In this issue:
- Subcommittee on Oversight of the House, Ways and Means Committee met in late July and held its second scheduled hearing on issues facing the tax-exempt community.
- The Washington Post reported the United Way of the National Capital Area is instituting some changes that will affect smaller organizations.
- A unique concept has been developed in Massachusetts to challenge nonprofit organizations to solve various social problems.
The uncertainty of whether a contribution to a LLC that is wholly owned by a charity is deductible has now been resolved. IRS Notice 2012-52 makes it clear that a contribution to a single-member limited liability company is deductible. The member charity will be responsible for meeting the substantiation and disclosure requirements applicable to the gift.
The Subcommittee on Oversight of the House, Ways and Means Committee met in late July and held its second scheduled hearing on issues facing the tax-exempt community. Among the subjects discussed were the possible redesign of the Form 990, and the recurring issue involving lobbying and political activities of Section 501(c)(3) and Section 501(c)(4) organizations. Another interesting topic to be discussed was the future treatment of unrelated business income tax, as the businesses of charities continue to evolve and become more and more complex. A prior hearing was held in May, and the next hearing date is yet to be scheduled, but presumably will be sometime in late Fall.
A new study titled “Fair Pay for Northern California Nonprofits” said that many nonprofits in northern California are slowly increasing their workers’ pay, and do expect to add more workers this year than last year. The study included a survey of 402 nonprofit organizations. The medium salary increase was 2% in the area.
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The Attorney General has filed a lawsuit against a California-based veteran’s organization alleging facts and circumstances going back to 2003. Named as defendants in the lawsuit are the founder, the current officers, directors and most disturbingly the accounting firm and direct mail agency that worked with the organization. The lawsuit is seeking restitution in millions of dollars from all of the named defendants.
Comment: This case joins the other cases being highlighted on Anderson Cooper’s show on CNN, primarily focusing on veteran fundraising activities.
The Denver Post reported that the police in Aurora are investigating a website that claims to be raising money for the victims of the tragedy in the city. At the same time, the Office of the Attorney General has announced an inquiry into several charities that have tried to link appeals to the tragedy as well.
DISTRICT OF COLUMBIA.
The Washington Post reported the United Way of the National Capital Area is instituting some changes that will affect smaller organizations. The changes are aimed at charities that bring in less than $50,000 per year, with the justification that more money should be given to those charities which are more efficient in delivering services.
Comment: This is bound to be controversial in the nation’s capital.
According to some published reports, the new Georgia law is going to enrich the state at the expense of charities. House Bill 1055, which passed, creates a $35.00 filing fee for specialty license plates of which $25.00 is to be deposited into the state’s General Fund. Only $10.00 will be dedicated to the sponsoring agency fund or nonprofit corporation. Even with renewals, the split continues to be $25.00 to the state and $10.00 to the charity.
Following the reporting last month of the closing of Y-Me National Breast Cancer Organization based in Chicago, the organization has filed a Chapter 7 Bankruptcy Petition. Immediately, a state senator asked the Office of the Attorney General to investigate it. The Office of the Attorney General did announce that it was in the beginning stages of an investigation of the finances, which it described as a standard procedure in such situations. The organization was founded in 1978, and to date, there has been no explanation for its sudden closing.
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There is an interesting development involving a gift to a charity in the State of Illinois. In an attempt to defeat the bequest, members of the family have raised the issue of whether the charity can receive the bequest because it was not registered to do business in the State. Keep in mind there is a distinction between being registered to solicit charitable contributions and registration as a foreign corporation with authority to conduct business within the state. The lower court has ruled that the charity cannot receive the bequest. An appeal is being taken, and an amicus brief is being prepared by attorneys for the Free Speech Coalition. (If you are interested in joining this fight, feel free to contact Young America’s Foundation or Free Speech Coalition.)
Numerous charities, hospitals and other facilities in the state could be subject to a “claw back” as a result of distributions they may have received from the Peregrine charity. The charity was allegedly funded with embezzlement funds from the founder of the Peregrine Financial Group. The corporation is now in bankruptcy, hence the threat of the “claw back.”
Comment: We have seen the use of the “claw back” in numerous Ponzi schemes, including the Madoff scheme and others in Philadelphia and around the country. In those cases, generous donations were made to charities, which then have to face either litigation or the surrender of the funds that are then returned to investors.
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The Attorney General has once again sued a telemarketer. This time the telemarketer was raising money for smaller health-related charities.
The state has announced that starting this year all charities using fundraisers will be required to renew their registrations on October 1st. This change in policy moves away from “rolling” renewals. This will become the standard date for charity renewals in the state.
The former head of a York County nonprofit that provides services to low income residents has pled guilty to embezzling more than $900,000 from the agency, and using the funds to pay off personal debts and expenses. As part of the plea agreement, the individual agreed to restitution of $1.2 million and faces a significant prison term.
A unique concept has been developed to challenge nonprofit organizations to solve various social problems. The program has been named “Social Innovation Financing,” and it requires funded organizations to show success in order to receive additional funding. The experiment has just begun, with two agencies having been identified to tackle the issues of juvenile crime and homelessness.
Comment: What an interesting and innovative concept. This experiment, if successful, could be a blueprint for a number of programs in large metropolitan areas.
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The Attorney General has sued a local veterans group and a locally based fundraiser. Allegations include those of misrepresentations.
Once again there is a classic example of how charities do not mix with politics. The Detroit Free Press reported on charges made by the state’s Democratic Party over a Republican U.S. Senate candidate’s salary from a nonprofit foundation claiming that it was a form of “private enrichment.” The candidate operates a foundation and pays himself a salary of $500,000. The foundation was created to support several charter schools. Experts interviewed in the article noted that it was more a question of “reasonableness” as compared to “legality.”
Henry Bloch, the founder of H&R Block, announced the formation of a foundation that will inherit his family’s wealth to support cultural and educational activities in and around the Kansas City, Missouri area. Once funded, it is projected that will be one of the largest privately funded foundations in mid-America.
The Division of Consumer Affairs has issued its report on the most inquired about charities for the first half of 2012. The list, according to Acting Director Eric Kanefsky, contains seven veterans’ organizations, a cancer charity, an advocacy group, and an animal rights organization.
In what has to be one of the most unusual pieces of legislation, the state has enacted a new law authorizing charities to post bail of up to $2,000 for individuals charged with misdemeanors who are not otherwise able to come up with the necessary funds. The state senator who introduced the bill was quoted as saying, “In effect, innocent people frequently plead guilty because they can’t afford bail, and this legislation will create a more just bail system.”
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The Attorney General is taking an aggressive stance in challenging a number of advocacy organizations’ participation in politics. Almost two dozen advocacy organizations, including some IRS § 501(c)(4) organizations have received aggressive requests for information about their political and financial activity in the state.
The state continues to be prolific in its issuance of civil investigative demands to numerous organizations that raise money in the state.
In a most unusual story, the Houston Business Journal reported that a number of proprietors of restaurants are going to create a “charity bar.” The goal is to distribute the profits from the operation to local charitable organizations that are selected on a rotating basis by the clientele. The projected opening will be at the end of this year.
REGULATORS’ ANNUAL CONFERENCE.
This year the annual conference hosted by the National Association of Attorneys General/National Association of State Charity Officials will be held on Monday, October 1, 2012, at the Sheraton Silver Spring Hotel, Silver Spring, Maryland. The public program offers a wide array of subjects presented by a number of quality presenters.
To celebrate the 50th anniversary of the Combined Federal Campaign, OPM appointed a Commission to make recommendations on how to improve the program. The Commission, headed by former Representatives Tom Davis (R-VA) and Beverly Byron (D-MD), released its report on July 27, 2012. The Commission called upon OPM to increase donor participation, and strengthen the CFC’s infrastructure, as well as increase transparency and accountability. All together there are twenty-four recommendations, which include reexamination of standards for entrance and spreading the cost to participants.
PALLOTTA’S NEW BOOK.
Jossey-Bass has announced the publication of Dan Pallotta’s new book, The Charity Case which will be available on September 4, 2012. In a review, Diana Aviv, President and CEO, Independent Sector, said, “Dan Pallotta invites, tempts and provokes every single one of us to think differently about the humanitarian sector.”
Comment: Senior Partner Errol Copilevitz is among the authors with an essay in the publication.
This organization found its new President and CEO on its own Board of Directors. Jacob Harold, who has formerly been associated with a California-based foundation has been tapped as the new President and CEO.
CANADIAN COURT DECISION.
A superior court judge in Ontario, Canada ruled that a defendant’s failure to disclose at the point of solicitation the high cost of fundraising made him guilty of fraud. The case is going to be appealed.
Comment: This case goes beyond failing to disclose professional status. In this case, the judge felt that the failure to disclose the high cost of the fundraising amounted to fraudulent activity. For those interested in fundraising issues in Canada, this case will definitely bear watching.