Senate Philanthropy Caucus Co-Chairs Encourage Colleagues to Join
This week, the Senate Philanthropy Caucus Co-Chairs, Richard Burr (R-NC) and Chuck Schumer (D-NY) sent a Dear Colleague Letter encouraging their fellow Senators to join the caucus. They called for colleagues to “join this bipartisan effort to support the long tradition of good works by the philanthropic sector.” Stay tuned for coming opportunities to encourage your Senators to join.
Machine-Readable 990s to Become Available Next Week
This week at the annual Chicago-Kent College of Law Not-for-Profit Conference, Director of the Exempt Organizations Division of the IRS, Tamera Ripperda, announced that machine-readable 990 data will become available on June 15th. Stay tuned for more information!
Secretary Kerry Addresses Concerns with New Chinese Law
In early May, the Council on Foundations held a discussion for foundations and non-profits working in China, focused on the new Chinese Foreign NGO Management law. This week, during the Strategic and Economic Dialogue meetings in Beijing, Secretary of State John Kerry discussed the new law directly with Chinese President Xi Jinping and voiced concerns on how the law will impact US entities working in China. The law will drastically change how foreign foundations and non-profits register and operate in China. However, it is unclear how exactly foreign NGOs and foundations will comply with the new law because the law itself is not specific on implementation. There will be a release of implementation guidelines later this year, which should provide the detail needed to comply with the law. You can read more about their discussion from Voice of America.
When to Use Which Fund
Council legal staff has fielded several questions recently about community foundations working with PTAs and PTOs, and whether agency or designated funds are appropriate for these organizations. The answer, as so often is the case in the legal world, is “it depends.”
Many PTAs and PTOs have incorporated as legal entities and received approval from the IRS as charitable organizations qualified under Section 501(c)(3) of the Code. In this case, it is certainly appropriate to establish a designated fund to accept contributions and make grants to the PTA or PTO. However, in some cases, PTAs and PTOs have not pursued or received qualification as a 501(c)(3) charity, and may or may not even be a legal entity, but rather an unincorporated association.
This is when a community foundation needs to be sure it is asking the right questions about the status of the organization to ensure any fund created is appropriate for the circumstance. The solution for an organization that is not qualified as a 501(c)(3) charity, is to establish a fiscal sponsorship or a field of interest fund and exercise appropriate due diligence to ensure that grants made from the fund are used for a charitable purpose.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at firstname.lastname@example.org.
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.
Exclusive from our colleagues at the National Council of Nonprofits.
Unfunded State Liabilities are Driving Policy Challenges
A new report from J.P. Morgan about public finance decisions by state governments puts in perspective seemingly disconnected fiscal and public policy challenges that foundations and nonprofits are confronting across the country. The report, “The ARC and the Covenants 2.0” (ARC refers to “Annual Required Contributions”), found that four states – Connecticut, Illinois, Kentucky, and New Jersey – have the highest (worst) ratio of obligations for bonds and public employee retiree obligations to annual revenue. Each of the states has sought to address these and other costs of government by turning to the philanthropic and charitable communities to fill budget holes and structural deficits.
- Connecticut: As it faces obligations of up to 35 percent of current revenues, Connecticut is also facing a significant budget shortfall that has resulted in spending cuts in the current and upcoming fiscal years. Funding for services provided by nonprofits has been particularly hard hit by budget rescissions. Lawmakers have also turned to taxing the property of some colleges and universities, and even considered taxing endowment earnings. (See, Washington Snapshot, April 1.) “Rather than erode the social compact between community nonprofits,” states Jeff Shaw of the Connecticut Community Nonprofit Alliance, “government and the citizenry, Connecticut, and other states, need to adopt long-term structural change to better use limited dollars while maintaining high quality services.”
- Illinois: It is no surprise to anyone following state fiscal affairs that Illinois has the highest debt and unfunded obligations in the J.P. Morgan study. The state is in the 12th month of a budget impasse for the current fiscal year and little progress appears likely for the new fiscal year that begins on July 1. One way state government has kept itself open is to demand that nonprofits continue to provide services, but not paying the bills when they come due. Nonprofits are owed hundreds of millions of dollars for services rendered and not paid by the state, many organizations have shut their doors or curtailed services, and, most importantly, individuals have not received the services they need.
- Kentucky: The former Governor convened a special tax reform commission dedicated to addressing, among other issues, what it will take to close the exorbitant public pension obligations of the Commonwealth. A key recommendation of the Blue Ribbon Commission and of subsequent legislation called for capping itemized deductions, including the charitable giving incentive, at $17,500. The newly elected Governor is on record saying his administration will also study the issue. The Kentucky Nonprofit Network (KNN) is among many who have urged a balanced approach to tax reform in the Commonwealth. KNN’s Executive Director Danielle Clore says, “Examples from other states demonstrate how damaging inclusion of the charitable giving incentive in a cap on itemized deductions can be to the work of charitable nonprofits – government's essential partners in meeting the needs of Kentucky citizens.”
- New Jersey: The structural deficit reported in the J.P. Morgan analysis, and a projected revenue shortfall of $1 billion, combine to make policy progress very difficult. New Jersey does not provide a state tax incentive for charitable giving and legislative proposals to create charitable deductions have run up against a fiscal stonewall for years. Also, dozens of local governments, deprived of needed funds from state government, are taking advantage of a tax court ruling last year to seek property tax and other revenues from nonprofit hospitals. The hospital challenge in New Jersey is attracting national attention as municipal governments look for their own ways to generate additional revenues from tax-exempt entities within their jurisdiction.