September 2013

In this issue:

  • New IRS Publication 3386 was issued in August. It is titled, “Tax Guide - Veterans’ Organizations.” View on IRS website.
  • The 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 attorneys general offices of the States of California and New York.
  • In something of a surprise, the Maine legislature repealed all provisions requiring registration, bonding and licensing of commercial co-venturers in the state. In doing so, the legislature said the bill, which is now law and goes into effect October 10, 2013, will eliminate unnecessary regulation and document filing requirements, while still retaining essential oversight of charitable organizations.


The 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 attorneys general offices of the States of California and New York.

Comment: The issue arises when the largest donors are required to be reflected as part of the state filing.  Schedule B of the Form 990 is not supposed to be available to the public.  It is not a matter of public record under the Internal Revenue Code.

New IRS Publication 3386 was issued in August.  It is titled, “Tax Guide - Veterans’ Organizations.”  The purpose of the publication is to explain tax exemptions that are available to veteran organizations that qualify for tax-exempt status.  It is 53-page publication worth reviewing. View on IRS website.
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Although processing applications to obtain tax-exempt status has slowed, the IRS is introducing a system designed to make it easier to apply.  The new Interactive Form 1023(i) will, according to the IRS, feature pop-up information boxes for lines on the form.  You can visit the IRS website and preview the form at your convenience.
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The agency has released a series of publications.  Publication No. 4220 deals with the process of applying for tax-exempt status.  Publication 4221-PC addresses compliance issues, and Publication 1771 deals with substantiation and disclosure requirements on contributions.  Also, a new publication has been released pertaining to charitable donations of vehicles.  See Publication No. 4303.  In most instances these publications are revisions of prior publications.

According to a Bloomberg article, congress is once again looking at the nonprofit status of professional sports.  Senator Tom Coburn (R-OK) has been one of the leading advocates for eliminating tax-exempt status to organizations like the National Football League, National Hockey League, and the Professional Golfers Association of America.
Comment: Most of the professional leagues find tax-exempt status under §501(c)(6) of the Internal Revenue Code.  Many in the industry would favor review of this tax-exempt status for these money-making sports organizations.

The Alliance of Nonprofit Mailers reports that USPS’ governors held a meeting on September 5, 2013, and decided to delay final pricing decisions until the next meeting later in the month. 
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In other postal matters, Representative Issa (R-CA), chairman of the House Oversight and Government Reform Committee, and author of the 2013 Postal Reform Act, vows to continue working towards passage of the legislation.


The Office of the Attorney General has filed a lawsuit against a public safety group and its Arkansas-based fundraiser, claiming the fundraising contained a series of misrepresentations.  The lawsuit alleges the organization contributed just $500 for charitable purposes out of $231,000 that was raised in the state.  The bulk of the money went to the fundraiser, which was hired to solicit donations from Arkansas consumers.  The defendant organization was one of the charities identified in a recent series of media reports on poorly performing charities.

The Office of the Attorney General announced a settlement in one of the largest cases of its kind.  The press release from the Office of the Attorney General stated that officers and directors of Help Hospitalized Veterans will pay $2.5 million in restitution. $1 million of that amount will go directly to support the future work of the Charitable Trust Section.  This lawsuit included allegations of breach of fiduciary duty, self-dealing, excessive compensation, misrepresentations in solicitations, and even unfair competition.  Board members are being required to step down, and the insurance carrier for the board is paying $450,000.  Another controversial issue in this case was the assertion that joint cost expense allocations were overstated.
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The sponsor of Senate Bill 323 to strip the tax-exempt status from organizations that discriminate on the basis of sexual orientation was withdrawn from consideration.  The sponsor of the bill has promised to reintroduce it in the next session of the state legislature.

Earlier this year, charges were brought against a number of individuals, including politicians, alleging that they were operating a $300 million gambling operation under the umbrella of a nonprofit veterans organization.  The first step in the case has now taken place when the national commander of the Allied Veterans of the World entered a no contest plea to two counts of operating an illegal lottery.  Observers expect him to be a key witness against the other individuals, including the Florida politicians who were allegedly involved.
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Adam Putnam, State Commissioner of the Department of Agriculture and Consumer Services, was quoted in the Tampa Bay Times stating that he will ask state lawmakers to support a series of changes that will have a widespread impact on Florida nonprofits that rely heavily on telemarketing.

The Boise Weekly reported that the state’s Tax Commission visited a local fundraiser for a victim who was attacked at a local mall.  State Tax Commission workers went to the charity auction to ensure that when people took possession of the auctioned items, they were paying the 6% sales tax.

Centre College in Danville was to receive a gift of $250 million from the Brockman Charitable Trust to endow 160 full scholarships.  The announcement of the gift was contingent upon a financial reorganization that did not work out.  As a result, even after the grant was announced, it was withdrawn.  Had it been awarded, it would have been the largest of its kind to a liberal arts institution.

Comment: This is a sad situation. Everyone had the opportunity to bask in the glow of the announcement and anticipate the scholarship program.  Now everyone is left to try and explain what happened.  Major gifts frequently come with conditions.  A constant reminder is that any kind of conditional gift should be reduced to a comprehensive written agreement.

Two nonprofit organizations located in Kittery have filed a lawsuit against the town challenging its decision that the organizations’ property should not be given tax exemption.  Although both organizations are tax-exempt under § 501(c)(3) of the Internal Revenue Code, the town has raised the question as to whether they are “truly charitable in nature.”
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In something of a surprise, the legislature repealed all provisions requiring registration, bonding and licensing of commercial co-venturers in the state.  In doing so, the legislature said the bill, which is now law and goes into effect October 10, 2013, will eliminate unnecessary regulation and document filing requirements, while still retaining essential oversight of charitable organizations. 

The state’s Gaming Control Board has issued stricter interpretations on rules governing charity poker games.  Apparently the games have gained popularity in recent years with more than 40 permanent poker rooms, which often offer food and alcoholic beverages.  Charity and poker room operators reacted to the change by alleging that the Gaming Control Board caved into pressure from for-profit casino operators.  However, the limits placed on charitable gambling have not had the desired effect.  Some lawmakers think the limitation placed on nonprofits has only benefitted the for-profit casinos.  Now they are looking at rolling back the limitations.

A charity, “One Voice,” formed by the NAACP in Jackson, Mississippi to service the disadvantaged, was required to enter into a consent order with the Mississippi Secretary of State.  According to the consent order the charity spent thousands of dollars on expenses not related to its stated purpose.

A Princeton couple made a series of donations to an animal shelter in the state for the express purpose of expanding the shelter and including new rooms for larger animals.  The charity subsequently merged with another and decided not to use the money for that purpose, but instead to build a different facility at another location.  The couple sued for the return of their donations and a state court of appeals entered judgment in their favor.

Comment: When facing the prospect of a major gift that is restricted in its use, consideration must be given to the possibility of unforeseen circumstances.  Restricted gifts should be carefully considered and the terms and understanding should be reduced to a written document.

According to a report published by the Office of the Attorney general, couple who ran a Santa Fe based nonprofit, which provided Medicaid funded services to children and families, drew out as much as $1.5 million in salaries and other income.

What seemed like a good idea at the time, may not have turned out to be such a good one.  New York passed legislation that required organizations that lobby in the state to disclose their donor list.  Now the state is being asked to grant exemptions on an ever widening basis.  The requests for exemption from the law are coming from all parts of the political spectrum.

Comment: This is a wonderful illustration of the tension between transparency and privacy.

A judge in the Trumbull County Common Pleas Court has ordered PJG Enterprises to pay $977,628 in damages, restitution and other costs for soliciting and receiving donations on behalf of two fraudulent charitable organizations.  The charitable organizations named in the complaint are the American Breast Cancer Federation and the American Veterans Federation.

A federal court of appeals overturned a 2010 criminal conviction of a key figure in a Muslim charity accused of supporting terrorism by smuggling money to Chechen guerrillas.  The court’s opinion accused the federal prosecutors of improperly influencing the outcome of the trial by concealing they had paid a witness, and by exceeding the scope of the search warrant and omitting facts that might have helped the defense.

The Office of the Secretary of State has advised our office that it has changed its policy with reference to the recognition of certain organizations as religiously based and therefore exempt under the state’s registration law.  However, counsel for the Office of the Secretary of State said that they are looking at the activities of the organizations on a case-by-case basis.  Given the change in policy, the department is creating a moratorium period whereby organizations that find their exemptions are no longer in place will have the opportunity to register without penalty.

The state’s defense of a now defunct 2011 redistricting plan could leave the state on the hook for approximately $6 million to pay civil right groups that sued to block the maps.

The Suffolk City Council voted earlier this month to a put a stop to nonprofit groups applying for property tax exemption.  City officials complained that many nonprofits were applying for the exemption, even though they could afford the tax bill.


The law firm is pleased to announce that Nathan Thomas has become a partner in the firm.  Nathan came to the firm in 2007.  Previously he served as senior attorney for the Office of the Mississippi Secretary of State.