December 2014

According to the Arizona Republic, at least four state-based nonprofit organizations which receive state and federal tax dollars to provide mental health care services for low income Phoenix area residents are now using some of their resources to subsidize related businesses they started in the State of New Mexico.  New Mexico was able to entice these nonprofits with promises of state subsidies.  Local experts are claiming that while the policy may not be illegal, it is unethical.

A federal lawsuit has been filed challenging the state’s position that filings for charitable organizations must include a Schedule B to their Form 990.  Schedule B to the 990 lists the major donors of an organization, and is ordinarily not a matter of public record.  The lawsuit was filed by The Americans for Prosperity Foundation, alleging that the mandatory inclusion of the names of donors violates the Foundation’s First Amendment rights.  (Comment: This is an important lawsuit.  The State of New York has taken a similar position.  The Internal Revenue Service recognizes that the names of donors are proprietary and does not make them public.  The states have given assurance that they would not publish the names, so what then is the reason for the states to have the information?  This will be a case worth following).

A judge in Ft. Lauderdale ordered the city to stop enforcing a new law that restricts feeding homeless people in public.  The controversy over the law has brought a great deal of negative attention to the community.

According to a published report, some of the state’s largest nonprofits are taking their money offshore.   According to the report by, a number of wealthier nonprofits have opened up investment accounts overseas, which allow the organizations to shelter a type of investment income that would normally be subject to tax, even though nonprofits do not generally pay such levies.  The practice which is now coming to light has been the subject of some criticism.  The charities have responded  by saying they are maximizing the contributions that have been donated to them.

One Fund Boston was set up to provide assistance to victims of the Boston Marathon bombing and their families.  The Fund has distributed over $80 million and has announced that it is now going into a “wind down” position.  (Comment: From all reports the Fund operated exactly as everyone hoped.  Congratulations on a job well done).

The Office of the Attorney General issued a news release challenging Savers, LLC to come into full compliance with the state’s charitable solicitation law.  The compliance report is a complete history of the relationship of thrift store operations in Minnesota, and gives the company forty-five days to develop a plan to come into compliance while the threat of legal action hangs in the air.  The company has pledged to work with the Office of the Attorney General to resolve their concerns.

The Charities Bureau has announced that Karen Kunstler-Goldman has been promoted to Deputy Chief of the Charities Bureau by Attorney General, Eric Schneiderman. (Comment: Karen has been a stabilizing force in the industry for years, and her promotion is certainly warranted.  Kudos to Karen and the New York Attorney General).

The city of Sylvania, a suburb of Toledo, is considering implementing new ordinances to regular unattended clothing bins in the community.  According to a newspaper article the action was prompted by the proliferation of unattended clothing bins placed in the community by the for-profit entity Planet Aid.
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An interesting situation is going on in Akron.  The mayor of the city formed a charitable foundation to provide scholarships to local youth.  The scholarship subsequently loaned $75,000 to a political campaign committee that promoted the sale of the sewer system which the public voted down, and the scholarship fund has become silent if not defunct.  Questions are now being raised about the ethics and propriety of the transaction.  

What could possibly go wrong?  A congressman, who took office in 2005, help steer more than $3.3 million in congressional earmarks to a charity being run by his former staffers, who pledged to use the money to help needy school children.  It turns out that the money has is gone and the charity is closed, and the FBI is conducting an investigation.  Stayed tuned for more details.
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The State Auditor released a report in mid December on the effect of property tax exemptions enjoyed by charitable organizations in the Commonwealth.  The report surveyed ten counties and found that the exemptions cost the counties more than $1.5 billion in revenue.  (Comment: This is simply one more stone in the building of an edifice to challenge the desirability of most states to continue real estate property tax exemptions for charitable organizations.  Ultimately the test to the legislative bodies is whether it is worth it.  While there is no doubt that government loses money as a result of the property tax exemptions for charities, there should be a correspondingly persuasive argument that the benefit government receives as a result overwhelms the loss.  It is left to the legislatures to make this determination).

The Texas Stampede, which was formed and operated to benefit children’s charities in the Dallas area, has shut down, and according to the Dallas Morning News, leaves a series of questions about its finances.  The paper reported that the organization’s most recent 990 showed that only ten percent of the gross income actually went to children’s charities as did support from one of the local communities.  Critics are saying there was too little oversight on the financial dealings of the organization.

A U.S. district court dismissed two nonprofit organizations’ lawsuit challenging the constitutionality of  the exemption of churches from information reporting requirements.  The court ruled the organizations lacked standing because there had not been a determination by the IRS denying them the same exemption.  (Freedom from Religion Foundation, et al. v. Koskinen, United States District Court for the Western District of Wisconsin).

HR 5806.  This legislation titled “Supporting America’s Charities Act” was introduced by the House, Ways and Means Committee Chair, Dave Camp, (R-MI).  The effect of the legislation would permanently extend and modify charitable giving provisions related to conservation, food inventory, and tax-free retirement distributions.  There is speculation, however, if passed the President  will not approve it and will possibly veto the legislation.      
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HR 5811 would amend the Internal Revenue Code to provide a charitable deduction for the service of volunteer firefighters and emergency medical and rescue personnel.  The bill was introduced by Representative David McKinley (D-WV).
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The President has signed legislation that will continue to permit direct contributions from IRA accounts to public charitable and educational organizations for 2014 (for taxes filed in 2015) of up to $100,000 in the aggregate for individuals over the age of 70-1/2.  The extension was originally only through 2014.  

Errol Copilevitz has been named a Fellow of the American Bar Foundation.  Fellows of the American Bar Foundation must be nominated and represent less than one percent of all practicing lawyers.

The IRS announced that the optional standard used to calculate the deductible cost of operating an automobile for charitable purposes did not change for 2015.  It remains at 14 cents per mile.

Pro Publica and NPR challenged a posting by the American Red Cross that 91% of all donations goes to services.  The challengers claim that is not true, and after inquiries the Red Cross removed the statement from its website.  According to the article published by Pro Publica, the Red Cross admitted that the figure was not “as clear as it could have been.”   According to the article, the Red Cross declined repeated requests to give the actual percentage of donor dollars that go to humanitarian services.

The U.S. Accountability Office recently issued a report  stating that the IRS does not have sufficient manpower to regulate charities that are not in compliance with applicable laws and restrictions.  The report in part was prompted by a request from Senator Tom Coburn (R-OK).  The sixty-six page report notes that the IRS’ staffing has declined significantly as the result of budget cuts, and therefore the resources are spread too thin.  The report also found that the number of charities being audited is falling.  Less than one percent of the charities that file tax returns are reviewed, as compared to at least one percent of all individual taxpayers.

Princess Cristina is to be tried in court for tax fraud sometime in the second half of 2015.  The charges against Cristina are part of a 2-1/2 year investigation into the alleged embezzlement of 6.1 million euros of public funds from a sports charity foundation in which she was involved.