January 2012

In this issue:

  • January 23, 2012 - Update: Our January newsletter relied on a published report that the IRA donation rule had been reinstated by Congress. The report was wrong, and this provision is no longer in effect, although many believe Congress will act soon to reinstate the ability of those 70 1/2 or older to make non taxable transfers from their IRA
  • The IRS's Notice 2012-4 extends the filing time for tax-exempt organizations with January and February filing due dates until March 30, 2012, as a result of the e-F file system delay and unavailability.
  • The Nonprofit Finance Fund is conducting its 4th annual nationwide survey. To participate, visit nonprofitfinancefund.org/2012survey by 2/15/2012.


Three congresspersons serving on the House, Ways & Means Committee have raised (again) questions regarding the propriety of the tax-exempt status of AARP.  The focus continues to be the relationship between the organization and its commercial partners for the many benefits it allows its members.

The payroll tax extension approved by Congress in late December to preserve the tax break for elderly Americans on charitable distributions from their individual retirement accounts, will allow individuals 70-1/2 years old and older to donate up to $100,000 per year tax free from their IRA.

January 23, 2012 - Update:

Our January newsletter relied on a published report that the IRA donation rule had been reinstated by Congress. The report was wrong, and this provision is no longer in effect, although many believe Congress will act soon to reinstate the ability of those 70 1/2 or older to make non taxable transfers from their IRA

Notice 2012-4 extends the filing time for tax-exempt organizations with January and February filing due dates until March 30, 2012, as a result of the e-F file system delay and unavailability.
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The IRS has issued new guidance that provides procedures for new determination letters and rulings on the tax-exempt status of organizations under § 501.  The procedures also apply to the revocation and modification of determination letters or rulings.  The revenue procedure became effective on January 9, 2012, and provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment actions.  (See Rev. Proc. 2012-9; 2012-2 IRB 261).

A long awaited decision from the U.S. Supreme Court involving the rights of religious organizations to hire and fire, based upon their own beliefs, has finally been handed down.  In describing the case, the New York Times said, “In what may be the most significant religious liberty decision in two decades, the Supreme Court . . . for the first time recognized a ‘ministerial exception’ to employment discrimination laws, saying that churches and other religious groups must be free to choose and dismiss their leaders without government interference.”  On the downside, the Court gave very little guidance on the range of their discretion.

Comment:  This is an important case and no doubt there will be other cases soon to follow, testing the boundaries.

The USPS has agreed to hold off closing post offices or mail facilities until May 15, 2012 in order to allow more time for Congress to work out a plan to help preserve the viability of the agency.


The Alaska Legislature is considering a bill (HB 243) which would prohibit the use of automated telephone systems playing recorded messages to offer goods or services for sale, solicit information, promote a political campaign, or gather date or statistics.  This is a broad ban, more restrictive than current federal law.

The Attorney General’s Office has issued an opinion to an inquiry from an Arkansas county prosecuting attorney concerning whether the county can place a voluntary contribution opportunity on its county tax bills.  The practice is prohibited under the Arkansas State Constitution.

According to a published report, Chicago will soon introduce water and sewage charges for nonprofits in order to address its budget deficits, and help to rebuild the sewer system in the city.  The plan is to introduce the fees over a four-year period.

The Office of the Attorney General has announced an investigation into the Brown Foundation.  Counsel for the Brown Foundation indicated that if any assertion is made against the Foundation by the Attorney General, they will go to court.  The investigation pertains to the use of the proceeds and expenses incurred.

Comment:  the Brown Foundation finds it origins in the desegregation case that came out of Topeka on the separate but equal doctrine that was argued before the U.S. Supreme Court.

The Salvation Army reported in mid December 2011, that its collections were down 22% from the previous year.  The report noted the biggest decline was in urban areas.
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The Boston Globe reported that the Boston Foundation has acquired the nonprofit consulting firm, Philanthropic Initiative, Inc., which has been advising corporations and other large donors how best to give away their money.  The Philanthropic Initiative has been hit hard financially, and has been looking for a partner for nearly a year.
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A lawsuit has been filed against a biotechnology company by a Pennsylvania-based cancer research institute, alleging that the company took intellectual property from the tax-exempt organization and used it to launch its for-profit business.  This is no small issue.  The lawsuit claims $1 million in damages. (This is a fascinating case and one worth watching).
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The Attorney General has introduced new regulations to clarify when religious-based charities must register and file financial reports, as compared to when they may be exempt.  A public hearing was held and the new regulations are designed to go into effect later in 2012.

The Office of the Attorney General has announced settlement with a Puerto Rican-based foundation that allegedly was raising money for the Joplin tornado relief campaign.  According to the attorney general, the foundation did not fulfill its promises and as a result agreed to pay a specified sum to the state, which was then distributed to charities in the area.

HB 1556 would reduce the filing fee for initial charitable organization registrations from $25 to $10, and the filing fees for annual report filings from $75 to $35.

A prominent rabbi has been sentenced to five years incarceration for his part in a $1 million money laundering scheme involving charities.  The rabbi is one of forty-six individual defendants charged in this elaborate scheme.

The Office of the Attorney General has issued its annual fundraising report.  The report analyzed 564 campaigns that use professional fundraisers.  In 77% of those campaigns, the charity received less than 50% of the funds raised.

Comment:  This is a continuation of the concept that the worth of an organization is based on its financial success in raising money.  Obviously, charities that use professional fundraisers are going to pay costs not only to the professional fundraisers, but in the case of telemarketing fundraising, the expenditures for labor, utilities, postage, printing, licenses, bonds, fees, etc.

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The Wall Street Journal reported that a fifty-five person fraud ring used members’ jobs at prominent charities to steal financial information from hundreds of donors, then used the data to reap nearly $2 million through phony checks and transactions.  The Manhattan district attorney said the charges, “Shine a spotlight on almost every tool that is now in the identity theft’s tool box.”

Comment:  This is a sad and classic example of controlling access to confidential information and, of course, screening employees.

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Jason Lilien, Bureau Chief, Charities Bureau, issued a release in December announcing a coordination with Charity Corps, which he described as a joint initiative with the Office of the Attorney General and the State Bar Association, to assist nonprofits that do not have the resources with volunteer attorneys.

The Oregon Attorney General’s Office has issued its annual list of the twenty worst charities.

Comment: Much like New York, the rating system is based solely on financial efficiency and fundraising.

Charities that were talking to the troubled charity associated with the football coach at Penn State (child abuse scandal) have broken off talks with the charity regarding taking over some of the programs the organization was offering.

Comment:  It appears that the ability of the charity to survive the scandal centered around its founder is in doubt.

The Office of the Secretary of State has issued its annual report on commercial fundraising. In a press release accompanying the report, the Secretary of State noted that, in effect, when using a commercial fundraiser there are going to be expenses.  The Attorney General stated, “The best way to maximize your contributions is to contact charitable organizations in your community. . .”.

Comment: Not many people will voluntarily call a charitable organization to inquire about making a donation.  Unfortunately, most wait until they are asked.


The Evangelical Council for Financial Accountability announced that charitable giving to ECFA members totaled $9.38billion in 2010, which was a 5.8% increase over 2009.

The Nonprofit Finance Fund is conducting its fourth annual nationwide survey, examining the current state of the nonprofit sector.  They have asked us to publish their link and invite nonprofits that receive our newsletter to participate.  To take the 2012 survey go to: nonprofitfinancefund.org/2012survey between January 11, 2012 and February 15, 2012.  All survey responders who chose to give contact information will receive a copy of the results directly.

Harvey Litman, a well known nonprofit writer with The Record (New Jersey), earlier this month wrote, “The top priority of lobbyists for the non-profit sector in Washington is persuading Congress to renew the law that allowed seniors to make tax-free contributions to charities directly from their individual IRA accounts.  The law expired at the end of 2011.”

MSNBC published a report created by Twenty Four/Seven Wall Street, ranking the most generous and least generous states by reviewing IRS data provided by the Urban Institute.  As expected, donors in wealthier states gave more than donors in the poorer states.  The three most generous states were: Utah, Maryland, and Connecticut.  The least charitable states were: Maine, Vermont, and West Virginia.

According to a published report, Goodwill Industries’ retail sales totaled close to $3 billion in 2010.  The organization has introduced a rewards card.  According to the Association of Resale Professionals the thrift store industry is thriving in a bad economy, and has grown at least 5% in the past year.

According to a report on the website of Network for Good, December giving was up 15% over the same period in 2010.  This follows November, where donations were up more than 20% for the 1,000 charities listed on the site.

The Australian Charities and Not-For-Profit Commission (ACNC) has been established by the Treasury.  This new agency will commence operations on July 1, 2012.  Registration with the ACNC will allow charities to access government support, including tax concessions.

Despite economic difficulties, Third Sector reports that giving in the United Kingdom remains constant.  Forty-three percent of the individuals polled by Third Sector said their giving remained at the same level in 2011.