July/August 2013

In this issue:

  • Hawaii recently passed HB430 which exempts charitable contribution deductions from the cap for itemized state income tax deductions.
  • The Charlotte Observer reported that at least 35 of the city’s nonprofits have changed leaders in the past year.
  • Free Speech Coalition has sent a letter advising three Congressional Committees of the alleged illegal collection and disclosure of donor names and addresses by the state attorneys general of both California and New York.
  • Senior partner, Errol Copilevitz, has been named to the Board of Directors of the Nonprofit Leadership Alliance.

Legislation was recently passed, which repeals the major portion of the requirement for charities to register in the state prior to solicitation.  Charities should seek legal advice as to whether they should discontinue any and all filings in the state.  The repeal does not affect professional fundraisers or fundraising consultants.

Comment: We have been unable to determine the impetus behind the repeal of the charitable registration requirements.  The trend is to go in the other direction.  It may be the state found that the cost of administration was too much of a burden.

Legislation passed at the close of the session, requiring telemarketers calling on behalf of nonprofit organizations to honor do-not-call requests.  The bill was to put the state in the same position as the federal rules requiring same.

Hawaii recently passed HB430 which exempts charitable contribution deductions from the cap for itemized state income tax deductions.

Misdemeanor charges were brought against an individual for attempting to defraud the One Fund Boston.  He represented he needed money to pay for his aunt’s medical expenses from injuries received in the Boston Marathon bombing.  It turns out his aunt died several years ago.
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Money from One Fund Boston is now being distributed to the victims of the Boston Marathon bombing.  The Massachusetts Bar Association has contacted the office of the Massachusetts Attorney General to ask for their review and intervention regarding the process that is being utilized.  The complaint of the Bar Association concerns the formula the trustee is using for distribution.  The Bar Association asserts that it has resulted in some inequities between treatment of cases.
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A professional fundraiser for a state-based veterans group has been ordered to pay $125,000 in civil penalties for using deceptive tactics while soliciting for the organization.  A preliminary injunction was issued in August of 2012 and apparently the defendant and the defendant’s company filed no further pleadings.  As a result, a default judgment was taken.  The judgment includes a ban against further activity in the Commonwealth.

The Office of the Attorney General announced a settlement with the operators of an unregistered storm relief charity.  The two principals agreed to dissolve their foundation, shut down their website, and return $334,000 to a court appointed administrator.  The money was initially raised to help victims of Hurricane Sandy.  Ultimately, the defendants did file and receive tax-exempt status.  The settlement was made without any finding of wrongdoing.
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The city’s battle with its budget problems may find new allies in local citizenry.  In this case, the residents of Princeton, New Jersey have filed a lawsuit against Princeton University claiming that the school’s income from royalties and commercial co-ventures should make the University ineligible for the tax-exempt status which it currently enjoys.  Putting the property owned by the University back on the local tax rolls would bring significant income to the local community.  According to a published report, if all of the University’s land was taxed the tax bill would be approximately $28 million a year.  It comes as no surprise that the University announced it would fight the lawsuit, having already unsuccessfully asking the court to dismiss it. 

The Office of the Attorney General has filed lawsuits against nineteen separate nonprofit organizations and the principals of same.  These were charities formed ostensibly to help Israel, but in fact, according to the attorney general’s complaint, were used mostly to obtain money for private benefit.  The lawsuit seeks the dissolution of the organizations.  Speculation exists whether criminal charges will soon be following.
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The Attorney General has raised questions about the distribution of monies that were raised to aid the victims of Hurricane Sandy.  According to the release from the Attorney General’s Office, the charities have not disbursed almost $240,000,000 of the $575,000,000 raised in contributions.  According to a published report, the Attorney General sent letters to some of the larger organizations, including the American Red Cross, asking them to explain how they are handling these donations.
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The Attorney General’s Office announced the settlement of a lawsuit brought against the former head of a national arts club.  The lawsuit alleged significant financial misconduct, as well as abuse of the organization’s resources.  Previously, the organization entered into a stipulation with the Office of the Attorney General that imposed term limits on officers and directors.  Under this most recent settlement the former head of the organization agreed to pay $950,000.

The Charlotte Observer reported that at least 35 of the city’s nonprofits have changed leaders in the past year.  The paper went on to call it an “unprecedented exodus that experts say could hurt the city for years to come.”  The newspaper went on to write that the exodus also included a number of development people and junior executives.

Comment:  As many of us know, the effects of the recession are still being felt by charities across the country.

The office of the Attorney General has settled a dispute with a clothing bin company, which has agreed to pay $44,000.  The Attorney General alleged that the company collected $19,000 in used clothing, claiming it would benefit environmental causes, but instead most of the money went to a for-profit entity.  Compounding the problem for the company was the fact that it was not properly registered to solicit in the state.
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The office of the Attorney General announced it had obtained a temporary restraining order against NJF Global Group and its charitable partner.  The suit alleges a charitable organization operated under the name of “Profitable Sunrise,” promised wealth to investors but was merely an international pyramid scheme

The controversial law in Oregon to restrict state income tax deductions to only charities that meet a certain standard of financial efficiency has been passed into law.  The law will go into effect on or about October 1, 2013.  Charities that do not meet financial efficiency standards prescribed in the statute must give a point-of-solicitation disclosure of the non-deductibility of the contribution under Oregon’s income tax law.  State officials have been quoted in the media, stating their confidence in the law if challenged would be found to be constitutional.

Comment: If the law is challenged, it will be on the basis of a compelled point-of-solicitation disclosure.  Content-based regulation has rarely been sustained by our courts.  The law also gives the Oregon Attorney General’s Office the right to create new rules that could include new point-of-solicitation disclosures.  This, too, looks to be a constitutional issue.  Has the legislature abrogated its function, by giving the Attorney General, in effect, the right to create a new law?

Legislation continues to progress that gives the state legislature the power to decide which nonprofits get tax-exempt status as purely public charities.  The proposal would, as previously reported, amend the state constitution.  In order for the amendment to the constitution to go into effect it would again require legislative approval in 2015, as well as win a voter referendum.  According to a report, the impetus to amend the constitution comes from a 2012 Pennsylvania Supreme Court ruling that denied a Pike County summer camp an exemption.  Also, pending in Pittsburgh is a challenge to UMPC’s property tax-exempt status.  If successful, it would add millions of dollars to the tax rolls of the city of Pittsburgh.

Comment: The lawsuit is much like the one in New Jersey, where local citizens have challenged Princeton University’s right to property tax exemption.

The State Supreme Court ruled that an education advocacy group that receives money from the state could be subject to the state’s Freedom of Information Act.

Comment:  This is a tricky legal question.  If the organization qualifies as a public body, then the Open Records Act could apply.  Conversely, if all it does is receive some funding from the state it may be able to fend off the state’s ability to review its records.  Such access could have a chilling effect on the organization.

The Office of Personnel Management (OPM) issued a set of new proposed rules that would drastically overhaul the administration and participation in the CFC.  The proposed rules have been met with a number of objections and critical comments.  The process is now back to the drawing board with comments, hopefully, to be digested.  Some of the points which have caused the most concern, to-wit: (1) the new rules would eliminate all forms of contributions, other than those made electronically; (2) there would no longer be a print distribution of the list of charities participating; (3) there would be an annual application fee to finance the administrative costs, rather than having the money deducted from contributions received; (4) there would be a prohibition against federations from charging fees based upon disbursements to members.  On the plus side is the simplification of the application process, and reducing the requirement of applying to only once every two years.

Comment: The CFC is an important program and everyone has an interest in seeing that it is run in the most effective and efficient manner.

A suggestion has been made to the IRS that it issue guidance clarifying the public inspection requirements.  The suggestion by AICPA is that they apply only to items required to be filed under §§ 6033 and 6011.  By doing so, personal and sensitive tax information of taxpayers and related parties could be better protected from tax identify theft and tax fraud.

Senior partner, Errol Copilevitz, has been named to the Board of Directors of the Nonprofit Leadership Alliance.  This important organization helps develop curricula for the training of young people to enter into the nonprofit world.

Free Speech Coalition has sent a letter advising three Congressional Committees of the alleged illegal collection and disclosure of donor names and addresses by the state attorneys general of both California and New York.

Comment: At issue is whether the IRS schedule with the largest donors to the organization is required to be filed as part of the state filing.  It is not a matter of public record under the Internal Revenue Code.  The letter that was sent can be viewed at the website of the Free Speech Coalition which is www.freespeechcoalition.org.

The Australia Charities and Not-For-Profits Commission reported receiving 119 complaints about charities since it began operating in December 2012.
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Charities in this country enjoy a level of esteem that may be unparalleled to any other place in the world.  A new study released by the Australian Charities and Not-For-Profits Commission announced that from a national survey conducted, only doctors and the police rate higher in the public’s esteem.  The most common reason for choosing to support a charity is the perceived importance of the charity’s work.

The Charity Commission reported that complaints about charity clothing bins have doubled to nearly 2,000.  According to the report, the clothing bin sector is now in the top five of fundraising offenders.