- March 2010
- Many Nonprofit Programs Hold Even or See Gains in Obama’s 2011 Budget
- Congress Passes Plan to Encourage Cash Donations for Haiti Relief
- Budget Plan Revives President’s Call for New Charitable-Deduction Limits
- Supreme Court Campaign-Finance Ruling Could Aid Nonprofit Advocates
- Obama’s $50-Million Fund to Spur Innovation Gets Underway
- Senate and House Pass Jobs Bills with Tax Credits for Non Profit Employers
- Fundraisers Challenging Utah’s Registration Requirements
- Notre Dame Gets First Property Tax Bill from Indiana County
- Court Rejects Texas Rules on Solicitation Disclosure
- States and Local Governments Considering Taxing Non Profits
- Arizona Takes Donor’s Gift
- MA Non Profits May Lose Out Following Madoff Case Ruling
- IRS Gives Haiti Special Disaster Status
- Recent Estate-Tax Changes Did not Make Big Difference to Charitable Gifts
- IRS Adjusts Levels for Nominal Value Premiums
- Postal Service May Increase Rates and Reduce Service
- All Pages
Congress Faces Key Matters for Charities and Donors in the New Year
As Congress returns to work after its winter break, lawmakers are taking up several key issues important to charities and donors. Among them:
Estate tax. In 2001 Congress passed the current estate-tax law, which gradually phased out the tax through 2009 and repealed it for 2010. However, in 2011 the current law is set to expire and estate-tax levels that applied years earlier at higher rates are scheduled to go back into effect.
The House of Representatives last month passed a bill that would eliminate the 2010 repeal and permanently keep the estate tax at levels that were in effect in 2009. Because the Senate has not yet voted on the provision, no estate tax exists currently.
The estate tax that applied in 2009 allowed heirs to exempt $3-5-million ($7-million for couples) and face a top tax rate of 45 percent. The estate tax that is scheduled to apply in 2011 would provide an exemption of $1-million and a top tax rate of 55 percent.
Health care. The House and Senate are working to merge their separate bills to overhaul the health-care system. Provisions currently in both bills would require nonprofit employers to offer their workers health insurance or pay a tax. The Senate bill would allow small nonprofit groups to qualify for tax credits if they offer health coverage to employees, but the House bill offers such credits only to for-profit employers. The Senate bill also adds new requirements for tax-exempt hospitals. One would have such hospitals conduct a “community health needs assessment” every three years.
The White House more recently released its own formal health care proposal which reflects many of the compromises discussed between the House and Senate. The proposal does not include restrictions on the tax deductibility of charitable gifts.
Charitable Tax Incentives. The House in December approved legislation that would extend for another year a variety of charitable tax incentives that expired at the end of 2009. The Senate has not voted on the proposal.
The legislation would allow people age 70 ½ and older to again make charitable donations of up to $100,000 a year from their individual retirement accounts without having to pay taxes on the distribution. The measure would also extend tax incentives to encourage donations of property, food inventory, books to public schools, and computer equipment for educational purposes.
Pensions. Congress has not acted on a bill introduced by two House members that would ease rules that govern how charities and other employers make payments to defined-benefit pension plans, which provide specific amounts to retired workers. The stock-market crash has left many nonprofit groups struggling to set aside money for future payments to retired employees.
Volunteerism. The House passed a jobs bill that included $200-million in fresh money for the AmeriCorps, the national-service program. The Senate has not taken up the measure. The money provided in the Jobs for Main Street Act, would allow AmeriCorps to add 25,000 members as part of a broader effort to tackle the country’s high unemployment rate by creating and saving public-service jobs.
Many Nonprofit Programs Hold Even or See Gains in Obama’s 2011 Budget
The $3.8-trillion federal budget that President Obama has proposed for 2011 seems to avoid major cuts in many social-service programs for people in the greatest need.
For example, the president would increase spending on Head Start and Early Head Start, which help children. Mr. Obama wants an additional $989-million for the programs in fiscal 2011 an increase of more than 13 percent, in order to continue to serve 64,000 additional children and families that are covered by the economic-stimulus law that was enacted last year.
In addition, the president would provide $2.5-billion for the emergency fund of the Temporary Assistance for Needy Families program, which would help pay for increased spending on cash assistance and employment-related services, including subsidized jobs.
Congress Passes Plan to Encourage Cash Donations for Haiti Relief
The House and Senate have approved legislation designed to encourage Americans to contribute cash to charities that help with emergency aid and rebuilding efforts in Haiti. The legislation would allow taxpayers to make charitable contributions of cash to the Haiti relief programs before March 1, 2010, and claim those contributions on their 2009 tax returns.
Under current law, taxpayers would have to wait until next year’s filling season to claim a tax deduction for such Haiti-related contributions. The measure is similar to a law enacted in 2005 following the Asian tsunamis.
Budget Plan Revives President’s Call for New Charitable-Deduction Limits
President Obama renewed his proposal to limit the value of charitable deductions for wealthy taxpayers in the fiscal 2011 budget plan he presented – refashioning it as a way to help provide tax relief to middle-income Americans.
The president proposed a similar limit in last year’s budget as a way to help pay for a health-care overhaul, but it was not endorsed by Congress.
This year, he included it in a package of proposals that he sought to correct years of tax policies “that have disproportionately benefited high-income Americans and corporations” and produced a tax code that is “insufficient to meet national needs.” The White House said the change would raise more that $291-billion from 2011 to 2020.
Many nonprofit leaders and fund-raising consultants condemned the proposed limit, which would also apply to deductions for mortgage interest and state and local taxes, saying it would dampen giving at a time when charities are reeling from the economic downturn. Some, however, defended it as a way to bring more equity to the tax code while also helping to pay for health-care changes that would help nonprofit groups.
The president has paired the deduction limit with a proposal to end the tax cuts for wealthy Americans that were enacted during the Bush administration. That means the top tax bracket would rise to 39.6 percent next year, up from 35 percent now.
So, if Mr. Obama’s proposal is adopted, wealthy people will be paying more in taxes while getting less of a tax benefit for gifts to charity. The two proposals combined would increase the after-tax cost of making a charitable donation by almost 20 percent.
Supreme Court Campaign-Finance Ruling Could Aid Nonprofit Advocates
The U.S Supreme Court ruling to lift restrictions on corporate campaign spending has drawn sharp attacks from government watchdogs that fear it will allow business to drown out the voices of individuals, charities, and smaller advocacy organizations.
But while much of the debate and news-media coverage has focused on how the ruling will affect corporations, legal experts say the decision will also make it easier for nonprofit advocacy groups to try to influence elections.
And even more interesting, because the court grounded its decision on the first Amendment free-speech rights, it could pave the way for a challenge to the ban on campaign activity that applies to charities under section 501c3 of the tax code.
The Supreme Court ruled 5 to 4 that a law barring corporations from using money from their general treasuries for “express advocacy” – to urge that a candidate for federal office be elected or defeated – was unconstitutional.
Until now, corporations that wanted to spend money to influence elections had to set up political-action committees, which face limits on the amounts and types of money they can raise.
All of the language about “corporations” applies to nonprofit corporations, legal experts say. In fact the group that lodged the Supreme Court challenge, Citizen United, is a nonprofit group that challenged a Federal Election Commission ruling that it could not air commercials advertising a documentary it had produced was critical of Hillary Clinton, who was then running for President.
Therefore, legal experts say, nonprofit advocacy groups – those covered by section 501c4 of the tax code – may now urge the public to vote or against a federal candidate without having to set up separate political – action committees. They will also be able be able to accept contributions from businesses to engage in such activity, Until now, these groups could advocate for a candidate’s election, but only to their members.
Despite this, some worry that groups fighting for social causes will never be able to match corporate offers.
Charities governed by 501c3 present a more complicated picture, legal experts say. Such groups are barred from any partisan political activity and may conduct only a limited amount of lobbying. The Supreme Court has previously ruled that such restrictions do not violate free-speech rights because charities benefit from tax-deductible contributions. But the new rulings gives such weight to the First Amendment that some legal experts expect it may prompt a charity to challenge the existing rules.
Obama’s $50-Million Fund to Spur Innovation Gets Underway
The Social Innovation Fund--the Obama administration’s new grants program for promising nonprofit groups is now about to get underway.
The Corporation for National and Community Service announced its $50-million pilot Social Innovations Fund which will provide money for 5 to 10 grant makers—including foundations, municipal and state government agencies, and nonprofit groups with grant-making experience
—that will identify and support a small number of nonprofit groups that can prove they have effective approaches to solving problems that can be copied and expanded.
The Fund will focus on innovations in three categories:
- Increasing economic opportunities
- Preparing young people to succeed in school, become active citizens, undertake productive work, and lead healthy and safe lives.
- Promoting healthy eating, exercise, health screenings, and other habits that reduce the risk of illness.
The fund is both investing in services that will improve a single geographic area and in spreading effective innovations across the country.
While its $50-million price tag may seem limited, with its requirements that foundations and nonprofit groups match the federal money, the fund will generate $200-million total in support, each year-a $1-billion investment over five years. That investments and the lesson learned will advance an environment that better supports the expansion and sustainability of effective nonprofit
One of the things that make the Social Innovation Fund game-changing is that it will provide large sums of general operating support to grantees over multiple years, an important signal to the philanthropic marketplace.
Senate and House Pass Jobs Bills with Tax Credits for Non Profit Employers
The Senate approved a jobs bill that has a tax credit which could provide $1 billion in savings to non profit groups and generate 8,000 to 18,000 new non profit sector jobs.
The measure would exempt private employers, including non profits, from paying their share of social security taxes for employees they hire through the end of 2010. (These new hires must have been out of work for at least 60 days). Employers would also receive an additional bonus of $1,000 if they kept these new hires on the payroll for a full year.
President Obama had earlier announced a similar proposal to help small employers-including nonprofit groups-hire workers and raise wages. His plan which was part of a broader White House effort to bring down soaring unemployment, would have given companies or charities a $5000 federal tax credit for every net new employee they added in 2010 and reimbursed them for any taxes they owed to Social Security. because they have a bigger payroll.
The House of Representatives then passed a similar bill, but because it differs slightly with the Senate version, it now goes back to the Senate for reconciliation.
Fundraisers Challenging Utah’s Registration Requirements
A judge has rejected the state of Utah’s request to dismiss a lawsuit challenging its jurisdiction over professional fundraisers who do not do business in the state.
The American Charities for Reasonable Fundraising Regulations (ACFRFR) and Highland, N.Y. based Rainbow Direct Marketing (RDM) field suit in November 2008 against the Utah Division of Consumer Protection, Department of Commerce, alleging burdensome registration requirements for out-of-state fundraisers.
Despite RDM not having any clients or any connections to Utah, the state required the company to register in Utah because its client registered to solicit in the state. RDM planned to make list recommendations to its client but never actually knew where donors or prospects were located.
Plaintiffs argue that the failure to register could bring administrative action by the state against RDM when its client renewed its registration. The state now must answer ACFRFR’s complaint before the discovery phase of the case begins.
When the lawsuit against Utah was filed last year, ACFRFR also engaged other states about their registration requirements. The coalition was able to get assurance from Oregon and North Dakota that they would not enforce requirements on fundraisers who do not direct business within the state. ACFRFR is ready to file suit in two other states.
Notre Dame Gets First Property Tax Bill from Indiana County
The University of Notre Dame and other nonprofit institutions in St Joseph County, Ind., are receiving property- tax bills for the first time as local officials take a close look at facilities previously considered tax-exempt.
Hamstrung by tight budgets and an Indiana state cap on property taxes, the county is now assessing levies on property owned by nonprofit groups but considered to be profit-making, such as the university’s bookstore and on-campus restaurant. Notre Dame had previously paid taxes voluntarily on some off-campus property it owns.
Court Rejects Texas Rules on Solicitation Disclosure
A federal court has struck down key parts of a new Texas law that applied to companies that solicit and resell donations of clothing and other household items on behalf of charities. Under that law, companies that solicit or collect donations of goods for charities had to disclose the amount of money that goes to charities – and specify whether that sum was a set percentage of the proceeds or a flat fee.
Challenging the statute were the National Federation of the Blind of Texas and the Institute for Disability Access. These two charities retain professional resellers – companies that solicit goods and clothing and receive a fee based on volume. They argued there should be no distinction between professional resellers and professional fund raisers who solicit gifts.
The court agreed, ruling that the key provisions of this law were unconstitutional in part because they violate First Amendment free-speech rights.
States and Local Governments Considering Taxing Non Profits
With mounting pressure to cut property tax bills while trying to close ever widening budget deficits, city and states are looking at plans to negotiate payments with universities, hospitals and other large non profits to cover the cost of services provided for what amounts to billions of dollars in tax-exempt property.
PILOTs – payments-in-lieu-of-taxes was first implemented in Cambridge MA in 1973, with about $1 million collected from local non profits. In 2005, the city signed a 50 year agreement with Harvard University that will require Harvard to eventually pay the city nearly $10 million/year.
Other states are considering revoking various tax exemptions for non profits. Hawaii lawmakers are formulating a bill to levy a 1% tax on charities. The Kansas legislature is drafting a measure that would subject non profits to sales taxes. Pennsylvania is considering an end to property-tax exemptions. And local governments in Indiana are starting to place user fees for police and fire services for large non profit organizations.
Arizona Takes Donor’s Gift
Trying to bridge a $1.5 billion budget gap, the state legislature of Arizona took $8.6 million from its State Parks Board account, which included a $242,000 bequest made in 2003.
Although it appears that the state can legally take the money, many familiar with charitable law are upset with state’s action, because the monies were philanthropic gifts intended to be used to for the non profit’s mission. They argue that Arizona should have reduced its allocation portion of the money instead.
MA Non Profits May Lose Out Following Madoff Case Ruling
A number of Mass. non profits that were counting on receiving funding from the Shapiro Family Foundation may be disappointed if a federal judge’s decision in the Bernard Madoff bankruptcy case stands.
The Judge ruled that investors’ losses should be defined as the difference between the money paid into a Madoff account and the amount withdrawn before the collapse in December 2008 – not the balances shown on their final account statements.
The Shapiro Foundation suspended all new grant making activities in 2009 but stated it “would continue to pay on all current grant agreements.” However now, several MA hospitals, universities and museums, including Brigham and Women’s Hospital, Hebrew Senior Life and Boston’s Museum of Fine Arts, who have multi year grants from the Shapiro Foundation may not receive some or all of these future payments.
IRS Gives Haiti Special Disaster Status
The Internal Revenue Service officially declared the earthquake in Haiti a “qualified disaster for federal tax purpose,” which will benefit companies with employees affected by the disaster.
The designation allows corporate foundations to provide cash aid to their needy workers. These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance.
Under IRS rules, corporate grant makers are barred from using philanthropic dollars to help employees except for special circumstances. In addition to helping business, the disaster designation allows victims of the earthquake to exclude this monetary assistance from income on their tax returns.
Recent Estate-Tax Changes Did not Make Big Difference to Charitable Gifts
Gradual increases in the level of the federal estate-tax exemption in recent years apparently did not cause wealthy people to change the shares of their estates that they left to charity, according to a new report from the Internal Revenue Service. But the increases in the exemption level appear to have resulted in a “slight downward trend” in the percentage of wealthy people who made charitable bequests, the IRS said.
In its report, which covers estate-tax returns filed from 2001 through 2007, the tax agency said that “there does not appear to have been a significant downward trend” in the shares of estates left to charity by wealthy people-those with $3.5million or more in gross estates – in contrast to “a slight downward trend in the percentage of wealthy decedents leaving charitable bequests.”
The IRS concluded: “These facts suggest that, while increases in the estate-tax exemption level may have influenced the propensity of wealthy decedents to make charitable bequest at death, such increases did not appear to affect the amounts left to charities.
IRS Adjusts Levels for Nominal Value Premiums
The IRS announced the 2010 changes to the value of low-cost premiums that charities can provide donors without affecting the tax deductibility of a donor’s gift. A gift is fully deductible, and the charity does not need to provide the fair market value (FMV) of premiums/benefits provided, if:
- The fair market value (FMV) of the benefits received does not exceed the lesser of two percent of the gift or $96: or
- The donor gave $48 or more and received a gift or service valued at $9.60 or less; or
- The donor received small items as part of the appeal that were worth a total of no more than $9.60.
Postal Service May Increase Rates and Reduce Service
The USPS is renewing its efforts to drop Saturday delivery service and increase rates, in an attempt to fend off a projected $7 billion loss this year. Postmaster General John Potter has asked Congress for permission to reduce delivery days starting next year, close offices and raise rates.
Under the law, the agency is not supposed to raise rates more than the amount of inflation, but there is a provision allowing for higher increases in extraordinary situations such as the current recession and a significant drop in mail volume. A proposal currently before the Postal Regulatory Commission estimates that increases of 3% this year and 10% next year would be needed.
A major problem for the agency is a new requirement for an annual allotment of $5.5 billion to prepay expected medical benefits for retirees. The postmaster General is seeking congressional approval for the USPS to return to a pay-as-you-go standard.