Policy & Legislative Update

Impacts on Charitable Donations A WIN: After considerable opposition from a variety of interests, the IRS has withdrawn their proposed rule allowing nonprofits to ask for donor's Social Security numbers (here's our overview from December). Besides the unease of donors with giving this information, nonprofits themselves would've had to invest in secure systems to store this data.   TAKE ACTION! With a similar obligation/cost on nonprofit operations, legislation in New York (A03394) has been reintroduced that would require that nonprofits provide a receipt for donations to determine and disclose how that donation would be allocated internally.  For instance, "administrative expenses"  would have to be differentiated from funds "directly...helping with the...charitable work." This bill would require nonprofits to make a near-immediate internal commitment of donated funds, and maintain an internal accounting system tracking donations of all sizes.The publicly available Federal 990 tax return already provides a pretty clear picture of internal resource allocations. For these, and a variety of other reasons, we encourage NYCON members to contact your representatives and/or bill co-sponsors to share their perspective on the merits of this legislation. Ongoing $15 Minimum Wage Discussions On January 7th, 2016, the NY Senate Standing Committee on Labor invited a diverse cross-section of employers and economists to testify on their view of Governor Cuomo's proposal for a state-wide $15 wage by 2021. To be sure, there was some divergence in the viewpoints on feasibility and net impacts.Only 3 of the official 16 members of the Committee attended. An archived video of the (4.5 hour) hearing is available here NYCON prepared a brief synopsis of the comments offered by the respective parties. Click to Read. Other news Minimum Wage Updates: There are at least a dozen bills pending in the Legislature with bearing on NY's minimum wage. They range from simply tying the existing wage to inflation, to allowing counties to recommend a Living Wage. As NYCON has already said, it will be difficult for NY nonprofits to cope with the proposed increase, even if NY attempted to substantially offset an increased minimum wage, as most nonprofits are funded without NY State participation.  Now, it appears that the Governor's budget proposal leaves even the State's commitment in doubt. As a general reminder, the minimum wage in NY is $9 in 2016, with increases (for those only subject to NY, not Federal, law) in the overtime exempt salary levels of "Administrative" and "Executive" positions from $34,125 to $35,100. On that overtime exempt issue, the latest update on the proposed US Dept. of Labor regulations increasing the overtime exempt salary level (as long as the 'duties' test is also met)...is a midsummer 2016 publishing...with a 60 day implementation period. Again, most nonprofits in NY have activities that keep them outside of the Federal rules...whereby they are covered by NY only. NYCON will keep you updated on any developments. Ongoing Litigation on NY Executive Order 38 Leaves Ambiguity for Many Nonprofits  For those of you not subject to (or familiar with) NY's EO 38, it requires nonprofits that annually receive funding from New York State (or passed through the State) of over $500,000, when that exceeds 30% of their total annual revenues, to be known as "Covered Providers," with limits on administrative expenses and executive compensation. The best guidance we can give is to act as though the entirety of EO 38 is still in effect. Here is an excellent synopsis (from the law firm of Greenberg Traurig) of the litigation and the aspects challenged.

News from The Non-Profit Times

Audits Show Widespread Underreporting of UBI

By The NonProfit Times - April 29, 2013

Unreported unrelated business income in higher education was found in almost every case examined by the Internal Revenue Service (IRS).

“The audits identified some significant compliance issues at the colleges and universities examined,” said Lois Lerner, director, Exempt Organizations division of the IRS. “Because these issues may well be present elsewhere across the tax-exempt sector, all exempt organizations need to be aware of the importance of accurately reporting unrelated business income and providing appropriate executive compensation.”

This is part of the multi-year project on tax-exempt colleges and universities. The Colleges and Universities Compliance Project was launched in 2008 with the distribution of detailed questionnaires to 400 randomly-selected colleges and universities. The IRS selected 34 of the 400 for examination because their questionnaire responses and Form 990 reporting indicated potential noncompliance in the areas of unrelated business income and executive compensation.

Unrelated business income (UBI) is the income from a trade or business regularly conducted by an exempt organization and not substantially related to its exempt purpose. Unrelated business taxable income is the UBI that is taxable after deducting expenses directly connected to the trade or business. Because UBTI is calculated by totaling the UBI from all activities and subtracting the total allowable deductions, losses from one activity can offset profits from another. Examinations have resulted in:

• Increases to UBTI for 90 percent of colleges and universities examined totaling about $90 million;
• More than 180 changes to the amounts of UBTI reported by colleges and universities on Form 990-T; and
• Disallowance of more than $170 million in losses and Net Operating Losses (NOLs, i.e., losses reported in one year that are used to offset profits in other years), which could amount to more than $60 million in assessed taxes.

The primary reasons for increases to UBTI in the completed exams were:

• Disallowing expenses that were not connected to unrelated business activities.

The IRS found that examined colleges and universities were reporting certain losses as connected to unrelated business activities when they were not. The misreporting occurred in two ways:

1. Lack of profit motive: The IRS found that organizations were claiming losses from activities that did not qualify as a trade or business. Nearly 70 percent of examined colleges and universities reported losses from activities for which expenses had consistently exceeded UBI for many years. UBI must be generated by a trade or business.

An activity qualifies as a trade or business only if, among other things, the taxpayer engaged in the activity with the intent to make a profit. A pattern of recurring losses indicates a lack of profit motive. The IRS disallowed reporting of activities for which the taxpayer failed to show a profit motive. Those losses no longer offset profits from other activities in the current year or in future years, with more than $150 million of NOLs disallowed.

2.  Improper expense allocation: The IRS also found that on nearly 60 percent of the Form 990-Ts examined, colleges and universities had misallocated expenses to offset UBI for specific activities. Organizations may allocate expenses that are used to carry on both exempt and unrelated business activities, but they must do so on a reasonable basis and the expenses offsetting UBI must be directly connected to the UBI activities. In many cases, the IRS found that claimed expenses, which generated losses, were not connected to the unrelated business activity.

The IRS checked the calculations for all NOLs reported on returns under exam and found that NOLs were either improperly calculated or unsubstantiated on more than a third of returns. As a result, the IRS disallowed nearly $19 million in NOLs.

The IRS also determined that nearly 40 percent of colleges and universities examined had misclassified certain activities as exempt or otherwise not reportable on Form 990-T. Fewer than 20 percent of these activities generated a loss. The examinations resulted in the reclassification of nearly $4 million in income as unrelated, subjecting those activities to tax.

Examinations resulted in more than 180 changes to UBTI reported for specific activities by colleges and universities. More than 30 different activities were connected to the changes. The majority of these adjustments came from the following activities: Fitness, recreation centers and sports camps; advertising; facility rentals; arenas; and, golf.

To see the online aricle click here.

The NonProfit Times Weekly E-Newsletter

IRS Reports 10,000 Fewer Nonprofits In 2012

There were 10,000 fewer registered tax-exempt organizations in 2012 than in 2011. According to the Internal Revenue Service (IRS) Data Book for 2012, which was released Monday, there were 1,484,818 501(c) organizations for the fiscal year ending in September, compared with 1,494,882 in 2011 – a decrease of 10,064, or about 0.68 percent.Read more... Professional Development... 5 principles for ethical mentoring “I never meant for that to happen.” Just as the above lament can be the swan song for a nonprofit that doesn't follow good organizational practices, it can also be the epitaph for a mentoring partnership gone wrong. Read more... Human Resources... 15 interview questions you can legally ask There are a lot of laws these days that restrict the kind of information you can request from candidates during job interviews. Since you probably don't want to get in trouble with the law, it's important to know the questions that you can and should ask. Read more... Management... 6 reasons change is good It's usual to resist change. Those who aren't pulling their own (or any) weight know that their gigs can be threatened if they don't do a whirlwind job of convincing change agents just how essential they are. Those who are pulling their own weight (or more) know that their livelihoods are threatened because they are too busy working to prove how essential they are to the operation. Read more... To Read More Click Here

Spending Cuts, Filing Information, and More from Nonprofit Advocacy Matters

Cuts, Cuts and more Cuts
The National Council of Nonprofits reported in their newsletter, "Nonprofit Advocacy Matters", that Spending cuts were the consistent theme throughout Washington last week as the President, during his State of the Union address Tuesday night, called for a five-year freeze in non-defense discretionary spending. Also on Tuesday, the House adopted a resolution capping spending for the current fiscal year at or below the levels provided in fiscal 2008. This limit is expected to produce budget cuts this year of $55 billion to $60 billion. In addition, the recommendations of the Republican Study Committee to cut $2.5 trillion in spending over the next 10 years were incorporated in the proposed Spending Reduction Act. Among many items, that bill would block spending for the Corporation for Public Broadcasting, the National Endowment for the Arts, National Endowment for the Humanities, and for national service programs. The legislation is not expected to be brought up in the House, but it does provide a roadmap for the areas that are being targeted for reductions in the future.

Federal Regulations and Job Creation
Federal regulations are frequently criticized for frustrating job creation, and the President and House Republicans are taking steps to identify key problem areas. On January 18, President Obama signed an executive order on Improving Regulation and Regulatory Review calling for "a government wide review" of federal rules and regulations to remove those "that stifle job creation and make our economy less competitive." The order was accompanied by an op-ed by the President published in the Wall Street Journal. In the House, Oversight and Government Reform Chairman Darrell Issa (R-CA) has created a website asking employers to identify government regulations and practices that either help or inhibit job creation. The website asks for responses to the questions: "Where does Washington help, and where does it hurt?" The National Council wants to know your ideas about particular rules or regulations that need improving.

Form 1099 Filing Requirements
There is strong momentum for repeal of the new tax-reporting requirement in the health care law that, starting in 2012, will require nonprofits and for-profit businesses to report aggregate payments to vendors in excess of $600 for goods and other property. A bill introduced last week by Sen. Mike Johanns (R-NE), S.18, has bipartisan support and is paid for by rescinding prior appropriations. A second proposal introduced by Finance Committee Chairman Max Baucus (D-MT) and Majority Leader Harry Reid (D-NV), S.72, has no offsets. A House bill, H.R.4, has broad bipartisan support. President Obama expressed support for repeal of the requirement during his State of the Union address.

Nonprofit Resources Regarding the October 15 Deadline

Time is running out for small nonprofits facing loss of tax-exempt status because they have not filed Form 990-N or Form 990-EZ for three consecutive years. The deadline for the IRS's one-time filing relief program is October 15, 2010. After that, nonprofits that are required to file a 990 and whose filings are at least three years in arrears will automatically lose their exemptions. To regain tax-exempt status, they will have to apply to the IRS all over again, a process that can take several months and requires payment of fees. To help you make sense of the rules and regulations surrounding this program, GuideStar is offering you a few resources:

• GuideStar Resource Center: includes articles and links to keep you updated in this ongoing process.
• IRS Communications Toolkit: includes facts outlining the situation, a list of organizations IRS records show are at risk, a YouTube video, and a widget for posting on Web sites.
• Guide Star Charity Check: includes information on exemption status of organizations and is updated as more information from the IRS becomes available.
  

Nonprofits leaning on individuals and corporations in tough times

The Utica OD offered an article on a new study released by the Corporation for National and Community Services reported that the number of volunteers in America rose 1.6 million in the past year. The dramatic increase ultimately demonstrates that people are contributing to their communities at an increasing rate, even during financially challenging times.

Nonprofit organizations of all scales - small or large, local or international - rely on the generosity of others to support research and programming, increase awareness and ultimately help those in need. While individuals often lend a hand through social or religious groups, corporations are also playing a large role in giving back to an array of causes.

According to a new report released by the Giving USA Foundation and the Center on Philanthropy at Indiana University, though 2009 was financially challenging for many nonprofits due in part to a 3.6 percent decrease in overall contributions, corporate donations increased more than 5 percent from 2008.

In 2009, Delta Faucet Company, an Indianapolis-based faucet manufacturer, contributed to the corporate total with donations from its flagship Delta Faucet brand to programs benefiting local health services and rebuilding organizations in areas affected by Hurricane Katrina.

This year, Brizo, a high-fashion faucet brand and part of the Delta Faucet Company, pledged to dramatically increase its philanthropic efforts through a first-ever national sponsorship of the St. Jude Children's Research Hospital Dream Home Giveaway program. As part of its sponsorship, the brand is providing Dream Home builders, designers and contractors with hands-on support and more than $430,000 in products.

"Having Brizo's support helps St. Jude in a multitude of ways," said Alan Johnson, St. Jude Dream Home Giveaway program director. "Their contribution at a national level allows us to free up valuable resources at the market level and lend additional effort to promoting the campaigns and cultivating other opportunities. We are also able to capitalize on the relationships that Brizo has with top builders and designers across the country, allowing us to expand our reach and provide more assistance to the hospital and the children it treats."

The St. Jude Dream Home Giveaway was created in 1991 and has since become one of the largest single-event fundraisers for St. Jude nationwide, raising more than $175 million for research and patient treatment.

"It is inspiring in this economy to encounter a company willing to devote such significant resources and attention to a cause that falls outside of day-to-day business concerns, such as fighting childhood cancer," added Johnson.

While financial support is integral to the livelihood of nonprofits and fundamental to enabling the organizations to improve the lives of those experiencing hardship, corporate sponsors are also becoming increasingly engaged and involved in hands-on activities and programming.

"We see our relationship with St. Jude as a partnership. Certainly our support benefits its fundraising needs, but participating on a more literal level is equally rewarding to our team," said Brian Nobbe, director of Brizo brand marketing. "This type of hands-on engagement helps to strengthen the emotional connection for us."

Habitat for Humanity is another organization that has benefited from large corporate support. Over a number of years, Bank of America has donated $20 million, as well as 150,000 volunteer associate hours, to Habitat for Humanity to support its efforts to build homes for those in need. The donations from Bank of America have helped the organization build more than 160 houses in the United States, as well as 100 houses in Mexico.

Whether donations and volunteer support is needed for research, rehabilitation or development, the continuation of support is important to the livelihood of any non-profit. To search for charities and locate an organization in your area, go to www.irs.gov.

Get Ready, Get Set, Go! IRS Filing Requirements for Charitable Nonprofits

The NY Council of Nonprofits' national partner, the National Council of Nonprofits, is offering two FREE webinars for you and your board members!

Get Ready, Get Set, Go! IRS Filing Requirements for Charitable Nonprofits
Two national webinars: February 23 and March 23, 2010

Register Now

Are you prepared for this year's tax filing deadline? Did you know that tax-exempt organizations could have their status revoked for not filing the annual Form 990? The National Council of Nonprofits will host two free webinars presented by the IRS for nonprofit organizations to learn about the resources available and answer questions about filing your IRS Form 990.

These webinars will include:

• Critical steps to take now in order to protect and preserve your tax exemption.
• Review of the filing requirements for nonprofit, tax-exempt organizations, and the consequences of not filing (or filing an incomplete) Form 990-series return. Tax-exempt organizations now stand to lose their tax-exempt status if they do not file the Form 990, 990-EZ, or 990-N (e-postcard) for three consecutive years-these revocations will begin in 2010).

"Learn from the Experts: What Forms Must Nonprofit, Tax-Exempt Organizations File to Meet IRS Requirements and Preserve Tax Exempt Status?"

Tuesday, February 23
3:30 pm - 4:30 pm Eastern

• What forms are tax-exempt organizations required to file with the IRS annually?
• What information is required to be reported on the forms?
• Why your organization may need to file NOW, so that it won't lose its tax-exempt status
• How to file complete, accurate returns to avoid IRS penalties.

There is no charge for nonprofit organizations or their board members for these webinars. Advance registration is required by February 22, 2010.


"Hear from the IRS: What The IRS Has Learned After One Year With the Redesigned Form 990"

Tuesday, March 23
3:30 pm - 4:30pm Eastern

• What trends has the IRS observed in the first season of redesigned Form 990 filing?
• What mistakes are most commonly being made by nonprofits on the redesigned Form 990?
• What can a nonprofit do to streamline the filing process?
• What are the answers to frequently asked questions about completing the 990?

There is no charge for nonprofit organizations or their board members for these webinars. Advance registration is required by March 22, 2010.