Charity Governance

IRS NEEDS TO DO A BETTER JOB OF EXPLAINING THE COMMENSURATE-IN-SCOPE TEST: WHERE’S THE MEMO TO IRS EMPLOYEES?

DATELINE June 24, 2008, Chicago

The IRS is up to its new tricks again. In Determination Letter 200825046 (Release Date July 20, 2008), the IRS revoked the exemption of a charity that had received Section 501(c)(3) status as an arts organization that sponsors ballet performances. Apparently, the performances were funded with the proceeds from bingo games. This determination letter is not all that interesting until the phrase "commensurate in scope" appears. With TE/GE Commissioner Steve Miller recently referring in public comments to the commensurate-in-scope test, every tax professional who works in the exempt organizations arena is now...

THE COMING SMACKDOWN: BE CAREFUL WHAT YOU PRAY FOR

DATELINE: June 23, 2008, Chicago

We had heard about the planned challenge by certain churches to the prohibition in Section 501(c)(3) on campaign interventions, but we found Russell Goldman's coverage on the ABC News Web site to be detailed and especially interesting. Pastors Challenge Law, Endorse Candidates From Pulpit, June 20, 2008. Goldman's article focuses on Gus Booth, the pastor of the Warroad Community Church in Minnesota. Pastor Booth told his congregation,

If you are a Christian, you cannot support a candidate like Barack Obama or Hillary Clinton for president.

That strikes us as a...

RIVERSPLASH HOLDS LARGER LESSONS ON TAX-EXEMPT STATUS FOR ALL CHARITIES

DATELINE: June 3, 2008, Chicago

Yesterday we used the chaos that occurred this past weekend in Milwaukee at its annual RiverSplash Festival as an opportunity to discuss some of the precautions that all nonprofits that run outdoor fundraising festivals should consider taking. The events of last Saturday night hold larger lessons for any charity that partners with a for-profit entity.

When we wrote about RiverSplash yesterday, we did report the basic facts, but tried to downplay the chaos and violence so that our larger points would not be obscured. The facts are now clearer. Milwaukee Mayor Tom Barrett referred to the event as a...

IS THE IRS PROVIDING A HINT ABOUT THE FUTURE?

DATELINE: May 27, 2008, Chicago

Those interested in ascertaining the direction in which the Internal Revenue Service is moving used to wait for revenue rulings, but in recent years, the IRS has moved away from issuing revenue rulings. It still does, but far less frequently. The tea leaves have taken a variety of forms. In the exempt organization area, determination letters denying tax-exempt status appears to be where the action is these days. Case in point, IRS Determination Letter 200821037 (released May 23, 2008).

We probably agree with the IRS's decision...

“IT’S ALIVE, IT’S ALIVE”: THE SERVICE RESURECTS THE COMMENSURATE-IN-SCOPE TEST

Hit me with your best shot!
Why don't you hit me with your best shot!
Hit me with your best shot!
Fire away!

Pat Benatar, Hit Me With Your Best Shot on Crimes of Passion (August 1980)

DATELINE: May 14, 2008, Chicago

You know something is up when our friends at the Chronicle of Philanthropy feature the release of an IRS determination letter in their News Update column, but Chronicle reporter Grant Williams and his editors know a big story when they see one. IRS Revokes Tax-Exempt Status of Charity That Spends Too Little Money on Charitable Programs, May 13, 2008. Williams reported yesterday that the Service issued Determination Letter 20080818023 (May 2, 2008), which concluded that a Section 501(c)(3) organization did not qualify for tax-exempt status. "Big whoop," you say, but it is because the Service invoked the much heralded...

FASB SHOULD WAKE UP AND SMELL THE COFFEE: MASSACHUSETTS TAX ON ENDOWMENTS

DATELINE: May 12, 2008, Chicago

As regular readers know, we are dissatisfied with proposed FSP 117-a, a rather obscure proposal being considered by the Financial Accounting Standards Board (FASB). It would extend current accounting principles to the financial statements of charities operating in states that have adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA is spreading like wildfire, with at least 20 states enacting versions of it.

To make a long story short, FSP 117-a will continue the accounting profession's practice of overstating the amount of a charity's assets that are freely spenadable. For institutions with large endowments, this means that to donors and legislators, much of endowment looks like it is available for current expenditure despite legal restrictions which prohibit the institution's board from spending the funds. As our Jack Siegel pointed out in his recent article, FASB Puts Infinity Up on Trial: Accounting for Endowments, 60 EOTR 23 (April 2008), the inaccurate reporting mandated by FASB will pose serious problems for colleges and universities. For example, rising tuition and related costs...

THINK NONPROFIT DIRECTORS CAN’T BE HELD MONETARILY LIABLE? THINK AGAIN

DATELINE: March 26, 2008, Chicago

Think nonprofit directors can’t be held monetarily liable?  You might want to ask one Stephen K. Verret before you take to that thought to the bank.  Figuratively speaking, he just withdrew $408,918.66 from that same bank to pay taxes, interest, and penalties owed to the United States Treasury.  You see, the IRS went after Verret for unpaid trust taxes, claiming that as chairman of Dcotors Hosptial's board, Verret was a responsible person.  On February 14, 2008 United States District Court Judge Marcia A. Crone granted...

EVERY EXEMPT ORGANIZATION SHOULD CALL ITS CONGRESSMAN TODAY!!

DATELINE: January 10, 2008, Chicago

Today, Nina Olson, the National Taxpayer Advocate, issued her annual report to Congress. Like the Internal Revenue Code, it seems to get a little longer each year. This year Volume 1 of the two-volume report comes in at 724 pages. Our friends in the EO community should take a good look at pages 197 through 221 of the report. Olson provides a detailed description of the EO division's...

PART III: MRS. IRS, YOU LOOK MARVELOUS—THE FORM 990 IS OUT

DATELINE: December 21, 2007, Chicago

We've been reading a lot about Holden Karnofsky and Elie Hassenfeld and their GiveWell organization the last few weeks. They are everywhere. Yesterday Stephanie Strom of the New York Times jumped in. 2 Young Hedge-Fund Veterans Stir Up the World of Philanthropy, Dec. 20, 2007. Strom in paraphrasing the two wrote,

Mr. Karnofsky and Mr. Hassenfeld argue that widely available existing systems for charity evaluation, which rely largely on the charities' tax forms, known as 990s, are basically worthless because charities are given wide latitude in how they classify information. For example, some charities count fund-raising costs as money spent on programs.

We strongly disagree with their apparent belief about the Form 990. We hope the two will take a close look at the...

ORU BOARD OF REGENTS SHOULD GET ORAL ROBERTS OFF CAMPUS

DATELINE: October 24, 2007, Chicago

Is it a dream? Is it a lie?
I think I'll let you decide.
Just light a candle for the kids

Arcade Fire, Neighborhood #3 (Power Out)

"This is a warning to other boards just how serious it is that they do their jobs," said George Pearsons, the chairman of Oral Roberts University's board of regents, as reported today by Tulsa World reporter April Marciszewski in an article entitled Regents Take Stronger Role After Lawsuit. Well we hate to say it, but all boards seem to get...