- March 2011
- New Tax Deal Lowers Estate Tax and Extends IRA Charity Break
- Democrats Turn Back Republican Health Care Repeal Amendment
- House & Senate Committees Hold Hearings on Tax Reform
- Obama's Budget Plan Calls for Cut in Charitable Deductions
- Republicans Propose Big Federal Budget cuts That Impact Non Profits
- Many Nonprofits Face Lawsuits over Madoff's Fraud
- Senator's Investigation into Ministries Leads to Tax Review
- Officials Say Oregon Charity Shifted Millions to Iran
- Budget-Strapped Cities Charge Nonprofits New Fees
- Nonprofits in CA Face More Fiscal Strain
- Virginia A.G. Says No State Funds Can Legally Go To Charities
- NV Court Rules Donor-Advised Funds Can Ignore Donor Advice
- CT University Fights to Preserve Donor List Confidentiality
- OR Sues Veterans Charities Accused of Misusing Funds
- The IRS Steps Up Scrutiny of Nonprofits
- IRS Investigates CA Hospital's Charity's Nonprofit Status
- Automatic Revocations Will Reshape Nonprofits Beyond 2011
- Postal Rates to Increase in April 2011
- All Pages
The New Congress Brings New Agenda for Nonprofits
Here is some of what the nonprofit world can expect from the new Congress.
Federal aid: Republicans, who now control the House and gained seats in the Senate, will take a hard line on spending, especially given pressure from the small-government Tea Part. This will be bad news for safety-net programs and programs that President Obama hoped to expand, like AmeriCorps; the Social Innovation Fund, which provides grants for promising nonprofit projects; and Promise Neighborhoods, which provides money for antipoverty projects modeled after Harlem Children Zone.
Scrutiny of nonprofits: Senator Charles E. Grassley, the Iowa Republican who has led a steady stream of investigations into alleged nonprofit abuses as chairman and then senior Republican on the Senate Finance Committee, is expected to move to the top Republican post on the Senate Judiciary Committee. Some observers expect his successor, Senator Hatch (R –UT) to be less interested in nonprofit investigations. He is also more sympathetic than many other Republicans to national-service programs.
Charity oversight: With control of House oversight committees, Republican will be able to call hearings over controversies involving nonprofit groups or social programs that draw their suspicion.
New Tax Deal Lowers Estate Tax and Extends IRA Charity Break
President Obama signed into law the Congressional approved tax deal that lowers estate-tax rates from 2009 levels and extends a benefit for older donors who tap their individual retirement accounts to make charitable donations.
The legislation sets estate-tax rates at 35 percent and establishes exemptions that would allow couples to pass estates as large as $10-million to their heirs tax-free. Individuals could pass on the first $5-million tax-free.
If Congress had failed to act before the end of the year, the estate tax, which had expired for 2010, would have jumped to 55-percent rate for individuals worth more than $1-million.
The tax deal also will allow people age 70 ½ and older to channel up to $100,000 a year from individual retirement accounts tax-free to charities in 2011. Such a break was in place for 2009, but Congress had not acted to extend it for 2010. Under this measure, not only would such donations be tax-free for any gift made in 2010, but also donors would be allowed to make retirement-account gifts through the end of January, 2011, and still count them in their 2010 tax returns..
Democrats Turn Back Republican Heath Care Repeal Amendment
Senate Democrats voted down a Republican-led effort to attach a health care law appeal amendment to the FAA reauthorization bill. Despite the setback, Republicans have pledge to attempt to dismantle the health care law. Short of a full-scale repeal, Republicans lawmakers have said they will challenge elements of the law, try to starve implementation funds for it, hold oversight hearings and craft legislative alternatives.
House & Senate Committees Hold Hearings on Tax Reform
Obama’s Budget Plan Calls for Cut in Charitable Deductions
President Obama proposed to sharply limit the value of charitable tax breaks taken by wealthy people. In his budget proposal for FY 2012 (which begins on Oct.1, 2011) he wants to reduce by 30% the amount people can write off for all types of itemized deductions. Specifically, his proposal would limit itemized deductions to 28% for taxpayers in the highest brackets.
Obama also said he would push to end the tax cuts for Americans making $250,000 or more when they expire in two years. Without further action to extend the Bush-era tax cuts for the wealthy, the top tax bracket, currently at 35%, would rise to 39.6% in 2013.
Although President Obama recently signed legislation that set the estate tax rate at 35% and allows couples to pass estates as large as $10 million to their heirs tax-free, Obama wants to return to 2009 estate tax levels, when the first $3.5 million for individuals and $7 million for couples, was exempt from tax and the tax rate was set at 45%.
Republicans Propose Big Federal Budget Cuts That Impact Non Profits
The Republican led House of Representatives adopted legislation that would require deep budget cuts for the remainder of the 2011 fiscal year.
The legislation would immediately slash funding for a wide range of social programs and completely kill AmeriCorps and other national-service programs; close the National Endowments for the Arts and Humanities and the Corporation for Public Broadcasting; end Department of Energy grants to help low-income people weatherize their homes; and stop federal money to Planned Parenthood Federation of America.
The cuts would also end payments to a variety of non profit groups that get funds that are considered “earmarks” because they are awarded without competition, including
This plan is part of a Republican-led effort to slice $100 billion out of President Obama’s proposed budget.
In response, Senate Democrats offered their own spending plan for the rest of the year which rejects these drastic Republican proposed cuts. Their legislation, approved by the Senate Appropriations Committee, would not kill AmeriCorps, the Corporation for Public Broadcasting, or end all federal payments to Planned Parenthood. It would also temper proposed cuts to community health centers, Head Start and Child Care/Community Services Block Grants.
The House and Senate must now try to reconcile their wide differences over the legislation which would direct federal spending through September 30th.
Many Nonprofits Face Lawsuits over Madoff’s Fraud
The Trustee resenting victims of Bernard Madoff’s fraud has filed more than two dozens lawsuits against foundations and charities that invested directly with Madoff and allegedly profited from the scheme.
Some charities and individuals that profited-by getting back more than they put in, before the fraud was uncovered -- have entered into settlements to avoid lawsuits. For example, the Jewish women’s charity Hadassah announced that it had struck an agreement to give back $45-million, slightly less than half of its profit from investing with Madoff.
But to the relief of many charities, it appears that Irving Picard, the trustee, has decided not to file so-called claw back lawsuits against organizations that benefited indirectly from the fraud by receiving grants from individuals or foundations that earned a profit on their Madoff investments. The American Civil Liberties Union, for example, received support from the JEHT Foundation and the Picower Foundation, both of which invested heavily with Madoff and closed in the wake of the fraud.
Under federal and state laws, the trustee can seek to get back funds from net winners that were withdrawn during the six years of before the discovery of the fraud. One of the hundreds of lawsuits filed by Mr. Picard seeks $5.32-million from the American-Israel Cultural Foundation, which raises money to support artists and cultural institutions in
Senator’s Investigation into Ministries Leads to Tax Review
Sen. Charles E. Grassley, a leading Republican nonprofit watchdog, has concluded his investigation of six televisions evangelist by calling for a review of a range of tax issues, some affecting churches but others that could have a significant impact on the broader charitable world.
For example, his report suggests repealing or narrowing a rule that bars churches and other charities from getting involved in political campaigns, calling it vague, hard to enforce, and without good justification. It also proposes tightening up rules on nonprofit executive compensation.
Sen. Grassley opened the investigation into the six ministries in 2007, asking for information about their expenditures, compensation practices, and board structures -- a response to news coverage and complaints from the public about their spending habits.
As a result of his inquiry a new panel, the Commission on Accountability and Policy for Religious Organizations, was recently formed with the assistance of the Evangelical Council for Financial Accountability. The commission is tasked with the gathering of information from the sector and providing feedback to the Senator’s office with the goal of improving accountability and policy in the religious sector.
Officials Say Oregon Charity Shifted Millions to Iran
Prosecutors say an “overwhelming majority” of money collected by the Children Foundation, in
Budget-Strapped Cities Charge Nonprofits New Fees
Several cities are including nonprofit organizations in new fees for road and water-management improvements.
Faced with budget shortfalls and strict new mandates for storm-water-run-off, Houston; Richmond, VA; Lafayette, Ind.; and Verona, Wis., have imposed drainage fees that will be charged to churches, private schools, and other traditionally tax-exempt groups as well as to taxpayers.
In addition, after a two-year review,
Nonprofits in CA Face More Fiscal Strain
Jerry Brown who took over as
The only somewhat-good news for nonprofits is that Mr. Brown also proposed extending some temporary taxes as part of his plan to plug a $25.4-billion budget hole over the next 18 months. So the suggested cuts aren’t as deep as they might have been.
Mr. Brown proposed $12.5-billion in cuts in his $84.6-billion budget for the 2012 fiscal year, including the following: $1.7-billion to Medi-Cal, a health program for low-income residents; $1.5-billion to CalWorks, a welfare-to-work program; $250-million to the Department of Developmental Services; and $486.2-million to services that help old, disabled, and blind people stay in there homes.
Virginia A.G. Says No State Funds Can Legally Go to Charities
In a written opinion he stated that the state constitution bars appropriating money, property, or real estate “to any charitable institution which is not owned or controlled by the Commonwealth”.
Such grants have largely dried up during the recession, but in more economically stable years legislators approved tens of millions of dollars in earmarks to hundreds of charities, evading the constitution’s language by terming the recipients “cultural” or “historical” organizations.
NV Court Rules Donor-Advised Funds Can Ignore Donor Advice
The Nevada Supreme Court decided in favor of a donor-advised fund that was sued by a client for going against his wishes on spending his contributions. The court ruled that the donor could not recover $2.5 million from Friends of Fiji, a D-A fund, because he had signed an agreement giving up control of the money which is standard for these funds.
Through donor-advised funds, people give money to a community fund or other non profit and are then allowed to recommend where the money will go. But to qualify for a tax deduction, the donor cannot control the money which has led to numerous disputes. In this case the non profit used a good portion of the donor’s donation to increase the salaries of its two directors. While the court agreed that the fund had acted badly, it said the nonprofit legally had the right to reject the donor’s recommendations for his gift’s use.
CT University Fights to Preserve Donor List Confidentiality
The University of CT is waging a legal fight to keep the identity of its donors secret, arguing that their list is akin to a trader secret and could be used by competitors to steal contributors’ dollars. The case is thought to be the first before a state’s court on the question of whether public entities can claim the trade secret exemption, typically invoked by businesses to keep information private.
The State's Freedom of Information Commission ruling in 2009, on a request by a CT alumnus who runs a watchdog group, ordered the University to turn over its donor list, but a State Supreme Court judge overturned that decision. The case is now pending before an Appeals Court.
OR Sues Veterans Charities Accused of Misusing Funds
Oregon’s justice department sued two charities and their founder, accusing them of misspending money raised to serve veterans. The lawsuit is part of the state’s broad crackdown on charities that keep most of the money they raise, with groups which profess to serve veterans a major target.
The state’s Attorney General said that the founder diverted almost $700,000 raised by the Oregon War Veterans Association and the Military Family Support Foundation to himself or entities he controlled and used some of the money to make unreported political contributions. It is also alleged that the founder falsely claimed federal charity status for the foundation and noted that gifts to it were fully tax-deductible.
The IRS Steps Up Scrutiny of Nonprofits
The Internal Revenue Services says it plans greater scrutiny of a wide range of charity activities, including loans nonprofits make to top officials and whether they paid sufficient employment taxes.
The plans follow stepped-up efforts over the past few years to oversee nonprofits. Figures released by the Internal Revenue Services show its audits of charities increased from about 7,800 in 2008 to just over 10,00 in 2009, a jump of about 30 percent. In 2010 the numbers of audits jumped 12 percent, to approximately 11,500.
The greater oversight is largely the result of an increased number of IRS employees. IRS officials also said their enforcement efforts benefited from increased collaboration with the Social Security Administration and with state regulators, yielding valuable electronic data that allowed them to spot organizations that were trying to avoid paying employment taxes.
The IRS has been studying the employment-tax reporting practices of about 4,000 tax-exempt organizations each year since 2007. The agency was able to pinpoint organizations that reported paying wages to employees but didn’t file a federal form to report employment taxes. Other showed compensation for officers on their informational tax forms but didn’t file wage or employment tax documents for those workers.
Agents also found loans to charity officials that were not correctly reported on the organizations’ Form 990 in several cases and assessed more than $5-million in penalties.
IRS Investigates CA Hospital’s Charity’s Nonprofit Status
The Internal Revenue Services is investigating the tax status of a foundation that raises money for a
The Board of the Glean Medical Foundation, founded in 2005 to support the
The foundation is the focus of the area’s biggest annual charity event, a black-tie dinner hosted by the well-known West Coast car dealer Cal Worthington.
Automatic Revocations Will Reshape Nonprofits Beyond 2011
The Internal Revenue Service (IRS) is publishing a list of tax-exempt organizations that have had their status automatically revoked for failure to file annual information tax returns for three consecutive years. By last estimates, more than 300,000 organizations were on track to lose their exemptions.
The new rule that almost every tax-exempt organization must annually file an information return with the IRS to maintain status is raising the expectation that basic transparency is required to be a tax-exempt organization.
However, it’s not maintaining tax-exempt status that will be the issue for the philanthropic sector. It will be proving that an organization’s status remains current that will fundamentally change non-profit practice.
Today, development officers photo-copy or create PDF images of the IRS Letter of Determination. They attach the letters to grant applications as a confirmation of tax-exempt status. Now that current tax-exempt status is tied to ongoing reporting obligations, the IRS Letter of Determination will not satisfy basic due diligence requirements for grant makers.
The question remains whether all of the non profit tax-exempt organizations that have not filed are actually out of business.
Some Postal Rates to Increase in April, 2011.
Postal rate will go up in April, but the cost of sending the basic first class letter will remain the same. The Postal Service said that most rates will go up on April 17th under a formula that allows the agency to increase prices within the rate of inflation.
The post office said the 44-cent price of first-class stamp will remain unchanged, but heavier letters will cost more. The basic rate is for the first ounce, but the price for each extra ounce will rise from 17 cents to 20 cents.
Under the law, the post office can raise rates as long as it doesn’t exceed inflation, which would permit an increase of 1.7 percent averaged over all mail. The Postal Service lost $8.5 billion last year despite deep cuts of more than 100,000 jobs and other reductions in recent years.
In addition to the 3-cent boost for additional ounces of first-class mail the new rates are as follows:
- Post cards will rise from 28 to 29 cents
- Letters to Canada or Mexico increase to 80 cents
- Express Mail and Priority Mail prices are not affected
- Standard non profit rates will increase very slightly, going from 17.2 to 17.4 cents for the basic rate.