July 2015


The Los Angeles Times obtained a copy of the June 2014 audit report of the California Franchise Tax Board that revoked the tax-exempt status of Blue Shield of California for holding over $4 billion in reserves, and failing to focus sufficiently on providing public benefit.  The organization is fighting the revocation, but has complied with the ruling and filed back taxes through 2013.  Blue Shield has argued that the company’s large reserves are necessary to protect consumers from market instability, but the Franchise Tax Board ruled the reserves exceeded that which was required by law or by best practice standards of the health care industry.  (Comment: This is an interesting, if not important fight, because of the focus on a tax-exempt organization’s enormous reserves.  No doubt readers are familiar with the fact that a number of institutions, including some of the best known educational institutions, maintain enormous reserves).

After pleading guilty to mail fraud for her role in embezzling approximately $715,000 from Community Health Charities of Louisiana and Mississippi, a 67 year old resident of New Orleans was sentenced to 30 months incarceration, with 3 years supervised release, and ordered to pay $575,000 in restitution in addition to the $140,000 she has already repaid.

In late January a court of appeals granted a request allowing new rules governing charity poker games to take immediate effect.  The order comes a month after the appeals court reversed a lower court ruling that declared the rules invalid.  The rules in question create a curfew and limitations on compensation and on the size of games.  

The largest national thrift store chain, Savers, has agreed to change its business practices in settling a lawsuit filed last month by the Office of the Attorney General.  The lawsuit alleged that the company’s marketing misled donors and shoppers.  Under the settlement, Savers will file annual reports, including copies of contracts specifically setting out the compensation due charitable participants.  The company has also agreed to stop mixing donations solicited on behalf of one charity with donations intended for another, and to pay the charities directly for non-clothing donations.
A state tax court judge found that the Morristown Medical Center had so intermingled its nonprofit and for-profit services and finances, that it could no longer qualify for tax exemption under state law.  This ruling could make nonprofit hospitals in the state liable for millions of dollars in state real estate taxes.  (Comment:  The precedent of these cases is important for all nonprofits that own property which is otherwise exempt from state real estate taxes.  The pressure on government to fund its services without raising taxes inevitably causes a focus on those who enjoy tax exemptions.  If state governments are successful in taking away property tax exemptions from hospitals, it will not be long before they turn their attention to other charitable organizations which have state real estate tax exemptions).

In a case of “man bites dog,” the Santa Fe New Mexicanreported that a state nonprofit, which works with homeowners to prevent foreclosure, filed a lawsuit alleging that an assistant attorney general assigned to oversee such groups bullied its staff and harassed a female employee.   The Attorney General said the accusations against the assistant attorney general are being investigated, but termed the lawsuit as an attempt to deflect his office’s inquiry into the organization’s spending.

The Office of the Attorney General has sued a New York-based children’s cancer charity.  The suit seeks to close the charity and hold the founder, the founder’s sone and auditor accountable.
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An injunction filed by Citizens United against the New York Attorney General to prevent organizations registering to fundraise in New York from supply its Schedule of Contributors has been denied.  California and New York remain the only states that continue to request this information (which is not supposed to be made public) as part of the registration process.

Senate Bill 462 was signed into law for the purpose of clarifying that a public authority may establish, control and operate a nonprofit organization that is tax exempt under the Internal Revenue Code to further the purposes of that authority.  
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Donna Payne, document examiner with the North Carolina Office of the Secretary of State, has retired.

Strategic Fundraising, which was fined $1 million by the South Carolina Office of the Secretary of State, has closed its Minneapolis calling center making it the third such center it has closed.  

A member of the board of a Texas-based veterans organization told ABC News that he was outraged that the organization paid former President George W. Bush $100,000 to speak at a charity funderaiser for U.S. military veterans wounded in Iraq and Afghanistan.  The report also stated the former First Lady Laura Bush received $50,000 to appear the previous year.  The organization defended itself by saying that the former President normally charged more than twice that amount, and had made a concession to appear on behalf of this charitable organization.  (Comment: It is not uncommon for public figures, including former presidents, to speak a charitable fundraisers and be paid a significant fee).  



The IRS has announced a September 14, 2015, deadline for public comment on how to improve the IRS Form 990.  Those wishing to comment should send their response to Christie A. Preston, Internal Revenue Service, Room 6129, 1111 Constitution Avenue, NW, Washington, D.C. 20224.

On July 9, 2015, Congressman Daniel Coats (R-IN) introduced the “Access to Court Challenges for Exempt-Status Seekers Act.”  The purpose of the Act would be to allow groups seeking status as a tax-exempt organization under § 501(c)(4) of the Internal Revenue Code to go to the Tax Court and seek a declaratory judgment from the Tax Court if the IRS delays acting on their application.  (Comment: This may be more of a political gesture than a realistic one.  What constitutes a delay, and is the Tax Court the right venue?  It will be interesting to watch to see whether the Act gets legs).



In something of a surprise, this important umbrella organization has announced that Diana Aviv is resigning her position as president of the organization, effective September 30, 2015.  Ms. Aviv will become the new CEO of Feed America.  In the meantime, the organization announced it has formed a search committee to find a new president and CEO.


Other Countries

Aggressiveness by some charities and their fundraisers is causing consideration of amendment to the Charities Bill.  The new law would require charities and organizations that raise money on their behalf to state in their contracts how vulnerable people are to be protected from high pressure tactics.  As a result of recent scandals, the fundraising community is also vowing to strengthen protections for the vulnerable.  Under the new rules charities with incomes of more than one million pounds sterling must set out in their trustees’ annual report their fundraising approach.