We’re coming to you a day early as we prepare for the holiday weekend. Memorial Day provides a special time to honor the service and sacrifice of our military men and women. We want to thank those who have served and are serving in our Nation’s military.
China's Draft Law on Management of NGOs and Foundations: Impact on U.S. Funders
Over the past week, the Council has received many inquiries from foundations concerned about how a new draft Chinese law would impact grantmaking in China. In response to this feedback, the Council, in partnership with the International Center for Not-for-Profit Law (ICNL) is hosting a conference call to discuss the implications of this law for overseas funders and NGOs doing work within the country.
The Overseas NGO Management Law, which will be considered by the Chinese legislature this year, would have a significant impact on U.S.-based grantmakers doing work in China. Numerous NGOs, foundations and other organizations active in China have expressed strong concerns about the draft law, which, among other provisions, moves management and control of overseas NGOs and foundations to the Chinese public security apparatus. Comments to the Chinese government are due on June 4th, and the Council is working on a response that others in the sector will be able sign onto.
Professor Sidel of ICNL, who has worked with foundations, NGOs and other groups in China for more than three decades, will describe the implications of this law. We will also hear from a U.S.-based foundation that funds in China with their concerns about how the law could impact their China work. The Council will also share the steps that it is taking to respond to the draft law on behalf of the U.S. foundation sector.
Chairman Ryan Optimistic About Extenders
The top tax-writer in the House, Ways and Means Chairman Paul Ryan (R-WI-1) has said that while he does not believe comprehensive reform can take place this year, he is optimistic that a deal could be struck on international business tax reform and the “tax extenders” this year.
If progress could be made on making the expired tax provisions permanent and reforming the way we tax foreign earnings of multinational corporations, Ryan believes it would pave the way for broader tax reform.
“That’s what we’re exploring right now in this divided government,” Ryan said. “And if we can have a good down payment on tax reform, we think we can get some momentum.” In comments he has made elsewhere, Ryan has reiterated a commitment to passing the “tax extender” provisions before the end of the year.
Tax Provisions Tied to Highway Bill?
Later this summer, lawmakers will consider a highway infrastructure bill. Several lawmakers have indicated a willingness to include additional provisions in the highway bill, which could open up a pathway for the charitable “tax extender” provisions.
As our readers will recall, last week the Senate replaced the language of H.R. 644, the America Gives More Act, with trade provisions. The America Gives More Act included several charitable “tax extender” provisions, including the IRA charitable rollover and the enhanced deductions for conservation easement and food inventory donations.
Champions in the House and Senate remain very committed to passing these charitable provisions as quickly as possible, and will refocus attention on the charitable provisions later this summer. House Majority Leader Kevin McCarthy (R-CA-23) said this week that he hopes to include certain tax provisions in the highway trust fund bill that must be taken up in July.
Meanwhile, Senator John Thune (R-SD), expressed hope that the highway bill could include “tax extender” provisions, such as the IRA charitable rollover. House Republicans are “talking about attaching it to tax reform or tax extenders,” Thune said in conversations about the Highway Trust Fund’s expiration. “What I would like to see happen, in a perfect world, is do tax extenders and the highway bill in that 60-day period so we’re not dealing with this at the end of the year,” he added.
In response to the possibility of combining a full tax reform package with the transportation bill, Senate Majority Whip John Cornyn (R-TX) said, “I think we should do tax reform and I think we should do a long-term highway bill, … but whether or not we could do both at the same time … it would be tricky.”
Even if the two bills are not combined, statements from top leaders in both the House and Senate regarding the inclusion of extenders legislation are promising.
The Council will continue to urge Congress to make the charitable “tax extenders” permanent as soon as possible.
Bill Proposes Increased Protection to Volunteer Organizations
Last week, Rep. Steve Chabot (R-1-OH) introduced a bill in the House called the Local Volunteer Organization Protection Act (H.R. 2290). This legislation is intended to extend the liability protections that are designated for individual volunteers under the Volunteer Protection Act of 1997 to include volunteer groups and organizations that carry out their programs and activities with primary support coming from volunteers. These liability protections would include immunity for charitable organizations from lawsuits pertaining to negligent injury caused by a volunteer. The bill would also extend government immunities to organizations operating at the request, or under the authority of, a governmental agency.
“Local non-profit organizations make our society better by fostering democratic values and providing services… we should protect them from potentially incurring prohibitive legal expenses...” commented Chabot.
Exempt Organizations Could Be Subject to FTC Rules
A recent California case involving the Federal Trade Commission (FTC) and AT&T may have important implications for foundations and other charitable organizations that engage in fundraising activities.
In 2014, the FTC filed a suit claiming deceptive advertising and trade practices related to its mobile services. In response, AT&T argued that its status as a common carrier meant it was exempt from the FTC's jurisdiction and moved to dismiss the suit (Note: common carriers are generally exempt from FTC enforcement). Notwithstanding, the FTC successfully argued that an entity's exempt status, by itself, is not controlling, and the court must look at the activity in question to allow the FTC regulatory authority.
There have been a few cases where the FTC has taken enforcement action against tax exempt organizations (for example, credit counseling services have been a target). However, the FTC generally refrains from such action because its authority to enforce the FTC Act applies only to corporations that are "organized to carry on business for [their] own profit or that of [their] members." Charitable organizations as recognized under Section 501(c)(3) of the Internal Revenue Code carry on business in pursuit of their tax-exempt purposes rather than for their own profit.
In light of the AT&T decision, the FTC may be encouraged to ramp up review of fundraising and other practices of tax exempt organizations, reasoning that tax exempt status is not enough to shield an organization from FTC oversight.
The Council legal team will monitor the outcome of the AT&T case for any implications to tax exempt organizations.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at email@example.com.
Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.
States Taking a Closer Look at Tax Exemptions
Our colleagues at the National Council of Nonprofits report that several states are currently revisiting provisions in their tax codes that allow tax-exemption for charities. Wyoming, for example, is considering implementing an organized process for reviewing existing tax exemptions and granting new ones. States like Wyoming are looking into whether to impose sales and property taxes on nonprofits that are currently tax-exempt under state law, primarily as a means of raising revenue for the state.
Similarly, there are proposals in both the North Carolina and Maine legislatures that would commission studies to assess how tax revenue is impacted by the property tax exemption for nonprofits, and how the corresponding loss of property tax revenue for cities compares to the benefits provided by these organizations.
If implemented, these policies will impact the state tax-exempt status of charitable organizations, as well as the way they are viewed and understood by legislators. The Council is watching these activities closely, along with the National Council of Nonprofits and other colleague organizations.
Vermont Lawmakers Preserve the Charitable Tax Deduction
After weeks of negotiations and proposed changes, Vermont’s lawmakers adjourned having passed a tax bill that preserves the full value of the charitable deduction.
Last week, Governor Peter Shumlin voiced his strong support for charitable giving incentives saying, “Limiting the ability of Vermonters to give to charities is not just a bad idea, it would be terrible economic policy… Charities and non-profits in this state not only provide services to our neighbors in need, they employ our neighbors, drive economic activity, and contribute greatly to our state’s economic success.”
This deal underlines what we already know: the charitable deduction works. It encourages giving and benefits communities across the country. We are pleased to see this important giving incentive upheld in Vermont.
Shakely's Positive Take on Donor Advised Funds
Jack Shakely, president emeritus of the California Community Foundation, addressed concerns raised about donor advised funds head-on in his recent piece, “Who’s Afraid of DAFs?” Shakely expresses the root of the problem: “It's human nature to fear what we don’t understand. The objects of such unreasoning fear... are ‘ghoulies and ghosties and long-leggedy beasties and things that go bump in the night.’”
Shakely delves into the history of DAFs, explains how the national charitable funds developed, and keenly illustrates how DAFs are helping community foundations to thrive.
“People at community foundations have also learned that by using donor-advised funds to build relationships, they can attract broad-based funding for the arts, education, health care, and the like,” he says. This key point echoes one of the Council’s core points on the value of DAFS - they engage donors, nurture greater charitable activity in a community and offer an entry-point for community involvement.
We urge our readers to scroll through the comments at the bottom of the piece for a lively debate between Alan Cantor, a DAF skeptic, and Mr. Shakely.
Charity Fraud Case Gets National Attention
A group of cancer charities—the Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and the Breast Cancer Society—are facing a multi-state lawsuit filed by charity regulators from 50 states, the District of Columbia, and the Federal Trade Commission. The defendant organizations raised nearly $200 million over four years for charitable causes, while only a small fraction of those dollars went towards charity. The remaining dollars raised went to personal expenses for the directors of the organizations, such as vacations and college tuition. This story is receiving broad media coverage.
The lawsuit alleges that these organizations were essentially “sham charities.” The regulators claim that in their charitable solicitations, the organizations falsely claimed that all of the money raised would be spent towards services for cancer patients. The complaint also alleges that the charities falsified financial documents to overvalue its charitable donations and report inflated revenues, to conceal high fundraising costs. Charity Navigator, gave two of the organizations a low rating of one out of four stars for the 2013 fiscal year. There have also been other complaints and indications of wrongdoing within these organizations in the past.
The Council believes strongly that the vast majority of charitable organizations are good actors and exemplary stewards of charitable dollars who do fantastic work in communities across the country. We are disheartened that these few organizations used their tax-exemption for personal gain and took advantage of generous donors. And, we support efforts to weed out bad actors. This lawsuit is strong evidence that the existing regulatory system governing charities is actively monitoring the field and taking action for egregious wrongdoing by organizations that take advantage of tax-exempt status.
Foundations Urge SEC to Mandate Disclosure of Political Spending
This week, 79 foundation leaders sent a letter to the Chairman of the SEC urging him to mandate the disclosure of political spending of public companies. The letter supports a rulemaking petition submitted on August 3, 2011 that recommends “the Commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.”
The letter explained that their foundations invest significantly in the market and “believe there is a clear and obvious necessity to require public and accessible information regarding political spending by corporations.”