November 2013

In this issue:

  • The IRS has released the inflation-adjusted items for 2014.
  • Fines totaling almost $1 million have been assessed against nonprofits for violating the state’s campaign finance laws.
  • A Christian social service charity in Kansas City turned away members of a local atheist organization that sought to volunteer for the faith group’s Thanksgiving meal program. A second religious-based group came forward and agreed to accept their help.


Once again, as we draw near to the end of the calendar year, questions arise as to whether certain tax breaks set to expire will be extended.  One of the primary provisions to the nonprofit industry is the provision which allows tax-free distributions from individual retirement accounts for charitable contributions. 

A report in the Washington Post indicated that federal and state officials have launched multiple investigations as to whether charities victimized by financial wrongdoing have reported their losses to federal and state authorities.

Comment: The Form 990 specifically asks whether an organization has been a victim.

The agency has released the inflation-adjusted items for 2014. 
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The agency has issued Letter Ruling 20134201, dealing with the subject of an “unusual grant.”  A §501(c)(3) organization received an extraordinary bequest from the founder of the organization.  The size of the bequest was such that it could threaten the status of the organization as a public supported charity.  An application was made for recognition of an usual grant under Treasury regulations.  The letter ruling is an excellent discussion of the issues that are involved and the criteria the agency will use.
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There is speculation that there may not be a new 2014 work book for agents outlining areas of concern.

A booster club for a gymnastics program applied for and obtained tax-exempt status.  The members of the booster club were primarily parents of the children participating.  The fee for the gymnastic program could be paid or earned by engaging in certain fundraising activities.  The basic formula was the more raised by the parents for the club, the less their child had to pay to participate.  The Internal Revenue Service moved for revocation because of the private benefit that was being conferred.  (Capital Booster Club, Inc. v. Commissioner.)


The City of Texarkana is drafting new ordinances to regulate unattended clothing bins.  The ordinance will also be introduced in Texarkana, Texas when completed.

Fines totaling almost $1 million have been assessed against nonprofits for violating the state’s campaign finance laws.  The state agency found that nonprofits were used to illegally divert $11 million into a campaign account that went to defeat a state proposition, which was a tax measure on a 2012 ballot endorsed by the governor.
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The Los Angeles Times leaked an affidavit of an FBI agent, which asserted that a California state senator had offered political favors in connection with seeking contributions to a charitable nonprofit run by his brother.

Comment: Here again, those who would create stronger regulations on charitable organizations are sometimes the very individuals who cause problems for the industry.

The Secretary of State announced earlier this month the release of a five-part web-based learning series titled, “Board Education and Effectiveness.”  The goal of the program is to help nonprofits train and strengthen their board of directors.  The first release is titled, “Fiduciary Duties of Nonprofit Directors.”  The origin of this new and interesting program stemmed from a series of meetings in 2012 between the Office of the Secretary of State and nonprofit community leaders in the State of Colorado.

The Commissioners of Orange County are considering a number of restrictions on unattended donation boxes.  Among the items to be considered is a complete ban.  According to a local report, the Commissioners expect to have an ordinance to consider as early as January 2014.

Comment: Unattended clothing bins continue to proliferate, and along with them new and different ways on how to regulate them.  In the instant case, there is some concern about the stability of the clothing bins in the event of a tropical storm that could blow the containers off their base.

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On November 18, 2013, in a far-ranging press conference, Agriculture Commissioner Adam Putnam announced that he is working with State Senator Jeff Brandis (R) on new legislation involving charities.  He indicated that the new legislation might include provisions that would prevent charities from raising money in the state if they have been in trouble in other jurisdictions.  Also, charities over a certain size would have to disclose board members and compensation for executives.  Most troubling, he also said that a percentage of the money raised would have to go to charitable work or groups would see their tax- exempt status eliminated.

The attempt to impose new limitations and restrictions on charitable gambling is meeting with strong opposition.

California donors entered into an agreement with the Kansas City Art Institute to donate $5 million for the Institute to erect a new building and place the names of the donors on the building.  The donors made the first of their five $1 million contributions, but failed or refused to make further donations.  The Institute filed suit in California and won at the trial court level, and the judgment was affirmed by the California State Supreme Court.

Comment: This case is a strong illustration of the necessity of charities having a written agreement when donors make representations of large donations based upon the charity incurring financial obligations.  Here, the donors received the gratification of being publicized as being major donors, and the Art Institute is left with a building it might not otherwise have built.  In this instance, the agreement was well written and unequivocal.

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A Christian social service charity in Kansas City turned away members of a local atheist organization that sought to volunteer for the faith group’s Thanksgiving meal program.  A second religious-based group came forward and agreed to accept their help.

The Office of the Attorney General has announced a settlement with a nonprofit organization that cares for retired race horses.  As part of the settlement, the organization has agreed to make significant changes in its leadership in order to end the legal battle.  In the lawsuit, the Office of the Attorney General alleged that animals in the care of the organization were mistreated.

Brian J. Brown of Beaverton, Oregon, who was the former head of a national charity, has been indicted on wire fraud and money laundering charges, accused of syphoning $4 million from the National Relief Charities for personal benefit.  Brown pled not guilty before a federal magistrate. 

The fight goes on.  The Eastern Area School District is appealing to the U.S. Supreme Court to uphold a district student ban on wearing a charity cancer awareness bracelet that says, “I ♡ Boobies.”  Several educational organizations are backing the efforts of the school district.

A Complaint was filed in federal district court asking the court to enter a restraining order against the Office of the Attorney General of Texas from interfering with an organization’s “freedom of association.”  The organization is a labor organization for public safety personnel that solicits the public for support.

The Vermont Supreme Court held that a camp owned by a church is not eligible for a pious-use exemption from the property tax, because the state legislature did not make church camps expressly eligible for the exemption.

Comment: As noted in previous issues, this is a part of a continuing effort of government to reduce those who would otherwise escape from the payment of property taxes that government needs for its own funding.

A reception has been scheduled for December 2, 2013, to honor retiring Executive Director Tony Conway.  He will be missed.  Steve Kearney has been named as his replacement.

Federal employees in the Washington, DC area have been given another month to make commitments to support their favorite charities.  The Office of Personnel Management, which operates the federal “in-the-workplace” campaign, announced the extension because of the virtual government shutdown for sixteen days.

On October 30, 2013, USA Today published the results of a report funded by Corporate Accountability International and the Small Planet Fund, which charged the McDonald Corporation is mostly using its own Ronald McDonald House charity as a branding device for its sales because the corporation itself contributes so little to the charity.  The report was titled “Clowning Around With Charity.”  While the corporation is not accused of any illegal conduct, it is criticized for the disproportionate benefit it gives for the investment it makes from the charity.

On October 16, 2013, the NIC Foundation, Inc. and North American Interfraternal Foundation, Inc. announced their merger.  The mission of the former is to advance the sophistication and proficiency of fraternal foundations by fostering exceptional educational initiatives, operational standards, and industry collaboration.  The latter was the first Greek-related general foundation and focused on supporting the interfraternal community.  The press release indicated that the completed merger is a result of both organization’s shared interest in cultivating the growth of the fraternal movement.  The NIC Foundation will be the surviving entity.

On November 20, 2013, the Charitable Giving Coalition, in conjunction with ADRFCO, conducted its second annual “Protect Giving Day.”  Members of the sector were asked to go to Washington, D.C. to meet with congresspersons and senators in the goal to protect charitable deductions.  More than two hundred representatives of the nonprofit community participated.

On October 26, 2013, the Washington Post published a report titled “Inside the Hidden World of Thefts, and Scams and Phantom Purchases With the Nation’s Nonprofits.”  The article detailed a number of incidences where major funds have been embezzled, and in some cases not properly reported on the Form 990.  The newspaper reported that their analysis of filings from 2008 to 2012 found more than 1,000 nonprofit organizations checked the box on their IRS return that they had discovered a “significant diversion” of assets which can be losses attributable to theft, investment fraud, and embezzlement and other unauthorized use of funds.

A report recently released by the Muttart Foundation raises a number of questions about charities in the country.  The report contains 158 pages and was issued after interviews with more than 3,800 people.  Among the most interesting findings of the report was that as many as two-thirds of Canadians believe there are too many charities raising money for the same issues, and that international development organizations are among those that are the least trusted.  The report also said the citizens of the country are divided as to whether there should be a legal limit on the amount a charity can spend on fundraising.  Those charities having the highest degree of confidence are hospital charities and charities working with children.