Tuesday, November 19, 2013
Tax Analysts’ State Tax Today (subscription required) reports an interesting decision of the Ohio Board of Tax Appeals. In Talbert Services, Inc. v. Testa, an outpatient clinic provided assessment, treatment, case management, and referral services for clients suffering from substance abuse and mental health disorders on property that included an apartment. When the clinic bought the property in 2008, an individual lived in the apartment, and he continued to do so for several years. The Tax Commissioner denied property tax exemption for the apartment on the grounds that it was not used for charitable purposes because it was leased to an individual. Reversing this determination, the Ohio Board of Tax Appeals found that the apartment was used by for charitable purposes. It accepted testimony that, although the tenant was not an official client of the clinic, a director “provided one-on-one informal counseling and referral services to the tenant, just as [the clinic] … provided to its other clients.” Further, the clinic did not lease the apartment with a view to profit, but merely used the rent to cover its expenses.
The electronic citation of this decision is 2013 STT 223-22.
Tuesday, October 22, 2013
According to the Detroit Free Press, Michigan Governor Rick Snyder is closing his NERD (that's New Energy to Reinvent and Diversify Fund) Fund. The NERD Fund was formed to raise funds to defray the cost of Detroit's emergency manager, Kevyn Orr. The Fund reportedly also paid the salary of a Snyder aide, Richard Baird.
The NERD Fund apparently qualified as a Section 501(c)(4) organization, and as a result, does not have to disclose its donors. Synder has gotten some heat from watchdog groups and the press, who accused him of using the NERD Fund as a way back door way for special interests to give to Snyder. Query whether it could have been formed as a Section 501(c)(3) for the purpose of lessening the burdens of government?
Sadly, this arises at the same time that The Chronicle of Philanthropy (Sub required) raises the question "Can Philanthropy Save Detroit?" It sort of boggles the mind that the closing of the NERD Fund is in the same issue of The Chronicle.
And, most importantly, who the heck thought that The NERD Fund was a good name? Someone FOIA that, stat.
Thursday, October 17, 2013
Tax Analysts’ State Tax Today reports on two advisory opinions involving nonprofits and New York’s mortgage recording tax.
In the first, a municipal urban renewal agency, also deemed a public benefit corporation by state law, contracted to sell real estate to a not-for-profit corporation and extend a purchase money loan to the buyer to facilitate its acquisition of the property. The agency will also hold a purchase money mortgage on the property. The general statute imposing a mortgage recording tax contains no exception expressly exempting entities such as the agency. Nonetheless, New York State’s Department of Taxation and Finance ruled that, because (1) the General Municipal Law provides that the property, income and operations of a municipal urban renewal agency are exempt from taxation; (2) this statutory exemption was enacted after the enactment of the general taxing statute; and (3) the exemption is specific as to municipal urban renewal agencies, the exemption statute takes precedence over the taxing statute. The ruling is available electronically at 2013 STT 201-20.
The second advisory opinion involves more complicated facts, and is probably more surprising in view of the economic realities of the series of contemplated transactions. Here, the issue was similar to that in the first opinion: whether a mortgage recorded by New York City Land Development Corporation ("LDC"), a not-for-profit local development corporation chartered under New York law, is exempt from New York’s mortgage recording tax. The petitioner proposed to lease real property from the LDC and then develop it with funds borrowed from banks. The bank loans will be secured by mortgages against petitioner's leasehold interest. The LDC initially will be a named mortgagee and will record the mortgages, but all of the rights under the mortgages will inure to the benefit of the banks. After recording the mortgages, the LDC will assign to the banks all of its mortgage interests. The general statute imposing a mortgage recording tax contains no exception expressly exempting entities such as the LDC. However, the New York Not-For-Profit Law exempts from taxation "[t]he income and operations” of a corporation incorporated thereunder. The New York Department of Taxation and Finance concluded that the earlier-enacted provisions of the mortgage recording taxing statute “must yield to the exemption provisions contained in the 1969 law creating not-for-profit local development corporations.” The tax, therefore, “does not apply where LDC as mortgagee records the LDC mortgage, nor does it apply to the recording of the eventual assignment of the Mortgage by LDC to Lenders.” The ruling is available electronically at 2013 STT 201-21.
Friday, August 2, 2013
As reported by The Chronicle of Philanthropy, effective yesterday, August 1, 2013, Delaware joined 19 other states with laws on the books permitting the formation of public benefit corporations. Delaware Governor Jack Markell signed Senate Bill 47 into law on July 17, 2013. The new law provides:
A public benefit corporation is a for-profit entity which is managed not only for the pecuniary interests of its stockholders but also for the benefit of other persons, entities, communities or interests. Delaware General Corporation Law Sections 362(a) and 365(a) create and impose on directors of public benefit corporations a tri-partite balancing requirement. Public benefit corporations must be managed in a manner that balances (i) the stockholders’ pecuniary interests, (ii) the interests of those materially affected by the corporation’s conduct, and (iii) a public benefit or public benefits identified in the corporation’s certificate of incorporation.
Wednesday, July 31, 2013
It appears that the difference between the Internal Revenue Code defintion of "charitable" and that applied by state and local taxing authorities continues to affect nonprofit organizations, this time outside of the health care arena. As reported by The Chronicle of Philanthropy, two organizations in Kittery Maine are disputing the town's revocation of their property tax exemptions on the basis that their art and dance activities do not comport with Maine's "charitable and benevolent" standard.
(For additional coverage, see "Kittery art organizations to fight town tax in court" (Seacoastonline)).
Friday, July 19, 2013
Lost in the IRS storm was the news that New York recently adopted new regulations that will require many nonprofit groups, including Internal Revenue Code § 501(c)(4) organizations, to disclosure their contributions and expenditures relating to sate and local electioneering. NY Attorney General Eric T. Schneiderman announced the rules, which are effective immediately. The activities reached by the rules are "election related expenditures," which include both "express election advocacy" and "election targeted issue advocacy," by any organization that is tax-exempt under Internal Revenue Code § 501(c) except for 501(c)(3) organizations. More specifically, according to the AG's summary of the regulations:
- Express Advocacy means "advertisements and other communications that call specifically for (or are susceptible of no reasonable interpretation other than as a call for) the election or defeat of a particular candidate, referendum, or party."
- Election Targeted Issue Advocacy means "communications made within 45 days of a primary election or 90 days of a general election that identify or depict particular candidates, referenda, or parties by name, but do not explicitly call for their election or defeat."
Covered communications include essentially all paid advertising, as well as telephone communications that reach 1,000 or more households, mailings that reach 5,000 or more recipients, and other printed materials that exceed 5,000 copies. If the amount spent reaches $10,000 in a year, then each expenditure of $50 or more and each contributor who gives $1,000 or more must be disclosed. Exceptions exist for candidate forums and certain member communications, as well as for information already publicly disclosed through another agency. There will also be a waiver application process in the event there is a reasonable likelihood that disclosure of donors "will cause undue harm, threats, harassment or reprisals."
Thursday, July 18, 2013
The N.Y. Times reports that New York Attorney General Eric T. Schneiderman is demanding that some of the large charities that received donations for Hurricane Sandy relief explain how they have handled those donations, including why almost half of the more than $575 billion raised has not been spent as of April 2013. He documented his concerns in a report issued this week that found charities reported as of April not having spent $238 million, or 42 percent, of these donations. The N.Y. Charities Bureau has also posted the responses of the charities to November 2012 and March 2013 inquiries regarding their Hurricane Sandy fundraising and spending. Among the charities that received the largest amounts, the Robin Hood Foundation stands out because it reported as of March 21, 2013 having made grants representing 97% of the $70.5 million in Hurricane Sandy funds it raised, and according to the NY Times article it has now given out all of those funds. In contrast, the American Red Cross reported on April 15, 2013 that through the end of March it had raised $323.5 million and spent $153.5 million.
Of course, there are many legitimate reasons why such funds would remain unspent even five months after Hurricane Sandy hit the Northeast in late October 2012. For example, the American Red Cross' response notes that it is still providing emergency relief in the form of food and mental health counseling to some hurricane victims while also providing long term assistance that can extend over a period of months or years, such disaster clean up, individual case work, financial assistance relating to housing, and grants to local organizations designed to help communities recover. Nevertheless, this high profile criticism shows the need for groups involved in disaster relief to explain why such relief is necessarily spread out over a significant amount of time as individuals and communities struggle to recover.
Monday, July 15, 2013
A Maine Superior Court has overruled the decision by the Town of Limington to deny or limit property tax exemption for several parcels of land identified as either "Tree Growth" or "Open Space" properties under the applicable state law. In Francis Small Heritage Trust v. The Town of Limington, the court briefly described the broader context of tax exemptions for charitable institutions under both federal and state law before providing a detailed recitation of the law relating to Maine's property tax exemptions (including a reference to the Elizabethan Charitable Uses Act of 1601!). It both concluded that the Francis Small Heritage Trust "is operated for purely benevolent and charitable purposes in good faith" and rejected the Board of Property Tax Review's argument that permitting logging, farming, and other compatible commercial activities was disqualifying given that so such activities had never in fact taken place and even if they had limited, purely incidental such activities did not undermine exemption. The fact that the properties at issue were indisputedly used to conserve wildlife habitat and were open to the public year-around at no cost also contributed to the court's decision.
Wednesday, June 19, 2013
Just as a follow up to yesterday's post on the Oregon spendig requirement, I took a quick look again at the Form 990 (go to page 10) and its instructions regarding the allocation of program service expenses (go to pages 41 through 43). My personal favorite is the instruction on how to allocate indirect costs, which requires the charity to list everything as an administrative cost in column C (that being not a program service expense) and then to add a separate, self-created line under "Other" in which the charity is instructed to place a negative number in column C in order to allocate indirect costs to program service in B or to fundraising expenses in D. So that's clear as mud -- no chance of error there.
Also, take a look at the list of administrative expenses to be reported in column C and think about a smallish charity - one that does a full Form 990 but is still relatively small in terms of revenue and expense - for example, a small medical clinic. The list in the instructions includes the CEO and staff by default (unless directly involved in program service oversight) as well as "costs of board of directors' meetings; committee meetings, and staff meetings (unless they involve specific program services or fundraising activities); general legal services; accounting (including patient accounting and billing); general liability insurance; office management; auditing, human resources, and other centralized services; preparation, publication, and distribution of an annual report; and management of investments." I wouldn't be surprised if such a charity had issues, or at least is forced into taking a fairly aggressive position on indirect cost allocations.
When we think about fradulent charities, I don't think most of us think of these types of expenses.
Just a thought. EWW
Tuesday, June 18, 2013
H.B. 2060 was signed into law by Governor Kitzhaber on June 4, 2013 and goes into effect 91 days after the 2013 regular session of the Oregon Legislative Assembly ends. Specifically, the Oregon Attorney General can disqualify an organization from receiving state income tax deductible contributions if
the organization has failed to expend at least 30 percent of the organization's total annual functional expenses on program services when those expenses are averaged over the most recent three fiscal years for which the Attorney General has reports containing expense information. The calculation of program services expenses and total functional expenses shall be based on the amounts of program services expenses and total functional expenses identified by the organization in the organization's Internal Revenue Service Form 990 return or other Internal Revenue Service return required to be filed as part of the organization's report to the Attorney General.
Oregon H.B. 2060, Section 2(1) (emphasis added). There is an appeal procedure that would allow the charity to show that payments were made to affiliates, were being accumulated for capital campaigns, or "such other mitigating circumstances as may be identified by the Attorney General by rule." Section 2(2)(c). A disqualified charity is required to notify its donors that donations to it are not deductible. Interestingly, a disqualification order may not be issued to "an organization that receives less than 50 percent of the organization's total annual revenues from contributions or grants identified in accordance with Internal Revenue Service Form 990 or an equivalent form" (fee for service charities, rejoice!) Section 2(4)(g). The legislation can be found here.
There are a number of issues that first came to mind when I read this legislation.
The first, of course, is the fallacy that a certain level of "program service" expenditures is an appropriate indicator of a charity's effectiveness. Even if it were an appropriate measure, why set it at 30%? Why exempt fee-for-service charities? Why exempt small charities? (On this topic, see GuideStar, BBB Wise Giving Alliance, and Charity Navigator on the “Overhead Myth”).
At least in the short term, this legislation punishes the wrong party - a charity's donors - by disallowing the state income tax charitable deduction. It does appear to also take away the ability of the charity to be tax exempt and, of course, in the long term, the charity's donor base could essentially disappear.
Along those same lines, I am concerned that you could have a charity that is disqualified due to a temporary blip in financials and is then required to send a donor notice. Even if that charity is subsequently rehabilitated, it is permanently damaged. The state has now devalued one of the charity's most valuable assets: its donor list. The Oregon Attorney General's press release talks about targetting bogus charities - I'm not convinced initially that its scope will be so limited.
Finally, as is pointed out in this commentary by Nonprofit Quarterly, the error rate on preparing the Form 990 is ridiculously high. I am somewhat troubled by the assertion by the Nonprofit Association of Oregon that organizations that make a reasonable attempt to allocate expenses won't get caught in this trap. In my experience, even sophisticated clients with paid accountants regularly misstate program service expenditures. (I note that the Nonprofit Association takes the position that only full Form 990 filers (not N or EZ filers) would be affected by the legislation.)
Thoughts, especially from our Oregon friends? EWW
Wednesday, May 29, 2013
Pennsylvania Attorney General Kathleen G. Kane recently announced that her office had resolved an investigation into the administration of the Milton Hershey School and the Hershey Trust Company by entering into an agreement with the School and Trust that implements a variety of governance reforms for both entities. Attorney General Kane also noted that her office had not found any breach of fiduciary duty during its investigation. The agreed upon reforms included:
- Limiting overlapping board members between the School and Trust on one hand and the for-profit Hershey companies on the other hand.
- Reduced board compensation, new procedures for any future adjustment to such compensation, and a new, more restrictive policy for reimbursement of board member expenses.
- A strengthened Conflicts of Interest Policy.
- Required reports to the AG relating to compliance with the agreement, increased AG access to various materials, and advance notice to the AG for certain real estate transactions.
For previous posts about the concerns that led to this investigation, see Eisenberg on the Hershey School, Pressure Continues on Hershey Trust Board of Directors, and Milton Hershey School Trust - Excessive Trustee Compensation? It is far from clear that the report and agreement will satisfy those critical of how their respective boards have managed these charities - Pablo Eisenberg has already written a negative assessment of the investigation's resolution.
Thursday, March 21, 2013
As some of you may have heard, the charity set up by NJ first lady Mary Pat Christie to provide Hurricane Sandy relief is under fire from watchdog groups. It has raised around $32.0 million so far, but hasn't made any distributions in the four months from the date of the storm (as of the March 11 article). This article in the Asbury Park Press raises a number of questions about the fund:
- Why is it taking so long?
- Why are you running it when you have no charity background?
- Why did you hire your protocol assistant as ED?
- Why is she getting paid $160,000 a year?
- Why aren't you giving funds to individuals?
- Is this all just a political stunt for your husband?
The article compares the fund to other organizations that have moved more quickly to provide Sandy relief, such as the Robin Hood Foundation. In response to all of these questions, Mrs. Christie answers that, unlike the Robin Hood Foundation, her organization is new. They have a small administrative budget and small staff. In discussing the delay in distributing funds, she cites the learning curve in getting a charity up and functioning and the lessons learned from other disaster relief organizations. She also indicates that she plans to be around for at least two or three years while the clean up continues.
I will take it as a given that she is trying to doing something good for her state with only the best of intentions. I also think that many of these questions have legitimate answers - four months from start up isn't a long time at all in the grand scheme of the life cycle of a charity. Fair enough. But given these answers, why didn't the reporter ask the question that first jumped out to me:
- Why was it necessary to set up a new organization in the first place?
If the problem is that you have new people setting up a new charity and that's why you are slow - you had an option. That option would have been to utilize an existing charity with established procedures and experienced people? Were there really no existing charities in the state of New Jersey that would have been willing to work with the Governor and the First Lady to set up a structure to address the needs of the population after a disaster of epic proportions? Maybe someone who has more experience with the New Jersey charitable community can tell me otherwise, but a quick Google search brought me here, for example.
In practice, I lamented the proliferation of charities - in the best of circumstances, these new charities were the products of good intent, unbridled optimism, and poor planning. I often tried to talk clients out of setting up new charities by encouraging them to find a partner with whom to work (what lawyer tries to talk herself out of work!), but I was rarely successful. Now that I can think about the sector more holistically, it has caused me to wonder whether we should be making it more difficult to set up a new charity. In looking at the recent efforts of the IRS, it seems to me there has been a trend to making it less difficult - the Form 1023 online project, the removal of the advance ruling period, the increase in the filing limits for the various flavors of the Form 990, to think of a few items off the top of my head.
Of course, the benefit of a lower barrier to exemption access is that it encourages innovation and experimentation in the sector - a potentially inefficient but worthy outcome. The cost of raising the barrier of access would be the "conglomeration" of charities. Is that an acceptable price to pay to address the issue of duplicative administrative costs and the need efficient and timely operations - especially in a time when private charity plays an increasing role in the delivery of social services? Would it really be any better?
I don't know. Just throwing it out there. EWW
Wednesday, February 13, 2013
The Pittsburgh Post-Gazette reports that Allegheny County (Pennsylvania) Executive Rich Fitzgerald recently announced plans to send letters to of all 9,000 properties currently identified as non-government, tax-exempt to demand proof that those properties meet the current five-part test for property tax exemption. Ironically, county legislation passed in 2007 required a systematic review of such exemptions every three years, so the letters are actually three years late. This systematic review is only one more avenue being pursued by the county and Pittsburgh to collect revenues from nonprofit organizations, as we have previously blogged about a "voluntary" payment agreement with colleges and universities (2009) and a payments-in-lieu-of-taxes (PILOT) agreement with a coalition of nonprofits (in place from at least 2010 through 2012).
Tuesday, January 22, 2013
A modestly-improving economy does not seem to have halted the trend of local property tax exemption fights. Here's a roundup of recent ones, to give a flavor of the scope of what's going on.
Vanderbilt University is seeking full property tax exemption for 11 fraternity/sorority houses. According to Vanderbilt, an agreement with the Greek organizations transferred full control over the property to Vanderbilt, and therefore the houses should be exempt like any other student housing. The move would save Vanderbilt (whose 2013 operating budget was $3.7 billion) $74,000 in annual property taxes. To paraphrase the late Senator Everett Dirksen, "$74,000 here and $74,000 there, and pretty soon you're talking about real money."
Meanwhile, the town of Hebron, Indiana, is fighting property tax exemption granted by the state to a set of apartment buildings. "Town Clerk-Treasurer Terri Waywood said the exemption was granted because the complex provides its tenants with classes in managing money and other services they can't get anywhere else in town." Sounds like a tax-exemption blueprint for all the apartment complexes in Indiana; heck, who doesn't need help managing their money? Even the folks on Downton Abbey could use some instruction on this front . . .
In Knoxville, Tennessee, a pair of golf courses are fighting to re-establish exempt status, and Texas State University's exempt status apparently is causing some budgetary headaches (heartache?) in San Marcos, Texas.
Some days I wonder whether the solution is just to get rid of all tax exemptions . . .
Friday, December 14, 2012
As reported by the Nonprofit Quarterly, a Maine court is set hear a case where the town of Hebron is arguing that the nonprofit boarding school, Hebron Academy, owes property taxes on income-generating uses of its facilities (i.e., rentals to outside groups for events). The argument ultimately comes down to an extent issue, with the town arguing that there is too much non-school use of the Academy's ice rink and other facilities, resulting in them becoming "taxable venues." Interestingly, Maine's incoming Attorney General has filed a brief supporting the Academy.
The case could provide a persuasive bright-line threshold for when commercial use of nonprofit property rises to a level exceeding "incidental," and thus becomes taxable.
[See a more extensive article in the Portland Press Herald]
Thursday, December 13, 2012
As reported by the Nonprofit Quarterly, the founder and former board president of a New York City nonprofit, Educational Housing Services, that provided affordable housing to students entered into to a $5.5 million settlement with the New York Attorney General Eric Schneiderman, ending an investigation involving "stunning" board negligence according to the AG. The article summarizes the board's poor stewardship:
According to the attorney general’s findings, the board breached its duties of loyalty and care between the years of 2003 and 2009 by contracting with Student Services, Inc. (SSI), a corporation founded and controlled by Scott [founder] and his wife which he says charged Educational Housing millions of dollars for intermediating cable, phone and Internet services for the building at a large mark-up. The attorney general’s office asserts that SSI provided no meaningful benefit and sees the situation as a case of civil fraud that was approved by the board of directors. Therefore it is not pursuing criminal charges against Scott but it is tapping the personal assets of Scott, the organization, and the trustees.
“We have no tolerance for officers and directors who treat a nonprofit organization as a vehicle for personal enrichment,” Schneiderman said in a statement. The AG’s findings state that board members received salaries simply for being trustees and that some had well-compensated consulting contracts that provided “little value” to EHS. As a result of the settlement, which includes no admission of any wrongdoing whatsoever, the five board members must pay $1 million from their own personal funds and they have resigned and been forever banned from sitting on the board of any New York charity. Scott has also resigned and is required to make restitution of $2.5 million personally, while Scott and SSI will jointly waive their rights to an additional $2 million expected under the EHS-SSI agreement, and the board will pay $1 million.
[For follow-up discussion on board oversight of conflict transactions, see Price of Board Inaction: $5.5-Million for One Charity (The Chronicle of Philanthropy)]
The Wall Street Journal reports that the New York Attorney General's office has issued proposed regulations that would require most tax-exempt organizations registered in New York, including 501(c)(4)s, to disclose/report their annual spending on "electioneering activities" at the state and local level. Under state law, any nonprofit that receives $25,000 in annual New York-sourced donations must register with the AG's charities bureau. Under the regulations, reportable activities would include "advertisements or communications calling for the election or defeat of a candidate, ballot question or party, or those that depict or clearly identify them within 180 days of an election."
Tuesday, October 16, 2012
From the Nonprofit Quarterly comes a story about the city council of Scranton, PA and the city council's potential "hardball" approach to coaxing PILOTs from the city's nonprofit sector.
The story recounts how the City Council has asked that it be given notice of any zoning variance applied for by a nonprofit, so that the council can (if it chooses to do so) oppose the variance before the zoning authorities. The undercurrent of the story is that the potential opposition might be tied to whether the nonprofit agrees to a PILOT. The author of the NPQ article indignantly claims this is discriminatory, because the tax status of the organization requesting the variance should have no bearing on whether the variance is granted:
If a tax-exempt and a tax-paying entity both apply for variances regarding off-site parking requirements, for example, it would seem to be a big stretch to argue that the tax status of an applicant trumps the empirical questions about the land use.
Well, I'm not sure I agree. Zoning is clearly about land use, but in a larger sense it is about the overall economic health of a particular geographic area. Tax revenues are certainly a consideration in that overall economic health and I don't find it untoward for zoning variances to consider the effect on the local tax base (assuming, of course, that consideration is not prohibited by local zoning laws; I have to believe that if the city council's attorney thinks that such consideration is appropriate, there probably isn't a Pennsylvania statute prohibiting it). If Scranton wants to play hardball with nonprofit organizations, potentially holding zoning variances "hostage" in return for payments, that's life in big city politics. There's some saying about "kitchens" and "heat" that seems appropriate here . . .
Monday, October 8, 2012
This Reuters piece from Sept. 28th highlights a recent report prepared by the Lincoln Institute of Land Policy, which finds that local PILOT programs do raise some revenue, but not a significant amount. The report (free but registration required) contains a significant amount of statistical information on the distribution of PILOT programs by region and by nonprofit sector, with hospitals and universities in the Northeast bearing the heaviest burden. The authors believe that this may be, at least in part, because the Northeast is “substantially more reliant on the property tax as a revenue source for funding local governments than other parts of the country.” (Page 2)
The report is an interesting read, although it notes its own limitations. There is no good collection point for data from PILOT programs, so the collection was, by necessity, somewhat ad hoc. As a result, the authors can only point to this information as a floor. Moreover, although the data shows an increase in PILOT programs and revenues over time, it is difficult to know whether this increase is due to the increase in the number of programs or simply due to better data collection methodologies. Finally, data collection is hampered by the lack of a consistent definition of a “PILOT” program.
In any event, what is striking is the relatively small amount of money raised if you aren’t in a jurisdiction like the Boston metro area, which has many large organizations making substantial payments. It makes one wonder whether the administrative costs and the poisoning of the relationship with large institutional citizens is worth the effort. Given the status of state and local governmental budgets these days, I’m sure they’d say that every penny is needed.
Thursday, September 27, 2012
We previously blogged about the New York Attorney General Eric T. Schneiderman's inquiry into politically active Internal Revenue Code section 501(c)(4) tax-exempt organizations. Last week U.S. Senator Orrin Hatch (R-Utah) and U.S. Representative Dave Camp (R-Mich.), the Ranking Member of the Senate Finance Committee and the Chairman of the House Ways and Means Committee, respectively, called on AG Schneiderman to halt his investigations. They focused in particular on the reported attempts by the AG to obtain IRS filings directly from the targeted organizations, including the non-public schedule of significant donors, rather than through the IRS-admnistered process for states to obtain tax return information, and stated that "We emphasize strongly that willful unauthorized disclosure of returns or return information is a federal crime subject to fines and/or imprisonment."
This week the Hill reports that AG Schneiderman fired back, defending his right as a state attorney general to directly request tax information from charitable and other nonprofit groups, including federal information returns such as the Form 990. And according to a report in Politico, the AG's response provided that "“Each state has a fundamental interest in ensuring compliance with its tax laws and in regulating certain activities of nonprofits. The recent activities of some tax-exempt organizations and businesses have been matters of great concern to New Yorkers. While my office respects applicable federal requirements and restrictions, I will continue to perform my duties and enforce the laws of the State of New York.”
The bottom line is that it appears that a previously obscure issue - whether charities and other nonprofits required to provide copies of their Forms 990 to state officials under state law could withhold or redact the schedule of donors for those returns (Schedule B) so as not to have that information publicly disclosed by the state - is now front-and-center in the ongoing dispute over politically active 501(c)(4) organizations.