In this issue:
Federal
INTERNAL REVENUE SERVICES (IRS).
Last month, an IRS official reported at an AICPA conference that the Service has made a change to the infrastructure of its voluntary closing agreement program for tax-exempt organizations. Previously, the IRS had a number of closing agreement coordinators , but now those will be consolidated to one central coordinator, headquartered in Dallas. The new coordinator is Lisa Schultz. (Editorial Note: Frequently, claims made by the IRS are resolved by compromise agreements that are called “closing agreements.” This step will centralize and standardize the review of such agreements.)
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Unless changed, commencing in 2012, nonprofits and commercial businesses will be required to issue Form 1099s to vendors of services. The threshold amount will be $600. A charity or direct mail agency buying a piece of equipment for more than $600 will have to issue a 1099 to the store. This can and will create an expensive administrative burden. The IRS is asking for public comments and you can remit one by sending an e-mail to: .(JavaScript must be enabled to view this email address). In your subject line include “Notice 2010-51.” (We urge you to tender a comment in opposition to this provision).
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A proposal has been made by the Advisory Committee on Tax-Exempt and Government Entities that the IRS set a up a tool on its website to help charities set executive compensation. Representatives of the IRS have indicated an interest in studying the idea.
UNITED STATES POSTAL SERVICE (USPS).
The Alliance of Nonprofit Mailers reported that the USPS continues to have expenses in excess of its revenue. In its June 10, 2010 report the Alliance stated that fiscal year to date loss now approaches $2.3 billion. The good news is that direct mail volume is growing.
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A nationwide campaign has been mobilized by the postal union to save Saturday deliveries. While many trade associations are not opposed to the discontinuance of Saturday delivery, the union argues that it will reduce reliance on the system overall.
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A rate increase of 5.6% is being sought by the USPS. A number of commercial interests, trade associations, and nonprofit organizations have come together to form the “Affordable Mail Alliance,” which is dedicated to defeating the proposal. Among the positions of the Alliance is to ask the USPS to address its overhead before raising rates. While postal volume has decreased substantially, the infrastructure and work force of the postal service has not, and reduction could have a significant impact on the income deficiency.
U.S. SUPREME COURT.
The Court has ruled that the federal law banning “material support” to foreign terrorist groups is constitutional. The law was challenged by relief charities that claimed the law violated free speech. The ruling by the Court was 6-3, and in the decision the Court said that the government can forbid all forms of aid to groups designated as terrorist organizations.
State
CALIFORNIA
According to the New York Times, the Los Angeles Dodgers paid one of their executives more than $400,000 from the team’s charity in 2007, which amounted to one-fourth of the charity’s nearly $1.6 million budget that year. At the same time, the individual acted in another capacity on the for-profit side of the Dodgers. Industry leaders have criticized the salary as being disproportionately high.
FLORIDA
The Florida-based naval veterans organization has received an order from the Department of Agriculture requiring the organization to cease operations. Ordinarily, an organization would have 21 days to appeal the order to cease operations, but the state requested an emergency order for allegedly ongoing misrepresentations required the extraordinary action of the Department.
GEORGIA
H.B. 863 has been enacted by the Georgia Legislature amending the state’s charitable solicitation law. The thrust of most of the amendments is aimed at unattended collection boxes.
MARYLAND
S.B. 237 has been signed into law, which creates an exemption from sales and use tax for sales to certain veterans’ organization. Strangely enough, the exemption is limited to veterans’ organizations having tax-exempt status under § § 501(c)(4) and (c) (19) of the Internal Revenue Code, but does not mention veteran charitable organizations granted tax-exempt status under § 501(c)(3).
MICHIGAN
According to a published report, prosecutors are weighing charges against a Macomb County sheriff’s sergeant, who allegedly fabricated a charity to embezzle money. The made-up charity solicited donations from businesses and residents in the local community.
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Legislation is pending that would amend the charitable solicitation law. Primarily it would expand the definition of a professional fundraiser, and include owners of clothing donation bins when they are operated by independent parties to benefit charities. Most surprisingly, the bill would require a point-of-solicitation disclosure of the distribution of proceeds.
MISSISSIPPI
The Public Service Commission fined a New Jersey telemarketer $15,000 for violating the state’s “no-call law.” In this case, the telemarketer is no longer in business and as a result the Commission is seeking to take a fine by default.
NEW MEXICO
Last year the Secretary of State attempted to force two nonprofits to disclose the origin of the money that had been paid for mailers that were critical of state law makers, by demanding that the two nonprofits register as political committees. The two nonprofits filed a lawsuit and won at the trial level and a federal appeals court, according to the New Mexico Independent, ruled that the state cannot require the nonprofits to register as political committees.
NEW YORK
The New York Attorney General’s Office gave nonprofits a window of opportunity to cure past filing problems. The Charities Bureau agreed to waive delinquent filing fees for charities that came into compliance prior to the June 30, 2010 deadline.
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New legislation is going through the Assembly that will allow nonprofits to spend certain endowment funds without court approval. The current law forbids organizations from spending the principal of an endowment fund when it falls below its original value. This law would change that to provide for financial emergencies.
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Attorney General Cuomo announced the arrest and guilty plea of the founder of a “sham car donation charity” (Hope for the Disabled Children) for misappropriating over $2 million in charitable funds.
OHIO
The Ohio Attorney General joined several other states in suing a navy veterans association based in Florida. According to the press release from the Attorney General’s office, the organization raised almost $2 million in the last six years in Ohio.
OKLAHOMA
A substantial overhaul of the state’s charitable solicitation law has been passed and will go into effect on July 1, 2011. Fees will increase and the Attorney General’s Office will be given more authority. Among the many new provisions is a requirement that any charity or fundraiser using a d/b/a must register it in advance and pay the Secretary of State a fee of $25.00. The definitions of “charitable purpose” are extremely broad and inclusive.
PENNSYLVANIA
A federal jury ruled that the City of Philadelphia violated the Boy Scouts First Amendment rights by using the organization’s anti-gay policy as a reason to evict them from a city owned facility. City officials expressed disappointment that the city’s anti-discrimination policy was being violated by the organization while using city facilities, and vowed to consider an appeal.
SOUTH CAROLINA
Senate Bill 652 has been enacted into law. Effective immediately is a new provision mandating sole and exclusive ownership of any list owned by a charity, but provided to a fundraiser. The fundraiser cannot acquire any rights of ownership.
TEXAS
As a follow up to our recent successful challenge to the unattended clothing bin law in the state of Texas, as the winning party we filed a motion for attorney fees. We have now received a ruling from the court granting attorney fees in the amount of $58,676.88. The condition of the award is that we continue to be successful on appeal. (Editorial Note: Declaratory actions brought under the Federal Civil Rights Act entitles a successful plaintiff to an award of attorney fees if properly requested).
VERMONT
The Vermont Supreme Court ruled that a nonprofit corporation’s property, which was being used to operate an artist’s residency program, was not exempt from property tax because the primary use of the property did not benefit the community as a whole. (Editorial Note: This is another illustration of how far the courts will go to preserve income for their states.)
WISCONSIN
The Wisconsin Supreme Court ruled that a professional symphony’s concert admission sales were subject to sales tax. The basis of ruling being that the event was primarily for entertainment.
Other
NAAG/NASCO.
The annual conference of the state regulators, which includes a public session, is scheduled for October 4, 2010 in Silver Spring, Maryland. Most recently, the conference sponsors announced the public session program contents. The sessions include one involving several “private watchdogs,” and one on how you measure the effectiveness of a charity. While another will be hosted by NASCO President Eric Carriker and FTC Assistant Director David Horn on the “top 10” nonprofit compliance issues for state and federal regulators.
CHARITY NAVIGATOR SURVEY.
Once again, Charity Navigator has conducted a survey to determine the most generous cities in America, and those rated the lowest. The top five cities listed are: Pittsburgh, Houston, Dallas, San Francisco, and Kansas City. While the two lowest cities were Baltimore and Detroit. Most interestingly, the report contained additional findings to the effect that New York City has 590 large charities and the District of Columbia has 500.
CLAW BACK FROM CHARITIES.
Most likely you have read, from time to time, stories of government demanding the return of donations by individuals accused and/or convicted of fraud. It happened in the Madoff case. Other cases in Philadelphia and Miami have yielded comparable results. In their effort to recover money for injured victims, the government goes to charities that have received donations from individuals who have promoted illegal schemes. The traditional defense of the charity includes the fact that it had no knowledge of the illegal gains, and that the money has already been spent for program service, and that the charity is in poor economic condition. Most recently, headlines were made in New York City when two major charitable organizations refused the government’s claim for a “claw back” of prior donations. In this particular case, several other major institutions have already forfeited the donations to the government. Unfortunately, this is an increasingly familiar phenomena, which again threatens the resources of charitable organizations that accepted donations in good faith.
GIVING USA.
It comes as no surprise that Giving USA said that giving went down in 2009. According to the report, total giving dropped from $315.8 billion in 2008 to $303.75 billion in 2009.
FIRM NEWS.
Errol Copilevitz will be speaking on “social media” issues at the DMA Conference on August 24, 2010 in New York City.