July 31, 2007
Court Orders Federal Government to Reconsider Charity's Application to Solicit Federal Workers
By Grant Williams
Washington
A federal court has ruled that the government agency that oversees the annual charity drive for federal workers improperly denied a Tennessee organization the opportunity to solicit. The court said that a new rule the government used to decide whether the charity was eligible violates federal law.
U.S. District Judge John D. Bates said that the U.S. Office of Personnel Management must now re-evaluate the application of the organization, the Stuttering Foundation of America, in Memphis, using the old rule. Mr. Bates said that the agency cannot print or distribute its annual catalog of eligible charities for the fall 2007 Combined Federal Campaign until it makes a final decision about the organization’s application.
A spokesman for the Office of Personnel Management said the judge’s ruling means the agency should have allowed the participation of the Stuttering Foundation of America and that the personnel office “is now considering how to best implement the court’s decision.”
The Office of Personnel Management had rejected the Tennessee group’s application for the fall 2007 drive because federal officials said the group did not qualify under a new rule, adopted by the agency last year, that participating groups must be “public charities” as defined in the federal tax code.
The Stuttering Foundation of America is classified under tax law as a private operating foundation. Such entities are endowed groups that use most of their resources to directly operate their own charitable programs, don’t make any (or many) grants to other organizations, and usually don’t raise much (if any) money from the public. By contrast, private foundations do not provide direct services themselves but make grants to other organizations.
The Stuttering Foundation of America was established in 1947; it provides information and assistance to prevent stuttering in young children, and treatment for teenagers and adults who stutter.
The organization participated in the Combined Federal Campaign from 1992 to 2006, receiving more than $30,000 in pledges in each of the past two years.
Last November, the Office of Personnel Management made several changes in how the campaign operates, including revising a rule to say that participating national charities must be public charities “not private foundations or exclusively government units or instrumentalities thereof.”
In March the Office of Personnel Management turned down the Tennessee organization’s application for participation in the fall 2007 campaign because it said the foundation is not a public charity. The government declined to grant a “one-year waiver” of the requirement to the Stuttering Foundation of America and other operating foundations.
After the Office of Personnel Management rejected the Tennessee organization’s appeal in June, the Stuttering Foundation of America filed a lawsuit charging the government’s change in rules violated a 20-year-old federal law that says the criteria for eligibility cannot be different from the criteria that existed in the 1984 regulations. The 1984 rules allowed private operating foundations to participate in the drive, the Tennessee group said.
The Office of Personnel Management told the U.S. District Court for the District of Columbia that its new rule clarified and reasonably interpreted eligibility requirements set forth in its 1984 regulations but did not change them. The agency contended that its “public charity” criteria was consistent with what it said was a requirement in its 1984 rules that participating groups be financed primarily through contributions from the public.
But in his ruling, Judge Bates said, “Even at first glance, it is obvious that the eligibility criteria in the 2006 CFC regulations are inconsistent with the 1984 criteria.”
Mr. Bates said that under the 1984 regulations, an organization was required to show that it received at least 50 percent of its revenue from sources other than the federal government or at least 20 percent from “direct and/or indirect contributions.”
The judge said that, in place of these criteria, the 2006 regulations require that an organization is a public charity under federal tax law, which he said is “a substantively different four-category test which, to the extent it uses a percentage test, uses a 33-percent standard” for the amount of support an organization must receive from the public in the form of gifts, grants, contributions, or membership fees, and receipts from other activities.
“In short,” said Judge Bates, “the 2006 CFC eligibility criteria are not the same as the 1984 criteria.”
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