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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.

Act 55 Defines 'Charity' Eligible for Exemption

Compromise bill allows small business to seek to enjoin unrelated commercial activity, imposes new financial accountability requirements

Although the state Supreme Court has relieved the pressure on hospitals and colleges by recent favorable decisions, this Act will be particularly beneficial to smaller charities in their negotiations with municipalities--if the Court accepts a legislative attempt to define the state Constitution. The "sleeper" in the Act, however, is the unfair competition provision, which will be utilized by small business to threaten charities whether or not the Court accepts the other provisions of the Act.

Permanently Restricted Funds Should Be Designated As Permanently Restricted on Pa. Financial Statements

Accountants have been confused by state’s adoption of statute which permits trustees to set income as a percentage of fund value

More than five years after the Pennsylvania legislature passed Act 141 of 1998 giving charitable trustees the right to adopt a unitrust-type spending policy to determine distributions from endowments, there is still no generally accepted consensus on the classification of such funds or the presentation of gains or losses in the funds under generally accepted accounting principles.

What May You Ask in Employment Interview?

Nonprofits can reduce the risk of liability by avoiding questions that suggest illegal discrimination in hiring.

Claims of employment discrimination are among the leading causes of lawsuits against nonprofits. Some of that litigation could be avoided by following some simple rules about asking questions in pre-employment interviews.

The Employment Law Department of the Philadelphia law firm of Montgomery, McCracken, Walker & Rhoads, LLP, has put together a summary of some general legal requirements which apply to any inquiry, whether written or oral. (List included in article.)

Employment Record-Keeping Requirements

Federal statutes set forth employment-related records which must be preserved and the period for retention.

This Ready Reference Page covers:

The records which must be retained and the period for retention for each of the following statutes:

Title VII, Civil Rights Act of 1964
Title VII; ADA
Title VII
Fair Labor Standards Act
Family & Medical Leave Act of 1993
Immigration Reform and Control Act
Occupational Safety and Health Act
Employee Retirement Income Security Act ("ERISA")
Department of Labor
Age Discrimination in Employment Act ("ADEA")

Classify: Employee or Independent Contractor?

The IRS has listed 20 factors in determining whether a worker is an employee or an independent contractor, but, in the final analysis, control is the key

When the IRS audits a nonprofit organization, one of the first things it looks at are the employment records and the classification of any independent contractors. If the organization has not been withholding income taxes and FICA payments for those the IRS considers to be employees, it can be a costly experience for the organization, and potential personal liability for the "responsible persons" who failed to withhold. Although it may seem like a real bother, err on the side of withholding.

Six Steps for Effective Internal Investigations

The risks of legal action by a complainant, the accused, or a third party can be reduced by a thorough and effective inquiry and convincing documentation of the process

Nonprofit managers are often called upon to conduct investigations of possible employee misconduct. The issues include theft of property, embezzlement, sabotage, fighting, drug or alcohol use, theft of trade secrets, sexual or racial harassment, and acceptance of bribes.

 

An effective investigation can be essential to defending a claim brought by a former employee, such as a discrimination, harassment, wrongful discharge, or defamation claim.

Permanently Restricted Assets Should Be Classified as Permanently Restricted Under UPMIFA

FASB recommendation to distinguish between permanently and temporarily restricted has no basis in law

Charities and their accountants are struggling to understand how to account for donor-restricted endowments held by charities under the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) which has now been adopted in about 43 states. 

The Financial Accounting Standards Board has given considerable discretion to the boards of directors of the charities to determine how much should be treated as permanently restricted, and how much should be classified as temporarily restricted.  In our opinion, that bifurcation does not reflect the board’s power under the law and will lead to huge variation in financial statements across the country.  In our opinion, the funds should all be listed as permanently restricted, with an appropriate disclosure in the footnotes of the board’s power to appropriate from the fund for current expenditures.

Charities Respond to Senate Committee With Varied Views on Proposed Reforms

Consensus seems to support additional funding for IRS to enforce present regulations

Representatives of major charity umbrella groups, lawyers and other consultants provided a wide range of responses to the Senate Finance Committee White Paper proposing charitable reforms at a closed-door “roundtable” with Committee staff in Washington, July 22. (For a description of the proposed reforms, see Ready Reference Page No. 74, July 1-15, 2004.)

Grassley Questions Status Of Nonprofit Hospitals

Senator complains about lack of reporting standards,country club dues, and ‘billions of dollars in tax breaks’

Sen. Chuck Grassley (R-IA) issued a statement highly critical of nonprofit tax-exempt hospitals while releasing answers of 10 major nonprofit hospitals prior to a Senate Finance Committee hearing on September 13. He questioned whether the public was receiving measurable benefits in return for “billions of dollars in tax breaks.”

A partial text of the statement follows:

Non-profit doesn’t necessarily mean pro-poor patient. Non-profit hospitals may provide less care to the poor than their for-profit counterparts. They may charge poor, uninsured patients more for the same services than they charge insured patients. They sometimes give their executives gold-plated compensation packages and generous perks such as country club memberships. All of this calls into question whether non-profit hospitals deserve the billions of dollars in tax breaks they receive from federal, state, and local governments.

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