It’s official. IRS targeting of nonprofit self-declarers will begin this year.
Most organizations that qualify for federal tax-exemption other than non-church 501(c)(3) charities do not need to apply for tax-exemption. Whereas may do, they can simply self-declare that they are tax-exempt.
When such nonprofit organizations complete their Forms 990 they need only identify their 501(c) category. That will change in 2015.
Last week the IRS announced that starting next year, self-declared exempt organization will be required to check a box on their Form 990 that they are self-declared. While the IRS is coy about what it will do with this information, it is likely they will use is to target organizations for possible audits. This seems to be a follow-up to an IRS study commenced two years ago.
Is your nonprofit organization’s exemption self-declared? Do you think this new rule will result in more organizations applying for tax exemption instead of self-declari
The IRS is warning taxpayers to watch out for fake emails and websites trying to steal personal information that can be used to commit identify or financial theft. The IRS is listing this type of “phishing” scheme on its list of the top tax scams for the 2015 filing season, the typical time when scams peak as people prepare their returns.
IRS Commissioner John Koskinen explains that the “IRS won’t send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise.” The IRS generally does not initiate contact with taxpayers by electronic communications, such as email, text message, or social media channels, to request personal or financial information.
If you receive an unsolicited email from the IRS, report it by sending it to email@example.com. Get more information about reporting phishing and other online scams here.
In recent years we’ve converted a university and other 501(c)(3)s into for-profit corporations. But is the trend now reversing? Last year, the Law Firm for Non-Profits helped a for-profit private school become a nonprofit. And at the beginning of 2015, Herzing University, one of Wisconsin’s oldest and largest for-profit career colleges, was converted to 501(c)(3) status.
Why is this occurring? In the case of Herzing, it appears to be a combination of economics and changes in the law. For example, the federal rules now require for-profit colleges to demonstrate that they are preparing students for “gainful employment.” This includes setting a cap on annual student loan payments to the colleges at 20% of the student’s discretionary income or 8% of their total earnings. Failing to keep to these caps may result in a college being ineligible for federally funded student aid. Such aid is crucial to the financial success of most for-profit colleges.
It could have also helped that students of 501(c)(3) colleges in Wisconsin are able to tap into state financial aid that is not available to for-profit schools in that state.
Does Herzing’s conversion herald a new trend? For-profit colleges currently enroll 13% of all U.S. college students and take in more than a quarter of federal aid – over $30 billion a year. Unless the new law is reversed (it’s been challenged by the Association of Private Sector Colleges), we believe it will.
In the meantime, if your nonprofit school or college is considering converting to or from nonprofit status, call on the Law Firm for Non-Profits to successfully guide you through this process.
Do you have questions about the sales and use taxes that affect nonprofits organizations? Here is your chance to ask your questions directly to the California Board of Equalization.
On February 19, 2015 at 10AM, California Board of Equalization member George Runner and the California Association of Nonprofits are hosting a live telephone townhall titled “How Tax Laws Affect You.” The purpose of the townhall is to provide nonprofits with information about common tax concerns, including the sales and use tax issues that affect them. During the event, callers will have an opportunity to ask questions.
Get more information here and register online here. If you attend the townhall, let us know what you learn in the comments section below!
While the two biggest charitable donations in 2014 came from men over 80, the top 10 biggest donors reinforced young technology wealth as an important player in philanthropy. The list includes large donations from Nicholas Woodman, the founders of GoPro camera company, and his wife, and Larry Page, a co-founder of Google.
The top donation was a $1 billion bequest from Ralph Wilson, Jr., owner of the Buffalo Bills. The money went to a foundation in Wilson’s name with his heirs now in charge of fulfilling his charitable goals.
Although the combined top 10 biggest gifts of 2014 total $3.3 billion, about the same as that of 2013 ($3.4 billion), charitable giving by the ultra-rich has not yet recovered from the financial downturn. In 2007, the top 10 biggest gifts totaled $4.1 billion. But we have seen an upward trend from the years directly following the financial crises, when totals didn’t reach above $2.5 billion.
Most of the big donations went to colleges, research institutes, and foundations, with enormous capital campaigns leading the way. Harvard is aiming for a new capital campaign record with a $6.5 billion drive and received two of the donations on the top 10 list.
Check out the rest of the top 10 donors here and let us know which organizations topped your giving in 2014!
As you make your nonprofit’s resolutions for 2015, take a moment to look back on the year that was for nonprofits. To help you get started, here are some of our top blog posts on 5 of the most interesting issues facing nonprofits and the nonprofit sector in 2014.
- This was a tough year for Lois Lerner. In the wake of the tea party scandal, we watched her downfall.
House Releases Scathing Report on Lerner
Congress Votes to Hold Lerner in Contempt
Lerner Plays Victim in Exclusive Politico Interview
- In 2014, the IRS introduced its Short Form Exemption Application — Form 1023-EZ, which faced opposition from charity regulators and several nonprofit associations but helped the IRS get through hundreds of exemption applications in a very short period.
IRS Releases Short Form Exemption Application — Form 1023-EZ
Can Donors Trust 1023-EZ?
REJECTED! IRS Derails Hundreds of Forms 1023-EZ
- At the end of 2013, we blogged about the more than 1,000 nonprofit organization that reported a “significant diversion” of assets since 2008. In 2014, we saw embezzlement hit all types and sizes of nonprofits.
May is for Embezzlement Convictions
Nonprofit Embezzlement Finally Stopped After 40 Months
Ex-Charity Head Faces Allegations of $3.8M Embezzlement
- Many celebrity charities faced scandal in 2014. Did your favorite celebrity end up under the negative spotlight?
Lady Gaga Boosts New Tax Plan
Bernie Mac Foundation Joins List of Troubled Celebrity Charities
- Whether or not to take donations or grants from unsavory sources became a big topic in 2014 as the Koch brothers made sizable donations to schools around the country.
To Take Or Not to Take . . . (A Scandalous Donation)
UnKoch My Campus
It was a great year for all of us at The Law Firm for Non-Profits! Arthur celebrated his 18th anniversary of starting the firm and Jessica got married. We wish you a happy new year and a prosperous start to 2015!
There is a lot of confusion among nonprofits with regard to ex officio directors. Who are they and how are they different from other directors?
The term ex officio comes from Latin and means “from the office.” Thus, an ex officio director is a member of the board because he or she holds a specific office or position. For example, if an organization’s bylaws state that the Executive Director is an ex officio member of the board of directors, then the person who holds that office is automatically a director. But does an ex officio director have all the rights of any other director, including the right to vote?
In 2009, the California legislature attempted to clarify the law. That year, an amendment to the law held that ex officio directors were required to be treated as all other directors, including having the right to vote. This was true regardless of whether the articles or bylaws of an organization specifically stated that ex officio directors were non-voting. But rather than providing clarification, the amendment left many nonprofits even more confused.
In 2014, the legislature took another stab at clarifying the law. A new amendment (effective January 1, 2015) provides that a person who is a member of the board by reason of occupying a specific position has all the rights and duties of every other member of the board, including the right to vote, so long as the articles or bylaws do not limit that person’s voting rights. Stated another way, if a person is a member of the board based on his or her position and the articles or bylaws limit that person’s right to vote, then that person is not a director regardless of his or her title.
This means that only persons who have voting rights on a board are statutory directors regardless of title. A nonvoting ex officio “director” could be invited to attend board meetings, but would not have the right to vote at such meetings and would not have any other rights or obligations of directors.
Still confused? We’re here to help. Please contact us with any questions your board has about ex officio directors or corporate governance in general.
How are the recent congressional budget cuts affecting the IRS’s exempt organizations division? With growing concern about the effectiveness of IRS oversight of exempt organizations, the U.S. Government Accountability Office (GAO), an independent, non-partisan congressional watchdog, was asked to prepare a report to the Senate Committee on Homeland Security and Governmental Affairs about the division’s effectiveness. The GAO did just that – reviewing and analyzing IRS data and documents and interviewing IRS and Department of Justice officials, regulators, and specialists.
What did the GAO find? Sadly and not surprisingly, the agency determined that the decreased budget led to fewer employees in the exempt organizations division, which led to fewer exempt organizations being examined by the IRS (.81% in 2011 to .71% in 2013). The GAO also determined that due to the need to safeguard taxpayer data, the IRS has trouble sharing its information with state regulators to assist them with building cases against suspect charities. Finally, because many exempt organizations do not e-file, there is less digitized data available to ascertain analytics and it costs more in labor for the IRS to wade through the data received.
Based on its findings, the GAO made two recommendations to the IRS:
- Develop goals and performance measures to be used in assessing the impact of enforcement activities; and
- Clearly communicate to state regulators how they are able to use IRS information when examining charities.
Separately, the GAO is recommending that Congress consider expanding the requirement for exempt organizations to electronically file their returns so that more organizations are forced to do so.
The IRS agrees with the GAO’s recommendations. Do you? Read the whole report here.
The former Executive Director of We Stay-Nos Quedamos, a South Bronx housing and social services nonprofit, recently pleaded guilty to diverting nearly $900,000 from the organization. How did she do it?
According to the New York Attorney General’s office, Yolanda Gonzalez paid her personal expenses, such as payments on her new car and trips to department stores, nail salons, and movie theaters, using the organization’s money. She brazenly wrote checks to herself or to cash, made ATM withdrawals, and used the organization’s credit cards.
It helped that Gonzalez didn’t work alone. She and the former CFO of the organization worked together to falsify financial reports, balance sheets, and financial statements to conceal her theft before submitting them to the board of directors and the Attorney General’s office.
Gonzalez was finally removed by Nos Quedamos’ board of directors after serving the organization for 6 years when they noticed the financial irregularities and became uncomfortable with her hiring her relatives. The board then alerted New York Attorney General Eric Schneiderman of the suspicious activity. Perhaps partially to blame was the trust the board placed in Gonzalez as the daughter of the founder of the organization, who passed away in 2005.
Gonzalez is set to be sentenced in January for grand larceny and criminal tax fraud. She faces up to 4.5 years in prison. The organization’s former CFO is set for sentencing in February and is expected to face 6 months of house arrest and 5 years of probation for falsifying business records.
Are you surprised that it took the board 6 years to notice Gonzalez’s theft? What steps does your organization have in place to catch financial irregularities quickly?
After years of prohibiting digital sales of its cookies, Girl Scouts of the USA is moving the organization into the digital age with its “Digital Cookie” platform. Why did it take so long?
The national organization, which sets policy regarding sales of cookies by the individual councils, was concerned that online sales would not teach the girls the entrepreneurial skills that are the whole point of the cookie sales, such as interpersonal skills, handling money, and delivering a product.
But after three years of development and testing, the national office has figured out how to incorporate education into the online platform. The organization’s director of the digital cookie effort explained that girls will “learn vital entrepreneurial lessons in online marketing, application use and e-commerce.” The girls will also learn digital order tracking and have the option to hand deliver orders received online.
The national office is also concerned about the safety of its scouts. To gain access to a girl scout’s web page, users will have to receive an emailed invitation from the scout. In addition, no identifying information about scouts may be posted so that it is publicly visible.
The Digital Cookie is starting this month in limited areas and will go nationwide in January for the start of the cookie sales season.
What changes has your organization made to “compete” in the digital age?