Charity Governance

“IT’S ALIVE, IT’S ALIVE”: THE SERVICE RESURECTS THE COMMENSURATE-IN-SCOPE TEST

Hit me with your best shot!
Why don't you hit me with your best shot!
Hit me with your best shot!
Fire away!

Pat Benatar, Hit Me With Your Best Shot on Crimes of Passion (August 1980)

DATELINE: May 14, 2008, Chicago

You know something is up when our friends at the Chronicle of Philanthropy feature the release of an IRS determination letter in their News Update column, but Chronicle reporter Grant Williams and his editors know a big story when they see one. IRS Revokes Tax-Exempt Status of Charity That Spends Too Little Money on Charitable Programs, May 13, 2008. Williams reported yesterday that the Service issued Determination Letter 20080818023 (May 2, 2008), which concluded that a Section 501(c)(3) organization did not qualify for tax-exempt status. "Big whoop," you say, but it is because the Service invoked the much heralded...

FASB SHOULD WAKE UP AND SMELL THE COFFEE: MASSACHUSETTS TAX ON ENDOWMENTS

DATELINE: May 12, 2008, Chicago

As regular readers know, we are dissatisfied with proposed FSP 117-a, a rather obscure proposal being considered by the Financial Accounting Standards Board (FASB). It would extend current accounting principles to the financial statements of charities operating in states that have adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA is spreading like wildfire, with at least 20 states enacting versions of it.

To make a long story short, FSP 117-a will continue the accounting profession's practice of overstating the amount of a charity's assets that are freely spenadable. For institutions with large endowments, this means that to donors and legislators, much of endowment looks like it is available for current expenditure despite legal restrictions which prohibit the institution's board from spending the funds. As our Jack Siegel pointed out in his recent article, FASB Puts Infinity Up on Trial: Accounting for Endowments, 60 EOTR 23 (April 2008), the inaccurate reporting mandated by FASB will pose serious problems for colleges and universities. For example, rising tuition and related costs...

WHAT ARE THE INTERNATIONAL RELIEF ORGANIZATIONS DOING ABOUT MYANMAR AND WHAT ARE YOU DOING ABOUT IT?

DATELINE: May 7, 2008, Chicago

We suspect that the established disaster relief organizations are not receiving an outpouring of donations following Cyclone Nargis' direct hit on Myanmar. Many people don't know where Myanmar is, and those that do, are likely to be put off by the military government, particularly following the crackdown several months ago on Buddhist monks. Nevertheless, there probably are more than a few people who still want to do something. After all, those who...

BUILD IT AND THEY WILL FUND IT: WRONG

DATELINE: May 6, 2008, Chicago

The Museum of Broadcast Communications was located in the Chicago Cultural Center, a temporary location, for many years.  Over the last several years, the museum has been constructing a new museum on Chicago's State Street. The museum archives hold over 85,000 hours of broadcast and radio programming.

We hadn't been actively following the construction's progress, but we did notice when we walked past the facility that it was taking what seemed to be a...

IRS TELLS CHARITIES WHAT IT WILL BE LOOKING FOR THIS CAMPAIGN SEASON

DATELINE: May 5, 2008, Chicago

Nobody doubts that we are in full campaign mode right now. In fact, most people are a little tired of the entire process notwithstanding the battle royale taking place on the Democratic side of the aisle. Last month, Lois Lerner, IRS Director, Exempt Organizations, issued a memo to her staff outlining the Service's goals regarding its Political Activities Compliance Initiative (PACI) for the current election cycle. Lerner was quick to note...

PROOF THAT CHARITIES DON’T WANT TO ENGAGE IN POLITICAL ACTIVITY: A FOODBANK LEARNS A LESSON

DATELINE: May 1, 2008, Chicago

All too often we see people suggest that the ban that prevents Section 501(c)(3) entities from intervening in political campaigns should be repealed. That would pose gigantic problems for charities, as the Wall Street Journal's Michael M. Phillips aptly demonstrates today in Payday Lender Presses Charity to End Support for Tighter Bills. The story involves lobbying rather than a campaign intervention, but the lesson is the same. Phillips reports that the Ohio Association for Second Harvest Foodbanks (OASHF) endorsed legislation coming out of the Ohio legislature that would have capped the interest charged on pay-day loans at 28% per annum. The endorsement appears to have been somewhat indirect.  OASHF had joined the Ohio Coalition for Responsible lending, an organization that supported the legislation in question.  OASHF's named appeared on the Coalition's Web site. 

We suspect that many might conclude that this is...

MONTANA SUPREME COURT DELIVERS LANDMARK OPINION: 13 STATE ATTORNEYS GENERAL INTERVENE

DATELINE: April 30, 2008, Chicago

We read the e-mail alert (courtesy of Google) at 5AM this morning. Stephanie Strom and Jim Robbins of the New York Times reported in Montana Museum Board Breached Duty, Court Says that the Montana Supreme Court had delivered a decisive defeat to the board of advisors to The Charles M. Bair Family Trust, removing the entire board and instructing that it be replaced. The dispute centered on the board's decision to close the Charles M. Bair Family Museum in 2003.

The Bair Family Trust was created by Alberta M. Bair, the daughter of Charles M. Bair. There were two provisions in the trust agreement that lead to the dispute in this case. The first...

ADDING FUEL TO THE FIRE: UPFRONT PAYMENTS AND CHARITY CARE

DATELINE: April 28, 2008, Chicago

Barbara Martinez of the Wall Street Journal reports today on a new trend in nonprofit hospital finance that surely will catch the attention of Senator Grassley. Cash Before Chemo: Hospitals Get Tough. As is often true of many health care exposes, this one focuses on the story of one particular patient. In this case, Lisa Kelly's dramatic story serves as the anecdotal evidence. She was advised by her doctor in 2006 that she had leukemia. When she sought treatment at M.D. Anderson Cancer Center in Houston, Texas, she was told that the nonprofit hospital would not treat her unless she prepaid the estimated...

SIEGEL SUBMITS COMMENTS ON THE PROPOSED INSTRUCTIONS TO THE FORM 990

DATELINE: April 28, 2008, Chicago

Our very own Jack B. Siegel submitted comments to the Internal Revenue Service today regarding the instructions it proposed on April 9, 2008 to the redesigned Form 990.

A significant portion of Siegel's comments focus on Line 1b and 2 to Part VI of the Core Form. These schedules focus on whether a director is independent (Line1b) and the relationships among directors, officers, key employees, and highest compensated individuals (Line 2). He also focused on Part IV of Schedule L, which focuses on transactions between the exempt organization and interested parties. Determining which of these relationships should be captured and what should be disclosed about them is a difficult call. The public, the media, and watchdog groups want more, more and more. But the desire for complete disclosure must be balanced against the cost and propriety of disclosing all possible relationships. Siegel offered the IRS 14 examples that address the Line 2 disclosures, suggesting that the IRS create exceptions for business relationships that deserve protection because of the sensitive information disclosed by the very existence of the relationship. He also suggested that the IRS except out consumer transactions.

Siegel's comments cover all aspect of the redesigned Form 990, except for the forms that apply to hospitals, schools, and tax-exempt bonds.  In one section, Siegel expresses sympathy for some organizations that will be required to disclose first class and charter travel that is perfectly appropriate.  He focuses on disaster-relief organizations, suggesting to the IRS that first class and charter travel be defined to exclude certain legitimate and recurring uses of this travel.

Siegel also reiterated his concerns over the formatting for the instructions, pointing out that the IRS can make the instructions user friendly if it takes the time to use headers and footers, innovative numbering systems, and relies on its Glossary, which by the way, is excellent.  Siegel offered specific suggestions regarding format.

For a copy of Siegel's comments as submitted, click here

FASB NEEDS TO GO BACK TO BASICS ON ACCOUNTING FOR ENDOWMENTS: ACCOUNTANTS NEED TO STOP PRACTICING LAW

DATELINE: April 21, 2008, Chicago.

Last Friday, the comment period for FSP 117-a, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures, came to a close. In reviewing the 37 comment letters posted on the FASB's Web site, one thing is clear: The state of endowment accounting is a...