On July 1, the Supreme Court issued a major decision concerning nonprofit donor disclosure laws and the First Amendment. In Americans for Prosperity Foundation v. Bonta, No. 19-251, the Court held that a California law requiring charitable organizations to file their annual I.R.S. Form 990 Schedule Bs with the State—and thus disclose the names and addresses of major donors—is facially unconstitutional because it violates the First Amendment right to free association. The Court reasoned that disclosure of donor information has a broad chilling effect on charities and their donors, even when the information is kept confidential and the information is already required to be provided in Federal tax filings.
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On June 9, 2021, United States Senators Angus King (Ind.-MA) and Charles Grassley (R-IA) introduced the “Accelerating Charitable Efforts Act” or the “ACE Act” (the “Act”) which, if adopted, would implement significant changes with respect to the rules surrounding donor advised funds (“DAFs”) and private foundations. The proposed changes, already being hotly debated in the philanthropic community, would mandate, among other things, operational changes for DAF sponsoring organizations and offer financial incentives (in the form of both excise taxes and tax benefits) to motivate donors, sponsoring organizations, and private foundations to distribute funds to public charities at a rapid pace.
Nonprofits Take on the COVID-19 Crisis: Art Museum Standards Temporarily Relaxed to Help Museums Meet New Economic Challenges
Long-standing standards applicable to art museums, particularly with regard to the use of deaccessioning proceeds, have been temporarily relaxed in order to help art museums meet the financial challenges presented by the COVID-19 crisis.
In an effort to provide additional relief in response to the COVID-19 emergency, the Internal Revenue Service and the New York Attorney General’s Charities Bureau have announced filing extensions for exempt organizations.
Nonprofits Take on the COVID-19 Crisis: Enhanced Deductibility Benefit for Large Cash Gifts to Charity and for Non-Itemizers
The newly enacted Coronavirus Aid, Relief, and Economic Security Act (commonly known as the “CARES Act”) includes provisions designed to encourage charitable contributions of cash, by allowing individual donors to charities to deduct up to 100% of their 2020 adjusted gross income (“AGI”), over and above the usual cap of 60% (or 50% if charitable contributions are made through a combination of cash and other assets). For corporate donors, the deduction cap is raised to 25%, over and above the usual cap of 10%. Unused deductions allowable under the CARES Act may be carried forward into future tax years, subject to the traditional deductibility limitations, which will be restored in 2021.
As we have previously reported, charitable organizations and employers are able to play an important role in providing disaster relief in response to the COVID-19 crisis. During this crisis, individuals may be seeking new ways to help, including by starting new charitable organizations. We describe below some alternatives to consider before forming a new charity, as well as a high-level summary of the necessary steps to form a new charitable organization.
As we previously reported, charitable organizations are able to play an important role in providing disaster relief in response to the COVID-19 crisis. Special rules are relevant to employers that wish to provide hardship support to their current and former employees during this time. In light of the unique nature of this crisis, additional guidance may be forthcoming from the IRS.
The spread of the novel coronavirus (COVID-19) has caused dramatic upheaval to public health, social relations, and the economy. The full impact of the virus remains uncertain, and the coming weeks and months will present tremendous challenges domestically and abroad. Charitable organizations are well positioned and have a unique opportunity to help those affected by the virus. Over the years, the Internal Revenue Service has provided useful guidance on how 501(c)(3) organizations can provide aid during times of disaster. That guidance tends to evolve as society faces different types of disasters, and the needs of individuals differ depending on whether a disaster takes the form of a terrorist attack or a hurricane or—as we are quickly learning—a pandemic. The summary below is based on guidance developed to date, but may evolve as charitable organizations and the federal government develop innovative and vital approaches responding to the current crisis and its unique impacts.
Just in time for the holidays, Congress gave two gifts to tax-exempt organizations as part of the new government funding bill signed into law on December 20, 2019.
As we previously reported, the Tax Cuts and Jobs Act, which was signed into law at the end of 2017, imposes an excise tax on certain tax-exempt organizations equivalent to 21% of “excess compensation” (including certain severance payments) paid to certain current and former employees. Under the new Section 4960 of the Internal Revenue Code, the tax is payable by the tax-exempt organization and, if applicable, a “related organization” (on a proportional basis). Section 4960 defines excess compensation for such employees as (i) the amount of remuneration, other than “excess parachute payments,” in excess of $1 million and (b) any “excess parachute payment” (including severance or other payments made upon separation).
As we previously reported, the 2017 tax reform bill instituted an excise tax on the investment income of certain private colleges and universities under new Section 4968 of the Internal Revenue Code (the “Code”). The Internal Revenue Service (the “IRS”) and the Department of the Treasury (“Treasury”) have now issued Notice 2018-55 which provides guidance (including notification of an intent to issue regulations) regarding the calculation of net investment income for purposes of Code Section 4968(c).
In recent months, news of Blockchain technology has filled headlines. The ability of Blockchain—which provides a decentralized means of recording and verifying transactions—to shape the financial sector has been widely reported, as have transactions involving Bitcoin and other cryptocurrencies using Blockchain technology. Programmers and businesses are quickly turning to various Blockchain platforms to develop new applications of this technology, even as regulatory bodies are beginning to pay increased attention to high-stakes cryptocurrency transactions.
A last minute addition to the budget appropriations bill enacted by Congress this month has created new opportunities for philanthropic planning. Section 41110 of the bill creates a limited exception from the private foundation excess business holdings excise tax under Section 4943 of the Internal Revenue Code.
The Internal Revenue Service (the “IRS”) has issued Notice 2017-73 (the “Notice”) which outlines approaches the Department of the Treasury (“Treasury”) and the IRS are considering with respect to the regulation of certain issues relating to Donor Advised Funds (“DAFs”). Written comments on the issues raised in the Notice may be submitted by March 5, 2018.
This morning, the Office for Civil Rights of the Department of Education issued a “Dear Colleague” letter rescinding the Obama administration’s school sexual assault guidance. The Department also issued a new set of Questions and Answers on Campus Sexual Misconduct. The new guidance follows a speech delivered by Secretary of Education Betsy DeVos earlier this month in which Secretary DeVos announced a formal rulemaking process regarding the process colleges and universities must follow with respect to Title IX-related complaints. We recommend that educational organizations review this new guidance.
Among the many elements of corporate housekeeping and compliance that demand the time and attention of directors and officers (and staff), minutes often seem like a burden. No one doubts that minutes matter. A well-documented board meeting creates an important historical record that can guide future deliberations and may prove useful during Board disagreements, litigation, Attorney General investigations, other governmental enforcement actions, or an audit by the IRS. However, clients often nervously ask whether there is a legal standard regarding how much detail minutes should contain.
Earlier this week we reported on proposed bills regarding the repeal or modification of the “Johnson Amendment” which established the absolute prohibition on political campaign activity by 501(c)(3) charitable organizations. On May 4, President Trump issued an executive order, “Promoting Free Speech and Religious Liberty,” which, among other things, addresses enforcement of the prohibition by the Internal Revenue Service (IRS).
During his presidential campaign, President Trump promised to repeal the “Johnson Amendment” which established the absolute prohibition on political campaign activity by 501(c)(3) charitable organizations. After his inauguration, President Trump promised to “destroy” the amendment (specifically with respect to churches), and three bills have been introduced in the 115th Congress to modify the prohibition or eliminate it completely for all 501(c)(3) charitable organizations.
In the twelve days since his inauguration, President Donald Trump has issued a flurry of executive orders relating to, among other things, the proposed repeal of the Affordable Care Act, the construction of oil pipelines, the building of a wall on the Mexican border, and immigration restrictions. These executive orders have begun the process of fulfilling many of the promises President Trump made during the campaign, and it seems likely that additional executive orders will continue to be issued.
The 2016 U.S. presidential campaign has reached a fevered pitch, with a little over a month remaining before Election Day. After Monday’s debate between Hillary Clinton and Donald Trump, the stakes are high and the American public is turning to social media to express powerful emotions ranging from excitement to exhaustion, and to support their chosen candidate (or oppose the other).
As we previously reported, in April 2015 the Financial Accounting Standards Board (“FASB”) circulated a series of proposed changes to generally accepted accounting principles applicable to certain not-for-profit entities in order to provide clearer information to donors, creditors, and other users of financial statements. On August 18, FASB issued the related accounting standards update.
On June 23, the people of the United Kingdom voted to leave the European Union. The decision to leave—commonly known as “Brexit”—has dominated headlines, rattled financial markets, and triggered political uncertainty in the United Kingdom and throughout the world. Although the United Kingdom has not yet formally initiated the two-year process to leave the European Union, political, financial, and legal experts are actively working to determine Brexit’s short- and long-term implications.
On April 27, National Philanthropic Trust, a public charity dedicated to providing philanthropic expertise to donors, foundations and financial institutions, launched a website on the History of Modern Philanthropy.
The people have spoken. After receiving widespread criticism, the Internal Revenue Service (“IRS”) has withdrawn proposed regulations regarding the substantiation of charitable contributions.
The end of the year brings a flood of gifts and grants to public charities, as well as perennial questions about how the donor will benefit in return.
Thanks But No Thanks: Proposed Charitable Gift Substantiation Regulations Receive a Critical Response
On September 18, the Department of the Treasury and Internal Revenue Service (the “IRS”) proposed regulations relating to the substantiation of charitable contributions made to Section 501(c)(3) organizations. If approved, the proposed regulations would expand the ways in which charities can acknowledge donations. Under the current regulations, charities must provide a contemporaneous written acknowledgement to donors who contribute $250 or more stating (i) the amount of cash and a description of any property other than cash contributed; (ii) whether any goods or services were provided by the organization in consideration of the contribution; and (iii) a description and good faith estimate of the value of any goods or services provided. This acknowledgement is routinely provided as part of the “thank you’s” sent out by charities for contributions they receive, including those that fall below the $250 threshold.
In April of this year, the Financial Accounting Standards Board (“FASB”) circulated a series of proposed changes to generally accepted accounting principles (“GAAP”) applicable to certain not-for-profits. These changes, which are intended to provide clearer information to donors, creditors, and other users of financial statements, may have a significant impact on not-for-profit financial reporting (which has remained largely unchanged for nearly twenty years) and will, among other things, (i) impact the reporting of operating performance in an entity’s statement of activities and related metrics in the statement of cash flows, (ii) require the use of the direct method for preparing the statement of cash flows, and (iii) modify the reporting disclosure of net assets and “underwater” endowments.
One of the more contentious requirements imposed by the New York Non-Profit Revitalization Act is the new Section 713(f) of the Not-for-Profit Corporation Law, which states that no employee of a not-for-profit organization can serve as Board chair or hold any title with similar responsibilities. Implementation of Section 713(f) previously was delayed until January 1, 2016, and on October 26, Governor Andrew Cuomo signed into law a bill which delays the effective date, for another year, until January 1, 2017. According to the memorandum accompanying the bill, the delay is necessary because “the Legislature requires more time to study the impact of this prohibition on not-for-profit organizations.”
On September 15th, the Internal Revenue Service (the “IRS”) issued much anticipated guidance (the “IRS Notice”) that should help facilitate mission-related investing by private foundations organized as corporations.
Today, more than ever before, higher education lawyers are focusing their attention on issues of sexual harassment and sexual assault under Title IX of the Educational Amendments of 1972. Title IX protects people from sex discrimination in educational programs and activities at institutions that receive federal financial assistance.
A federal district court in New York has upheld the New York Attorney General’s policy requiring registered charities to disclose the names, addresses and total contributions of their major donors. This is the second federal court to rule on this issue, after the United States Court of Appeals for the Ninth Circuit upheld a similar requirement by California’s Attorney General in May in a suit brought by the Center for Competitive Politics, a 501(c)(3) public charity.
An article in the Stanford Social Innovation Review suggests that the language non-profits use to describe their operations fails to adequately and efficiently convey the complexity of their work. For-profits rely on a large vocabulary to describe their business models.
On June 16, 2015, the White House issued a press release highlighting private sector commitments and a series of executive actions related to investment in clean energy innovation. The release coincided with yesterday’s clean energy investment summit, at which Vice President Joe Biden described more than $4 billion of independent commitments by major foundations, institutional investors, and other long-term investors to fund climate change solutions, including innovative technologies with the potential to reduce carbon pollution.
Since the first social impact bond financing was launched in the United Kingdom in 2010, more and more attention is being directed to pay-for-success (or social impact) financing, both domestically and abroad.
The New York Attorney General has issued guidance about the audit oversight requirements under the Non-Profit Revitalization Act. The AG’s Guidance—issued without fanfare by the Charities Bureau on February 24—will be of interest to most charities that are required to register to conduct charitable solicitations in New York.