Federal
CAR DONATION LEGISLATION.
H.R. 3248 has been introduced in Congress which, once again, would affect the deductibility of car donations to certain charities. In this instance, charities which do not use professionals to assist them their program will be allowed to give a full deduction at the fair market value. This would mean that charities using outside vendors would be subject to the restrictions on the value donors can take as a tax deductible donation.
INTERNAL REVENUE SERVICE (IRS).
User fees will increase for all applications for exemption received by the IRS that are post marked after January 3, 2010.
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The Agency is providing examples and training material on how to fill out the new Form 990.
State
CALIFORNIA.
The Los Angeles Times has reported on the controversy over the salary of the Executive Director of the Los Angeles County Museum of Art, whose compensation package this year, even in the face of layoffs and a declining budget, will still be $1 million. While some were critical, others noted the extraordinary fundraising success of the Executive Director.
COLORADO.
The state has added a new question to its charitable registration application. It requests identification of the registered agent for any charity not domiciled in Colorado but wishing to apply for a license to conduct appeals. This presumes that a charitable organization is in fact “doing business” as that term is generally legally defined. There is substantial case law that mailing to residents in a state from another does not constitute “doing business.” Unless the statute is challenged, charities will now have an additional expense of paying for a registered agent and perhaps filing annual returns with the Colorado Secretary of State as a foreign corporation.
FLORIDA.
A charity, highly rated by various “watchdog” agencies, is at the center of a controversy between the founder and subsequent board members over the use of funds and other irregularities. According to the Orlando Sentinel, for twenty-five years a small nonprofit has provided furniture and clothing to needy families in Central Florida. The charity has received government funding and a number of awards. Complaints to the IRS and other government officials include the use of donated items for personal reasons, and falsifying employee status to obtain insurance for a family member. Defenders claim part of the problem stems from the fact that the staff was small and untrained in proper procedures. According to the newspaper, many feel the problems resulted from a lack of professionalism within the organization.
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A charitable foundation has sued Merrill Lynch for $30 million, claiming the brokerage company was negligent for not moving its investments away from Bernard Madoff.
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According to the Tampa Tribune, the city of Tampa is drafting an ordinance that will require nonprofit organizations that receive city funds to abide by a series of ethical standards, including limitations on financial dealings between executive staff and governing boards of the nonprofit groups and for-profit entities. (Editorial Note: The hook, of course, is that they are receiving city funds, but it still an unusual step).
INDIANA.
A ruling by the Indiana Tax Court granted a landlord a partial tax exemption as a result of a lease to a tax-exempt organization. However, the Indiana Attorney General has announced his intention to appeal the court’s ruling. The ruling was hailed by many nonprofits which are not in a position themselves to own a building.
ILLINOIS.
The Governor has signed into law a bill which allows incorporation of low-profit limited liability companies, or as they are more commonly known as L3C’s, a new hybrid structure of for-profit ventures that have a primary goal of achieving a socially beneficial purpose.
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The Charitable Solicitation Act has been amended by raising the threshold for audits, commencing January 1, 2010, for organizations that receive over $300,000 in contributions per year and fundraising functions that are not carried on solely by staff employees or volunteers. (Editorial Note: The distinction here is that the threshold amount is not based on gross income, but on contributions as that term is defined under Illinois law).
LOUISIANA.
An heir of the original donor to the Sophie Newcomb Memorial College filed a lawsuit when the college was merged into Tulane University. (Sophie Newcomb was a women’s school and the merger made it co-ed). The trial court has dismissed the lawsuit, which has been pending for almost three years.
MICHIGAN.
Bills have been introduced in the state legislature which would raise licensing fees from $50 to $250 per day when a charity rents a facility or hires people or businesses that receive half the profits to run gaming. Civic groups and small local charities are complaining about the five hundred percent increase in fees.
NEW YORK.
The New York Times reported that three animal rights groups have filed a petition challenging a prior decision on the distribution of funds from the estate of Leona Helmsley. The petition alleges that the court used “faulty reasoning,” and that the New York Attorney General’s Office issued “a cursory and incorrect analysis” before the trustees of the estate paid out millions of dollars in grants. The trustees of the estate are accused of scheming to deprive dog welfare charities of their share of the estate, which is estimated to have been as much as $5 billion. (Editorial Note: Previously, the court had agreed that the bulk of the estate could go to other social issues. This is a case that will bear watching).
NORTH DAKOTA.
Senate Bill 2363 has been signed into law. This bill amends portions of the state’s Charitable Organizations Soliciting Contributions Act. Historically, the state has requested specific income information for solicitation campaigns relative to North Dakota, which has been difficult for national organizations to provide. The new bill allows an estimate based upon the percentage of population of the country as a whole. Other changes include that registration statements no longer have to be filed under oath, and that copies of tax returns need only be provided upon request.
OHIO.
The Toledo federal court has ruled that the U.S. government violated the constitutional rights of a local Muslim charity, when the government froze the charity’s financial assets in 2006 and prevented it from adequately defending itself against allegations of ties to terrorism. While the court ruled the organization was denied due process and subjected to unlawful seizure, it did not rule that the legislation empowering the government unconstitutional.
OKLAHOMA.
A surprise announcement was made by Larry Jones, the founder of Feed the Children, that he was stepping down from his position as chief executive officer. The announcement was part of an overall settlement of a very visible fight between him and his board of directors. Larry Jones will now act as a spokesperson and fundraiser for the organization. Larry Jones and his wife founded the charity more than thirty years ago.
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According to the Daily Oklahoman, a police investigation is currently taking place at the headquarters of Feed the Children as a result of the identification of wire taps in the building. Whether this connected to the past power struggles over the operation of the organization is unclear.
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An appeal has been made after a decision was handed down by the Tenth Circuit Division, which upheld the denial of a charitable contribution deduction of the lawyer’s donation of materials from his representation of Timothy McVeigh. The appeal argues that the court misinterpreted Section 1221(a)(3)(B) of the Internal Revenue Code to find the materials were not a capital asset.
OREGON.
The state has restated its position that the Oregon do-not-call list applies to calls made on behalf of nonprofits when they are not made by volunteers or employees. The issue is that Oregon does not have an independent do-not-call list and utilizes the national do-not-call registry which, by its very terms, exempts calls made by or on behalf of nonprofits. Additionally, the state indicated it will be raising the fees for late reports.
PENNSYLVANIA.
A challenge has been made by the state regarding a Form 990 filed by a charity involving the reporting of gifts-in-kind. The assertion being that the charity over valued the gifts-in-kind and, as a result, the filing is inaccurate.
SOUTH CAROLINA.
Ed Brown, investigator for the Public Charities Section of the Office of the Secretary of State, recently retired after 20 years of service. He was a former officer in NASCO and a real gentleman. A retirement party was held for Ed that included him being honored by the Lieutenant Governor and the Secretary of State. There was a wonderful story in the Columbia Star newspaper on August 14, 2009, with pictures of Ed and members of his family. He is missed already.
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Most recently, the state instituted administrative proceedings against several telemarketing companies. Claims include failure to make all disclosures and the use of unregistered callers.
TEXAS.
Our challenge to the point-of-solicitation disclosure law pertaining to donated clothing and clothing bins will be heard sometime in October. The case will be argued in federal court in Dallas, and Errol Copilevitz will present argument on behalf of the plaintiffs. For questions e-mail Errol Copilevitz at: .(JavaScript must be enabled to view this email address).
VIRGINIA.
The privately built memorial to World War II victims in Bedford, Virginia, remains in financial difficulty. The site was chosen because of the extraordinary number of “Boys from Bedford” who died on D-Day The memorial is running at a significant deficit and is now seeking to have the National Parks Service take over its operation. The memorial is currently operated as a charitable organization, but its fundraising efforts have fallen short.
Other
GIFTS-IN-KIND.
A meeting has been scheduled for December in Washington, D.C. to discuss revisions to the AERDO standards on the donation of generic drugs. (Editors Note: The AERDO standards for donations of gifts-in-kind are used by many organizations as a kind of Abest practices.@ There is also an increasing amount of scrutiny on reporting of gifts-in-kind by the IRS and several states).
NAAG/NASCO
This years conference of state regulators will take on place on October 19, 2009, in Austin, Texas. The conference is only open to the public sector on October 19th. Among the presenters in the public session will be Lois Lerner of the IRS and Professor Evelyn Brody. There will be a session on the progress of creating a unified annual financial statement presented by Chris Cash of the Licensing Section, Colorado Office of the Secretary of State, Bob Tigner of ADRFCO. Greg Lam and Nathan Thomas of our office will be attending.
STREET SOLICITATIONS.
There is growing movement to restrict street solicitations. Part of it is a safety factor and part of it is the proliferation of panhandlers at intersections in many major cities. Recently USA Today profiled the problem. It quoted major charities complaining about the potential crackdown, as well as the concern that was expressed in a number of jurisdictions. Among the cities which have recently passed ordinances prohibiting street solicitation include Dallas and Indianapolis, with other ordinances coming out of various locations in Virginia, Iowa and Georgia. (Editorial Note: Many years ago, a federal judge in New York held that panhandlers in the subway were protected by the First Amendment. While there are legitimate charitable organizations soliciting, there is also panhandling, which is unsightly and undesirable from the perspective of image building in the local communities. Whether these limitations can be constitutionally imposed is still an open question).