May 2014

In this issue:

  • Aron Schock (R-IL), has introduced a bill in the House that would permanently extend the allowance of tax redistributions from individual retirement accounts for charity.
  • In a wonderful partnership of government and nonprofits, a $36 million project of improvements in Yosemite National Park will go forward. The Yosemite Conservancy, a nonprofit organization based in San Francisco, is putting up as much as $20 million to help with the park’s improvements.
  • According to a published report, more than 300,000 donors gave over $50 million to 7,000 nonprofits, making the May 6, 2014 “Give Local America” the largest single day charitable crowd-funding event ever. The “Give Local America” was organized by Kimbia, a provider of technology for online giving.

Federal

CONGRESSIONAL ACTION

A bill has been introduced in the Senate that would require the IRS, prior to making an automatic revocation of a nonprofit organization for failing to file for three successive years, to issue a notice.  This would protect smaller organizations that have failed to file during the mandated period. The bill was sponsored by Senator Daniel Coats (R-IN). 
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Aron Schock (R-IL), has introduced a bill in the House that would permanently extend the allowance of tax redistributions from individual retirement accounts for charity.

Comment: This is a particularly important bill and hopefully will receive broad support.

INSPECTOR GENERAL’S REPORT

The Inspector General has completed an investigation of the administration of “in-the-work-place” campaigns in numerous jurisdictions.  As a result, the Inspector General has concluded there is a lack of oversight to the use of monies that are collected.  According to the Washington Times, the report indicated several instances where workers padded their paychecks with management fees and/or used funds for entertainment, massages and other misuses.

INTERNAL REVENUE SERVICE (IRS)

A guidance was recently issued that would allow an organization that receives an adverse ruling to its request for tax-exempt status to request a review of its application from the Office of Appeals.

State

CALIFORNIA

Assembly Bill 1952 would require nonprofit hospitals to provide annual charity care amounting to five percent of the hospitals’ net revenue in exchange for their tax-exempt status.

Comment: Real estate owned and occupied by such large institutions as hospitals not being on the tax rolls represents a loss to state and local governments.  We are seeing more and more government initiatives conditioning the tax exemption to meeting certain standards.  This initiative is so far, to our knowledge, unique.

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In a wonderful partnership of government and nonprofits, a $36 million project of improvements in Yosemite National Park will go forward.  The Yosemite Conservancy, a nonprofit organization based in San Francisco, is putting up as much as $20 million to help with the park’s improvements. 
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Assembly Bill 2077 was recently amended.  The thrust of the Bill is for a charitable trust fund to be established for use by the Attorney General’s Office to enforce registration and reporting requirements.  It would also appear that it would remove certain requirements for commercial fundraisers.  The future of the Bill seems uncertain.
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The board of directors of KPFA, a nonprofit radio station, voted to fire the head of the station.  The fired employee declared that the vote by the board was not legal, and she began an occupation of the offices.  The board members who voted against her firing filed a lawsuit seeking to reinstate her, while the board members who voted to oust her went back to the same judge and asked for a temporary restraining order barring her from the offices.  In mid-May the court ruled that the continued occupation constituted a nuisance and barred her from the office.  With the issuance of the order, the fired employee agreed to vacate.
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The San Diego Opera confirmed what has been widely speculated, that it is being investigated by the Office of the Attorney General.  Several elected officials have called upon the Office of the Attorney General to conduct an audit of the finances of the institution, which previously announced that it was going to close and then reversed its decision.

COLORADO

New legislation will go into effect in November unless a public referendum is filed, which does not appear likely.  Among the new provisions is one that targets charities that use unregistered professional fundraisers.  On the plus side the law will delete the requirement of providing addresses of officers, directors, trustees, and executive personnel of a charitable organization as part of the registration process.  The law also increases the penalty assessed for soliciting before registration is perfected.
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The state has passed legislation (H.B. 1349) which broadens property tax exemption for charitable organizations.  The exemption will now apply to limited partnerships and limited liability companies formed to obtain federal tax credits owned by religious, educational, or charitable nonprofit entities.

DELAWARE

This is one of the few remaining states which does not require any form of registration or reporting.  However, legislation has been introduced that would create comprehensive registration and reporting requirements.  If passed, the law would require charities, professional fundraisers and fundraising consultants to register in the state and file financial reports.

Comment: We will keep you advised of its progress.

FLORIDA

The former executive of a now defunct facility that served the disabled has been sentenced to 39 years in prison for embezzling $900,000.
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The attempt by the state to restate the charitable solicitation law and improve accountability has been completed.  Legislation has been passed and at this time is awaiting the governor’s signature.

Comment:  The legislation is substantially different from that which was originally proposed.  Many of the controversial provisions in the law were either deleted or modified to come into compliance with constitutional and industry standards.  Most interestingly, at one point the governor threatened to veto the legislation if it increased fees.

MASSACHUSETTS

The Office of the Attorney General has accused a Rhode Island-based charity of using deceptive fundraising tactics, and illegally soliciting donations in the Commonwealth.  Apparently the organization solicited donations by standing outside stores, lacking the proper certification from the Office of the Attorney General.  The lawsuit also alleges that the solicitors overstated how much of the proceeds actually go to help the veterans.  A temporary restraining order was entered preventing the charity from fundraising activities in the Commonwealth until it satisfies all the registration requirements.

MICHIGAN

The new rules for charitable gambling in the state have gone into effect.  The purpose of the new rules is to rein in some of the poker room activities in the state.  There is a limitation on the number of events per day, as well as the number of days per year that the poker rooms can operate for the benefit of charitable organizations.  There is also an adjustment as to what percentage can be paid to the poker rooms for hosting the events.

Comment: The charities and the operators have been vocal in their opposition to the attempts by the state to rein in charitable gambling, fearing that the state is attempting to favor the for-profit casinos.

MINNESOTA

This year the Major League All-star Game will be held in Minneapolis.  Local charities stand to be major beneficiaries as the result of a recent announcement that the hometown team and major league baseball will set aside $8 million that will be used to support local projects and national charitable initiatives as part of the festivities surrounding the game.

NEW JERSEY

According to an article in The Record, last January a New Jersey man pled guilty to wire fraud and filing a false tax return.  In mid-May he was sentenced to three years’ incarceration and ordered to pay nearly $770,000 to nonprofit groups to which he promised but failed to deliver prizes to be auctioned at their individual fundraisers. Some seventeen groups were defrauded by the defendant.

PENNSYLVANIA

The Knights of Columbus in McKeesport were collecting change to support various veteran charities.  Among the coins left in a change canister was a valuable ring.  The Knights of Columbus have been left with the dilemma as to whether the ring was put in the canister through inadvertence or if it was intentional.  They did the right thing and reached out through the media, inviting the donor to contact them to advise them whether the donation was intended or a mistake.

UTAH

According to the publication Fast Company, Utah continues to be the home of the most generous donors, to-wit: 48% of the state’s residents donated time and money to charitable organizations.

VERMONT

The state has been taking the position that at the expiration of a fundraiser’s bond, a continuation fee of $200 for each contract in existence has to be paid.  This is in spite of the fact that the same contract is the subject of a notice of solicitation at its origin when the initial fee is paid.  This means that fundraisers with multi-year contracts and multi-clients can multiply their cost of doing business in Vermont by $200 per contract each year when their bond expires.

Comment: While there is pressure on professional fundraisers to share more of the proceeds with charitable organizations, this action seems counterproductive.  Increasing the cost of fundraising inevitably filters down.  Our firm drafted a letter to the Office of the Attorney General asking them to reconsider their interpretation of this controversial provision on both practical and constitutional grounds.

Other

CIRCUS BEATS CHARITIES BADLY

Some animal rights groups entered into a $16 million settlement with the Ringling Bros. and Barnum & Bailey Circus.  The settlement ends a 14-year legal battle over the unproven allegations of the mistreatment of animals.  The settlement was prompted in part because of the 2012 ruling in which a court called the claims of animal-rights groups frivolous and resulted in the company, Feld Entertainment, expending millions of dollars in legal fees.  Most distressingly, the court also found that the original lawsuit was filed by an ex-employee of the circus company who was actually paid by the animal-rights groups to bring the lawsuit.  The allegations centered on the treatment of elephants in the circus.

COMBINED FEDERAL CAMPAIGN

According to figures recently published by the Washington Post, federal employees’ participation in the Campaign fell by 22.9%, which was four points higher than the earlier report made by O.M.  Almost two hundred fewer federal employees donated to the campaign in 2013.

Comment: As reported in last month’s report, efforts to reform and make the Campaign more efficient have been criticized by industry leaders.  The insistence is that the focus should be on improving participation rather than the cost efficiency of conducting the Campaign.

CONFIDENTIALITY/NON-DISPARAGEMENT AGREEMENT

The Washington Post reported that auditors for two federal agencies are examining the operations of an Arlington-based international relief organization that has required its employees to sign confidentiality and non-disparagement agreements.  This international relief organization does a great deal of work in Afghanistan and Iraq.  The agreements are keeping the individuals from talking to auditors from the federal agencies that are responsible for funding the organization.  The newspaper went to several attorneys to review the agreements and concluded that the agreements could violate whistle blower protections under the False Claims Act.

Comment: Under some circumstances when an employee leaves an organization, they can and perhaps should be asked to sign confidentiality and non-disparagement agreements, particularly if the separation was contentious.  This article raises the question of whether those kinds of agreements might violate the federal law protecting whistle blowers.

GRASS ROOTS FUNDRAISING GROWS

According to a published report, more than 300,000 donors gave over $50 million to 7,000 nonprofits, making the May 6, 2014 “Give Local America” the largest single day charitable crowd-funding event ever.  The “Give Local America” was organized by Kimbia, a provider of technology for online giving.