Mar
24
2014

Booster Club Fundraising May Present Private Inurement/Private Benefit Concerns

In a recent decision, Capital Gymnastics Booster Club v. Commissioner, T. C. Memo 2013-193,
the Tax Court held that a gymnastics booster club did not satisfy the requirements of Section
501(c)(3) because its fundraising programs operated in a manner that allowed substantial
private inurement and promoted private, non-public interests. The case raises questions for taxexempt
organizations that conduct fundraising activities for the benefit of organization leaders
and members. (more…)

Dec
01
2011

Keep the change, ya filthy animal!

In Home Alone 2, the villains from the first movie have inexplicably broken out of jail and end up in New York. Daniel Stern’s character, Marv, wraps his glove in tape, dips it in a holiday donation receptacle manned by a Santa Claus, and pulls it out covered with coins. 

Harry: That’s very smart, Marv. You bust outta jail to rob 14 cents from a Santa Claus?

Marv: Every little bit helps. Besides, now we’ve got our new nicknames: We’re the Sticky Bandits!

At this point in the movie, only the most prescient (more…)

Mar
09
2011

Donor-Advised Funds

In general, a donor-advised fund exists when the following three criteria exist:

1. the fund is owned and controlled by a public charity;
2. the fund is separately identified by reference to contributions of a donor or donors
3. a donor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts from the fund

A key to the third point is that the public charity will consider the advice of the donor, but the public charity itself controls all distributions. (more…)

Oct
13
2010

A Commitment to Charitable Giving and the Giving Pledge.

Have you heard about the Giving Pledge? Forty U.S. billionaires have committed to give at least 50% of their wealth to charity. Here is the website to check it out as well as the billionaires’ personal pledge letters: givingpledge.org. The likely suspects are there: Buffett, Gates, Ellison, Turner. I’m seeing the same idea in my practice, just on a smaller scale.

I’m continually amazed at so many of our estate planning clients’ commitment to philanthropy, and these individuals aren’t necessarily the childless. Many have children, grandchildren, and actually have very strong relationships with them, not necessarily the dysfunction you might suspect when you find out a client wants to give substantially all of his or her wealth to charity, although there are occasionally those who are “disinheriting” the kids for various reasons.

Just recently, I met a wonderful couple who engaged me to help with estate planning. (more…)

Sep
10
2010

Percentage or Commission-Based Compensation

Often times a charity cannot afford to hire a professional fundraiser.  In addition, many fundraisers desire to be paid a commission based on a percentage of the revenues that they raise.  Therefore, offering a commission for fundraising services is often perceived as a “win-win” situation.  Before entering into any arrangement, however, a charity must consider certain limitations on so-called percentage or commission-based compensation under the federal income tax laws, including the private inurement, private benefit, and excess benefit / intermediate sanctions rules.  To avoid application of these rules, the commission, as well as the fundraiser’s total compensation (including the commission and any other compensation) must be reasonable.  For example, commissions must be paid for services actually rendered and commensurate with the services rendered.  The IRS has also suggested that a ceiling or cap on the maximum amount of compensation is an important factor to ensure that commission-based compensation is reasonable.  Commission-based compensation based on the achievement of charitable objectives or established to serve a business purpose of the charity is preferable to compensation merely paid based on gross revenues.  It is also worth noting, although state laws limiting fundraising commissions have been struck down, professional fundraising associations generally limit or even prohibit commissions based on revenues for their members on the basis that such commissions are harmful to relationships between the donor and the charity and detrimental to the financial health of the charity.  In conclusion, before paying a fundraiser percentage or commission-based compensation, the charity must consider these laws and should consider consulting an experienced advisor to help them work through these issues.
Sep
03
2010

Charities and Life Insurance – A Growing Trend?

Life insurance has always been an important part of charitable giving.  Although there are legitimate uses, over the years the IRS has identified certain abuses regarding the use of life insurance in charitable planning.  In our practice, we have seen a recent surge in charitable planning techniques involving life insurance.  Before your charity accepts a gift of life insurance, you should consider several issues, including the following:  (1) the application of Section 170(f)(10), the so-called “charitable split-dollar rules” (which, if applicable, impose an excise tax on the charity equal to 100% of the premium payments), (2) applicable state insurable interest laws, (3) private inurement, private benefit, and excess benefit rules, (4) unrelated business income rules (and debt-financed income rules, to the extent the life insurance was acquired with borrowed funds), (5) the partial interest rules (impacting both the income and gift tax deduction of the donor), (6) I.R.C. § 4944, the jeopardizing investment rules, and I.R.C. § 4941, the self-dealing rules, where the policy owner is a private foundation or split interest trust, (7) possible re-enactment or extension of I.R.C. § 6050V (which required a charity to report its interest in certain life insurance policies – the provision expired in 2008), and (8) potential legislation in response to the Treasury’s April 2010 report on abuses involving ”charity owned life insurance” (ChOLI).  Life insurance often represents a very valuable gift to a charity and most transactions involving life insurance satisfy the rules discussed above.  However, it is important to consider these rules with respect to any gift of life insurance, especially when the gift involves more than merely naming a charity as a policy  beneficiary or a donation of an unencumbered policy to the charity.

Aug
24
2010

Accepting Gifts… Should You?

Charitable organizations receive all types of donations, including cash,  personal property, and even business interests.  Often times, the charity is so excited about a potential gift that no diligence is completed prior to acceptance, and failure to complete diligence on gifts can turn out to be costly.    Take gifts of real property – these are very common and can be financially beneficial to a charity.  However, without completing diligence, the charity may find that it now owns a superfund site.   Another not-so-obvious example is a donation of stock.  Although most donated stock is marketable, certain types of stock, including stock in an S corporation (usually small, family owned corporations), are not.  This post explores the implications of a charity accepting gifts of S corporation stock.  

Subchapter S corporations can only have certain types of shareholders.  Generally, these “permissible shareholders” include individuals (who are not nonresident aliens), estates, certain trusts, and certain exempt organizations.  We will focus on the permissible exempt organization shareholder. (more…)

Aug
02
2010

Charitable Gaming Overview

As contributions and grants have decreased, many organizations must get creative to raise the necessary funds to further their exempt purposes.  One common method of raising additional funds includes gaming activities, such as raffles, sweepstakes, contests, and 50-50 drawings.  Before engaging in any gaming activities, however, it is critical for your organization to analyze applicable state and federal law.   For example, certain gaming activities are strictly prohibited under state law (e.g., such activities may constitute an illegal lottery).  Certain gaming activities may be permitted but are often limited to specific organizations, such as Section 501(c)(3) organizations.  In addition, most states impose registration, licensing, and reporting obligations before an organization may conduct gaming activities.  It is important to consult with a professional familiar with each applicable state’s laws before conducting gaming activities. 

With respect to federal tax law, the IRS warns that “[a]ll exempt organizations conducting or sponsoring gaming activities, whether for one night of the year or throughout the year … must be aware of the federal requirements for Income Tax, Employment Tax and Excise Tax.”  IRS Publication 3079, “Gaming Publication for Tax-Exempt Organizations”.  These issues include the application of the unrelated business income tax, the potential obligation to provide Form W-2G, Certain Gambling Winnings and/or withhold taxes, and the application of excise taxes imposed on certain forms of wagering.  In addition to tax implications, certain record keeping and filing obligations may be imposed.  Before initiating any gaming activities, therefore, it is also important to seek the advice of a tax adviser who is knowledgeable regarding these rules.  For additional information regarding the applicable federal tax laws, please see IRS Publication 3079, IRS Notice 1335, and IRS Notice 1340.

Jul
21
2010

An Overview of Commercial Co-Venture Laws

A “co-venturer” is a for-profit entity which promotes its products or services by representing that the purchase or use of such products or services will benefit a charitable cause (e.g., a for-profit makes a statement advertising that a portion of the proceeds from the sale of this product will be donated to charity). Since consumers are not given an option of whether or not to donate to the charity,  Approximately twenty-five (25) states have enacted specific laws which govern these so-called “commercial co-ventures” (or “cause-related marketing” programs). While the laws governing commercial co-ventures vary by state, in general, the state regulatory authorities are concerned with protecting consumers from fraudulent or deceptive advertising.

Thus, state laws generally require that the co-venturer (1) enter into written contracts with the charitable organization that will benefit from the promotion; (2) keep accurate records during the promotion; (3) include certain disclosures in all advertisements relating to the promotion (including amount or percentage per unit of goods purchased that will benefit the charitable organization); and (4) certain statutes require that the co-venturer or the charity register with the state, provide a bond and file annual reports. Notwithstanding the fact that certain states do not impose disclosure requirements in advertisements, all state regulatory authorities recommend that, as a good business practice, such disclosures be made. Disclosure may be made via signage, flyers, or other notice of general application. In addition, it is also good business practice to satisfy the contract and record-keeping requirements outlined above even if the promotion is conducted in a state without a co-venture statute. (more…)

Jul
14
2010

Artists Seeking Grants – The Laws That Govern Givers

As government funding of private arts and education shrinks, grants from private foundations become more competitive.  There are many legal factors that affect foundations’ decisions to give away money. The laws can be very complex, but the following primer can help artists direct their energies when choosing foundations and crafting their applications:  Team Publication (Artists Seeking Grants – The Laws that Govern the Givers of the Grant).

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