We have not followed the case of Terry Schiavo very closely—it’s not our thing. Recall this is the woman in Florida with the feeding tube keeping her alive. Her parents have fought to keep the tube in place while her husband wants to remove the tube, allowing nature to take its course.
What caught our eye were recent press reports that the Florida Department of Agriculture and Consumer Services (the "Florida Department") had filed an administrative complaint against the Terri Schindler-Schiavo Foundation, fining it $1,000 for failing to register with the state for solicitation of donations. We saw several articles that referred to the organization as a charity, including a short blurb on the Chronicle of Philanthropy’s website. The Foundation reached a settlement with the Florida Department regarding registration--click here for an unexecuted copy of the agreement that the Department provided to us. We called the Florida Department on March 1, 2005. At that time, the Foundation still had not registered with the Department as a charity (at least there was no record on file, according to the Department employee who searched the records).
That got us thinking: Is the Terri Schindler-Schiavo Foundation...
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a charity for Federal income tax purposes? According to the Foundation’s articles of incorporation:
The Corporation is organized and shall be operated for any charitable purposes, including, but not limited to, the following purposes:
Provide financial aid in the effort to prevent the death of Theresa Maria Schiavo
Provide financial aid to the effort to underwrite medical and neurological expenses associated in the rehabilitation treatment of Theresa Maria Schiavo
Increase public awareness of the current state of marriage infidelity laws, guardianship laws and end-of-life issues
Lobby and otherwise encourage changes in the laws of the state of Florida and other states with respect to guardianship to extend parents’ rights in the guardian process
Provide financial aid and public awareness efforts in situations where a court may order the removal of life-sustaining care for an incapacitated person.
So there is an educational and advocacy aspect to the organization. That might be the basis for finding that the organization is a Section 501(c)(3) organization, making contributions to it tax deductible, but there is one major problem. The organization was also organized to provide aid to a specific individual, one Theresa Maria Schiavo. That is problematic on several grounds. First, it raises questions of private inurement—remember we are focused on whether this organization could qualify for Section 501(c)(3) status. More directly, it violates existing IRS pronouncements on the use of charities to aid specific individuals. IRS Publication 3833 addresses Disaster Relief, but many of the principles in this publication are equally applicable to this case. The IRS states:
CHARITABLE CLASS — The group of individuals that may properly receive assistance from a charitable organization is called a charitable class. A charitable class must be large or indefinite enough that providing aid to members of the class benefits the community as a whole. Because of this requirement, a tax-exempt disaster relief or emergency hardship organization cannot target and limit its assistance to specific individuals, such as a few persons injured in a particular fire. Similarly, donors cannot earmark contributions to a charitable organization for a particular individual or family. When a disaster or emergency hardship occurs, a charitable organization may help individuals who are needy or other wise distressed because they are part of a general class of charitable beneficiaries, provided the organization selects who gets the assistance.
Theresa Maria Schiavo does not constitute a charitable class. Consequently, providing aid to keep her alive is not a charitable purpose. It is extremely doubtful whether the Foundation could obtain Section 501(c)(3) status.
Of course, our opinion really doesn’t matter. It is the IRS’s opinion that counts. Interestingly, the online version of Publication 78 (the IRS’s list of qualified charitable organizations) does not list the Terri Schindler-Schiavo Foundation as a qualifying organization. Nor does GuideStar list the Foundation, let alone provide any Form 990s that the Foundation might have filed. This strongly suggests that the Foundation has not applied for Section 501(c)(3) status, or that such application was denied.
We found no reference on the Foundation’s website to the tax status of any contributions. If the contributions were tax-deductible, we suspect that the Foundation would make that fact very clear.
Back to the failure to register with the State of Florida. An article in the Palm Beach Post (Schiavo Parents Fined, Must Register Foundation—February 9, 2005) states:
And investigation by the Florida Department of Agriculture and Consumer Services found that the Schindler's foundation had violated state law by "soliciting funds for a charitable purpose" without registering with the state. Non-profits that solicit contributions are required by law to register with the department.
The article then quotes Barbara Weller, a lawyer for Terri Schiavo’s parents as having said:
"It's not that big of a deal. . . . From what I understand, this is pretty common."
We would not be so glib in assessing the significance of the violation. If it is no big deal, then why had the Foundation not registered by the time we called? While the Foundation’s website doesn’t say contributions to it are tax deductible, the Foundation’s articles of incorporation describe it as charitable and the Florida Department apparently viewed the Foundation’s activities as charitable solicitation, something which the Foundation has apparently not contested. We can only ask: How many people who have made a contribution to the Foundation have claimed the contribution as a charitable contribution deduction on their tax returns? The word “foundation” certainly suggests that this is a charity. For this reason, we believe failure to register is a “big deal.” Which leads to another question: Do organizations that look like charities, but that aren’t charities have an obligation to inform prospective donors that their contributions are not deductible? Is this a legal or just an ethical obligation? Can the Florida Department force the Terri Schindler-Schiavo Foundation to make appropriate disclosure?
As for our friends at the IRS, can they force a disclosure or issue a press release addressing the status of the Foundation? If the IRS has the authority, we believe it should issue a notice or press release to clarify the status of any contributions.
And in the questions-for-further-exploration department: Does the Foundation have taxable income when it receives contributions, or are these just “kind and disinterested” gifts, exempt from taxation under Section 102 of the Internal Revenue Code? Are the contributions exempt from taxation as contributions to the capital of the Foundation under Section 118? Does a tax-exempt entity have capital? If the Foundation reimburses expenses, does Terry Schiavo or her parents have taxable income? Does the Foundation have gift tax liability?
As we have pointed out before, virtually every situation has tax implications. This one would make for an interesting final exam question.
We have sent the Foundation an e-mail requesting information on its tax status. We will do a follow-up post if warranted.
LESSON FOR OTHERS: We spoke with a representative for the Florida Department. They were unaware of the Foundation until members of the public contacted the Department. The Schiavo matter is an emotionally-charged one, with strong views on both sides of the issue. It is not at all surprising that someone turned the Foundation in to the state. Your organization should comply with state laws in all events, but if your organization is engaged in highly-controversial activities, it should file because someone on the other side of the controversy will undoubtedly use non-compliance as a weapon against your organization.
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