Saturday, March 14, 2009

IRS Audits Find Tax-exempt Nonprofit Model for Credit Counseling is Inconsistent with Tax Law

WebCPA reports the IRS has been spending tens of thousands of hours auditing nonprofit credit counseling agencies and ordering changes at the vast majority of them, according to data the American Association of Debt Management Organizations (AADMO), a trade association representing the credit counseling and debt management industry, recently released. The AADMO discovered the statistics after filing a Freedom of Information Act (FOIA) request. The Obama administration has recently ordered federal agencies to sharply curtail the traditional obstacles to fulfilling such requests.

“In response to a Freedom of Information Act request by AADMO, we have learned the number of credit counseling agency audits conducted by the IRS, the infinitesimal number of agencies that received no change recommendations and the massive number of man hours expended in these audits,” said AADMO executive director Mark Guimond. “Given the public attention, the scope of this investigation, and the many years that this has been in process, we are astounded at the results.”

The IRS reported that it had conducted 395 audits related to credit counseling, on which auditors spent a total of 38,466.5 hours, according to the IRS’s Audit Management Information Reporting System. Out of the nearly 400 audits, the IRS auditors recommended no change in only 23 audits. IRS auditors spent 6,287 hours on these no-change examinations.

The statistics date back to tax year 1999. The IRS began investigating the industry in 2004. “The data suggests that the tax-exempt nonprofit model for credit counseling is not consistent with tax law,” said Guimond. He pointed out that although consumer groups and others have made bold claims that credit counseling is only legitimate when done through a nonprofit agency, the recently disclosed data on the IRS investigations de-bunks this position. The data suggests that nonprofit tax status is not appropriate for the vast majority of credit counseling agencies.


March 14, 2009 in In the News | Permalink | Comments (1) | TrackBack (0)

Friday, March 13, 2009

Sudan Expels Nonprofit Aid Groups After ICC Issued Arrest Warrant for Genocidal President


There is a genocide going on in Sudan as we speak.  This very moment, of Holocaust proportions.  The situation there makes our current "economic crisis" look like a temporary cold, at best, and our nightly news weeping and gnashing of teeth seem so selfish.  Personally, I feel helpless and guilty about it all at the same time.  And yeah I know too that people are really "suffering" (a truly relative term when you consider the boy's eyes in the picture above) here in the land of plenty.  I don't mean to discount our home country suffering, but how can I not?  I'm worried about paying for my middle daughter's tennis lessons while this is going on?!  Here is a website listing nonprofits working in the Sudan to which contributions can be made. 

And Here is the news relating to nonprofits.  Earlier this week, after the International Criminal Court in the Hague issued an arrest warrant for Sudan's President Omar al-Bashir, the Sudanese government retaliated by ordering the expulsion of 10 International humanitarian organizations.  For news coverage, see here, here, and here.  According to the Chronicle of Philanthropy:

Relief workers say the well being of hundreds of thousands of people in Sudan is at risk because of a decision by the government to oust 13 aid groups, shortly after the International Criminal Court ordered the arrest of the nation’s president on charges of war crimes. Human-rights advocates say Sudanese President Omar al-Bashir is using the aid organizations as a bargaining chip in his effort to get the U.N. Security Council to defer the court’s case against him. The 13 groups—12 charities and one for-profit development organization—employed about 6,500 people in the country, most of them Sudanese. The United Nations has said their removal will cut aid in Darfur by at least a half. Four Sudanese charities have also been asked to close.

It seems more than apparent that the Sudanese government is holding a country full of starving people hostage and using them as bargaining chips.  Incidentally, about a week's worth of the funding spent In Iraq would probably feed those people for a year, I bet.  But I am starting to thrash around so I'll just end this post right now.  It seems selfish to even even talk about the "teaching points" (the role of nonprofits in society, governance, etc. and how domestic and international laws should be enacted to protect that role) this damnable situation presents. 


March 13, 2009 in International | Permalink | Comments (1) | TrackBack (0)

Nonprofit Financial Troubles Part V: Boom in Nonprofit Microlending

The economic downturn has not only increased demand for emergency assistance and similar social services.  The New York Times reports that nonprofit microlenders are stepping in to fill at least part of the credit gap created by the current financial crisis, with many small businesses and entrepreneurs turning to these sources as loans from regular banks dry up.  According to nonprofit microlender executives quoted in the article, a significant part of the surge in inquiries are actually referrals from such banks.  Congress has recognized this trend, more than doubling the size of the Small Business Administration's microloan program by increasing its funding from $20 million to $50 million in the new stimulus bill.  That program makes its funds available to nonprofit lenders, which in turn can use it to make loans of up to $35,000 each to eligible borrowers.


March 13, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Plan Announced for a Public Hospital to Be Taken Over by a Nonprofit

While a lot of attention has been paid in recent years to for-profit companies taking over hospitals previously run by nonprofits, the Los Angeles Times reports on a different type of conversion.  The Martin Luther King Jr. Hospital in South Los Angeles closed a year and a-half ago after a series of medical treatment problems.  Now Los Angeles County has announced a plan to re-open the hospital in 2012 under the control of a new nonprofit corporation to be jointly formed by the county and the University of California.   Many uncertainties remain, however, including how to fund the hundreds of millions of dollars in construction needed to both renovate existing facilities and construct new buildings so as to restore the ability provide emergency and inpatient services.


March 13, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Connecticut Bill to Change Catholic Church Governance Dies But Supporters Not Deterred

The Hartford Courant reports that members of the Catholic Church in Connecticut sought state legislation that would have given lay councils control over parish finances, relegating Catholic priests and bishops to advisory roles.  Not surprisingly, the chairman of the legislature's judiciary committee pulled the bill earlier this week because of constitutional concerns, but its supporters vowed to continue to push the measure even as thousands of opponents to the bill held a rally at the state capital.  While serious constitutional issues are raised by such legislation, this effort does raise the interesting possibility that stakeholders in charities could try to use state laws to force governance changes including by, for example, conditioning benefits such as property tax exemption on meeting certain governance requirements. 


March 13, 2009 in In the News, State – Legislative | Permalink | Comments (0) | TrackBack (0)

Thursday, March 12, 2009

Japanese Foundation Targeted for Accumulating Excessive Profits

An editorial in the Japan Times highlights the troubles at the Japan Kanji Aptitude Testing Foundation, a "public-interest corporation" that promotes kanji (Japanese characters) both in Japan and world-wide.  It is the only kanji testing organization authorized by the Japanese Ministry of Education, Culture, Sports & Technology, and in 2007 some 2.7 million people took the tests it administers.  As a public-interest corporation it is not permitted to generate profits greater than those needed to properly carry out its operations.  It is now accused of accumulating excessive profits to the tune of hundreds of millions of yen (millions of U.S. dollars) annually, as well as paying billions of yen to four firms with ties to the chief director of the foundation.


March 12, 2009 in In the News, International | Permalink | Comments (0) | TrackBack (0)

More Opposition to Reducing Tax Incentives for Charitable Giving

Opposition to the Obama administration's proposed limits on the charitable contribution deduction continues to grow across the nonprofit community and the political spectrum.  JTA, a nonprofit Jewish global news service, reports that officials from groups including the Orthodox Union and the United Jewish Communities have come out in opposition to this proposal.  At the same time, the Wall Street Journal not surprisingly also opposes this tax increase, but with the added twist that it views the increase as but a small part of an attempt by the Obama administration to shift the provision of many services from private charities to the government.


March 12, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Nonprofit Financial Troubles Part IV: Social Services in Silicon Valley and the South

The San Jose Mercury News reports that Northern California's health and human service charities have been hard hit by the financial crisis.  According to a recent survey by the Silicon Valley Council on Nonprofits (which, ironically, does not appear to have an active website), more than half of the 100 nonprofits surveyed expected layoffs in the near future.  Such charities are predictably experiencing both an increasing demand for their services and a decline in both government and private funding.  For example, the article reports that West Valley Community Services, which provides emergency assistance for low-income seniors and families, has seen the number of households requesting help jump from 25 to 30 percent over the previous year even as local governments in Santa Clara County and San Jose cut social service spending.

The Washington Post has a front-page story detailing similar pressures on social service agencies in South Carolina, which is being aggravated by state decisions both to cut funding for nonprofits and to ask for the ability to direct federal stimulus payments to lower state debt instead of for new spending.  For example, the Department of Social Service has cut contracts with nonprofits by an average of 10 percent for such services as emergency shelters and employment training programs.  Private funding sources have also seen shortfalls, with the United Way of the Midlands in Columbia still more than a $1 million short of its $12.2 million goal for its about-to-end annual campaign. 

The Atlanta-Journal Constitution also had a similar report earlier this week, detailing how social service programs in that part of the country are also facing the double whammy of rising demand and shrinking revenues.  For example, the Center for Family Resources, which provides a variety of services to low-income families, saw a 30 percent increase in the number of people seeking its assistance in 2008 but faces a more than 10 percent budget cut in 2009 because of reduced donations that has led to a hiring freeze, layoffs, and reduced employee benefits.  The article cites similar trends for other social service organizations in the Atlanta region.


March 12, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 11, 2009

What Motivates Charitable Giving? See Slide 19

As readers know, President Obama's proposal to reduce the tax value of the charitable contribution has sparked debate within the nonprofit sector and indeed a bit of glee amongst conservative writers who note the irony that "liberals who run" the nonprofit sector are suddenly crying over proposals to raise taxes.  According to an online op-ed piece in yesterday's Wall Street Journal:

Among those shocked by President Obama's 2010 budget, the most surprising are the true-blue liberals who run most of America's nonprofits, universities and charities. How dare he limit tax deductions for charitable giving! They're afraid they'll get fewer donations, but they should be more concerned that Mr. Obama's policies will shove them aside in favor of the New Charity State.

What did these nonprofit liberals expect, anyway? Mr. Obama is proposing a vast expansion of the entitlement state, and he has to find some way to pay for it. So logically enough, one of his ideas for funding public welfare is to reduce the tax benefit for private charity. His budget proposes to raise the top personal income tax rate to 39.6% in 2011 from 35%, and the 33% rate to 36% while reducing the tax benefit from itemized deductions for the top two brackets to 28% from 35% and 33%, respectively. The White House estimates the deduction reduction will yield $318 billion in revenue over 10 years.

As op-ed schtick, the piece is at least entertaining (relying on an implicit accusation of a "vast liberal conspiracy").  This second rhetorical gem, for example:  "Politics hath no fury like a rich liberal scorned."  I can appreciate biting commentary even if I don't necessarily agree.  Anyway, Professor Ann Murphy was kind enough to share a fine presentation put together by H. King McGlaughon (political affiliation unknown) that sheds empirical light on the reasons why the ultra wealthy make charitable donations.  She notes that slide number 19 is particularly interesting.  Download the presentation here:  Download WachoviaCharitableGivingPresentation.ppt .


March 11, 2009 in Studies and Reports | Permalink | Comments (1) | TrackBack (0)

New Mexico Bill Seeks to Require Nonprofit Disclosures of Political Campaign Donors

Last weekend we posted a report on nonprofit soft money spending in the last presidential election.  Campaign finance and nonprofits is an annual issue of course.  Yesterday, the New Mexico Hosue Voters and Elections Committee unanimously approved HB808 yesterday.  The bill requires that any federally tax exempt organization that engages in an "electioneering communication" during a primary or general election disclose the following information:

A. if the electioneering communication occurs during the primary election, the entity shall file a report of activity listing:

(1) all expenditures related to the electioneering communication, the purpose of the expenditure and the name and address of the person or entity to whom an expenditure was made;

(2) each donation, grant or allocation received by the entity in excess of two hundred fifty dollars ($250) and not previously reported, regardless of whether it is related to the electioneering communication;

(3) the name and address of the person or entity from whom the donation, grant or allocation was received; and

(4) the date the expenditure was made;

The bill contains similar requirements for "electioneering communications" made during a general election.  Here is the official legislative summary of the bill:

Synopsis of Bill

HB 808 enacts and amends statutory sections in the Campaign Reporting Act, Section 1-19-25 et. seq. NMSA 1978, to require a tax-exempt organization that engages in an electioneering communication regarding a candidate for state office during a primary or general election to file a disclosure report for that election with the secretary of state disclosing contributions and expenditures as specified. The bill provides monetary penalties to be paid to the SOS for false or incomplete information, late filing, and failure to file.  HB 808 defines “electioneering communication” to mean any radio, TV, cable or satellite broadcast, and any print advertisement that: refers to a clearly identified candidate for state office; is made during a primary or general election for the office sought by the candidate; and is targeted to the relevant electorate. The term does not include communications appearing in a news story, commentary or editorial distributed through print or broadcast, unless such print media or broadcasting facilities are owned or controlled by any political party, political committee or candidate.

The bill seems to have broad support, according to an article in yesterday's New Mexico Indpendent despite staunch nonprofit sector opposition, acknowledged constitutional issues and Supreme Court case law against similar efforts in other states:

Nonprofits have vocally opposed the bill for several reasons, including a concern that such a measure would abridge their right to free speech if they were required to list donors.  Some representatives of the nonprofits also have said the requirements set out in the legislation could cost them donors seeking privacy.  At the heart of the proposal is the notion that a nonprofit, as a recipient of tax-exempt status, ostensibly gets a public subsidy, Assistant Attorney General Phil Baca told the Independent last week. That assumption allows the state to set conditions on nonprofits, said Baca, who had drafted the Martinez-Sanchez legislation.  Baca said much the same thing before the House Voters and Elections Committee on Tuesday morning.  “We’re sovereign so we can craft our tax code any way we want to,” he told lawmakers. Baca admitted last week that the U.S. Supreme Court has struck down several states’ attempts to place conditions on nonprofits and that the proposed legislation would likely go to court if it were to become law.

I am no expert on the intersection of election and tax law -- I know what 501(c)(3) and related tax provisions say but I have never really dived into the whole Federal Elections Commission laws and regulations on the topic.  So my views might be described as those of a better informed layperson at best.  But I'll spout them anyway.  First, I think many of these laws are motivated by incumbents' efforts to protect their own jobs and not necessarily by any theoretical position that donors ought to know who is funding a "swift boat" campaign.  The New Mexico Independent article suggests that the bill "is part of a larger standoff between state lawmakers [who presumably want to shut up any opposition voices] and the nonprofit community."  I do think the lies and  half truths of the swift boat campaign -- whether told against John Kerry or John McCain -- were deplorable, but I'm not so sure that forcing disclosure does anything to address the substantive lies, if lies they be.  Remember, too, that Lyndon Johnson's insertion of a prohibition against campaign intervention was entirely motivated by his desire to shut his opponents up.  Ultimately, allowing incumbents to protect or enforce their views by shutting opponents up has to be the most un-American concept of all.

Ultimately, our system of governance is built on the rights of all to hear information from whatever source.  To bad we cannot pass a law that mandates that listeners take responsibility to personally determine the truth of the information (like the truth of the definition in the picture above).  That many of us fail in that responsibility, though, is not sufficient justification, in my view, to allow the government to protect us from our own ignorance by forcing some speakers to shut up.  I am aware, and do not necessarily disagree with the argument that conditioning tax exemption qua subsidy on refraining from certain speech is not an infringement of free speech.  It is legitimate to think that government [i.e., the people] ought not be forced to subsidize any speech at all.  My observations above are not meant to address that argument but the broader point that we should all join the "thinking" party rather than the Republican or Democratic party.


March 11, 2009 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Nonprofit Financial Troubles Part III: Church Survey Shows Limited Impact So Far

The National Association of Church Business Administration recently updated the 2008 survey of its members regarding the financial situations of their churches.  While a non-scientific sample, the 2009 survey provides a snapshot of how the current economic troubles are affecting over 800 small and medium churches from a variety of Christian denominations.  Almost a third of respondents reported a non-seasonal drop in congregation financial support, while another quarter reported a slowing of support but were not sure it was the result of the recession.  Almost half the respondents also reported layoffs (16%) or staff salary freezes (32%).  Each of these figures were up from the figures reported in the 2008 survey.  Still, more than 40 percent of respondents reported continuing growth in support, and more than three-quarters said they were not curtailing or changing their mission activities because of the economy.


March 11, 2009 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

More Allegations Regarding Possible Misuse of Charitable Funds by California SEIU Officials

The Los Angeles Times reports that SEIU Local 1021 executive board member James Bryant was not only paid $117,000 in 2007 as president of the San Francisco chapter of the A. Philip Randolph Institute, but that the charity also paid $16,000 in rent for his home and employed his son.  Most troubling, however, is the accusation that Mr. Bryant also received a salary as a full-time city transit worker at the same time.  The son, Joseph Bryant, is cited as stating that the rent payment is appropriate because the rented house doubles as the charity's offices, while the salary is justified by the work that James Bryant does for the charity on weekends, evenings, and when otherwise not at his city transit job.  Today's article also reports that an internal SEIU investigation is ongoing regarding Mr. Bryant's connection to the charity.  This story is the latest in a string of allegations reported by the Los Angeles Times regarding questionable financial dealings between California SEIU officials and charities, which we previously blogged about. 


March 11, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Libertarian Bob Barr Says Obama's Tax Policies Hurt Nonprofits

In a column in the Atlanta Journal-Constitution, former Congressman and Libertarian candidate for President criticizes the Obama administration for proposing to limit the deductibility of charitable contributions for high-income households. We have previously blogged extensively about this proposal and the debate it is sparked.  Citing already declining donations both among large dollar donors and from corporations (the latter based on a Conference Board report released late last year), as well as shrinking revenues and resulting layoffs and other budget cuts at Atlanta area charities, he argues that reducing incentives for giving by the wealthiest households can only hurt charities further.  He does not, however, address the arguments noted in earlier postings that any effect from the reduced charitable giving incentives would be minimal.


March 11, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 10, 2009

Nonprofit Financial Troubles Part II: When a Small Endowment Is a Good Thing

The Grand Rapids News reports that college officials in that part of Michigan have so far been able to avoid significant spending cuts because of a relatively low dependence on endowment income, which constitutes only five percent or less of total income for the half dozen schools in and around Grand Rapids, as compared with the national average of 13 percent.  For example, Hope College had the largest reported endowment of the area schools - still $126 million as of the end of 2008 - but only relies on that endowment for one percent of its annual budget.  So while these schools have seen similar drops in their endowment values as have colleges and universities nationwide, they do not as of yet face the hard budget decisions of schools that rely more heavily on endowment income.


March 10, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Nonprofit Financial Troubles Part I: Arts and Cities

The news is filled with reports of nonprofits facing financial difficulties.  Starting today and for the rest of the week, I plan to post a nonscientific sampling of such stories from around the country and the nonprofit sector.  Here is the first such story.

The Philadelphia Inquirer reports that the Philly Mayor Michael Nutter has created a Cultural Advisory Council and reopened a city office decided to the arts in an effort to help both landmark institutions such as the Philadelphia Museum of Art and smaller, less well known city arts organizations weather the current economic crisis.  Even so, the city has been forced to cut funding for arts organizations, including by 20 percent for three museums.  The article also cites cuts in municipal funding for the arts in locations as widespread as Oakland, California, Madison, Wisconsin, and Cincinnati, Ohio, and notes that Americans for the Arts has estimated that nationwide an estimated 10,000 arts organizations may disappear in 2009.  One bright spot reported in the article, however, is that Seattle has increased its city arts budget by $1 million.


March 10, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Nonprofit and Voluntary Sector Quarterly April 2009

The Nonprofit and Voluntary Sector Quarterly has posted the table of contents and PDF links for its April 2009 issue.  Here is the list of articles:

  • Christopher J. Einolf,
  • Song-Iee Hong, Nancy Morrow-Howell, Fengyan Tang, and James Hinterlong,
  • Margaret F. Sloan,
  • Michael O'Neill,
  • Jens Rowold and Anette Rohmann,
  • Ruerd Ruben and Lau Schulpen,
  • David A. Reingold and Helen K. Liu,
  • Adrian Sargeant, Stephen Lee, and Elaine Jay,
  • Lisa A. Dicke,
  • Thomas A. P. Sinclair,
  • Anthony J. Filipovitch,
  • Stuart C. Mendel,
  • Kathe Callahan,
  • Jodi Sandfort,
  • Julia M. Siebel,

March 10, 2009 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Monday, March 9, 2009

ALI Holds Principles of the Law of Nonprofit Organizations Meetings

The American Law Institute with host on Friday and Saturday, March 13 and 14, 2009, in Philadelphia meetings of the advisers and members consultative group for its Project on Principles of the Law of Nonprofit Organizations Law.  The Reporter for this project is the all-knowing (at least on the subject of nonprofit law) immediate past chair of the AALS Section on Nonprofit and Philanthropy Law, Professor Evelyn Brody.  To see a description of the project, click on the project's website.  At the meeting on Friday, the subjects of discussion will be "Relationship Between the Charity and the State" and "Supervision and Enforcement."


March 9, 2009 in Other, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Parents Challenge Trustees Over Decision to Shut School

The New York Times reports that a group of parents and students have filed a lawsuit challenging the decision to shut down the Conserve School in Wisconsin and redirect its assets toward a single semester of environmental study.  According to the article, the heart of the dispute is the allegation that the trustees for the trust that supports the school are violating their fiduciary duties by placing the interests of a for-profit steel company, for which they are officers, above the interests of the school.  The plaintiffs cite the fact that while the trustees have identified the current economic downturn as the reason for their decision, the school of 143 students has an endowment of $181 million that could be used to ensure the school's survival.  The plaintiffs argue that the real motivation of the trustees is to avoid selling the trust's stock in the Central Steel and Wire Company, which could reduce the stake of the trust to below 50 percent and so expose the company to a possible takeover by a third party.  The trustees deny these claims.

A majority of the trust's endowment is invested in the company's stock, which former company CEO James R. Lowenstine left to the trust, along with a significant amount of land on which the school has been built.  The trust's stated mission is to provide general education with an emphasis on nature.  According to the article, the judge overseeing the case has scheduled a hearing in late April and refused an initial request by the plaintiffs to temporarily halt the trustees' planned shut down.


March 9, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

NJ Considers Allowing Nonprofits to Spend Below Endowment Original Values

Newsday reports that the New Jersey state legislature is considering relaxing restrictions on nonprofit endowment spending.  As is the case in many states, New Jersey law generally prohibits nonprofits from spending donated endowment funds if doing so would reduce a particular fund below the dollar amount originally contributed by the donor or donors to that fund.  While not usually a concern in times of growing endowments, the recent market downturns means that many endowment funds are below that original amount and so must cease spending until such time as they recover.  While not stated in the article, it appears that the state legislature is considering replacing the "historic dollar value" restriction found in section 2 of the Uniform Management of Institutional Funds Act (UMIFA) and adopted by almost every state with the more flexible standard provided by section 4 of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) proposed in 2006 and adopted by many states since then.


March 9, 2009 in In the News, State – Legislative | Permalink | Comments (0) | TrackBack (0)

IRS Suspends Tamil Foundation for Terrorism Ties

We previously blogged about the suspension in late 2007 of the Tamils Rehabilitation Organization, Inc.'s tax-exempt status after the organization was designated under Executive Order 13224 as supporting or engaging in terrorist activity or supporting terrorism.  The IRS recently announced that the related Tamil Foundation, Inc. of Cumberland, Maryland has had its tax-exempt status (and ability to receive tax deductible contributions) suspended effective February 11, 2009 for the same reason.  According to a press report, the Foundation is accused of being part of a support network for the Tamil rebel group in Sri Lanka.


March 9, 2009 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)