Friday, March 26, 2010

Tax Scams Identified by IRS

Every year the IRS posts its "Dirty Dozen" list of tax scams, both as a warning to taxpayers of scams to avoid and as a reminder of the investigations the IRS makes.  This year's list includes an item called "Abuse of Charitable Organizations and Deductions" and it sounds like the IRS continues to see some familiar problems.  The IRS says it sees "arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property."  The IRS also continues to investigate valuation issues that arise with donations of non-cash assets.  The IRS includes a reminder that the PPA imposed increased penalties for inaccurate appraisals.


March 26, 2010 | Permalink | Comments (0) | TrackBack (0)

IRS Announcement for Charitable Trusts Operating as Type III SOs

Announcement 2010-19 provides procedures a charitable trust may follow to terminate its private foundation status by showing that it continuously operated as a Type III supporting organization after Aug. 16, 2007, even though it erroneously filed a Form 990-PF for its first taxable year after 2007.  The charitable trust can obtain a refund of the 4940 tax paid for 2008.  The announcement also describes procedures for charitable trusts that became private foundations after Aug. 16, 2007 and wish to terminate their private foundation status by operating as Type III supporting organizations.


March 26, 2010 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

Kentucky Enacts UPMIFA

Kentucky has become the 46th jurisdiction to enact UPMIFA, the Uniform Prudent Management of Institutional Funds Act.  


March 26, 2010 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Boston Charity Hospitals Acquired by Venture Capital Firm

Caritas Christi Health Care System has announced that it will be acquired by Cerberus Capital Management, a New York venture capital firm.  The conversion from a nonprofit to a for-profit will depend on approval from state regulators, and that process could take until the fall.  The Cardinal of the Archdiocese of Boston must also approve the deal.

Cerberus will provide $830 million to the health care system, to be used for repairs and improvements. Cerberus has agreed to keep the six hospitals in the system open, to follow the tenets of the Catholic Church and carry out its mission of charity care, and to continue employment for current Caritas employees. Cerberus has agreed not to sell the hospitals or take them public for at least three years.

Responses to the announcement have been mixed. The hospitals needed the money and had searched for a partner for two years.  The conversion to for-profit status will result in $7 million in property taxes, which will help other economic projects.  But some nurses and others have expressed concern about whether a for-profit company will care about patients and provide the charity care that has been part of the Caritas mission. As one nurse said, "How can you call a charity a for-profit?"

Cerberus has promised to continue to set aside $66 million a year for charity care and pastoral care, and the continuation of the charity care that Caritas has provided seems likely to be a condition for approval by the Attorney General, Martha Coakley.  This will be General Coakley's first conversation, and as she was quoted as saying, "It's fairly complicated."  She must determine whether the conversation is "in the best interest of the public," and then will make a recommendation for or against the conversion to the Supreme Judicial Court of Massachusetts.

The Boston Globe has the story, as well as a number of related posts.


March 26, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 24, 2010

Foundations on the Hill gathering in DC

The eighth Foundations on the Hill gathering brought more than 200 philanthropic leaders to DC last week. Sponsored by the Council on Foundations and the Forum of Regional Associations of Grantmakers, the two-day event featured policy forums and meetings with members of Congress to discuss ways the foundations and government can work collaboratively to address the major challenges facing the nation. This story in PNN Online describes some highlights of the meetings, as discussed by attendees.


March 24, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 23, 2010

The Sad Story of Embezzlement at the London Philharmonic

The London Times provides a detailed look atf an embezzlement scheme so audacious it is hard to imagine - and hard for the London Philharmonic's chief executive, Tim Walker, to accept.  The Philharmonic's general manager and financial director, Cameron Poole, managed to take 666,000 pounds before the theft was discovered.  The situation is a classic one for embezzlement:  Poole had access, Poole was trusted by others at the organization, and the embezzlement started small but grew as it went undiscovered. What is less usual is that the Philharmonic had put procedures in place, recommended by the auditors, that required four steps to approve any expenditure.  The problem was that Poole simply did all four steps, using false invoices that he created.  He was the person preparing reports for the auditors, so he could cover his tracks there as well.

A judgement has been entered against Poole for 2.3 million pounds, the total cost of his misdeeds, and a criminal proceeding is pending.  The Philharmonic has also sued its auditor, Deloite, which audited the records three times without uncovering the theft. 

The Poole embezzlement has been described as a "wake up call" for arts organizations in the UK. Charities everywhere should pay heed.


March 23, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

Rothschild Foundation

When Judith Rothschild died in 1993 she established the Judith Rothschild Foundation and named her friend, Harvey S. Shipley Miller, as its sole trustee.  The foundation held her extensive art collection, valued at $34 million when she died.  The foundation worked "to promote public awareness of recently deceased American artists' achievements" (from the foundation's website) and has benefited cultural organizations around the country through gifts of money and art. Now the New York Times reports the New York Attorney General is investigating the foundation. There have been no allegations of financial wrongdoing, but the New York Times article raises questions of whether Mr. Miller has benefitted inappropriately from his role.  Mr. Miller has paid himself a nice salary of $200,000 in some years (although in one year he took no salary), lived in Ms. Rothschild's house rent-free until it was sold (to provide security for the artwork), and had a fellowship at the University of California law school named after himself. Some art critics have noted, however, that he has worked hard to serve Ms. Rothschild's interests  and to honor his friend, and that he has "done an extremely good job of enhancing and sustaining Rothschild's position."  

Thanks to my colleague Dom Vetri for sending me the NYT article.


March 23, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

SCt Justice's Wife to Run Political Nonprofit

The LA Times reports that Virginia Thomas, wife of Clarence Thomas, recently formed Liberty Central, a nonprofit non-tax deductible (read political) organization.  The mission statement of the organization says:

Liberty Central is activating informed American patriots who are seeking knowledge of the core founding principles and passionate about preserving freedom and liberty.  By providing tailored information, encouraging civil discourse, and inspiring activism, Liberty Central brings people together to protect the core founding principles.

Justices are expected to stay out of politics, but no rules apply to the spouses of justices.  The issue has not come up before, at least on the high court, so whether his wife's involvement in Liberty Central creates conflicts of interest for Justice Thomas remains an open question.  Ms. Thomas has said that she rarely discusses court matters with her husband.

The new organization is linked with the tea party movement and expects to get donations from corporations, now freed from restraints on political contributions.

I'm all in favor of spouses having separate careers, but I wonder about the conflicts problem when one spouse is on the Supreme Court.  Justice Thomas can't help but notice what his wife is doing.  Mostly, though, I worry about the idea of "activating patriots" when other "patriots" have, in recent days, used racial and homophobic slurs against people with whom they disagree.


March 23, 2010 | Permalink | Comments (1) | TrackBack (0)

Monday, March 22, 2010

Kielburgers of Canada Take On Social Enterprise

Where have I been?  Until reading the Globe and Mail's story about the Marc and Craig Kielburger, I confess not to have heard of this dynamic duo.  They founded Free the Children 15 years ago when they were mere tykes (they're now 27 and 33 - you do the math), and the organization has, in Marc's words, "scaled" quickly.  Free the Children has programs in 4,000 schools in North America, has built 500 schools in 16 countries, and employs 120 people in the Toronto office alone.  Marc and Craig have appeared on Oprah, met the Dalai Lama, and "have the ear" of Bill Clinton (whatever that means).  

Remembering the impact foreign travel had on their own development, the brothers wanted to send children to other countries. The board of Free the Children didn't want to take on the project, so the brothers created a for-profit organization called Me to We.  The new company sells socially responsible products, sends children on foreign trips, and donates money back to Free the Children.  The problem is that the Canadian charity rules don't really work for the ideas the Kielburgers have.  According to the news article (and without independent research or knowledge on my part) Canadian charity laws prohibit a charity from engaging in an activity that makes a profit, even if the proceeds are used for the charity's mission.  These rules obviously make social enterprise and partnerships between nonprofits and for-profits difficult.  Advocates say the Kielburgers' example could be a new model that could help the charity sector when grants and donations are hard to obtain.  Critics say the new ideas could lead to exploitation of the charitable sector.
For the longish and fascinating story of the Kielburger's empire and the changes it may bring to Canadian charity law, see this story.


March 22, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

Charity Survey - Tough Year Ahead

Stephanie Strom of the New York Times reports on this year's survey from the Nonprofit Finance Fund. Eighty-eight percent of the nonprofits surveyed expect 2010 to be financially as difficult (or more difficult) as 2009 for their nonprofits (one wonders about the other 12%), 80% predict that need for their services will increase and only 49% expect to able to meet this increased demand, and only 18% expect to end 2010 above break-even (compared with 35% who ended 2009 with an operating surplus).

For the full report, which includes information about how charities have dealt with the difficult times, go to the Nonprofit Finance Fund website.


March 22, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

ACORN Announces It's Done

ACORN announced today that it will disband due to lack of financial resources.  See the AP story posted on Yahoo.


March 22, 2010 | Permalink | Comments (0) | TrackBack (0)

Sunday, March 21, 2010

Prizes for Nonprofits Growing in Popularity

The New York Times recently discussed the growth of prizes for work in various nonprofit areas.  The article reports that philanthropists have been drawn to the establishment of prizes to encourage work in particular fields or to reward good work, thereby encouraging others.  The article focuses on the Kravis prize, established five years ago by Henry and Marie-Josee Kravis to recognize leadership among nonprofit groups and share their best practices.  The Kravis Prize awards the recipient $250,000.

The article explains the issues a philanthropist should consider before establishing a prize:  goals for the prize, scope of the prize, cost (publicity and administration of the prize can cost as much as the award), whether the field already has too many prizes, and the need to establish a structure to administer the prize efficiently and fairly.

So how about a prize for nonprofit law professors?


March 21, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)

ACORN May File for Bankruptcy

ACORN, which describes itself as the "Nation's Largest Grassroots Community Organization," may decide this weekend whether to file for bankruptcy, the New York Times reports.  The organization came under attack after two conservative activists purportedly asked for and received advice about hiding prostitution from the police.  A four-month investigation by the Brooklyn D.A. concluded that no ACORN employees had committed criminal acts.  The investigation revealed that the video shot by the activists had been edited significantly, changing the dialog between the activist and the ACORN employees and even changing the clothes the activist wore when talking with ACORN employees.  He apparently had been wearing normal street clothes when he went to the ACORN offices but changed the video to show him in rather outrageous "pimp clothes."

In the aftermath of the "sting," ACORN lost public donations and government funding.  In addition, and perhaps even more critical to its problems, ACORN had had internal problems of infighting, embezzlement, and mismanagement.  Failure to deal with those problems was then compounded by the dramatic drop in funding.

Fifteen of the thirty state chapters have already disbanded, and two, California and New York, have reconstituted themselves with new names.  The closing of ACORN offices in many places has led to "a vacuum in services for communities that used to rely on it for free advice on employment, tax and loan matters."  (NYT article quoting ACORN supporters.)


March 21, 2010 in In the News | Permalink | Comments (0) | TrackBack (0)