January 5, 2012
China--New Audit Requirement for Chinese NPOs Effective January 1, 2012
The new Audit Guidelines, available in Chinese at http://www.mca.gov.cn/article/zwgk/fvfg/mjzzgl/201112/20111200248698.shtml, for the first time require that financials of foundations be reviewed by certified public accountants. This guidance comes in response to a series of scandals in “public foundations” (those with close ties to the government such as the Chinese Red Cross Society and the China Charity Federation) that occurred over the course of the summer and fall 2011. An in depth analysis of the issues and how the government is responding to them can be found in the English language service of China’s Xinhua news agency at http://news.xinhuanet.com/english/indepth/2012-01/02/c_131338859.htm (this story only refers to the November announcement that the audit guidelines would be promulgated, not to the policy itself). Prior to the new requirement, financials only had to adhere to the Chinese Accounting System for NPOs, available at http://www.iccsl.org/pubs/ChinaAccountingSystemofNPOs.pdf.
Australia--Auditing Standards for NFPs Discussed as part of Major Reforms
As part of the projected 2012 reforms of the regulation of the not-for-profit sector in Australia, the Treasury has issued the third NFP Newsletter, which discusses accounting guidelines, among other issues. It is available at http://www.treasury.gov.au/documents/2285/PDF/NFP_Newletters_Issue_3.pdf. Other important documents and discussion drafts are available on the Treasury website at http://www.treasury.gov.au/content/not_for_profit.asp?ContentID=2188.
England & Wales--Charity Commission Issues Guidance on Industrial and Provident Societies
The Charity Commission issued its opinion in January in relation to Industrial and Provident Societies (IPs) and the payment of interest on share capital. The Commission stated “some IPSs are set up as co-operatives, which cannot be charities, but others are set up as community benefit societies, which can be charities in certain circumstances. The activities of charitable IPSs include such things as redevelopment, regeneration and housing projects. Some IPSs for the benefit of the community receive tax benefits as charities but have the power to pay interest on share capital. While the rules of industrial and provident societies often make a distinction between interest and dividends, they also indicate in many cases that the payment of interest is out of profits and so is clearly a distribution of profits. The Commission considers that a power to distribute profits is fundamentally incompatible with charitable status. This is because a power of a corporate body to apply its property and assets for the purpose of making profits and devoting the resulting profit to the distribution of dividends among the members is considered by the courts to be incompatible with charitable status.” For more see http://www.charitycommission.gov.uk/Start_up_a_charity/Do_I_need_to_register/industrial_provident_societies.aspx?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CharityCommissionUpdates+%28Charity+Commission+updates%29
January 4, 2012
Montana Supreme Court Upholds Century-Old Law Banning Political Spending by Corporations
In a decision certain to intrigue nonprofit practitioners and scholars alike, the Montana Supreme Court upheld its century-old ban on corporate political expenditures (the state's 1912 Corrupt Practices Act), applying, yet ultimately ruling contrary to, the United States Supreme Court's decision in Citizens United v. F.E.C. (see prior blog postings on this seminal case here and here). Plaintiffs sought to overturn the ban. One of the plaintiffs, Western Tradition Partnership, now named American Tradition Partnership, is a "501(c)(4) grassroots lobbying organization dedicated to fighting environmental extremism and promoting responsible development and management of land, water, and natural resources in the Rocky Mountain West and across the United States." In its decision, the Montana Supreme Court, via a 5-justice majority opinion, concluded that the State has always had and continues to have a compelling interest in regulating corporate spending on political campaigns because of the state's history of past political corruption (the famed "Copper Kings"). In the conclusion of its opinion, the majority stated:
Citizens United does not compel a conclusion that Montana's law prohibiting independent political expenditures by a corporation related to a candidate is unconstitutional. Rather, applying the principles enunicated in Citizens United, it is clear that Montana has a compelling interest to impose the challenged rationally-tailored statutory restrictions.
The majority clearly stated that corporations can speak through their own political action committees, which are both easy to form and to whom contributions are easy to make under Montana law, unlike the federal law PACs at issue in Citizens United.
The two dissenting justices both wrote that Montana's outright ban on corporate political expenditures violates the First Amendment, as enunciated in Citizens United.
(Hat Tip: The Nonprofit Quarterly)
Israel--Second Draft of Anti-Foreign Funding Bill Tables after AG Calls it "Unconstitutional"
Skirmishing over the second draft of bills introduced in both houses of the Knesset to limit foreign funding to Israeli NGOs continues, with Prime Minister Netanyahu once again reversing course on the bills and tabling them. After negotiating with the drafters of the bills to find a solution, Netanyahu decided to freeze discussions of the bills. The decision, which marks Netanyahu’s second reversal on the same issue in less than a week, came after Attorney General Yehuda Weinstein informed Netanyahu he would not defend the bill should it be challenged in court. Weinstein claims the so-called Law of Associations is “unconstitutional.” For a story from Israel National News, see http://www.israelnationalnews.com/News/News.aspx/150507#.TuzF7SNWpmK. For a discussion of Weinstein’s conclusions about the bills, see http://www.haaretz.com/print-edition/news/ag-to-netanyahu-bills-targeting-israeli-rights-groups-funds-are-unconstitutional-1.400002.
Egypt--Crackdown on Foreign-Funded NGOs Continues into January
According to the New York Times, Egypt’s military-led government on January 1, 2012 justified its recent crackdown on human rights and democracy-building organizations as a defense against foreign interference in its politics, defying international pressure and contradicting reports from senior officials in Washington that Egypt’s military rulers had pledged to soften their stance. Egypt’s defense of the raids escalates a diplomatic feud with Washington that began last Thursday with raids by armed police officers on the offices of 10 nonprofit groups, including 3 supported mainly by the United States government: the National Democratic Institute, the International Republican Institute and Freedom House. Egypt’s continued support of the raids is also the latest indication that the military rulers who took over after the ouster of former President Hosni Mubarak share his government’s dim view of the international norms of democracy and human rights. Facing escalating domestic and international pressure to turn over power, the ruling military council has appeared increasingly willing to use force without apology to intimidate its critics, including directing assaults on demonstrators that have left more than 80 people dead and hundreds wounded over the last three months. The raids on the nonprofit groups have sent a tremor of fear through the network of human rights watchdogs that have documented and strongly criticized abuses by the military. For more on this story and the background to it, see http://www.nytimes.com/2012/01/02/world/middleeast/backing-off-vow-of-softer-stance-egypt-backs-office-raids.html?ref=world.
In a related story, El Ahram reports that a protest has been held and a complaint has been filed to stop the actions by the government against the NGOs. Prominent human rights lawyer Nasser Amin filed a complaint with Egypt’s prosecutor-general on January 2, 2012 against the security agencies responsible for conducting raids on 17 NGO offices in Cairo at the end of December. Amin, head of the Cairo-based Centre for the Independence of the Judiciary, lodged the complaint following a demonstration outside the prosecutor-general’s office to protest the raids. The protest, which was organized by several political forces and NGOs, also included prominent human rights activists Gamal Eid, head of the Arabic Network for Human Rights Information, and George Ishak, member of the National Human Rights Council. For more see http://english.ahram.org.eg/~/NewsContent/1/64/30769/Egypt/Politics-/Lawyer-files-complaint-with-Egypt-prosecutorgenera.aspx.
Cambodia -- Recent Developments on the Proposed NGO Law
The highly anticipated fourth draft of the controversial Draft Law on NGOs and Associations circulated at a meeting of the Cooperation Committee for Cambodia “is still unacceptable to civil society,” attendees told the Phnom Penh Post. Fundamental problems remain with the fourth generation of the NGO Law, “which continues to be a restrictive piece of legislation,” civil society organizations said in a media release on December 15, 2011, as reported in the Phnom Penh Post. According to Voice of America, the Cambodian government on December 28, 2011 appeared to bow to pressure and took a step back on the law, with Prime Minister Hun Sen saying in a public speech he wanted the Ministry of Interior and local NGOs to continue discussions that would make the law “acceptable” to all. http://www.voanews.com/khmer-english/news/Hun-Sen-Calls-for-More-Talks-on-NGO-Law-136319558.html. Different NGOs have different had had on the new draft. Rights group Licadho has called the fourth draft another failure that is “now more confusing than ever”, while the Cambodian Center for Human Rights welcomed the positive improvements in the latest revision, “especially in terms of clarity.” Licadho and CCHR are the only civil society organizations to publish analyses of the draft law since its circulation last week. For more see http://www.phnompenhpost.com/index.php/2011121653458/National-news/ngo-draft-worries.html. The draft is available on the ICCSL website at http://www.iccsl.org/pubs/Cambodia_4th_draft_law.pdf.
In a related development, the draft Civil Code was introduced in Cambodia, also in December. See http://www.phnompenhpost.com/index.php/2011122253567/National-news/long-road-to-launch-for-civil-code.html. Many civil society organizations oppose the draft Law on Associations and NGOs because they believe the law is unnecessary in that the Civil Code provides for the formation of “non-profit” associations and foundations.
January 2, 2012
Continuing Debate on Boston's Revised PILOT Program
As previously blogged over a year ago, a Boston mayoral task force finalized a formula to calculate how much tax-exempt nonprofits should contribute to pay for city-provided benefits - police, fire, snow removal, and emergency medical treatment. The Boston Globe reports that its Museum of Fine Arts director, who has been a public critic of the Mayor's plan to increase these "voluntary" payments, has issued a warning for museums across the country: “When civic leaders look to cultural organizations as a source of revenue, rather than as an invaluable resource for the communities they serve, it has dire implications nationwide.’’ The museum director contends that because it receives no city funding, it should be excepted from making the payments.
Congressional Focus on AARP's Tax-Exempt Status Continues
As previously blogged, Chairman Charles Boustany (R-LA) of the House Subcommittee on Oversight asked Internal Revenue Service Commissioner Douglas Shulman to provide extensive information regarding IRS oversight of tax-exempt organizations. Boustany announced last week that the House Oversight Committee will be focusing on the nonprofit sector's "modes of operation." The Chairman's latest letter to the IRS, dated December 21, addresses AARP's Section 501(c)(4) tax-exempt status. In particular, Boustany is concerned about AARP's relationship with HearUSA, Inc., a provider of hearing enhancement products, which raises additional questions about the nonprofit's product endorsements and royalty revenue. Specifically, the Chairman questioned whether fees and royalties that AARP receives from other business contracts constitute unrelated business income, subject to the unrelated business income tax. In a previous letter to the IRS Commissioner, Boustany stated that “AARP is not the only tax-exempt organization that more closely resembles a for-profit enterprise, rather than an organization formed for social welfare or public charity." Boustany has stated that he is not targeting AARP, but rather is examining the entire nonprofit sector.
NY Times Editorial - Curb 501(c)(4) Political Entities
The New York Times published an editorial on December 28 entitled "Whose Welfare?" calling for greater IRS regulation of politically-centered 501(c)(4)s. Here is a portion of that editorial:
When will the Internal Revenue Service crack down on the secret political money already flooding the 2012 campaign from partisan operatives ludicrously claiming to be “social welfare” activists under the tax law?
Offshoot groups created by partisan gurus — Karl Rove pioneered the practice — claim the 501(c)(4) status as do-gooders that allows them to keep the names of their donors secret, unlike traditional political operations. Democrats are hard at this secret megamoney race, too, with Obama campaign veterans politicking as the supposedly independent and socially minded Priorities USA.
The need for the I.R.S. to curb this abuse is vital, especially with the Federal Election Commission paralyzed by its Republican members.
The American Action Network run by veteran Republican campaigners spent 87 percent of its total $30 million on campaign-related expenditures last year, according to the watchdog groups Democracy 21 and the Campaign Legal Center. Mr. Rove’s Crossroads GPS and its affiliates are reportedly aiming to spend $240 million or more on their candidates in the presidential and Congressional races. . . .
(Hat tip: TaxProf Blog)
Courtney: Hospitals' Tax-Exemption and Future Policymaking Considerations
Bobby A. Courtney (J.D./M.P.H. 2012, Indiana University-Indianapolis) has published "Hospital Tax-Exemption and the Community Benefit Standard: Considerations for Future Policymaking," 8 Ind. Health L. Rev. 365 (2011) (Download). Here is a short synposis of his note:
The issue of hospital tax-exemption is particularly important given the over 50 million citizens without health insurance in the United States. Historically, the uninsured have relied on the charity of private hospitals (i.e., not government owned) for care. These private hospitals are largely nonprofit; in fact "[o]f the 630,000 beds in Medicare-certified community hospitals in the United States in 2003, 68 percent were located in nonprofit hospitals, 16 percent were located in for-profit hospitals, and 15 percent were located in government (nonfederal) facilities." Moreoever, the American Hospital Association notes that there are over 5,700 hospitals in the United States, more than 2,900 of which are nonprofit, non-governmental facilities. Given both shrinking reimbursement by government and private payers, and increasingly competitive markets, the cost of unreimbursed care continues to mount and nonprofit hospitals are finding it more difficult to cross-subsidize indigent care (i.e., charity care) using revenues garnered from paying patients. As such, a perception exists that many nonprofit hospitals do not warrant their tax-exempt status, since their direct charity care figures do not equal the financial benefit these entities receive from said exemption.
This note does not purport to analyze or recommend new constructs upon which charitable exemption should be based; rather, it offers a pragmatic discussion of elements that should be included when considering tax-exemption as applied to nonprofit hospitals. To facilitate such a discussion, Part II addresses the evolutio of tax-exemption for nonprofit hospitals, criticism of the current standard, as well as State, Internal Revenue Service ("IRS"), and Congressional responses to the issue. Part III suggests that any future standard should exclude a mandatory charity care percentage, yet include bad debt, the unreimbursed cost of Medicare, and hospital "community-building" activities. Finally, Part IV recommends that the locus of control for defining the standard should remain with the IRS.