Online Donations OK By IRS

The IRS released an Information Letter on March 29, 2013 stating that there is no prohibition against a 501(c)(3) utilizing an internet fundraising platform to raise funds. Which is good because that’s been around for a few years.

They did include some good suggestions.

• Be sure to consider any state laws and regulations that may apply.
• Be sure to make it clear on the website the status as a 501(c)(3).
• Providing something of value to donors may violate the rules against private benefit or inurement, so be sure to disclose the value and a statement that it is de minimus (unless it isn’t).
• Be sure to disclose whether or not, and how much, of a donation is tax deductible for the donor.

Read the letter here.

Charity Overstated Revenue by $222-Million and You Thought Your Restatement Was Bad

A Christian relief charity, World Help, grew rapidly in recent years but not as rapidly as originally reported. The organization’s Form 990 reported $239-million in revenue for 2011. The audited figure came in at $17-million. That’s 1400% off-base for those of you punching your 5-key along.

Once again, we have an issue of claiming value for donated medicine which is an ongoing blight in the nonprofit community, but in this case, the donors say they never gave any donation. The finger-pointing is heated and people are no longer cooperating with the press.

A significant impact is to the recipients of the donated medicine. The restatement has caused organizations that received goods from World Help to go scrambling to ensure their valuation is accurate and supportable.

Restatements are never fun but just think of World Help to help you keep perspective when you feel scandalized by one. Read more about the story here.

Ways and Means Hearing on Charitable Contribution Tax Deduction

Just in time for Valentine’s Day, the House of Representatives Ways and Means Committee held a hearing featuring over 40 witnesses testifying in favor of protecting the charitable contribution tax deduction.

Large nonprofits were in attendance, including: Council on Foundations, Meals on Wheels, Jewish Federations of America, and the United Way, among others. Participants in the hearing were pushing the committee to not institute a cap on charitable deductions and discussed other topics including valuation of noncash donations and mileage reimbursement incentives for volunteers.

United Way Worldwide President & CEO Brian Gallagher testified, “Don’t be fooled into thinking that limiting the deduction will only impact wealthy taxpayers. If the deduction is reduced, expect donors to withhold the difference necesary to cover the tax from their donations.” Estimates of the impact of a 28% cap to United Way’s donations projected a reduction in donations of more than $100 million annually.

Read more about the seven hour hearing here.

The Aronson Foundation Donates $5K to So Others Might Eat (SOME)

Aronson LLC and the Aronson Foundation were pleased to announce that they have made a $5,000 donation to So Others Might Eat (SOME), a DC nonprofit that has “helped thousands of people get off the streets, transform their lives, and live independently.”  The donation was made as part of Aronson’s holiday party and 50^th Anniversary celebration. 

“Our work wouldn’t be possible without generous support such as this gift from Aronson LLC and the Aronson Foundation.  With nearly 7,000 homeless men, women and children living in the District, there is a great need that they are helping to fulfill.”  -Fr. John Adams, President of SOME.

SOME is an interfaith, community-based organization that exists to help the poor and homeless of our nation’s capital. They meet the immediate daily needs of the people they serve with food, clothing, and health care. SOME helps break the cycle of homelessness by offering services, such as affordable housing, job training, addiction treatment, and counseling, to the poor, the elderly and individuals with mental illness.

Jeff Capron, Aronson LLC’s Managing Partner and President of the Aronson Foundation, commented, “SOME is an amazing group of people who for years have been a steady, committed and transforming influence on the community.  We are happy to be able to support their efforts as part of our mission of providing assistance to organizations that help make the Washington Metro area such a great place to live and work.”

The Aronson Foundation, established in 2004, is a public charity that grants charitable contributions to organizations like SOME that have dedicated themselves to providing services that enhance our community and help the people in it thrive and succeed. All of this is made possible through the generosity and enthusiasm of the partners and employees of Aronson LLC.

Substantiation of Charitable Contributions

The documentation requirements taxpayers must maintain in order to take a charitable contribution deduction on their tax return have been in place for almost 20 years. They are worth repeating however, as two recent tax court cases have upheld the necessity of following these rules and denied contribution deductions to taxpayers who did not have the necessary documentation.

As a review a donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous written acknowledgement of the contribution from the recipient organization. Although it is a donors responsibility to obtain a written acknowledgement, charities should be very mindful of these rules because certainly donor relations are at stake if something goes wrong.  IRS publication 1771 outlines these requirements.

In a 2012 case, David and Veronda Durden were denied a tax deduction for contributions made to their church because the original acknowledgement letter received from the Church did not clearly stipulate that no goods or services were provided to the donors in exchange for their donation ( TC Memo 2012-140). To correct this problem, the Church issued a second acknowledgement letter with the required statement but it was rejected by the Court because it was not considered to be contemporaneous.

To be considered contemporaneous, the documentation must be obtained on or before the earlier of:

• The date the taxpayer files the original return for the taxable year, or
• The due date ( including extensions ) for filing the original return for the year.

There are rules outlining necessary steps if a non-cash donation of over $5000 is claimed for what is required to take a deduction for non-cash property (real estate, furniture, computer equipment, clothing etc.). The donor is required to file a Form 8283 with their standard return and it must include the signature of a “qualified appraiser” as to the value assigned to the donated property.

The tax court case of Joseph and Shirley Mohamed (TC memo 2012-152) also ruled against the taxpayers (who had taken a deduction of millions of dollars for donated real estate) because they did not properly comply with the rules regarding Form 8283  and did not obtain a qualified appraisal.  This case resulted in a really draconian result for the taxpayer who had clearly donated substantially valuable property to their presumably valid charitable remainder trust, yet were denied the deduction due to improper reporting of the gift as far as completing the requirements of IRS Form 8283.

In both of these cases, the Tax Court has sent a strong message that the substantiation rules DO MATTER and failure to follow them closely will result in the loss of a contribution deduction.

Year-end Reminders for Nonprofits and Donors

At year end the charitable donations accelerate as individuals do year end planning and decide to donate more to get those tax deductions.  So you want to be sure your donors are going to be able to deduct their donations and that your organization is in full compliance when it comes to the IRS rules.  Remember that any contribution of more than $250 must be responded to with a written acknowledgment – donors must have the written acknowledgment for their tax records.  Noncash property worth more than $5,000 will usually require an appraisal done by the donor in order to be deducted.  And if you -  the nonprofit –  provided goods or services in exchange for donations of $250 or more, the donor must to be notified of the amount of goods or services received, and the remaining amount that represents the deductible portion.

See more here: http://www.irs.gov/pub/irs-pdf/p1771.pdf

Value of Donated Drugs, The Ongoing Fall-out

The fall-out over the valuation of donated medicine continues with the nonprofit watchdog site, Charity Navigator, landing in the news because of its controversial approach to rating organizations that have changed their values due to adopting more a conservative estimate.

Charity Navigator has decided that instead of punishing organizations that would suffer bad ratings due to a severe drop in revenue based on a more conservative calculation, that they will allow the organizations to file revised financial information for past periods. This would effectively apply the change in value retroactively so that revenue is more comparative.

Opponents to this decision argue that it lets organizations that overstated the value of their donations off the hook and that the excessive balances reported were never supportable under existing accounting rules anyway.

Supporters of the decision say it is a realistic approach to the change in accounting rules.

Organizations that want to file revised financial information have to provide adjusted Form 990 returns, have audit committee sign off, and the revised information must be available on the organization’s website.

Read more about it here.

Read additional posts tracking the ongoing fall-out here, here, and here.

Does Permanently Restricted Mean ForEVER-Ever? L.A. Judge Thinks So

The Los Angeles Times is reporting that a Superior Court judge has blocked the sale of property given to UCLA under a 1964 agreement that stipulated the university would maintain the garden in perpetuity. In November 2011, UCLA put the property up for bid with a starting price of $9mil for the residence and $5.7mil for the Japanese garden on the property located in Bel-Air.

The university has been dealing with steep budget cuts and determined that the resources would be better directed towards their academic programs. Judge Lisa Hart Cole agreed with the donor’s heirs when they filed to block the sale and she noted that failing to notify the heirs of the university’s intent was “duplicitous”.

UCLA is considering its legal options and considers the judge’s ruling to be a “setback”.

Source: Los Angeles Times

Risk Assessment: Updating Controls Over Confidential Information

The August edition of the Journal of Accountancy has a good article reminding CPA firms to update controls that protect the privacy of individuals as well as other confidential information that may be in the firm’s workpapers and electronic systems. Their key points actually translate well to the nonprofit community since this is an industry that regularly receives confidential information about their donors (credit card accounts, bank account information, social security numbers, etc.).  With all the effort of maintaining transparency, don’t overlook your organization’s responsibility to protect your donors’ privacy and security.

The article suggests: “Identify and classify the types of information the firm maintains.” As a nonprofit organization, can you identify categories of information that flows through your systems whether it is restricted, confidential, sensitive, or ok to be public? You are required to disclose major donors as well as anyone you paid grants or scholarships out to, but have you taken steps to keep their credit card numbers or social security numbers private and secure?

“Assess your current controls/Upgrade protection strategies.” Where would the weak link be in your chain of ownership of sensitive information? Do volunteers have open access to files with donor information? Do employees ever carry information on transportable data storage devices that could transfer information outside of the office, intentionally or not?

“Review the impact of vendors and 3rd party service providers.” Cloud computing is a powerful tool but as the article points out, “although functions can be contractually assigned to a third party, accountability for data protection cannot.” Make sure you understand how and to what extent your service providers are safeguarding the information that flows through their systems, whether it is for online registration or processing of donations.

Ref: Protecting Privacy, by Joel Lanz and Nancy Cohen, Journal of Accountancy, August 2012

Charitable Contribution Denied

How important are a few words? Ask the taxpayer whose charitable contribution deduction was denied by the IRS.  The IRS requires organization to contemporaneously document whether any goods or services were provided in consideration for a contribution.  Now is a good time to read through your organization’s gift acknowledgement to see that required wording is included.  Aronson LLC is available to assist as needed.  For more details of the IRS court case see ECFA.