Tuesday, August 7, 2012
Led by Senator Orrin Hatch (R-Utah), ten GOP senators sent a letter to the IRS yesterday urging it not to revisit its regulations governing section 501(c)(4) organizations in response to outside political pressure without careful (and time-consuming) deliberation. More specifically, they stated "public confidence in the non-partisan integrity of the agency demands that you issue no sub-regulatory guidance nor engage in any similar efforts that would effectuate immediate changes without a lengthy period of review, separated in time from the current heated political environment." The Senators were writing in response to a letter the IRS sent last month to two groups supporting campaign finance reform stating:
I am responding to your letter dated March 22, 2012, which supplemented you [sic] letter dated July 27, 2011, urging the IRS to institute a rulemaking proceeding to address the rules related to political activity by organizations exempt under section 501(c)(4) of the Internal Revenue Code.
The IRS is aware of the current public interest in this issue. These regulations have been in place since 1959. We will consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department's Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance.
This letter underlines the political tightrope that the IRS is walking in this area, especially with countervailing pressure coming from the Democratic side of the congressional aisle. Whether the Service can successfully walk this tightrope - and where it leads - remains to be seen.
Monday, July 16, 2012
President Vladimir Putin is expected to sign into law a bill adopted by Russia’s parliament, which labels many foreign-funded, non-governmental organizations operating within the country as “foreign agents.” The Kremlin has stated that it believes such a bill is appropriate for protecting Russia from external attempts to influence internal politics. The new law has also been given some financial teeth. Human rights activists are already enraged by the legislation, as the Duma also voted to impose fines of up to 5m rubles ($153,000) and a potential two year prison sentence for any organizations or individuals found to be in violation of the new law. Lyudmila Alekseeva, head of the Moscow Helsinki Group, believes that their new ‘foreign agent’ status will force the organization to fold as a result of having to refuse foreign grant money. Alekseeva explains, “The non-wealthy are not used to donating money to non-profit organizations, while the rich fear they may lose their business [by doing so].” In response to his government’s critics, Prime Minister Dmitry Medvedev has assured those affected that state funding will be increased for any NGOs whose activity “as a whole is deemed useful and positive for our country.” For more see http://www.globalresearch.ca/index.php?context=va&aid=31901.
China’s first ever charity fair was held in Shenzhen on July 13 and 14. It was hosted by the Ministry of Civil Affairs and the local Shenzhen government. Attended by over 400 people, the opening ceremony featured a major speech by Minister Li Liguo, which stresses the importance of charity for China’s development. See http://www.chinanpo.gov.cn/1938/55122/index.html. Another story about the event can be found at http://www.chinanpo.gov.cn/1938/55060/index.html.
Wednesday, June 27, 2012
The United States Agency for International Development (USAID), Western Union, and the Western Union Foundation on Monday announced the names of seventeen U.S.-based entrepreneurs who will receive matching grants to fund innovative business plans and help promote economic growth in Africa through the second African Diaspora Marketplace (ADM II) competition.
Launched in 2009, ADM II is a public-private initiative that works to harness the knowledge and resources of U.S.-based entrepreneurs to advance the ability of small- and midsize enterprises in Africa to secure capital. Forty-four of the nearly five hundred plans submitted — most in the categories of
agribusiness, information and communications technology, and renewable energy —
vied for the top awards.
According to Philanthropy News Digest,
Winning proposals included a Kenyan agribusiness that is implementing
sustainable "zero-waste" practices through the commercial production of
high-efficiency organic fertilizer; the first legal technology provider in
Tunisia; an alternative-power generator in Liberia that utilizes agricultural
waste; and an online medical information delivery system in Nigeria. Each
awardee is eligible for a total investment of up to $70,000, which includes up
to $50,000 in matching cash grants and as much as $20,000 in technical
Commenting on ADM II, USAID administrator, Rajiv Shah, said: "The African Diaspora Marketplace will strengthen and help satisfy demand for locally produced products and services. These businesses will buy, sell, and hire from within the communities they serve, putting money into the local economy, building local capacity, and fueling broad-based economic development."
Tuesday, June 12, 2012
Three recent news stories highlight the growing debate regarding the tax benefits enjoyed by nonprofits and particularly charities. The most recent Economist has an article titled Sweetened Charity: The Idea that the State Should Subsidise Giving to Good Causes is Resilient, But Not Easily Justified. The Wall Street Journal has an article titled Invasion of the Charity Snatchers focusing on the use and possible abuse of donor-advised funds. And finally Tax Notes (subscription required) features a special report from the European Association of Tax Law Professors congress on What Should the Tax-Exempt Sector Look Like?, looking not only at the laws in the U.S. but also in various European countries. In a time of economic uncertainty and strained government budgets such a focus is not surprising. The question is whether it will lead to sensible modifications of the existing rules.
Sunday, April 29, 2012
AP reports that the U.S. Treasury Department has eased restrictions on financial transactions in support of groups working in areas such as democracy-building, health and education, sport and religious activities. This step is part of a larger lifting of sanctions by Western nations in light of recent elections that say sweeping opposition party victories in that country. A Reuters report quoted a senior Treasury Department official as stating "[w]e are taking this step today to support a broader range of not-for-profit activity in Burma by private U.S. organizations and individuals to promote increased cooperation between the Burmese and the American people." The actual language of the eased restrictions can be found in Office of Foriegn Assets Control General LIcense No. 14-C relating to Burma.
LHM & KWS
Wednesday, April 25, 2012
In its continuing coverage of troubles U.S. nonprofit organizations are having with the Egyptian government (previously blogged about here and here), the NY Times reports that the Egyptian Insurance and Social Affairs Ministry has rejected registration applications from eight U.S. nonprofits. The grounds for the rejections are reported to be that the groups' activities violated Egyptian sovereignty. The groups ranged from the well known Carter Center to a Mormon missionary group to an organization for Coptic Christian orphans. Reuters also reports that this week Interpol denied a request from Egypt to issue worldwide arrest warrants for 15 employees of U.S. non-governmental organizations, including 12 who are U.S. citizens. The reported grounds for the denial was that the request was not in line with Interpol's rules that forbid political, military, religious or racial interventions.
LHM & KWS
Monday, April 16, 2012
A recent flurry of articles (see here, here, and here) address the tax relief policy announced last month in U.K. that would limit a taxpayer's donations to £50,000 or a quarter of their income, whichever is larger. A U.K. Treasury spokesperson stated that the policy "was justified to stop very wealthy people arranging their finances to pay very little tax." The government is further asserting that the proposed ceiling will only affect donors, not charitable recipients. Philanthropists are cautioning that the government's proposed caps on charitable contributions would create a "funding crisis" for the country's charities and philanthropic efforts.
It appears that Prime Minister David Cameron is retreating from the proposed limitations. Nevertheless, the discussion is very similar to the one that has taken place in the United States with respect to President Obama's proposed limitations on the charitable contributions deduction for wealthier Americans, as previously blogged herein.
Friday, March 16, 2012
Sungil Kwak (Korea Institute for International Economic Policy) has posted The Impact of Taxes on Charitable Giving: Empirical Evidence from the Korea Labor and Income Panel Study on SSRN. Here is the abstract:
Households’ or individuals’ decision regarding charitable giving may differ by type of recipient of the gift. In light of the relative paucity of empirical research on the impact of tax incentives on charitable giving outside Western countries, empirical research on this topic in South Korea is valuable in order to compare effects across difference tax regimes and in different institutional environments. We use the Korean Labor and Income Panel Study (KLIPS), whose panel structure helps alleviate the omitted variable bias that has often appeared in previous literature using cross-sectional data. This study aims to perform a robust estimation of tax price and income elasticities for charitable contributions in South Korea. First, we use exogenous changes in tax rates resulting from Korean Tax Reform to construct instrumental variables (IVs) for the change in the price of giving. Two tests are undertaken to determine whether the IVs are weak or not: a size-corrected test of a weak IV robust inference for the linear instrumental variable model with autocorrelation and heteroscedasticity recently devised by Finlay and Magnusson; and the LIML CUE-GMM estimation. We find that our instruments are not weak. Following Smith and Blundell, and Rivers and Vuong, we then estimate the random effect (RE) Tobit Model using a control function based on the IVs. Using the procedure developed by Mundlak, we estimated a fixed effect model from the RE Tobit model. The tax price and income elasticities from the pseudo-fixed effect Tobit model are found to be significant and the magnitudes are similar to those from the GMM fixed effect and CUE-GMM models. To investigate additional features of the conditional distribution of charitable giving in South Korea, we use the Censored Quantile regression with instrumental variables (CQIV) recently proposed by Chernozhukov, Fernandex-Val, and Kowalski. These estimate indicate that the price elasticity of charitable giving is very heterogeneous among donors, while income has a quite uniform and positive effect over the whole range of the giving distribution significantly.
Wednesday, March 14, 2012
- Most importantly, Premier Wen Jiabao mentioned charity and civil society in his work report his “State of the Union-style” address for 2012 read out to the National People’s Congress (NPC) on March 5, 2012. His remarks include mention of the need “to accelerate the development of social welfare and charitable / philanthropic pursuits / efforts.” In addition he vowed that the government would “push for innovations in administering rule of law and social management, and put in order (or rationalize) the relationship between government and civic and social organizations.”
- In addition, an interview with Yang Lan about philanthropy was featured prominently on Main Page (an English language CCTV broadcast) during the sessions. Ms. Yang, a former television hostess, current philanthropist and National People’s Consultative Congress (NPCC) member was interviewed during the “2 Sessions” of the NPC, and focused her remarks on philanthropic legal reform. The video is available at http://english.cntv.cn/program/newshour/20120304/112026.shtml
Tuesday, March 13, 2012
The government has withdrawn a controversial draft law on civil society organizations, said Mohamed Esmat al-Sadat, chairman of Parliament’s Human Rights Committee. The draft, which would amend the existing law, was said to be a combination of proposals from a number of NGOs. “No law would be issued if NGOs themselves do not approve it,” Sadat told Al-Masry Al-Youm, adding that the former regime drafted the original law. Critics say that the current Law on Associations (Law 84 of 2002) does not guarantee freedom of association since it gives the government the right to refuse the registration of an NGO and to dissolve its board. “The authorities use strict legislation on registration, regulation and foreign funding to restrict the activities of civil society. Under Mubarak, the law was often used against human rights organizations to punish the reporting of human rights violations,” said Amnesty International in a report published last year. For more information see http://www.egyptindependent.com/node/656141.
Frede Moreno (Western Midanao State University, Philippines and Alliance for International Education, Germany) has posted a short paper on Governance of Microcredit as a Strategy for Poverty Reduction in the Philippines on SSRN. Here is the abstract:
Microcredit can be an effective tool for tackling the global poverty problem. Making microcredit work better for the poor necessitates a framework that integrates the principles of good governance in the design and implementation of a microcredit program. The integration of good governance principles in microfinance is argued to have positive consequences in improving financial viability and increasing social outreach of microcredit programs as well as in widening the livelihood and economic options of Agrarian Reform Beneficiaries within Third World economic and poverty conditions. Governance principles can be applied as implementation strategies of Official Development Assistance (ODA)-assisted microfinance program as a tool for poverty reduction and development. In view of the Philippine government’s limitations, economic and fiscal challenges, the financial and technical support programs of the international donor community provide a big boost to the effectiveness and impact of microfinance in reducing the incidents of poverty in Third World countries such as the Philippines. As a tool for poverty reduction, microcredit is applicable only to the enterprising poor. The use of microcredit to assist poverty groups is recommended to be based on existing livelihood activities and micro-entrepreneurial skills and capabilities. Furthermore, the program design of the Bangladesh Rural Advancement Committee (BRAC) is found to be appropriate for the agrarian reform beneficiaries in Zamboanga Peninsula (Region IX), Philippines. Joe Remenyi’s (1999) Poverty Pyramid reinforces BRAC’s graduated strategy for helping the poor when they are grouped into: (1) micro-enterprise operators or the less poor, (2) enterprising or moderately poor, (3) laboring or very poor, and (4) poorest of the poor and most vulnerable or the ultra-poor.
Tuesday, February 7, 2012
Egypt—Restrictive Law on Associations and Foundations Proposed by Government; Less Restrictive Draft Submitted to Parliament by Civil Society
The raids on Egyptian and foreign CSOs in December 2011 (and reported on in the February IJCSL Newsletter) were followed on January 17, 2012 by an announcement from the Egyptian Ministry of Social Justice and Solidarity that it had completed a draft Law on Associations and Foundations to amend Egypt’s existing Law 84 of 2002. The proposed law is nearly identical to a draft prepared in March 2010 by a committee composed of members of the now-disbanded former ruling party and chaired by ex-Prime Minister Abdelaziz Hegazy. It places extreme burdens on CSOs. The Ministry announced a fifteen-day public comment period, after which the draft Law on Associations and Foundations is expected to be taken up by Egypt’s newly elected People’s Assembly as one of its first orders of legislative business. More than 55 Egyptian CSOs have refused to submit comments and are instead calling on the Ministry and the People’s Assembly to replace the draft with one endorsed and authored by Egyptian human rights organizations. On January 31, the Egyptian Organization for Human Rights submitted the draft developed by CSOs to the Parliament. For what the civil society draft contains, see http://en.eohr.org/2012/01/31/eohr-submits-the-ngos-draft-law-to-the-parliament/. More information about this will be availabl ein the March 2012 issue of the IJCSL Newsletter.
Saturday, January 14, 2012
A number of leading public charitable trusts and institutions that for years enjoyed tax exemption have lost their 12Aa registration and their total income has been made taxable. Virtually all of them are well established, credible, well governed and contributing to the commonweal of society - be it empowering women and creating self-sufficiency or promoting art and culture, according to an update by Noshir Dadrawla, Chief Executive of the Centre for Advancement of Philanthropy (CAP) (www.capindia.in). He notes that the Finance Act 2008 changed the definition of “charitable purpose” under Section 2(15) of the Income Tax Act so that “advancement of any other object of general public utility” would not be considered as a “charitable purpose” if it involves carrying on any activity in the nature of trade, commerce, or business or any activity of rendering any service in relation to any trade, commerce, or business for any fee, assessment, or other consideration. Later, the Finance Act 2010 attempted to provide some relief by exempting the aggregate value of the receipts from such activities up to Rs. 10 Lakhs and finally under the Finance Act 2011 to Rs. 25 Lakhs from taxation. Nonetheless, some NPOs that engage in consultancies, etc. are now subjected to tax on all their income. Noshir has urged all affected trusts and institutions to write to him at email@example.com.
Wednesday, January 11, 2012
To restore public trust in charities, 112 Chinese organizations are on track to participate in a government-sponsored information disclosure platform, according to Caixin Online. In the wake of immense public backlash against China's charities over millions in misused funds, these organizations have pledged to promote information transparency through a new government disclosure platform. Through the China Charity & Donation Information Center’s (CCDIC) forthcoming online platform, the 112 charities said they will publish their accounting records according to a new set of information disclosure guidelines. The announcement at an annual philanthropy conference sponsored by the Ministry of Civil Affairs—which oversees the CCDIC—comes just three weeks after 24 foundations publicly pledged to ensure the integrity of philanthropy in China. The new standards will also clarify how and when third parties should audit charities, the charities said, although they did not clarify what the exact requirements will look like. The joint effort includes China Charity Federation, as well as the China Youth Development Federation and the Red Cross Society of China. For more see http://english.caixin.com/2012-01-09/100347049.html.
Thursday, January 5, 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.
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.
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
Wednesday, January 4, 2012
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.
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.