March 2008
March 28, 2008
IRS Clarifies How to Request Nonprofit Tax Document on Business Activities
The Internal Revenue Service has issued a notice explaining how the public can request copies of a nonprofit organization’s Form 990-T, which lists unrelated business income.
All 990-Ts filed after August 17, 2006, are available from the IRS, but the agency does not currently have a way for people to request them. To make sure they are available, the agency is allowing people to adapt a form used to make requests for other documents (called the 4506-A) by writing a request for a 990-T on line 7 of the 4506-A.
(The 990-T can also be obtained by writing an individual charity directly to request a copy.)
The tax agency says it will change its request form in the near future to make it easier to secure a 990-T.
— Sam Kean
March 26, 2008
Watchdog Urges Foundations to Curtail Tax Fraud
A key figure in Congress’s recent efforts to curb abuse in the nonprofit world says foundations need to become much more aggressive in stopping tax fraud.
Otherwise, foundations could soon be in the cross hairs of federal lawmakers.
Dean A. Zerbe, a former top aide to Sen. Charles Grassley of Iowa, said in an online discussion with Chronicle readers that some members of Congress are concerned about family foundations that are paying family members for administrative or board positions.
Mr. Zerbe, who stepped down from his Senate job last month to work as national managing director for Alliant Group in Washington, also said he is concerned that private foundations are being used as a tax shelter by some wealthy donors.
“There needs to be better leadership from the foundation community in this area overall to address these problems,” Mr Zerbe said. “The private foundations should come forward with their proposals of reform and not wait for Congress.”
During the hour-long discussion, Mr. Zerbe also answered questions about issues such as the Combined Federal Campaign, endowment spending by colleges, and the tax status of religious organizations.
March 25, 2008
Lawmakers Fight Proposed Budget Cuts for National-Service Programs
More than 30 members of the House of Representatives have signed a bipartisan letter asking the House Appropriations Committee to reject the 2009 budget cuts proposed by President Bush for national-service programs.
The proposals would prevent the Corporation for National and Community Service, the federal agency that operates the programs, from fulfilling its strategic plan of boosting the number of Americans who volunteer annually by 10 million, to 75 million, by 2010, the letter says.
“Americans have stepped forward in record numbers to serve, but funding cuts have prevented national service programs from growing at a rate to meet demand,” it adds.
President Bush, as part of an effort to rein in the federal deficit, in February proposed cutting the Corporation for National and Community Service’s program budget from $782.7-million in 2008 to $751.5-million in 2009. That followed several years of cuts that have steadily reduced the budget from its 2005 level of $856.6-million.
The letter to the Appropriations Committee was signed by the four co-chairmen of the House National Service Caucus—Doris Matsui, Democrat of California; Todd Platts, Republican of Pennsylvania; David Price, Democrat of North Carolina; and Christopher Shays, Republican of Connecticut—and 30 other lawmakers.
It proposes restoring the budget for the main AmeriCorps program, which provides grants to nonprofit groups that operate national-service programs, to its 2004 level of $312-million, compared with the administration’s proposal for $274.2-million (up from $256.8-million in 2008).
It also proposes increasing the budget for the National Civilian Community Corps, which sends trained volunteers to disaster areas, to $26.7-million, up from $23.8-million, saying it “continues to serve as a key program in the Gulf Coast’s long-term recovery efforts.” Mr. Bush proposed cutting that budget to $9.9-million.
The letter urges Congress to reject Mr. Bush’s proposal to cut the Senior Corps programs, which tap volunteers age 55 and older, from $213.8-million this year to $174-million in 2009. They propose a budget of $239.9-million.
The lawmakers said Congress should provide a “robust appropriation” for the national-service programs, calling them a “smart investment that leverages federal dollars to create a greater capacity to meet community need.”
A similar letter is now being circulated for signature in the U.S. Senate.
March 24, 2008
Group to Unveil National Nonprofit Voter-Participation Campaign
A group that aims to get nonprofit organizations more involved in nonpartisan election activities will unveil the 2008 National Nonprofit Vote Campaign on April 1.
The campaign, created by the Nonprofit Voter Engagement Network, will provide training, information, legal resources, how-to guides, and materials such as bumper stickers and posters to help nonprofit groups get voters to the polls for the November elections.
“Our belief is that nonprofits are the sleeping giant of the democratic process,” said Bridgette Rongitsch, director of the network, a project of the Minnesota Council on Nonprofits. “These groups have daily contact and super trusting relationships with the people they work for. These are the same communities who are not turning out [to vote] in big numbers.”
The Nonprofit Voter Engagement Network—which was created in 2005 and has received money from foundations including the Carnegie Corporation, Open Society Institute, and Tides Foundation—has so far focused mostly on voter-participation projects in the states of Ohio, Louisiana, Massachusetts, Michigan, and Minnesota.
The Nonprofit Vote Campaign is the group’s first effort to reach out to nonprofit groups in all 50 states, Ms. Rongitsch said. As of April 1, its Web site will serve as a “one-stop shop” for information and resources about nonprofit voter-participation activities.
Government Finds Vehicle-Donation Law Has Had Mixed Effect
In a new report, the Government Accountability Office has found that charities have had mixed experiences with vehicle donations after a new law in 2005 altered how much donors could deduct for vehicles.
Before January 1, 2005, donors could claim a tax break equal to the fair market value of a donated vehicle. After that date, donors could deduct only the amount for which the charity later sold the vehicle. The government changed the law because it found examples of large discrepancies between the market value claimed by donors and the actual sales price.
The report — which contains in-depth interviews with 10 charities, but no statistical survey — looks at the effect of the new law on the number of vehicles donated, the quality of the vehicles donated, and the revenue generated by donated vehicles.
The results, while not clear cut, were generally negative: Between 2003 and 2006, six of the 10 charities received fewer vehicles and less revenue from vehicle sales, sometimes millions of dollar less. Only three groups reported increases for each measure. (One did not provide data.) In addition, all the charities reported an increase in paperwork, and some had scaled back their vehicle-collection programs because of the new law.
— Sam Kean
Former Senate Aide Takes Questions on Philanthropy
Join The Chronicle on Tuesday, March 25, at noon for an online discussion with the prominent charity watchdog Dean A. Zerbe.
As a top aide to Sen. Charles Grassley, the senior Republican on the Senate Finance Committee, Mr. Zerbe has been a prime mover in Congressional efforts to stomp out charity abuses.
His wide-ranging criticisms of charities and foundations divided the nonprofit world, but everybody agrees that his influence on the operations of nonprofit groups will be felt for many years to come.
Mr. Zerbe started more than a dozen investigations of charitable activities that had previously drawn little attention on Capitol Hill, such as the tax breaks donors take for gifts of land and deals between charities and insurance companies.
He was a key figure in the effort to overhaul the Internal Revenue Service Form 990 and recently has been pushing for reform of nonprofit hospitals, donor-advised funds, and the compensation practices of evangelical ministers.
Mr. Zerbe stepped down from his Senate job last month to work as a tax lawyer in Washington, and in an one-hour conversation with Chronicle readers, he will examine what’s next for nonprofit groups on Capitol Hill, including the outlook for tax incentives to encourage charitable giving.
In addition, he will answer questions about what he has learned from his investigations — information all nonprofit leaders need to understand as their organizations come under increasing scrutiny from lawmakers, the news media, and others.
People who ask questions in advance have a better chance of receiving answers during the online discussion.
March 21, 2008
Key Lawmaker Challenges IRS's Inquiry Into Sen. Obama's Church
Sen. Joseph I. Lieberman of Connecticut is challenging the Internal Revenue Service’s investigation into alleged political activities of the United Church of Christ and is asking the IRS to explain why it began the inquiry.
Mr. Lieberman, a Connecticut independent, said he found the investigation “especially troubling because of the service’s inadequate guidance” for churches trying to follow federal law when they invite candidates to appear at gatherings.
The IRS notified the United Church of Christ in February that the government had a “reasonable belief” that the church had engaged in forbidden political activities because Sen. Barack Obama spoke at a major conference held by the church last year in Hartford. The IRS also said that 40 volunteers for Mr. Obama, an Illinois Democrat, “staffed campaign tables outside the [convention] center to promote” Mr. Obama’s presidential efforts.
Under federal law, churches and charities must not participate in a political campaign in support of, or in opposition to, a candidate for public office. An organization that violates the law a single time could be forced to pay a penalty fee and have its tax exemption revoked.
Officials of the United Church of Christ denied any wrongdoing.
Senator Lieberman told the IRS that the church “took significant precautions to ensure that Senator Obama’s appearance” satisfied legal requirements.
“Throughout my career in the Senate, I have supported the strong and fair enforcement of our nation’s tax laws, including laws applicable to religious institutions,” wrote Mr. Lieberman.
“But I am concerned about the chilling effect on legitimate activity by religious organizations that results from initiating a church tax inquiry without first satisfying the reasonableness standard, and I am further concerned by the lack of clear guidance in this area,” Senator Lieberman said.
Mr. Lieberman, the Democratic nominee for vice president in 2000, this year has endorsed Sen. John McCain, the Arizona Republican, for president.
March 17, 2008
How Nonprofit Work Influenced Barack Obama's Mother
In a New York Times profile of Sen. Barack Obama’s mother, Stanley Ann Dunham Soetoro, the newspaper describes her as “the parent who most shaped” the Democratic presidential candidate and discusses her work in the nonprofit world and international development.
Ms. Soetoro served as a program officer in Ford Foundation’s Indonesia office focusing on helping women’s rights and microfinance. In her role, she rubbed shoulders with “leaders in the Indonesian human-rights movement, people from women’s organizations, [and] representatives of community groups doing grass-roots development.”
In addition to Ford, she did microcredit work for the United States Agency for International Development, Women’s World Banking, and an Indonesian bank.
“She was a very, very big thinker,” Nancy Barry, a former president of Women’s World Banking, a nonprofit group, told the newspaper. Ms. Soetoro worked for the organization, in New York, in the early 1990s.
Mr. Obama would not comment for the Times article. But perhaps in part because of his mother’s influence, he has shown an interest in supporting nonprofit groups.
In December, he proposed a government fund to support innovative nonprofit projects and a Social Entrepreneurship Agency to give small nonprofit groups “the same kind of support that we give small businesses.”
— Ian Wilhelm
March 14, 2008
Charity Abuse One of IRS's "Dirty Dozen" Tax Scams
Once again, the misuse of nonprofit organizations to shield income or provide fake tax breaks has appeared on the Internal Revenue Service’s Dirty Dozen, the agency’s annual list of the top 12 tax scams in the United States.
Most of the abuse stems from people giving money or property to donor-advised funds or similar programs while retaining too much control over the donations. The IRS also warns charities to watch out for people overestimating the value of donated property, such as land or artwork, so that the donors can take an excessive tax break.
In addition, the IRS says that an old scam — claiming that private tuition payments are donations to a nonprofit group or religious organization — continues to grow. The agency noted on last year’s Dirty Dozen list that the scam had returned, and this year it notes that it has gained popularity.
— Sam Kean
IRS Asks Charities to Help Promote Tax Rebates
The Internal Revenue Service is asking nonprofit organizations to help publicize the government’s tax-rebate program and to make sure that all people eligible to receive a rebate know how to claim it.
Many Americans will receive a $600-per-person rebate as part of the federal government’s recent economic-stimulus package, and most of those people will automatically receive the rebate when they file their 2007 income tax return.
However, many Americans who do not normally file income tax returns but who receive Veterans’ Affairs benefits or Social Security payments are also eligible. The IRS is hoping that charities and churches that have close contact with those people can help them obtain their rebate.
To help nonprofit groups, the agency has set up a Web page with sample flyers, mail inserts, and radio notices that groups can use.
— Sam Kean
Where John McCain's Foundation Donates
Harper’s Magazine has taken a look at the giving by Sen. John McCain’s foundation and writes it has primarily given money to private schools his children have attended.
In the article by Ken Silverstein, he writes that from 2001 to 2006, the foundation awarded $1.6-million, with $500,000 going to Xavier College Preparatory and other “elite” schools the couple’s four children attended.
“There’s nothing illegal or improper about the foundation’s contributions,” writes Mr. Silverstein, “but it’s not exactly the pattern of giving you’d expect from someone who has cultivated an anti-elitist image.”
A spokesman for Mr. McCain told Mr. Silverstein that the giving simply reflected the couple’s charitable interests.
“These are schools that did great things for the McCains’ kids and they felt it was appropriate to support them,” the spokesperson said.
According to its most recent 990 informational tax form, the John and Cindy McCain Family Foundation, in Phoenix, was set up in 1997 by the Republican presidential candidate from Arizona and his wife, who is its chairman and president.
What do you think? Do the gifts raise questions about Mr. McCain? Or is it not unusual for parents to donate to their children’s schools? Click on the comments link below this post to share your thoughts.
— Ian WilhelmMarch 13, 2008
National-Service Bill Defeated in U.S. House by One Vote
The U.S. House of Representatives last night rejected by one vote a bill to reauthorize and expand the national-service programs operated by the Corporation for National and Community Service, disappointing advocates who were hoping Congress would breathe new life into programs like AmeriCorps, Senior Corps, and Learn and Serve America.
The Generations Invigorating Volunteering and Education (GIVE) Act, H.R. 5563, would have authorized AmeriCorps — which provides volunteers and grants to charities, religious organizations, and government agencies — to expand from 75,000 participants to 100,000 over five years.
It also would have created several new programs, including a summer service program for middle- and high-school students, a Silver Scholarship Program to provide $1,000 educational grants to people age 55 and over who volunteer at least 600 hours a year, and a “reserve corps” of AmeriCorps alumni to help during national emergencies.
While the bill had broad bipartisan support, it got caught up in wrangling between Democrats and Republicans that brought it to the floor under procedures that are designed to speed approval but that require a two-thirds majority to pass. The vote was 277 to 140, one vote shy of the number needed to win. All those voting against were Republicans.
Voices for National Service, a coalition of nonprofit groups and state agencies, said it was disappointed that the lawmakers passed up the chance to reauthorize the country’s national-service programs for the first time in 15 years.
“The bill would have helped to strengthen and expand the federally supported service initiatives, stimulate community volunteerism, and increase accountability and efficiency within the administration of the national service programs,” it said in a statement.
So far, the Senate has not drawn up any legislation to reauthorize national-service programs.
Senators Send Letters to Three Ministries
The Senate Finance Committee is turning up the heat on three Christian ministries that so far have refused or failed to respond to its investigation of so-called prosperity gospel churches.
On Tuesday, the committee’s co-chairmen — Sen. Max Baucus, a Democrat from Montana, and Sen. Charles Grassley, a Republican from Iowa – sent letters to the groups urging them to cooperate with the inquiry, which is looking into questionable salaries and fund-raising practices at a half-dozen churches.
Mr. Grassley started the examination in November when he asked the ministries turn over financial data by the end of this month.
The letters indicate that Mr. Baucus is now joining the inquiry, which gives it more power. As chairman of the committee, Mr. Baucus may issue subpoenas to the uncooperative groups.
“To date, you and/or your legal counsel have not provided the requested information to Senator Grassley, nor offered any assurances that the information would be forthcoming,” the senators wrote this week to Kenneth Copeland Ministries, in Newark, Tex.
“The committee continues to hope that mutually respectful discussions will enable the committee to obtain the requested information without resorting to compulsory process.”
Mr. Copeland and other ministers have objected to the inquiry saying it violates privacy laws and oversteps the legislative role of Congress.
In their letters, the senators wrote that while the Internal Revenue Service is charged with enforcing tax laws, the committee sets tax policy, which includes oversight of nonprofit groups.
And they added that they would work with the groups “to protect any proprietary or confidential information.”
Aside from Copeland Ministries, the senators sent letters to World Changers Church International, in College Park, Ga., and New Birth Missionary Baptist Church, in Lithonia, Ga.
They also sent a letter to the Without Walls International Church, in Tampa, Fla., which they said has promised to turn over financial information but has yet to do so.
The remaining two groups under investigation — Benny Hinn Ministries, in Grapevine, Tex., and Joyce Meyer Ministries, in Fenton, Mo., — are largely cooperating with the inquiry, they said.
— Ian Wilhelm
March 11, 2008
IRS to Require More Disclosure of Officials' Salaries
The Internal Revenue Service will probably alter its definition of which workers should be counted as key employees on the newly redesigned Form 990 informational tax form, a change that would require many groups to list the salaries of more people than they do now.
Ronald J. Schultz, a senior technical adviser for the agency’s tax-exempt organizations division, said in an interview that the IRS is looking at expanding the definition of “key employees” for whom charities must report compensation on their Form 990. The form and its instructions are getting a significant makeover for the 2008 tax year.
Currently, only workers whose influence extends “organizationwide” are considered “key employees” on Part V of the Form 990, said Mr. Schultz. (Schedule A of the Form 990 asks charities to list the compensation of their five highest-paid workers other than officers, directors, and key employees.)
Instructions now say that a key employee is anyone who has responsibilities similar to those of officers and directors and include chief management officials of an organization, such as an executive director.
The instructions also say “a chief financial officer and the officer in charge of the administration or program operations are both key employees if they have the authority to control the organization’s activities, its finances, or both.”
“We’ve found that many organizations take the position they have no key employees,” said Mr. Schultz, “so in the redesign we wanted to find clarity.” Under the new definition, anyone who has “influence over key activities” would qualify.
“Many people in the sector think it’s an expansion” of the qualifications for a key employee, Mr. Schultz said, “and it might be.”
He also said some charity officials are calling the move the “department head” rule, since heads of departments at hospitals and universities would probably qualify. To make sure the new requirements are not onerous, he said the IRS will probably require groups to list the salaries only of key employees who make at least $100,000.
— Sam Kean
March 05, 2008
Antipoverty Advocates Urged to Unite to Influence Next President
As the 2008 election nears, antipoverty advocates should work together on a bipartisan basis to ensure the next president gives priority to narrowing the gap between rich and poor, speakers at a conference said today.
“We need to ask the next president whether poverty and opportunity are issues of importance to him or her, and if so, what he or she will do about it,” said Andrea Silbert, president of the Eos Foundation, in Boston, one of several grant makers that created a project called Spotlight on Poverty and Opportunity: Foundations Ask Presidential Candidates What They’ll Do for America.
Ms. Silbert called on foundations to play a leading role in getting the issue on the president’s radar screen. Despite increased spending by grant makers on antipoverty projects, she said, the country’s poverty rate has not significantly decreased over the last 30 years. “More and more foundations are funding public-policy initiatives,” she said. “But we have to take it one step further. We have to aggregate the power of our voices.”
The conference sponsors — Spotlight on Poverty, the Brookings Institution, and the Stanford Center for the Study of Poverty and Inequality — released a new study showing that newspaper and wire-service coverage of the political debate over poverty was up 145 percent in 2007 (4,344 articles) compared with the previous pre-presidential-election year of 2003 (1,775 articles).
Coverage jumped significantly during the 2004 election year, which suggests that 2008 will bring even more articles about poverty and politics than in 2007. That is good news for antipoverty advocates and policy makers, said Thomas Freedman, president of Freedman Consulting, in Washington, which helped conduct the study. “Clearly there’s an opportunity here to make your case,” he said.
Speakers at the conference discussed proposals that were most likely to get support from both Democrats, who are generally more sympathetic to social programs, and Republicans, who generally favor programs that promote personal responsibility.
Several said expanding the Earned Income Tax Credit, which provides cash to low-income workers, falls in that category because it rewards people who hold onto jobs. Vin Weber, a former Republican congressman from Minnesota who is now a political consultant in Washington, said antipoverty advocates might find a sympathetic ear in John McCain, the Republican presidential nominee, since he prides himself on his independence and “is not comfortable with the pro-tax-cut, pro-corporate agenda.” Mr. McCain may also find common ground with young evangelical voters who are concerned about both global and domestic poverty, he added.
Mr. Weber and William Galston, a senior fellow at Brookings and a former policy adviser to President Bill Clinton, said using the right terminology to describe efforts to lift people out of poverty is critical to attracting bipartisan support. Referring to “opportunity” will have broader appeal than referring to “inequality,” they both agreed.
The Eos Foundation started Spotlight on Poverty, which tracks on a Web site news about poverty and the positions of the presidential candidates, with the Annie E. Casey Foundation, in Baltimore, last October. Since then, they have been joined by the California Endowment, in Los Angeles; the Endowment for Health, in Concord, N.H.; the Louisiana Disaster Recovery Foundation, in Baton Rouge, La.; and the George Gund Foundation, in Cleveland.
March 04, 2008
Congressional Aide Discusses Possible New Endowment Rules
A Congressional staff member discussed possible new requirements for university endowments — including a mandate that 5 percent of their value be spent each year on charitable expenses — at a session of the Washington Non-Profit Legal and Tax Conference.
Roger Colinvaux, legislation counsel to the Congressional Joint Committee on Taxation, noted that Congress has historically been concerned with preventing “unreasonable accumulations of income.” That concern led to the current rule that private foundations must spend a certain percentage of their assets each year. Lately, some senators have argued that university endowments represent an unreasonable accumulation, too, so it makes sense, said Mr. Colinvaux, that those endowments be subject to the same laws.
As for Congress implementing a payout requirement, Mr. Colinvaux said he was unsure if it would apply to all university endowments or just the largest endowments, those worth at least half a billion dollars.
He also said that Congress would explore whether to make the requirements different for public and private universities; what supporting groups, if any, should be included in counting assets; and what spending (such as on student aid, administrative costs, salaries, etc.) would count toward the 5 percent requirement.
— Sam Kean
March 03, 2008
New IRS Study Examines Charities' Business Activities
A new study by the IRS shows that much of the money charities earn from business activities comes from selling products, services, and advertising.
Charities in 2004 — the latest date for which statistics are available — reported that 74 percent of their $5.5-billion in total business income not related to their charitable missions stemmed from their profits on those three types of pursuits.
Nearly 17 percent of the total “unrelated-business income” reported by charities stemmed from capital gain net income, partnership and S corporation income, and debt-financed income, the report said.
The IRS said that while these categories of investment income “comprised a relatively small proportion” of charities’ total unrelated-business income, “the total amount of these items rose 73 percent between 2003 and 2004.”
The IRS published the data — which are derived from Form 990-T tax returns filed by tax-exempt organizations — in its newly released Statistics of Income Bulletin for Winter 2008. Those tax forms used to be kept confidential but a new law passed by Congress makes them public.
Meanwhile, the IRS recently released statistics that show that deductions claimed for charitable contributions rose to $183.4-billion in 2005, compared with $165.6-billion in 2004, an increase of nearly 10.8 percent.
From 2003 to 2004 deductions claimed for charitable contributions increased by 13.6 percent.
The statistics show that the average contribution claimed on donors’ tax returns rose from $4,076 in 2004 to $4,432 in 2005, the highest average donation recorded in the quarter-century for which the government has data.
—Grant Williams