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Carnival Producer is ‘Professional Solicitor’ Under Charitable Solicitation Registration Law

Court says advertising events in connection with charities constitutes solicitation and requires registration
The Pennsylvania Commonwealth Court has upheld the determination by the Department of State that a for-profit company that operates a portable amusement park providing rides, games and food for carnivals and pays a percentage of the ride fees to charities and other nonprofits is a “professional solicitor” that must register under the state’s charitable solicitation registration act. It has upheld a cease and desist order prohibiting the company from running its carnivals within the state without registering as a solicitor. Houghton Enterprises is a family-owned business that provides the carnivals for nonprofits and pays 30% of the ride ticket fees to the nonprofit, while keeping 70% of the...

Trustees May Not Unilaterally Modify Trust To Qualify as Charitable Remainder Annuity Trust

Document required “annuity” payment of the greater of all net income or $50,000 a year to income beneficiaries
The Tax Court has upheld an IRS ruling denying a charitable estate tax deduction for the value of the remainder interest of an attempted charitable remainder annuity trust when the stated annuity payment did not meet the statutory requirements for a CRAT. It has held that the trustees had no unilateral power to amend the instrument and had failed to obtain a necessary court reformation. Susan R. Block died in Connecticut in 2015, having left part of her estate in what she intended to be a CRAT for the benefit of her sister and her husband. She provided for a payment of an amount “equal to the greater of: (a) all net income, or (b) the sum of Fifty Thousand Dollars” at least annually. She...

Donor Must Recognize Gain on Gift of Stock And Loses Deduction for Bad Appraisal

Court says gift was made when sale of stock was assured and gift of property was not properly appraised
Talk about a double whammy. A taxpayer who claimed a $3 million deduction for a gift of private company stock to a charity immediately before a sale of the company has been told by the Tax Court that the sale was so “practically certain to occur” that he had to pay tax on his entire capital gain. The Court said the “anticipatory assignment of income” doctrine deemed the sale to have occurred before the gift was given. And in addition, because the gift was a gift of property in the form of stock and not cash, a qualified appraisal was required. But the appraisal submitted did not meet the regulatory requirements and he was not entitled to any deduction for the gift. Scott Hoensheid and his...

Court May Remove Charity Trustee For “Serious Breach of Trust”

Appellate court affirms trial court decision to remove for multiple breaches of fiduciary duty
The Court of Appeals of Minnesota has affirmed a trial court decision removing one of the trustees of the Otto Bremer Trust, a $2 billion private foundation in St. Paul, for “serious breach of trust” under state law. The Attorney General had petitioned for the removal of all three of the Foundation’s trustees, but the trial court granted the petition only as to one of the group. The removed trustee appealed and the Court of Appeals has affirmed. The trial court had found that Trustee Brian Lipschultz violated his duty of loyalty through self-dealing, aggressive behavior during a sale of Foundation stock, and abuse of his grantmaking powers. It further determined that he had violated a “duty...

Court Dismisses Consumer Protection Suit For Impinging on Charitable Solicitation

For-profit thrift store company advertises its relationships with charities who get paid for donations to stores
The Supreme Court of Washington has dismissed a group of claims brought by the state for violation of state consumer protection law by a for-profit thrift store operator that advertised its payments to “charity partners” for contributions to the thrift store operation. The Court has refused to apply the standard for liability usually applicable to “commercial” speech to determine whether a fraud had occurred and found that the claims do not survive the “strict scrutiny” applied to charitable solicitation. TVI, Inc., doing business as Value Village, operated about 20 for-profit thrift stores within the state. Approximately 93% of its retail inventory consists of used goods donated to TVI by...

Nonprofit Hospitals Denied Real Estate Tax Exemption

Court says they were not operated free from private profit motive and did not provide sufficient free or subsidized care
A Pennsylvania appellate court has denied charitable real estate tax exemption for four hospitals in a reginal nonprofit hospital system on the ground that they did not qualify under the state’s definition of “charitable.” It affirmed three decisions from one county and reversed a decision from another. The state Commonwealth Court has found that four hospitals in the Tower Health system in suburban Philadelphia did not operate free from private profit motive and did not provide a sufficient amount of below cost care to its patients. Tower Health, a 501(c)(3) hospital limited liability company, acquired the hospitals from Community Health Systems, a for-profit entity, in 2017. It acquired...

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