IRS Official Addresses Nonprofit Concerns
In a broad-ranging discussion of the priorities and challenges of the Exempt Organizations (EO) section of the Internal Revenue Service, Acting Director Margaret Von Lienen spoke to the 2016 Network Learning Confab of the National Council of Nonprofits on April 1. She reported that the EO section continues to make management, systems, and structural changes to address application backlogs and manage risks while confronting budget cuts from Congress. Von Lienen also reported that audits by the EO section focus primarily on exemption issues, such as non-exempt purpose activity and private inurement, protection of charitable assets from self-dealing and excess-benefit transactions, employment tax and unrelated business income
issues, and emerging issues like non-exempt charitable trusts. New work is also underway, due to the enactment of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) in December 2015, to develop the forms and notification process for 501(c)(4) organizations and the extension of declaratory judgment rights to all 501(c) entities.
Addressing the controversial Form 1023-EZ short-form application for tax-exempt status, Von Lienen said that the IRS actually conducts pre-determination compliance reviews and is still testing the process. The Form 1023-EZ had been criticized by the Taxpayer Advocate Service and others for making it too easy for individuals and entities to secure tax exemptions when they fail to meet the minimum legal requirements for Section 501(c)(3) status. Another controversial issue, the restructuring of the IRS’ Advisory Committee on Tax Exempt and Government Entities (“ACT”), generated discussion and evoked
a request for greater feedback from the nonprofit community. Read Jennifer Chandler’s blog article, "Hello, IRS, is anyone listening?"
Finally, Von Lienen expressed excitement for the IRS’s new virtual learning programs at StayExempt.IRS.gov that provide training materials for emerging organizations on such topics as Applying for Section 501(c)(3) Status and Form 1023 (Interactive) and Prerequisite Questions. Existing organizations can benefit from training videos on many issues such as Maintaining 501(c)(3) Tax-Exempt Status, Employment Issues, and Political Campaigns and Charities: The Ban on Political Campaign Intervention.
FTC, State AGs Settle Lawsuit Against Two Sham Cancer Charities
A task force involving the Federal Trade Commission and all 50 states and the District of Columbia reached agreement with two entities masquerading as cancer charities and their officials that requires the entities to dissolve, cease operations, and – with the individual officers – pay more than $75 million. A lawsuit filed last year alleged that four organizations purporting to be cancer charities and their officials had defrauded consumers out of more than $187 million using false and deceptive claims to solicit donations. Two of the entities and other officers settled last year. This latest settlement
agreement bans James Reynolds, Sr. from ever profiting from charity fundraising and nonprofit work, and from serving as a charity’s director or trustee or otherwise managing charitable assets. According to the complaint, solicitors represented that donations would be used to provide direct support to cancer patients. The sham charities allegedly were just a façade for their for-profit goals because the vast majority of donors’ contributions did not directly assist cancer patients or otherwise benefit a charitable purpose.
Connecticut Fiscal Challenges Reflect National Trends
Virtually all segments of the nonprofit community in Connecticut are dealing with policy challenges that have been, or likely will be, seen elsewhere in the country because of budget deficits and misunderstanding about how the sector operates. Connecticut policymakers are struggling to close state budget deficits of $266 million in the current fiscal year, which ends in three months, and nearly $900 million next year. The state recently rescinded (cancelled) almost $78 million of previously appropriated funds, slashing funding for many services provided by community nonprofits.
Legislators are also looking at taxing institutions of higher education by requiring those with property worth more than $2 billion to pay property taxes on parcels that generate revenue of more than $6,000 from admissions to student sporting and entertainment events, rent charged, and goods produced. Legislators are targeting Yale University with legislation that would require it to pay unrelated business income taxes on increases to higher education endowments that exceed $10 billion. The tax would be levied on the
amount of endowment growth year-to-year after mission-related expenses are deducted.
Finally, the state capital of Hartford reportedly is near bankruptcy with revenues only covering 70 percent of the annual budget. The Legislature is considering a bill that would create a commission with extraordinary powers to, among other things, negotiate with the largest nonprofit property owners in the city and then levy a tax on their property based on a percentage they would otherwise pay if not tax exempt.
States Address Minimum Wage Hikes, California Provides Small Employer Phase In
California legislators passed a bill last week to raise the state minimum wage from the current $10 per hour to $15 per hour over a seven-year period. The bill, which Governor Brown is expected to sign, would increase the wage rate to $10.50 on January 1, 2017, $11.00 in 2018, and then $1-per-year increases through 2022. The bill delays by one year the increases at smaller nonprofits and for-profit businesses with fewer than 25 employees, meaning the $15 hourly wage would not go into effect at those organizations until 2023. The New
York State Senate last week approved a minimum wage hike to $15 per hour by 2018, with a one-year delay for businesses employing 10 or fewer workers. Human service nonprofits in New York are urging the Governor to include $200 million in the state budget to cover their higher payroll costs when providing services for the government under contracts. Earlier this year Oregon raised minimum wage rates over six years, setting three separate rates depending on where in the state a worker is employed (a top rate of $14.75 in urban areas, but less in rural areas).
Other states are taking action to restrict local authority on employment policies. Alabama, following the example of Missouri last year, recently enacted legislation preventing local governments from setting their own minimum wage rates. The new North
Carolina legislation most noted for banning local ordinances acknowledging LGBT rights, also pre-empts the abilities of cities to mandate wage rates or other employment policies on most contractors (including nonprofits) providing services for the government.
North Carolina Legislators Recommend Taxing Donors on Gifts from IRAs
A North Carolina legislative study committee recently recommended a draft bill that would require donors to pay taxes on some contributions to nonprofits from their individual retirement accounts. This proposal comes just months after Congress made permanent the IRA charitable rollover, allowing individuals who are 70½ years and older to make contributions from their IRAs to most nonprofits free from federal taxation. A law change would mean that North Carolina donors who use the IRA charitable rollover would become liable
for up to $5,800 in state taxes on their charitable contributions. The General Assembly is expected to act on the proposed legislation soon after its 2016 regular session begins on April 25. The North Carolina Center for Nonprofits is asking legislators to allow the IRA charitable rollover to be exempt from state taxes for 2015, which would require legislators to amend the bill recommended by the study committee.
Government-Nonprofit Contracting Reform Update
A Virginia County Doing Grants Right
Nonprofits and the public are accustomed to reading about government contracting and grantmaking only when problems or scandals emerge. But Loudoun County, Virginia provides an example of doing things right. The County has set up a new process for grantmaking designed and implemented to focus on the county’s priorities and to depoliticize the selection process. The County Board of Supervisors allocates total dollars devoted to grants in four categories: hunger and homelessness mitigation, emergency services, health and related services, and recreation and culture. Members of the county staff work with specialists in each of
those areas to vet and rate the applications. From there, the staff recommends to the Board which organizations should receive grant dollars and how much.
Important to the process is the enlightened approach of Supervisors who recognize that the costs associated with providing services on behalf of the government vary depending on the types of services delivered. “Getting a family food is easier to do than [helping] a woman who needs legal representation and a safe shelter,” one Supervisor said. “Those are two very different needs and the administrative costs vary widely. That’s important to consider.” The grantor-grantee power dynamic is also recognized, as the County Chairwoman notes: “If they ask for $5,000, they probably need $10,000, so I will take them seriously when I see their numbers.” Ultimately, the new grants program reflects
the recognition that “some nonprofits provide a benefit that is a lot of cost avoidance to the county so by helping out those nonprofits we’re actually making an investment.”
Maine Targeting Land Trusts
Maine Governor La Page surprised the nonprofit community once again by seeking a bill to repeal the property tax exemption for land held for conservation or public access purposes. The Governor reportedly is upset about a 2014 court decision ruling that holding land primarily for conservation or public access purposes is a benevolent and charitable purpose, a condition necessary to obtaining an exemption from property tax in Maine. At a hearing last month, the Maine Association of Nonprofits joined several land trusts in testifying against the bill.
When Nonprofits and Foundations Learn Together
Nonprofit employees talk among themselves about the power dynamic between foundations and grantees, the fear of admitting mistakes to funders, and the ignorance caused by isolation. Turns out, people at foundations have these same concerns, and a powerful video series produced by Exponent Philanthropy is bringing everyone together to learn from each other.
“Philanthropy Lessons” is a video series and campaign produced by Exponent Philanthropy, funded by the Fund for Shared Insight and released in partnership with The Chronicle of Philanthropy. The videos are sharing words of wisdom from several inspirational funders about what they have learned throughout their philanthropic careers to help others be more effective and efficient in creating the change they want to see in the world.
In the videos grantmakers share their views on the value of creating ways for their nonprofit grantees to collaborate. In Working Collaboratively, family foundation leaders explain that bringing grantees together holds two important benefits: grantees learn from each other, and grantmakers learn how they can help grantees meet common challenges. “Through collaboration, when we encourage organizations to share their challenges, we get a better sense as to the opportunities that we can be most helpful in supporting,” says Clark McCain, senior program officer at the Coleman Foundation.
The second video in the series, “Risks and Mistakes,” examines the importance of grantmakers’ supporting experimentation by nonprofits. Investing in a new organization or program sometimes seems risky, but as the grantmakers explain, nonprofits become stronger when they embrace a spirit of experimentation. The message of the brief presentation is simple: “Effective philanthropy is a learning process that develops through experimentation. To be successful, we must take risks, support new ideas, acknowledge our mistakes, share experiences, and learn from one another.”
Other videos address The Power Dynamic and the need to increase meaningful impact together, The Many Forms of Evaluation considering both tangible measures and less concrete aspects, and ask “How Do You Capture Hope?” See all the videos in the Philanthropy Lessons series.
Exponent Philanthropy invites funders to share their most important philanthropy lessons and join the conversation on social media using hashtag #MyPhilLesson to increase openness in the field and accelerate effective philanthropy. We at the National Council of Nonprofits invite nonprofits to join in our appreciation of the efforts of these and other funders to embrace collaborative problem solving – a core component of advancing mission through advocacy.