsizing of hours and staff.  The future of postal reform remains very much in play.


State

ALASKA.
The Alaska Veterans Outreach Boxes For Heroes, organized to raise money to send deployed soldiers care packages from Alaska, has been indicted for allegedly running a “charity scam.”  The charity allegedly raised $140,000 between April and October 2011.  The indictments charge the founder with using the money for his own personal benefit.

ARIZONA.
HB 2610 has been introduced in the Arizona House which would eliminate the exemption found in Arizona’s telemarketing registration law for registered fundraisers and apply it solely to charitable organizations.

CALIFORNIA.
The state is seeking to amend the charitable solicitation law by giving the Office of the Attorney General more authority.  Under Assembly Bill 2327, the Attorney General would be able, under certain conditions, to issue an order to charities or their professional representatives to cease and desist certain activities.  The burden would then shift to that entity to request a hearing.

Comment: View the attorneys’ comments on this posting.

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The Los Angeles Times reported that the FBI is on the case investigating the disappearance of more than $1 million held by The International Humanity Center, an umbrella organization for as many as two hundred small nonprofits in the Los Angeles area.  The organization closed its doors in February, and to date there has been no satisfactory explanation for the disappearance of the funds.

COLORADO.
House Bill 1236 has been signed into law and will go into effect on January 1, 2013.  The bill excludes grant writers from the definition of a “paid solicitor” unless the grant writer’s compensation is computed on the basis of funds raised from the grant.  It also deals with the subject of fundraising in the name of an individual and creates an exclusion from registration requirements.  The bill also grants charities an automatic three-month extension for filings if the charity has acquired an extension from the IRS.  Most importantly for professional fundraisers, it requires the disclosure of professional status “in close proximity to the opening greeting.”

Comment: No doubt at some point the issue will arise as to what constitutes “in close proximity.”  It is seems apparent that it is not at the end of the presentation.  Other than that, it is unclear.

CONNECTICUT.
H.B. 5298 has been introduced to put state government in the position of screening and reporting on veteran organizations.  Under the bill, a separate web page will be created by the state where major veteran organizations will be profiled by the state as to such standards as: (1) accountability; (2) ratios; (3) past violations; and (4) any information provided by the organizations.  If this law passes, it will also contain the following disclosure, “This list is prepared for the public solely for the purpose of information. . .”.

FLORIDA.
For nearly two years, Bobby Thompson, the founder of the U.S. Navy Veterans Association, has eluded law enforcement authorities.  His run as a fugitive ended in Oregon.  He was returned to Ohio where he faces criminal charges.  When asked for his true name (fingerprint record checks proved fruitless), he told the court to call him “Mr. X.”

Comment:  If you are not familiar with the story, you should Google either the name “Bobby Thompson” or the “U.S. Navy Veterans Association.”  Using a stolen identity, Bobby Thompson created a charity which not only fooled donors, but also regulators and elected officials.

MASSACHUSETTS.
Suzanne Bump, State Auditor, has declared “war” on nonprofits who abuse taxpayer funds.  She recently yanked a $1.7 million taxpayer funded disabled-services contract from a state agency because of its report accusing the executives of running up bills at restaurants, liquor stores, and Disney World.

MINNESOTA.
Four nonprofits sued Wells Fargo claiming that it had mismanaged their investments.  The trial ran for more than a month and ended with jurors awarding compensatory damages, but denying punitive damages.  Wells Fargo appealed, and in April a Minnesota court of appeals affirmed key parts of the verdict in the case that cost Wells Fargo Bank $30.3 million in damages.

Comment: There is a difference between simply losing money and being given poor advice.  In this instance, the charities alleged that the investment department of the bank put them in unusually high risk securities without their knowledge or consent.

* * * * *
Under the category of “why can’t we all just get along?” is an ongoing struggle.  The Minnesota Voters Alliance has sued the state and local officials over allegations of fraud in Minnesota elections, and has now been accused of not registering as a charitable organization.  The complaint was brought by the American Civil Liberties Union of Minnesota.  The two organizations are on opposite sides concerning the issue of photo identification for voter registration requirements.

NEW JERSEY.
New requirements for fundraising consultants have caused a lot of misunderstanding.  The form SR1 only has to be filed for those professionals who have custody or control of contributions.  The form SR2 has to be filed by others.  In the case of direct mail consultants, the form asks for information which may not be available to the consultant.
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The new head of the state’s Division of Consumer Affairs is Eric Kanefsky.  In a recent interview, he promised that the Division would increase its focus on charitable fraud and regulation.  Mr. Kanefsky comes from the U.S. Attorney’s Office in Newark, and his employment is subject to confirmation by the state senate.  He is currently the Acting Director.

NEW YORK.
The Office of the Attorney General sued the directors of the Thoroughbred Retirement Foundation, alleging they had driven the Foundation into insolvency and failed to provide the basic care for the more than 1,100 horses under their control.  The 35-page complaint was filed in state court in Manhattan.
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A former city councilman and state senator, Hiram Monserrate, pled guilty to improperly using city money to finance a failed political campaign.  He admitted he asked that discretionary funds from the city council be given to a nonprofit to help in its work.  Instead, the money was used in large part to help finance his own political campaigns.
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The Office of the Attorney General announced the filing of a lawsuit and the issuance of subpoenas to sixteen charities, fundraisers and individuals as part of its industry-wide investigation into car donation activities.  The lawsuit alleges that the Director of Feed the Hungry, Inc. used the proceeds received from the solicitation car donations to enrich himself.

TENNESSEE.
The state has taken the position that professional fundraisers must use the exact words “professional solicitor,” although the statute does not place those words in quotation marks.  The authority for this position taken by the Department of State are the rules they promulgated to implement the statute.

Comment: There is probably an argument that can be made under the general rules of statutory construction.  Ordinarily, rules are enacted to give effect to the statutes.  When rules go beyond the statute it can be argued that the executive branch is engaged in a legislative activity, which it is prohibited to do.

Other

CHANGE OF NAME.
The American Institute of Philanthropy has changed its name to “CharityWatch.”

PRESIDENTIAL GIVING.
According to a published report, President Obama and his wife gave nearly 22% of their income to charity in 2011.

PROTECT YOUR INTELLECTUAL PROPERTY.
We continue to witness incidents where individuals, businesses or organizations are using the intellectual property of a tax-exempt organizations without their knowledge or consent.  In order to protect registered intellectual property, a right holder cannot simply acquiesce in the diminishment of its proprietary interest.  The Lanham Act was created by Congress to protect the rights of those who register trademarks and other symbols that constitute intellectual property.  If someone infringes on the rights held by another, the Act gives the organization the right to sue.  Other causes of action, such as unfair competition, and allegations of the violation of certain laws of various states, which prohibit the use of intellectual property of a charitable organization without its express written consent, may also offer some relief.

2012 AFP COMPENSATION AND BENEFIT REPORT.
If you thought 2011 was a bad year for persons working in development, you were correct.  According to a published report just issued by the Association of Professional Fundraising Professionals, pay raises for fundraisers could not keep pace with inflation.  Pay raises averaged 1.5%, while inflation was at the rate of 3% for the year.  The report goes on to say that fundraisers earned a median of $66,000 in 2011, which was up by the grand total of $1,000 from the previous year.

UNITED KINGDOM.
According to The Financial Times, a proposal to set a limit on tax deductions for the wealthy has come under significant attack.  As a result Britain’s top treasury official is considering modifying his proposal.

Comment: The same concept has been floated here, to-wit: there would be a limitation on the deductibility of major gifts to the wealthiest givers.  Any limitation on the incentive to give now comes at a poor time for the nonprofit community.

* * * * *
The senior policy advisor to the Charity Commission has indicated that an inquiry will be made in the industry to help the Commission determine what information it should be requiring and what information it should not.  The advisor also indicated that the Commission was interested in hearing views on registration thresholds.

Commentary

Protect Your Intellectual Property

A Charity’s Right to Due Process