September 2012

In this issue:

  • According to a recently released report from GuideStar, nonprofit chief executives have, for the second year, failed to see any meaningful increase in compensation.
  • A Massachusetts state senator has indicated an intent to introduce new legislation which would limit salaries of charity executives. The legislation would establish a cap of $500,000, but would include the ability of a charity to obtain a waiver.
  • In Alabama, the address for registration filings has changed to: 501 Washington Avenue, Montgomery, Alabama 36130.

Federal

INTERNAL REVENUE SERVICES (IRS).
At a recent presentation before the American Bar Association Conference, the IRS refused to be more specific on the test applied to Section 501(c)(4)  organizations involved in advocacy.  Lois Lerner, Director of Exempt Organizations, pointed to revenue rulings of 2004 and 2007, both of which were based on facts and circumstances.  Director Lerner said the test continues to be facts and circumstances of each individual situation.

REPUBLICAN PLATFORM.
One of the most encouraging planks in the Republican platform stated, “Because of the vital role of religious organizations, charities and fraternal benevolent societies in fostering benevolence and patriotism, they should not be subject to taxation, and donations to them should continue to be tax deductible.”  The platform did not address future government funding of social welfare programs.

State

ALABAMA.
Just a reminder that the address for registration filings in Alabama has changed.  The new address is: 501 Washington Avenue, Montgomery, Alabama 36130.

ARIZONA.
Two Phoenix area-based charities have come under scrutiny by the Arizona Republic newspaper concerning their accounting practices for gifts-in-kind.

Comment:  This is a continuing trend of the media to focus on the use of gifts-in-kind by various charitable organizations.

CALIFORNIA.
The Office of the Attorney General has created a separate publication on “Fundraising Appeals for Veterans’ Charities.”  It is a three-page outline of facts about appeals made by veterans’ organizations which is being shared with California donors.

COLORADO.
The families of the victims of the Aurora shooting have voiced concerns over the $5 million dollars raised by local charities to assist the families.  Only a fraction of the funds have been distributed to them so far.  Government officials have pledged to look into the situation.
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In a rather surprising development, the Secretary of State announced a fee reduction for nonprofit entities, effective on October 1, 2012.  The new fee for registrations for charities, as well as paid solicitors and fundraising consultants, has been reduced to $1.00!  Congratulations and “thank you” to the Colorado Secretary of State.  The Secretary of State has also given notice of proposed rule-making with a hearing scheduled for October 25, 2012.  The purpose of the hearing will be to make amendments to the rules for the administration of the state’s Charitable Solicitation Act. 

ILLINOIS.
An autism organization which, for a fee, would provide trained service dogs on the representation it would help families with children suffering from autism, has settled a lawsuit with the state.  The lawsuit alleged the charity did not perform as represented, and did not comply with several provisions of the state’s charitable solicitation law.  Restitution to families was ordered.
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One of the bright spots for our industry in the face of the distressing teachers’ strike in Chicago is the fact that nonprofit institutions in the city are working overtime to provide programs for students.  According to published reports, more than 350,000 students are affected.
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It is reported that a state legislator intends to introduce legislation this fall that will make it easier for the state and the public to focus on high salaries paid to leaders of charities who earn income from for-profit subsidiaries.

INDIANA.
Nonprofits are at odds with politicians in the state over the use of vanity plates that are sold promoting various charitable causes, with the charities receiving a portion of the proceeds.  Legislators have attempted to crack down because of some of the groups that have applied for participation.  The charitable groups in the state complained about the limitation, citing the need for the additional funding.

Comment: Government opens the door and then feels abused as a result of unpopular groups wanting to participate.  The next step is government wanting to create limitations so that the opportunities only exist for those groups they favor.  It is a classic First Amendment conundrum.

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The state’s Commission for Higher Education officially approved plans for Indiana University to create a School of Philanthropy.  The school will be located on the campus of IUPUI.  Students will be able to obtain a bachelors, masters and PhD degree in philanthropic studies through the new school.

Comment: What a great step, and what a great development for the nonprofit industry.

MASSACHUSETTS.
A state senator has indicated an intent to introduce new legislation which would limit salaries of charity executives.  The legislation would establish a cap of $500,000, but would include the ability of a charity to obtain a waiver.

Comment: This piece of legislation, if introduced, will be considerably different from other states that have introduced legislation tying the cap to those organizations which receive all or most of their funding from state agencies.  The initial report in this case indicates that it would be across the board.  Needless to say, we see a number of legal problems should this kind of legislation ever pass.

MICHIGAN.
The criminal division of the Office of the Attorney General has charged a Michigan man with creating two fake charities: the Paralyzed American Veterans and Disabled Veterans of America.  It is no mistake the names are confusingly similar to two well-recognized veterans organizations.  The charges claim the defendant collected over $100,000 and used the proceeds for his own benefit.

MISSISSIPPI.
Tricia Melvin, Chief Counsel of the Office of the Secretary of State has announced she is leaving that office and moving to Ft. Wayne, Indiana to become a social security disability administrative law judge.

NEW HAMPSHIRE.
According to published reports, the Office of the Attorney General has criticized some of the salaries received by executives in nonprofit hospitals in the state.  The Attorney General’s Office indicated that there will be a series of meetings to find an approach or solution to what appears to be excessive salaries in this nonprofit area.

NEW JERSEY.
The Office of the Attorney General has announced that a crew of unlicensed New Jersey auto dealers has agreed to payments that will settle charges stemming from the use of a cancer charity’s tax-exempt status to buy millions of dollars worth of luxury cars without paying sales tax before exporting the vehicles throughout the world.

NEW YORK.
A former aid to a state senator from the Bronx was a much bigger thief of the senator’s taxpayer-funded charities than previously believed.  New felony allegations claim the defendant stole more than $532,000 from the Christian Community Benevolent Association and Christian Community in Action. 
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Still another state politician has been indicted.  This time on charges of conspiracy in a scheme to use state grants to benefit friends and a nonprofit group that was founded by the state senator.  The Office of the Attorney General has filed a twenty-count indictment, which includes allegations of grand larceny for taking state money.
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The Office of the Attorney General received a letter from Senate Finance Committee Chairman David Camp (R-MI) and minority member Orrin Hatch (R-UT), asking the office to cease efforts to obtain tax return data from advocacy organizations.  The letter asks that the Attorney General’s Office direct its inquiries to the Internal Revenue Service. 
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In 1927, Columbia University received a substantial conditional gift.  Under the terms of the gift, the money was to be used to sustain a program for Italian studies at the university.  Now 85 years later, the heirs of the donor are suing the university claiming that the intent of the gift has not been fulfilled.

NORTH CAROLINA.
A memo has been sent out that the agency which registers charitable organizations and their professional representatives will now require affirmation of corporate good standing from the jurisdiction in which the applicants reside, unless it is the State of North Carolina.

Comment: We are puzzled by the origins of this requirement.  As to date, we have found no authority for same in the statutes.  This process will add cost for charitable organizations and defeats the concept of trying to maximize their ability to use their resources predominantly in pursuit of their charitable mission, rather than for compliance and fundraising costs.

OKLAHOMA.
“We do not think tax dollars should go to nonprofit organizations,” said Republican State Representative Paul Wesselhoft.  He is joined by another state representative who has asked the governor of the state to block tax money from going to nonprofit groups in the state.

PENNSYLVANIA.
By mutual agreement, the scheduled liquidation of the charity, Second Mile, has been delayed.  A state court approved a request to delay the planned liquidation to allow time for settlement of the pending lawsuits from victims of the charity’s founder.  The motion was made by the Office the Attorney General, the attorneys of the victims and the charity itself.
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The Office of the Attorney General has announced a settlement with a state-based telemarketer over the conduct of several public safety organization appeals.  The allegations involved misrepresentations and the use of callers with felony convictions.  The company was fined $75,000.

RHODE ISLAND.
The Department of Business Regulation has announced that Alicia Mildner, who has headed the office that handles charitable registrations, is leaving.  Her replacement has not been named.

TENNESSEE.
The new legal counsel for the Division of Charitable Solicitations and Gaming is Margaret M. Hoff.  She is working under the direction of Acting Director Scott Sloan.

Other

COMPENSATION REPORT.
The September, 2012 issue of the Chronicle of Philanthropy published a report on the compensation of top charity executives for the years 2010-2011.

EXECUTIVE SALARIES.
According to a recently released report from GuideStar,  nonprofit chief executives have, for the second year, failed to see any meaningful increase in compensation.  According to the report, forty-one percent of chief executives reported flat or lower compensation from 2009 to 2010.

INDEPENDENT SECTOR REPORT.
A survey commissioned by Independent Sector supports the concept of a unified voice to impact future government regulation.  The report released by the umbrella organization found, while there is still a positive perception of government officials regarding the work of the nonprofit sector, there is increasing concern over waste and abuse.

Comment: It seems obvious that the next several years will be key to the long-term future of the nonprofit sector as government explores new regulation and taxation challenges.

OTHER COUNTRIES.

AUSTRALIA.
Legislation has been introduced that would move the regulation of charities from the supervision of the Tax Office to a newly established agency, the Australian Charities and Not-For-Profits Commission.

NORTHERN IRELAND.
The newly formed Charities Commission for Northern Ireland, which was given the power to investigate charities last year, has already conducted over one hundred investigations.  In its recently issued annual report, the Commission said they are receiving inquiries about charities on a daily basis.  Currently, there are 6,500 charities registered.