Nonprofit Law Matters

New Domain Names Available for Nonprofits

Posted in Formation & Tax Exempt Status, International Charitable Transactions & Operations, Nonprofit Governance & Ethics, Nonprofit Structures, Relationships & Transactions, Private Foundations, Public Charities

As of May 7, 2015, nongovernmental organizations that meet certain eligibility requirements can purchase two new web domains – “.ngo” and “.ong.”

Public Interest Registry, the nonprofit that manages the .org web domain, launched the new domains exclusively for nonprofits, unlike the .org domain which is available to both nonprofits and for-profits.  The new domains are intended to allow organizations to be immediately identifiable as nonprofits through their web addresses.  Because the domains are meant to be available only to organizations that have been validated as nonprofits, they are presumably less susceptible to purchase by unrelated third parties with the intent to sell them back to the named organization for a profit, a practice that is common with other domains.  Whether this is a practical concern for the new domains is not immediately clear, but an organization wishing to control the use of its name in website addresses should consider registering the desired name(s) before another party – either an unrelated third party wishing to make a profit, or another nonprofit with a similar name – gets it first.

The domain “.ngo” stands for “non-governmental organization,” and the domain “.ong” reflects the translated equivalent for regions where Romance languages are most prevalent.  The domains are sold as a package, so when an organization reserves a name under one of the domains it also automatically reserves the name under the other domain.  More information, including links to registries selling the domains, can be found on Public Interest Registry’s website.

Public Interest Registry also launched a new online platform called OnGood that offers a suite of online services to organizations using the .ngo or .ong domains.  Brian Cute, CEO of Public Interest Registry, described OnGood as being a sort of “Facebook for NGOs” with .ngo or .ong domain names.  It offers a searchable directory with a customizable online profile for organizations using the new web domains, and is intended to help organizations connect with supporters, funders, and other nonprofits.  More information can be found here.

Fiscal Sponsorship Survey Seeks Responses by May 8th

Posted in Grantmaking & Social Investing, Nonprofit Network Affiliations, Nonprofit Structures, Relationships & Transactions, Public Charities

The National Network of Fiscal Sponsors (NNFS) has released a new field survey designed to gather current, relevant information on organizations engaged in fiscal sponsorship.  Click HERE to complete the survey no later than May 8, 2015.

We encourage all fiscal sponsors to participate in the survey to ensure that the resulting report represents a broad cross-section of fiscal sponsorship models and practices around the country.  As an added benefit to participation, fiscal sponsors who participate in the survey will receive the full survey report once released; organizations who do not participate will only have access to the aggregated, public version of results.

Mexico’s Anti-Money Laundering Law Affects U.S. Donors

Posted in Grantmaking & Social Investing, International Charitable Transactions & Operations, Private Foundations, Public Charities

A number of our clients have asked about Mexico’s Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita (Mexico’s Anti-Money Laundering statute or the “AMLL”), which became effective July 17, 2013.  The AMLL identifies specific transactions that require a Mexican entity that engages in these activities to identify and verify the identity of its customers and clients.  The AMLL treats the receipt of donations (cash or property) with value equal to, or greater than, 1,605 times the Mexican minimum daily wage (currently approximately $7,463.25 USD) by nonprofit entities as an activity that requires identification obligations for the Mexican entity.  For these purposes, an organization that donates money to a Mexican charity is treated as a “customer and client.”  Further, the AMLL requires Mexican charities that receive donations with value equal to, or greater than, 3,210 times the Mexican minimum daily wage (currently approximately $14,766 USD) to report these transactions to Mexican authorities.

Because the reporting requirements are obligations of the Mexican entity, this discussion will focus on the identification requirements, which have a more direct impact on US donors.

Las Reglas de Carácter General to the AMLL (the “General Rules”), which became effective September 1, 2013, provide that organizations receiving donations from foreign entities must obtain (and keep for 5 years) the following information:

  • Legal Name of the Entity
  • Date of Formation
  • Country of Origin
  • Nature/Purpose of Activity
  • EIN/Tax ID Number
  • Address
  • Phone Number (including long distance code)
  • Email Address
  • Name, Date of Birth, and Federal Identification Number (if applicable) of the individual representative of the organization entering into the transaction in the name of the entity

Further, the General Rules state that an organization must ask for and keep a copy of the following documents:

  • Formation documents, such as Articles of Incorporation (or other document evidencing formation)
  • Proof of address (e.g., utility bill, bank statement with the entity’s address, etc., which must not be older than three months from the date it is submitted, or copy of a currently-effective lease)
  • Affidavit or proof of the named representative’s authority to act on behalf of the entity and proof of identification of the named representative (if not in the entity’s governing documents). Any proof submitted must be official and have some legal authority (e.g., notarized).
    • Note: The General Rules require that any proof of identification must include the photo, signature, and address of the named representative. For these purposes, the named representative may provide a copy of his/her passport or driver’s license. However, the General Rules allow for any form of identification, so long as it is issued by a state/federal government and includes the named representative’s photo, signature, and address.
  • Proof of entity’s EIN/Tax ID
  • Proof that the entity asked the donor whether the donor knew who would ultimately receive the donated funds (i.e., the ultimate beneficiary of the funds).

An organization that does not comply with the identification and reporting requirements may be subject to monetary and criminal penalties. Again, both the identification and reporting requirements are obligations of the Mexican organization that receives donations above the threshold amounts. Nevertheless, U.S. donors should understand that a Mexican organization may ask its U.S. donors to provide the above information in order for it to comply with the AMLL. U.S. donors should carefully consider what information they are willing to provide.

IRS FY 2014 Data Book Reveals Dramatic Increase in Exempt Organization Approvals

Posted in AG, IRS, FTB, & Property Tax Proceedings, Formation & Tax Exempt Status, Public Charities

Last week the Internal Revenue Service released its Fiscal Year 2014 Data Book, reporting on IRS operations, enforcement, revenue collection and related activities during the period of October 1, 2013, through September 30, 2014, (the IRS fiscal year).  The Data Book included a table on “Closures of Applications for Tax-Exempt Status, by Organization Type and Internal Revenue Code Section,” which revealed a marked increase in the total number of IRS approvals for organizations applying for recognition of exemption, and particularly those seeking exempt status under section 501(c)(3).  The IRS noted the following:

The total number of approved applications for tax-exempt status increased from 44,274 in Fiscal Year (FY) 2013 to 110,656 in FY 2014. This increase is attributable to the introduction of a streamlined application process in FY 2014 for all determination applications and the implementation of the electronic Form 1023–EZ, a streamlined three-page version of the 26-page Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

Last July, we reported on the Internal Revenue Service’s release of the new streamlined Form 1023-EZ application for recognition of exemption under Section 501(c)(3).  Given the newness of the Form 1023-EZ, the potential implications for new charities of using this streamlined form are still not settled.  However, it appears that the form has accomplished at least one of the IRS’s stated goals:  decreasing the extensive backlog in IRS review of exemption applications.

Hundreds of Thousands of Nonprofits Affected by Security Breach Related to Electronic Filings

Posted in Formation & Tax Exempt Status, IRS, FTB & Attorney General Controversies, Public Charities

The Urban Institute’s National Center for Charitable Statistics (“NCCS”) reported this week that hackers tapped into its online filing system for Forms 990, 990-EZ, 990-N, and 8868 (Application for Extension), as well as state filings for Hawaii, Michigan, and New York.  According to the report, information including e-mail addresses, usernames, passwords, individual names, and IP addresses of filing nonprofits all were accessed and retrieved by the hackers.  As many as 700,000 organizations might have been affected, according to The Hill.

The hacked files did not include Social Security numbers or credit card information, according to the Urban Institute, and The Hill reports that “there is apparently no evidence that tax filings themselves were compromised.”

Any organization that has used the NCCS system to submit any of the filings identified above should (if it has not already) change its password on the system, and login information on any other system using the same username and/or password that was used at NCCS.

New Year’s Treasure? AB 1712 Clarifies that Nonprofits May Claim Unclaimed Property of Certain Dissolved Affiliates in California

Posted in Nonprofit Structures, Relationships & Transactions, Private Foundations, Public Charities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

This past August, Governor Jerry Brown signed into law AB 1712, which amends the California Code of Civil Procedure to clarify that certain nonprofit organizations whose affiliates have dissolved may claim the unclaimed property of those dissolved entities under the state’s unclaimed property system.

Unclaimed Property Law in California

California’s Unclaimed Property Law provides a mechanism for persons to file claims with the state Controller to collect financial assets (other than real estate) that are rightfully theirs, but that “escheated” (or, reverted) to the state because no one claimed them.  The purpose of unclaimed property laws is to prevent businesses from retaining unclaimed consumer assets and using them as business income.  Such unclaimed assets are required to be deposited with the state Controller.

The Unclaimed Property Law provides that the Controller has 180 days to respond to a request from a person claiming to be the owner of a particular unclaimed property.  Only “owners” – as defined in the statute – have the right to file claims and receive property.  Previously, “owner” was defined as “the person who had legal right to the property prior to its escheat, his or her heirs or estate representative, his or her guardian or conservator, or a public administrator….”  In other words, while the heirs of a deceased individual could claim unclaimed property of a deceased, it was unclear that any person had similar rights with respect to an organization that had dissolved, leaving the state with assets that were both unclaimed and “unclaimable.”

AB 1712

AB 1712 seeks to restore charitable dollars to the nonprofit sector by expressly allowing certain parent organizations to claim property belonging to dissolved affiliates.  The new law adds the following sentence, expanding the meaning of owner to include nonprofits that granted a charter, sponsorship, or approval of the dissolved entity’s existence in the first place and are the named beneficiary to a dissolved entity’s remaining assets:

An “owner” also means a nonprofit civic, charitable, or educational organization that granted a charter, sponsorship, or approval for the existence of the organization that had the legal right to the property prior to its escheat but that has dissolved or is no longer in existence, if the charter, sponsorship, approval, organization bylaws, or other governing documents provide that unclaimed or surplus property shall be conveyed to the granting organization upon dissolution or cessation to exist as a distinct legal entity.

According to AB 1712’s Bill Analysis, of the approximately $600 million that escheats every year to the State Controller’s office, it is unknown how many owner accounts

belong to nonprofit organizations, but a cursory search by the Committee of some common examples suggests the number could be in the thousands.  (For example, the term ‘AYSO,’ short for American Youth Soccer Organization, yields over 100 records; ‘Girl Scouts’ yields over 200 records; ‘Boy Scouts’ over 100 records.)

So if an organization ever approved the creation of an affiliated or subordinate organization that is no longer in existence, then it’s possible it could be the recipient of a new year’s surprise.  The Controller’s unclaimed property site may be searched here.

New Political Rules for 501(c)s in March 2015?

Posted in Public Charities, Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

We daren’t get our hopes up, but…

We heard through the grapevine that March 2015 is the release date for a second round of proposed rulemaking concerning Section 501(c) regulations relating to political campaign intervention.  Indeed, an online calendar at the Office of Information and Regulatory Affairs at the Office of Management and Budget now indicates “03/00/2015” as the date for the “Second NPRM.”  Wishful thinking?  Stay tuned.

Taxation of Exempts Publishes “Comments on Proposed Regulations Show Exempt Organizations’ Concerns” by Martha Lackritz

Posted in Tax Treatment of Lobbying & Political Activities, Unions, Associations, Clubs & Other Tax-Exempt Organizations

Taxation of Exempts recently published Martha Lackritz’s article Comments on Proposed Regulations Show Exempt Organizations’ Concerns.  In her article, Martha surveys a sample of the over 170,000-plus comments eventually submitted by the public to the IRS in response to its proposed regulations on candidate-related political activities of social welfare organizations.  If you have yet to read all 170,000-plus comments, or if you missed Martha’s five-week series of 25 posts on the top comments, this article is a nice summary of where the comments agree and diverge.  Martha also shares her insight on principal points of agreement and unresolved issues that should play a key role in the IRS and Treasury’s second draft of proposed regulations, anticipated to be released early next year.

“Comments on Proposed Regulations Show Exempt Organizations’ Concerns” by Martha Lackritz is available in the Taxation of Exempts, September/October 2014 issue (subscription required) and our website.

Date of Gift Rules for Charitable Contributions

Posted in Charitable Gift Planning, Private Foundations, Public Charities

The end of the year is nigh, and timing is crucial to determining the year of a donor’s income tax deduction, the value of a donor’s fluctuating asset, and the characterization of the donor’s asset as short-term or long-term.  In general, a gift is complete when the donor relinquishes control over the asset and delivers it to the charity.  It sounds simple, but there are many special rules about what constitutes “delivery.”  The following summarizes some common scenarios:

In-Person Delivery:  Donor hands cash, check, or a properly-endorsed stock certificate to charity’s representative.

  • Date of Gift:  Date charity’s representative receives the cash, check, or certificate.  (Treas. Reg. 1.170A-1(b))

Mail or Delivery Service:  Donor mails a check or properly-endorsed stock certificate to one charity via U.S. Postal Service and another check to a second charity via a private delivery service (e.g., FedEx or UPS).

  • Date of Gift:  The check or certificate sent by U.S. Postal Service is deemed delivered, pursuant to the “mailbox rule,” when the donor places the envelope in the mail.  (Treas. Reg. 1.170A-1(b)).  The mailbox rule does not apply, however, to items sent by private delivery service.  Items sent by private delivery service are deemed delivered on the day they arrive at the charity’s office.

Reissued Stock: Donor instructs the corporation that issued the stock or the transfer agent to transfer ownership of the donor’s stock to the charity.

  • Date of Gift:  Date on which the issuer or transfer agent, as applicable, changes the ownership records to reflect the transfer.  (Treas. Reg. 1.170A-1(b))  Note that “irrevocable” instructions to the transfer agent are not sufficient.

Street Name Stock:  Donor’s stock is held in “street name” on the books of a central clearing house.

Credit Cards:  Donor makes a charitable contribution via credit card.

  • Date of Gift:  Date the charge occurs, regardless of when the donor pays the credit card company.  (Rev. Rul. 78-38)

Real Estate:  Donor transfers real estate to charity.

  • Date of Gift:  State law controls when real property is deemed delivered.  In some cases, the delivery of the deed is sufficient, while in other cases, recording is required.  In California, the gift of real estate is complete when the deed is delivered.  (California Civil Code Section 1054)

Tangible Personal Property:  Donor contributes tangible personal property to the charity.

Text Message:  Donor responds to a charity’s request for funding via text message.

Bottom Line for Charities:  These rules are complicated, and in many cases, the charity may not know the exact date on which the donor’s gift was complete for his or her deduction purposes (e.g., date stock ownership is transferred on corporate records).  The charity must provide, in its receipt to the donor, the date on which it received the gift (which may be later than the donor’s date of gift).  For example, the charity could state in the receipt that “your stock gift was received in our brokerage account on [date],” or “your check was received in our offices on [date].”  Finally, remember that the date of the gift for purposes of the donor’s deduction, and how the gift is valued for deduction purposes, is a separate issue from when the gift is booked by the charity, and how much is booked.

Bottom Line for Donors:  These rules are complicated, so plan ahead to avoid frantic year-end gifts, and consult your tax advisor.

Additional Resources:

Conrad Teitell, Charitable Gifts: Date of Delivery Rules

Do’s & Don’ts: Public Charities in an Election Year

Posted in Public Charities, Tax Treatment of Lobbying & Political Activities

You’re a public charity.  Maybe you’re brand new; or maybe you’ve existed for years but suddenly have an issue your constituents need to know about on the ballot this year.  Maybe one of your Board members is a candidate for elective office.  Maybe you’d like to host a debate.  Maybe you want to register your underserved population to vote.  Whatever your situation, to run an effective and legally compliant organization, you need to be familiar with the rules surrounding advocacy and elections for public charities.

The following list of do’s and don’ts focuses on a few common issues affecting 501(c)(3) public charities.  Public charities are strictly prohibited from endorsing or opposing candidates for elective office, but not from engaging in truly nonpartisan, educational activities.  Each of the activities discussed below may be safely conducted by a charity, provided IRS rules are carefully followed.  This post does not address the rules specific to private foundations, social welfare organizations, or other tax-exempt entities.  Moreover, this list does not address election law issues, such as campaign finance limits and disclosures.  Charities should seek election law counsel to navigate the rules that apply beyond the realm of tax law.

Voter Registration

Do:  Offer information on how and where to vote in a strictly nonpartisan manner, in both the content of your messaging and the way that you target geographic areas or populations.  Refer to Revenue Ruling 2007-41, Situations 1 and 2, for relevant examples.

Don’t:  Target voters or refuse to register voters based on how they expect to vote, or use particular issues to encourage registration by those only on one side of those issues.

But . . . targeting those historically underrepresented in the democratic process (e.g., homeless, poor, racial minorities), or an organization’s natural constituency (e.g., patients at a local drop-in clinic), will generally not, without more, convert a nonpartisan activity to a partisan one, even if the targeted group is statistically more likely to vote for candidates of one party than the other.

Publishing or Distributing Voter Guides from Candidate Questionnaires

Do:  Publish the responses of all candidates in a particular race, and cover a wide variety of issues based on their importance and interest to the electorate as a whole.  Refer to the safe harbor rules in Revenue Ruling 78-248 (Situations 2 and 3).

Don’t:

  • Indicate any bias or preference (in the wording of questions, or in the content or format of the voter guide) for or against any candidate or group of candidates;
  • Publish rankings or ratings of candidates, even if the ratings were determined without regard to political affiliation and resulted from a neutral and unbiased process.

But . . .  be aware that these rules apply regardless of whether the charity itself prepares the voter guide, or distributes one prepared by someone else.

 Candidate Forums and Debates

Do:

  • Invite all legally-qualified candidates;
  • Cover a broad range of issues prepared and presented by a nonpartisan, independent panel of experts;
  • Provide each candidate with an equal opportunity to present views;
  • Include a moderator to assure that ground rules are followed, and have the moderator explain that the sponsoring organization does not endorse any candidate;
  • Refer to Revenue Ruling 86-95 for the framework required to ensure nonpartisanship.

Don’t:  Comply with only some but not all of the above requirements.

But . . . the IRS has indicated that fewer than all candidates may be invited if reasonable, objective criteria are consistently and non-arbitrarily applied to decide whom to invite, especially if inviting all candidates is impractical.

Ballot Measures

Do:

  • Familiarize yourself with the tax rules concerning legislative lobbying to understand the limits on permissible ballot measure activities, since ballot measures are considered legislation for federal tax purposes.
  • Verify whether your organization has filed Form 5768, electing to have its lobbying expenditures measured under Internal Revenue Code Section 501(h).  For more information on the 501(h) lobbying rules, refer to Greg Colvin’s article here.

Don’t:  Refer generically to election outcomes when you talk about ballot measures – such language can imply endorsement for, or opposition to, candidates on the ballot.

But. . . ballot measures entail a number of issues that don’t arise with other forms of legislation, since the voters, not legislators, decide the issues.  Don’t engage in ballot measure activity without a solid understanding of the applicable campaign finance and disclosure rules.

This is only a small sample of the many issues that arise for charities during an election year.  Seek counsel if you are considering engaging in an election-related activity and are unsure how the rules apply, including inviting candidates to speak at an event, providing website links to potentially political content, lobbying for or against legislation, engaging in advocacy on wedge issues that distinguish the candidates in a race, or building coalitions with other tax-exempt organizations, to name a few common scenarios not covered above.