March 2011

In this issue:

  • The Senate voted to repeal the provision in the Health Care Reform Act which requires issuing a Form 1099 to any service or goods provider who is paid $600 or more in any one year.
  • The Postal Regulatory Commission has approved the USPS’ approval of a 1.741% average postage rate increase, which will go into effect on April 17, 2011.
  • In South Carolina, the Senate passed a bill allowing charities, schools and churches to hold raffles, legally.


Last month the Senate approved the measure that would repeal the provision in the Health Care Reform Act which begins in 2012.  The provision is one we have visited before, to-wit: the requirement of having to issue a Form 1099 to any service or goods provider who is paid $600 or more in any one year.

The Postal Regulatory Commission has approved the USPS’ approval of a 1.741% average postage rate increase, which will go into effect on April 17, 2011.


In a case which bears watching, the Arizona Republic reported that the Fiesta Bowl has hired a well known tax attorney and white collar criminal attorney from California.  Many surrounding the circumstance speculate the IRS is investigating whether the status of the Fiesta Bowl as a § 501(c)(3) charity is proper.  Allegedly, other Bowls have retained the same legal counsel.

The Los Angeles Times reported that a Los Angeles superior court judge denied an $18 million claim involving an alleged oral pledge made by a wealthy philanthropist to head a religious organization.  The court ruled that the plaintiff had to prove through a “preponderance of the evidence” that the promise was actually made.  The court felt there were too many inconsistencies in the evidence.  (Editorial Note: Obviously the lesson here is to get pledges and commitments such as this in writing so that they are binding on the estate.)

Legislation has been introduced in the Senate that would significantly overhaul the state’s charitable solicitation law.  Among its positive features is the reduction of some of the filing fees.  The bill also has a provision which would allow the attorney general to require that annual financial reports and audited financial statements be submitted electronically with electronic signatures.
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S.B. 1233 and its companion bill in the House propose a number of changes to the state’s Solicitation of Funds from the Public Act.  Most importantly, it gives the Attorney General increased authority to issue cease and desist orders for violation of the Act, and to enter into assurances of discontinuance.  The bill also reduces registration fees.

A five-year battle has finally ended with the Louisiana Supreme Court voting 4-2 to let a lower court ruling stand in favor of Tulane University.  The fight was whether Tulane had to maintain Newcomb College as an all women’s school after Tulane absorbed it in the aftermath of Hurricane Katrina.  The effect of the court’s ruling allows a lower court ruling to stand that upheld Tulane’s right to integrate Newcomb College as part of a co-educational college.  The issue here was donor intent.  It is a long and twisted but interesting story.
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The New York Times reported that major corporations in the state have found a way around the restrictions prohibiting them from making campaign contributions to Governor Bobby Jindal.  In lieu thereof, they are giving contributions to a foundation set up by his wife just months after he took office.  So far, according to the article, his wife’s foundation has received nearly $l million from major oil companies, insurers and other corporations in Louisiana.

House Bill 2704 attempts to turn back the hands of time.  It requires telemarketers to engage in certain conduct if less than a set percentage is going to the charitable organization.  This involves disclosures and filings.  (Editorial Note: You would hope by this time legislative research would indicate to the legislators that certain prohibitions simply cannot be enacted).

The CEO of a nonprofit organization was accused of breach of fiduciary duty, fraud and conversion, and was removed.  Charges were brought by the organization, and the fired CEO requested that the board pay his legal expenses, but the board refused.  The former CEO then went to court to require the board to pay for his legal expenses in defending the charges.  An appellate court ruled that the state’s Nonprofit Corporation Act requires the court to make an independent judgment as to whether the individual should be provided with his expenses once the board has refused.  (Asian Women United of Minnesota v. Leiendecker).  (Editorial Note: Some of the issues that nonprofits get into require going into the state nonprofit law and/or their bylaws.)

S.B. 2444 makes changes to the state’s Nonprofit Corporation Act requiring at least three directors on a nonprofit organization’s board and limiting the liability of same.

Assistant Attorney General Robert Carlson authored a column in a recent issue of the Chronicle of Philanthropy on when government should get involved with nonprofit governance.

The Senate introduced S.B. 99, which, if passed, would regulate the activities of grant writing services that do business in the state.  The Consumers Affairs Division of the Department of Business and Industry would be the agency regulating grant writing services.  The bill requires a grant writing service to register and deposit security with the Division prior to conducting business in Nevada.  It also requires a grant writing service to provide certain statements to a buyer prior to execution of a contract for its services, as well as requiring specific language in the contract.  The bill would also revise the definition of “goods and services” with respect to telephone solicitations and revise criminal penalties for violations.

Proponents of the merger between Smile Train and Operation Smile have now complained to the New York Attorney General’s Office.  At issue is whether the merger was properly approved by their respective boards in accordance with the state’s nonprofit law and their bylaws.
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Assembly Bill 5727 was introduced which contains comprehensive substantive changes to the Non-Profit Corporation Law.  One of the changes expands the options for required terms in the name of a nonprofit corporation, which currently include the words “corporation,” “incorporation,” or “limited,” or an abbreviation thereof.  The bill now adds “association,”“club,” “foundation,” “fund,” “institute,” “union” or “society” to the list.  The bill would also eliminate the requirement to include designation of Type, A ,B, C, or D in the contents of the certificate of incorporation and does away with the need to list names and addresses of initial directors in the certificate.  With respect to director liability, the certificate of incorporation may limit personal liability of directors to the corporation or its members for certain breaches of duty.

Because small charities often pay a large portion of their gambling profits in taxes, the legislature is considering reducing the taxes so that the charities will net more.  A classic example was given wherein there was a net profit of $8,000 from $126,000 revenue stream, but the charity had to pay more than 50% of its net in taxes to the state.  Under the new proposal, 74% of the taxes would be reduced.

According to information provided to us, the state’s nonprofit group has approved the Attorney General’s proposal to restrict donations to charitable organizations that do not meet specified financial efficiency.  Under the legislation such donations would not be deductible from state income tax.
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The Department of Justice has sued the founder of two Oregon-based charities as well as the organizations for illegally diverting money raised on behalf of veterans.  Approximately a week before the lawsuit was filed the organizations appealed to the federal government, seeking an investigation of the Oregon Department of Justice.

Once again, the Hershey Foundation makes the news.  According to the Philadelphia Inquirer, a former top-ranking official claims in a court filing that there was wide spread financial mismanagement, excessive compensation, and improper use of the charity’s assets.  Following his filing of the claim he was voted off the board the day after.  No doubt there will be more to follow.

The Senate has passed a bill that would allow charities, schools and churches to hold raffles, legally.  (Editorial Note: Many small organizations unknowingly conduct illegal raffles.  Raffles are heavily regulated by the states and not all states allow them.  The definition of a raffle is a contest that combines the elements of chance, prize and consideration.  In many states these are called illegal lotteries.)

The AP reported that the former CEO of an El Paso charity, the National Center For Employment of the Disabled,  has been sentenced to ten years in prison and ordered to pay $65 million for embezzling government funds and corrupting elected officials.  A former board member and other officers affiliated with the now defunct organization were also convicted or pled guilty to criminal offenses.  The organization, in part, lied about its constituency in order to receive federal funds.
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On February 28, 2011, the Circuit Court of Appeals for the Fifth Circuit heard argument on the state’s appeal following our successful challenge in the district court to a law imposing disclosure requirements on the solicitation of used clothing and household discards.  Errol Copilevitz argued on behalf of the plaintiff charities.

The twisted tale of the U.S. Navy Veterans Association continues.  A preliminary investigation has resulted in the determination that more than $2 million solicited in the state was taken under false pretenses.  The matter will now go to the Attorney General’s Office to consider filing criminal charges.  The Attorney General received money from the organization in the form of a campaign contribution.

Legislation has been introduced to require nonprofit hospitals located in the state to annually disclose,  chief executive officers’ salaries, and to prove to the state that the compensation paid is comparable to government salaries in similar positions.
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S.B. 5164 has been introduced, which is intended to simplify language and filing requirements for smaller charities in the state.  Among the changes is that charities will not be required to file a Form 990 if they are available through their web sites.
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Two bills are in the legislature that would change some provisions of the Washington charitable solicitation law.  H.B. 1485 and S.B. 5164 are similar but with some differences.  On the bright side, the bills make it clear that social security numbers and financial account numbers will not be public information and will not be disclosed.  Both bills are intended to give additional discretion to the Secretary of State.  As these bills progress, we will report more on them.


Bob Carlson, Assistant Attorney General, State of Missouri, was recently named President of the National Association of State Charity Officials.  Congratulations to Bob.

The Culture Philanthropy Task Force has endorsed recent changes to the country’s tax rules, which it believes will encourage its citizens to give more to charitable causes.

According to the publication Thirdsector, charities are losing as much as £1.3 billion per year, and that 11% of the U.K.’s charities have fallen victim to some form of fraud.
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The City of Manchester has promulgated a Code of Conduct for charitable solicitors working in the city center.  The Code of Conduct was brought about after complaints regarding aggressive behavior.  Only five collectors will be allowed in each zone at one time, and then only four days a week.