Saturday, October 16, 2010
Although 2501 may not exclude these gifts directly, Paul Caron blogged that case law in effect prior to adoption of that Code section focused on donative intent, and a person making a gift to a 501(c)(4) organization does not have the donative intent that the Code seeks to tax under the gift tax. There seems to be little direct information about the issue, but perhaps the gifts are not the sort Congress intended to tax as gifts.
Here's a link to Paul Caron's blog.
Thanks to Wendy Gerzog and Harvey Dale who also raised questions about applying the gift tax to these gifts.
If anyone has other information, let me know!
Thursday, October 14, 2010
Nonprofit organizations that meet the requirements of 501(c)(4) are not charities, but they can obtain tax exempt status. These organizations can engage in political activity, unlike 501(c)(3)s, and for that reason are appealing to donors who want to remain anonymous. A well-known 501(c)(4) organization is Crossroads Grassroots Policy Strategies, or Crossroads, GPS, an organization created by Karl Rove.
The Huffington Post reports today that Senator Dick Durbin of Illinois has asked the IRS to investigate Crossroads GPS. The organization has spent $3.3 million on the Senate race in Illinois, supporting Mark Kirk's campaign against Alexi Giannoulias. In total, Sen. Durbin states in his request to the IRS, the organization has spent nearly $20 million buying television advertising in Senate campaigns around the country.
In addition to the issue of the tax-exempt status of the organization, big donors to the organization, and to others like it, may have something else to worry about.
William Barrett's Forbes blog reports on a memo written by Ofer Lion, an LA lawyer who specializes in the laws affecting nonprofit organizations. Mr. Lion's memo, written for his clients, explains that the Internal Revenue Code provides no gift-tax exemption for contributions to 501(c)(4) organizations. That means not only that will the donor not receive an income tax contribution for the gift, but also that the donor may owe a gift tax on the gift, with a maximum gift tax of 35% this year increasing to 55% in 2011. Although the donor might be able to use an annual exclusion ($13,000) and the lifetime exclusion ($1 million), reports indicate that many donors have been making multi-million dollar gifts to 501(c)(4)s this year. The tax bills may be significant, if the IRS decides to enforce the gift tax. Although 501(c)(4)s need not make their donor lists public, federal law requires the organizations to provide the IRS with the names of all donors of $5,000 or more. Thus, the IRS would have a lot of information about which taxpayers to investigate.
The Kansas City Star reports that a group called Clergy VOICE has petitioned the IRS to investigate a 2004 payment of $50,000 made to the Fellowship Foundation by the Islamic American Relief Agency. The Fellowship Foundation is the organization that runs a boarding house on Capital Hill used by conservative members of Congress. The Islamic American Relief Agency was designated a supporter of global terrorism by the U.S. Department of the Treasury in 2004 and was being investigated by the U.S. Senate for possible ties to terrorism.
The money given to the Fellowship Foundation was supposed to have been paid to Mark Deli Siljander, a former congressman who had agreed to lobby for the Islamic American Relief Agency to have it removed from a list of organizations being investigated by the Senate. Siljander pleaded guilty to lying to federal investigators and to acting as an unregistered foreign agent. He is awaiting sentencing.
Clergy VOICE is a group of Ohio pastors dedicated to "safeguarding the separation of church and state, while promoting the historic role of organized religion in our society." In the petition to the IRS the group expressed concern that some of the money intended for Siljander was used by the Fellowship Foundation to fund overseas trips by congressmen. The president of the Fellowship Foundation has said that the entire amount was paid to Siljander and that the organization did not know that the Islamic American Relief Agency was being investigated for possible terrorist activities.
In an article in Roll Call, Mark Owens, lawyer for Clergy VOICE, notes that the denial by the president of the Fellowship Foundation of knowledge of the payment suggests that "'they don't have control over their money. They let other people control it for their private purposes and that raises a question' about whether the foundation is meeting the obligations of its tax-exempt status." Owens says the DOJ documents, filed in connection with the criminal case, do not provide enough detail to show that the Fellowship Foundation did something wrong, but they raise "legitimate questions about whether the organization is entitled to tax-exempt status."
Tuesday, October 12, 2010
It happens every fall - some religious leaders speak about politics in church. On September 26, nearly 100 pastors spoke about politics as part of "Pulpit Freedom Sunday," sponsored by the Alliance Defense Fund.The report appears in Onenewsnow.com, a division of the Family News Network. The article there describes the action as a challenge the IRS to take the churches to court. In other political action described in the online journal, Pastor Cary Gordon of Sioux City sent a letter to other pastors in Iowa urging them to help in the effort to encourage votes against renewing terms for three Supreme Court Justices who had ruled in favor of same-sex marriage. Americans United for Separation of Church and State has filed a complaint against Mr. Gordon.
At a time when fundraising has gotten increasingly difficult, a California art foundation plans to support its activities by raising medicinal marijuana. The New York Times reports that Life Is Art will soon sell its first marijuana crop. The goal is to grow enough pot to raise about $1 million next year. The director notes that producing income through labor feels more honest than trying to get money from donors during difficult economic times, and some of the artists whose work will be exhibited at a show opening Oct. 22 have helped with the harvesting operations. The New York Times article mentions drug-crime concerns as a possible problem, but does not talk about whether the pot-growing operation will generate unrelated business taxable income.
Monday, October 11, 2010
Marshall Field V, the great-great-grandson of the founder of the Field's merchandising empire in Chicago, has decided, with his wife Jamee, to contribute the amount remaining in their private foundation to a separate fund in the Chicago Community Trust. Then, when Mr. Field dies, his estate will make a more substantial gift to the Trust. The Trust will manage the gifts as a separate fund through the lives of Mr. Field's grandchildren, and at that point the Trust will take over full management of the assets and discretion over the distribution of the assets. Mr. Field has been working with the Trust as it begins a $500 million fundraising campaign, and his announcement kicked off the campaign. See the Chicago Tribune report.
In January 2009 Brandeis announced that it would close the Rose Art Museum and sell the artwork to help with financial difficulties. After waves of protests as well as a lawsuit by donors, the University backed off from the sale of the collection fairly quickly, but has never completely ruled out the sale of some pieces.
In late September, the Boston Globe reported that Brandeis was beginning the search for a new director for the museum. The University pointed to this search as a sign of rebuilding, but the plaintiffs in the lawsuit are not satisfied. This fall two proposed exhibitions fell apart, one because the artists pulled out due to Brandeis' refusal to rule out selling art from the collection. University officials say they are working to avoid any sales and hope to build the museum and move forward. The saga continues.
Across the country human services nonprofits have had to cut services and freeze salaries, in part because payments due from local, state and federal governments arrive late or not at all. The Chicago Tribune reports that a report released by the Urban Institute shows that nonprofits in Illinois are the hardest hit in the country. In 2009 41% of human services nonprofits reported receiving payments late, but in Illinois that number is 72%. Illinois state government appears to be the culprit, delaying payments to nonprofits due to fiscal crises in state government. The nonprofits face growing needs with shrinking budgets. A spokesperson for the governor says that the governor is committed to making good on payments due the nonprofits, but currently the state is $5 billion behind in payments.