Monday, February 12, 2024

NRA update by the New York Times

A few weeks ago, I wrote a post entitled "The NRA Saga Continues... wayne LaPierre Takes the Stand,"  in which I discussed the continuing downfall of the organization that once embodied nonprofit political power.    I just wanted to flag that the today's New York Times email news letter, The Morning, (Sub required) has a write up of the current status of the NRA.  Here's a quote and a link:

Today, the N.R.A. has shed hundreds of thousands of members and large sums of money. It is standing trial for fraud and self-dealing in New York. “The N.R.A. is little more than a shell of itself after hemorrhaging hundreds of millions in legal fees,” Joshua Powell, a former top N.R.A. official who settled with the state before the trial, told The Times. The organization’s fall is not a death knell for Second Amendment advocates, but it is a blow.

Today’s newsletter will explain what went wrong with the group.

 

With the updates! eww

February 12, 2024 in In the News, State – Executive, State – Judicial | Permalink | Comments (0)

Tuesday, December 19, 2023

NASCO Reiterates Criticism of IRS Form 1023-EZ

Download (16)In response to a general request from the Internal Revenue Service for comments on its forms for tax-exempt organizations, the National Association of State Charity Officials (NASCO) sent a letter repeating its longstanding concerns regarding Form 1023-EZ.  Here is NASCO's summary of that letter:

In the letter, we underscore NASCO’s longstanding position that the 1023-EZ should be revisited and reiterate the need for timely availability of Forms 990. We highlight how the use of the Form 1023-EZ combined with the IRS’s retroactive reinstatement procedures under section 4 of Rev. Proc. 2014-11 can harm the public interest and enable scam charities to fly under the radar with serious consequences for donors, public funds, and confidence in the charitable sector.

Lloyd Mayer

December 19, 2023 in Federal – Executive, State – Executive | Permalink | Comments (0)

New York AG Issues New & Updated Guidance for Religious Corporations & Their Members

Download (15)From a recent email sent by the Office of the New York State Attorney General:

The Attorney General’s Charities Bureaus is pleased to announce the publication of new and up-dated guidance for Religious Corporations and their members.

* * *

Religious Corporations: Sales and Other Disposition of Assets – Up-dated guidance for religious corporations, including a check list of requirements for petitions to the Attorney General or the Court for approval of sales, clarification of which denominations must seek approval of the Attorney General and/or the Court, detailed guidance on preparation for a sale, explanation of statutory requirements and the role of the Attorney General, sample forms for documents required by the Attorney General and/or the Court.

Guidance for Congregants Whose Houses of Worship are or May be Offered for Sale or Lease – NEW guidance for members of religious congregations, many of whom have the right to vote on whether property of their congregations should be sold, including questions to ask to have an understanding of the procedures and time required to sell the property and the financial and other impact of the sale on the congregation.

Lloyd Mayer

December 19, 2023 in Religion, State – Executive | Permalink | Comments (0)

Wednesday, November 22, 2023

California AG Proposes Charitable Crowdfunding Regulations

Download (18)The California Department of Justice just issued a Notice of Amendments to Regulations implementing Assembly Bill No. 488, which relates to charitable crowdfunding. Fellow blogger Darryll Jones summarized an earlier set of proposed regulations on this topic, which it appears that the new set of proposed regulations is superseding. 

I have not had time to parse through them to see what has changed from the initial proposed regulations - nor does it appear anyone else has, which is understandable given the upcoming Thanksgiving holiday - but in the interests of getting the news about them out as quickly as possible I am doing this initial post. Comments are due in 45 days, so early January 2024.

Lloyd Mayer

November 22, 2023 in State – Executive | Permalink | Comments (0)

Thursday, November 9, 2023

House Republicans Chairmen Question DC AG Investigation of Leonard Leo Affiliated Nonprofits

The EO Tax Journal reported that two Republican Chairmen in the House of Representatives have launched an inquiry into the District of Columbia Attorney General's investigation focused on Leonard Leo and several nonprofits with which he is affiliated. Lest there be any doubt about the reasons for their inquiry, here are the opening paragraphs of their press release:

Today, House Judiciary Committee Chairman Jim Jordan (R-OH) and House Oversight Committee Chairman James Comer (R-KY) sent a letter to Washington, D.C. Attorney General Brian Schwalb demanding information on his politically motivated investigation of Leonard Leo and certain nonprofit groups he is affiliated with.

Leonard Leo was baselessly accused of receiving "excessive payments for consulting and other services from the several conservative nonprofit groups" by the Campaign for Accountability with no evidence to substantiate the complaint. Now, he is being investigated by Attorney General Brian Schwalb even though he and the organizations with which he is affiliated are based outside of Washington, D.C.

Their full letter to the DC AG is available here.

Setting aside the partisan issues their inquiry raises, the question of whether the DC AG's investigation is appropriate given where the nonprofits are based does raise an interesting internal affairs doctrine issue, as Ben Leff previously discussed in this space.  

Lloyd Mayer

November 9, 2023 in Federal – Legislative, State – Executive | Permalink | Comments (0)

Wednesday, November 8, 2023

NASCO's Latest Report on State Enforcement & Regulation

DownloadThe National Association of State Charity Officials (NASCO) has issued its latest Annual Report on State Enforcement and Regulation covering September 2022 thru September 2023. The report does not attempt to provide comprehensive coverage of state activity with respect to charities during this period. Instead, it "is designed to provide and highlight a sample of activities for the covered period, not to encompass all matters addressed by state charity regulators." Here is the Table of Contents:

Introduction

1. Enforcement cases in key areas:

a. Deceptive Solicitations

b. Governance

c. Trusts and Estates

d. Other

2. Outreach efforts and published guidance

3. Transaction reviews

4. Regulations and legislation

The report provides numerous scenarios of alleged and proven wrongdoing relating to charities, some of which will be familiar to readers as they have been mentioned in this space. It also provides a useful, albeit anecdotal, snapshot of the many tasks of state charity officials. Those roles include pursuing misappropriation of charitable assets, enforcing registration and reporting requirements, helping parties resolve contentious governance disputes, and educating both the public and charity leaders about relevant laws and legal responsibilities.

Lloyd Mayer

November 8, 2023 in State – Executive, State – Legislative, Studies and Reports | Permalink | Comments (0)

Friday, October 13, 2023

Venable: Highlights of the 2023 NAAG/NASCO Annual Conference

6a00d8341bfae553ef02b75199f918200c-320wiThe Venable law firm has posted Highlights of the 2023 NAAG/NASCO Annual Conference held earlier this week. Here is the introduction:

The National Association of Attorneys General (NAAG), in conjunction with the National Association of State Charity Officials (NASCO), hosted its annual conference to discuss the state of charities and a variety of issues affecting this segment of the nonprofit sector. Although the second day of the two-day conference is open only to attorneys general and government staff, the first day was open to the public. In this first session, topics included governance issues, state regulatory updates, ethical challenges, and other operational and programmatic considerations. The following is a summary of some of the main lessons learned from various panels on the public day.

Lloyd Mayer

October 13, 2023 in Conferences, State – Executive | Permalink | Comments (0)

Wednesday, October 11, 2023

AGs in Action: Recent Cases Involving Involving Allegations of Millions Stolen

6a00d8341bfae553ef02788045cfd8200d-320wi Download (10)There is unfortunately but not surprisingly a steady litany of stories involving charity insiders allegedly stealing significant funds from the charities they operate. Of course some malfeasance among the approximately one and a-half million charities (based on IRS data and so not counting all charities and particularly all churches) is unavoidable. And often the amounts are small, reflecting both the small financial size of many charities and likely their related lack of strong internal controls to prevent such theft. That said, it is worth noting when the amounts at issue cross into seven-figure territory. There are at least two such stories last month, one from Florida and the other from Ohio.

The Florida case involves the former CEO of the Florida Coalition Against Domestic Violence (FCADV) being "charged with one count each of organized scheme to defraud, grand theft and official misconduct, all felonies." Readers of this blog may remember that this has been a long-simmering situation, which began with a state audit triggered by public reports that the CEO had been paid $761,000 in the fiscal year that ended on June 30, 2017. That audit led in 2021 to the former CEO repaying to FCADV $2.1 million in alleged excess compensation, as well as payments from FCADV's insurer and other former officials, and FCADV's dissolution. But those payments were apparently not enough to protect the former CEO from criminal charges. Coverage: Florida Politics; Miami Herald.

The Ohio case involves former executives of the Columbus Zoo and Aquarium being charged with alleging diverting over $2 million for their own benefit. The Attorney General's press release alleges that "the former executives manipulated credit-card and check authorization forms for more than a decade" and that the "stolen money was spent on lavish non-zoo related items, including suites and tickets to concerts and sporting events; golf memberships; trips to multiple states and foreign countries; meals, beverages and alcohol; and motor vehicles." Coverage: Columbus DispatchN.Y. Times.

Lloyd Mayer

October 11, 2023 in In the News, State – Executive | Permalink | Comments (0)

Tuesday, October 3, 2023

DC AG’s Investigation of Nonprofits Incorporated in “Foreign” Jurisdictions: Is it a Violation of the “Internal Affairs Doctrine”?

Last week, the Wall Street Journal published an opinion piece about a letter that 12 Republican state AGs sent to DC AG Brian Schwalb. In it, they complained about the DC AG’s investigation into several nonprofits associated with conservative activist (and Federalist Society founder) Leonard Leo. (There is no link to the letter because none is published online and I have been unable to get a copy, perhaps because of my truly pathetic journalistic skills). According to the WSJ,

“Mr. Schwalb [issued] subpoenas. This is remarkable because the D.C. AG lacks jurisdiction. All of Mr. Leo’s affiliated businesses and nonprofits mentioned in the complaint are based outside of D.C., including in Virginia or Texas. Under a longstanding legal principle known as the internal affairs doctrine, matters relating to an entity’s internal workings are governed by the laws of the state of its incorporation and enforced solely by that state’s officials.”

(Politico also has an article about the DC AG’s investigation, which, unsurprisingly has a different take on it).  (UPDATE: Politico posted another article today that reports that the Leo-affiliated entities are not cooperating with the DC AG and that the DC AG is also investigating Arabella Advisors, a "liberal 'dark money' group" that was the subject of a complaint from a conservative watchdog group.)

But, of course, the internal affairs doctrine applies to – you guessed it – internal affairs, and so the claim that DC does not have jurisdiction over the Leo-affiliated entities raises the question of the claim at the heart of DC’s investigation. Is it an investigation into the internal affairs of the Leo-affiliated entities, or something else? Unfortunately, I don’t have access to the DC AG’s subpoenas or any other source for its legal reasoning establishing jurisdiction. The WSJ piece claims that the investigation was initiated because of a letter sent by the Campaign for Accountability to the DC AG in April, but unfortunately CfA only posted its companion letter to the IRS (which obviously has jurisdiction).  That letter identifies the alleged misconduct, saying,

“There are questions as to whether the Leo-Affiliated Nonprofits have diverted substantial portions of their income and assets, directly or indirectly, to the personal benefit of Leonard Leo. Most of these entities have either made substantial independent contractor payments one or more of his for-profit business entities or made major contributions to other Leo-Affiliated Nonprofits that made such payments. Such payments were generally listed as made in exchange alleged consulting, research, public relations, or similar services, however, CfA has reasonable questions about whether those alleged services were actually rendered at all or, if services were rendered, whether the payments made were substantially in excess of the fair market value of those services.”

So, the question is, under DC state law are diversions of nonprofit assets to the personal benefit of someone who directly or indirectly controls that nonprofit an “internal affair” or not? Not to get too confusing on matters of jurisdiction, but it seems clear that DC has personal jurisdiction over at least some of the entities (all of the ones I checked) because they maintained their principal office in DC and they may well have conducted fundraising operations in the District. So, the question is just about the scope of the internal affairs doctrine, not about the “reach” of state authorities over foreign entities.

Anyway, if anyone from the DC AG’s office, or the Republican AGs who wrote the letter, would like to provide their analysis of the question, I and my students would love to see it!

Benjamin Leff

October 3, 2023 in In the News, State – Executive | Permalink | Comments (0)

Friday, August 4, 2023

Conservation Easements Are a State Tax Issue Too

Download (2)The California Franchise Tax Board has issued a notice that provides taxpayers with the opportunity to resolve potentially problematic syndicated conservation easement tax issues with reduced penalties. FTB Notice 2023-2 provides a closing agreement such taxpayers can use to take advantage of this opportunity, but they must do so by November 17, 2023. It is a helpful reminder that conservation easements may be a state tax issue for many taxpayers as well as a federal tax issue.

Hat tip: EO Tax Journal; Tax Notes.

Lloyd Mayer

August 4, 2023 in State – Executive | Permalink | Comments (0)

Nonprofit Health Care Update: Bankruptcies, a Failed Merger, and Continuing Consolidation

Download (1)It is difficult to keep up with the constant flow of news relating to nonprofit health care providers. The past two weeks alone saw these stories:

  • The Wall Steet Journal reported (subscription required) that "California Nonprofit Hospitals Turn to Bankruptcy for Leverage Against State." According to the article, nonprofit hospitals in California are using bankruptcy filings to push the state's Attorney General's Office to consider permitting sales or mergers that otherwise might not make it through the state's review system for such transactions.
  • A N.Y. Times opinion piece by a former physician who now works for KFF Health News titled "Your Exorbitant Medical Bill, Brought to You by the Latest Hospital Merger" (subscription required) details both the extent and perhaps the inevitability of health care consolidation. It notes that 75 percent of health care markets are now considered highly consolidated. The FTC has recently become more active in blocking mergers, stopping seven in the past two years, but this has occurred while 53 mergers and acquisitions went forward in 2022. And state legislatures can help protect healthcare systems from antitrust scrutiny by passing so-called Certificate of Public Advantage laws.

Lloyd Mayer

August 4, 2023 in Federal – Executive, In the News, State – Executive, State – Legislative | Permalink | Comments (0)

Saturday, March 11, 2023

Politics & Nonprofits: Déjà Vu All Over Again

DownloadAnyone who tracks legal developments relating to the involvement of nonprofits in politics would be forgiven if they felt they were in a particularly drawn out version of the movie Groundhog Day. That is because it appears everything that is new is something we have seen before. Here are some recent examples:

  • DISCLOSE Act Introduced (again): U.S. Senator Sheldon Whitehouse (D-RI) and Representative David Cicilline (D-RI), along with 162 colleagues, reintroduced the Democracy Is Strengthened by Casting Light On Spending in Elections (DISCLOSE) Act in the new Congress. As noted in the press release, "Senate Majority Leader Chuck Schumer first introduced the DISCLOSE Act in the wake of the disastrous Citizens United decision in 2010, and Whitehouse has led the introduction of the legislation in every subsequent Congress."
  • Treasury/IRS Barred From Issuing 501(c)(4) Guidance (again): The Consolidated Appropriations Act, 2023 (Pub. L. No. 117-328) continues the now longstanding prohibition on the Treasury Department, including the Internal Revenue Service, using any funds to develop guidance "relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4)" (Division E, Title I, Section 123, under Administrative Provisions - Department of the Treasury). The Act also continues now longstanding prohibitions on the IRS using any funds "to target citizens of the United States for exercising any right guaranteed under the First Amendment" or "to target groups for regulatory scrutiny based on their ideological beliefs." (Division E, Title I, Sections 106 & 107, under Administrative Provisions - Internal Revenue Service).
  • A Politician Benefitting from a Friendly 501(c)(4) (again): Politico reports that "A new nonprofit group is helping DeSantis go national." The new nonprofit, named And to the Republic, is reportedly a section 501(c)(4) organization that "is supporting Ron DeSantis’ national political activity."
  • A Politician Accused of Misusing a Nonprofit (again): The Arizona Republic reports that a former Democratic primary candidate for Secretary of State Reginald Bolding is facing allegations of wrongdoing relating to a nonprofit he founded and helped lead ("Bolding, his nonprofit, referred to AG for investigation of connections, donations"). The referral from Arizona Secretary of State Katie Hobbs states there "is reasonable cause to believe [Bolding]  violated campaign finance law" based on a complaint filed by a Phoenix resident. The nonprofit is named Our Voice Our Vote, and according to IRS records it is a section 501(c)(4) organization.

Lloyd Mayer

March 11, 2023 in Federal – Legislative, In the News, State – Executive | Permalink | Comments (0)

Friday, March 10, 2023

AGs in Action: NASCO Report, Ohio "Charitable University", and Massachusetts Revised Guide for Board Members

Download (1)With the well-known limits on IRS oversight of tax-exempt nonprofits, the burden of regulating charities has increasingly fallen to state attorneys general and other state officials. And the these officials have been active, both with respect to enforcement and education. This activity is demonstrated by several recent developments:

  • The National Association of State Charity Officials issued last fall a Report on State Enforcement and Regulation. Covering the period from January 2021 to September 2022, it provides "[a] sample of cases in which NASCO members were involved in 2021 in these key areas: a. Deceptive Solicitation b. Nonprofit Governance c. Trust and Estates" and a summary of "[o]utreach efforts and published guidance issued in 2021 and 2022."
  • As reported by WDTN, the launch by Ohio Attorney General Dave Yost earlier this year of "an effort to educate members of Ohio charity boards" under the heading Charitable University.
  • The publication late last year by Massachusetts Attorney General Maura Healey of a revised Guide for Board Members of Charitable Organizations that "is provided by the Attorney General’s Office to help board members of charitable nonprofit organizations carry out their important responsibilities."

Lloyd Mayer

March 10, 2023 in In the News, State – Executive | Permalink | Comments (0)

Monday, February 13, 2023

Pittsburgh Announces Audit of Nonprofit Property Tax Exemptions

In late January, the city of Pittsburgh Mayor Ed Gainey announced that it will review whether the cities many nonprofits qualify for property tax exemption. The call notes that about one third of city property is exempt from taxation.

From the story:

"Mayor Ed Gainey signed an executive order Tuesday, allowing the finance and law departments to start looking into charitable organizations.

City leaders said the biggest concern is one-third of the City of Pittsburgh property is exempt, and the city loses millions of dollars. Now non-profit organizations must pass the Pennsylvania Purely Public Charity test.

Mayor Ed Gainey said, among the requirements, the organization must advance a charitable purpose, operate entirely free from a private profit motive and donate a substantial part of its services.

Mayor Gainey said this does not include religious institutions. However, this could impact certain health systems, universities and other organizations."

Here is a report from 2022 on the tax exempt properties in Pittsburgh. Pittsburgh conducted such a review ten years ago in 2013.

Philip Hackney

Feb. 12, 2023

 

February 13, 2023 in Current Affairs, State – Executive | Permalink | Comments (0)

Wednesday, February 8, 2023

Allocating State Authority Over Charitable Nonprofit Organizations

Massag_Page_01

Click on the picture for an overview of Massachusetts AG Supervision of Charitable

Our co-editor, Lloyd of South Bend, has posted his forthcoming article, Allocating State Authority Over Charitable Nonprofit Organizations.  Here is his interesting abstract:

This essay considers the allocation of state authority to enforce the legal obligations particular to charities and their leaders among state officials, including attorneys general, judges, and legislators, and private parties. It first describes the existing allocation. It then reviews the most common criticisms of this allocation, which primarily focus on two concerns: politicization and lack of sufficient enforcement. Finally, it evaluates the most notable proposals for re-allocating this authority, including reallocation of this authority in part to private parties.

This essay conclude that reform proposals have two fundamental flaws. First, proposals aimed at countering the political nature of state attorney general decisions fail to consider both the advantages of that nature and the existing restraints placed on it by state courts and resource limitations. Second, proposals aimed at addressing the admittedly low level of oversight provided by state attorneys general assume that there is significant undiscovered malfeasance at charities, the countering of which would justify the burdens these proposals would place on all charities, even though empirical data supporting this assumption are lacking.

That said, this essay supports more modest reforms. These are: requiring all attorney general negotiated settlements to be submitted to state courts for approval, permitting derivative suits by current fiduciaries, as is the law in most states, and by a significant proportion of members, as is the law in some states, and modestly expanding donor standing to allow substantial donors (but not their successors or heirs) to enforce explicit written terms on substantial gifts. These reforms would strengthen existing state oversight while being unlikely to significantly burden most charities.

For a survey of state nonprofit legal environments see here.

darryll jones

February 8, 2023 in State – Executive | Permalink | Comments (0)

Friday, January 27, 2023

More on Pittsburgh's Audit of Nonprofits

5841375_web1_PTR-Pitt002-111220

The Cathedral of Learning at the University of Pittsburgh

 

PILOTS depend on public shaming for their implementation and perpetuation.  The process of imposing PILOTS invariably follows a well worn pattern:  (1) a local government official searches for revenues while maintain an incumbent's aversion to any type of tax increase.  (2) The official floats the idea that "hey, those rich nonprofits don't pay for anything!"  (3) There follows a media campaign -- press releases and the release of official reports, maybe a board of carefully selected local citizens appointed to study the issue -- to keep attention focused on the "rich" nonprofits.  (4) Nonprofits, fearing damage to their brands more than a legal challenge, eventually agree to another round of PILOTS.  Sometimes the nonprofits offer a feeble defense of their status, pointing to their economic impact on the city and county.  But they don't push too harshly, lest they erode their goodwill in the community.  When they inevitably pay, its all very much "voluntary," though. 

So Pittsburgh is at step 3.  Here is a recent editorial in the Pitttsburgh Tribune, following up on the Mayor's call for a complete audit of all nonprofits in the city.  

On Tuesday, Pittsburgh Mayor Ed Gainey called for a deep dive into the city’s “purely public charities.” According to Pa. Act 55 of 1997, a purely public charity has to meet certain requirements. It has to have a charitable purpose directed in one or more of six areas: poverty relief, education, religion, health care, government and “accomplishment of a purpose which is … important and beneficial to the public.” It also must be “entirely free from private profit motive.” It must “donate or render gratuitously a substantial portion of its services.” It must “benefit a substantial and indefinite class of persons who are legitimate subjects of charity.” And, notably, it must “relieve the government of some of its burden.” The problem is that charity is big business. Of the top 30 employers in Pennsylvania, 11 are nonprofits. They include UPMC, the University of Pittsburgh and Allegheny Health Network.

In some ways, this is a good thing. These are industries that rebuilt Pittsburgh’s economy as it transitioned away from steel. But they do so without paying taxes, which makes it a lot easier to expand. That means more of the tax map is ceded to nonprofits, which puts more of a burden on the government and other property owners. Gainey isn’t the first mayor to deal with it. His predecessor, Bill Peduto, tried to bring the government and charities together with his ONE PGH collaboration aimed at creating up to $115 million for city projects. Gainey walked away from it last summer, favoring pursuit of voluntary payments in lieu of taxes. But if payments are voluntary, unlike taxes, they are an unreliable foundation for building a budget. Gainey’s call is long past due. It isn’t because the nonprofits are untrustworthy. They are a critical part of the city, county and state economic infrastructure. It is important because, like a car’s inspection, it is an impartial assessment of where the entity stands.

darryll jones

January 27, 2023 in State – Executive | Permalink | Comments (0)

Friday, January 13, 2023

California Proposes New Regulations Regulating Nonprofit Crowdfunding

Our colleagues over at the Nonprofit Law Blog, not to be confused with this Nonprofit Law Prof Blog, have an interesting post about Califo0rnia's proposed regulations pertaining to nonprofit online solicitation.  My first reaction was "good grief, 65 pages of regulations just to make sure that fools and their money are not parted via the internet!?"  Here is a summary from the Nonprofit Law Blog of what the law requires: 

  • Charitable Fundraising Platforms and Platform Charities should ensure compliance with the law’s good standing requirements for charities.  (Gov. Code, § 12599.9, subds. (a)(3) and (d).)  The Attorney General’s Registry of Charitable Trusts maintains a list of charities that may not operate or solicit in California. For information on using this list, see Section 316 in the latest proposed regulations. The Internal Revenue Service’s list can be found here.
  • Donations cannot be diverted or misused, and shall be maintained in a separate account from other funds belonging to a Charitable Fundraising Platform or Platform Charity.  (Gov. Code, § 12599.9, subd. (h).)
  • Charitable Fundraising Platforms and Platform Charities are required to make disclosures that prevent the likelihood of donor deception or confusion, when applicable. (Gov. Code, § 12599.9, subds. (e) and (f)(2)(B).)  For information on the proposed regulations on this, see Section 314, subdivision (a), in the latest proposed regulations.
  • Solicitations for “non-consenting” charities must comply with Government Code section 12599.9, subdivision (f)(2).

Here is a brief summary from that blog of some of the newly proposed regs:

e-donation concept.close-up of man hands make an online donate via mobile phone

In 2021, California passed a new set of laws (referred to as AB 488) regulating charitable crowdfunding that go into effect on January 1, 2023. The state’s Department of Justice (DOJ) initially proposed regulations implementing AB 488 in May 2022, but following comments and feedback at a public hearing in July, the DOJ proposed modified regulations on November 21, with a comment period that ended on December 7. There have been substantial revisions. Not surprisingly, the DOJ proposes to delay the effective date of the new and modified regulations to January 1, 2024. Below are some general summaries of the changes in Article 1, Registration, Reporting, and General Supervision of Trustees and Fundraisers (caution: many details and exceptions are not covered here, and the proposed regulations are not law).

Note the [extremely] long-arm [world-wide, even] jurisdiction implicitly asserted in the definition of a Charitable Fundraising Platform (snippets taken from the Nonprofit Law Blog):

Definition of a Charitable Fundraising Platform

Charitable fundraising platform means any person, corporation, unincorporated association or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur, which includes the following and any similar activity:

(A) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by donors who use the platform.

(B) Permits persons who use the platform to solicit donations for or recommend donations to be granted to one or more recipient charitable organizations through peer-to-peer charitable fundraising.

(C) Permits persons who use the platform to select one or more recipient charitable organizations to receive donations or grants of recommended donations made by a platform, platform charity, or other third party person, based on purchases made or other activity performed by persons who use the platform.

(D) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform.

(E) Provides to charitable organizations a customizable internet-based website, software as a service, or other platform that allows charitable organizations to solicit or receive donations on or through the platform, including through peer-to-peer charitable fundraising. The customizable platform provided by the charitable fundraising platform does not include the charitable organization’s own platform, but may integrate with the charitable organization’s platform.

Gov. Code Sec. 12599.9(a)(1) . . . 

Registration and Filing Requirements for Charitable Fundraising Platforms (CFPs) and Platform Charities (PCs)

A CFP is subject to (1) an initial registration (Form PL-1) accompanied by a $625 registration fee and (2) an annual registration renewal (Form PL-2) due by January 15 of each applicable year.

A PC must also register and file annual reports. In addition, it must file a notification (Form PL-3) when it enters into a partnership with a CFP to facilitate acts of solicitation on the CFP no later than 30 days after the partnership was entered unless notification was previously provided.

A CFP or PC must file an annual report (Form PL-4) with the Attorney General (AG) on or before July 15 for fundraising activities of the previous year. Certain information that is confidential or a trade secret can be submitted in an attachment to keep it separate from the information available for public inspection. However, the AG can deny this with notification and require an amended Form PL-4.

When a registrant CFP retains a PC or another CFP (“Partner”) to facilitate solicitations performed, permitted, or enabled by the registrant CFP, the registrant CFP’s Form PL-4 may be filed by the Partner, subject to certain conditions.

Does this mean that a small charity in Bunnell, Florida that has a website visible by Clint Eastwood in his gazillion dollar California ranch home is subject to the law's requirements?  Here is a brief primer from ReedSmith.

Image may contain Plant Grass Building Housing Tree Lawn Cottage and House

 

dkj

January 13, 2023 in State – Executive | Permalink | Comments (0)

Thursday, December 15, 2022

NASCO Asks For Timely Availability of Form 990 Data and Revisiting Use of Form 1023-EZ

DownloadResponding to the IRS' request for comments on tax-exempt organization forms, the National Association of State Charity Officials (NASCO) submitted a letter late last month with two requests that highlight the extent to which state officials rely on the IRS in policing charities.

First, NASCO stated its members had noticed significant lags between when charities file Forms 990 and they become publicly available. It therefore asked the IRS to address delays in the timely availability of these forms.

Second, NASCO repeated its concerns about the Form 1023-EZ and continued to call for elimination or at least revision of this form.  The letter stated that among their concerns NASCO members "continue to be concerned that the ability to use Form 1023-EZ in place of Form 1023 has made it easier for 'scam' charities to obtain 501(c)(3) status," citing the recent Treasury Inspector General for Tax Administration report on this topic.

Lloyd Mayer

December 15, 2022 in Federal – Executive, State – Executive | Permalink | Comments (0)

New NY Pennies for Charities Report; CVS Accused of Deceptive Fundraising

Pennies_report_2022There are two recent developments relating to charitable solicitations. 

First, the New York Attorney General released the latest iteration of its annual Pennies for Charity Report.  Highlights from the press release announcing the report include:

Despite the pandemic’s continuing economic impact and limitations on in-person events, donations rose to over $1.7 billion in 2021 — an increase of almost $250 million from 2020 and over $400 million from 2019 pre-pandemic contributions. Other report findings include:  

  • In 276 campaigns — 42 percent — charities received less than 50 percent of funds raised, with professional fundraisers retaining the rest. 
  • In 96 campaigns — 15 percent — expenses exceeded revenue and cost charities over $10 million. This is fewer cases than last year for both findings. 

Second, the Boston Globe reports that a lawsuit has been filed against CVS alleging that checkout donations to the American Diabetes Association are actually being used by CVS to reimburse the company for $10 million it already owes to the charity. Here is the complaint, courtesy of the FastCompany website that also covered this story. The plaintiffs filed the lawsuit last May, but it apparently flew below the media radar screen until a recent Tweet highlighted it in the wake of CVS filing a motion to dismiss. CVS strongly rejects the accusation, saying it only agreed to top off the donations if customer donations over a three-year period (2021 to 2023) did not reach $10 milliion. If instead customer donations exceed $10 million, any excess would go the charity.

Lloyd Mayer

December 15, 2022 in In the News, State – Executive | Permalink | Comments (0)

Monday, December 12, 2022

Donor-Advised Funds Update: New Articles by Colinvaux and Heist et al.; NY AG Action; Fidelity Charitable Just Keeps Growing

13-colinvaux-roger-004Roger Colinvaux (Catholic University) has published Speeding Up Benefits to Charity by Reforming Gifts to Intermediaries, 63 Boston College Law Review 2621 (2022). Here is the abstract:

Charitable giving tax incentives are intended to encourage giving for public benefit. Gifts to intermediaries frustrate this goal. Presently, $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations. These are charitable intermediaries that do not benefit the public until they release their funds for public use. Congress has long recognized that intermediaries cause a "delay in benefit" problem because the tax incentive is awarded before the public benefits from the gift. Congress addressed this problem for foundations in 1969 by requiring them to pay out a minimum amount annually. Congress, however, has not addressed the problem for DAFs, and the foundation payout now has too many loopholes. The Article explains that reform of charitable intermediaries is essential to the continued viability of the charitable giving incentives. The status quo allows donors to a take a tax deduction, retain effective control over their donations indefinitely, and provides no guarantees that the public will ever benefit from tax subsidized charitable gifts. This Article responds to arguments against charitable intermediary reform and analyzes bipartisan legislation, the ACE Act, introduced to accelerate charitable giving from DAFs and foundations. The Article also considers whether community foundations and other mission-driven DAF sponsors warrant distinct legal treatment. The Article concludes that the status quo undermines generosity and perpetuates wealth, and that reform is required. This Article further concludes that, though the ACE Act is sound legislation, it should apply to existing DAF accounts and require further study of its incentives for private foundations and whether DAFs at mission-driven sponsors further their mission.

H. Daniel Heist (BYU), Benjamin F. Cummings (Utah Valley University), Megan M. Farwell, Ram Cnaan (University of Pennsylvania), and Erinn Andrews (GiveTeam) have published Tubs, tanks, and towers: Donor strategies for donor-advised funds giving, Nonprofit & Management Leadership (2022), which provides interesting information about the various ways donors use DAFs. Here is the abstract:

The increasing use of donor-advised funds (DAFs) creates challenges for nonprofit managers and fundamentally changes the way that many donors give to charity. We conducted 48 in-depth interviews with DAF donors to understand their strategies of how they give through a DAF. From the interviews, we found three distinct models of DAF giving strategies: tubs, tanks, and towers. Tub donors give quickly through a DAF, moving money in and out annually. Tank donors contribute large lump sums and grant the money away in the relatively near future. Tower donors take a calculated approach with the DAF to sustain their philanthropic activity over time. Several factors relate to these strategies, including the sources and timing of contributions, different purposes of grantmaking, tax implications, investment strategies, and family involvement. Our findings may help nonprofit managers, fundraisers, and other stakeholders to better understand the various ways donors give through DAFs.

In other news, last month the New York Attorney General filed an Assurance of Discontinuance relating to Peter Fleischmann, former chief executive office of the Foundation for Jewish Philanthropies (FJP), a donor-advised fund (DAF) sponsoring organization. According to news reports, four years ago Fleischmann resigned from his role with the charity that then managed nearly $200 million in assets. I could not find a ready link to the document - I received it from the New York AG's office - but it contains findings and relief agreed to by the AG and Fleischmann, including:

  • A disclosure by FJP of an internal investigation to the AG's office triggered the AG's inquiry.
  • Fleischmann breached his fiduciary duties in various ways, specifically facilitating a donor's award of scholarships from a fund held by FPJ to relatives of the donor (which FJP reported to the IRS as violations of section 4966 relating to DAFs and obtained repayment from the donor for) and making charitable donations in violation of the terms of other funds and claiming those donations as his personal ones for charitable contribution deduction purposes (which he has since repaid in significant part to FJP).
  • Fleischmann agreed to be permanently barred from serving in a position with fiduciary responsibilities for any New York nonprofit and has corrected the tax returns on which he claimed the improper charitable contribution deductions.

Finally, Fidelity Charitable announced that new grants are expected to surpass deposits in 2022, according to AP News, with grants expected to exceed the $10.3 billion donated in 2021. And Bloomberg Law (subscription required) reports on the details of Fidelity Charitable's latest IRS Form 990, including that of those 2021 donations hundreds of millions of dollars flowed to other DAF sponsoring organizations.

Lloyd Mayer

December 12, 2022 in In the News, Publications – Articles, State – Executive, Studies and Reports | Permalink | Comments (0)