February 2016



The Department of Finance and Administration recently made a ruling by letter concerning an entity that raised money to donate to local police departments.  The agency found that the proceeds were subject to the state’s gross receipts tax because the organization had not obtained formal tax exemption and recognition as a chartered charitable organization.


New legislation is being sought to address the growing number of unattended clothing bins in the Phoenix area. Property managers across the valley estimate that there are more than 7000 unattended bins, many of which have been placed without property owner permission. The proposed legislation would not prohibit cities and counties from developing their own bin regulations but would require bin owners to have permission before placing any bin on property. It would also give the property owner the right to remove bins that are placed without permission or after a period of time, if they are asked to be removed.


The State Board of Equalization has updated its publication for nonprofit organizations explaining the state’s sales and use taxes and how they are applicable to tax-exempt organizations.

Here is an interesting case. A prominent African-American church in the San Francisco area established its own nonprofit to provide affordable housing in the area.  Fifty years later the board of directors has decided to sell the property and realize a multi-million dollar profit. The church that originally established the nonprofit filed suit but ultimately the case settled. That settlement required the current board members of the nonprofit to resign and appoint their own successors to continue the operation of the facility to provide affordable housing in the community.


According to a published report from the Secretary of State, 6,400 state based charities raised $4.2 billion in 2015. Paid solicitors raised $472 million. This sum includes national campaigns.


According to published reports, efforts to reform the state government’s troubled workplace fundraising campaigns may be hitting a brick wall. There are certainly significant difference between legislators and the pleas of the governor regarding what reforms must be made and as a result the program may be discontinued, at least on a temporary basis.


The state filed a lawsuit in late January charging a telemarketing company with deceiving charity donors out of millions of dollars. The Attorney General alleges that the Chicago based telemarketing firm used “false statements” and/or material omissions in its fundraising pitches and seeks to bar the company from soliciting for Illinois charities.


The Attorney General and Secretary of State have announced that they shut down a purported charity for veterans because the veteran group falsified marketing materials and other documents and failed to properly account for donations. The Southern Maryland Veterans Association was the subject of many complaints received by the investigators who subsequently took action to close the organization.


The Washington Post reports that the former Chief Executive of the American Registry of Pathology has been sentenced to four years in prison for stealing more than $2,000,000 from the organization that supports research in the field of Pathology. According to the plea agreement, fake invoices and fabricated emails were used to funnel money into a personal account.


“The Chronicle” reports that The Barr Foundation has announced a new direction in its support of the arts and creativity, climate and education. The Foundation reportedly has $1.6 billion in assets and will increase its grant-giving by nearly $20 million and extend its reach further into the New England area.


How much does a football team mean to the development department at a university? A university has found out. The Columbia Daily Tribune reports that the University of Columbia’s donations are down more than 24% from the same period last year as a result of the football team’s threatened boycott to not play in games during a recent campus racial controversy.

New York

Here’s one for those who think charities should not be run like a business. The New York Daily News reports that the Steinway Child and Family Services charity, which provides services to children with severe mental health issues, is $10 million in the red and as a result, is closing.  According to the published report, there was more than $7 million in unpaid federal and state payroll taxes. The charity was established in 1972 and is now in the process of transferring programs with the goal of being completely closed by February 28, 2016.


Here is another example of professional football players and charities simply not being a good combination. Reggie Rucker, a former Cleveland Brown wide receiver, is now facing federal charges after he used charitable donations from his foundation to pay his own gambling debts. He now has acknowledged that he has a gambling addiction.


The State Tax Commission is proposing amendments to its charity gains tax rule which grants a tax exemption for IRC § 501(c)(3) charitable healthcare organizations.

Rhode Island

House Bill 7322 was recently introduced in the General Assembly of the state. The law seeks to require professional fundraisers to make a longwinded disclosure that includes the minimum percentage of each contribution they will receive. As many of our readers know, this is exactly contrary to the U.S. Supreme Court holding in Riley v. National Federation of the Blind (Commentary: Our firm has been asked to contact members of the legislature to point out to them that such a law would be unconstitutional).


According to a published report, Gospel for Asia has been sued in a class action lawsuit in Texas Federal Court. The lawsuit alleges fraud and racketeering and the misuse of millions of dollars that were allegedly funneled to privately-owned companies involving the spiritual head of the organization and other misuses of the funds. The organization was recently suspended from the ECFA and according to other published reports was seeking reinstatement. The class action lawsuit is intended to apply to tens of thousands of donors who collectively donated hundreds of millions of dollars to the organization over the years. (Commentary: This is a large organization and the allegations are serious. Class action lawsuits against a charitable organization raise a number of major concerns. Whether a class will be certified by the federal district court is yet to be seen.)


2016 Charitable Giving Projection

A recent report issued by Atlas of Giving projects that charitable giving is expected to rise 2.6%. If that is true, it will reach $489.8 billion. The report goes on to say that the projection might have been higher if not for the current but ongoing turmoil in the stock market.

IRS Announces New Publications

The Agency has announced the issuance of four new publications.  Publication 3079 describes how tax exempt organizations involved in gaming activities could jeopardize their tax exempt status. Publication 554 is for seniors to use in preparing returns. Publication 517 provides information on Social Security and other information for members of the clergy and religious workers in preparing their returns. Publication 557 (Rev. Feb. 2016), entitled “Tax-Exempt Status for Your Organization” explains the rules and procedures for obtaining recognition of exemption from federal income tax as a § 501(c) organization.

The Trump Foundation Saga

As all of our readers know, Donald Trump elected not to participate in the last debate in Iowa, and instead held his own event. At his event, he raised money through the Trump Foundation for veterans. The use of his personal foundation in conjunction with his campaign raises all kinds of federal IRS issues. For example, if the IRS determines that the Foundation was used to further Mr. Trump’s political campaign, that would be an illegal activity and the IRS should revoke the tax exempt status. Setting aside the federal issues, there is another issue that has not been discussed. Assuming the appeal went out to those outside the state of Iowa, there is the question of state registration. Strangely enough, we have not seen any state raise the question of whether the solicitation by the Foundation at that particular time was legal or illegal as the result of its failure to timely register.