Stockpiles of Gold

The board of a Canadian charity is regretting deeming an audit too expensive after realizing that the organization has been using a large amount of revenue to stockpile gold.

 The Toronto Star reported on The Ontario Society (Coalition) of Senior Citizens’ Organizations (OCSCO), a Canadian charity with a mission is to “improve the quality of life for Ontario’s seniors”, has spent large amount of revenue stockpiling gold.

 Frustrated directors say demands that to open the books led to heated arguments with executive director Morris Jesion in the society’s Wilson Ave. boardroom near Bathurst St. An independent audit ordered by a board committee in 2009 was never done because the cost (several thousand dollars) was deemed excessive.

 The society collects about $520,000 each year, from break-open lottery ticket proceeds as well as provincial and federal grants. However, in 2010 nearly $304,000 went to salaries for the executive director, two full-time staff, a part-time bookkeeper and consultants and the society had invested about $216,000 in gold investments.

 The society’s 2010 annual report boasts three pages of programming. It details a workshop in Sudbury to discuss the challenges seniors face in rural areas; computer training for seniors across the Greater Toronto Area; and five multicultural fairs.

 But critics say the society is piggybacking on the success of other groups, which organized and ran several of the events and programs while the society either helped fund or oversee them

To read more about it see The Toronto Star Article.

Interview on Donor Relations

Guidestar has an interesting interview with Dr. Thomas Wolf about his recent book How to Connect with Donors and Double the Money You Raise. The interview tackles questions such as: how can introverts be successful fundraisers; is getting too close to donors counterproductive; and how to deal with jerks.

Where Do My Tax Dollars Go? – There’s an App for That!

On the heels of tax season, you may be wondering where your tax dollars are going. The White House launched an online tool that lets people see just that.

As mentioned in the Hill blog, the White House’s Federal Tax Receipt tool allows taxpayers to enter their tax information and in return provides a breakdown of tax dollars received by general areas of the government.

A look at the site reveals a breakdown of the biggest use of American taxpayer dollars, begininng with 26 percent of federal tax dollars going to national defense spending.

Healthcare spending comes in second at 24 percent, and “job and family security” comes in third at almost 22 percent, which includes unemployment insurance, food assistance programs and housing assistance programs.

The next highest percentage of federal tax dollars spent is “education and job training,” which comes in at less than 5 percent.

Try out the app on the White House website.

Aronson Foundation Supports Veterans at “Rock on Warriors” Event

On Sunday, April 17, 2011, the Annapolis, MD, chapter of the Maryland Saltwater Sports Fishermen’s Association (MSSA) put on its annual Wounded Warriors Rock fishing tournament. 

As the Rockfish season got underway, 50 Annapolis MSSA chapter members welcomed dozens of injured warriors from Walter Reed Army Hospital to the Annapolis  City Dock for the inaugural Rock On Warriors event. The boats pulled alongside the Fleet Reserve Club as the warriors, their caregivers and accompanying family members came aboard for a great day of fishing. Upon their return, the veterans were the guests of honor at an awards ceremony at the Fleet Reserve Club where each received a plaque for their participation, a “Rock on Warriors” t-shirt, a boxed American flag and other mementos commemorating the day.  Aronson LLC Partner, J. Michael Muscatello, and his father Larry Muscatello, were captains of one of the twelve participating boats.

Through the generous support of the Aronson Foundation and other sponsors, these warriors were able to have a day that they will remember for a long time.   The Aronson Foundation grants charitable contributions to organizations who have dedicated themselves to providing services that enhance our world and help the people in it thrive and succeed. All of this is made possible through the generosity and enthusiasm of the officers and employees of Aronson LLC. Click here for more information about the Aronson Foundation and our grant review process.

View video news coverage on ABC2news.com 

Protection of Charitable Assets Act: What the New Uniform Law Would Mean for Nonprofits

by Alexandra Megaris, Esq.
Venable LLP

The committee tasked with drafting a new uniform law that regulates charities and charitable assets has released the newest version of the proposed law, renamed the Protection of Charitable Assets Act, which is currently under consideration by the drafting committee. If ultimately approved, the uniform act could become law in many states.

What is a uniform law? The Uniform Law Commission (“ULC”)—the same body that recently drafted and ushered through the Uniform Prudent Management of Institutional Funds Act—is an organization comprised of state commissions on uniform laws from each state, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. Once the ULC determines that a specific area of law should be uniform, it appoints a committee to draft the model legislation. The final uniform law is then submitted to a vote by the entire Commission. Once the ULC approves a proposed Model Act, the states then vote. A majority of the states present, and no less than 20 states, must approve an act before it can be officially adopted as a Uniform or Model Act.

At that point, a Uniform or Model Act is officially promulgated for consideration by the states. The state legislatures are urged to adopt Uniform Acts exactly as written, to “promote uniformity in the law among the states.”

What would the Protection of Charitable Assets Act do? The proposed act would do four main things: (1) define the authority of the state Attorney General over the protection of charitable assets in that state; (2) impose a registration requirement; (3) oblige charities with assets above a minimum amount to file an annual report; and (4) require a charity to notify the state in advance of certain specified “life events.”

1. Authority of the State Attorney General. The model act authorizes the Attorney General of each state:

• to enforce the use of charitable assets by a charity for the purposes for which the asset was given;
• to “act to prevent or remedy” a breach of a legal duty by the charity; and
• to seek declaratory or injunctive relief to determine that an asset is a charitable asset.

In addition, the law would give the state Attorney General the power to commence or intervene in an action filed by another party to prevent or obtain damages for a violation of the law. The state Attorneys General would have the ability to initiate investigations and issue administrative subpoenas to charities in order to determine whether charitable assets are being used for the purposes for which the asset was given. While many state Attorneys General already exercise significant regulatory oversight over nonprofit organizations operating in their states, other state Attorneys General take a less active role. The proposed model law, if adopted by the states, would establish uniform standards in this area.

2. Registration and Reporting Requirements. The Model Act, as currently drafted, would require each charity that holds or administers charitable assets above $5,000 and that meets one of the following five criteria to register with the state: is organized (e.g., incorporated) under the state’s law, has its principal place of business in the state, holds charitable assets in the state other than assets held for investment purposes, conducts activities in the state, or holds assets that are given for the benefit of a person in the state. The registration provision includes limited exemptions for governmental, political, religious and financial entities and certain individuals holding charitable assets.

3. Annual Reports. Charities with assets above $5,000 also would be required to file an annual report with the state Attorney General. The report would require basic accounting and financial information and require the charity to attach its IRS filing (e.g., Form 990).

4. Notice to State Attorney General of Reportable Events. Charities required to register under the proposed statute also would be required to notify the state Attorney General if any of the following events occur:

• dissolution or termination of the charity;
• disposition of all or substantially all of its charitable assets;
• a merger, conversion or domestication; or
• removal of the charity or of a significant charitable asset from the state.

This proposed uniform law would impose significant registration and reporting requirements on many charitable organizations across the country, especially on those that operate in multiple states. We will continue to monitor the status of the proposed model statute. A final draft of the statute is expected to be introduced and voted on at the annual meeting of the Uniform Law Commission commissioners in July 2011.

Ms. Megaris is an attorney in Venable’s Regulatory Practice who works regularly with the firm’s nonprofit organization clients. She is resident in Venable’s New York office.

This article is not intended to provide legal advice or opinion and should not be relied upon as such. Legal advice can only be provided in response to a specific fact situation.

Please contact any of the attorneys at Venable’s Nonprofit Organizations and Associations Group if you have any questions regarding this blog post.

Alexandra Megaris
amegaris@Venable.com
212.370.6210

IRS Examining Employment Returns

Speaking for the IRS on January 21, 2011 at the American Bar Association Section of Taxation’s Exempt Organizations Committee, Michael D. Glass, a group manager of the IRS’s Team Examination Program, spoke about its National Research Program which started research in 2010 on employment tax compliance.  Exempt organizations are included in this national research project, the April 2011 edition of The Exempt Organization Tax Review reported.  Specifically, he said, “In 2010, 2011, and 2012, Exempt Organization’s portion of the project will involve examinations of employment tax returns of randomly selected exempt organizations.  Examinations completed in each year will cover specific areas of interest that include worker classification, fringe benefits, officer compensation, and employee expense reimbursements.”

Small Business Health Care Tax Credit – It May Be Too Good To Be True

The federal government is providing a new tax credit which nonprofits can qualify for.  According to the government’s sales pitch, the credit “helps small businesses and small tax-exempt organizations afford the cost of covering their employees” by specifically targeting small businesses that have “low and moderate income workers”.  But you may be surprised to find out HOW LOW that really is in order to qualify for the credit, or get any credit of substance out of this offer.  It seems, after studying the calculation involved for the credit, and trying to apply it to our client base, that an old well known adage probably  applies here – if something sounds too good to be true, it probably is. 

The new Small Business Health Care Tax Credit applies if you have between 10 and 25 employees, and pay the majority of them between $25,000 and $50,000 – that dollar amount is annualized by service hours for the year.  What you don’t realize until you run the numbers is, the credit is phased out for every annualized employee you have over 10, and again it’s phased out for every annualized dollar over $25,000.  Oh, and it gets phased out yet again, if you get this far, for how much you paid in payroll taxes during the year.   Also, you take all your nonprofit employees into account, so you are averaging your highest paid CEO’s pay with the lowest paid rank and file, so coming up with less than $50,000 as an “average annual wage” for your organization is probably not going to happen here  in the Washington DC area.  We canvassed our client base and could not find one nonprofit that the credit will apply to (yet).

Having said that, if you think your organization may quality, complete this short IRS fact sheet to find out:  http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf   .  I would be happily proved wrong to be able to file for the credit for some lucky organization.

If you pass this short test, call me (Kathy Cuddapah 301-222-8206) and we’ll move to the next step of calculating the actual credit that can claimed on a 990T for the 2010 tax year.  I hope it works out, but I have my doubts!

Talking about Financing Options for Non-profits

We spoke with Kevin Quinn of the Wye River Group to talk about financing options for non-profits. Based in Annapolis, Maryland, Wye River provides financial advisory, capital financing and investment advisory services to not-for-profit institutions and state and local Governments and agencies ( http://www.wyeriver.net/). Our questions and answers with Kevin are below:

1.   Are regular bank loans and tax exempt financing ( for 501 C 3’s ) generally the only types of financing you see for non-profits or are there other popular financing vehicles?

Bank based financing, structured either as a taxable loan or a bank purchased tax-exempt bond, is the most prevalent form of debt financing for non-profit organizations. However, for non-profit borrowers with any of the following objectives or constraints, a public offering of fixed rate bonds may be an appropriate alternative:

• true fixed rate financing with a term of 15 years or longer,
• amortization structure of up to 40 years,
• more liberal financial covenants,
• lower fixed rates than available from banks due to strong, investment grade rated, credit quality, or
• bank loan to value (LTV) or other bank risk considerations that cannot be satisfied (i.e. relatively large project and/or small equity contribution)

2.   Other than purchasing or refinancing a building, what other types of major loan purposes do you see?

Under Federal tax law, tax-exempt financing can only be used for tangible assets such as equipment, land or buildings. Typically such financing is used for the acquisition, development, construction or renovation of facilities used by a non-profit in its mission. There are no eligibility constraints for taxable debt financing. Consequently, taxable financing is sometimes used by non-profit borrowers for “tax-law ineligible” costs such as the following: Continue reading »

UPDATE: “Outlandish Expenditures” at Madonna’s Malawi Project

UPDATE: Newsweek has an article on the Raising Malawi issues in which they report that “only 27% of girls attend secondary school” and that only $850,000 of the $3.8 million under debate was actually spent in Malawi.

The article details the relationship between the nonprofit organization and its murky relationship with its parent company, the Kabbalah Center in L.A. The article also expands on the current claims against the Center, its misspending, possible tax evasion, and ponzi scheme profiteering. The article suggests that the blame placed on the now ex-director of the academy is a distraction tactic and that the accusations are missplaced, noting that the extravagances such as the golf membership and a car purchase sited were actually worth $461 a year and a 1996 reconditioned Toyota, respectively.

PREVIOUSLY POSTED: The New York Times is reporting that Madonna’s foundation Raising Malawi has abandoned its original goal of building a $15 million school for girls in the impoverished country. The Executive Director of the project stepped down in October with allegations of cost overruns and general mismanagement. The auditors unveiled what they described as “outlandish expenditures on salaries, cars, office space and a golf course membership, free housing and a car and driver for the school’s director.”  As a result, the board of directors has been ousted and replaced with a caretaker board to address the shortfalls and shift the foundation’s strategies. Continue reading »

Whistleblower Program Pays Out Big

Form 990 asks nonprofit organizations if they have a whistleblower policy. It’s fairly easy to recognize that this is the IRS’s way of strongly suggesting this practice. Another way they have encouraged it is to give 22% – 30% of the proceeds of what the IRS collects on a case to the whistleblower him/herself.

The 2006 Tax Relief and Health Care Act also addressed whistleblower incentives and created a policy for rewarding anyone reporting information about tax underpayments exceeding $2 million. The information provided must materially lead to the recovery of taxes, penalties and interest and must be addressing entities or individuals with more than $200,000 gross income.

The first payout just occurred with the IRS paying an unidentified CPA $4.5 million after discovering and blowing the whistle on $20 million in underreported taxes. The law firm representing the unidentified CPA has created a stand alone website specifically for the case with more detailed information.