The Committee on Ways and Means believes the IRS is unfairly threatening political speech

The Chairman of the House Ways and Means Committee, Dave Camp, has released his letter to the IRS regarding its recent increased scrutiny of 501(c)(4) organizations. As recently noted in a previous post on this topic, the IRS is considering notifying donors of civic leagues and social welfare organizations that engage in significant political activity that these donations may be retroactively subjected to gift tax. Chairman Camp believes that this sudden interest on behalf of the IRS is selectively targeting certain taxpayers engaged in protected political speech. He goes on to say that the IRS’ involvement threatens its “credibility as an impartial enforcer of the nation’s tax law”.

After decades of silence on the issue of the applicability (or violation) of the gift tax laws, the recent about-face by the agency raises concerns about their intent that the chairman believes the committee has an obligation to pursue. His letter to the agency includes a number of questions and requests that he requires a response to within the month. These include: the names and titles of all individuals involved in the recent decision to investigate 501(c)(4) donors; copies of all internal memoranda regarding the applicability of the gift tax to c4 organizations; the criteria utilized in selecting taxpayers for gift tax examination; all information analyzing the legal or political consequences of gift tax audits of contributions to c4 organizations; and any correspondence between the IRS and the Dept. of the Treasury. Many of the questions seem to suggest possible conflicts of interest although no such statement is directly made.

Capital Campaign or Bond Issue?

It can be a daunting task to raise millions of dollars to expand an organization’s facilities.  Contributing to the stress is deciding between running a capital campaign or issuing bonds.  John Mrazek wrote in the May 2011 issue of Church Executive about his experience deciding between the two options.  He believes that capital campaigns work best when the economy is growing and bonds work best in a contracting economy.  Click here to see the other advantages of each funding source.

Big Change for Financing Options for Nonprofits in NYC

Last Thursday, New York Mayor Michael Bloomberg announced the formation of a new governmental entity to assist the city’s 501(c) organizations to obtain low-cost, tax-exempt financing for capital projects. There is an estimate of at least 20 projects stuck in development with a potential price tag of over $400 million, according to Crain’s New York Business. The report goes on to note that the city is home to more than 42,000 health, human services and cultural nonprofit organizations that employee approximately 470,000 people, making the nonprofit sector the largest private employer in the city with more than 15% of New York’s non-governmental work force. The move is seen as an investment in the residents of the city and an acknowledgement of the importance of the vitality and growth of the nonprofit sector.

Financing was previously coordinated through the New York City Industrial Development Agency up until 2008. Since that time, many organizations were forced to seek out-of-state financiers which subsequently funneled potential earnings out of New York. Other organizations just stayed on hold while the nation clamped down on private spending and hoped for the recession to pass.

Here’s hoping that the new structure can serve as a learning tool and a hopefully successful leadership example for other cities as we all cross our fingers that the economy is on the rebound.

New Report Shows Giving Increased 4% in 2010

Giving USA Foundation has released their study results of 2010 charitable giving which notes that overall giving increased from the previous year. Experts are hopeful that after two years of steep declines, this could be a sign that the economy is slowly rebounding, according to the Washington Post. The increase chalks up to a hefty $10 billion in additional funds given over prior year, capping out at an estimated $290 billion that went to education, health institutions, arts and humanities and other charitable missions. Overall corporate donations rose 11%. This giving indicates that donors are more comfortable with the current economy.

Giving was also driven by extreme need, with disaster relief figuring prominently and people wanting to help in the wake of Haiti. However, outside of the amounts going to Haitian relief, human services organizations experienced a 4% decrease. It’s impossible to say that those organizations wouldn’t also have experienced an increase if it hadn’t been for donors redirecting what might have otherwise been gone to local support.

The idea of the crisis having passed is not shared by everyone. The Post quotes Kim Damion, executive director of the Manna Food Center in Gaithersburg, “I think the community has been very responsive when they feel it’s a crisis…but they are starting to think this is the ‘new normal’ and to retreat back to old giving patterns. For us that can be problematic. The lines have not become shorter at the food bank.”

IRS Considering Taxing Contributions to Social Welfare Nonprofits

Donors to social welfare organizations, or 501(c)(4) tax exempt entities, have traditionally not been subject to enforcement by the IRS of the gift tax on contributions made, despite the lack of a clear tax code section or regulation exempting those contributions.  Social Welfare organizations are allowed by statute to lobby in unlimited amounts, and to donate to political campaigns to a limited extent, although the main activity of a social welfare organization cannot be to make political contributions.  There has been a large increase in the contributions made to social welfare organizations since the Supreme Court Citizens United decision last year came out allowing corporations to spend for political purposes without limit.  Recently the IRS has been examining five donors who contributed to social welfare organizations, and did not file gift tax returns. Read the article online by Tax Analysts:  http://www.wealthstrategiesjournal.com/2011/05/tax-analysts-donations-to-soci.html.  There has been a backlash in the Senate to the inquiry, in the form of a letter written by six Republican Senators on the Senate Finance Committee, requesting information regarding who at the IRS ordered the inquiries, and makes it apparent the Senators believe the inquiry is politically driven. http://finance.senate.gov/newsroom/ranking/release/?id=ec29441e-aefd-4192-a628-d96966cf4231  

275,000 Groups Lose Charity Status

UPDATE: Moving forward, theIRS plans to release the names of organizations that fail to file their paperwork every month, according to the Chronicle of Philanthropy.

According to the Chronicle of Philanthropy and the IRS, 275,000 groups just lost their exemption status. The IRS has been lenient and extended the window for three years for organizations that were lagging to file the required forms. Congress passed a law in 2006 that increased reporting requirements and lowered the threshold for what triggered the need to file. This was the beginning of additional scrutiny focused on tax-exempt groups. Essentially, if you aren’t going to pay taxes, you have to prove why you’re legitimately tax exempt on an annual basis.

The IRS believes that most of the affected organizations are likely defunct groups but any that are still in operation will have to apply to get their charity status back. The IRS has published an Automatic Revocation of Exemption List, which is available on their website, organized by state, and is intended to serve as a notice to donors and others that contributions to these groups will no longer be tax deductible. In addition, the groups may now owe taxes on income.

Stealing at D.C. Nonprofit

In an ongoing effort to raise awareness that fraud does happen in nonprofit, that people will steal from even the best missions, and that it happens right here in D.C.: I bring your attention to the Fund for Peace, an organization dedicated to preventing war. An independent contractor of their College Park office pleaded guilty to stealing more than $95,000 by diverting wire transfers to her own bank account. She had been working with the organization for almost 6 years and now stands charged with federal wire fraud. She is scheduled to be sentenced on August 24 and faces up to 18 months behind bars. How do you ensure that wire transfers reach their intended destination at your company? It’s worth thinking about!

IRS reminds taxpayers the FBAR reports are due June 30

The “Report of Foreign Bank and Financial Accounts” known as the “FBAR” for short, applies to nonprofit organizations.  The report is due June 30 if you had more than $10,000 at anytime during 2010 in a foreign account(s) or had signature authority over such account(s).  The form is a Treasury form, referred to by Treasury as a TD F 90-22.1 and is due on June 30, 2011 for the 2010 year’s activity.  For more information, here is the link to the IRS website:  http://www.irs.gov/pub/irs-pdf/p4261.pdf

PBS Servers Hacked in Poptart Cat Attack

According to the Chronicle of Philanthropy and BBC News, PBS’s website was hacked over Memorial Day weekend as a protest to a documentary that aired. The hacker group “Lulz Security” found the documentary to be overly critical of WikiLeaks and changed the server content so that the image at left (alternately known as ‘nyah nyah cat’ or ‘poptart cat’) appeared on the PBS website. The group took advantage of the older content-management systems which had significant security issues allowing access to PBS’s servers. The Chronicle is noting this as an example of why nonprofits should take care and make efforts to keep their website security up to date.

PBS was not the only nonprofit targeted, as BBC reports, an organization affiliated with the FBI called Unveillance also got the poptart cat treatment. For-profit entities were also hit, such as Sonypictures.com. BBC groups Lulz Security in with “grey hat” hackers whose predominant goal is mischief. The group appears to be trying to apply humor in their protest to differentiate themselves from other aggressive hacker groups whose sabotage has monetary impact on the entity or gain for the hacker.

I’m more than happy for an opportunity to post a picture of poptart cat, but for those of you who might not want the image on your website, consider reevaluating how secure your content is.

How to Reach the 20-somethings

As the generation of people currently in their 20s (the millennials) has entered the work force, it became increasingly clear that their entire way of doing things is different. This is a generation that would not understand how exciting Pong was or how great it was when a Blockbuster actually still had a copy of the movie you wanted to watch. This isn’t a generation that ever upgraded from an 8-dot printer to a 16-dot printer. How the millennials get involved with causes in terms of support (both financial and service) is different from previous generations. Mailing unsolicited paper letters may no longer be the best approach when trying to reach these potential donors. The Chronicle of Philanthropy and the Case Foundation is hosting an online seminar dedicated to understanding the millennial donor called MDS11 millennialdonors.com on June 22 from 8am – 5pm EST. Registration is $75 for one person and provides access to live presentations, a virtual expo hall of vendors and live discussions.