September 2011

In this issue:

  • IRS - Final regulations have been issued by the Department of Treasury to implement the redesigned From 990.
  • IRS addresses misclassification of workers.
  • Nonprofit postage rate may be in jeopardy.


The Department of Treasury is seeking public comment to be received on or before November 7, 2011, on whether the current guidance regarding how to determine the amount of a charitable contribution for the donation of certain vehicles and the related substantiation and information reporting requirements, should be changed or continued.
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Final regulations have been issued by the Department of Treasury to implement the redesigned Form 990.  The new regulations allow for a new threshold amount for reporting compensation, to require reporting of compensation on a calendar year basis, and modifies the scope of organizations subject to the information reporting requirements.
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The IRS is addressing the issue of misclassification of workers with Announcement 2011-64.  The IRS will now allow some relief from federal employment taxes for employees that agree to treat the workers at issue as employees. 

Comment: Charities frequently want to treat individuals as independent contractors, only to discover in an audit they owe federal employment taxes.  The issue of independent contractors versus employees is not a simple one.  If this is an issue for you, we can help).

The news is not good.  Congressman Danny Davis (D-IL) offered a motion before the House of Representatives Subcommittee on Work Force, U.S. Postal Service and Labor Policy to eliminate Section 403 of the proposed Act.  This is the provision that would ultimately eliminate the preferred nonprofit postage rate.  The motion failed on a party-line vote.  The subcommittee then approved H.R. 2309, the Postal Reform Act, which will now go to the full committee on Oversight and Government Reform.  The Alliance of Nonprofit Mailers predicts that the measure will be considered by the full committee during the week of October 3, 2011.  The Alliance is leading the charge to try and help preserve the preferred rate for nonprofit mailers.  There is a long history here, going back to 1951.  If the measure passes “as is,” the effect on nonprofit mailers will be the equivalent of a 35% rate increase.  This comes in the face of declining mail success for most nonprofit mailers.  The effect would be devastating.  The Alliance and many others have proposed that the USPS address its financial situation in an aggressive manner, including reduction of facilities, work force, and even consideration of eliminating Saturday delivery.  Direct mail continues to decline and be less efficient as currently administered by the USPS.  In addition to outdated facilities and too large a work force, the USPS is also burdened by a federal mandate to pre-fund retirement benefits for its more than 570,000 employees.  The Alliance of Nonprofit Mailers is asking that letters be sent to the members of the Committee on Oversight and Government Reform as quickly possible.  To learn more go the Alliance of Nonprofit Mailers directly or contact Errol Copilevitz of this law firm.

The most recent “Alliance Report” of the Alliance of Nonprofit Mailers notes that mail volume will decline by 2% this year, with first class mail being the primary victim.  Mail volume has declined from 213 billion pieces in 2006 to 167 billion pieces in 2011.  The attempts to down size the USPS to make it self sufficient continues through internal and outside legislative initiatives.


As a result of the story by the Associated Press questioning the functioning of many charities formed after 9/11, the Arizona Attorney General’s Office has announced that it will be conducting several investigations of charities which solicited substantial sums in Arizona, when in fact little or no money went to the intended purpose.

A national organization located in the state has been sued by its former chief executive officer.  The lawsuit also names members of the board and an insurance company.  The suit contains a wide range of allegations. 

California-based Apple has announced it will match its employees contributions to charitable organizations up to a maximum of $10,000 annually.
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ABC News reported that state’s Charitable Trust division of the Attorney General’s Office is investigating the Farrah Fawcett Foundation.  The Attorney General is seeking a review of the financial records, and has been interviewing associates and beneficiaries.

Steve Eaton, a CPA with the Public Charities Unit of the Department of Consumer Protection, has announced his retirement.  Steve is a long-time member of the state charitable regulatory community.  He has always been fair, reasonable and professional, and will be missed.  Good luck to Steve in his retirement.

Nonprofit organizations in the Washington, D.C. area have scheduled a 24-hour online fundraising event for November 9, 2011, with the goal of attracting 10,000 new donors, and raising at least $3 million.  The effort is described as a means to hopefully attract new, younger, and digitally inclined donors. 

The State Department of Agriculture and Human Services is conducting an informal inquiry of veteran organizations to establish they are bona fide in providing program service in the state.  This is an outgrowth of the scandal that surrounded the National Navy Veterans Association.

Facing huge budget shortfalls, the state had intensified its effort to revoke or limit tax exemptions on real estate for hospitals.  The primary assertion is that the hospitals are not providing sufficient charitable care in order to qualify.
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Subsequently, the state announced it has suspended its examination of nonprofit hospitals and their qualifications for continuing tax-exempt status, while it considers a legislative approach.  The governor has asked for recommendations for new legislation to be drafted by March 1, 2012.

A PAC has asked the IRS to audit the Sugar Bowl for improper political campaign contributions.

Comment:  Like the scandal in Arizona with the Fiesta Bowl, the Sugar Bowl is also accused of activity that is not consistent with its tax-exempt status.  One has to wonder about college bowl games being operated as “charities.”

A federal appeals court reinstated the conviction of three individuals who defrauded the U.S. government into granting tax-exempt status to Care International, Inc., which was formed to hide alleged terrorist activities.  The organization is now defunct.
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The private initiative to amend the Commonwealth’s do-not-call law to include calls made on behalf of nonprofits has gone to the next stage.  The movant must now acquire more signatures to get the matter on a statewide ballot.  (For more details contact Errol Copilevitz of this office).

Melanie Thomas has left the Office of the Secretary of State.  The new counsel for the office will be Jeff Lee.

Both U.S. senators and several congresspersons received donations from an online poker site that is accused of cheating players.  A Las Vegas newspaper reported that the money received will now be donated to various charities.

The New York Attorney General’s Office, like Arizona, announced that they are also investigating several New York-based organizations following the Associated Press’ story regarding the functioning of many charities formed after 9/11.
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According to the Wall Street Journal, Governor Cuomo’s probe of the pay received by executives of nonprofits that receive state aid has not included some politically sensitive organizations.  As of September 9, 2011, HELP USA, a homeless housing group founded by Mr. Cuomo in the 1980’s, has not received a request for information.  The Governor’s sister is the chairperson of the board, and several staff members also serve on the board.  The chief executive, according to the newspaper, was paid $546,000 in 2008.  A spokesperson for the Governor insists the investigation will be “fair.”

Four male individuals filed suit against a national charity over alleged sexual abuse by a youth leader in the 1970s.  These cases have been described as the latest in a growing series of cases, claiming the organization failed to tackle the issue of pedophile predators in its leadership.

Noted nonprofit writer, Pablo Isenberg, wrote an editorial in the Chronicle of Philanthropy, stating, “For two decades neither the Pennsylvania Attorney General’s Office nor the Internal Revenue Service has been willing to take serious action to remedy the abuses that have plagued one of the wealthiest nonprofits in America, the Milton Hershey School for Poor Children.”

The Austin Statesman reported that, “Of thirty-seven major donors to the Texas Association Against Sexual Assault during Anita Perry’s tenure as fundraiser for the group, only three have no ties to the Governor or to state business.  The group also receives grants from state agencies, including the Governor’s office.”


This industry “watchdog” has moved away from its rating system to create a more balanced approach.  Recently, Charity Navigator announced that its new rating system would give equal weight to issues involving governance and transparency, as well as its previous focus on financial information.  Ken Berger, President of Charity Navigator, said, “Our basic belief is that any charity that a giver should be considering should have certain basic best practices, governance procedures, and openess in sharing information.”

Comment: We applaud this development and the movement away from the focus simply on finances.

A reminder that the annual conference of state regulators will take place on October 3, 2011 in Silver Spring, Maryland.  Greg Lam and Nathan Thomas of our firm will be attending.

An article published in the newspaper discusses why the President’s Job Bill could be bad for charity.  The proposal would limit the value of itemized deductions to 28 cents for each dollar of income deducted on income of over $200,000 per couple.  The article speculates the limits would likely reduce charitable giving because deductions are a big reason the wealthy give (despite the fact the wealthy say they give out of kindness - not tax breaks).  The article goes on to explain that if charities have less they can do less, as well as employ fewer, making the proposal counter productive in many ways.

The Charity Commission has issued its annual regulatory compliance report.  The Commission has promised to keep the priorities of focusing on fraud and mismanagement.