Nonprofit Law Podcast #29: Unrelated business income

Nonprofit Law Podcast #29 looks at one of the rare times nonprofits face a tax... unrelated business income.

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Breaking: Dean Zerbe to resign

Who is Dean Zerbe, you ask? He's the chief tax attorney for Sen. Charles Grassley, and to put it bluntly... not a friend to nonprofits, in my opinion. As the Chronicle of Philanthropy notes, he was a driving force behind many recent legislative efforts involving nonprofits in recent years. It will be very, very interesting to see if this impacts Sen. Grassley's efforts in the future.

Nonprofit Law Podcast #28: Nonprofit mail rates

Nonprofit Law Podcast #28 turns its attention to the USPS and nonprofit mail rates.

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Nevada church accused of illegal electioneering

Americans United filed a complaint with a top IRS official, accusing a pastor of a Nevada church of illegally endorsing Barack Obama this past Sunday. More details at the Nonprofit Law Prof blog... the complaint (PDF) is interesting... the IRS gives some leeway to pastors and other religious leaders for endorsements in their individual capacity, but not when they use church resources to do so. This pastor made the comments during a sermon.

This situation reminds me of a moment in a documentary I just watched with the late Jerry Falwell speaking before his student base at Liberty University (a 501(c)(3) as is his church)... paraphrasing: "the IRS says Liberty University can't endorse George Bush. But I can." This was followed by a long litany of reasons to vote for George Bush. The event was held in a university arena by the head of the university... there are other factors to weigh here in a facts and circumstances analysis, but I don't recall any IRS action aimed at Falwell for that event.

What does this say? There's technically illegal actions and illegal actions that receive IRS scrutiny. Since the process is ruled by "facts and circumstances" analysis, it's totally subjective and it can be difficult to rectify in one's mind why one case receives sanctions and the other does not.

Nonprofit Law Podcast #27: Reporting Changes to the IRS

The latest Nonprofit Law Podcast is on the air... in number 27 we take a look at reporting changes to the IRS.

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File your 990s

If you don't file your Form 990 - assuming you're required to (some organizations are exempt) - you may have more than the IRS to answer to. You might find yourself at the other end of a press expose. The latest example? The 50-year old civil rights organization Southern Christian Leadership Conference just had its failure to file spread across the pages of the Atlanta Journal-Constitution. This is a PR blow you don't want you or your clients to take... just a reminder, if your nonprofit follows an end of the calendar-year fiscal year, your 990 is due May 15th...

IRS reports on its problems serving nonprofits

The IRS released the National Taxpayer Advocate's 2007 Annual Report to Congress this week, and it had some very interesting revelations:

The most serious problems encountered by taxpayers

* * *
13. Exempt Organization Outreach and Education. The U.S. tax-exempt sector consists of more than 1.6 million organizations (not including most churches). These exempt organizations (EOs) are diverse in size, ranging from large hospitals and universities to small volunteer-run charities. Approximately half of all EOs have all-volunteer staffs and another third have fewer than ten employees. Smaller EOs frequently lack professional tax guidance. The IRS has increased enforcement actions against EOs and the resources dedicated thereto. However, resources devoted to EO education and outreach, which were never adequate, have continued to decline. Existing IRS outreach and education programs for EOs are beneficial. However, the National Taxpayer Advocate believes the IRS can and should do more to help EOs, particularly small organizations, comply with the complex requirements to which they are subject. The National Taxpayer Advocate urges the IRS to conduct research to assess the service needs and preferences of the spectrum of EOs and to develop a strategic plan to enhance the scope and effectiveness of its outreach to these organizations.

14. Determination Letter Process. Unreasonable delays in the processing of applications for exemption from federal income tax have persisted for several years. Three years after the National Taxpayer Advocate raised concerns about these delays in the 2004 Annual Report to Congress, the processing time for many organizations’ applications still exceeds the IRS’s goal. These delays can have a serious, detrimental effect on charitable organizations’ finances and activities. The IRS has employed a number of measures to fix the problem but must do more to eliminate processing delays and keep organizations informed about the status of their applications.

The determination letter process has surpassed, in my opinion, the mere annoyance stage. At what point will these applications take more than a fiscal year to process? (I'm sure there are examples already out there) Thankfully, the report includes a recommendation to extend the advance ruling periods for cases of extreme delay, but it seems Congress would have to act on that recommendation for it to become reality. More exciting for smaller nonprofits is the recommendation to create a 1023-EZ of sorts for non-private foundations that will pull in gross receipts of not more than $25,000 in a year. I know a lot of groups that would have loved that option in the last year alone...

Check out the executive summary (PDF) for more.

Bad news for advocacy nonprofits

See this article in the Chronicle of Philanthropy on fundraising trends. Most interesting to advocacy groups:

Advocacy organizations, however, reported the worst results of any type of charity in the survey. They recruited a median 21.8 percent fewer new donors in the first three quarters of last year, on top a 14.2-percent decline during the same period in 2006, while the number of total donors also dropped by a median 12 percent.

Combine that with the usual issues with giving during an election year (more competition than off years) plus the spectre of a recession... this isn't the best of news.

"Dirty tricks" against churches alleged

Time has a great piece on some letters being sent to Iowa pastors supporting Mike Huckabee... the Iowa winner suggested before the caucuses tonight that these were a part of a voter suppression gambit by the authors. As you'll see in the article, if they're vote suppressors, they probably need some grammar lessons as well...

Pastors and other religious leaders are allowed under IRS interpretation of tax law to engage in partisan activities in their personal capacity, so long as the church or religious institution is not used. Many toe right up to the line during election season, but the IRS has recently tried to push back a bit and given some additional guidance (Check out Rev. Rul. 2007-41).

Watch those trademarks!

It doesn't come up often in the nonprofit world, but every once in a while there will be a trademark dispute... Check out this story regarding a "Big Sister" issue in Boston.

Be mindful that trademark and copyright laws apply to nonprofits just as much as a for-profit corporation!

"Anti-Poverty Group Refuses to Name Donors"

A charity's nonpartisan advertisement is drawing the attention of some in the reform community. The ONE Campaign's ad is
described by the NY Sun:

At issue is a brief sequence in ONE's television ad showing simulated campaign buttons for 14 presidential hopefuls from both major parties. "Ask each presidential candidate if they're on the record fighting global poverty and disease," the ad's narrator intones. "One voice, plus yours and millions of others. They will hear."

Attorneys for the Campaign Legal Center suggest this ad falls under the disclosure provisions of BCRA, while Jim Joseph, the attorney who represents the ONE Campaign says it's purely an issue advertisement that doesn't support or oppose any candidate, and is therefore outside of the requirement's scope. When all is said and done, is this really the type of advertisement that the law was supposed to target? Is this a "sham issue ad"? It appears on its face to be precisely the type of ad that should not be regulated (and I put disclosure of donors in the "regulated" column). If the law does demand disclosure, I would suggest it's another indication of the problems with BCRA.

UPDATE... Jim Joseph on the election law listserv gave an update:

I am counsel to The ONE Campaign and certainly had my comments taken out of context in the NY Sun article. The reporter seemed to be questioning ONE about why it had not registered as a political committee, which led to my response explaining how The ONE Campaign is not a political committee and how its ads do not support or oppose any candidates. When I finally realized that what he really was talking about was filing the Form 9, I explained that ONE was filing the form within 24-hours of the FEC regulations becoming final on Dec. 26. ONE never raised funds for electioneering communications, but used general treasury funds for these ads. The regulations provide very clearly that donor names do not need to be included on Form 9 under these facts. The reporter's claim of ONE "boasting" of its ad buy was a simple press release stating that it was releasing an ad and buying $1.8 million in air time. The ads were set to end before December 26 and were paid for well before then, so there is probably an argument that the regulations that became effective on Dec. 26 did not apply, but I explained to the reporter that we wanted to file the form even if there might be argument that ONE was not required to file. We even filed before the FEC released a revised Form 9; the current form does not match up to the new regulations, that is for sure. Obviously, none of this comes out in the article. Given the "faux" issue ads that are out there, you would think the press would not be focusing on such non-issues as this.

Totally agreed on the last point!