October 2013

In this issue:

  • According to the Los Angeles Times, the University of California has latched on to one of the latest new entries in fundraising, to-wit: “crowd funding.” Numerous celebrities have joined, pledging all kinds of activities in response to donations. The university will use the funds that are raised to supplement funding for undergraduate financial aid.
  • The 9/26/2013 edition of the Chronicle of Philanthropy issued its annual report on executive salaries, noting there was a 3.1% median pay increase from 2011 to 2012 for CEO’s.
  • A nearly ten-year old battle has come to an end with a unanimous decision from New Jersey State Supreme Court, which held that a local nonprofit that provided housing and other services to persons with mental illnesses and other disabilities does not have to pay property taxes.

Federal

IMPACT OF GOVERNMENT SHUTDOWN.
One of the impacts of the government shutdown will be on the beneficiaries in the Combined Federal Campaign.  Federal workers that have been furloughed are far less likely to continue their generous support of the many charities which participate in the federal “in-the-workplace” campaign.

INTERNAL REVENUE SERVICES (IRS).
Lois Lerner, former head of the Tax Exempt Section of the IRS, has retired.  She had been on administrative leave as a result of the controversy over whether conservative organizations were targeted by the Service.
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Each year the IRS issues what is called a “Priority Guidance Plan.”  This year’s contains the promulgation of final regulations pertaining to the IRS’ authority to disclose exempt organization information to state officials.
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In a private letter ruling (PLR: 20133215), the IRS revoked, in part, the status of a § 501(c)(8) fraternal beneficiary society because of its relationship with a fundraiser who took the vast majority of the proceeds.

Comment: The inference here is that the IRS went back to the “commensurate test,” which the agency has only previously applied, or attempted to apply, in the case of public charities.

State

ARIZONA.
Several charities have come to the forefront to support the families of the nineteen firefighters who died in the Yarnell Hill fire this past June.  The chairman of the state house committee announced he was examining ways on how to provide equal benefits to part-time members of the firefighter crews who died, saying they may likely have to look to charities to fill the gap because of the state constitutional ban on gifts of public funds.  So far charities have raised more than $11 million in support of the families.

CALIFORNIA.
According to the Los Angeles Times, the University of California has latched on to one of the latest new entries in fundraising, to-wit: “crowd funding.”  Numerous celebrities have joined, pledging all kinds of activities in response to donations.  The university will use the funds that are raised to supplement funding for undergraduate financial aid. 
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A series of class action lawsuits have been filed by a boutique law firm specializing in class action cases.  This time they are suing charities, most of whom who were the subject of a recent media report as being some of “worst charities in America.”  Each of the suits appear to be nearly identical.  The plaintiffs went on the websites, made a contribution (where no professional fundraisers are paid) and then complained they were misled.  This is so even though the websites, in most every instance, contained a copy of the organizations’ IRS Form 990.  This is, at best, a disturbing trend.

DELAWARE.
Recent proposed Delaware legislation to require registration of charitable organizations and fundraising-related entities continues to gain steam.  Unfortunately, the proposed legislation (HB 187) lacks uniformity with a majority of state laws in an already un-uniform regulatory world.  While the requirement of registration, reporting, and similar regulation should be widely accepted, the legislation includes a potentially troubling provision within the definition of “professional solicitor” that could subject the principals of many charitable organizations that do any fundraising to the registration, bonding, and related requirements of professional solicitors if any part of their compensation is tied to the amount of funds raised by the organization.  We do not think this is what was intended, but technically is the result of the current language.

FLORIDA.
Calling Centers located in the state conducting telemarketing appeals on behalf of a public safety organization were the subject of a raid by state authorities.  The authorities ran background checks on numerous individuals and found several had prior felony convictions.  Florida law prohibits employing persons convicted of certain felonies to solicit financial contributions on behalf of nonprofit organizations.  A number of individuals have been charged by the state for violating the law. 
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A Jacksonville attorney, who was accused of helping a veterans group open a chain of internet cafes that were allegedly illegal casinos, was found guilty of 103 out of 104 counts that were filed against him. The counts included racketeering, possessing illegal slot machines, and running illegal lotteries.  The enterprise allegedly grossed more than $300 million over the five-year period of its existence.

MICHIGAN.
A federal lawsuit has been filed against a religiously-based institution by a woman alleging she was wrongfully fired from her job because her marriage had broken down.  Her allegations included at least two instances involving men who were divorced and no such action was taken.
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Politics and nonprofits often make strange bedfellows.  The Detroit Free Press reported that the democratic candidate for governor, who criticized the current governor’s failure to identify his nonprofit supporters, also has a nonprofit entity which he ran during his term as a legislator.

MISSOURI.
The Office of the Attorney General has filed suit against a hospice which apparently was acting as a financial sponsor for the organization, Honor Flights.  The organization deposited money in the hospice’s account to be used to transport veterans to Washington, D.C. to visit the World War II Memorial.  The hospice refused to turn the money over to the organization and the state has filed a lawsuit.

NEW JERSEY.
A nearly ten-year old battle has come to an end with a unanimous decision from New Jersey State Supreme Court, which held that a local nonprofit that provided housing and other services to persons with mental illnesses and other disabilities does not have to pay property taxes.  Several municipalities had challenged the right of the nonprofit to be exempt from real estate taxes, arguing that those who lived in homes operated by the nonprofit were not required to participate in the support services.  The argument being that the nonprofit was running a subsidized housing program for clients who happen to be eligible, but did not necessarily participate.

Comment: This is just another long string of cases of local governments’ attempt to put institutions on the tax rolls to gain income for services.  In this case the court found that the nonprofit was providing services that government would have had to provide, and as a result was serving its mission.

NEW YORK.
Governor Cuomo has asked the New York Attorney General to investigate the sale of the right to use the name “World Trade Center” by the Port Authority of New York and New Jersey to a nonprofit organization led by a former Port Authority executive.  The New York Times reported that the sale of the rights to the name was for the grand total of ten dollars.
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Mark Mahigian, long-time head of the Charities Bureau/Office of Charities Registration, under the State Attorney General’s Office, retired on October 23, 2013, completing twenty-nine years of service.  Mark’s long-time assistant and secretary Carole Palmer, also retired.  Carole had been with office since 1974.

Comment: Mark was a dedicated regulator of the highest quality.  The number of long-time regulators continues to decrease.  With them goes the knowledge and experience that has been so valuable to all of us who work with them.

OHIO.
A local ABC television station has started the story on the upcoming trial of the Navy Veterans Association and Bobby Thompson saying, “The Attorneys’ General multi-state case against a man accused of fraud after collecting as much as $100 million in the name of navy veterans, doesn’t address the man’s donations to a ‘who’s who’ of mostly Republican politicians, including the Attorney General himself.”  In what must be the most unusual defense ever conjured in a charitable fraud case, the defendant claimed the whole charity was part of a covert operation for the CIA.  As director of the U.S. Navy Veterans Association, Bobby Thompson made contributions to a number of Republican figures and was a guest at the White House.  He apparently assumed someone else’s identity after the scope of his misuse of charitable funds was suspected.
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The Ohio Attorney General’s Office filed a lawsuit charging the same firm sued in Pennsylvania for similar activities in the state.  Allegations include engaging in a pattern of racketeering, theft and money laundering. 

PENNSYLVANIA.
A lawsuit has been brought by the Office of the Attorney General of Pennsylvania to shut down a Youngstown area firm accused of lying to solicit charitable donations on behalf of firefighters and police, including firefighter unions. 

SOUTH CAROLINA.
The settlement orchestrated by the Office of the Attorney General of the state in the estate of James Brown has been set aside by the South Carolina Supreme Court.  The bulk of the estate was to go into a newly created charitable trust, but the Court found the compromise proposed was fundamentally flawed.

TENNESSEE.
State officials have put a temporary halt on nonprofit groups’ plans to provide free cell phones to new members qualifying for health insurance through the new Federal Health Insurance Exchange.  The Tennessee Department of Commerce and Insurance asked for the halt in order to determine whether the activity of the nonprofits violates the rebating law.

WISCONSIN.
The state has issued a notice that the regulation of charitable organizations in the state will be transferred from the Department of Safety and Professional Services to the Wisconsin Department of Financial Institutions effective November 1, 2013.  Registrants are urged to bring all missing renewal items up to date prior to the transition in order to avoid any problems.

Other

CHIEF EXECUTIVE SALARIES.
The September 26, 2013 edition of the Chronicle of Philanthropy issued its annual report on executive salaries, noting there was a 3.1% median pay increase from 2011 to 2012 for CEO’s.  The publication listed top salaries in every category.

IS THE NFL UNDER ATTACK?
According to the USA Today, an online petition has gathered over 200,000 signatures asking Congress to revoke the National Football League’s nonprofit status.

Comment: The subject of tax-exempt status for professional athletic leagues and football bowl games is an issue which has been periodically raised in this publication.

THE RED FLAGS OF FRAUD.
The Nonprofit Times reported on a speech given by Nancy Young at the AICPA Not-For-Profit Industry conference.  During Ms. Young’s presentation she listed some of the most likely red flags of fraud perpetrators with the top six being, to-wit: (1) living beyond their means; (2) financial difficulties; (3) control issues; (4) unusually close with vendors; (5) a wheeler-dealer attitude; and (6) divorce or family problems.