May 2013

In this issue:

  • In Hawaii, legislation was approved on the last day of the session to restore the income tax charitable deduction for state residents. The bill has been sent to the Governor for signature.
  • One Fund Boston has been established as the primary relief source for the victims of the bombings at last month’s Boston Marathon. So far, the organization has raised over $30 million in donations and pledges, but it is having an unintended effect. According to an article in the Boston Globe, other local nonprofit organizations are now starting to feel the effect of the diversion of money to the Fund, and as a result are coming up short in their fundraising activities.
  • In Oklahoma, Senate Bill 372 has been passed into law and becomes effective November 1, 2013. The bill deletes the necessity of a charity filing its IRS Form 990.

Federal

INTERNAL REVENUE SERVICE (IRS).
The IRS recently released its report on its survey of colleges and universities.  While there were many aspects to the report, one of the most interesting to the industry is the report’s description of how unrelated business income is not being properly reported.

Comment: Generally, there is a tax on business activity conducted by a tax-exempt organization that is regularly carried on and is not substantially related to its exempt purpose.  There are books on this subject.  If you need guidance or a better description of the issues, please feel free to contact the firm.

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The IRS has been targeted as a result of allegations that applications for some groups were “red flagged” for delay.  How this will affect the ability of the IRS to provide oversight and be responsive to otherwise mundane tax-exempt issues remains to be seen.  As a result, acting IRS Commissioner, Steven Miller, has resigned his position.

State

CALIFORNIA.
Action has been taken to extend the exemption from sales and use tax for entities that operate thrift stores on military installations in the state. 
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A trial is scheduled to start in a major case brought by the California Attorney General’s Office against Help Hospitalized Veterans.

FLORIDA.
New legislation regulating telemarketing has been corrected to continue affording protection for calls made by or on behalf of tax-exempt charities.
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Senate Bill 390 is on the verge of being passed by the legislature.  It is a too late reaction to two major scandals in the state involving veteran organizations.  Most recently, there was a veterans’ organization which was operating online gambling which resulted in the indictment of a number of politicians and people in the state.  Previously, there was the scandal involving the navy veterans’ organization which received a great deal of national publicity.  The new bill would prohibit a business entity from advertising or holding itself out to the public as a veterans’ organization, or similar entity, under certain circumstances.  A violation of the restriction on advertising that the law creates would constitute a violation of the state’s Unfair Trade Practices Act.

Comment: This appears to simply be an opportunity for a legislator to grab the spotlight, even if it is just for a minute.  The conduct complained about has always constituted a misrepresentation, and there are already adequate laws in the state to deal with same.

GEORGIA.
Once again, charities and politicians do not mix (these are the same people making laws governing charitable activities).  This time a federal grand jury has indicted a Georgia state representative from Atlanta charging him with misappropriating almost $1 million in charitable funds from a charity he founded in 1990.

HAWAII.
Legislation was approved on the last day of the session to restore the income tax charitable deduction for state residents.  The bill has been sent to the Governor for signature.
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Senate Bill 1020 is now a law in the state.  Among the interesting provisions is the expansion of coverage over commercial co-venture activities.  Added is a fine of $20 penalty, presumably per day, for failure by a commercial co-venturer to file a written consent as required by the law.  The revisions also potentially do away with the use of the URS in the jurisdiction.

KANSAS.
Mary Beth Acree has been with the Office of the Secretary State of Kansas in the charitable registration section for 12-l/2 years.  It is with sadness we note that she is leaving her position and transferring to another governmental agency.  Her replacement has not yet been named.

MAINE.
Senate Bill 438 was introduced, titled “An Act To Streamline the Charitable Solicitation Act.”  The bill would eliminate unnecessary regulation and document filing requirements, while still retaining essential oversight of charitable organizations, professional solicitors, and fundraising counsel.  The bill would eliminate the licensing of commercial co-ventures and changes the document filing requirement for registrants.

The bill would also require licensees to notify the state of any change within ten days.  Further, it expands the description of reportable court actions.

Comment: This is progressive legislation that will most likely be approved.

MASSACHUSETTS.
One Fund Boston has been established as the primary relief source for the victims of the bombings at last month’s Boston Marathon.  So far, the organization has raised over $30 million in donations and pledges, but it is having an unintended effect.  According to an article in the Boston Globe, other local nonprofit organizations are now starting to feel the effect of the diversion of money to the Fund, and as a result are coming up short in their fundraising activities.

MINNESOTA.
According to a published report, approximately 173,000 state residents do not itemize deductions on their state income tax return.  A House proposal would take away their charitable deductions and replace them with a tax credit.  The move is being resisted by a coalition of nonprofit and industry interested individuals, who say the measure would discourage giving in the state.

MISSOURI.
The Missouri Department of Revenue has issued an opinion letter affirming that a Christian charitable organization, which had been granted a sales and use tax exemption letter, will not be required to collect and remit sales tax on a resale shop it is going to operate to help fund its benevolent care programs.

NEVADA.
This is one of the few states remaining which does not have a charitable registration law.  However, that might be changing if Assembly Bill 60 is passed into law.  The bill was recently introduced and will require charitable organizations to register with the Secretary of State as a condition to making appeals within the state.

NEW YORK.
Assembly Bill 6625 would amend the Executive Law and require the registration of anyone who raises more than $5,000 for a charitable cause and declares the proceeds are held as a charitable trust.  It goes on to provide, “Any funds collected in excess of $5,000 shall be deemed to be held in trust for the benefit of the charitable organization or donee, and to be applied first for the purpose of the solicitation before using any part of the total of the same for any other purpose.”

Comment: On its face the bill would appear to limit fundraising costs, regardless of the circumstance, to only $5,000.  Constitutional problems abound.

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A state court judge ruled against a telemarketer and ordered all of their activities halted.  The court found that the telemarketer mislead New York residents as to the nature and the quality of the charity that it represented by engaging in misrepresentations.  The decision was based on cross motions for summary judgment on the issue of liability.  The second stage of the proceedings, unless appealed, will go to restitution and damages.
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Former state senator, Shirley Huntley, was sentenced to one year and one day incarceration for stealing $88,000 from taxpayer-funded charity she controlled.  Her sentence was reduced as a result of her cooperation with federal authorities, who continue to investigate corruption by state politicians.
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Assembly Bill 7337, seemingly introduced to address the number of problems with politicians and poorly run charitable organizations, seeks to amend the state’s Nonprofit Corporation Act.  The legislation would require nonprofit organizations to adopt a series of policies and distribute them as required by the law.
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The New York Attorney General has announced a bi-partisan plan to substantially overhaul the state’s nonprofit law.  A major part of the new proposal is to create a legal necessity adopting what are generally called “best practices.”  The law would also give the Attorney General’s Office more authority to seek judicial review of related-party transactions.

Comment: This is important initiative because of the place New York occupies in the regulatory landscape involving tax-exempt organizations.

NORTH DAKOTA.
Senate Bill 2260 has been signed into law.  The bill redefines “telephone solicitation,” but does not do anything to change the limited exception for calls made on behalf of charitable organizations.  Calls made by compensated agencies on behalf of a charitable organization remain subject to the state’s do-not-call law.

OHIO.
The state recently issued a report on several actions taken to stop the misuse of charitable funds.  The report said that the Ohio Attorney General’s Office received an average of between 1,200 and 1,300 complaints per year about charities.  So far this year they have received 311.  Since 2008, the Ohio Attorney General’s Office has taken some kind of action against 259 nonprofit organizations.

OKLAHOMA.
Senate Bill 372 has been passed into law and becomes effective November 1, 2013.  The bill deletes the necessity of a charity filing its IRS Form 990.
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Oklahoma State University has dropped its legal battle to recoup $33 million in insurance premium payments that were used as a fundraising tool by ensuring the lives of major donors.  The university will sustain a loss of $22 million, which is being covered by benefactor T. Boone Pickens.

PENNSYLVANIA.
The Hershey charity has now been the subject of three separate agreements with the Pennsylvania Attorney General’s Office.  The latest inquiry ended a two-year investigation.  The charity has a $10 billion endowment and operates a school for orphans and poor children.  The state found that the charity’s board members did not violate their fiduciary duty by purchasing and developing a $17 million golf course, or for purchasing an adjacent roadside market for $8.6 million.  The new settlement between the state and the organization relates to governance reforms at the institution.

Comment: The institution started as an orphanage as the result of the generosity of Milton S. Hershey and his wife in 1909.

SOUTH CAROLINA.
Legislation has been introduced in the Senate which parallels previous legislation introduced in the House that would require professional fundraisers working with exempt organizations to register regardless of the exemption of their client.

Comment: If the legislature grants an exemption to a charitable organization it, in effect, takes it way requiring those who work with them to fully comply with the law.

TEXAS.
The Associated Press reported that the legislature has passed a bill which would place further restrictions on § 501(c)(4) organizations that spend more than $25,000 on political activities in the state.  The legislation, if signed by the governor, will require the organizations to disclose supporters who contribute $1,000 or more.

Comment: There is a real debate as to whether this will be signed into law.  Many are urging a veto saying it would violate First Amendment rights.

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On May 15, 2013, Attorney General Abbott called upon advocacy organizations in the state which believe they were improperly targeted by the IRS to contact his office and contribute to an investigation, which his office is currently conducting.

UTAH.
Legislation has been introduced to revise the telephone solicitation laws in the state.  Registration would appear to be required if the legislation passes whether calls are made from Utah or into the state.  The legislation would also require criminal background checks, and escalating bonds depending upon various factors.

Other
COMBINED FEDERAL CAMPAIGN.
Preliminary reports for the Fall 2012 CFC campaign were disappointing.  Total giving was the lowest since 2004, with most participants seeing a decrease in support.