- June 2010
- Congress Tries Again to Extend IRA Tax Incentive, Ease Pension Rules
- House Approves Quick Tax Breaks for Chile Donations
- Financial Overhaul Measure Being Considered by the Senate
- Senators Call On Boys & Girls Clubs to Justify Pay and Spending
- Muslim Groups Urge Obama to Ease Giving Restrictions
- Senator Questions Colleges’ Use of Tax-Exempt Bonds and Foundation Tax Proposal
- Proposed Donor Disclosure Requirements Concern Nonprofits
- US Government Awards Millions for AmeriCorps Expansion
- Legislation Introduced in House to Improve Federal Policy Toward Charities
- Supreme Court Upholds Law Prohibiting Aid to Terrorist Groups
- Boston to Seek Bigger Payments from Nonprofit Groups
- IL Supreme Court Rules Against Nonprofit Hospital in Property Tax Case
- CA Lawsuit Could Impact Health Care Fund Raisers
- Equity Firm Buys Mass. Catholic Hospital Chain
- OK Attorney General Opens Formal Investigation of Charity
- Corruption Alleged at NY Theatre Group
- NJ Aims to Limit State Pay for Nonprofit CEO’s
- Two MA Hospital’s Senior Executives Face Legal Scrutiny
- Nonprofit Suing State for Violating Freedom of Speech
- Strapped MA Towns Tax Catholic Properties
- GA Charity Challenges Tax Penalty for Fund-Raising
- IRS Notes Abuse of Charitable Deductions Tax Schemes
- IRS Continues Its Focus on Non Profit Governance Matters
- IRS Allows Small Charities a Reprieve from Tax-Filing Deadline
- IRS Concerned with Colleges’ Salaries and Income Reporting
- Postal Service Seeks to Reduce Delivery and Increase Rates in 2011
- All Pages
Health Care Reform Becomes Law
The House and Senate cleared the final piece of comprehensive health care reform, adopting a reconciliation measure (H.R. 4872) that makes adjustments to the bill President Obama signed into law. The reconciliation measure contains a few technical modifications to the originally passed health reform bill, including expanding the access of affordability tax credits for individuals and families to purchase health insurance. The package makes no changes to the additional requirements for nonprofit hospitals for tax exempt status in the original Senate bill.
The final bill contains the following provisions relevant to hospitals/medical centers:
- Community Needs Assessment requirement (once every three years).
- Financial Assistance Policy requirement.
- Review of tax-exempt hospitals by the IRS (once every three years).
- Annual review of tax-exempt hospitals provision of charitable care, bad debt and the unreimbursed cost of means-tested & non-means-tested government programs by the Treasury and HHS.
The bill also adds a new section 4959 to the Internal Revenue Code which imposes an excise tax penalty of $50,000 for any nonprofit hospital that fails to satisfy the community health needs assessment.
The final bill does not limit the tax deductibility of charitable gifts.
Congress Tries Again to Extend IRA Tax Incentive, Ease Pension Rules
Congressional leaders have unveiled new legislation to extend through 2010 a tax break to encourage older people to donate money from their individual retirement accounts to charity. The measure allows people age 70-1/2 and older to give up to $100,000 a year from their IRAs without having to pay taxes on the distribution. The provisions are included in the American Jobs and Closing Tax Loopholes Act (HR 4213), a bill approved by the House, that would also extend unemployment insurance and health benefits, small-business loan programs, aid to states, and a variety of tax cuts.
Both the Senate and the House of Representatives already voted separately to extend the IRA tax break, which expired at the end of 2009, but the two bodies have been wrangling over how to merge the two bills and how to pay for the legislation.
This legislation would also ease rules governing contributions to defined-benefit pension plans, a move that would offer relief to charities whose plans have suffered investment losses during the economic downturn. Current rules require employers that operate defined-benefit pension plans—which provide specific amounts of money to retired employees—to repay within seven years losses suffered by the plans during the 2008 stock-market crash.
Non profit leaders have been pushing for pension relief, arguing that otherwise charities would be forced to divert money away from their programs at a time of growing need.
House Approves Quick Tax Breaks for
The House of Representation passed legislation to allow people who donate money to help victims of the earthquake in
Financial Overhaul Measure Being Considered by the Senate
The Senate’s Banking Committee Chairman’s revised Financial Overhaul legislation reached the Senate floor for debate. This legislation creates a Consumer Stability Oversight Council to monitor financial markets for potential threats and a Consumer Financial Protection Bureau to be housed within the Federal Reserve. The good news – the revised legislation includes language that protects nonprofits (activities related to the solicitation of contributions) from burdensome oversight by the proposed new agency.
Senators Call On Boys & Girls Clubs to Justify Pay and Spending
Four Republicans senators have asked the Boys & Girl Club of America to provide details about what it spends on executive compensation, lobbying, perks, travel, and other items, saying they are concerned about “a top-heavy organization demonstrating questionable management of hundreds of millions in taxpayer dollars and charitable donations.”
The senators said they wanted the answers so they could consider changes to Senate legislation that would provide $425-million to the youth organization over the next 5 years. The senators said they were troubled by some of the group’s expenses at a time that it reported a $13-million loss on its 2008 Form 990 informational tax return. The senators complained that the organization’s president, Roxanne Spillett, earned more that $900,000 in compensation in 2008, “even while local boys and girls clubs nationwide closed their doors due to budget shortfalls.” They also asked about reported spending that year of more that $4-million on travel, $1.6-million on conferences and meetings, and more than $540,000 on lobbying.
The Senate legislation, S.2924 would reauthorize through 2015 an annual grant that the Boy’s & Girls Clubs of America receives from the Justice Department. The original program was set up in 1996 to help the group establish new clubs in “public housing and other distressed areas.” But the new legislation says the money should go to improve the quality of educational, health, youth development, and other services at both new and existing clubs “with special emphasis on reducing high school dropout rates.”
The senators criticized that change of focus, saying that Congress originally intended to provide seed money to start clubs in neighborhoods that especially needed them, but now would be providing “a perpetual source of funds to sustain the Boys and Girls Clubs.”
The Boys & Girls Club of America, in
Muslim Groups Urge Obama to Ease Giving Restrictions
More than 20 American Muslim charities sent a letter to President Barack Obama urging him to move forward on a pledge he announced last year to make it easier for Muslims to give. The charities said that many Muslim donors are still afraid to support charities because they worry about attracting scrutiny from law enforcement.
Complex laws about how to provide aid overseas, as well as the surveillance and prosecutions of some Muslim nonprofit groups, have curbed lawful, well-intentioned nonprofit activities, the charities wrote. Signatories to the letter included local and national organizations such as American-Arab Anti-Discrimination Committee and the Center for Arab American Philanthropy,
Senator Questions Colleges’ Use of Tax-Exempt Bonds and Foundation Tax Proposal
Senator Charles Grassley (R – IW) has set his sights on a longstanding cornerstone of colleges’ financial practice – paying for new and renovated buildings by borrowing money with tax-exempt bonds.
This attention comes as a result of a just released report from the Congressional Budget Office which questions the merits of allowing nonprofits to rely on taxpayer-subsidized debt, while they also benefit from investing their assets to earn more than what they pay out in interest on the debt. The study estimates that allowing colleges and universities to borrow using tax-exempt debt will cost the federal government about $5.5-billion in revenue in 2010.
Grassley, the senior minority member of the Senate Finance Committee, who requested this analysis as part of a broad look at tax-exempt organizations, said the report raises serious questions for taxpayers about universities going into debt when they have money in the bank. He is now considering whether to propose any changes in the law in response to the report’s findings.
On a separate issue, Grassley is asking the Council on Foundations for information about the need for a proposed change in the way foundations pay excise tax on their net investment income – specifically, eliminating the current two-tier excise tax system and replacing it with a flat rate of less than 2%. Grassley wants this change to be considered in the context of “larger reform” which looks into the topic of how many private foundations actually pay the investment income excise tax.
Proposed Donor Disclosure Requirements Concern Nonprofits
A new campaign finance bill making its way through Congress, created in response to the recent Supreme Court ruling, would require 501(c)4 nonprofit groups who issue political communications, to reveal their top donors.
The proposal, already approved by the House Administration Committee, hopes to prevent advertisers from funneling money through shell groups to mask their identities. The House bill –
The Disclose Act (HR 5175) – is designed to counter the Supreme Court’s decision that found unconstitutional a law barring corporations from using money from their general treasuries to urge a candidate for a federal office be elected/defeated.
Among the bill’s major provisions: Organizations that spend more than $10,000 on political communications during a calendar year must report all donors who have contributed a minimum amount (either $600 or $1,000, depending on the type of communications issued).
The federal government took the first step in expanding the AmeriCorps program, awarding $234 million in grants to nonprofits to put 57,000 AC members to work in communities throughout the country. These grants are the first to be released under the new law aimed at tripling the national service program by 2017.
AmeriCorps participants mentor children, clean-up parks/buildings and weatherize homes for the poor among other activities. Most participants, who are predominantly 18 – 26 years old, receive a stipend for up to one year of approximately $11,800.
Legislation Introduced in House to Improve Federal Policy Toward Charities
The Nonprofit Sector and Community Solutions Act, recently introduce in the House, would create two new bodies to make recommendations about federal policy affecting charities and require federal agencies to step-up their data collection about them.
The legislation would establish: A U.S. Council on Nonprofit Organizations and Community Solutions which would study ways the federal government could work better with nonprofits by improving grant awarding procedures and services expansion. An Interagency Working Group on Nonprofits would recommend how federal monies could more effectively be channeled to charities through state and local government.
The bill is strongly supported by a wide range of nonprofit leaders from across the country.
Supreme Court Upholds Law Prohibiting Aid to Terrorist Groups
The US Supreme Court upheld a federal law banning material support to foreign terrorist groups, turning away a challenge from relief charities that said the law violates free speech. The court said the government can forbid all forms of aid to designated terrorist organizations, even if the aid entails guidance about nonviolent and legal activities, because “such support can free up other resources within the organization that may be put to violent ends”.
Nonprofit leaders said hitting the 25-percent target would force layoffs and reduce services at hospitals, universities, and charities. City officials have suggested that institutions could soften the financial blow by covering up to half their payments through free community services, such as cancer screenings or scholarships.
IL Supreme Court Rules Against Nonprofit Hospital in Property Tax Case
The Illinois Supreme Court issued a ruling that state officials were right to revoke the
According to the Court, Provena failed to meet several criteria outlined in previous jurisprudence for the characterization of a charitable institution. Of utmost consequence to other health care organizations in the state is the Court’s specification that any organization seeking property tax relief, must establish that the subject property is “actually and exclusively used for charitable or beneficent purposes, and not leased or otherwise used with a view to profit.”
CA Lawsuit Could Impact Health Care Fund Raisers
The case involves the California Confidentiality of Medical Information Act (CMIA) that generally prohibits health care providers, service plans and contractors from disclosing medical information without a patient’s consent, subject to limited exceptions. In this case, a medical center shared patient demographic information with a vendor for fundraising purposes, believing it was appropriately covered under the “administrative services” exception of CMIA. The vendor was operating under the federal Health Insurance Portability and Accountability Act (HIPAA) Business Associate Agreement. However, California Law will control the outcome of the case because HIPAA does not preempt state health privacy laws that are determined more stringent.
To be clear, this is not a case regarding HIPAA. The medical center’s original data transfer to the vendor is the basis of the lawsuit.
The vendor in this case was providing wealth screening services. If the
CCM intends to maintain the hospitals’ religious identity, but has also negotiated an escape clause that would allow the firm to end the religious affiliation in exchange for a $25 million donation to the Archdiocese. Ultimately, this purchase agreement must be reviewed by the state’s attorney general and later approved by the state’s
Equity firms have been aggressively pursuing nonprofit hospitals, which are expected to benefit financially from the health-care overhaul law that seeks to extend medical coverage to 32 million previously uninsured Americans.
OK Attorney General Opens Formal Investigation of Charity
The investigation is the latest development in a series of lawsuits concerning the Oklahoma City Charity. Charity officials have accused the group’s former president, Larry Jones, of taking bribes, misspending charity funds, hiding pornographic magazines at the organization’s office, and installing hidden recording devices.
Mr. Jones has denied any wrongdoing and has accused the charity’s official of declining to pay taxes on purchases, lying about the charity’s fundraising efforts in
Corruption Alleged at NY Theatre Group
A report by the state’s inspector general alleges the New York State Theatre Institute’s artistic director steered hundreds of thousands of dollars to herself and family members in the form of jobs, perks, and questionable expenses. The Institute, a state authority that focuses on bringing theatre to children, received $3.1 million from the state budget last year. NY spent $3.7 million on grants for 294 other theatre groups across the state.
NJ Aims to
Under the proposal, the State would pro-rate reimbursement for the CEO’s salary based upon the percentage of time that he/she spent to execute elements of the contract. The amendment would go into effect on July 1st.
According to the NJ Department of Human Services, the state would save about $5 million annually by limiting executive pay and cutting back on travel and other expenses for senior staff members at these charities.
Two MA Hospital’s Senior Executives Face Legal Scrutiny
After pleading guilty to embezzlement charges, the former administrative director of
The MA Attorney General’s office is reviewing whether the Board of Directors of Beth Israel Deaconess Medical Center appropriately handled a “lapse in judgment” by its CEO, and if charitable funds were misspent because of a personal relationship he had with an employee. This review was requested by the BIDMC Board following a series of emergency meetings which resulted in a decision to fine the CEO $50,000 for showing poor judgment in this matter.
Nonprofit Suing State for Violating Freedom of Speech
Strapped MA Towns Tax Catholic Properties
Nine cities/towns in MA have forced the Catholic Archdiocese of Boston to pay property taxes on closed churches, schools, convents, and parish halls, contending that the buildings no longer qualify as tax-exempt because the archdiocese is not using them.
To date, the archdiocese has had little success in challenging these cases, agreeing to pay the towns of
GA Charity Challenges Tax Penalty for Fund-Raising
The Georgia Supreme Court is reviewing a lawsuit to determine whether a suicide-prevention and counseling nonprofit owes property taxes because of the way it raises money. The lawsuit is among several nation-wide in which economically hurting states and local governments are challenging charities’ tax exemptions and/or attempting to impose new fees.
In this case, the county tax assessor argued that the nonprofit should be required to pay property tax because it raises money by renting its facilities for private events which are not open to the community at large. The charity argued that a 2007 statute exempts charities from the tax as long as the money raised is used to fulfill their philanthropic missions. The Court is expected to rule on the case by the end of the year.
IRS Notes Abuse of Charitable Deductions Tax Schemes
The Internal Revenue Service’s annual list of the most common tax schemes that Americans must avoid includes the abuse of the charitable-tax deduction.
The IRS said it “continues to investigate various schemes involving the donation of noncash assets, including easements on property, closely held corporate stock, and real property. The donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the item back at a later date at a price the donor sets.”
The IRS said it also continues to see the misuse of tax exempt organizations. “Abuses include arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property.”
IRS Continues Its Focus on Non Profit Governance Matters
The IRS is not backing away from its efforts to promote good governance by charities according to its top nonprofit regulator, even though the federal tax code does not explicitly set out governance standards for the agency to enforce.
A recent survey showed a sharp increased focus by non profit organizations in 2009 which was attributed in part to the IRS’s revised Form 990 informational tax return for the 2008 tax year which included new questions for charities about governance and oversight. Although the IRS claims it is not auditing charities for their governance practices, it is using the charities answers to governance questions on the 990 Form to “help target its level of attention to non profits.”
IRS Allows Small Charities a Reprieve from Tax-Filing Deadline
As many as 400,000 nonprofit organizations (about 25%) could have lost their tax exempt status on May 17th because of a provision buried in a federal bill aimed at pension reform.
This federal legislation -- the Pension Protection Act of 2006 -- required all nonprofits to file tax forms the following year. (Previously, only organizations with revenues of $25,000 or more had to file). It also directed the IRS to revoke the tax exempt status of nonprofits that failed to do so for three consecutive years… which happened on May 17th. Without receiving these forms, the IRS claimed it did not have sufficient facts about these organizations to allow it to appropriately oversee one of the most generous breaks the federal government offers.
Nonprofits that are still active but lost their tax-exempt status would have faced two problems. They would have had to reapply with the IRS for a new exemption and pay a fee. They would also have been liable for income taxes for the period in which they were not exempt.
The IRS has encouraged these non complying nonprofits to file even though the May 17th deadline has passed. It now plans to begin sending revocation notices in January 2011.
IRS Concerned with Colleges’ Salaries and Income Reporting
The IRS has identified several potential problems with tax-code compliance in a report on how colleges conduct their business. The report is based on a long survey the agency sent in late 2008 to 400 public/private colleges.
One key issue the IRS has identified is that many colleges are involved in profitable business activities that they are not reported as taxable income, including facility rentals, bookstores and catering. Another issue is how they set the salaries of their top employees, such as presidents and chancellors, especially if they are not using the IRS’s suggested procedures. Nonprofits can be subject to a tax penalty if they pay key employees amounts above what is comparable for similar positions at similar organizations. The IRS will issue a final report after it completes the current round of audits it is conducting on colleges.
Postal Service Seeks to Reduce Delivery and Increase Rates in 2011
The USPS Board of Governors approved management’s request to move forward with its five day delivery proposal which would eliminate Saturday deliveries. This proposal is part of a larger plan which includes legislative and regulatory changes needed to give the agency the flexibility to make business decisions in a timely manner, including the prefunding of retiree health benefits and service pricing.
This comes on the heels of an announcement that the USPS will also seek rate hikes for 2011in the range of 3 – 11 percent, which the agency claims is necessary to begin to address a projected $238-billion shortfall over the next 10 years, compounded by three years of enormous losses which started in 2007.
Some studies have suggested that currently only automated letters and straight first class mailings are covering their costs. Mail volume is projected to decrease from 177 billion pieces in 2009 to 150 billion pieces by 2020, led by a 37-percent drop in first class mail.