Friday, September 25, 2009

Senator Grassley's EO Amendments to Health Care Reform Bill

As part of the health care reform legislation pending in the Senate Finance Committee, Senator Grassley, longtime advocate of exempt organization reform and oversight legislation, has proposed two amendments that would have an effect on all exempt organizations, not just health care entities.

Grassley Amendment #F-7 would amend IRC Section 6033(a)(1) to require that governance and management information to be reported on the Form 990.  This is an effort to head off legal challenges to the IRS’s authority to ask many of the question in Part VI of the new Form 990.  What? Doesn't the IRS have that authority now? It is unclear under current law (I think "Not." Many others, particularly within in the IRS, say "Sure.") and the question is batted around. Perhaps the amendment would clarify the law and prevent uncertainty.

Grassley Amendment #F-8 adds several changes to IRC section 4958 regarding the so-called "intermediate sanctions" rules. The senator's proposed changes would retain the due diligence requirements for determining reasonable compensation for executives and other employees and contractors, but remove the "rebuttable presumption" procedures as a safe-harbor by which an organization can establish that the compensation is reasonable unless the IRS can show otherwise. The amendment would also require organizations to disclose on its Form 990 a summary of the comparable information used to determine an executive’s compensation.  This is would be bad change in the law. Overall, I think the rebuttable presumption procedures have led to more careful consideration of executive compensation by nonprofit boards. Sen. Grassley seems to object to the procedure because organizations can use data from comparable for-profit as well as other nonprofit organizations. God forbid that, based on such data, someone in the nonprofit sector should make more than a senator or Hill staffer.

New California Raffle Law Allows for Internet Advertising

California Senate Bill 200 was approved by the Governor on August 5, 2009. This bill amends Penal Code Section 320.5 to permit  nonprofit and other eligible organizations to advertise their fundraising raffles over the Internets. The law that raffles cannot be conducted and tickets cannot be sold over the Internet remains in effect, but the new law provides that an eligible organization is not deemed to operate or conduct a raffle over the Internet, or sell raffle tickets over the Internet, if the it advertises its raffle on the Internet. The law provides that certain information that may be posted on a web site without violation of 320.5, including a) Lists, descriptions, photographs, or videos of raffle prizes, b) List of the prize winners. c)The rules of the raffle d) Frequently asked questions and their answers, e) Raffle entry forms, which may be downloaded from the website but still may not be submitted through the Internet, and f) Raffle contact information, including the eligible organization's name, address, telephone number, facsimile number, or e-mail address.  All the other provisions of Pen.C 320.5 remain in effect, including the requirement that at least 90% of gross receipts must be used by the eligible organization "to benefit or provide support for beneficial or charitable purposes" (for itself or another eligible organization). But, expenses of the raffle can be paid from other funds not derived from the raffle itself, if the organization has such unrestricted funds, which would include expenses for prizes.

Friday, September 4, 2009

USA Today Review of CEO Salaries for US Foreign Aid NGOs

USA Today reported on August 31 that, according to 2007 organizational tax returns (Form 990), four chief executives, whose government-funded non-profit corporations are paid to deliver U.S. foreign assistance, earned more than half a million dollars in 2007. Each of the organizations is exempt under IRC section 501(c)(3). Both Sen. Chuck Grassley and Sen. Patrick Leahy are quoted saying that the pay is excessive:

"It seems to me that these are salaries that are outrageous, particularly if they're government contractors," said Sen. Chuck Grassley of Iowa, the ranking Republican on the Finance Committee, which has jurisdiction over non-profit compensation.

"It conflicts with most people's notion of what a non-profit organization is about when they're paying themselves salaries that are several times higher than what a U.S. Cabinet secretary would earn," said Sen. Patrick Leahy, D-Vt., who chairs the subcommittee that funds foreign aid.

Are government salaries the benchmark for determining what nonprofit executives should earn?

Madoff Trustee May Seek Clawbacks from Charities

Bloomberg news reported this week that Irving Picard, the liquidator for Bernard Madoff’s investment business, said that he might sue charities that took out more money than they invested with Madoff’s company. “We will look at charities on a case-by-case basis before determining what action may be appropriate,” Picard said. While it will be difficult for charities to repay funds that are probably long since spent, I think it is at least reasonable for the trustee to look into recovering any of the "false profits" that may have been distributed to these organizations.

IRS Exemption Application User Fees to Change

The IRS also announced this week that user fees will increase for all exemption applications (Forms 1023, 1024, and 1028), postmarked after January 3, 2010 (The user fee increases to $850 for organizations with annual gross receipts over $10,000.) However, once the Cyber Assistant becomes available during 2010, the user fees for filing Form 1023 using Cyber Assistant will be $200, regardless of size and the user fee for all other organizations will be $850, regardless of size. Cyber Assistant is a web-based document assembly program developed by the IRS for completing the Form 1023.

New from the IRS - Form 990 Tips: Reporting Foreign Activities

The IRS issued another set of FAQs and tips this week, part of a continuing series of tips about filing the redesigned Form 990. This set addresses questions raised about the new foreign activity reporting requirements, including how passive and related organization investments should be reported on Schedule F.