November 2012

In this issue:

  • A U.S. District Court in the District of Columbia held that its review of a revocation of a foundation's tax-exempt status by the IRS will not be limited to the administrative record. [Educational Assistance Foundation for the Decedents of Hungarian Immigrants and the Performing Arts v. U.S., (U.S. District Court of Columbia.]
  • Secretary of State Mark Hammond has released his annual "Scrooges and Angels" list of what charities in the state give toward their goals. In order to be an "angel," a charity must use at lease 80% of its donations for its charitable purpose.
  • The NonProfit Times has issued its top 100 charities list, based upon revenues. Topping the list is the YMCA, with Goodwill Industries and Catholic Charities in a virtual tie for second place.

Federal

INTERNAL REVENUE SERVICE (IRS).
The fast-track program, started as a pilot program in 2008, has now formally been made permanent by the IRS.  The purpose is to expedite consideration of pending matters involving tax-exempt organizations.  Although the program was scheduled to expire in 2010, it has been kept alive informally.  This latest action makes the program a formal part of the overall approach to tax-exempt organizations.
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Earlier this month the IRS revoked an organization’s tax-exempt status because it did not respond to the repeated requests of the IRS to review the organization’s books and records.  The notice of revocation cited in part, Internal Revenue Code ‘6001, which requires a tax-exempt organization to keep adequate books and records.
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A U.S. District Court in the District of Columbia held that its review of a revocation of a foundation’s tax-exempt status by the IRS will not be limited to the administrative record.  The court went on to say it would allow the foundation to present additional evidence, but the evidence had to be consistent with the arguments that were made to the IRS during the administrative proceedings. [Educational Assistance Foundation for the Decedents of Hungarian Immigrants and the Performing Arts v. U.S., (U.S. District Court of Columbia.]

Comment: In our opinion, this is a positive development.  Reality in this situation should be far more important than technicality.

UNITED STATES POSTAL SERVICE (USPS).
According to a recent report, the USPS lost $15.9 billion in fiscal year 2012.  The volume of mail continues to decline at the rate of 5% per year, creating additional financial strains.

States

CALIFORNIA.
After a frantic court battle, state election officials in California have forced an Arizona nonprofit group to disclose the identity of contributors who provided $11 million to a California campaign fund.  The victory, however, was only momentary.  Apparently the funds were sent to the Arizona group by other nonprofits.  The purpose of the fund was to fight the governor’s proposed tax plan and to promote an initiative that would limit political spending by unions.  While the federal law allows nonprofits to keep donors confidential, a new rule in California requires donors to be disclosed if they give to a nonprofit with the intention of spending on state campaigns.  The California attorney general has vowed to continue the fight to find out who the individuals are that funded the political action.
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An office manager stole more than $500,000 from a substance abuse charity in Ventura and faces up to seven years incarceration.  The office manager was able to commit the crime because she hid her thefts by entering false data into the organization’s books and kept members of the organization from having access.  She also forged the signatures of several board members on documents.

Comment: The need for transparency and cross checks cannot be illustrated enough in this situation.

DELAWARE.
According to a state publication, several local nonprofit organizations are feeling the economic downturn by a loss of income which, in some cases, exceeded 30%.

FLORIDA.
According to the American Thinker, a charity set up by Jill Kelley for cancer research spent more than fifty percent of its money in 2007 for meals, entertainment, travel, legal fees and automotive expenses.

ILLINOIS.
A bill has been introduced to require still more disclosure from state-supported nonprofit groups.  The sponsor of the bill stated that legislation, if passed, would require state-funded charities to disclose “ownership interest, operating agreements, partnerships, or other relationships” with commercial entities, as well as wages for executives who are officially paid by commercial management companies.

IOWA.
Two telemarketing firms located in Arizona have been ordered by Iowa state court judges to stop calling in the state.  In both instances these were promotions which involved the sale of products that allegedly would benefit charitable organizations, and/or claimed that the callers themselves were disabled.  The companies did not admit any liability.

LOUISIANA.
The National Fish and Wildlife Foundation will administer nearly $2.4 billion as part of the $4 billion settlement from British Petroleum from the 2010 Gulf of Mexico oil spill.

MICHIGAN.
The founder of two “fake charities” with names confusingly similar to Paralyzed Veterans of America and Disabled American Veterans has been sentenced to seventeen months to ten years in prison, and ordered to pay restitution of approximately $75,000 to the two organizations.

MISSOURI.
A judgment has been rendered against a couple who made a multi-million dollar pledge to the Kansas City Art Institute to underwrite the cost of a building that was to be named after the couple.  Based upon the binding agreement, the building was built and now stands with the couple’s name, but the couple fell on hard financial times and failed to meet their obligations pursuant to the agreement.  The couple has threatened to file bankruptcy.

Comment: It is an unusual circumstance when a charitable organization sues a committed donor for failing to meet his/her obligations because of the lack of financial ability to do so.  In this case, the Institute faces the real possibility of having spent money to obtain a judgment that only deepens its loss. The pledge was enforceable because there was consideration and a written agreement.

NEVADA.
The effort to establish a museum to honor Liberace in Las Vegas took a giant step backwards when the foundation filed for bankruptcy protection.  The primary cause appears to be the burden of the mortgage on the facility that was once used to house the museum.

NEW JERSEY.
The state has announced a civil settlement with two people in charge of an allegedly bogus charity claiming to support families of emergency responders who died in the World Trade Center on September 11th.  The individuals have been ordered to pay $121,116, and three individuals are barred from working with any other charitable group in the state.

NEW MEXICO.
Assistant Attorney General Elizabeth Korsmo is quoted in a recent publication of Forums confirming that the issue of gift-in-kind valuations is a “hot issue among regulators.”

NEW YORK.
A hedge fund manager in the city has made an unprecedented gift of $100 million to the Central Park Conservancy.  It is the largest donation in the history of New York City’s park system, and most likely anywhere.
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Even though the New York marathon was cancelled at the last minute, runners who came to support the charitable causes that are the beneficiaries came anyway.  Many stayed to help with the cleanup following the storm suffered in the area, particularly on Staten Island.  In many ways, the activity turned out to be far more charitable than initially planned.

NORTH CAROLINA.
The Office of the Secretary of State’s controversial requirement that foreign corporations show proof of good standing in order to perfect registration in the state has been somewhat modified as a result of industry concern led by Robert Tigner of ADRFCO.  The agency has agreed to accept non-certified proof of an entity’s legal status, provided that the proof is dated and clearly acknowledged by the issuing agency.

SOUTH CAROLINA.
Secretary of State Mark Hammond has released his annual “Scrooges and Angels” list of what charities in the state give toward their goals.  In order to be an “angel,” a charity must use at lease 80% of its donations for its charitable purpose.

TEXAS.
According to a published report, the Texas attorney general’s office has issued what is called a “blistering report” of problems and dysfunctions in the management of the Alamo by the Daughters of the Republic of Texas.  Among the charges made by the attorney general are allegations of misappropriation and failure to care for the shrine.  The organization has responded by stating it was “shocked” and that the allegations are “outrageously inaccurate.”

WISCONSIN.
The state has updated the registration form for charitable organizations.  The fee amounts have also been changed.  A copy of the form can be obtained directly from the state, and clients can obtain it directly from this office.

Other

OTHER MATTERS.
ASSOCIATION OF FUND-RAISING PROFESSIONALS.
This major trade organization created its own political action committee.  According to reports, the political action committee contributed $24,000 to ten members of Congress who were up for reelection.  The funds went to legislators of influence in both parties.

CHARITY NAVIGATOR.
This independent rating agency issued a report, listing ten “reputable” charities which it recommended for donations for Hurricane Sandy victims.

DONOR-ADVISED FUND REPORT.
The National Philanthropic Trust has issued a new donor-advised fund report.  This is their sixth annual report, and the findings show surprising growth after several sluggish years.  According to the report, in 2011, contributions to donor-advised funds accounted for more than three percent of charitable giving. A copy of the report is available on the website of the organization.

Comment: The advantage of donor-advised funds is that the donor receives the benefit of an immediate deduction, while the corpus is warehoused and spread out over a period of years for distribution to intended charitable beneficiaries.  When you read about total charitable giving, you have to factor in those funds which are not actually being put to work through end-user charities, but instead are being routed through donor-advised funds.

 

DONOR SURVEY.
According to the annual survey just released by Fidelity Charitable, 81% of donors contemplate contributing at least as much as they gave in the past year and in some cases more.  Five hundred seventy-one adults were surveyed, and 89% said they would maintain their current level of giving or would increase it.

NPT RANKINGS.
The NonProfit Times has issued its top 100 charities list, based upon revenues.  Topping the list is the YMCA, with Goodwill Industries and Catholic Charities in a virtual tie for second place.

AUSTRALIA.
Efforts to move the regulation of the not-for-profit community away from the taxation office now appears imminent.  On October 31, 2012, the senate passed a bill that would move the regulation to a new commission, to-wit: The Australian Charities and Not-For-Profits Commission.  It is believed this change will help build public confidence in the sector, and reduce the amount of expense and red tape that not-for-profits currently suffer in Australia.
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The Assistant Treasurer has announced that the government is making tax deductible all donations by Australians to assist relief efforts following Hurricane Sandy that hit the Caribbean and the east coast of the United States.

CANADA.
The issue in a recent ruling by Revenue Canada was whether a donation of the name of a well-known person to a charitable organization can be receipted as a taxable donation.  In this case, the well-known para-Olympian, Rick Hanson, donated his name to the charitable organization.  The organization issued him a tax receipt for $1.8 million.  Revenue Canada ruled that the donation did not constitute a “gift” as defined under Canadian law.  The Vancouver Sun reported that Revenue Canada is willing to hear an appeal on its earlier ruling.  (Comment: You would expect the IRS to rule in a similar fashion.  Generally, the donation of intangibles or less than whole is not considered deductible.)