In this issue:
Federal
INTERNAL REVENUE SERVICE (IRS).
Speaking at a west coast conference, IRS Exempt Organization Division Manager Joe Kroll, announced the agency will not be conducting random audits. In lieu thereof, Mr. Kroll said the IRS will look to referrals, review newspapers and target areas of concern. He pointed, for example, to compensation issues with colleges, universities and hospitals.
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Reminder: Effective January 1, 2010, the filing fee for tax-exempt status will increase to $850 for organizations with gross receipts that exceed $10,000 annually over a four-year period.
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The Redesign Project Manager for the IRS Form 990 has admitted that the amount of time tax-exempt organizations have to take in preparing and completing the redesigned form is longer than it took to complete the old version. However, he insists that as organizations become more familiar with it, the time required will be reduced.
UNITED STATES POSTAL SERVICE (USPS).
Postmaster General Jack Potter has announced that the USPS will not be raising rates for nonprofits next year. This is so, as reported by the Alliance of Nonprofit Mailers, even in light of the fact that the USPS is projecting a loss of up to $7 billion next year despite its continuing efforts to reduce costs.
State
ARIZONA.
A Tucson newspaper has completed an investigation of one of the city’s largest refuges for the homeless which offers food and shelter. The investigation has raised a number of serious questions concerning its operation, including the use and serving of unsafe food and public displays of donations to recipients that were then taken back once out of the media eye. The paper also reported that the organization’s federal tax returns indicate a cost of fundraising and executive compensation that has been criticized by outside experts.
CALIFORNIA.
The Los Angeles Times reported that card clubs and other special interests are giving to charities that have been favored by current Attorney General Jerry Brown, who is considered a front runner for the governor’s race. Many of these gifts have gone to charter schools in Oakland where Jerry Brown was the former mayor. One observer noted, in part, that the gifts were being made with the hope that he will keep an open mind should the donor need to communicate with him in the future.
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Also reported in the Los Angeles Times, a couple who built a nonprofit social service into a statewide $63 million a year organization has come under investigation for some of its financial practices, including paying the executives more than $700,000 annually for renting properties to the organization.
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The CFO of an Orange County children’s charity pled guilty to stealing more than $780,000 between 1999 and 2005. In order to hide her theft, she under reported donations and overstated expenses, and used the money for personal luxuries. She was sentenced to 12 years in prison and ordered to pay restitution.
KANSAS.
In just another sign of the times, a local charity in the Kansas City area apparently will not receive a designated $5,000 from the winner of a contest, which involved eating a quantity of food within a brief period of time. It now appears the restaurant that put on the contest has filed for bankruptcy without paying the charity.
NEW JERSEY.
A missionary group (Missionaries of God) have been threatened with a summons by the Dover Township for delivering food to the homeless at a Township park.
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The fallout from the Madoff scandal rolls on. This time a state federal district court dismissed claims of affirmative misrepresentation against Bernard Madoff’s brother, but allowed the case to go forward on claims of material omissions and breach of his fiduciary duty. The suit was brought by the Lautenberg Foundation, one of the many victims of the scandal.
NEW MEXICO.
The state has started rejecting signed contracts with fundraisers, citing a requirement in the statute which mandates that “intended contracts” be reviewed and approved by the state prior to execution. (Editorial Note: This clearly violates the holdings in Riley and other U.S. Supreme Court decisions).
NEW YORK.
Letters have gone out to a number of charities in the state that have made improper contributions to elected officials. The New York Post quoted one letter as saying, “Our office requires that your organization seek an immediate repayment of past political contributions, if it has not done so already.” The letter continues on to demand that the nonprofit take steps to ensure similar contributions are not made in the future.
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Attorney William Josephson, who once led the state’s Charities Bureau, has filed an affidavit accusing the current New York Attorney General of having failed to discharge his duties in the Leona Helmsley estate case. Mr. Josephson is representing three animal welfare groups in an appeal from a lower court decision that ruled the trustees did not have to limit the expenditures from the $5.2 billion estate to charities that provided care and welfare to dogs. (Editorial Note: It will be worth watching for the appellate decision in this case.)
OKLAHOMA.
According to a report in an Oklahoma City newspaper, Feed the Children has been hit with its sixth lawsuit for wrongful termination by two accountants for the organization, who were dismissed by the board of directors on September 29, 2009. The lawsuit alleges they were fired in retaliation for notifying the board of potential fraud or illegalities, and the failure to report and pay taxes owed to the state of Oklahoma. The issue in this case is “use” taxes a purchaser is suppose to pay to the state for goods if the supplier does not charge sales tax. The named defendants are the organization and three individual directors.
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Feed The Children has fired Larry Jones, president of the organization, and he has sued the organization to get his job back. According to the Daily Oklahoman newspaper the firing came as a result of his admission that he authorized hidden microphones in the offices of the charity. There is a long history of controversy over the management of this organization and it appears there will be more. Larry Jones founded the organization more than 30 years ago, and based upon volume, it is one of the largest charities in America.
OREGON.
The state has begun to enforce its “do-not-call” law. The law applies to calls made by telefunders. The state uses the national do-not-call registry. The problem is the national registry does not apply to calls made by, or on behalf of, nonprofits.
PENNSYLVANIA.
Under a new policy, the state has eliminated the necessity of charities filing a BCO-2. This is the form to seek an extension that allows charities an additional 180 days from the due date of registration renewal. In the past if an organization failed to file the extension request by the due date, it would have to pay a $25.00 late fee for each month after the due date of the registration. Under the new policy, extensions will be granted automatically without the necessity of a request.
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Allegheny County (includes Pittsburgh) approved a plan to collect fees from tax-exempt entities, which would include universities, hospitals, and other major nonprofits located in the county. The bill will go into effect on January 1, 2010, and is projected to raise as much as $13 million annually. The bill creates a tax-exempt certification and essential services fee at the rate of $200 for every 1,000 square feet of a structure on exempt land. (Editorial Note: Major metropolitan areas with a concentration of nonprofit entities frequently complain about budget deficiencies because of their inability to collect real estate tax on exempt property. This is one way one county has found another avenue to generate income from the nonprofit community).
SOUTH DAKOTA.
In another sign of the times, the Governor has asked the Department of Revenue to re-verify sales tax exemptions issued to 350 nonprofit organizations previously granted exemption.
TEXAS.
Argument was presented by Errol Copilevitz of this firm in a challenge to a new state law pertaining to the solicitation of clothing and household goods. The law requires charities using outside professionals to disclose the net amount the charity will receive. A decision is expected by the end of the year.
UTAH
After initially taking the position that a telefunder must display the name of the telefunding agency on caller identification, the state has now reconsidered its position and agrees that the display of the charity’s name for which the call is being placed is sufficient. The caution, of course, is that the telefunder must disclose at the point of solicitation that the telefunder is a paid professional fundraiser and not a volunteer or member of the charity.
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The Salt Lake Tribune reported that nonprofit groups will continue to have the privilege of using meeting space inside the state capitol, thanks in large part to rental fees being paid by lobbyists. The income from the use of office space in the capitol will help offset the cost of maintaining the policy of providing free meeting space for non profit organizations.
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The state’s Division of Consumer Protection charity page warns consumers, “Don’t send your contributions to a post office box. Make sure you know where your money is going.” (Editorial Note: If you disagree with those kinds of instructions for both ethical and practical reasons, I urge you to write to the Division of Consumer Protection and express your concern).
WISCONSIN.
A court of appeals held that a church-owned residence adjacent to the church, used by the maintenance custodian, did not qualify for the property tax exemption. In a continuing obvious trend to narrow exemptions, the court held that it was not exempt because it was not used exclusively for the purposes of the church.
Other
CAR DONATION PROGRAMS.
The Treasury Inspector General of the Treasury Department has been critical of the procedures by the IRS to ensure taxpayers are meeting all the requirements for deducting charitable contributions of motor vehicles. The report includes a recommendation that the IRS establish additional procedures to assist in identifying instances of non-compliance.
CHRONICLE OF PHILANTHROPY SURVEY.
The Chronicle of Philanthropy released its annual survey of the four hundred largest charities and, once again, United Way worldwide is in the number one position. The survey found there was a one percent increase in the total amount raised from private sources by charities on the four hundred list in 2008 when adjusted for inflation. The survey also reported eleven new organizations, and forecasted the results for 2009 would see a decline.
NAAG/NASCO CONFERENCE.
The conference held in Austin, Texas last month was better attended than anticipated. Among the highlights was a presentation by Lois Lerner of the Internal Revenue Service. One of the many points Ms. Lerner made was that the compensation studies conducted by the IRS indicate that there really is not a big over- compensation problem. However, she did indicate that the IRS would continue to look at the issue. The IRS is also continuing to focus on how charities are spending their revenue. The focus, of course, will be on charities with a high level of income and low program service revenue. Another project highlighted was one looking at the evaluation of gifts-in-kind. The regulatory community believes that there are over- evaluation problems in the industry. Greg Lam and Nathan Thomas of our firm attended the conference.
OTHER COUNTRIES.
FRANCE.
The Wall Street Journal reported that French authorities are conducting an investigation of as many as seventeen nonprofits with direct ties to U.S. fundraisers and U.S. based charities.
UNITED KINGDOM.
According to published reports, postal workers have agreed to cancel all planned work stoppages during the holiday season. The union believes they will reach a resolution over their issues with the Royal Mail Service. The nonprofit community has raised substantial concerns over any possible postal strike coming during the holiday season.