Non-Profit Legal Matters

The Blog of the Law Firm for Non-Profits®

Twitter Experiments with “Buy” Button

TwitterWould you donate money through a “buy” button on Twitter? The social-media platform recently announced that it is starting to test the waters. The aim is to create a Twitter-based “convenient and easy, hopefully even fun” shopping experience.

Seven nonprofits are among the “buy” button guinea pigs. The nonprofits are 9/11 Day of Service, The Nature Conservancy, Global Citizen, Glide, GLAAD, DonorsChoose.org, and Product Red. Each was selected based on its existing relationship with the social-media platform and because of its already strong Twitter following.

Only a small percentage of users in the U.S. will initially see charitable solicitations in their feeds. (Twitter promises that the number of users will grow over time.) For example, DonorsChoose.org will be selling back-to-school t-shirts to support their charitable purpose of supporting classrooms.

Would you make a charitable donation on Twitter? Share with us a screenshot of your Twitter feed if a “buy” button shows up.

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Prostate Cancer Foundation Rejects Donations Linked to Hacked Photos

Returning donationThe Prostate Cancer Foundation, which funds prostate cancer research globally, recently returned donations totaling $8,000. The donations were raised in connection with a post that was set up on Reddit to disseminate and view hacked nude celebrity photos. Viewers were called to donate to the Foundation to atone for having viewed the photos.

In a statement, the Foundation said: “We would never condone raising funds for cancer research in this manner. Out of respect for everyone involved and in keeping with our own standards, we are returning all donations that resulted from this post.”

The “Subreddit” page where the fundraising took place has now been banned, but a Reddit user responded sarcastically to the rejected donations: “Guys, we’re literally worse than cancer.”

This $8,000 donation may have been easier to reject than the donations of millions of dollars from the Koch brothers colleges and universities thought about rejecting just a few months ago.

Is your organization ready to make tough decisions about accepting donations? Has the board adopted a gift acceptance policy or reviewed its existing policy recently? When it’s time to make tough decisions, a gift acceptance policy will help your board decide. It will also give the board a scapegoat on which to blame rejecting a donation.

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501(c)(4) Scandal Focuses In on IRS’s Political Bias

Democrats and Republicans on a Senate investigative panel reviewing the so-called tea party scandal agree that the IRS used improper methods to scrutinize the exemption applications of social welfare organizations. But the agreement stops there.

The Democrat-led Permanent Subcommittee on Investigations found that there was “no evidence of IRS political bias” in the agency’s actions. In the Subcommittee’s report, a focal point was that the IRS targeted more than just conservative groups. The Subcommittee made clear that it is not happy with the audit released last year by the Treasury Inspector General for Tax Administration (“TIGTA”) that only cited IRS buzzwords that garnered targeting related to right-leaning groups such as “Tea Party” and “Patriot.” The Subcommittee’s report stated that left-leaning groups were also targeted by the IRS, with buzzwords such as “Progressive” and “Occupy.”

The minority staff dissenting view in the Senate report maintains that the TIGTA report was “accurate and proper.” It notes that 83% of the targeted groups were right-leaning. The Subcommittees’ ranking minority member Senator John McCain (R-Ariz.) argued: “The majority’s interpretation of the evidence fails to capture the extent of the IRS’s bias against conservative groups and flagrant abuse of power.” Unknown is the ratio of 501(c)(4) applications for right and left leaning groups.

Inspector General Russell George, head of TIGTA, said last Friday that TIGTA is reviewing the Senate report and that their audit is ongoing.

Tell us if your organization was targeted by the IRS. If so, what buzzwords do you think the IRS used to target it?

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Is Preventing Poverty Charitable?

According to the Canada Revenue Agency (CRA), the answer is No. CRA recently told Oxfam Canada that its mission to prevent poverty was too broad in that it could benefit people who are not already poor. The review was part of a standard filing to renew Oxfam Canada’s nonprofit status as required under a Canadian law passed in 2011.

CRA warned Oxfam Canada that “relieving poverty is charitable, but preventing it is not.” Oxfam Canada conceded and changed “prevent” to “alleviate” in its mission. But the organization’s executive director called it an “absurd conversation” and promised that their programs and activities have not changed despite the revised mission statement.

A representative of CRA maintained that charitable activities still include teaching money management, budgeting, and other life skills that could lead to the prevention of poverty.

One of Canada’s leading newspapers, The Globe and Mail, reports that the debate reflects the deteriorating relationship between the government and some parts of Canada’s charitable sector due to certain groups’ criticism of the government’s programs and policies, especially on the environment. The list of critics includes Oxfam Canada, Amnesty International Canada, and Canada Without Poverty.

A corporation’s Articles of Incorporation effectively limit the activity the organization may undertake. In particular, it may not conduct any activity that can’t be described by the corporation’s statement of purpose in its Articles. In addition, substantially all of an exempt organization’s activity and expenditures must be in furtherance of the purpose it provided to the IRS in its exemption application. Deviation from this purpose – even if the new activity would clearly qualify as tax exempt – can result in loss of exemption as well as other penalties (including penalties payable by board members).

Do your organization’s programs and activities fall within the purposes it set forth in its Articles of Incorporation and exemption application?

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Nonprofits Use Gambling to Help People Save Money

GamblingMost people would rather buy a lottery ticket than put money in a savings account. But Doorways to Dream, a nonprofit organization that aims to create savings innovations for lower-income individuals, is helping people essentially do both with its Save to Win program. The program offers prize-linked savings accounts. This means that every certificate of deposit of $25 or more purchased with a participating credit union “buys” a ticket for a prizewinning raffle. The program aims to make saving fun. It has the feel of gambling, but no risk.

The program has created 50,000 accounts with savings totaling $94 million. The program is open to anyone, but the organization describes most of its depositors as “financially vulnerable.”

These accounts have garnered the support of both liberals and conservatives. The accounts incentivize savings and promote good habits, while also emphasizing personal responsibility and reflect a private market approach to dealing with poverty. Many states are modifying their banking laws to allow credit unions to offer prize-linked savings accounts and Congress is reviewing bills to modify federal banking laws to offer these accounts.

Other nonprofits have started similar programs. Propel Schools, which operates charter schools in Pittsburgh, started a program called Fund My Future, which started a college savings accounts for each student. Every $10 deposit into an account earns an entry for the monthly lottery, which offers prizes such as gift cards to local restaurants and supermarkets. The Times reported that “[i]n the program’s first year, about 15% of the students deposited a total of $25,000.”

Don’t try this at home. Nonprofits must carefully consider applicable laws before venturing into this type of arrangement. Each state has different laws regarding lotteries and a nonprofit must be careful to follow them.

Has your organization tried an incentive program to encourage participation?

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Off-the-Court Conflicts for the U.S.T.A.

ConflictsAs the U.S. Open got started this week, The New York Times was more interested in conflicts off the court than on it. An examination of the United States Tennis Association (U.S.T.A.), the 501(c)(6) national governing body for the sport of tennis, revealed that several of the organization’s current and recent board members have benefitted from the organization’s grants and contracts.

Ray Benton, a U.S.T.A. board member, is the CEO of a junior tennis center that received more than $840,000 from the U.S.T.A.’s charitable wings over the last three years. John Korff sat on a U.S.T.A. board that approved a $50,000 grant to a health club chain that his company bought only months later. Katrina Adams, currently first vice president of the U.S.T.A. board, is the Executive Director of a junior tennis program in Harlem that received more than $215,000 from the U.S.T.A. and its charitable operations while she was on the U.S.T.A. board. And Jeff Williams, also a U.S.T.A. board member, is longtime publisher of Tennis Media Company, which receives about $2.8 million from the U.S.T.A. for member magazine subscriptions.

A spokesman for U.S.T.A. explained that getting individuals involved in elite tennis on the board would be impossible without some conflict of interest. “You’d be kind of hard pressed to find someone with that kind of tennis expertise that might not have interacted with the U.S.T.A. at some point,” he said.

The Times calculated that at least $3.1 million of the U.S.T.A.’s $200 million budget that includes salaries, grants, vendor contracts, and other payments goes to organizations with ties to board members.

Given the apparent benefit some board members receive from the U.S.T.A., do you think it deserves to retain its “nonprofit” status?

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Nonprofit Embezzlement Finally Stopped After 40 Months

EmbezzlementWendy Harper started to embezzle from her nonprofit employer within four months of assuming her duties as payroll supervisor. She wasn’t caught until 40 months later.

During her time as acting payroll supervisor at Harvest Management Group, a nonprofit that manages 18 properties for the disabled and elderly, Harper used her position to embezzle almost $600,000. She did this by giving herself raises and claiming 1.2 million miles worth of mileage reimbursements. This would have meant her driving 30,000 miles per month while working a desk job.

In February, she pleaded guilty to one count each of theft from federal-program funds and filing false tax returns. On Monday she was sentenced to a two-year prison term. She was also ordered to repay the money she embezzled and to pay about $125,000 to the IRS for filing the false income-tax returns. She could have been sentenced to up to 13 years in prison and received a fine of up to $500,000.

The Department of Housing and Urban Development and the IRS found that because of the embezzlement, Harvest Management is having trouble maintaining its 900 units and paying property taxes.

If you are a reader of this blog, you know that this isn’t the first and certainly won’t be the last time a nonprofit has suffered at the hands of an embezzler. The NonProfit Times has reported that the typical nonprofit organization loses 5% to fraud each year and that the median loss suffered from occupational fraud is $140,000.

Has your nonprofit suffered embezzlement? What was done about it?

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New IRS Phone and Email Scams

scamsThe IRS is warning of phone and email scams targeting individuals and businesses.

First, scammers have been making calls claiming to be from the IRS. They may say that a taxpayer owes money or is entitled to a large refund. Even worse, some of the scammers are threatening arrest or revocation of the taxpayer’s driver’s license. The calls may be followed by other fake calls from state agencies.

The IRS will always send taxpayers written notification of any tax due by mail. The IRS never asks for credit card, debit card, or prepaid card information over the phone.

If you are at all unsure about a call “from the IRS,” don’t provide any personal information. Instead hang up and report the incident to the Treasury Inspector General for Tax Administration here or call 800-366-4484. In addition, report the scammers to the Federal Trade Commission using the “FTC Complaint Assistant.” Add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers have also been receiving emails that seem to be official IRS notices. The emails include links that recipients are instructed to click on, which lead to web pages where personal information is requested.

The IRS does NOT initiate contact with taxpayers by email, text, or any form of social media to request personal or financial information. Do not respond to these emails and especially DO NOT click links included in them. Instead, forward the scam emails to the IRS at phishing@irs.gov.

Find out about more scams here. What punishment do you think befits these scammers?

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IRS Makes Progress on Exemption Application Backlog

BacklogAt the beginning of 2014, 15% of the exemption applications still on backlog with the IRS were more than one year old. The IRS Tax-Exempt and Government Entities Division (TE/GE) announced this week that the division has since closed 97% of those cases.

According to TE/GE’s deputy commissioner, Donna Hansberry, the division is “on pace to close almost all the aged inventory by the end of calendar year 2014.” They are working from oldest application to newest to get this done.

So what has been the hold up? Hansberry blames it on the auto-revocation. Specifically, the automatic revocation required when an exempt organization fails to file an information return for three consecutive years. She explained that more than 577,000 exempt organizations were automatically revoked for failure to file and the IRS has since reinstated almost 34,000. Of the exemption application received last year, about 30% were for reinstatement.

On top of that, Hansberry noted that since 2010 exemption applications have increased significantly while in the same time period TE/GE staffing has decreased.

At The Law Firm for Non-Profits, we’ve experienced the backlog reduction first hand. In the last two months, we’ve received a large number of determinations filed more than a year ago. Indeed, as of this posting, we only have three applications submitted more than a year ago still outstanding.

Tell us if you’ve been waiting more than a year for your determination. Have you heard anything from the IRS? What have been the consequences to the organization of having to wait a year or more for exemption?

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Does Your Nonprofit Pay Its Payroll Taxes?

According to a recently released report from the Treasury Inspector General for Tax Administration (TIGTA), although most exempt organizations pay their federal taxes, more than 64,200 of the nearly 1.7 million organizations recognized as exempt (or 3.8%) had nearly $875 million of federal tax debt as of June, 2012. This included payroll taxes, unrelated business income taxes, excise taxes, penalties and interest.

Most of the exempt organizations owed less than $10,000 each. But about 1,500 exempt organizations owed more than $100,000 each, with some owing more than $10 million each.

Unpaid payroll taxes and related penalties and interest constituted almost $600 million of the amount owed (about 69%). TIGTA recommended that the IRS Exempt Organizations (EO) Division help detect those exempt organizations that fail to pay payroll taxes, but the EO Division rejected the recommendation. After all, the EO Division has enough to worry about.

What does this mean for your exempt organization? Remember that even if your organization is exempt from paying federal income taxes, it is not exempt from paying payroll taxes and other federal and state taxes. Check with your accountant or tax professional to make sure your organization is complying with all applicable tax regulations.

The federal government is on the lookout for noncompliance, even if the EO Division wants no part of it. The IRS isn’t authorized to revoke tax-exemption based on an organization’s failure to pay payroll taxes, but the IRS could decide to base future audits on an organization’s failure to pay payroll taxes.

And this is not limited to the IRS. State payroll tax agencies, such as California’s Employment Development Department, also are targeting exempt organizations for failure to pay payroll taxes. At the state level, individual officers and employees sometimes can be held personally liable for an exempt organization’s failure to make payroll withholding payments.

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