November 2014

STATES


ALABAMA.
A foundation set up to support athletics at the University of Alabama has purchased the home of head coach, Nick Saban, for almost $3.1 million.  The Sabans originally bought the home and continue to live in it.  (Comment: It seems a convoluted theory to believe that the foundation is serving its tax-exempt purpose by securing the continuing services of one of the top football coaches in the country, by allowing him and his family to live in a $3 million home cost-free).
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Local papers report that federal agents arrested the former CFO of a Birmingham nonprofit which provided health care to the poor and the homeless.  This is an 82-count indictment charging her with helping to divert $11 million in grant money, assets and property from two health centers.

ALASKA.
The City of Nome is considering taxing churches and charities by eliminating sales tax exemptions.

ARIZONA.
Local media reports that Grand Canyon University, a religious-based for-profit university which has grown enormously over the last few years, is considering a reversion back to its nonprofit status.  In order to do so the university would have to buy out its investors, and reapply to the Internal Revenue Service for tax-exempt status.  The leaders of the university have stated that the change has been driven by the negative image that for-profit universities have acquired.  

CALIFORNIA.
The Office of the Attorney General has announced the proposed adoption of new regulations.  The new regulations would extend the discretionary authority of the office through administrative proc edures applicable to violations of the Supervision of Trustees and Fundraisers for Charitable Purpose  Act.  Authority is given under the proposed rules to assess civil penalties as well as suspend registration.

FLORIDA.
The Florida Department of Agriculture and Consumer Services is continuing to solicit and receive comments on the forms drafted by the agency to comply with the charitable solicitation law.  (Comment: We think this is a wonderful development, to-wit: the regulator willing to listen to the regulated community on its ideas and suggestions).  
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Several ministers were arrested in Ft. Lauderdale as they handed out food to the homeless.  The trio was charged with breaking a new ordinance which restricts public feeding of the homeless, and each faces up to 60 days in jail and a $500 fine.

HAWAII.
The charitable solicitation statute creates a conundrum
for professional solicitors who wish to take contributions by credit card over the telephone.  The statute pertaining to disclosures by professional solicitors require them to provide a written confirmation of the expected contribution containing the specific statutory information before making the donation.

KANSAS.
By an overwhelming majority, the state amended its Constitution to allow charitable raffles.
    
MARYLAND.
Two sisters were indicted for stealing funds from nonprofits.  One sister was accused of embezzling more than $1.3 million from a federally funded nonprofit serving disadvantaged children, where she worked as a bookkeeper.  Her sister was charged with stealing more than $100,000 from a charity she ran which provided services and found foster homes for underprivileged children.

NEVADA.
The Office of the Secretary of State, with the cooperation of Office of the Attorney General, is looking at making a number of changes to the state’s new charitable solicitation law.  One of the most likely changes is to create its own chapter as the law in the state evolves.  We will continue to track the changes in the Nevada charitable solicitation law as they are introduced and will report on them.  

NEW YORK.
The Daily News detailed an investigation conducted by the Office of the Attorney General into a father/son drug treatment center located in the Bronx.  The father and son are accused of misusing hundreds of thousands of dollars that were targeted for drug treatment.  (Comment: This looks like it will be both a criminal and civil prosecution).
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Having a large donor condition a gift on naming rights can be a blessing and a curse.  That is exactly what has happened at Lincoln Center.  The home of the philharmonic in Lincoln Center has been known as Avery Fisher Hall for more than four decades.  Lincoln Center is preparing for a $500 million renovation, and wants a bigger donor for the Hall.  To buy back the naming rights, Lincoln Center has agreed to pay the Fisher family $15 million.  
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The former controller of the Hereditary Disease Foundation has been charged with embezzling more than $1.5 million of the organization’s funds.  According to the criminal complaint the controller did so by diverting money disguised as entries into the Foundation’s accounting software to make wire transfers look like they were going to grant recipients, when in fact they were going to the controller’s own account.  (Comment: This is a classic example of the failure of the Foundation and its outside experts to timely discover the misuse of the Foundation’s funds).

OHIO.
A state court jury returned a $6.4 million verdict against the executive director and trustees of Mansfield Tiger All Sports Booster Club.  The case culminated from charges that the individuals had misused bingo proceeds and were running an illegal gambling business.  A number of veterans were found to have been harmed in the process.  Kendall Clemons, the executive director, is currently incarcerated on similar criminal charges.  In criminal  case she was found guilty of  engaging in a pattern of corrupt activity.  

SOUTH CAROLINA.
The Office of the Secretary of State has issued information about charitable raffles in the state.  Voters approved a constitutional amendment to the State Constitution on November 4, 2014, but it has yet to be ratified.  It is expected that raffles will become legal in the state in June 2015.  In the meantime, those who are interested can go to the website of the Office of the Secretary of State to get further instructions on how to make an application to conduct a charitable raffle.

WEST VIRGINIA.
The Associated Press reports that the Boy Scouts of America will now be able to rent out its reserve in the state for commercial events without the danger of losing its tax-exemption under a state constitutional amendment that was approved by the voters earlier this month.  Without this constitutional amendment the Boy Scouts would have faced up to $5 million annually in property taxes.  The amendment received support by 62% of the voters.

OTHER MATTERS.


BBB RELEASES REPORT.
The Better Business Bureau recently surveyed over 4,500 donors asking what their considerations were when making a donation.  The survey again demonstrated that prospective donors believe charities that have no overhead and low fundraising costs are more efficient in pursuit of their mission than others.  (Comment: No doubt the reader will remember that the BBB, along with Charity Navigator and GuideStar released a letter sometime ago explaining that financial efficiency, while important, should not be the primary criteria by which individuals determine which charities to support.  They, and many others, have attempted to focus evaluation more on impact rather than cost, but so far the battle does not seem to have been won).

DONOR-ADVISED FUND REPORT.
The National Philanthropic Trust has issued its 8th annual donor-advised fund report.  In 2013, $9.66 billion was given to donor-advised funds, which was 5% of all giving in the U.S.  Most striking is the fact that there is now, according to the report, $50 billion in donor-advised funds which represents a 20% increase over the prior year.  (Comment: Donor-advised funds have their advantages and disadvantages.  Donors receive an immediate tax deduction, but the money, in effect, can be “warehoused” for a period of years before it is actually employed in support of program service of a qualified charitable organization.  The report indicated there is as much as $50 billion sitting on the side lines that could be utilized).
        
FIRM NEWS.
The 2015 prestigious listing of “Best Law Firms” is out, and once again Copilevitz & Canter, LLC has been named in the publication.

INTERNAL REVENUE SERVICE (IRS).
The IRS released filing data for the year 2011.  The report indicates that the value of non-cash charitable contributions rose by 11% over the previous year.  The figure represents $38.7 billion among itemizing taxpayers.  Donations of corporate stocks constituted the largest share of non-cash contributions.  The report also indicated that more individuals are reporting on their tax returns the donation of recyclable goods to charities.
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The National Taxpayer Advocate, Nina E. Olson, issued her mid year report to Congress in July.  She is stressing the importance of making improvements in the exempt organization area.  Ms. Olson is also critical of the new Form 1023-EZ as a result of its lack of requirement that the applicant describe its mission and activities.  She also noted that the form does not require the applicant to file the articles of incorporation with the form for review.
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A letter ruling was issued concerning a question that was posed to the IRS about the implications of a public charity which changes its state of domicile.  The issue is whether the charity would then have to re-file a new application for tax-exempt status.  The IRS ruled that a public charity would not have to file a new exemption application when it changes it state of domicile, and may continue to rely on its original determination letter.
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In Ltr. Rul. 2014 47049, the IRS revoked the tax-exempt status of a charity.  In this unusual case all of the assets of the charity were loaned to the creator to be used for business and personal expenses.  The IRS also found that the low interest rate was favorable to the creator and, in addition, the loan was not secured.  (Comment: Would the result have been different if there was a market interest rate and the loan was secured?)


UNITED STATES POSTAL SERVICE (USPS).
If you have not heard by now, Postmaster General Donahoe is going to retire in February 2015.  He has received universal praise for maneuvering the USPS through difficult financial waters.  His replacement has been named, to-wit: Megan Brennan.

WHAT DO THE ELECTIONS MEAN TO THE TAX-EXEMPT COMMUNITY?
The Senate Finance Committee will have a new chairman.  Most believe it will be Orrin Hatch (R-UT).  Many in the nonprofit community perceive that Senator Hatch has a much more pre-disposed friendly attitude toward tax-exempt organizations, and most importantly, will protect the charitable deduction.  Many in the community will be relieved to see Senator Grassley leave his post as chairman.

UNITED KINGDOM.
The Charity Commission has announced that there will be changes to the annual return that is required to be filed by charities.  The 2015 return will contain a series of new questions pertaining to sources of income and policies.  The new form does not require specific information about fundraising costs, but it is likely there will be additional questions about costs in the 2015 return.
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The new book, “The Great Charity Scandal,” by David Craig was to become available by e-book on November 27, 2014.  In the book he notes there are more than 195,000 in the UK raising close to £90 billion a year.  The charitable industry in the UK employs more than one million, which is more than the car, air, space and chemical sectors, and makes 13 billion asks for contributions every year.  He describes the book not as an attack on charities, but an attack on charities which put their own interest first, pointing out salaries and waste.