Note: This article is a recap of Lesley Rosenthal’s presentation at Proskauer’s 17th Annual Trick or Treat Tax Exempt Seminar, November 29, 2012 Attorneys can reap enormous rewards by serving on nonprofit boards. Lawyers derive tremendous personal satisfaction in governing an organization that is meaningful to them. They can do the public good by participating… Continue Reading
Proskauer’s 17th Annual Trick or Treat Seminar discussed: Key Provisions of the Affordable Care Act Cybersecurity Threats and Identity Theft Lawyers as Nonprofit Directors Here are some take-away points from each presentation: Key Provisions of the Affordable Care Act Peter J. Marathas, Jr. reviewed some of the key provisions of the Affordable Care Act (“Act”),… Continue Reading
Two new bills recently introduced in the California State Legislature would increase the disclosure requirements applicable to certain nonprofit organizations participating in California political campaigns and would strengthen the enforcement authority of the California Fair Political Practices Commission. Under current California regulations that went into effect this past May , nonprofit organizations such as Section… Continue Reading
New York Attorney General Eric T. Schneiderman has issued proposed regulations that would require many nonprofit organizations to annually disclose certain information about their political spending and their donors’ identities. According to the Attorney General, the proposed regulations are in response to nonprofit organizations, in particular Section 501(c)(4) social welfare organizations, that have engaged in… Continue Reading
“Cause marketing campaigns,” or “commercial co-ventures” (i.e., advertising campaigns in which a company indicates that the purchase or use of its products will result in a charitable contribution) have long been a popular fundraising tool for charities. Some state charity authorities regulate cause marketing campaigns with a variety of requirements; some states do not regulate… Continue Reading
On July 25, 2012, the Oversight Subcommittee of the House Committee on Ways and Means, led by Congressman Charles W. Boustany Jr., MD (R-LA), heard testimony from the IRS and experts in the tax exempt community on the growing complexity of non-profit organizational structures, tax issues concerning unrelated business income and the redesigned Form 990…. Continue Reading
On May 30, 2012, the public comment period began for proposed regulations issued by thirteen New York State agencies (including the Department of Health, the Office of Mental Health, and the Office of Children and Family Services) seeking to limit the executive compensation paid by, and administrative costs of, service providers that receive State funding. … Continue Reading
On May 16, 2012, the Oversight Subcommittee of the House of Representatives Committee on Ways and Means, led by Congressman Charles W. Boustany Jr., MD (R-LA), heard testimony from representatives of tax-exempt hospitals, universities and charitable institutions on the current state of compliance and reporting requirements for tax-exempt organizations. The hearing was the first in… Continue Reading
Earlier this year, Governor Andrew Cuomo proposed changes to the New York Public Health Law which would have given the Commissioner of the Department of Health the power to remove managers of hospitals, diagnostic and treatment centers, and adult care facilities. The Commissioner would have also had the authority to appoint temporary members of the… Continue Reading
February 16, 2012 – Attorney General Eric Schneiderman has announced a new reform plan to reduce the regulatory burden on New York not-for-profit organizations while strengthening their governance and accountability.
The Attorney General’s comprehensive plan distinguishes itself from recent proposals to cap not-for-profit executive compensation, emphasizing that improper compensation is not representative of the New York not-for-profit sector as a whole. Instead, the Attorney General seeks a practical approach to assisting not-for-profits in reducing financial strains while maintaining governance best practices.
The plan takes a three prong approach to reform: (1) The Nonprofit Revitalization Act, (2) the “New York on BOARD” initiative, and (3) the “Directors U” initiative.
Proskauer’s 16th Annual Trick or Treat Seminar was held on Monday, October 31, 2011. The Seminar discussed:
Corporate Governance for Not-for-Profit/Exempt Organizations
Maintaining Tax-Exempt Status During Election Season
Investment Management under UPMIFA: What’s Required, What’s Good Practice
Executive Compensation & Employee Benefits Developments
In PLR 20113041, the IRS revoked the tax exemption of a public charity based on excess benefit and private inurement issues revealed during the course of its examination. This ruling highlights practices that charities should avoid in order to maintain their tax-exempt status. This ruling also confirms that the IRS is paying close attention to what charities are doing in their “back” offices.
In a recent New York County Supreme Court opinion, Empire 33rd LLC v. Forward Ass’n Inc., the court ruled in favor of the defendant charities to dismiss the plaintiff’s complaint demanding the return of payments under an agreement in which it alleged defendants lacked the “required approvals and consents required by law” to execute. The court found that the proposed sale of property by the defendant charities was duly authorized by the NY Supreme Court, as Section 203 of the New York Not-for-Profit Corporation Law (“NPCL”) requires.
After attending the Georgetown University Law Center “Representing & Managing Tax-Exempt Organizations” Conference in April, 2010, we wanted to discuss some of the lessons that exempt organizations should take away in the following areas: governance; transparency; compensation; joint ventures; and endowments and investments.
We tweeted live from the Georgetown Conference that occurred on April 22-23, 2010. Our tweets highlight IRS next steps and agenda items, as well as discuss other topics of interest to exempt organizations.
The goal of the revision of the IRS Form 990 is to increase transparency, encourage compliance, and emphasize the importance of ethics within a not-for-profit organization. Given that so much emphasis has now been placed on “good” governance, it is increasingly important for not-for-profit boards to draft, adopt, and implement relevant governance policies – meant to be “living” documents reflecting the organization itself, and changing as an organization grows and develops.
The Tax Court recently delivered some sound advice – do not play “cat and mouse” with the IRS. In Ohio Disability Association v. Commissioner, a Tax Court Memo filed November 12, 2009, the Tax Court rejected the petitioner’s request for a declaratory judgment that it qualified as a public charity. The court’s rejection was based on its inability to conclude that the organization would operate exclusively for exempt purposes.
The IRS completely redesigned Form 990, the Return of Organization Exempt from Income Tax, to be filed for calendar year 2008 and subsequent periods. This form is filed by most tax-exempt organizations and is open to public inspection. One stated purpose of the makeover was to increase transparency and disclosure of exempt organization operations, thereby improving governance and highlighting conflicts of interest and insider dealings. One major change in the form is that it requires extensive reporting concerning the organization’s governance and management policies, the independence of its board, and board members’ and key employees’ family and business relationships with each other and with the reporting organization.
Over the past few years, the IRS has become increasingly interested in monitoring the governance practices of tax-exempt organizations, particularly public charities. This interest has been shown through public statements of IRS officials, the addition of questions about board makeup and policies to the Form 990, an explanation of why the IRS considers governance important, and the development of training materials on governance for IRS personnel. Not all members of the exempt organizations community agree that the IRS should focus on governance. However, the IRS rationale is that a well-governed organization is a tax-compliant organization.
The IRS has now developed and released a governance issues checklist (the Governance Check Sheet) to be completed in each audit of an exempt organization. The checklist provides a very specific roadmap for exempt organizations to compare their practices and policies with what the IRS wants to see and to make adjustments where necessary.
In September, 2009, Proskauer, by way of Scott Harshbarger, was retained by the Association of Community Organizations for Reform Now (“ACORN”) to conduct an independent analysis of the videos that caused this summer’s uproar as well as the organization as a whole, including its core weaknesses and inherent strengths.
The serious management challenges detailed in our report are the fault of ACORN’s founder and a cadre of leaders who, in their drive for growth, failed to commit the organization to the basic, appropriate standards of governance and accountability. As a result, ACORN not only fell short of living its principles but also left itself vulnerable to public embarrassment.