October 2011

In this issue:

  • The USPS has filed a notice with the Postal Regulatory Commission regarding its plan to increase rates by an average of 2.133%, effective January 27, 2012.
  • The Arizona Republican investigated the claim concerning college football bowl games, which have long touted their charitable activities as tax-exempt § 501(c)(3)s.
  • The Boston Globe reported that Blue Cross Blue Shield of Massachusetts has decided to remain a charity, even in the wake of the public outcry over the $11 million payout to the former chief executive of the nonprofit organization.

Attorneys' Comments
Read additional comments related to this newsletter.


Federal

UNITED STATES POSTAL SERVICE (USPS).
The USPS has filed a notice with the Postal Regulatory Commission regarding its plan to increase rates by an average of 2.133%, effective January 27, 2012.  The notice must now be reviewed by the PRC and approved.  The increase is slightly less than the rate of inflation, and as a result it is expected to be approved.

GRASSLEY SPEAKS OUT.
Senator Charles Grassley (R-IA), a frequent critic of the charitable community and ranking member of the Senate Finance Committee, made a statement before the committee on October 18, 2011, criticizing the President’s proposal to cap itemized deductions for charitable contributions that would result in less money for charity.  Chairman Max Baucus (D-MT) also noted at the same hearing that the nonprofit sector, “Predates the U.S. Tax Code” and called upon the committee to, “Make sure the Tax Code encourages charitable donations in the most efficient way possible.”  Also testifying was Diana Aviv, President of Independent Sector, who noted that charitable deduction encourages taxpayers to make charitable contributions.

HOUSE WAYS AND MEANS COMMITTEE.
Congressman Charles Boustany (R-LA), Chairman of the House Ways and Means Committee Oversight subcommittee, has formally requested that the IRS provide details on its investigations of the nonprofit sector.  In a letter to the Commissioner, Congressman Boustany asked the agency to disclose how much of its budget is dedicated to auditing the eligibility of nonprofit organizations, and how many audits the agency has opened since 2008.  This is the same subcommittee that has looked into the tax-exempt status of organizations like AARP.

State

ARIZONA.
The Arizona Republican investigated the claim concerning college football bowl games, which have long touted their charitable activities as tax-exempt § 501(c)(3)s.  According to the paper, public records show that charitable giving by the bowl games (the big four being the Fiesta, Orange, Rose and Sugar bowls) has amounted to approximately 2% of all the revenue generated since the Bowl Championship Series began.

Comment: One has to wonder how long it will be before the IRS and/or the Federal Trade Commission looks at the propriety of these football bowl games being operated under the umbrella of tax-exempt status under § 501(c)(3).

CALIFORNIA.
Assembly Bill 289 was signed into law, extending to 2018 the sales and use tax exemption for sales made by charitable thrift stores run by nonprofit organizations that collect funds to assist individuals with AIDS or are HIV positive.
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The state has adopted a statute permitting what is called a “Flexible-Purpose Corporation.”  These are social benefit corporations, and follow the lead of approximately twelve other states that have enacted similar legislation.
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California-based charities that serve the disabled have filed suit over budget cuts made by the state.  The assertion is that the budget cuts violate a state law that guarantees the disabled sufficient state support to live independently.

DISTRICT OF COLUMBIA.
A local AIDS organization is embroiled in litigation with the District over the use of monies the District has provided.  The organization was accused of using the funds improperly, and the charity filed a lawsuit against the District denying the charges and alleging discrimination.

ILLINOIS.
A report has been released by the Chicago Inspector General, claiming that the mayor’s administration forced more than a dozen firms that received city development subsidies to kick over a share of their grant to a charity run by the mayor’s wife.  The charity in question, according to the report, received approximately $950,000 as a result of the requirement that contractors make contributions under “public benefit clauses” from their grants.

IOWA.
A Cedar Rapids-based art organization is encouraging donors by granting naming rights to commodes and urinals in the facility.  This unusual approach has met with some success.

KANSAS.
A foundation started by the daughter of the named plaintiff in Brown v. Board of Education school desegregation case, has been asked to move out of the National Park site that tells the story of the civil rights movement.  According to an article in the Kansas City Star, a federal investigation found conflicts of interest as a result of the participation of Brown in foundation activities while acting as superintendent of the National Park site.

MASSACHUSETTS.
Attorney General Martha Coakley asked legislators to help her control executive compensation by prohibiting nonprofits from paying their directors.  House Bill 3516 is now pending before the Joint Committee on Judiciary.

Comment: Payment to board members by a public charity is extremely rare.  This legislation came about as a result of criticism of salaries being paid by nonprofit health insurance providers.

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Congressman John Scibach has introduced House Bill No. 00874 to expand the point-of-solicitation disclosure required by a professional fundraiser.  It is truly a work of unconstitutional compelled speech, which hopefully will garner very little consideration.
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The Boston Globe reported that Blue Cross Blue Shield of Massachusetts has decided to remain a charity, even in the wake of the public outcry over the $11 million payout to the former chief executive of the nonprofit organization.

MISSISSIPPI.
The requirement that commercial co-venture agreements be filed thirty days prior to the sales promotion commencing has been a problem for a number of commercial entities that participate in cause-related marketing opportunities.

Comment: The rule should be changed as to encourage more commercial entities to share their profits with disclosed charitable organizations.

NEW JERSEY.
Rock star, John Bon Jovi, continues his extraordinary charitable work in his home state.  The rocker’s foundation has already built 260 homes for low income residents in recent years, and now has opened a “Pay What You Can” restaurant with his wife.

NEW YORK.
The Wall Street Journal reported that the Office of the Attorney General has sent questionnaires to about 130 companies and 40 charities engaged in breast cancer “cause-marketing.”  The request asks for them to respond within 20 days, and provide information about advertisements promising donations to campaigns, and whether the agreements contained a limitation on the amount to be contributed.  The concern of the Attorney General’s office is that consumers are being misled into believing that the commercial entities are providing more of a benefit to the charitable organizations than is fact.
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Once again, politics and charity are being mixed.  This time it is in the Borough of Brooklyn.  According to an article in the New York Times, the Borough president has a network of four charities which have reaped approximately $20 million since 2003, much of it coming from businesses and builders seeking to do business in Brooklyn.  The article identified several major corporations which all have one thing in common: they have an interest in city legislation, real estate projects, zoning disputes and other issues in Brooklyn.  The Borough president denies there is a quid pro quo, or that anything unethical is taking place.

Comment: This phenomenon seems to occur and reoccur in major metropolitan areas too frequently.  Surely the Office of the Attorney General of New York will look into this situation.

NORTH CAROLINA.
A republican mayoral candidate in Charlotte has come under criticism over a charity he founded for military families because more money was spent on fundraising than helping veterans.  The candidate defends his record by noting that newer startup charities often have the same experience.

Comment: Here again is the clash of politics and charity.  In this instance one candidate accuses the other of planting the negative story about his charitable work.

OREGON.
Attorney General John Kroger, known for his aggressive approach to enforcement by his office, announced he would not seek a second term.  He disclosed that he has been diagnosed with an illness for a non-life threatening medical condition, and therefore is leaving public office.  His term will end in January 2013.

PENNSYLVANIA.
The new head of the Department of State, Bureau of Charitable Organizations is Michael Patterson.  Mr. Patterson is a CPA and has worked as a chief financial officer in both the government and nonprofit arena.

WASHINGTON.
World Vision won its case over its hiring practices, to-wit: employing only people of the Christian faith.  Three former employees had challenged the practice and the case went to U.S. Supreme Court.  Earlier this month, the Court turned down the appeal by the three employees.


Other

EXECUTIVE PAY REPORT.
The annual survey of executive compensation and benefits by the Chronicle of Philanthropy reported that of the 129 organizations that participated in the survey and provided data for 2010, the median increase in compensation from 2009 to 2010 was 2%.

INDUSTRY NEWS.
CVR Fundraising Group, located in Bowie, Maryland, is an employee-owned direct marketing agency acting as fundraising consultant.  Geoff Peters, president of the company, announced it has been sold to James Moore.  Geoff will stay on in his current capacity.

AUSTRALIA.
According to a published report, the current government committed more than $53.6 million over four years in setting up an independent regulator, to-wit: The Australian Charities and Not-for-Profits Commission.  The new agency will be creating an information portal for interested donors.  The concern specified by many in the industry will be the over emphasis on fundraising efficiency.

Commentary

TCPA Statute of Limitations & Class Actions

The Fiesta Bowl and Tax-Exempt Status