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IRS Finalizes Regs Covering Sponsorship

Payments will be considered charitable contributions where there is no arrangement that the sponsor will receive 'any substantial return benefit in exchange for the payment'

The Internal Revenue Service has published final Regulations to determine whether sponsorship payments for charity fund raisers are considered charitable contributions or unrelated, and possibly taxable, income.

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Donor Advised Funds Still Compare Well with Private Foundations

Pension Protection Act imposed new limitations but absolute control of foundations has costs and other limits

Donor advised funds (“DAFs”) are often considered the small donor’s private foundation. They may be more quickly established, are often less expensively administered, and are more tax advantageous.

But for donors who want absolute control over administration, investment policies, and grantmaking -- and who want to be paid for doing it -- a private foundation may be the only answer. The charitable reform provisions of the Pension Protection Act of 2006 have made it more likely that donors seeking control, and particularly those seeking compensation, will opt for a private foundation.

This Ready Reference Page contains a comprehensive list of comparisons between a donor advised fund and a private foundation so that potential donors can determine which may be more appropriate in their situation.

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Federal Law Protects Nonprofit Volunteers

Act reduces standard of liability to gross negligence, flagrant indifference

Finally, the Act does not preclude a nonprofit organization from bringing a suit against one of its own volunteers for damages to the nonprofit. The Volunteer Protection Act certainly does not mean that volunteers will be immune from suit. Plaintiffs’ lawyers representing injured persons will, whenever possible, continue to sue volunteers, by alleging gross negligence, flagrant indifference, or acts outside the scope of the volunteers’ responsibility. Nonprofit entities will continue to be sued as well, however, since they are likely to have "deeper pockets" and will still be liable for acts of their volunteer agents, even if the volunteers are not personally liable. Where the nonprofit has insurance for the claim, which hopefully covers the volunteer as well as the organization, the outcome will probably not be much different under the Act.  If the nonprofit is without insurance, however, the volunteer may have a defense to personal liability not available to the organization.

Charity Fundraisers Raise Many Legal Issues

From preparation, through running the event, and reporting the results careful lawyering can reduce the risks of liability and embarrassment

It isn’t easy to run a successful charitable fundraising event.  There is a lot of planning required, a lot of details to worry about, and a lot of people to coordinate.  And, if you ask – and sometimes even if you don’t – there are the lawyers.

A fundraising event presents a wide range of nonprofit legal issues.  What follows is a checklist of some of them.

This Ready Reference Page covers; preparing for the event, soliciting for the event, running the event and after the event.

Charities Often Restructure to Protect Corporate Assets

Creation of a separate foundation to hold reserve assets provides protection and flexibility for new programs

Threats of high litigation verdicts and a crisis in obtaining insurance caused many charities to restructure their organizations to create separate “foundations” to protect their reserve assets a couple of decades ago.  Prior to that, many hospitals had created foundations in order to maximize their reimbursements for medical services.  Both the wave of huge adverse verdicts and the difficulty in obtaining insurance have waned over the years.  Hospital reimbursement has changed so foundations no longer increase hospital income.  But many charities are continuing to restructure today, both to protect their assets and to provide greater flexibility in the programs they undertake.  

Senate Committee’s White Paper Proposes Vast Expansion of Federal Power Over Charities

Proposals extend beyond tax regulation to give IRS, Tax Court authority over traditional state law concepts of fiduciary duty

The Senate Finance Committee released a 19-page staff “white paper” prior to its June 22 hearing outlining a series of proposals that would significantly increase governmental regulation of charities.

Although Committee Chair Chuck Grassley (R-Iowa) said the discussion paper is intended only to start a “dialogue” on the issues, if significantly implemented, the proposals could extend federal regulation vastly beyond federal tax law and into areas of governance and fiduciary duty traditionally left to the states. It also includes recommendations for more state and federal cooperation in enforcement proceedings.

The paper, self-described as “a work in progress,” is divided into 9 sections, including proposals dealing with exempt status, expanding self-dealing rules, limiting administrative expenses, improving Form 990 reporting, federal governance rules.

Independent Sector Proposes Charity Reforms In Interim Report to Senate Finance Committee

Panel promises additional recommendations later; Grassley praises effort as beneficial

The Panel on the Nonprofit Sector convened by the Independent Sector held a joint appearance with Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and released the Panel’s first set of recommendations on March 1, with Grassley praising the effort as helpful to the Committee.

The report covers much of the same ground as earlier comment drafts (See Nonprofit Issues, February 16-28, 2005), but leaves some issues unresolved and promises additional recommendations later in other areas.

The Interim Report covers 15 specific sets of recommendations for improving accountability and governance of charities.

Finance Committee Holds Another Hearing On Charity Governance, Ways to Cut Tax Gap

Sen. Grassley looks at contribution deductions as means to slice away at difference between taxes due and taxes paid

The Senate Finance Committee’s review of charitable activities, which started primarily as a review of ways to prevent charitable abuses, is shifting toward a search for revenue to slice away at the nation’s tax gap, the $300 billion difference between what taxpayers should be paying and what they are actually paying each year.

Senate Proposes Two Year Contribution Breaks, Permanent Limits on Deductions, DAFs and SOs

Donor Advised Funds and Supporting Organizations would face new restrictions to make them more “accountable”

After nearly a year and a half of Congressional controversy about perceived charity abuses, a discussion which morphed during the session into ideas to raise revenue from the charitable sector, the Senate has included a few tax breaks and a lot of regulation in the Tax Relief Act of 2005, passed late at night before the Thanksgiving recess. (S.B. 2020.) In addition to new rules for donor advised funds and supporting organizations, the Senate would impose a series of new requirements for claims of deduction for personal property

The major incentives for charitable giving, previously embodied in various versions of the CARE Act, include permission for all taxpayers to deduct charitable contributions in excess of $210 per year ($420 for joint filers), and an IRA rollover provision for taxpayers over 70 1/2. Both breaks would be effective only for the years 2006 and 2007.

Congress Passes Charitable Reforms, Approves Limited Giving Incentives

Big changes made for DAFs, SOs and general accountability; IRA rollover allowed for some direct gifts to charity

Congress has passed the most sweeping set of changes to the rules governing charities since 1969 (H.R. 4), enacting a legislative definition and series of regulations for donor advised funds, imposing new limitations on supporting organizations and generally tightening a series of rules to improve the “accountability” of charities and donors. One of the provisions calls for recapture of deductions for appreciated personal property if the charity does not use the property in its charitable program. The bill has also enacted some incentives for charitable giving, most of which are operative only until the end of 2007.

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