The Law of Fundraising : 2019 Cumulative Supplement [5 ed.] 9781119539780, 9781119539575

Citation preview

the law of

fundraising Fifth Edition 2019 Cumulative Supplement

the law of

fundraising Fifth Edition 2019 Cumulative Supplement

Bruce R. Hopkins and Alicia M. Beck

This book is printed on acid-free paper. ♾ Copyright © 2019 by John Wiley & Sons, Inc. All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for damages arising herefrom. For general information about our other products and services, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com. Library of Congress Cataloging-in-Publication Data: ISBN 978-1-118-65063-9 (main edition) ISBN 978-1-119-53957-5 (supplement) ISBN 978-1-119-53978-0 (ePDF) ISBN 978-1-119-53973-5 (ePub) Cover Design: Wiley Cover Image: © Comstock / Jupiter Images Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

Contents

Preface

vii

About the Authors

ix

Chapter One Government Regulation of Fundraising for Charity § 1.2 Charitable Fundraising: A Portrait 1 * § 1.3 Evolution of Government Regulation of Fundraising 3 § 1.4 Contemporary Regulatory Climate 7 Chapter Two

1

Anatomy of Charitable Fundraising

9

Chapter Three States’ Charitable Solicitation Acts § 3.2 Definitions 11 § 3.4 Annual Reporting 11 § 3.20 Miscellaneous Provisions 12 * § 3.22 Unified Registration 12

11

Chapter Four State Regulation of Fundraising § 4.2 Police Power 15 § 4.2A Registration and Licensing Requirements (New) § 4.2B Charitable Purposes Revisited (New) 17 § 4.3 Fundraising as Free Speech 18 § 4.8 Other Constitutional Law Issues 20 Chapter Five Federal Regulation of Fundraising § 5.2A Private Benefit Doctrine 23 * § 5.3 Charitable Gift Substantiation Requirements 25 § 5.6 Intermediate Sanctions 34 * § 5.7 Unrelated Business Rules 35 § 5.8 Exemption Application Process 40 § 5.11 Public Charity Classification 41 § 5.13 Fundraising Compensation Arrangements 42 * § 5.14 Charitable Deduction Rules 43 § 5.15 Commensurate Test 45 * § 5.18 Postal Laws 46 * § 5.21 FTC Telemarketing Rules 46 § 5.22 Internet Communications 47 § 5.25 Political Campaign Financing 47 * § 5.26 Fundraising Organizations 47

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15 15

23

CONTENTS

Chapter Six Import of Form 990 * § 6.11 Schedule B 59

59

Chapter Eight Overviews, Perspectives, and Commentaries § 8.1 Charitable Fundraising and the Law 63 § 8.8 Charity Auctions 63 § 8.12 Charitable Solicitations and Substantiation 64 § 8.12A Charitable Fundraising and Disclosure 65 § 8.13 Some Proposals for Relief 67

63

Chapter Nine Standards Enforcement by Watchdog Agencies § 9.15 Rating the Raters 69

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APPENDICES Appendix D Inflation-Adjusted Insubstantiality Threshold—$50 Test

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Appendix E Inflation-Adjusted Insubstantiality Threshold—$25 Test

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Appendix F Inflation-Adjusted Low-Cost Article Definition

75

TABLES Cumulative Table of Cases

77

Cumulative Table of IRS Pronouncements

89

Cumulative Table of Private Letter Rulings and Technical Advice Memoranda Discussed in Bruce R. Hopkins’ Nonprofit Counsel

91

Cumulative Table of Cases Discussed in Bruce R. Hopkins’ Nonprofit Counsel

93

Table of Tax Reform Legislation

97

Cumulative Index

103

vi

Preface

This 2019 cumulative supplement is the fourth supplement to accompany the fifth edition of this book. The supplement essentially covers developments in the law of fundraising as of the close of 2018. From a federal law standpoint, probably the most significant recent development in the realm of fundraising occurred when the U.S. Tax Court, in response to considerable litigation on the point, found a way to salvage charitable gift substantiation where the charitable donee has not supplied a gift substantiation letter (or at least not a qualifying one) to the donor, doing so in the context of gifts of easements: the deed of easement may serve as the gift substantiation document. This development is discussed in a section added by this supplement but in essence the court is disregarding as mere boilerplate a provision in the deed reciting consideration by reason of a merger clause. Also notably, what would have been an important development in the realm of charitable fundraising occurred when the Department of the Treasury and the IRS published proposed regulations to implement the exception to the general charitable gift substantiation requirement. Pursuant to this exception, donee organizations would have been able to file information returns with the IRS that report the required information about contributions. The fundraising community has become rather familiar with the general substantiation rules, using the required contemporaneous written acknowledgement letters as an opportunity to communicate with (as in say thank you to) their donors. If these rules concerning this exception had been implemented, administrators of charitable organizations would have had to make the decision as to whether to stay with the general substantiation regime or begin filing information returns with the IRS. The professional fundraising community certainly had a vested interest in the outcome of that decision making. The decision not only would have had an impact on donor relations efforts but, as the Association of Fundraising Professionals noted in its October 28, 2015, eWire, the proposal raised problems regarding donor confidentiality and privacy. The fundraising community, however, sidestepped these dilemmas when the IRS, overwhelmed and frustrated by the controversy, summarily, on January 7, 2016, withdrew the proposed regulations. Indeed, the underlying statute was repealed on enactment of the Tax Cuts and Jobs Act. A section has been added to the book, addressing the matter as to when an organization can be considered a tax-exempt charitable entity where its sole functions are fundraising and grantmaking. As we discuss, it has been IRS policy since 1924 that a nonprofit organization that only carries on operations that involve generation and receipt of contributions (and perhaps investment vii

PREFACE

income) and distribution of its income to public charities is eligible to receive recognition of tax exemption as a public charity. This point has often been restated over the years. The IRS caused a major shift in thinking concerning this topic when, in 1964, the agency introduced the commensurate test. As applied to fundraising and grantmaking charities, this test requires that the amounts distributed to one or more charities must be “significant.” (This aspect of the topic was raised to a much higher level of concern when, a few years ago, the IRS launched its “charitable spending initiative.” This could have been a major development for the fundraising community; the initiative, however, collapsed and disappeared in the aftermath of the chaos surrounding the brouhaha over the IRS’s mishandling of certain applications for recognition of exemption.) In recent months, however, largely by means of private letter rulings, the IRS has taken a harder line as to fundraising charities, principally by adversely applying the doctrines of private benefit and commerciality. There has been an unusually large number of IRS private letter rulings concerning nonprofit organizations established to engage in forms of online fundraising for charity. The IRS has denied recognition of tax exemption as a charitable entity in every one of these cases. Some of these rulings are inconsistent with law that has been in existence for over 90 years, concerning exemption for entities whose functions are solely fundraising and grantmaking. The IRS’s fixation on the commerciality doctrine has spilled over into this area, causing policy shifts, with the agency resting its denial positions on that doctrine and, in some instances, as noted, also the private benefit doctrine. We added this section to explore this aspect of the IRS’s recent ruling policy. The IRS’s focus in this area notwithstanding, online fundraising by charities that are tax-exempt continues to grow, and thus we expanded our portrait of charitable giving to include a look at this phenomenon. Other topics we have covered include a study of state-level oversight and regulation of charitable organizations, expanded Form 990 filing requirements in the states, discussion of a troubling IRS technical advice memorandum finding a charitable organization’s fundraising program to be an unrelated business (a matter now before the Tax Court), the import of the IRS’s new streamlined application for recognition of exemption, fundraisers’ compensation, and more law concerning raffles conducted by charities. We appreciate the assistance we have received from John Wiley & Sons in the preparation of this supplement. Our thanks are extended, in particular, to our development editor, Brian T. Neill, and Abirami Srikandan, production editor, for their assistance and support in connection with this supplement. Bruce R. Hopkins Alicia M. Beck March 2019

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About the Authors

Bruce R. Hopkins practices law with the Bruce R. Hopkins Law Firm, LLC, in Kansas City, Missouri. His practice concentrates on the representation of charitable and other tax-exempt organizations, ranging over the entirety of law matters involving exempt organizations, with emphasis on fundraising law issues, charitable giving (including planned giving), the formation of nonprofit organizations, acquisition of recognition of tax-exempt status for them, governance and the law, the private inurement and private benefit doctrines, the intermediate sanctions rules, legislative and political campaign activities issues, public charity and private foundation rules, unrelated business planning, use of exempt and for-profit subsidiaries, joint-venture planning, tax shelter involvement, review of annual information returns, and Internet communications developments. Mr. Hopkins served as chair of the Committee on Exempt Organizations, Tax Section, American Bar Association; chair, Section of Taxation, National Association of College and University Attorneys; and president, Planned Giving Study Group of Greater Washington, D.C. Mr. Hopkins is the series editor of Wiley’s Nonprofit Law, Finance, and Management Series. In addition to co-authoring The Law of Fundraising, Fifth Edition, he is the author of The Law of Tax-Exempt Organizations, Twelfth Edition; Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries; Bruce R. Hopkins’ Nonprofit Law Library (e-book); Tax-Exempt Organizations and Constitutional Law: Nonprofit Law as Shaped by the U.S. Supreme Court; IRS Audits of Tax-Exempt Organizations: Policies, Practices, and Procedures; Bruce R. Hopkins’ Nonprofit Law Dictionary; The Tax Law of Charitable Giving, Fifth Edition; The Tax Law of Associations; The Tax Law of Unrelated Business for Nonprofit Organizations; The Nonprofits’ Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide for Nonprofits; Starting and Managing a Nonprofit Organization: A Legal Guide, Seventh Edition; Nonprofit Law Made Easy; Charitable Giving Law Made Easy; Private Foundation Law Made Easy; 650 Essential Nonprofit Law Questions Answered; The First Legal Answer Book for Fund-Raisers; The Second Legal Answer Book for Fund-Raisers; The Legal Answer Book for Nonprofit Organizations; and The Second Legal Answer Book for Nonprofit Organizations; and is the co-author, with Jody Blazek, of The Tax Law of Private Foundations, Fifth Edition; also with Ms. Blazek, The Legal Answer Book for Private Foundations; with Thomas K. Hyatt, of The Law of Tax-Exempt Healthcare Organizations, Fourth Edition; with David O. Middlebrook, of Nonprofit Law for Religious Organizations: Essential Questions and Answers; with Douglas K. Anning, Virginia C. Gross, and Thomas J. Schenkelberg, of The ix

ABOUT THE AUTHORS

New Form 990: Law, Policy and Preparation; with Ms. Gross, of Nonprofit Governance: Law, Practices, and Trends; and with Ms. Gross and Mr. Schenkelberg, of Nonprofit Law for Colleges and Universities: Essential Questions and Answers for Officers, Directors, and Advisors. He also writes Bruce R. Hopkins’ Nonprofit Counsel, a monthly newsletter, published by John Wiley & Sons. Mr. Hopkins maintains a website providing information about the law of tax-exempt organizations and charitable giving law, including charitable fundraising law, at www.brucerhopkinslaw.com. Material posted on this site includes a current developments outline concerning this aspect of the law, and summaries of and indexes to his monthly newsletter. Mr. Hopkins earned his JD and LLM degrees at George Washington University National Law Center, his SJD degree at the University of Kansas School of Law, and his BA at the University of Michigan. He is a member of the bars of the District of Columbia and the state of Missouri. He is the Professor from Practice at the Kansas University Law School, teaching courses on the law of nonprofit and tax-exempt organizations, including charitable fundraising law. Mr. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law. Alicia M. Beck is an associate in the law firm of Polsinelli PC, practicing in the firm’s Kansas City, Missouri, office. She specializes in advising nonprofit entities. Her clients include national hospital systems, research organizations, private foundations, colleges, universities, associations, social welfare organizations, and governmental entities. Ms. Beck assists these clients with formation, structure, and operational issues, including fundraising regulation. She also has experience with various tax restructuring issues relating to international entities. Ms. Beck received her JD degree from the University of Kansas School of Law. Ms. Beck received an LLM in taxation from Northwestern University. She received a BA in Supply and Value Chain Management from Texas Christian University. She is a member of the bars of the states of Illinois, Kansas, and Missouri. She was also selected a 2015 Kansas and Missouri Rising Star for Tax Law.

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Government Regulation of Fundraising for Charity § 1.2

Charitable Fundraising: A Portrait 1 *§ 1.3 (a) Scope of Charitable Giving in General 1 § 1.4 (b) Online Charitable Fundraising 2

Evolution of Government Regulation of Fundraising 3 Contemporary Regulatory Climate 7

§ 1.2 CHARITABLE FUNDRAISING: A PORTRAIT p. 9. Insert following heading: From the standpoint of the law of charitable fundraising, two aspects of the portrait of charitable giving in the United States are important: the extent of charitable giving in general and the increasing use of the Internet for the purpose of soliciting charitable contributions. (a) Scope of Charitable Giving in General

p. 9. Delete text following the first paragraph and substitute: Charitable giving in the United States in 2017 is estimated to have totaled $410.02 billion. Giving by individuals in 2017 amounted to an estimated $286.65 billion; this level of giving constituted about 70 percent of all charitable giving for the year. Grantmaking by private foundations is an estimated $66.9 billion (16 percent of total funding). Gifts in the form of charitable bequests in 2017 are estimated to be $35.7 billion (9 percent of total giving). Gifts from corporations in 2017 totaled $20.77 billion (5 percent of total giving for that year). Contributions to religious organizations in 2017 totaled $127.37 billion (31 percent of all giving that year). Gifts to educational organizations amounted to $58.9 billion (14 percent); to human service entities, $50.06 billion 1

GOVERNMENT REGULATION OF FUNDRAISING FOR CHARITY

(12 percent); to foundations, $45.89 billion (11 percent); to health care institutions, $38.27 billion (8 percent); to public-society benefit organizations, $29.59 billion (8 percent); to international affairs entities, $22.97 billion (6 percent); to arts, culture, and humanities entities, $19.51 billion (5 percent); 24 and to environmental and animals groups, $11.3 billion (3 percent). p. 10. Delete first paragraph and substitute: (b) Online Charitable Fundraising

Not that many years ago, use of the Internet for charitable fundraising was only nascent. One analysis of online fundraising, in its beginnings, did not have 25.1 statistics on this approach to gift solicitation. But it was clearly coming, and was expected to someday be a major force in charitable fundraising. Now, that “someday” has arrived. In mid-2014, The Chronicle of Philanthropy gave a special report on online 25.2 fundraising, with the theme being “Digital Giving Goes Mainstream.” Among the findings in this report was that Internet gifts climbed 13 percent in 2013 in relation to 2012, although online fundraising “still accounts for a 25.3 very small portion of the money charities rely on.” Nonetheless, in 2013, the Leukemia & Lymphoma Society raised over $98 million online, the California Community Foundation raised more than $95 million online, the American Heart Association raised $59 million in that manner; other totals were over $45 million (World Vision), about $40 million (Campus Crusade for Christ International, Cystic Fibrosis Foundation, National Christian Foundation, Salvation Army), about $30 million (March of Dimes Foundation, Young Life), and about $20 million (Global Impact, Memorial Sloan Kettering Cancer 25.4 Center, United States Fund for Unicef, University of Michigan). About one year later, another report speaks of the “transformative promise 25.5 of online fundraising” that has yet to materialize. This report looks at the “short history of online fundraising” and finds that it “is not without signs of progress.” It summarizes the successes of online-giving websites and notes

24

These data are from Giving USA 2017, published by the Giving USA Foundation, and researched and written under the auspices of the Center on Philanthropy at Indiana University. 25.1 Hopkins, The Nonprofits’ Guide to Internet Communication Law (John Wiley & Sons: 2003), Chapter 4. 25.2 XXVI Chron. of Phil. (No. 13) F-1 (May 22, 2014). 25.3 Daniels and Narayanswamy, “Online Giving Grows More Sophisticated,” XXVI Chron. of Phil. (No. 13) F-3 (May 22, 2014). 25.4 XXVI Chron. of Phil. (No. 13) F-4 (May 22, 2014). 25.5 “Click, Click, Cash?,” 27 Chron. of Phil. (No. 9) 10 (May 2015).

2

§ 1.3 EVOLUTION OF GOVERNMENT REGULATION OF FUNDRAISING

that “[y]ear to year, more people give money online to charity.” Still, for most charitable organizations, this report states that online giving “represents a sliver of their overall fundraising.” The “promised revolution” is “moving at glacial speed” because of ancient tech infrastructure, reluctance on the part of fundraising management to place more emphasis on online operations, and lack of understanding by senior executives and board members of the potential of online fundraising. This report concludes that “effective online fundraising doesn’t eliminate the human touch at the core of giving.” Every day, the report states, “you see more meaning and substance on the Internet, more people forging thoughtful, deep connections—deeper connections, perhaps than a professional fundraiser could ever hope for with a yearly 25.6 newsletter.”

§ 1.3 EVOLUTION OF GOVERNMENT REGULATION OF FUNDRAISING *p. 12. Insert following after second full paragraph of text: There continues to be a nationwide crackdown on fraudulent charities that exploit disadvantaged groups in order to solicit donations. On October 11, 2018, the Minnesota attorney general filed a lawsuit against the American Federation of Police and Concerned Citizens, Inc. (AFPCC) for deceptively representing that contributions it received would be used to help families of officers killed in duty. The attorney eneral found that in fact only 17 percent of AFPCC’s spending in 2017 and just 9 percent of the $4 million it received in total donations were used for charitable purposes. On July 19, 2018, the Virginia attorney general announced that his office was taking legal action against two charities, Hearts for Heroes, Inc., and Operation Troop Aid, Inc., alleging they both had used donations to benefit their organizations instead of helping veterans and troops. This suit and settlement are part of a 16-state action. According to a release from the Virginia attorney general’s office, the Operation Troop Aid, Inc. settlement requires it to dissolve and prohibits its CEO from assuming any fiduciary role with a nonprofit corporation or soliciting on a nonprofit corporation’s behalf. On September 11, 2017, the Michigan attorney general announced a settlement with Breast Cancer Outreach Foundation, Inc., a Florida nonprofit corporation, resolving the attorney general’s claims that the organization deceptively raised $1.4 million nationwide in 2015. The organization’s solicitations stated 25.6

Id. at 11, 12, 14, 16, 19. In general, “The Best of Online Fundraising,” articles beginning on pp. 9, 10, 12, 14, 16, 18, 20, and 22, 28 Chron. of Phil. (No. 7) (May 2016).

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GOVERNMENT REGULATION OF FUNDRAISING FOR CHARITY

that funds would be used for breast cancer research grants. In reality, all of the money raised, other than one grant, was paid to professional fundraisers and for other expenses unrelated to breast cancer research. As part of the settlement, the Foundation is required to pay $150,000, with $125,000 paid for breast cancer research and the remaining $25,000 to recover the state of Michigan’s investigative costs. The organization is also banned from soliciting in Michigan for 10 years. On May 18, 2015, the Federal Trade Commission and 58 agencies from all 50 states and the District of Columbia filed a complaint charging four cancer charities and the individuals controlling them with allegedly swindling more than $187 million from consumers. The federal court complaint named Cancer Fund of America, Inc. (CFA) and Cancer Support Services Inc. (CSS), their president, James Reynolds Sr., and their chief financial officer, Kyle Effler; Children’s Cancer Fund of America Inc. (CCFA), its president and executive director, Rose Perkins; and The Breast Cancer Society Inc. (BCS) and its executive director and former president, James Reynolds II. In the complaint, the FTC and state agencies labeled the cancer groups as “sham charities” and charged the organizations with deceiving donors and misusing around $187 million in donations from 2008 to 2012. According to the complaint, the defendants represented themselves as legitimate charities that spent 100 percent of their proceeds on services for cancer patients, such as hospice care and buying pain medication for children. The complaint alleged that these claims were false and that the charities operated as “personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.” Investigators found that, in reality, the charities spent less than 3 percent of donations on cancer patients. According to the complaint, the defendants used the organizations to pay lucrative salaries to family members and friends and spent contributions on personal items such as cars, trips, luxury Caribbean cruises, college tuition, gym memberships, concert and sporting event tickets, and dating site memberships. The defendants also hired professional fundraisers who received up to 85 percent or more of every donation. The complaint asserted that in order to hide their high administrative and fundraising costs from donors and government regulators, the defendants falsely inflated their revenues by reporting more than $223 million in donated gifts-in-kind that were allegedly distributed to international recipients. The complaint states that by reporting the inflated gift-in-kind donations, the defendants created the impression that they were more efficient with donors’ dollars than was actually the case. Thirty-five states also alleged that the defendants filed fraudulent and misleading financial statements with state charities regulators. 4

§ 1.3 EVOLUTION OF GOVERNMENT REGULATION OF FUNDRAISING

Two of the charities, the CCFA and BCS, agreed to settle the charges before the complaint was filed. Under the proposed settlement orders, Effler, Perkins, and Reynolds II will be banned from fundraising and charity management, and CCFA and BCS will be dissolved. On March 30, 2016, the Federal Trade Commission announced the total disbandment of the CFA and CSS. Further, James Reynolds, Sr. was barred from ever again operating or fundraising for nonprofit organizations. Similarly, on July 21, 2015, the New York Attorney General Eric T. Schneiderman announced that his office filed a court action to close the National Children’s Leukemia Foundation (NCLF), and to hold its president and others accountable. The lawsuit came after an investigation by the Attorney General’s Charities Bureau revealed that the NCLF, which held itself out as a leading organization in the fight against leukemia, did not conduct most of the programs it advertised, including claims it operated a bone marrow registry and fulfilled the last wishes of dying children. The court papers charge that, despite claims it had a board of directors and other financial and scientific controls, the 20-year-old organization was in fact operated by a single founder out of the basement of his Brooklyn, New York, home. In February 2016, a federal class action was filed against Gospel for Asia, one of the largest mission organizations in the United States. The lawsuit alleged that the founder of the entity took offerings from tens of thousands of individuals, claiming it was feeding and housing impoverished people. In reality, according to the allegations, the founder used the contributions to build an empire including a $20 million headquarters, homes, and sports facilities. On March 28, 2016, Michigan’s attorney general announced publication of his annual “professional fundraising charitable solicitation report,” which identified the total amount raised by charities in the state, concluding that professional fundraisers were retaining two-thirds of contributions. On May 25, 2016, Minnesota’s attorney general filed a lawsuit against Associated Community Services, Inc. for sending false pledge reminders to donors and making other misleading statements in a campaign to solicit contributions for the Foundation for American Veterans. According to the complaint, the company has an extensive history of misconducting solicitations for charities. The attorney general of the state of New York, Eric Schneiderman, announced on November 10, 2016, that his office had settled its case against the National Vietnam Veterans Foundation. According to a statement, nearly all of the funds raised through its direct mail efforts were used to pay the Foundation’s fundraisers. It is said that in 2014, for example, the Foundation devoted $7.7 million of the $8.6 million raised to fundraising. It is further stated that the “fraction” of the money that went to the Foundation “was further 5

GOVERNMENT REGULATION OF FUNDRAISING FOR CHARITY

reduced by a pattern of abuse, mismanagement, and misspending” by its former president. That individual and the Foundation’s vice president are now subject to a “permanent nationwide ban” on access to and decision-making with respect to charitable assets. The New York’s Attorney General’s office, on December 22, 2016, released its annual “Pennies for Charity” report, which focuses on the $1.1 billion that was contributed in that state in 2015 as the result of 1,143 fundraising campaigns conducted by professional fundraisers. An accompanying press release states that the fundraisers “kept” 34.5 percent of the gift proceeds, or $379 million. The press release contains these “other significant findings”: in 239 of the campaigns, the charities involved “retained” 70 percent or more of the funds raised; in 622 campaigns, charities retained less than one-half of the funds raised; and in 192 campaigns, fundraising expenses exceeded revenue, for a loss of $16.7 million. On November 29, 2017, New York Attorney General Eric T. Schneiderman announced a settlement with Yisroel Schulman, the former President of the New York Legal Assistance Group, Inc. (NYLAG), for breaching his fiduciary duties of care, loyalty, and obedience to NYLAG, a charity providing free legal service to low-income New York residents, and other charities with which Schulman was affiliated. The settlement was reached after an extensive investigation by the Charities Bureau of the Attorney General’s office, which led to the filing of a complaint in the New York Supreme Court. The Attorney General’s investigation found that from around 1998 through 2013, Schulman diverted millions of dollars from NYLAG to other charities that he controlled. These funds were diverted to various donor-advised funds and similar accounts. In choosing donor-advised funds to hold NYLAG’s funds instead of an investment account, Schulman breached his duty to prudently invest and safeguards the assets of NYLAG. Schulman settled with the Attorney General. Pursuant to the settlement agreement, Schulman agreed to pay $150,000 to NYLAG. The settlement also bans Schulman from serving as an officer or director of New York nonprofit organizations for five years. A day earlier, Attorney General Schneiderman released his annual “Pennies for Charity: Where Your Money Goes; Fundraising by Professional Fundraisers” report. In 2016, more than $1.2 billion was raised in the state of New York through 987 fundraising campaigns conducted by professional fundraisers. The report found that of the $1.2 billion raised through campaigns conducted by professional fundraisers, charities received over $822 million, or 67 percent of the proceeds, while professional fundraisers’ fees totaled $403 million, or 33 percent. In the report, the Attorney General stated: “Today’s report shines a light on the high percentage of charitable dollars that too often get pocketed by outside fundraisers. Our Charities Bureau will continue to hold unscrupulous or fraudulent fundraisers accountable.” 6

§ 1.4 CONTEMPORARY REGULATORY CLIMATE

§ 1.4 CONTEMPORARY REGULATORY CLIMATE p. 19. Insert following second complete paragraph: In September 2016, a study, conducted by the Charities Regulation and Oversight Project at Columbia Law School and the Center on Nonprofits and Philanthropy at the Urban Institute, was released. This is the first organized analysis of state-level oversight and regulation of charitable organizations. The study has three components: (1) a legal analysis of laws pertaining to charities in 56 U.S. jurisdictions; (2) a survey of state and territory offices with oversight, regulatory, and enforcement authority over charitable organizations; and (3) interviews in most of those offices. Major findings of this study include the following: • There is no single state law of charities oversight; rather, this oversight entails a complex mix of substantive areas, including charitable trust law, governance, criminal law, solicitation and registration requirements and compliance, corporate transaction review, and conservation easements. • Organization and staffing of state charity offices vary greatly; in 41 percent of the states, one office has primary responsibility, while in the other states responsibility is shared with other agencies or offices. • Within an attorney general’s office, 13 jurisdictions have a charities bureau; 14 jurisdictions house charities oversight within a consumer protection division. • Most registration oversight is lodged in state attorney generals’ offices (21 states), followed by offices of the secretary of state (15 states), and other state-level charity offices, usually consumer affairs or business/financial regulation (8 states). • Lawyers and non-legal staff who oversee charities number approximately 355 in the 48 reporting jurisdictions. • Thirty-one percent of jurisdictions have less than one full-time-equivalent staff in this area, 51 percent of jurisdictions have between 1 and 9.9 fulltime-equivalent staff, and 19 percent have 10 or more full-time-equivalent staff. • Training state charities regulation staff is a mix of internal and external provision, with the smaller offices less likely to provide any training and the largest offices providing in-house training. • States have different requirements for reporting by charities. Some rely on 60.1 reporting on IRS annual information returns, some require registration 60.1

See Chapter 6.

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GOVERNMENT REGULATION OF FUNDRAISING FOR CHARITY

information, and some require independent audits and notification of certain transactions. • In the 47 responding jurisdictions, 68 percent require fundraisers for charitable organizations to register, and 60 percent require charities to register. • Twenty-two states require charities to file independently audited financial statements; most of the jurisdictions requiring these audits have a $500,000 threshold before an audit is required. • Where charities must inform the attorney general’s office of major transactions, the top three triggers of this notice requirement are mergers (43 percent), voluntary dissolution (41 percent), and sale of assets (33 percent). • The three most common areas of enforcement by charity offices are fundraising abuses (62 percent), trust enforcement (36 percent), and governance (36 percent). • Of the fundraising methods overseen by state charities officials, the most common areas of oversight are telephone solicitations (82 percent), direct mail (80 percent), special events (80 percent), in-person solicitations (80 percent), Internet-based fundraising (76 percent), and social media–based solicitations (70 percent). • State-level enforcement actions are more likely to be informal resolutions (85 percent), involve correspondence with organizations (98 percent), settlements (88 percent), fines and penalties (80 percent), or formal litigation (e.g., injunctions) (79 percent). • Offices vary in their efforts to provide education and outreach to the fundraising community, ranging from press releases (82 percent), donor advisories (77 percent), training (32 percent), and webinars (7 percent).

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Anatomy of Charitable Fundraising

p. 24, carryover paragraph, fourth line. Insert cemetery companies, 30.1, before veterans’. p. 24, carryover paragraph, fifth line. Insert certain fraternal organizations, 31.1, and certain cemetery companies, 31.2, p. 24. Add footnote: 30.1

Organizations described in IRC § 501(c)(13). See Law of Tax-Exempt Organizations § 19.6.

p. 24. Add footnote: 31.1

Contributions to fraternal organizations are deductible by reason of IRC § 170(c)(4).

p. 24. Add footnote: 31.2

Contributions to cemetery companies are deductible by reason of IRC § 170(c)(5).

p. 25, n. 43. Insert following existing text: A court stated, in error, that IRC § 501(c) “exempt[s] many other categories of nonprofit organizations, including charities,” citing as an example social welfare organizations described in IRC § 501(c)(4) (Linc-Drop, Inc. v. City of Lincoln, 996 F. Supp. 2d 845, 858 (D. Neb. 2014)).

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States’ Charitable Solicitation Acts § 3.2 § 3.4

Definitions 11 (a) Charitable 11 Annual Reporting 11

§ 3.20 *§ 3.22

Miscellaneous Provisions 12 Unified Registration 12

§ 3.2 DEFINITIONS (a) Charitable

p. 52. Insert as fourth complete paragraph, before heading: There is authority for the proposition that the term charitable is, in the context of solicitation, a word of “common understanding” that an individual of 9.1 ordinary intelligence can discern. That position must surely be the minority one, not sustainable in relation to the varied uses of the word in the states’ charitable solicitation acts.

§ 3.4 ANNUAL REPORTING p. 64, third paragraph, third sentence. Insert footnote at end of sentence: 45.1 For charities subject to this requirement, the annual information return is likely to be a Form 990 or Form 990-EZ (see § 6.1(a)). These returns include schedules, including Schedule B, which is a list of significant donors (see § 6.11). Schedule B is not a public document for federal law purposes. States that require a copy of the federal return, however, are likely to want an unredacted copy of the schedule. A public charity resisted this requirement in California, seeking to enjoin the state’s attorney general from requiring this submission, arguing that this disclosure of its major donors’ names violates its First Amendment free association rights and that federal law preempts the state’s disclosure requirement. A federal court of appeals, in a facial challenge to the regulation, rejected both arguments, observing that the federal tax laws “may support an

9.1

Gospel Missions of America v. City of Los Angeles, 419 F.3d 1042, 1048–1049 (9th Cir. 2005); Ryan v. World Church of the Creator, 760 N.E. 2d 953, 962 (2001).

11

STATES’ CHARITABLE SOLICITATION ACTS

argument that Congress sought to regulate the disclosures that the IRS may make, but they do not broadly prohibit other government entities from seeking that information directly from the organization” (Center for Competitive Politics v. Harris, 784 F.3d 1307 (9th Cir. 2015), cert. den., No. 15-152, 2015 WL 4611242 (U.S. Nov. 9, 2015)). Likewise, Citizens United v. Schneiderman, 2015 WL 4509717 (S.D.N.Y., July 27, 2015).

§ 3.20 MISCELLANEOUS PROVISIONS p. 85. Insert as first paragraph: Beginning July 1, 2014, organizations registered to solicit contributions in Florida are required to adopt a conflict of interest policy. This policy must require annual certification of compliance with the policy by all directors, officers, and trustees of the organization, and a copy of the annual certification must be submitted to the Department of Agriculture and Consumer Services as part of the annual registration.

§ 3.22 UNIFIED REGISTRATION *The National Association of State Charities Officials (NASCO) and the National Association of Attorneys General (NAAG) have developed a project to standardize, simplify, and economize the process of registration pursuant to the states’ charitable solicitation laws. This project is manifested in the Unified Registration Statement (URS). The URS is part of a larger effort by these organizations to consolidate the information and data requirements of all states requiring registration by charitable organizations engaged in fundraising. The initial URS effort consisted of three phases: (1) compilation of an inventory of registration information demands from all of the states, (2) production of a format (or form) that incorporates all or most of these demands, and (3) encouragement of the states to accept this standardized format as an alternative to their own forms. There have been significant advances with the URS over the past few years. In 2014, NASCO introduced the idea for a single portal filing, known as the “Single Portal Initiative.” NASCO’s objective was to create a single website for domestic charities to submit registration forms and financial reports to the states that require charities to register. Since then, the idea has become a reality. The official State Charity Registration Portal is available online at http://www .statecharityregistration.org/. As of the publication date of this supplement, the soft launch for the portal is live in Connecticut and Georgia.

12

§ 3.22 UNIFIED REGISTRATION

On October 1–3, 2018, NAAG and NASCO convened in Baltimore, Maryland, for their annual conference. Topics included Ethics and Professional Conduct, Tax Reform, Oversight of Charities, Developments in Governance. The conference also included a live demonstration of the Single Portal Initiative. The URS project addresses registration only. Once registered, even under this uniform approach, a fundraising charitable organization is on its own in connection with annual reporting. Nonetheless, a project is under way to produce a format for annual reporting with states in the fundraising context.

13

C H A P T E R

F O U R

State Regulation of Fundraising § 4.2 § 4.2A § 4.2B § 4.3

Police Power 15 Registration and Licensing Requirements (New) 15 Charitable Purposes Revisited (New) 17 Fundraising as Free Speech 18 (c) State of Law Subsequent to Supreme Court Decisions 18

§ 4.8

(g) Interplay between Fundraising Regulation and Prosecution of Fraud 19 Other Constitutional Law Issues 20

§ 4.2 POLICE POWER p. 120. Insert following first paragraph, before heading: On May 21, 2015, the Minnesota Attorney General filed a lawsuit against Savers, the billion-dollar, for-profit national thrift store chain, for misleading donors on the extent their donations would benefit the intended charities. The lawsuit alleged that Savers misled the public and violated state charities laws by, among other things, enticing the public to make donations when only the residual of the donation would benefit the charity and may benefit a different charity from the one for which the donor intended to make a contribution. The lawsuit also alleged that Savers was concealing its role as a for-profit fundraising company from the public through its noncompliance with the State registration and financial reporting laws and otherwise. The lawsuit was eventually settled. p. 120. Insert at the end of the first paragraph, as a new paragraph:

§ 4.2A REGISTRATION AND LICENSING REQUIREMENTS (NEW) As discussed, the state and local laws that regulate charitable solicitations are not, as a matter of existing law, inherently unconstitutional. Nonetheless, given 15

STATE REGULATION OF FUNDRAISING 56.1

that charitable fundraising is free speech activity, this state of affairs may be considered somewhat unusual, the governments’ police power notwithstanding. After all, mandatory application for a license or permit “is a prior restraint 56.2 typically disfavored in First Amendment cases.” That is, a “scheme of prior restraint gives ‘public officials the power to deny use of a forum in advance 56.3 of actual expression.’” Because these laws usually prohibit charitable solicitation before complying with the registration or licensing requirement, they embody a prior restraint. It is clear that government cannot, consistent with free speech principles, 56.4 ban a charitable organization from hiring a professional fundraiser. If a government cannot “categorically restrain[]” solicitation by professional fundraisers “if a high percentage of the funds raised would be used to cover 56.5 administrative or fundraising costs,” then it is axiomatic that a government cannot categorically restrain solicitation by fundraisers. Yet, this is precisely what a city ordinance attempted to do. It required a permit to place and maintain donation drop-off boxes to attract charitable contributions of secondhand clothing and other items but only allowed charitable organizations to apply for the permit. Thus, professional fundraisers were barred from obtaining a permit, which thereby precluded a fundraiser from using a donation box to solicit charitable contributions and prevented charitable organizations from hiring a professional fundraiser to place a donation box. A court held that this type of ordinance is “by definition a prior restraint,” writing that “[b]arring professional fundraisers from placing donation boxes is certainly no more reasonably calculated—much less narrowly tailored—to 56.6 the government’s interest in preventing fraud.” Another aspect of this is that a prior restraint that fails to place limits on the time within which the decisionmaker must issue the license or permit is 56.1

See § 4.3. National Federation of the Blind v. Federal Trade Commission, 420 F.3d 331, 343 (4th Cir. 2005); Secretary of State of Maryland v. Joseph H. Munson Co., 467 U.S. 947, 968-969 (1984); Village of Schaumberg v. Citizens for a Better Environment, 444 U.S. 620, 629 (1980). 56.3 American Target Advertising, Inc. v. Giani, 199 F.3d 1241, 1250 (10th Cir. 2000), quoting Southeastern Promotions, Ltd. v. Conrad, 420 U.S. 546 (1975). 56.4 Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 794-795 (1988); Secretary of State of Maryland v. Joseph H. Munson Co., at 467 U.S. 947, 967, n. 16 (1984); Planned Parenthood League v. Attorney General, 464 N.E.2d 55 (Sup. Jud. Ct. of Mass. (1984)), cert. den., 469 U.S. 858 (1984). 56.5 Which it cannot (e.g., Illinois ex rel. Madigan v. Telemarketing Associates, Inc., 538 U.S. 600, 610 (2003)). 56.6 Linc-Drop, Inc. v. City of Lincoln, 996 F. Supp. 2d 845, 857-858 (D. Neb. 2014). 56.2

16

§ 4.2B CHARITABLE PURPOSES REVISITED (NEW) 56.7

impermissible. The foregoing ordinance on its face did not require when a determination must be made; the court thus ruled that the ordinance’s per56.8 The court stated mit requirement was an unconstitutional prior restraint. that this permit requirement is an “impermissible prior restraint on the First Amendment rights of any person or organization wishing to place a donation 56.9 box, whether or not they [sic] are eligible for such a permit.”

§ 4.2B CHARITABLE PURPOSES REVISITED (NEW) 56.10

The matter of the scope of the concept of charitable is discussed above. The point is raised again here because the definition of the term as used in a par56.11 or ticular law may raise law concerns, such as equal protection violations 56.12 unconstitutional vagueness. A charitable solicitation law may not define the term charitable or define the term too narrowly. In one instance, a city ordinance requiring a presolicitation permit confined the reach of the term charitable organization to organizations that “have a tax status under 501(c)(3) of the Internal Revenue Code, as 56.13 A court reviewing amended, or a public, parochial or private school.” the constitutionality of this ordinance observed that the federal tax law also provides tax exemption for other entities engaged in charitable activities, such 56.14 56.15 fraternal societies, and veterans as local associations of employees, 56.16 This court did not find this ordinance legally deficient on this groups. point but observed that its “use of § 501(c)(3) as a proxy for a non-profit or 56.17 ‘charitable’ organization is, as best, imperfect.” 56.7

American Target Advertising, Inc. v. Giani, 199 F.3d 1241 (10th Cir. 2000), citing FW/PBS, Inc. v. Dallas, 493 U.S. 215, 225 (1990). Also Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 802 (1988). 56.8 Linc-Drop, Inc. v. City of Lincoln, 996 F. Supp. 2d 845, 858 (D. Neb. 2014). 56.9 Id. 56.10 See §§ 2.1, 3.2(a). 56.11 See § 4.5. 56.12 See § 4.8, text accompanied by notes 449–451. 56.13 Parochial or private schools have their tax-exempt status on the basis of IRC § 501(c)(3). 56.14 IRC § 501(c)(4). See Law of Tax-Exempt Organizations § 19.3. 56.15 IRC §§ 501(c)(8), (10). See Law of Tax-Exempt Organizations § 19.4. 56.16 IRC § 501(c)(19). See Law of Tax-Exempt Organizations § 19.11(a). Tax-exempt cemetery companies are also charitable donees (IRC §§ 501(c)(13), 170(c)(5)). See Law of Tax-Exempt Organizations § 19.6. 56.17 Linc-Drop, Inc. v. City of Lincoln, 996 F. Supp. 2d 845, 858 (D. Neb. 2014).

17

STATE REGULATION OF FUNDRAISING

§ 4.3 FUNDRAISING AS FREE SPEECH (c) State of Law Subsequent to Supreme Court Decisions

p. 139, n. 169, first line. Insert following 55: (Sup. Jud. Ct. Mass. (1984))

p. 145, n. 202, second line. Delete The most recent attempt and substitute One of the most recent attempts. p. 145. Insert as first four complete paragraphs, before heading: The state of Oregon, in 2013, passed legislation authorizing the state’s attorney general to issue an order disqualifying a charitable organization from receiving contributions that are deductible as charitable gifts for state income and corporate excise tax purposes if the attorney general finds that the organization has failed to expend at least 30 percent of its total annual functional expenses on program services when those expenses are averaged over the most recent three fiscal years for which the attorney general has 202.1 reports containing expense information. The calculation of program services expenses and total functional expenses is to be based on financial 202.2 information contained in the organization’s annual information return or other federal returns as filed with the attorney general. The attorney general may decline to issue a disqualification order if an organization establishes that it made payments to affiliates that should be considered in calculating its program services expenses, it is accumulating revenue or assets for a specific program purpose consistent with representations in solicitations (such as a capital campaign or development of an endowment fund), it supports or is closely affiliated with another charitable organization, the majority of the organization’s revenues are from sources ineligible for treatment as tax-deductible contributions, the organization’s annual information return report contains significant errors, the organization has experienced unusual fluctuations in revenues or expenditures, or other mitigating circumstances as 202.3 may be identified by the attorney general by rule. A disqualification order under this law may not be issued to a private foun202.4 a community trust or foundation, a charitable remainder trust, an dation, organization that does not qualify to receive deductible contributions, an organization that is not required to file annual reports with the attorney general, an organization that is not required to file a federal annual information return, an organization that receives less than 50 percent of its total annual revenues 202.1

Ore. Rev. Stats. § 128.760(1); Ore. Admin. Rule 137-010-0032. See Chapter 6. 202.3 Ore. Rev. Stats. § 128.760(2); Ore. Admin. Rule 137-010-0032(3). 202.4 See § 5.11. 202.2

18

§ 4.3 FUNDRAISING AS FREE SPEECH

in the form of contributions and grants, and an organization that has been in 202.5 existence for less than four years. A charitable organization may request a hearing within 60 days after 202.6 A disqualification order notification of a proposed disqualification order. remains in effect until such time as the charitable organization can demonstrate 202.7 Once a that its program services outlays meet the minimum percentage. disqualification order is issued, the organization involved may not claim state 202.8 tax exemption as long as the order is in effect. A public charity hired a for-profit company to place and maintain donation drop-off boxes to attract contributions of secondhand clothing and other items. This charity contracts with landowners for locations on which to place these boxes; the company places the boxes at these locations on behalf of the charity. The company sells the clothing to used clothing graders and recyclers, remitting a portion of the proceeds to the charity. A city adopted an ordinance providing that this type of charitable solicitation is unlawful unless at least 80 percent of the gross proceeds of the sale of the items is used for charitable purposes. The ordinance also provides that a permit is required for this box-placement activity and that only charitable entities may apply for it. This company challenged the constitutionality of this ordinance, seeking a federal court injunction against its enforcement. The court, observing that “courts have repeatedly rejected the contention that a percentage requirement such as the [o]rdinance’s is narrowly tailored to serve [a governmental] interest, held that ’it is apparent that the [o]rdinance’s 80-percent requirement 202.9 It wrote that “[i]t could cannot survive’ a constitutional law analysis.” not, in fact, be more clear that using percentages to decide the legality of a fundraiser’s fee is not narrowly tailored to the government’s interest in 202.10 It concluded: “Simply put, under the Supreme Court’s preventing fraud.” binding precedent, there is no doubt that the 80-percent requirement of the 202.11 [o]rdinance is constitutionally overbroad.” (g) Interplay between Fundraising Regulation and Prosecution of Fraud

p. 164. Insert following first complete paragraph, before heading: (viii) Subsequent Development. On November 28, 2016, Gary R. Tomey, II was convicted of mail fraud and conspiracy to commit mail or wire fraud 202.5

Ore. Rev. Stats. § 128.760(4); Ore. Admin. Rule 137-010-0032(2). Ore. Rev. Stats. § 128.760(2); Ore. Admin. Rule 137-010-0032(8). 202.7 Ore. Rev. Stats. § 128.760(3); Ore. Admin. Rule 137-010-0032(10). 202.8 Ore. Rev. Stats. § 128.760(5); Ore. Admin. Rule 137-010-0032(9). 202.9 Linc-Drop, Inc. v. City of Lincoln, 996 F. Supp. 2d 845, 855 (D. Neb. 2014). 202.10 Id. at 856. 202.11 Id. at 857. 202.6

19

STATE REGULATION OF FUNDRAISING 332.1

in connection with telemarketing victims. A federal district court found that Mr. Tomey, who operated a telemarketing service accused of misleading donors into thinking that they were making charitable donations, knowingly and willfully conspired with an unindicted co-conspirator, Mr. Tomey’s former colleague, to commit mail and wire fraud, even though there was no direct evidence of an explicit agreement. The co-conspirator had formed an Indiana nonprofit fundraising organization called Youth Achievement League. In 2008, Tomey signed and filed papers with the Ohio attorney general as chief financial officer indicating that he and the co-conspirator were the only persons at YAL with responsibility for the custody and distribution of contributions. Mr. Tomey handled all of the accounting and bookkeeping for the “Florida chapter” of YAL. Later that year, Tomey decided to start his own nonprofit fundraising organization modeled after YAL. Tomey did not initially incorporate a separate legal entity. Instead, he registered and operated YAL under the fictitious name Children Services of Indiana, Mississippi, and Ohio. Mr. Tomey opened a checking account as president of YAL, d/b/a Children Services, and periodically transferred funds to his co-conspirator’s YAL accounts in Indiana. The co-conspirator told Mr. Tomey that he could charge expenses to the charity, such as hotel rooms, meals, and alcoholic beverages, if he was discussing charity matters; Mr. Tomey did so until he began drawing a salary in 2011. The court held that a reasonable jury could find that, as the co-conspirator was Mr. Tomey’s early partner and collaborator in nonprofit fundraising, the co-conspirator intentionally participated in and shared the fruits of Mr. Tomey’s efforts to defraud charitable donors.

§ 4.8 OTHER CONSTITUTIONAL LAW ISSUES p. 186, last paragraph. Insert as third sentence; convert remainder of paragraph to new paragraph: The vagueness doctrine is grounded in due process principles.

449.1

p. 187. Insert as first complete paragraph: Indeed, a court, entertaining a complaint that a charitable solicitation ordinance failed to define the phrase charitable purpose and thus is unconstitutionally vague, characterized the argument as being that the law “neither provides adequate notice to citizens of what is required nor establishes 451.1 adequate standards to prevent arbitrary or discriminatory enforcement.” 332.1

United States v. Tomey, 222 F. Supp. 3d 1109 (N.D. Fla. 2016). See § 4.4. 451.1 Linc-Drop, Inc. v. City of Lincoln, 996 F. Supp. 2d 845, 859 (D. Neb. 2014). 449.1

20

§ 4.8 OTHER CONSTITUTIONAL LAW ISSUES

Although it did not decide the issue, the Court then recast the argument as being that “First Amendment-protected activity will be inhibited because it is not clear how to comply with the [o]rdinance—or, in other words, that the [o]rdinance is unconstitutionally overbroad because it is unconstitutionally 451.2 vague.”

451.2

Id.

21

C H A P T E R

F I V E

Federal Regulation of Fundraising § 5.2A § 5.3

§ 5.6

§ 5.7

§ 5.8 § 5.11

Private Benefit Doctrine 23 § 5.13 Charitable Gift Substantiation Requirements 25 § 5.14 *(a) $250 Threshold Rule 25 (b) Donee Substantiation 25 (c) Non-Donee Letter § 5.15 Substantiation 25 (d) Other Rules 30 (e) Donee Organizations’ Information Reporting 30 § 5.18 *(f) Other Substantiation Requirements 33 Intermediate Sanctions 34 (a) Basic Concepts of Intermediate Sanctions 34 *§ 5.21 Unrelated Business Rules 35 § 5.22 *(a) Basic Concepts of Unrelated Income Taxation 35 *(b) Unrelated Income Rules as § 5.25 Applied to Fundraising 38 § 5.26 Exemption Application Process 40 (b) Application Procedure 40 Public Charity Classification 41

Fundraising Compensation Arrangements 42 Charitable Deduction Rules 43 *(a) Meaning of Gift 43 *(d) Percentage Limitations 44 Commensurate Test 45 (b) Law and Analysis 45 (d) IRS’s Charitable Spending Initiative 45 Postal Laws 46 (b) Qualifying Organizations 46 *(d) Application for Authorization 46 *(g) Rate Increases in 2018 46 FTC Telemarketing Rules 46 Internet Communications 47 (d) IRS Examination Guidelines 47 Political Campaign Financing 47 Fundraising Organizations 47 (a) General Principles 47 (b) Application of Commensurate Test 49 *(c) Other Exemption Issues 51

§ 5.2A PRIVATE BENEFIT DOCTRINE One of the fundamental requirements for tax-exempt status as a charitable organization is that it must be operated for a public, rather than a private inter58.1 est. This is informally known as the private benefit doctrine. 58.1

Reg. § 1.501(c)(3)-1(d)(1)(ii).

23

FEDERAL REGULATION OF FUNDRAISING

One of the ways application of the private benefit doctrine arises in the fundraising context is in connection with solicitations for the purpose of making grants to individuals, such as scholarships. Guidance issued by the IRS requires that these granting organizations keep records of names and addresses of recipients, the amounts granted, the purpose of the grant, the manner in which the recipients are selected, and the relationship between each recipient and the trustees, directors, officers, or members of the organization or substantial contributors to the organization and a corporation controlled by a grantor 58.2 or substantial contributor. The operation of a scholarship plan by which payments are made to pre58.3 selected, specifically identified individuals does not qualify for exemption. Likewise, an individual paid an educational institution the tuition and maintenance of another individual who was the ward of a public charity; the payor 58.4 was denied a charitable contribution deduction for the payment. Payments made to an educational institution and earmarked for the educational expenses of a particular individual were held to not be deductible contributions because they were not made to the institution for use at its discretion nor made for the 58.5 indefinite number of individuals. The IRS reviewed the case of an organization the purpose of which was to “take advantage of the Internet to facilitate charitable giving through social networking.” Needy individuals submit detailed questionnaires to this organization, which then posts descriptions of the needs, although names were not identified; donors then make a contribution in relation to a particular need. The IRS concluded that this method of soliciting funds and making grants was for the benefit of “specific individuals,” although not named, and thus “serves the 58.6 private interests” of these individuals. The method of online fundraising for “specific individuals” was ruled to constitute a “substantial private benefit” 58.7 to them. 58.2

Rev. Rul. 56-304, 1956-2 C.B. 306. Rev. Rul. 67-367, 1967-2 C.B. 188. 58.4 Thomason v. Commissioner, 2 T.C. 441 (1943). 58.5 Tripp v. Commissioner, 337 F.2d 432 (7th Cir. 1964); Church in Boston v. Commissioner, 71 T.C. 102 (1978). The reference to an “indefinite number of individuals” is to a charitable class (e.g., Tax-Exempt Organizations § 6.3(a)). 58.6 Priv. Ltr. Rul. 201338052. 58.7 The private inurement doctrine, found in IRC § 501(c)(3) (Tax-Exempt Organizations §§ 20.1–20.5), may not arise in the charitable fundraising context as frequently as the private benefit doctrine. As an example of application of the private inurement doctrine in connection with charitable fundraising, the IRS discovered a tax-exempt charitable organization that was using professional solicitors to solicit contributions on its behalf; the funds were deposited into an account, from which personal expenses of the entity’s directors and officers (all members of the same family) were paid. The IRS revoked this organization’s exemption on the grounds of private inurement (Priv. Ltr. Rul. 201517014). 58.3

24

§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS

§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS p. 225. First complete paragraph, third line. Insert for example, following the comma. p. 225. Following first complete paragraph, insert: *(a) $250 Threshold Rule

p. 226, last paragraph. Delete second sentence (including footnotes) and substitute: Usually, the acknowledgment is in the form of a letter or card prepared and sent by the charitable donee. p. 226. Following second paragraph, insert: (b) Donee Substantiation

p. 226. Following last paragraph, insert: (c) Non-Donee Letter Substantiation

The U.S. Tax Court, to its credit, has found a way to salvage charitable gift substantiation where the charitable donee has not supplied a gift substantiation letter (or not a qualifying one) to the donor, at least in the context of gifts of easements: the deed of easement may serve as the gift substantiation document. The court’s reasoning in this regard entails a discussion of topics such as merger clauses and peppercorns of consideration. But first a little history. The court first considered whether a deed of easement qualified as a contemporaneous written acknowledgment in 2009. In that case, the court held that a deed of a façade easement may constitute this type of an acknowledg68.1 ment if it is properly executed by the donee and is “contemporaneous.” In the case, however, the court did not examine the text of the deed of easement or consider the content of its granting provision. It did not address the statutory requirement that an acknowledgment must provide information concerning the provision of goods or services by the donee. Subsequently, the Tax Court considered the features a deed of easement must display in order to qualify as a contemporaneous written acknowledgment. In the first of these cases, the granting provision stated that the donor conveyed a perpetual conservation easement in consideration of $10, “plus other good and valuable consideration.” The court held that the deed of ease68.2 ment did not qualify as a contemporaneous written acknowledgment. The 68.1 68.2

Simmons v. Commissioner, 98 T.C.M. 211, 215 (2009), aff’d, 646 F.3d 6 (D.C. Cir. 2011). Schrimsher v. Commissioner, 101 T.C.M. 1329 (2011).

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FEDERAL REGULATION OF FUNDRAISING

court considered that language, noting that the phrase about consideration “might be regarded as boilerplate, reflecting an unfortunate (if centuries-old) habit of lawyers to state a ‘peppercorn’ of consideration even in contracts for 68.3 the conveyance of a charitable gift.” But, the court concluded, even if this phrase were disregarded and the donee did not provide any consideration, the “written acknowledgment must say so in order to satisfy” the statutory 68.4 requirement. It held that the deed of easement did not qualify as a contemporary written acknowledgment because there was no indication that the 68.5 donee “provided no goods or services.” In the next of these cases, the granting provision stated that the donor conveyed a perpetual conservation easement “in consideration … of the mutual covenants, terms, conditions, and restrictions hereunder set forth and as an absolute and unconditional gift, subject to all matters of record.” The deed of easement did not include an explicit averment that the donee had provided no goods or services to the donor in consideration of the easement. This deed, however, included a merger clause, which stated “[t]his instrument sets forth the entire agreement of the parties with respect to the [e]asement and supersedes all prior discussions, negotiations, understandings, or agreements relating to the [e]asement, all of which are merged herein.” The court held that this easement deed qualified as a contemporaneous written 68.6 acknowledgment. The deed was properly executed by the donee and was contemporaneous. Moreover, this deed stated that the “conservation easement is an unconditional gift, recite[d] no consideration received in exchange for it, and stipulate[d] that the conservation deed constitute[d] the entire agreement 68.7 between the parties with respect to the contribution.” The court later explained this decision, stating that “[b]y stipulating that the deed of easement constituted the parties’ ‘entire agreement,’ the merger clause negated the provision or receipt of any consideration not stated in that 68.8 document.” The court said that it “concluded that the merger clause, read in conjunction with other statements in the deed of easement, supplied the 68.9 affirmative indication required by” the statutory rule. It accordingly held that the deed of easement, “taken as a whole, provides that no goods or services 68.10 were received in exchange for the contribution.” 68.3

310 Retail, LLC v. Commissioner, 114 T.C.M. 228, 232 (2017). Schrimsher v. Commissioner, 101 T.C.M. 1329, 1331 (2011). 68.5 Id. 68.6 Averyt v. Commissioner, 104 T.C.M. 65 (2012). 68.7 Id. at 68. 68.8 310 Retail, LLC v. Commissioner, 114 T.C.M. 228, 232 (2017). 68.9 Id. 68.10 Averyt v. Commissioner, 104 T.C.M. 65, 68 (2012). 68.4

26

§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS

A similar case was thereafter decided. The granting provision stated that the donor conveyed a perpetual conservation easement “for and in consideration of the covenants and representations contained herein and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged.” The deed also included a merger clause, providing that “[t]his instrument sets forth the entire agreement of the parties with respect to the [e]asement and supersedes all prior discussions, negotiations, understanding, or agreements relating to the [e]asement, all of which are merged herein.” The court held that this easement deed qualified as a contemporary written 68.11 acknowledgment. The deed was properly executed by the donee and was contemporaneous. The deed “d[id] not include consideration of any value other 68.12 than the preservation of the property.” The deed stated that it “constitute[d] 68.13 In light the entire agreement between the parties regarding the contribution.” of other provisions in the deed, the court concluded that the granting provision’s recitation of “other good and valuable consideration” was “boilerplate language 68.14 and has no legal effect for purposes of” the statutory requirement. The court thus concluded that the deed of easement, “taken as a whole, states that no goods 68.15 or services were received in exchange for the contribution.” Another case is rather similar to the previous one. The deed of easement, which was found to be a contemporaneous acknowledgment, included an “affirmative indication” that the donee did not provide any goods or 68.16 services to the donor in consideration for the gift. The deed explicitly stated that it represented the parties’ “entire agreement” and that “[a]ny prior or simultaneous correspondence, understandings, agreements, and representations are null and void upon execution hereof unless set out in this instrument.” This phraseology, said the court, “negated the provision or 68.17 receipt of any consideration not stated therein.” Apart from the charitable conveyance and the covenants attending the easement, the only “consideration” mentioned in the easement deed is the granting provision’s reference to consideration of $1 “and other good and valuable consideration.” Neither party contended that the donee furnished the donor with any goods or services in exchange for the gift. Once again, the court regarded the consideration clause as “boilerplate language” having no legal effect for purposes of the 68.18 substantiation requirement. The court wrote that, “[t]aken as a whole, 68.11

RP Golf, LLC v. Commissioner, 104 T.C.M. 413 (2012). Id. at 416. 68.13 Id. 68.14 Id. 68.15 Id. 68.16 310 Retail, LLC v. Commissioner, 114 T.C.M. 228, 231 (2017). 68.17 Id. at 232. 68.18 Id. 68.12

27

FEDERAL REGULATION OF FUNDRAISING

therefore, the deed of easement includes the required affirmative indication that [the donee] supplied [the donor] with no goods or services in exchange for its contribution,” causing the deed to constitute a contemporaneous written 68.19 acknowledgment substantiating the gift. Still another case is similar to the previous two cases. The Tax Court ruled that a charitable deduction for a gift of a conservation easement was available to the donor, which did not receive a substantiation letter from the donee, 68.20 because of the existence of a suitable merger clause in the deed of easement. The donor in this case executed a deed of historic preservation and conservation easement granting a qualified public charity an easement over the façade of a building. This deed of easement’s granting provision recites $10 of consideration, as well as “other good and valuable consideration.” The deed states that in “further consideration” for the benefits to be received by the donor, the donor agreed to pay the donee a one-time “donation fee” to be used to endow periodic easement monitoring and related costs and support a preservation easement defense fund. This easement is said by the deed to be “in perpetuity over and across” the easement area. Aside from the charity’s monitoring activities and the donor’s fee payment, the deed of easement does not contain any reference to any valuable goods or services being furnished to the donor and does not recite any receipt by the charity of any consideration for providing goods or services. The parties stated their understanding that the deed reflects the entire agreement of the parties. The charity did not provide the donor with a contemporaneous written acknowledgment in connection with the gift; it provided an acknowledgment to the donor more than two years after the gift was made. Neither party contended that the donee furnished the donor with any valuable goods or services. The easement deed in this case was contemporaneous and included an “affirmative indication” that the donee supplied no goods or services to the donor 68.21 in exchange for its gift. The court stated that this deed “thus negated the 68.22 The clause conprovision or receipt of any consideration not stated therein.” cerning consideration of $10 and other good and valuable consideration was held to constitute “boilerplate language [that] has no legal effect” for purposes 68.23 of the substantiation rule. The court considered whether the charity’s monitoring activities should be considered a “service” provided in exchange for the gift. In ensuring compliance with the easement’s restrictions, the court said that the charity “would be discharging its own enforcement responsibilities as a charitable 68.19

Id. Big River Development, L.P. v. Commissioner, 114 T.C.M. 239 (2017). 68.21 Id. at 242. 68.22 Id. 68.23 Id. 68.20

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§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS 68.24

organization holding conservation easements.” The court added that the charity’s monitoring would be an “odd form of ‘service’ because it could generate no upside for [the donor] but only downside,” such as the seeking of 68.25 an injunction requiring the donor to restore the property to the status quo. Moreover, because the easements held by the charity are its property, as the court noted, “any contribution to an ‘easement defense fund’ would seem 68.26 The court concluded that the donee to benefit it rather than its donors.” supplied the donor with the requisite description and good-faith estimate of the value of its monitoring activities, noting that the tax law “does not prohibit 68.27 a charity from providing services to a donor.” By contrast, a properly executed deed in a subsequent case did not contain the requisite language nor did it meet the as a whole test; thus, the document 68.28 did not serve as substantiation acknowledgment. Aside from substantiation documents provided by charitable donees and deeds of easement, other documents may satisfy the no-goods-or-services requirement. The requisite substantiation language may be found in a gift 68.29 was ruled agreement. A series of documents evidencing a bargain sale 68.30 Suitable substantiation was found satisfaction of the substantiation rules. 68.31 The Tax Court held, however, in a letter signed by a government official. that a settlement agreement between a donor and donee cannot serve as an 68.32 appropriate substantiation document. The Tax Court has held, however, that the recitation in the substantiation document must adhere to the specific statutory requirements for there to be 68.33 That is, the doctrine of allowance of the charitable contribution deduction. 68.34 68.35 is inapplicable in this context. substantial compliance 68.24

Id. Id. 68.26 Id. 68.27 Id. 68.28 French v. Commissioner, 111 T.C.M. 1241 (2016). 68.29 See Charitable Giving § 9.19. 68.30 Irby v. Commissioner, 139 T.C. 371 (2012). 68.31 Crimi v. Commissioner, 105 T.C.M. 1330 (2013). 68.32 DiDonato v. Commissioner, 101 T.C.M. 173 (2011). 68.33 E.g., Boone Operations, Co., LLC v. Commissioner, 105 T.C.M. 1610 (2013). 68.34 See Charitable Giving § 21.5(c). 68.35 Recently, one of the authors received an ostensible substantiation document from a major university (that presumably has a phalanx of lawyers at its disposal) that stated the “[f]ederal tax law requires us to inform you that no goods, services or privileges were provided in exchange for this donation.” First, the federal tax law does no such thing. Second, the sentence does not track the language of the statute, which, among other things, makes no reference to “privileges.” Nonetheless, the decision was made to rely, for purposes of gift deductibility, on this statement. 68.25

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FEDERAL REGULATION OF FUNDRAISING

p. 227. Prior to existing text, insert: (d) Other Rules

p. 227. Delete third paragraph, including footnote. p. 227, n. 69. Delete first sentence and substitute: See § 5.3(b). p. 233. Insert following second complete paragraph, before heading: (e) Donee Organizations’ Information Reporting

Proposed regulations implementing the exception to the general charitable gift substantiation requirement were issued on September 16, 2015, by which donee organizations may file information returns with the IRS that report the required 95.1 information about contributions. Background. When issuing regulations under the general substantiation rule in 1997, the Treasury Department and the IRS declined to issue regulations to accompany the statutory exception. In the preamble to these proposed regulations, it is stated that the present system “works effectively, with minimal burden on donors and donees, and the Treasury Department and the IRS have received few requests since [1997] to implement a donee reporting system.” In recent years, some donors under examination for their claimed charitable contribution deductions have argued that a failure to comply with the general substantiation rule may be cured if the donee organization files an amended annual information return including the substantiation requirements for the contribution at issue. These donors assert that an amended return is permissible donee reporting in accordance with the exception, even if the amended return is filed with the IRS many years after the charitable contribution at issue was made. The IRS, however, has consistently maintained that this exception is unavailable until final regulations prescribing the method by which donee reporting may be accomplished and that annual 95.2 information returns are unsuitable for donee reporting. Summary of Proposal. The Treasury Department and the IRS have concluded that, in order to better protect donor privacy, annual information returns (Form 990 series returns) should not be used for donee reporting. Instead, before these proposed regulations are finalized, the IRS intends to develop a specific-use information return for donee reporting. This information return will have to contain the following information: the name and address of the donor and the donee; the taxpayer identification 95.1 95.2

REG-138344-13. This exception is the subject of IRC § 170(f)(8)(D). E.g., Chief Couns. Adv. Mem. 201120022.

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§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS

number of the donor; the amount of cash and a description (but not necessarily the value) of any property other than cash contributed by the donor to the donee; whether any goods and services were provided by the donee in consideration, in whole or in part, for the contribution by the donor; and a description and good-faith estimate of the value of any goods and services provided by the donee or a statement that the goods and services consist solely of intangible 95.3 religious benefits. Donee charities are not required to adopt this donee reporting methodol95.4 Charitable entities that choose to use the donee reporting exception ogy. will be required to provide a copy of the information return to the donor at the address the donor provides; the return will contain only the information related to that donor. Donees that opt for the reporting approach will have to report the information required pursuant to the general rule as well as the donor’s name, address, and taxpayer identification number. Information returns utilized in connection with this exception will have to be filed by the donee no later than February 28 of the year following the year in 95.5 which the contribution is made. The donee organization will have to provide 95.6 a copy of the information return to the donor by the same date. As 2015 closed, opposition to the IRS’s proposed regulations concerning the alternative to the existing charitable contribution substantiation rules was intensifying. Over 34,000 comment letters have been sent to the IRS, basically all in opposition to the proposal. Seventeen House Republicans, by letter dated December 4, 2015, wrote to the leadership of the House Appropriations Committee, requesting that a provision be added to the fiscal year 2016 appropriations legislation prohibiting funding for finalization of these regulations. (The requested provision was not included.) Legislation was introduced in the U.S. Senate on December 8, 2015, to block the IRS from issuing these regulations in final form. This measure is the Protecting Charitable Contributions Act (S. 2370). A letter dated December 15, 2015, was sent to the IRS by 215 charitable organizations, orchestrated by Independent Sector and the National Council of Nonprofits, expressing their “strong” and “universal opposition” to the proposal. These entities find the proposed regulations “inappropriate” because they would “expose the public to increased risk from identity theft, impose significant costs and burdens on nonprofit organizations, and create public confusion and disincentives for donors to support the work of nonprofits.” 95.3

Prop. Reg. § 1.170A-13(f)(18)(ii). Prop. Reg. § 1.170A-13(f)(18)(v). 95.5 Prop. Reg. § 1.170A-13(f)(18)(iii). 95.6 Prop. Reg. § 1.170A-13(f)(18)(iv). 95.4

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FEDERAL REGULATION OF FUNDRAISING

This letter states that charitable organizations “should never be asking a donor for her or his Social Security number when soliciting donations.” Also, “[t]o protect sensitive donor information, nonprofits would have to divert resources from mission to purchase expensive data security systems that have no guarantee of protecting the public.” It is contended that nonprofit organizations that “collect Social Security numbers and improperly protect the data could be subjecting themselves and their board members to lawsuits asserting a breach of fiduciary duty.” The letter expresses fear that charitable giving may be reduced because donors will be reluctant to provide their Social Security numbers when making contributions. A letter from Independent Sector, also dated December 15, 2015, lays out the organization’s “deep concerns” with the proposed rules. This letter speaks of the “multiple challenges that could place taxpayer privacy at risk.” It states: “Encouraging over one million 501(c)(3) organizations with limited resources, technical expertise, and procedural safeguards to collect, store, and report Social Security numbers will turn charities into even more attractive targets for hackers and increase the likelihood [of] private taxpayer information being compromised.” Also: “Charities are likely to be penalized for complying with the proposed rule through a reduction in revenue as donors begin to make charitable giving decisions based on this new reporting process rather than [on] an organization’s mission or impact.” The Tax Section of the American Bar Association weighed in on this in a December 16, 2015, letter. It wrote: “Since the existing [charitable substantiation] process appears to be working well for all but a few taxpayers, we do not believe that development of the [proposed information return] is in any way necessary for the proper performance of the functions of the Service.” And: “Moreover, given the substantial issues of privacy and data security associated with collection of taxpayer identification numbers, we think it is unlikely that [this proposed return] will have practical utility.” Bowing to public and political pressure, the IRS, on January 7, 2016, withdrew its proposed regulations that would have implemented the exception to the statutory requirement for substantiating deductions of charitable contributions of $250 or more by means of contemporary written acknowledgments 95.7 provided by donees. A number of factors brought this regulation project down, including 95.8 confusion in some quarters as to what the IRS was trying to do. The biggest issue, however, was the potential for identity theft, inasmuch as the agency was requiring submission of taxpayer identification numbers by donors. In 95.7

For example, legislation was introduced in the U.S. Senate to block issuance of these regulations in final form (Protecting Charitable Contributions Act (S. 2370)). 95.8 A summary of this criticism is in 33 Bruce R. Hopkins’ Nonprofit Counsel (No. 2) 6 (Feb. 2016).

32

§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS

its notice withdrawing the proposed regulations, the IRS stated that these numbers were “required in order to properly associate the donation information with the correct taxpayer” in the event of examinations. The agency tartly noted that provision of these numbers is required in connection with other specific-use information returns filed with it. Thanks in part to the confusion, criticism of the IRS expanded and magnified, in some instances to the point of charges that the agency was trying to erode Americans’ liberties. Some asserted that this was an effort by the IRS to expand its authority, in part by attempting to make the proposal the sole method of substantiating charitable gifts. Nearly lost in the uproar is the fact that the current approach to substantiation and the exception are based on 95.9 statutory law, rather than an IRS-initiated rule. p. 233. Insert following second complete paragraph, before heading: *(f) Other Substantiation Requirements

The federal tax law provides for additional charitable gift substantiation requirements. For example, rules apply where the value of contributed property exceeds $500, other rules apply where the value of the property exceeds 95.10 $5,000, and still other rules apply where the value is in excess of $500,000. Special substantiation rules apply in the context of gifts of motor vehicles, 95.11 boats, and airplanes. A charitable deduction otherwise allowed for a gift to a donor-advised 95.12 fund is allowed only if (1) the sponsoring organization is not a war veterans’ 95.13 95.14 95.15 a domestic fraternal society, a cemetery company, or a organization, 95.16 and the donor nonfunctionally integrated Type III supporting organization, 95.17 from the sponsoring obtains a contemporaneous written acknowledgment organization of the fund that the organization has exclusive legal control over 95.18 the contributed assets. 95.9

The history of IRC § 170(f)(8)(D) and these proposed regulations is detailed in 15 West 17th Street, LLC v. Commissioner, 147 T.C. 557 (2016). This statute was subsequently repealed by the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 115th Cong., 1st Sess. (2017) § 13705(a), applicable with respect to contributions made after 2016 (Act § 13705(b)). 95.10 See § 5.14(k). 95.11 IRC § 170(f)(12). 95.12 See Charitable Giving § 23.4; Tax-Exempt Organizations § 11.8. 95.13 See Tax-Exempt Organizations § 19.11(a). 95.14 Id. § 19.4(a). 95.15 Id. § 19.6. 95.16 A Type III supporting organization is described in IRC § 4943(f)(5)(A); a functionally integrated Type III supporting organization is described in IRC § 4945(f)(5)(B). 95.17 This acknowledgment must be similar to the acknowledgment referenced in § 5.3(a). 95.18 IRC § 170(f)(18).

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FEDERAL REGULATION OF FUNDRAISING

§ 5.6 INTERMEDIATE SANCTIONS (a) Basic Concepts of Intermediate Sanctions

p. 241, n. 135. Delete text and insert: That is, the intermediate sanctions rules did not replace the private inurement doctrine (see Tax-Exempt Organizations §§ 20.1–20.5). See §§ 5.6(a)(xii) and 5.13.

p. 242, first complete paragraph. Delete first sentence and insert: 136 The sanctions apply with respect to tax-exempt public charities, tax136.1 exempt social welfare organizations, and tax-exempt health insurance 136.2 issuers. p. 242, first complete paragraph, fourth line. Delete two and insert three. p. 242, second complete paragraph. Delete second sentence and insert: That is, all tax-exempt public charities, social welfare organizations, and health insurance issuers are applicable tax-exempt organizations. p. 242, n. 140. Insert following existing text: An illustration of these rules arose in the private inurement setting. The IRS revoked the tax-exempt status of a charitable foundation because it was operated for the private benefit of its founder and that individual’s telemarketing business (Priv. Ltr. Rul. 201541013). Apparently, the charity was paying the salary, bonuses, and benefits of an employee of the company, with the foundation charged again for her services on monthly invoices.

p. 248. Insert following carryover paragraph, before heading: (xii) Interrelationship with Private Inurement Doctrine. The intermediate sanctions penalties may be imposed by the IRS in lieu of or in addition to revocation of the tax-exempt status of an applicable tax-exempt organiza173.1 In general, these sanctions are the sole penalty imposed in cases in tion. which the excess benefit does not rise to such a level as to call into question whether, on the whole, the organization functions as an applicable tax-exempt 173.2 organization. Revocation of tax-exempt status, with or without imposition of intermediate sanctions taxes, is to occur only when the applicable tax-exempt 136

See § 5.11. That is, organizations described in IRC § 501(c)(4). In general, Law of Tax-Exempt Organizations, Chapter 13. 136.2 That is, organizations described in IRC § 501(c)(29). In general, Law of Tax-Exempt Organizations § 19.18. 173.1 H. Rep. No. 104-506, 104th Cong., 2nd Sess. 59 (1996). 173.2 The tax regulations essentially state the matter this way: The intermediate sanctions law does not affect the substantive standards for tax exemption for applicable tax-exempt organizations: these entities qualify for exemption only if no part of their net earnings inures to the benefit of insiders (Reg. § 53.4958-8(a); also, Reg. § 1.501(c)(3)-1(f)(2)(i)). 136.1

34

§ 5.7 UNRELATED BUSINESS RULES

organization no longer operates as an applicable tax-exempt organiza173.3 Existing law principles apply in determining whether an applicable tion. tax-exempt organization no longer operates as an exempt organization. For example, the loss of exempt status would occur in a year, or as of a year, the entity was involved in a transaction constituting a substantial amount of private inurement. Tax regulations provide that, in determining whether to continue to recognize the tax exemption of a charitable entity that engages in an excess benefit transaction that violates the private inurement doctrine, the IRS will consider all relevant facts and circumstances, including (1) the size and scope of the organization’s regular and ongoing activities that further exempt purposes before and after one or more excess benefit transactions occurred, (2) the size and scope of one or more excess benefit transactions in relation to the size and scope of the organization’s regular and ongoing exempt functions, (3) whether the organization has been involved in multiple excess benefit transactions, (4) whether the organization has implemented safeguards that are reasonably calculated to prevent future violations, and (5) whether the excess benefit transaction has been corrected or the organization has made good-faith efforts to seek correction from the disqualified person or persons who benefited from 173.4 the excess benefit transaction. The fourth and fifth of these factors “weigh more heavily” in favor of continuing tax exemption where the organization has discovered the excess benefit transaction and takes corrective action before the IRS learns of the matter. Correction of an excess benefit transaction after the IRS discovers it, by itself, 173.5 is never a sufficient basis for continuing recognition of exemption.

§ 5.7 UNRELATED BUSINESS RULES p. 252, n. 186. Delete Chapter 24 and substitute Chapters 24 and 25. (a) Basic Concepts of Unrelated Income Taxation

p. 253, n. 192. Insert following existing text: Yet, the IRS’s lawyers decided that “substantially all” of an exempt organization’s revenue was derived from unrelated business, with nothing written as to the resulting state of the entity’s tax-exempt status (Tech. Adv. Mem. 201544025). 173.3

H. Rep. No. 104-506, 104th Cong., 2nd Sess. 59, note 15 (1996). In one instance, the IRS’s lawyers concluded that, although the intermediate sanctions rules should be applied, revocation of tax exemption on the grounds of private inurement was “not appropriate” (Tech. Adv. Mem. 200437040). 173.4 Reg. § 1.501(c)(3)-1(f)(2)(ii). 173.5 Reg. § 1.501(c)(3)-1(f)(2)(iii). In general, Law of Tax-Exempt Organizations § 21.16.

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FEDERAL REGULATION OF FUNDRAISING

p. 254, n. 204. Delete 24.10 and substitute 25.3. *p. 258. Insert following the carryover paragraph: Tax-exempt organizations are allowed, in computing their unrelated business taxable income (if any), a federal income tax charitable contribu227.1 tion deduction. This deduction is allowable irrespective of whether the contribution is directly connected with the carrying on of the business. The deduction may not exceed 10 percent of the organization’s unrelated business taxable income computed without regard to the deduction. 227.2 The net operating loss deduction is allowed in computing unrelated 227.3 business taxable income. The net operating loss carryback or carryover (from a tax year for which the exempt organization is subject to the unrelated business income tax) is determined under the net operating loss deduction rules without taking into account any amount of income or deduction that is not included under the unrelated business income tax rules in computing unrelated business taxable income. p. 259, n. 232. Insert following existing text: An interesting question is whether that is the outcome where the losses pertaining to the unrelated activity are merely paper losses, such as net operating losses, as opposed to operational losses; on the one occasion when the Tax Court had that question before it, the court ignored the distinction (Losantiville Country Club v. Commissioner, 114 T.C.M. 198 (2017) aff’d, 906 F.3d 468 (6th Cir. 2018)).

*p. 269. Insert following second complete paragraph, before heading: (ix) Fringe Benefits Rule. A tax-exempt organization’s unrelated business taxable income must be increased by the amount of certain fringe benefit 292.1 292.2 expenses for which a deduction is disallowed. These expenses are those 292.3 a parking facility used in connecfor a qualified transportation fringe, 292.4 292.5 or an on-premises athletic facility. This tion with qualified parking, extension of the reach of the unrelated business income tax also applies with 227.1

IRC § 512(b)(10). IRC § 172. 227.3 IRC § 512(b)(6). 292.1 IRC § 274. 292.2 IRC § 512(a)(7), added by the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 115th Cong., 1st Sess. (2017) § 13703(a). This law change was made to achieve parity in situations where the fringe benefits involved are not deductible by for-profit employers if not included in the income of employees. This rule is applicable to amounts paid or incurred after 2017 (Act § 13703(b)). 292.3 IRC § 132(f). 292.4 IRC § 132(f)(5)(C). 292.5 IRC § 132(j)(4)(B). 227.2

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§ 5.7 UNRELATED BUSINESS RULES

respect to amounts paid by employees by means of compensation-reduction 292.6 agreements. This rule does not apply to the extent an amount paid or incurred is directly connected with an unrelated business that is regularly carried on by a tax-exempt organization. (x) “Bucketing” Rule. In an instance of a tax-exempt organization with two or more unrelated businesses, unrelated business taxable income must first 292.7 be computed separately with respect to each business. The organization’s unrelated business taxable income for a year is the sum of the amounts (not less than zero) computed for each separate unrelated business, less the specific 297.8 deduction. A net operating loss deduction is allowed only with respect to 292.9 a business from which the loss arose. The result of this body of law is that a deduction from one unrelated business for a tax year may not be used by a tax-exempt organization to offset income from another unrelated business for the same tax year. This law generally does not, however, prevent an exempt organization from using a deduction from one tax year to offset income from the same unrelated business in another tax year, where appropriate. Statutory law does not provide criteria for determining whether a tax-exempt organization has more than one unrelated business or how to identify separate unrelated businesses for purposes of calculating unrelated business taxable income. The Treasury Department and the IRS will be proposing regulations as to these determinations. In the interim, exempt organizations may rely on a “reasonable, good-faith determination” of the law. This type of interpretation includes use of the North American Industry 292.10 Classification System codes. The NAICS is an industry classification system utilized to collect, analyze, and publish statistical data related to the U.S. business economy. Also, Treasury and the IRS are considering modifying 292.11 to provide specific standards the reasonable- allocation-of-expenses rule 292.6

IRS, Employers’ Guide to Fringe Benefits (Pub.15-B) (2018). The IRS issued interim guidance to assist tax-exempt organizations in determining any increase in the amount of their unrelated business taxable income attributable to parking expenses in connection with the qualified transportation fringes rules (Notice 2019-99, 2018-52 I.R.B. 1067). 292.7 IRC § 512(a)(6), added by the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 115th Cong., 1st Sess. (2017) § 13702(a). This computation does not use the specific deduction (see § 5.7(a)(ii), text accompanied by supra notes 227.1, 227.2). This law is generally effective for tax years beginning after 2017 (Act § 13702(b)). 297.8 See § 5.7(a)(vii), text accompanied by supra note 291. 292.9 See § 5.7(a)(ii), text accompanied by supra notes 227.1, 227.2. 292.10 IRS Notice 2018-67, 2018-36 I.R.B. 409. 292.11 See § 5.7(a)(ii).

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FEDERAL REGULATION OF FUNDRAISING

for allocating expenses relating to dual-use facilities and an organization’s unrelated businesses. Forthcoming proposed regulations will treat certain investment activities of a tax-exempt organization as one unrelated business. Pending proposed regulations, an exempt organization may aggregate its unrelated business tax292.12 able income from its interest in a single partnership with multiple businesses, including businesses conducted by lower-tier partnerships, as long as the directly held interest in the partnership meets one of two tests. Treasury and the IRS are of the view that provision of fringe benefits is not an unrelated business, so that amounts included in unrelated business income under the 292.13 fringe benefits rule are not subject to this bucketing rule. (xi) Tax Structure. The federal tax law imposes a tax on unrelated busi292.14 ness taxable income. The unrelated business income tax rate payable by 292.15 Some most tax-exempt organizations is the flat 21 percent corporate rate. 292.16 organizations, such as trusts, are subject to the individual income tax rates. Tax-exempt organizations must make quarterly estimated payments of the tax on unrelated business taxable income, under the same rules that require 292.17 quarterly estimated payments of corporate income taxes. Revenue and expenses associated with unrelated business activity are reported to the IRS 292.18 on a tax return (Form 990-T). (b) Unrelated Income Rules as Applied to Fundraising

p. 271, second paragraph, last line. Insert footnote following period: 301.1

An activity may begin as a fundraising effort and grow into a commercial business; that business may be an unrelated business or a primary business activity causing loss of tax-exempt status (e.g., as to the latter, Priv. Ltr. Rul. 201630016 (involving a primary activity that evolved into a “popular and lucrative” business)).

*p. 271, n. 306. Insert before final period: ; Priv. Ltr. Rul. 201825032.

p. 285. Insert as second paragraph, before heading: The IRS held that an event, where vendors offer arts and crafts, a farmers’ market, entertainment, and refreshment booths to the public, sponsored 292.12

See § 5.7(a)(vii). See § 5.7(a)(ix). 292.14 IRC § 512(a)(1). 292.15 IRC § 11(b). This rate reduction, effective for tax years beginning after 2017, was enacted as part of the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 115th Cong., 1st Sess. (2017) § 13001(a). 292.16 IRC § 1(E). 292.17 IRC § 6655(a)-(d). 292.18 IRC § 6012(a)(2), (4). 292.13

38

§ 5.7 UNRELATED BUSINESS RULES

by a tax-exempt alumni association operating to provide financial and civic *381.1 The association funds a support to a public college, is an unrelated business. scholarship program and provides financial support for maintenance of certain college facilities, including a computer room in the library and maintenance of the football field. It publishes an alumni newsletter and conducts annual ceremonies and social events involving graduates, faculty, and staff of the college, as well as community leaders. The IRS’s lawyers rejected the alumni association’s contentions that the event is a substantially related activity because it has the potential for student recruitment, generating donors, and endearing 381.2 the college’s alumni to that institution, and it lessens the burdens of government and relieves the distress of the elderly (the majority of the attendees of the event are over age 55). p. 291. Insert as second–fourth complete paragraphs: (vi-1) Sale-of-Gift Items Exception. As noted, a business constituting the sale of merchandise, substantially all of which has been received by the 414.1 organization as contributions, is not an unrelated business. Although this 414.2 it is available in other exception is principally utilized by thrift shops, contexts, such as fundraising programs involving gifts of automobiles, boats, and airplanes. The IRS, however, revoked the tax-exempt status of an organization claiming to be operating an automobile donation program to fund its charitable 414.3 grantmaking. Apparently this organization’s operations were too closely related, from the IRS’s perspective, to those of a used-car dealership. The formal reasons for the revocation appears to be the organization’s lack of adequate 414.4 414.5 records and violation of the doctrine of private benefit. Another charitable organization had its exemption revoked, in part because of the nature of its fundraising program. This entity solicits contributions of real estate timeshares and sells them. The IRS, ignoring this exception to the unrelated business rules, wrote that the primary purpose of the organization is “attracting customers who would otherwise have gone elsewhere to sell 414.6 their timeshares.” That could be said of any charity soliciting noncash gifts, *381.1

Tech. Adv. Mem. 201544025. The IRS’s positions in this ruling are being litigated (College of the Desert Alumni Association, Inc. v. Commissioner, petition filed on February 8, 2017). 381.2 This rationale for exemption is quite close to the one utilized by Congress in rationalizing the exempt status of college and university athletic programs. See Law of Tax-Exempt Organizations § 4.5(a), text accompanied by notes 313–319. 414.1 See text accompanied by supra note 257. 414.2 See text accompanied by supra note 258. 414.3 Priv. Ltr. Rul. 201635006. 414.4 IRC 6001. See Law of Tax-Exempt Organizations § 28.20. 414.5 See text accompanied by supra notes 343–360. 414.6 Priv. Ltr. Rul. 201734009.

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FEDERAL REGULATION OF FUNDRAISING

including real estate. The owners of property always have the option to sell it or contribute it to any charity. The IRS, for purpose of its faulty analysis, turned this type of transaction inside out. p. 291, last line. Insert as footnote following period: 415.1

E.g., Priv. Ltr. Rul. 200722028.

p. 292, second line. Insert as footnote following period: 415.2

E.g., Tech. Adv. Mem. 201633032.

§ 5.8 EXEMPTION APPLICATION PROCESS p. 293, n. 422. Delete 27.5 and substitute 28.6. (b) Application Procedure

p. 294. Delete last paragraph and substitute: A ruling or determination letter may be issued by the IRS to a charitable fundraising organization in response to the filing of an application for recognition of its tax-exempt status. Two procedures are available in this regard. Pursuant to the general approach, an organization seeking recognition of exemption files an application (Form 1023) with the IRS Service Center in *426 Cincinnati, Ohio. Usually the determination as to eligibility for exemption will be made at that level. If the application presents a matter of some controversy or an unresolved or novel point of law, however, technical advice from the IRS’s Office of Associate Chief Counsel may be necessary. Another approach entails the filing of a streamlined application for recogni*426.1 tion of exemption (Form 1023). This application, the Form 1023-EZ, is available with respect to charitable organizations with gross receipts of no more than $50,000 and assets of no more than $250,000; moreover, this approach 426.2 is unavailable in the case of over 30 categories of public charities. Consequently, the streamlined application will be of little utility in the fundraising context. p. 295, first line. Insert involving the filing of Form 1023 following process. *426

The procedure pertaining to this approach is stated in a revenue procedure annually published by the IRS (currently, Rev. Proc.2018-5, 2018-1 I.R.B. 235). See Law of Tax-Exempt Organizations §§ 26.1(a)-(f), 26.2. *426.1 The procedure pertaining to this approach is stated in an annually published revenue procedure (currently, Rev. Proc. 2018-5, 2018-1 I.R.B. 235 §§ 4.02(2), 6.05). 426.2 See Law of Tax-Exempt Organizations § 26.1(h).

40

§ 5.11 PUBLIC CHARITY CLASSIFICATION

§ 5.11 PUBLIC CHARITY CLASSIFICATION p. 305, n. 456, second line. Delete 25.3 and substitute 26.3. p. 309, first complete paragraph, second line. Insert (that is, be a Type III supporting organization) following first organization. p. 309, n. 474, third sentence. Delete and substitute: Inasmuch as Type III supporting organizations are classified as either functionally integrated or non-functionally integrated entities, there are four categories of supporting organizations.

p. 306, first complete paragraph, third line. Delete or; insert comma following hospitals; insert following n. 361 and before parenthesis: 461.1

medical research organizations, 461.2 tions

or agricultural research organiza-

p. 309, n. 479, last sentence. Delete and substitute: The Department of the Treasury and the IRS responded with final regulations that require non-functionally integrated Type III supporting organizations to annually distribute, to one or more supported organizations, an amount equal to the greater of 85 percent of adjusted net income or 3.5 percent of the value of the supporting organization’s nonexempt-use assets (Reg. § 1.509(a)-4(i)(5)(ii), (6)-(8)).

p. 310, n. 482. Delete text and substitute: Reg. § 1.509(a)-4(i)(4)(i)(A), (ii)(A)-(C).

p. 310, first complete paragraph, second sentence. Insert footnote at end of sentence: 482.1

Reg. § 1.509(a)-4(i)(4)(ii)(A)(2).

p. 310, first complete paragraph, third sentence. Insert footnote at end of sentence: 482.2

Reg. § 1.509(a)-4(i)(4)(ii)(C).

p. 310. Insert as second complete paragraph: The rules concerning fundraising activities apparently will be different in the context of non-functionally integrated Type III supporting organizations. Proposed regulations state that reasonable and necessary administrative expenses paid to accomplish the exempt purposes of a supported organization (which count toward the distribution requirement) generally do not including 482.3 fundraising expenses incurred by the supporting organization. Nonetheless, the proposed rules add that reasonable and necessary expenses incurred 461.1

Id. IRC § 170(b)(1)(A)(ix) and 509(a)(1). 482.3 Prop. Reg. § 1.509(a)-4(i)(6)(iii)(A). 461.2

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FEDERAL REGULATION OF FUNDRAISING

by the supporting organization to solicit contributions that a supported organization receives directly from donors count toward the distribution requirement, but only to the extent that the amount of the expenses does not exceed the amount of contributions actually received by the supported organization as a result of the solicitation activities of the supporting orga482.4 nization. The supporting organization will be required, to ensure that it has the information it needs to calculate the allowable expenses, to obtain written substantiation from the supported organization of the amount of contributions the supported organization actually received as a result of the 482.5 supporting organization’s solicitations. p. 310, n. 486. Insert following existing text: Final regulations concerning the payout requirement for non-functionally integrated Type III supporting organizations were issued on December 23, 2015 (T.D. 9746). Proposed regulations adding and revising various requirements for supporting organizations were promulgated on February 18, 2016 (REG-118867-10).

§ 5.13 FUNDRAISING COMPENSATION ARRANGEMENTS p. 320. Insert following second complete paragraph, before heading: Law constraints aside, an analysis undertaken by The Chronicle of Philanthropy in early 2014 indicates that “[c]ompensation [of fundraisers for charity] is rising fast in large part because very few fundraisers are capable of raising huge sums and few possess the skills needed to push board members to ask 544.1 business colleagues and others for big gifts.” The Chronicle’s review was of about 280 public charities that each raised more than $55 million in 2011. The 20 individuals who earned the most each received more than $550,000 in total compensation during that year. This study found that fundraisers “in the highest echelon at medical institutions and universities, which are running ambitious efforts to expand private donations, earned more than their counterparts at arts, environmental, and other nonprofits.” The highest paid fundraiser in the survey earned about $1.2 million; the highest bonus was $748,227 (with three fundraisers receiving bonuses in amounts in excess 544.2 of their base salaries). 482.4

Prop. Reg. § 1.509(a)-4(i)(6)(iii)(B). The preamble to this proposal observes that the Treasury Department and IRS “believe this rule would provide greater consistency with the treatment of contributions that supporting organizations receive directly and then distribute to their supported organizations (net of the supporting organization’s solicitation expenses).” 482.5 Prop. Reg. § 1.509(a)-4(i)(6)(iii)(B). 544.1 Daniels, Hall, and Narayanswamy, “Fundraisers ‘Arms Race’ Triggers Big Pay Deals,” XXVI Chron. of Phil. (No. 11) 6 (April 24, 2014). 544.2 Id. at 7–8.

42

§ 5.14 CHARITABLE DEDUCTION RULES

A subsequent survey by The Chronicle of Philanthropy is an analysis of 335 public charities, selected because they raised at least $35 million and have employees making at least $150,000. Some of the findings were that about one-half of these charities’ in-house fundraisers received a bonus and “[s]ome 544.3 institutions routinely award their top executives deferred compensation.” One analysis reported that “[f]or the better part of a decade, nonprofits have grappled with a shortage of fundraisers that has damaging second-order effects: inflated salaries, marathon hiring searches, and frequent turnover as 544.4 staff members get poached.”

§ 5.14 CHARITABLE DEDUCTION RULES *(a) Meaning of Gift

p. 322. Insert following the existing text: The quid pro quo law in the charitable contribution context gained national attention when the Department of the Treasury and the IRS used it to combat the efforts in some states to circumvent the $10,000 cap on the deductibility 556.1 of state and local taxes by substituting an increased charitable deduction for a disallowed state or local tax deduction. Proposed regulations were issued providing rules stating the lack of availability of federal income tax charitable contributions deductions when a transfer of money or other property is 556.2 made pursuant to one of these SALT cap “workarounds.” The general rule, under this proposal, is that when a taxpayer receives or expects to receive a state or local tax credit in return for a payment to a charitable organization, the receipt of the tax benefit constitutes a quid pro quo that may preclude a full charitable deduction. That is, the amount otherwise deductible as a charitable contribution generally must be reduced by the amount of the state or 556.3 local tax credit received or expected to be received. Nonetheless, a taxpayer may disregard a state or local tax credit if the credit does not exceed 15 percent of the taxpayer’s payment or 15 percent of the fair market value of the 544.3

Giorgi, Hatch, and Lindsay, “What Top Fundraisers Make,” 27 Chron. of Phil. (Issue 12) 14 (Aug. 2015). 544.4 Lindsay, “In Search of … ,” 27 Chron. of Phil. (Issue 12) 8 (Aug. 2015). 556.1 IRC § 164(b)(6). This provision was added to the IRC on enactment of fiscal year 2018 budget reconciliation legislation (informally known as the Tax Cuts and Jobs Act) (Pub. L. No. 115-97, 115th Cong., 1st Sess. (2017) § 11042). This limitation applies to tax years beginning after December 31, 2017, and before January 1, 2026. 556.2 REG-112176-18 (Aug. 13, 2018). This proposal, which was foreshadowed by Notice 2018-54, 2018-24 I.R.B. 750 (June 11, 2018), also includes similar rules in connection with payments made by trusts and estates (see §§ 9.22, 9.22A). 556.3 Prop. Reg. § 1.170A-1(h)(3)(i)-(v).

43

FEDERAL REGULATION OF FUNDRAISING 556.4

property transferred by the taxpayer. (This quid pro quo principle does not 556.5 apply in instances of dollar-for-dollar state or local tax deductions. ) Treasury and the IRS stated, in the preamble to this proposal, that “[c]ompelling policy considerations” mandate these rules, in that “[d]isregarding the value of all state tax benefits received or expected to be received in return for charitable contributions would precipitate revenue losses that would undermine and be inconsistent with the limitation on the deduction for state and local taxes 556.6 adopted by Congress.” *(d) Percentage Limitations

p. 324, third complete paragraph, fourth line. Delete six and insert seven. p. 324, note 565. Insert following existing text: Beginning in 2018, this definition is the subject of IRC § 170(b)(1)(H).

p. 324. Insert as fourth complete paragraph: First, an individual’s charitable contributions made during a tax year to one or more public charities, where the gifts are of money, are deductible to the extent that the contributions in the aggregate do not exceed 60 percent of 565.1 the individual’s contribution base for the tax year. The report of the House Committee on Ways and Means that accompanied this temporary limitation states that a “robust charitable sector is vital to our economy, and that charitable giving is critical to ensuring that the sector survives,” adding that it is “desirable to provide additional incentives for taxpayers to provide monetary and 565.2 volunteer support to charities.” This increased limitation may not be quite so potent, however, inasmuch as it is “unavailable in many cases, in particular when donors are making gifts to both public charities and private foundations, 556.4

Prop. Reg. § 1.170A-1(h)(3)(vi). See § 3.1(b). Indeed, this proposal would not change existing tax treatment of law outside the charitable context, such as a state tax credit program relating to amounts paid by businesses (e.g., Information Letter 2018-0030 (Sep. 18, 2018)). 556.6 Treasury and the IRS requested comments on several aspects of this proposed regulation, including development of a rule that would allow taxpayers to decline state or local tax credits and thus be able to receive full charitable deductions. (In the preamble, the government observed that the increase in the standard deduction used by nonitemizing individual taxpayers will result in 90 percent of taxpayers not claiming any itemized deductions and thus be unaffected by these regulations.) A public hearing was held on this proposal on November 5, 2018. 565.1 IRC § 170(b)(1)(G), added by § 11023(a) of the Tax Cuts and Jobs Act, Pub. L. No. 115-97, 115th Cong., 1st Sess. (2017). This provision is effective for tax years after 2017 and before 2026 (Act § 11023(b)). 565.2 H. Rep. No. 115-409, 115th Cong., 1st Sess. 117 (2017). 556.5

44

§ 5.15 COMMENSURATE TEST 565.3

or gifts of both cash and noncash items, such as stock, land or art.” Thus, Donor could, in a tax year (after 2017) make up to $60,000 in deductible charitable gifts of cash. p. 324, fourth complete paragraph, first line. Delete First and insert Second. p. 325, fourth complete paragraph, first line. Delete fourth and fifth and insert fifth and sixth. p. 326, second complete paragraph, first line. Delete fifth and insert sixth. p. 326, last paragraph, last line. Delete sixth and insert seventh. p. 326, n. 579. Delete sentence and insert: This highest charitable contribution deduction was ruled unavailable on the grounds that the donors involved are not qualified farmers (Rutkoske v. Commissioner, 149 T.C. No. 6 (2017)). p. 327. Delete first heading and fourth complete paragraph.

§ 5.15 COMMENSURATE TEST (b) Law and Analysis

p. 349, n. 717. Insert Law of following See. (d) IRS’s Charitable Spending Initiative

p. 351. Insert as last paragraph: When the IRS’s targeting of applications for recognition of exemption 724.1 became public, the resulting brouhaha filed by Tea Party and other groups brought this and other exempt organizations’ compliance projects to an immediate halt. They have not as yet been resurrected. p. 351, n. 724. Insert following existing text: The IRS revoked the tax exemption of a charitable entity because its activities consist of the conduct of bingo games, the sale of pull tabs and scratch games, and operating properties to support these activities and those of an exempt fraternal society; the organization’s charitable activities were found to be “insubstantial and incidental” in comparison to its gaming activities and its activities in support of the fraternal entity (Priv. Ltr. Rul. 201603039). 565.3

Bedingfield and Dempze, “The Disappearing 60% Deduction—New Charitable Giving Limits Are Not as Generous as They Appear,” 30 Tax’n of Exempts (No.2) 36 (Sep./Oct. 2018). 724.1 See, e.g., United States v. NorCal Tea Party Patriots, 817 F.3d 953 (6th Cir. 2016).

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FEDERAL REGULATION OF FUNDRAISING

§ 5.18 POSTAL LAWS (b) Qualifying Organizations

p. 361, n. 777. Delete § and substitute Chapter. p. 361, n. 778, last line. Delete § and substitute Chapter. *(d) Application for Authorization

p. 365, second complete paragraph. Insert following the first sentence: It is unclear whether both an amendment and IRS determination letter are needed to send mail under an organization’s new name. The statute reads: “(e.g., an official amendment to the organization’s Articles of Incorporation stating the former name and the new name and a letter issued by the Internal Revenue Service recognizing the name change).” However, Form PS 6015, the form to officially request a name change, states: “Required documentation, such as an amendment to your articles of incorporation or letter from the IRS must be attached” (emphasis added). Thus, an organization may be able to send mail under its new name after submitting an amendment showing its name change while waiting for the IRS to issue its determination letter. p. 370. Delete last heading and paragraph, and insert: *(g) Rate Increases in 2018

An overall 2.5 percent postage rate increase is scheduled to take effect on January 27, 2019. In 2018, letter-size nonprofit mail rates increased by 1.49 percent in relation to the 2017 rates. Any rate increase for 2019 for nonprofit organizations is unknown at this time.

*§ 5.21 FTC TELEMARKETING RULES p. 381, note 892. Insert as second paragraph: An individual sued a professional solicitor company for repeatedly calling him in search of contributions to a named charity, allegedly in violation of the Telephone Consumer Protection Act. His name is registered on the national Do Not Call list. The district court held that the Act’s prohibition does not extend to requests for contributions of money. On appeal, this individual presented a different argument, which is that the ostensible charity is not a “tax exempt nonprofit organization” within the Act’s meaning. (The charity is currently recognized as such by the IRS, although the Federal Trade Commission views it to be a “fraudulent enterprise.”) Because the individual waived at the lower court level the only argument he raised on appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s judgment (Spiegel v. Associated Community Services, Inc., 733 Fed. Appx. 311 (7th Cir. 2018)).

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§ 5.26 FUNDRAISING ORGANIZATIONS

§ 5.22 INTERNET COMMUNICATIONS (d) IRS Examination Guidelines

p. 386, n. 912. Delete 24.5(g) and substitute 24.5(h). p. 421. Insert following existing text:

§ 5.25 POLITICAL CAMPAIGN FINANCING p. 421, last line. Insert footnote following period: 1196.1

See Garrett, “The State of Campaign Finance Policy: Recent Developments and Issues for Congress” (Cong. Research Serv. Rep. R41542 (June 23, 2016)).

§ 5.26 FUNDRAISING ORGANIZATIONS Tax-exempt, charitable activity is considered, by the IRS and the courts, to take place where contributions are made to a qualified organization and that organization makes grants to other charitable entities. It is the grantmaking that is considered an exempt function; inherently charitable program activity is not necessarily required. That is, the law focuses on the grantmaking component rather than the process used to procure the granted funds. This is the basis of exemption for, as examples, private foundations and public charities that have 1197 the sole function of maintaining donor-advised funds. (a) General Principles

The IRS observed that its records indicate that “over 12,000 exempt organizations are listed as having fund raising as a major purpose,” adding that “it seems logical that there are tens of thousands of additional organizations that 1198 engage in fund raising programs to various degrees.” And that was written in 1982. Indeed, it has been IRS policy since 1924 that a nonprofit organization that only carries on operations that involve generation and receipt of contributions (and perhaps investment income) and distribution of its income to public char1199 ities is eligible to receive recognition of tax exemption as a public charity. This principle was restated by the IRS in 1967, holding that an organization that meets the following description qualifies for tax exemption as a charitable 1197

In general, see Private Foundations §§ 1.2, 16.9. “Fund Raising,” Topic L, 1982 IRS Exempt Organizations Continuing Professional Education Text (1982 EO CPE Text), at 1. 1199 I.T. 1945, III-1 C.B. 273 (1924). 1198

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FEDERAL REGULATION OF FUNDRAISING

entity: “An organization was formed for the purpose of providing financial assistance to several different types of organizations which are exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954. It carries on no operations other than to receive contributions and incidental investment income and to make distributions of income to such exempt 1200 organizations at periodic intervals.” In a 1960s case considered by the IRS, a resulting technical advice memorandum stated that “[c]haritable organizations have traditionally engaged in fund raising activities as a means of raising funds to carry out their charitable purposes.” This TAM concluded: “The mere fact that an organization derives its income primarily from such fund-raising activity is not considered to defeat either the primary purposes or the substantial activity tests of section 1201 1.501(c)(3)-1(c) of the Income Tax Regulations.” Another case reviewed by the IRS in the 1970s involved a “social fund raiser,” the objective of which was to “raise money for charity through members, family and friends sponsoring socials, lunches and dinners, and donations for the affairs to be given for various charitable organizations.” This entity owned a clubhouse where these events (including birthday parties) took place. In a TAM, the IRS wrote: “Many charitable organizations do not engage in active charitable undertakings themselves, but rather assist the work of religious, charitable, educational or similar organizations by contributing money to them,” adding that “[p]roviding financial assistance to such organizations 1202 is a charitable activity justifying exemption.” In another case from the 1970s, an organization operated a beer “kegger” for the benefit of local charities. The parties produced a considerable profit. The 1203 IRS ruled that the organization qualified for exemption as a charitable entity. An early version of the IRS’s Exempt Organizations Handbook contained this observation: “Many charitable foundations do not engage in active charitable undertakings themselves, but rather assist the work of religious, charitable, educational, or similar organizations by contributing money to them. The foundation’s funds may be dedicated to purposes, as broad as but no broader than, the purposes set out in IRC [§] 501(c)(3). These foundations are charitable in 1204 the broad sense of the word.” A court observed: “It seems well settled that an organization need not engage in a functional charitable activity to be organized and operated for charitable purposes within the meaning of section 501(c)(3) . . . . Such charitable 1200

Rev. Rul. 67-149, 1967-1 C.B. 133. 1982 EO CPE Text at 6–7. 1202 Id. at 9. 1203 Id. at 9–10. 1204 Id. at 33. 1201

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§ 5.26 FUNDRAISING ORGANIZATIONS

purposes may be accomplished solely by providing funds to other exempt 1205 Another court stated: “In determining whether an activity organizations.” is organized for educational purposes and so exempt from social security taxes, the purposes for which it spends its income and not the means whereby 1206 it obtains income are conclusive.” (b) Application of Commensurate Test

Because the IRS and courts regard grantmaking to charities as charitable activity, the IRS has concerns where the grantor organization is distributing what the agency regards as insubstantial amounts. The IRS has termed these enti1207 ties “unproductive” fundraising organizations. The agency measures this productivity by means of application of the commensurate test. Pursuant to the commensurate test, the IRS assesses whether a charitable organization is engaging in program activities that are commensurate in scope 1208 with its financial resources. In the facts underlying an IRS pronouncement in 1964, the organization engaged in rental activities and derived most of its income from rents. The organization, nonetheless, was successful in preserving its tax-exempt status as a charity because it satisfied the test by engaging in an adequate amount of charitable functions notwithstanding the extent of its 1209 rental activities. The IRS often combines application of the commensurate test with its consideration of the unrelated business rules, usually leading to a favorable outcome for the organization involved when the activity, considered by the organization to be fundraising, is protected from unrelated business income 1210 taxation by reason of a statutory exception. As the IRS has said, taken in conjunction with these exceptions, the agency “has often granted IRC [§] 501(c)(3) exemption status to the typical fund raiser [organization] if there has 1211 been a sufficient turnover of funds to charity.” The IRS has said that, assuming the fundraising activity is not an unrelated business, [recognition of] tax exemption “cannot be legally denied under IRC [§] 501(c)(3)” if the agency “find[s] that the fund raising organization through 1205

Golf Life World Entertainment Golf Championship, Inc. v. United States, 65-1 U.S.T.C. ¶ 9174 (S.D. Cal. 1964). 1206 Southeastern Fair Association v. United States, 52 F. Supp. 219 (Ct. Cl. 1943). Cf. Tech. Adv. Mem. 201544025, discussed at § 5.7(b)(iv), text accompanied by ns. 381.1, 381.2. 1207 1982 EO CPE Text at 54. 1208 See Law of Tax-Exempt Organizations § 4.7(a). 1209 Rev. Rul. 64-182, 1964-1 C.B. (part I) 186. 1210 These exceptions are usually the ones for businesses conducted by volunteers (see § 5.7(a)(vi), text accompanied by notes 252–254) and for sales of donated items (see id., text accompanied by notes 257, 258). 1211 1982 EO CPE Text at 2.

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FEDERAL REGULATION OF FUNDRAISING

these events produce commensurately in scope with their financial resources.” “This is true,” the IRS added, “because a commensurately producing typical fund raising organization cannot be held to be organized or operated for the primary purpose of operating a trade or business for purposes of Reg. [§] 1212 1.501(c)(3)-1(e).” If an organization engages in a form of fundraising but makes few or no distributions for charitable purposes, the organization cannot be tax-exempt as a charitable entity, by reason of the commensurate test. For example, an organization conducted bingo games as its principal activity; its stated purpose was to conduct these games and provide financial assistance for the care of needy children and children’s charities. The organization made grants to charitable entities that were insubstantial when compared to the gross receipts from the bingo games. A court held that this organization did not qualify for exemption as a charitable entity because it did not engage in any charitable activities and 1213 Similarly, the IRS ruled that principally operated the bingo game business. an organization conducting bingo games was not an exempt charitable entity inasmuch as it made no distributions for its ostensible exempt purpose, which 1214 was the making of scholarship grants. In sum, rather than following a set percentage formula, a threshold factor of the extent of charitable grantmaking should be fully analyzed in context with all the operative facts. The IRS’s lawyers have written: The “commensurate test” does not lend itself to rigid numerical distribution formulas—there is no fixed percentage of income that an organization must pay out for charitable purposes. The financial resources of any organization may be affected by such factors as start-up costs, overhead, scale of operations, whether labor is volunteer or salaried, phone or postal rates, etc. In each case, therefore, the particular facts and circumstances of the fund-raising organization must be considered. Accordingly, a low payout percentage does not automatically mandate the conclusion that the fund-raising organization under consideration has a primary purpose that is not charitable. In each case, it should be ascertained whether the failure to make real and substantial contributions for charitable purposes is 1215 due to a reasonable cause. The IRS wrote that “[w]hether an organization is carrying on a real and substantial program reasonably commensurate in scope with its 1212

Id. Help the Children, Inc. v. Commissioner, 28 T.C. 1128 (1957). 1214 Priv. Ltr. Ruls. 201103057, 201415003. 1215 “Special Emphasis Program—Charitable Fund-Raising,” Topic M, 1989 Exempt Organizations Continuing Professional Education Text. 1213

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§ 5.26 FUNDRAISING ORGANIZATIONS

financial resources and capabilities is an essentially factual matter.” In the fundraising context, the IRS stated that a “threshold consideration rests on an 1216 organization’s production of funds distributed for charitable use.” (c) Other Exemption Issues

As is the case in many aspects of the law, the general rules can be abused, leading, in this context, to denial of recognition of, or to revocation of, tax-exempt status. The abuses in the fundraising context include, as discussed, failure to meet the commensurate test (because of high administrative and fundraising expenses and/or inadequate distributions for charitable purposes), violation of the private inurement doctrine (such as payment of excessive compensation to a service provider that is an insider or other inappropriate involvement of 1217 1218 violation of the private benefit doctrine, this type of service provider), 1219 and/or application of the doctrine of commerciality. As the following discussion indicates, it is clear that the IRS will not recognize the exempt status, as a charitable entity, of an organization that facilitates online fundraising for charity and will go to great lengths to adhere to that policy. i. Private Inurement Doctrine. The private inurement doctrine was found violated where a nonprofit organization was formed to raise money for a scholarship fund, where the fundraising medium consisted of the conduct of bingo games in a cocktail lounge owned by a majority of the directors of the nonprofit entity. A court found that more than an insubstantial purpose of the nonprofit organization’s activities was to attract customers, by way of the games, into the lounge, expecting that they would purchase food and beverages while there, thus enhancing the profitability of the company operating the lounge. Tax exemption 1220 A similar holding concerned the case of was denied in this instance. 1216

1982 EO CPE Text at 47. Application of the commensurate test is not confined to the realm of public charities. For example, an organization was denied recognition of exemption as a fraternal beneficiary society (see The Law of Tax-Exempt Organizations § 19.4(a)) in part because more than 90 percent of the proceeds of fundraising campaigns was paid to a fundraising company (Priv. Ltr. Rul. 201332015). 1217 See § 5.13, text accompanied by notes 505, 506. 1218 Id., text accompanied by notes 507–509. 1219 The essence of the commerciality doctrine is that a tax-exempt organization (usually, a public charity) is engaged in a nonexempt activity when that activity is undertaken in a manner that is commercial in nature. An activity of an exempt organization is a commercial one if it has a direct counterpart in, or is conducted in the same or similar manner as in, the realm of for-profit organizations. The usual sanction for violation of the commerciality doctrine is denial of revocation of, or revocation of, tax-exempt status. See Law of Tax-Exempt Organizations § 4.11. 1220 P.L.L. Scholarship Fund v. Commissioner, 82 T.C. 196 (1984).

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FEDERAL REGULATION OF FUNDRAISING

a nonprofit organization seeking to raise money for charities by selling 1221 lottery tickets in a bar. It is the view of the IRS that fundraising activities by sports booster clubs, where the resulting payments directly benefit participating families rather than the organizations, amount to a form of private inure1222 ment. The government was successful in causing a court to agree, in the case of a gymnastics booster club that facilitated fundraising by parents of children in the sports program; the parents earned points, which were used to reduce amounts owed for assessments for the expenses 1223 In this case, the court found that the fundraising of competitions. practices caused private inurement to the participating parents (without any analysis as to whether the parents were insiders with respect to the organization or whether the amounts of reductions in assessments 1224 were reasonable). ii. Private Benefit Doctrine. A nonprofit organization, formed to promote mobile giving and fundraising using other technology platforms to encourage charitable giving by younger donors, facilitating the distribution of contributions made by wireless mobile telephone customers to qualified charities, was denied recognition of exemption as a charitable entity largely because of private benefit provided to the applicant’s service provider companies and the participating 1225 Because of administrative wireless mobile telephone carriers. burdens, wireless mobile carriers will not deal directly with charitable organizations for this purpose. The organization certifies that these charities are federally tax-exempt, are registered under applicable state charitable solicitation acts, and have satisfied standards for accountability, transparency, and good governance. Pursuant to this program, a donor sends a text message indicating the amount he or she desires to contribute. The organization confirms the gift. The carrier charges the amount to the donor’s next cellular telephone bill and sends the gift amount to this organization. The organization sends the entirety of the gift amount to the charity involved 1221

KJ’s Fund Raisers, Inc. v. Commissioner, 166 F.3d 1200 (2nd Cir. 1998). Priv. Ltr. Rul. 201245025. 1223 Capital Gymnastics Booster Club, Inc. v. Commissioner, 106 T.C.M. 154 (2013). 1224 The private inurement doctrine was uniquely applied where an otherwise tax-exempt religious organization was engaged in fundraising activities in an effort to cause a pastor of a local church (an insider with respect to the organization) to be elected a denominational bishop; the IRS ruled that the organization’s support of this candidacy was designed to help the pastor advance her career, with all of the “additional power” and “higher compensation” that the higher office entails (Priv. Ltr. Rul. 201523022). 1225 Priv. Ltr. Rul. 201429027. 1222

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§ 5.26 FUNDRAISING ORGANIZATIONS

and provides the donor with a written contribution acknowledgment. The organization does not charge any fees to the donors. It maintains records as to all of these transactions. The organization also annually conducts educational conferences. Although these conferences are open to the public, due to their content, most attendees are associated with wireless carriers and other businesses that are interested in the collection of charitable contributions by means of mobile technologies. Various application service providers are listed in the conference promotional materials and have a presence at the conference. Representatives of an application service provider company have presented at these conferences. The company was founded and is operated by two individuals, who are also the founding board members of this nonprofit organization. The IRS found private benefit on the grounds that this nonprofit organization is furthering the business of the company, other application service providers, and the wireless mobile telephone carriers participating in charitable fundraising campaigns. The IRS concluded that this organization is “operating for the purpose of relieving the administrative burdens of the wireless mobile phone carriers who participate in” the charitable fundraising efforts. The notion that attempts to increase 1226 giving by younger donors is charitable activity was rejected. 1227 In the sports booster club case, the court also found that the fundraising practices engaged in by the club conferred unwarranted 1228 private benefit on the children participating in the athletic activities. iii. Doctrine of Commerciality. The doctrine of commerciality is the body of law being invoked the most frequently by the IRS in denying recognition of tax exemption, as charitable entities, to online fundraising facilitators. This position has been bolstered, in significant part, by an important court case won by the government. 1226

One observer of the charitable fundraising scene wrote that, as of the beginning of 2014, the “search for new and younger donors is more urgent than ever” (Hall, “Fundraisers Bet on Creativity, Private Investors, and Young Donors After Mixed Results in 2013,” XXVI Chron. of Phil. (No. 5) 1 (Jan. 16, 2014)). 1227 See text accompanied by supra note 1223. 1228 One of the fundamental distinctions between the private inurement doctrine and the private benefit doctrine is that incidental private benefit is permissible. The court in this case, however, did not address this aspect of the doctrine. The offensive private benefit found—assistance to parents to help defray competition costs—amounted to about $33,000 accorded to 110 families, namely, about $300 per family. Recent private letter rulings finding incidental private benefit involve value of private benefit of greater amount: Priv. Ltr. Rul. 201440023 (where a public charity is providing its research results to a major for-profit media company for a fee) and Priv. Ltr. Rul. 201442066 (where a public charity is restoring a historic building owned by an exempt social club).

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FEDERAL REGULATION OF FUNDRAISING

In this case, an organization attempted to qualify for exemption as a charitable entity, with a program of selling flowers at market prices to the public online, as part of a network of florists. The charitable aspects of these operations were said by the entity to emanate from the fact that customers will be able to designate charitable organizations that are to receive all of the profits arising from the sales transactions. A court wrote that the organization “intends to engage in this sales-based business, in direct competition with commercial flower brokers, on a regular and continuous basis with the ultimate aim of maximizing profits in the form of commissions paid on each transaction that it completes”—finding *1229 these activities to be commercial. This organization thus did not qualify for exemption because more than an insubstantial part of its activities are not in furtherance of any exempt charitable purpose. A nonprofit organization, operating a “networking and fund-raising” website, was denied recognition as a charitable entity by the IRS because its primary activity was advertising, which was considered commercial; the fact that a portion of the advertising revenue could be directed by users of the site to 1230 Companies advertise on the site; users charities was deemed unavailing. are informed that, by viewing the advertisements, a portion of the advertising revenue will be contributed to charity. In addition to application of the commerciality doctrine, the IRS concluded that the advertising confers unwarranted private benefit on the companies and that this arrangement amounts to private inurement in connection with a for-profit company (and its owners) that manages the online donation operations. Likewise, a nonprofit organization selling coffee and hot chocolate products online, enabling customers to designate a portion of the “fundraising proceeds” for charity, was denied recognition of exemption, primarily on 1231 This organization’s directors, officers, and the grounds of commerciality. employees are volunteers in a charitable “movement,” which consists of several “units.” The organization markets these products on its website and by means of these units, with customers selecting the units that receive the proceeds portion of the sales price. Its pricing covers its costs, it engages in advertising and other forms of marketing, and it is in competition with for-profit establishments. Private inurement was also found in that the board members are compensated (although there was no finding that the compensation was unreasonable), and private benefit was detected because of the benefit accruing to the independent manufacturer of the products. *1229

Zagfly, Inc. v. Commissioner, 105 T.C.M. 1214, 1216 (2013), aff’d, 603 Fed. Appx. 638 (9th Cir. 2015). 1230 Priv. Ltr. Rul. 201309016. 1231 Priv. Ltr. Rul. 201310046.

54

§ 5.26 FUNDRAISING ORGANIZATIONS

The same fate befell an organization operating a website enabling individuals to volunteer to perform services in exchange for contributions to charitable entities, with the IRS portraying this organization as a “facilitator of 1232 The IRS viewed commerce” between the service providers and recipients. this as a commercial operation, connecting vendors of goods and services with charitable recipients for a fee. The organization was faulted by the IRS for having expenses for purposes such as salaries, marketing, and website use (as if most charities don’t). The IRS concluded: “The fact that clients remit a payment of the value of the goods or services received to charity is not sufficient to characterize your activity as charitable.” A nonprofit organization was formed to “increase charitable giving from individuals and decrease the cost of fundraising by nonprofits by providing the public with a safe, easy, efficient way to give to the charity of their choice.” The entity entered into an agreement with a related for-profit corporation to manage a website, by means of which advertising and e-commerce take place. The for-profit corporation donates a percentage of its e-commerce transaction fees to the nonprofit entity. Various charities register with this entity. The buyer or seller of the products involved in these transactions may select a registered charitable organization to receive a portion of the fee. If a charity is not selected, the nonprofit organization will select one at random. The nonprofit organization creates and maintains a webpage for each of the registered charities. The organization’s principal function is to accept, process, and forward contributions received by means of the e-commerce website to the participating charities. The IRS ruled that the nonprofit entity’s administration, fundraising, and networking activities are not charitable but rather are commercial func1233 The IRS wrote that “[c]ollecting and transmitting donations made by tions. customers on a commercial website is not a tax-exempt [charitable] purpose.” Likewise, the IRS ruled that an organization was a “commercial fundraising service” that did not really engage in fundraising but merely facilitated 1234 A nonprofit organization was the transfer of funds from donors to donees. formed to solicit contributions from corporations for the purpose of funding tax-exempt local schools. Integral to this program is a software application that participants download without charge to their cellular telephones. They register their favorite school and use this app to learn about the corporate “partners” (merchants). Consumers use the app to make purchases from the merchants, who may also be contacted by means of the organization’s website. Payments from merchants are pooled. On a monthly basis, the organization computes the number of visits to each merchant, multiplied by the amount 1232

Priv. Ltr. Rul. 201323037. Priv. Ltr. Rul. 201350042. 1234 Priv. Ltr. Rul. 201407014. 1233

55

FEDERAL REGULATION OF FUNDRAISING

the merchant pledges. Once an exempt school has accumulated at least $25 in value of these “credits,” funds are distributed to it. The organization stated that it provides a “creative and cost-efficient way for businesses to attract and create loyal customers while doing good” in their communities. The IRS ruled that this organization is not charitable and thus is not tax-exempt because it does not raise funds and make grants but “merely transfer[s] what is ‘earned’ by customers interacting with the merchants.” It was also portrayed by the IRS as a “commercial business development service” for the merchants. The IRS ruled that fundraising by means of online raffles was a commercial 1235 activity because the tickets were too highly priced. In this case, a nonprofit organization was formed for the purpose of supporting “wildlife and habitat preservation initiatives.” The principal way this entity achieves its purpose is, in the language of its application for recognition of exemption, by “promoting and delivering exceptional [hunting] excursions that will support ranchers who are struggling in this economy to maintain their businesses.” The sole means of fundraising by this organization is the conduct of the raffles. The prizes are the excursions and various hunting and fishing gear. The tickets are priced at more than $100 per ticket. The IRS observed that the organization has “no means of determining who can enter these raffles.” Also, winners are selected randomly. The organization projected gross revenue “in the millions” from the conduct of the raffles. The IRS found fault in the pricing of the raffle tickets, noting that the raffles “are not priced in order to allow the most people to afford the tickets.” The IRS also stated, in finding commerciality, that the ticket prices are “set” in a commercial manner, the organization does not receive contributions and does not use volunteers, and uses “commercial-type promotion” of the raffles and excursions. The organization was said to be in “indirect competition” with organizations that offer raffles for prizes or hunting excursions for a fee. An organization was formed for a variety of purposes, including instruction of “church and charity employees and volunteers with respect to sound fundraising practices.” Essentially, this entity provides fundraising consulting services for compensation based on a percentage of funds raised. The IRS concluded that the organization’s services and fee structure are “similar to the ser1236 vices provided by commercial businesses.” The agency paraded the usual elements of practice that rendered the organization, in the agency’s opinion, unworthy of exemption: sale of services to the public, setting of prices to cover costs, marketing, and failure to receive charitable contributions. A nonprofit organization planned to operate a website, functioning as a social network, intending to facilitate contributions from individuals to public 1235 1236

Priv. Ltr. Rul. 201410035. Priv. Ltr. Rul. 201416010.

56

§ 5.26 FUNDRAISING ORGANIZATIONS

charities. The website will allow organizations seeking gifts to create a profile page so that individuals can read about and donate to these entities. The organization’s services include ensuring that contributions will be made to their intended recipients. The organization will charge transaction fees in the form of small percentages of the gift amounts, plus a fee for each check or credit or debit card transaction. These fees, expected to be in the range of $7,500 to $18,000 in each of its first two years, are intended to solely cover the costs of operation. The organization contracted with a for-profit company to create and maintain the website. This company is owned by the nonprofit entity’s three directors; the company will maintain all rights to the Web technology involved. The IRS concluded that this organization is providing fundraising and public 1237 Its services are provided to any relations services in a commercial manner. public charity paying for them. The fees involved are not substantially below costs. The organization, the IRS also noted, is not controlled by a charitable entity. A nonprofit organization, not employing the most felicitous of language, advised the IRS that it will function as an “automated fundraising online marketplace.” The vendors are to be manufacturers, distributors, and other large corporations that will give all of the net profits of sales to charity. The purchasers will choose at checkout the charity to receive the “profits” involved in each transaction. The organization stated that it will operate as an “online charity.” The model is that an individual’s “everyday shopping also becomes a way of giving.” Charities are to be able to have their supporters, and family and friends, share this “special place,” where they can shop and simultaneously support charities of their choice. The IRS did not accept any of this. The agency ruled that the operation of an “internet retail shopping site” is not a charitable activity but is a commercial (and unrelated) business, precluding tax exemp1238 Thus, the IRS has drifted somewhat from tion as a charitable organization. its original moorings. The initial focus on grantmaking, rather than fundraising, has faded. This is due, in part, to the agency’s increased utilization of the commerciality doctrine. Also, however, contributing to this shift in IRS thinking is the rise of the Internet as a means of fundraising and facilitating charita1239 ble giving. It is quite acceptable, of course, for a public charity, with an array of charitable programs, to use the Internet to raise funds in support of those programs. But, the IRS is not tolerating, from a tax exemption standpoint, any online fundraising operation for charity where the sole functions are fundraising and grantmaking. Concededly, some of these instances involve commercial undertakings that do not warrant exemption. Others, however, involve 1237

Priv. Ltr. Ruls. 201452017, 201507026. Priv. Ltr. Rul. 201503016. 1239 See § 1.2(b). 1238

57

FEDERAL REGULATION OF FUNDRAISING

nonprofit organizations that are engaged in fundraising solely for charitable 1240 purposes and/or related programs, and thus are entitled to exempt status. *A nonprofit corporation was formed to provide an “internet crowdfunding platform to [its] clients for a fee so that they may fundraise for the charitable programs that they support.” The organization “seek[s] to recruit high-profile individuals or organizations with a personal brand as clients so that they may leverage the power of their celebrity status and drive the passions of their followers and sponsors to make tax-deductible contributions.” The IRS denied recognition of exemption to this organization on the ground that it is operated for the primary purpose of carrying on a trade or business. In defining this “unrelated business,” the IRS simply applied the commerciality doctrine. The activities were seen as competitive with other crowdfunding service providers, the organization charged fees, it has employees, and it is not supported by gifts 1241 and grants.

1240

An organization functioning as a Mardi Gras society, replete with masked parade and ball, and that promotes cultural festivals sought recognition of exemption as a charitable entity. The festivals are free to the public, with family activities such as live music, parades, and fireworks. It advised the IRS that it attempts to “intertwine the festivals with sharing and preserving the history of local pirates or privateers.” The organization makes grants for charitable and educational purposes. The IRS declined the recognition, ruling that the entity’s social and recreational purposes “override” its grantmaking functions (Priv. Ltr. Rul. 201632022). That is not the state of the law. The IRS should have applied the commensurate test to determine if the level of grantmaking is commensurate with resources; if it is, what it does to raise funds is irrelevant. 1241 Priv. Ltr. Rul. 201814009.

58

C H A P T E R

S I X

Import of Form 990 § 6.11

Schedule B 59 *(d) Disclosure Considerations 59

*(e)

Commentary 60

p. 424, first paragraph, third line. Insert and before thereafter.

§ 6.11 SCHEDULE B (d) Disclosure Considerations

pp. 445–446, last paragraph beginning on p. 445. Delete last two sentences and substitute: Some states require organizations to file their Forms 990 with them, often as part of the fundraising reporting process. These states may expect a complete copy of Schedule B, rather than a redacted one. The question then becomes whether the states are entitled to that information and what is the likelihood of the information becoming public as a result of leakage at the state level. Two courts held, in a facial challenge to the requirement, that this practice does not infringe on the organizations’ and their supporters’ free speech right to freedom of association and that federal tax law does not preempt the states’ 27.1 disclosure requirement. Nonetheless, a federal district court permanently enjoined the attorney general of California from demanding the schedule, holding the disclosure requirement unconstitutional as applied to a charitable 27.2 organization. The requirement was held to “chill[] the exercise of [the organization’s] donors’ First Amendment freedoms to speak anonymously 27.1

Americans for Prosperity Foundation v. Harris, 809 F.3d 536 (9th Cir. 2015); Center for Competitive Politics v. Harris, 784 F.3d 1307 (9th Cir. 2015); Citizens United v. Schneiderman, 115 F. Supp. 3d 457 (S.D.N.Y. 2015), aff’d, 882 F.3d 374 (2nd Cir. 2018). 27.2 Americans for Prosperity Foundation v. Harris, 182 F. Supp. 3d 1049 (C.D. Cal. 2016).

59

IMPORT OF FORM 990

and to engage in expressive association,” causing the organization to suffer 27.3 irreparable harm. *Once again, the appellate court involved in this litigation addressed the constitutionality of the California charitable registration requirement, involving disclosure of Form 990 Schedule B, as applied to public charities that solicit charitable contributions in the state. Also, once again, this appellate court upheld the disclosure requirement as being “substantially related to an important state interest” in policing charitable organizations, looking for 27.4 instances of fraud. The court also addressed the issue of whether this disclosure requirement violates the plaintiff organization’s free speech right to freedom of association. The court wrote that the plaintiff’s evidence “shows that some individuals who have or would support the plaintiffs may be deterred from contributing if the 27.5 plaintiffs are required to submit their Schedule Bs to the Attorney General.” That, the court concluded, is insufficient to establish a substantial burden on First Amendment rights. Also, the court conceded the “possibility that the plaintiffs’ Schedule B contributors would face threats, harassment or reprisals if their information were 27.6 to become public.” But, the court added, the plaintiffs failed to establish a 27.7 “reasonable probability of retaliation.” Finally, said the court, the “evidence does not support the inference that the Attorney General is likely to inadver27.8 tently disclose” Schedule B information in the future. *(e) Commentary

Barring Supreme Court intervention or a disastrous turn of events factually, this opinion represents the law of the land. In two ways, this is unfortunate. First, opinions like this one assign too much gravitas to the Schedule B itself. It may be conceded that the state interest involved is superior to damages that may be caused, to donees and donors, by an overall disclosure regime. This opinion refers to “policing charitable fraud,” “self-dealing,” “improper loans,” “other unfair business practices,” and “illegal activity.” Schedule B alone cannot be of much help in detecting those types of transactions and 27.3

Likewise, Thomas More Law Center v. Harris, 2016 WL 6781090 (C.D. Cal., Nov. 16, 2016). Americans for Prosperity Foundation v. Becerra; Thomas More Law Center v. Becerra, 908 F.3d 1000, 1009 (9th Cir. 2018). 27.5 Id. at 1014. 27.6 Id. at 1016. 27.7 Id. at 1017. 27.8 Id. at 1019. 27.4

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§ 6.11 SCHEDULE B

arrangements. Looked at from that singular standpoint, it would seem that courts could accord more respect for charities’ and donors’ constitutional and privacy rights. Second, there is the matter of burden of proof. Of course, plaintiffs must prove their cases. Here, the task is to prove that someone who did not charitably contribute did so out of fear of harassment or other reprisals. That is quite difficult to do, particularly if the court expects many examples.

61

C H A P T E R

E I G H T

Overviews, Perspectives, and Commentaries § 8.1 § 8.8 § 8.12

Charitable Fundraising and the Law 63 Charity Auctions 63 (g) Raffles 63 Charitable Solicitations and Substantiation 64 (d) Commentary 64

§ 8.12A § 8.13

Charitable Fundraising and Disclosure 65 Some Proposals for Relief 67 (d) Other Forms of Uniformity 67

§ 8.1 CHARITABLE FUNDRAISING AND THE LAW p. 506. Insert as third complete paragraph, before heading: This issue continues to fester. For example, Colorado is one of 14 states where the secretary of state has the responsibility for the registration of fundraising charities. Recently, the question arose as to whether a fundraising software provider is merely a vendor or is a professional solicitor. A program manager in the Division of Licensing and Enforcement at the Colorado Secretary of State’s office said that it depends on the contract and the arrangement with the charity.

§ 8.8 CHARITY AUCTIONS p. 541, first complete paragraph, second line. Insert footnote at end of line: 129.1

See § 8.8(g).

p. 547. Insert following second paragraph, before heading: (g) Raffles

Generally, an exempt organization must report a payment of winnings (both to the IRS and to the winners) on Form W-2G, Certain Gambling Winnings when 63

OVERVIEWS, PERSPECTIVES, AND COMMENTARIES

the amount paid is (1) $600 or more, and (2) the payout is at least 300 times the amount of the wager. For example, a foundation selling $20 raffle tickets would be subject to this requirement if an item was valued at $6,000 or more (here, a $20 raffle ticket × 300 tickets). In all situations, the value of the raffled items is gross income to the winners. An exempt organization must also withhold income tax of 25 percent from a payment of winnings when the proceeds from the wager (defined as the difference between the FMV of the item and the amount of the wager) are more than $5,000. The organization must report this amount to the IRS on Form W-2G. An organization is required to withhold 28 percent of the total proceeds if (1) the prize is otherwise subject to reporting (for example, the amount of the prize minus the amount wagered is $600 or more and 300 times the wager’s amount), and (2) the winner fails to provide a correct taxpayer identification number. This concept is known as backup withholding. For noncash prizes, the winner must pay the organization 25 percent of the prize’s FMV minus the amount of the wager. If, as part of the prize, an exempt organization pays the taxes required to be withheld, it must pay the tax not only on the FMV of the prize minus the wager, but also on the taxes it pays on behalf of the winner. The organization will report this grossed up amount of the prize in box 1 of Form W-2G, and the withholding tax in box 2 of Form W-2G. An organization must use Form 945, Annual Return of Withheld Federal Income Tax, to report withheld amounts to the IRS. Form 945 is due January 31 of the year after the year in which the taxes were withheld. Raffles can be subject to further restrictions at the state level. For example, raffles are considered gambling in Kansas, which makes holding raffles illegal in the state. In 2013, the Kansas legislature tried to expand the ability of charitable organizations to hold raffles, but the measure was vetoed by the governor as violating the Kansas constitution. The Kansas Charitable Gaming Measure, SCR 1618, was then approved as part of a November 4, 2014, ballot in Kansas as a legislatively referred constitutional amendment. The measure authorized the legislature to permit the conduct of charitable raffles or other forms of charitable gaming by certain nonprofit organizations. The measure was approved and amended Article 15 of the Kansas Constitution by adding a new section to it.

§ 8.12 CHARITABLE SOLICITATIONS AND SUBSTANTIATION (d) Commentary

p. 558, n. 211. Insert as second paragraph: Unfortunately, the IRS, many years later, ruled the other way. It held that proposed transfers of property by a public charity to a for-profit company, where the public charity acquired the property by means of a grant from a private foundation, will constitute acts of indirect

64

§ 8.12A CHARITABLE FUNDRAISING AND DISCLOSURE

self-dealing (Priv. Ltr. Rul. 201719004). This ruling, which rests on a theory of implied earmarking, is incorrect, in that the IRS relied on a statement from the foundation which is not legally binding on the public charity; the grant was unrestricted.

p. 559, n. 214. Insert as second paragraph: The Tax Court has abjured the donative-intent test. In a recent holding, the court preserved most of donors’ charitable contribution deductions for noncash gifts, in the process rejecting the government’s argument that the deduction should be denied in full on the grounds that the donors lacked the requisite donative intent (McGrady v. Commissioner, 112 T.C.M. 683 (2016)). The court stated that, in assessing whether a transaction constitutes a “quid pro quo exchange,” “we give most weight to the external features of the transaction, avoiding imprecise inquiries into taxpayers’ subjective motivations” (at 693).

p. 559. Insert following book first paragraph, before heading:

§ 8.12A CHARITABLE FUNDRAISING AND DISCLOSURE Tax-exempt charitable organizations must report their charitable contributions and grants, in excess of $5,000, to the IRS as part of their annual information 214.1 return filings. This information includes the names and addresses of donors. Although these returns are generally publicly available, this information about 214.2 gifts and grants is not. A number of states require charities to file their annual information returns with them as a condition of engaging in charitable solicitation in their jurisdic214.3 tions. Some of these states are now demanding that this filing include a 214.4 on the grounds fully prepared disclosure of this gift and grant information, that the information is needed in furtherance of their enforcement efforts in the charitable area. Two of these states are California and New York. Some charities are fighting back in this regard, contending that the states have no compelling interest in collecting the schedules and, most importantly for fundraising law purposes, that disclosure of this information to the states is a burden on their free speech rights. The most notable litigation in this regard is unfolding in California. A federal appeals court held that the California non214.5 public disclosure regime is not unconstitutional on its face. A federal district court, however, considered these issues in the context of an as-applied challenge. This federal district court first held that, even if the state of California can demonstrate a sufficiently important governmental interest, that is irrelevant 214.1

Form 990, Schedule B. In general, Tax-Exempt Organizations § 28.3(i). IRC § 6104(b), (d)(3)(A). 214.3 See §§ 3.3, 3.4, 6.11(d). 214.4 That is, by filing a completed Form Schedule B. 214.5 Americans for Prosperity Foundation v. Harris, 809 F.3d 536 (9th Cir. 2015); Center for Competitive Politics v. Harris, 784 F.3d 1307 (9th Cir. 2015). 214.2

65

OVERVIEWS, PERSPECTIVES, AND COMMENTARIES 214.6

because its interests can be more narrowly achieved. A trial brought forth testimony that the attorney general’s office has successfully completed its investigation without use of the schedules and had successful audits of charities for years before the schedule existed. The state went for many years, accepting annual information returns without the schedules attached. The information ostensibly needed by the state was found in other parts of the annual information returns. Nonetheless, the court held, the charity bringing this as-applied challenge independently prevailed because it proved that disclosure of its schedules creates a burden on its First Amendment rights. The court heard “ample evidence” establishing that the charity, its employees, supporters, and donors “face public threats, harassment, intimidation, and retaliation once their support for and affiliation with the organization becomes publicly 214.7 High-profile associates of the charities and their families have known.” faced threats, including death threats, attacks, and harassment. The court found that the charity’s supporters “have been subjected to abuses that 214.8 warrant relief on an as-applied challenge.” This finding was made against the backdrop that the state’s attorney general “has systematically failed to maintain the confidentiality” of the schedules, to the point where the “amount of careless mistakes made by the Attorney 214.9 The court found against the attorney genGeneral’s registry is shocking.” eral in that the office’s “current confidentiality policy cannot effectively avoid 214.10 inadvertent disclosure.” The court held that the charity in this case has suffered “irreparable harm,” in that the attorney general’s disclosure requirement “chills the exercise of its donors’ First Amendment freedoms to speak anonymously and to engage in 214.11 The charity and other plaintiffs were said to have expressive association.” demonstrated that this disclosure requirement “places donors in fear of exercising their First Amendment right to support [the charity’s] expressive activity; the effect then is to diminish the amount of expressive and associational activ214.12 Moreover, the attorney general has threatened to cancel ity” by the charity. this charity’s registration if it does not comply with the disclosure requirement, “which would preclude it from exercising its First Amendment right to solicit 214.6

Americans for Prosperity Foundation v. Harris, 182 F. Supp. 3d 1049 (C.D. Cal. 2016). Id. at 1055. 214.8 Id. at 1056. 214.9 Id. at 1057. For example, the charity identified 1,778 Schedule Bs that the attorney general’s office posted online. 214.10 Americans for Prosperity Foundation v. Harris, 182 F. Supp. 3d 1049, 1057 (C.D. Cal. 2016). 214.11 Id. at 1058. 214.12 Id. 214.7

66

§ 8.13 SOME PROPOSALS FOR RELIEF 214.13

funds in California.” The court observed that, if the attorney general is allowed to compel this charity to disclose its schedules, the “ensuing intimidation and harassment of [the charity’s] donors, and resulting chilling effect on 214.14 leading the court to grant the First Amendment rights, cannot be undone,” charity’s motion for a permanent injunction to enjoin the California attorney general from demanding its schedules. In another case, a facial challenge to one of these disclosure cases failed; again the contention was that the filing requirement was a transgression of 214.15 Because the organization did not produce any evidence free speech rights. to show that its donors were experiencing threats, harassment, or other “potentially chilling conduct,” the court concluded there was “no identified First 214.16 The plaintiff also contended, without success, that Amendment burden.” its right to free speech was violated. The U.S. Supreme Court stated that the government causes irreparable injury when it places individuals “in fear of exercising their constitutionally 214.17 protected rights of free expression, assembly, and association.” Thus, the time has come to eliminate the rules that cause disclosure of this donor information to the states, both because it is an infringement on the charities’ right of free speech and of the free speech rights of charities’ leadership, donors, and other supports. Disclosure is fine up to a point but not when it creates these First Amendment rights burdens. Disclosure is warranted within bounds but not when it leads to public threats, harassment, intimidation, and retaliation of donors. In fact, the true solution to all of this is elimination of the Schedule B. The IRS probably does not need it any more than the states’ attorneys general do.

§ 8.13 SOME PROPOSALS FOR RELIEF (d) Other Forms of Uniformity

p. 561. Insert following existing text: Notwithstanding the foregoing, the National Association of State Charity Officials is in the process of causing, by means of the Multistate Registration and Filing Project, Inc. (a nonprofit corporation), construction of a website, the purpose of which is to fulfill the mission of the Single Portal Initiative, which seeks to streamline and simplify the process by which charitable 214.13

Id. Id. at 1058–1059. 214.15 Center for Competitive Politics v. Harris, 2017 BL 390979 (E.D. Cal. 2017). 214.16 Id. at ___. 214.17 Allee v. Medrano, 416 U.S. 802, 814-815 (1974) 214.14

67

OVERVIEWS, PERSPECTIVES, AND COMMENTARIES

organizations may comply with the requirements of state registration by means of a single online portal. Twelve states are serving as pilot states for this project. A request for proposals includes this: “The site’s construction will need to take into account a wide variety of variables including, but not limited to: the content of the various federal 990 reporting forms; the unique registration requirements of each participating state along with search and research functions to display the information gathered and provide the data to the public in a machine-readable format upon request.”

68

C H A P T E R

N I N E

Standards Enforcement by Watchdog Agencies § 9.15 Rating the Raters

69

§ 9.15 RATING THE RATERS p. 602. Insert following existing text: Another interesting analysis concerns Charity Navigator which, the report states, is the “most prominent, and thereby most controversial, charity watch59 dog in an ever-bourgeoning field.” The report speaks of “attacks from nonprofit leaders who contest its methodology and its capacity to evaluate so many diverse organizations” (8,000 now, 10,000 planned). This watchdog agency is “seen as a key propagandist for a message that has become increasingly anathema in the nonprofit world: that donors should favor charities that keep their overhead costs low.” It adds: “That notion penalizes nonprofits that invest in fundraising or administrative functions that could strengthen their operations, the argument goes.” Ironically, Charity Navigator plans to expand by doubling 60 its staff and tapping into its reserves.

59 60

Perry, “A Course Correction for Charity Navigator?,” 27 Chron. of Phil. (No. 9) 20 (May 2015). Id. at 21, 26.

69

A P P E N D I X

D

Inflation-Adjusted Insubstantiality Threshold—$50 Test Year

Amount

Rev. Proc.

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$62 64 66 67 69 71 72 74 76 79 80 82 83 86 89 91 95 96 97 99 102 104 105 106 107 108 111

92-102 93-49 94-72 95-53 96-59 97-57 98-61 99-42 2001-13 2001-59 2002-70 2003-85 2004-71 2005-70 2006-53 2007-66 2008-66 2009-50 2010-40 2011-52 2012-41 2013-35 2014-61 2015-53 2016-55 2018-18 2018-57

71

A P P E N D I X

E

Inflation-Adjusted Insubstantiality Threshold—$25 Test Year

Amount

Rev. Proc.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$27.26 28.58 30.09 31 32 33 33.50 34.50 35.50 36 37 38 39.50 40 41 41.50 43 44.50 45.50 47.50 48 48.50 49.50 51 52 52.50 53 53.50 54 55.50

90-12 92-58 92-58 92-102 93-49 94-72 95-53 96-59 97-57 98-61 99-42 2001-13 2001-59 2002-70 2003-85 2004-71 2005-70 2006-53 2007-66 2008-66 2009-50 2010-40 2011-52 2012-41 2013-35 2014-61 2015-53 2016-55 2018-18 2018-57

73

A P P E N D I X

F

Inflation-Adjusted Low-Cost Article Definition Year

Amount

Rev. Proc.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$5.45 5.71 6.01 6.20 6.40 6.60 6.70 6.90 7.10 7.20 7.40 7.60 7.90 8.00 8.20 8.30 8.60 8.90 9.10 9.50 9.60 9.70 9.90 10.20 10.40 10.50 10.60 10.70 10.80 11.10

90-12 92-58 92-58 92-102 93-49 94-72 95-53 96-59 97-57 98-61 99-42 2001-13 2001-59 2008-70 2003-85 2004-71 2005-70 2006-53 2007-66 2008-66 2009-50 2010-40 2011-52 2012-41 2013-35 2014-61 2015-53 2016-55 2018-18 2018-57

75

Cumulative Table of Cases

Americans for Prosperity Foundation v. Harris, §§ 6.11(d), 8.12A

Abington School District v. v. Schempp, § 4.7 Adams v. City of Park Ridge, §§ 4.5, 4.6

American Gold Star Mothers, Inc. v. Gold Star Mothers, Inc., § 3.13

Addis v. Commissioner, §§ 5.3, 8.16

American Home Products Corp. v. Johnson & Johnson, App. I

Alabama State Federation of Labor v. McAdory, App. G Allee v. Medrano, § 8.12A

American Library Association v. Thornburgh, § 4.3

Alumni Association of the University of Oregon, Inc. v. Commissioner, § 5.7

American Target Advertising, Inc. v. Giani, §§ 4.2A, 4.3

American Academy of Family Physicians v. United States, § 5.7

Arizona Free Enterprise Club’s Freedom Club PAC v. Bennett, § 5.25

American Bar Endowment v. United States, §§ 4.13, 5.7, 5.14

Association of Charitable Games of Missouri v. Missouri Gaming Commission, §§ 4.3, 4.5

American Bible Society v. Ritchie, § 5.19

Attorney General v. International Marathons, Inc., §§ 3.2, 8.1

American Campaign Academy v. Commissioner, §§ 5.13, 5.15

Auburn Police Union v. Tierney, § 4.5

American Cancer Society v. City of Dayton, §§ 4.2, 4.6

Austin v. Michigan Chamber of Commerce, § 5.25

American Charities for Reasonable Fundraising Regulation, Inc. v. Pinellas County, §§ 3.22, 4.2, 4.3, 4.12, 4.13

Averyt v. Commissioner, § 5.3(c)

American Charities for Reasonable Fundraising Regulation, Inc. v. Shiffrin, § 3.22

Bauers v. Cornett, § 4.3

Bates v. State Bar of Arizona, § 4.3 Baxstrom v. Herold, § 4.5

Americans for Prosperity Foundation v. Becerra, § 6.11(d)

Bellotti v. Telco Communications, Inc., § 4.3 77

CUMULATIVE TABLE OF CASES

Bethel School District No. 403 v. Fraser, § 5.25

California Medical Association v. Federal Election Commission, § 5.25

Big Mama Rag, Inc. v. United States, § 5.18 Big River Development, LLC v. Commissioner, § 5.3(c)

Camps Newfound/Owatonna, Inc. v. Town of Harrison, Maine, § 4.2

Blake Construction Co., Inc. v. United States, § 5.7

Cantwell v. Connecticut, §§ 4.2, 4.3, 4.6, 4.7, App. G, I

Blenski v. State, §§ 3.5, 3.13, 4.8

Capital Gymnastics Booster Club, Inc. v. Commissioner, § 5.26(c)

Board of County Commissioners Wabaunsee County v. Umbehr, App. H

Caracci v. Commissioner, § 5.6

Bob Jones University v. United States, §§ 2.1, 5.12

Cason v. Glass Bottle Blowers Association, § 9.10

Boone Operations Co., LLC v. Commissioner, § 5.3(c)

Catholic Bishop of Chicago v. NLRB, § 4.7

Bose Corp. v. Consumers Union of United States, Inc., App. G

Caulfield v. Hirsh, § 4.7 CBS, Inc. v. Davis, App. G Center for Auto Safety, Inc. v. Athey, §§ 4.12, 8.1, 8.11

Bradshaw v. Unity Marine Corporation, Inc. et al., § 8.1

Center for Competitive Politics v. Harris, §§ 6.11(d), 8.12A

Breard v. City of Alexandria, §§ 4.3, 4.6

Central Hudson Gas & Electric Corp. v. Public Service Commission, § 5.21

Brentwood Academy v. Tennessee Secondary School Athletic Association, § 9.3

Central States Joint Board v. Continental Assurance Co., App. H

Broadrick v. Oklahoma, App. G Brown v. Illinois State Troopers Lodge No. 41, § 3.13

Christian Stewardship Assistance, Inc. v. Commissioner, § 5.7

Brown v. Marine Club, Inc., §§ 3.2, 4.1 Buckley v. Valeo, § 5.25

Church by Mail, Inc. v. Commissioner, § 5.13

Buechin v. Ogden ChryslerPlymouth, Inc., App. H

Church in Boston v. Commissioner, § 5.2A

Calhoun Academy v. Commissioner, § 5.12

Church of the Lukumi Babalu Aye, Inc. v. City of Hialeah, § 4.7 78

CUMULATIVE TABLE OF CASES

Church of Scientology Flag Services Org., Inc. v. City of Clearwater, §§ 4.2, 4.7, 8.5

Commissioner v. Burnett, § 5.7

Cincinnati v. Discovery Network, Inc., § 5.21

Commissioner v. Groetzinger, § 5.7

Commissioner v. Duberstein, §§ 3.2, 5.14 Commissioner v. LoBue, § 3.2

Citizens Against Rent Control v. City of Berkeley, § 5.25

Committee for Public Education v. Nyquist, § 4.7

Citizens for a Better Environment v. Village of Schaumburg, § 4.2

Common Cause v. Commissioner, § 5.7

Citizens United v. Federal Election Commission, § 5.25

Commonwealth v. Association of Community Organizations for Reform Now, § 3.2

Citizens United v. Schneiderman, 6.11(d)

Commonwealth v. Events International, Inc., §§ 3.21, 3.22

City of Angels Mission Church v. City of Houston, §§ 4.3, 4.5

Commonwealth v. Everett, § 4.6

City of El Paso v. El Paso Jaycees, § 4.3

Commonwealth v. McDermott, § 4.5

City of Evanston v. Evanston Fire Fighters Association, Local 742, International Association of Fire Fighters, AFL-CIOCLC, §§ 3.13, 3.19

Connally v. General Construction Co., § 4.8

City of Lakewood v. Plain Dealer Publishing Co., § 4.6

Connick v. Suzuki Motor Co., App. H

City of Seattle v. Rogers, § 4.5

Continental Trading, Inc. v. Commissioner, § 5.7

Commonwealth v. National Federation of the Blind, § 4.2

City of Shreveport v. Teague, § 4.10

Coomes v. Commissioner, § 4.7 Cornelius v. NAACP Legal Defense and Educational Fund, § 4.3

Clarence LaBelle Post No. 217 v. United States, § 5.7 Clark v. Community for Creative Non-Violence, § 4.4

Cousins v. Wigoda, § 5.25

Cohen v. Cowles Media Co., App. G

Cowen v. New York Stock Exchange, § 9.10

Coit v. Green, §§ 1.1, 2.1, 5.12

Crimi v. Commissioner, § 5.3(c)

College of the Desert Alumni Association, Inc. v. Commissioner, § 5.7(b)(iv)

Dart, In re, § 4.2 Davis v. Federal Election Commission, § 5.25 79

CUMULATIVE TABLE OF CASES

Dayton Area Visually Impaired Persons, Inc. v. Fisher, §§ 3.3, 4.3

Eu v. San Francisco County Democratic Central Committee, § 5.25

Dedication & Everlasting Love to Animals v. Humane Society of the United States, Inc., § 5.19

Everson v. Board of Education, § 4.7 Ex Parte White, § 4.6 Ex Parte Williams, § 4.6

Democratic Leadership Council v. United States, § 5.8

Executive Network Club v. Commissioner, § 5.7

Deputy v. duPont, § 5.7

Falcone v. Middlesex County Medical Society, § 9.3

Derby v. Hiegart, § 4.10 DiDonato v. Commissioner, § 5.3(c)

Famine Relief Fund v. State of West Virginia, §§ 4.3, 5.4

Disabled American Veterans v. Commissioner, § 5.7

Father Flanagan’s Boys’ Home v. American Institute of Philanthropy and Daniel Borochoff, § 9.11

Disabled American Veterans v. United States, § 5.7 Disabled Veterans Service Foundation v. Commissioner, § 5.7

Federal Election Commission v. Beaumont, § 5.25 Federal Election Commission v. Massachusetts Citizens for Life, Inc., § 5.25

Donaldson v. Read Magazine, Inc., App. G Duffy v. Birmingham, § 1.1

Federal Election Commission v. Nat’l Conservative PAC, § 5.25

Eagle v. Vitale, § 4.7 The Ecclesiastical Order of Ism of Am, Inc. v. Commissioner, § 5.7

Federal Election Commission v. National Right to Work Committee, § 5.25

Emily’s List v. Federal Election Commission, § 5.25

Federal Election Commission v. Wisconsin Right to Life, § 5.25

Employment Division, Department of Human Resources of Oregon v. Smith, § 4.7

Federal Trade Commission v. Mainstream Marketing Services, Inc., § 5.21

est of Hawaii v. Commissioner, § 5.13 Estate of Campbell v. Lepley, § 3.5

Federal Trade Commission v. Superior Court Trial Lawyers Association, § 4.4

Estate of Freshour, § 4.9 80

CUMULATIVE TABLE OF CASES

Fernandes v. Limmer, §§ 4.3, 4.4, 4.12

Green v. Connally, §§ 1.1, 2.1, 5.12

First National Bank of Boston v. Bellotti, § 5.25

Greene County Medical Society Foundation v. United States, § 5.7

Fisher v. United States, § 4.8

Grosjean v. American Press Co., Inc., § 5.25

Florida Star v. B.J.F., App. G Follett v. Town of McCormick, § 4.7

Hague v. Committee for Industrial Organization, § 4.3

Forsyth County, Georgia v. Nationalist Movement, §§ 3.3, 4.12

Help the Children, Inc. v. Commissioner, § 5.26(b)

Fraternal Order of Police, Illinois State Troopers Lodge No. 41 v. Commissioner, § 5.7

Heritage Publishing Company v. Fishman, §§ 4.1, 4.3 Heritage Village Church and Missionary Fellowship, Inc. v. North Carolina, §§ 4.5, 4.7

Free the Fathers, Inc. v. State of Tennessee, § 3.5 Freedman v. Maryland, §§ 4.4, 5.25

Hernandez v. Commissioner, §§ 3.2, 4.1, 4.7, 5.14, 8.16

French v. Commissioner, § 5.3(c)

Hernandez v. United States, § 5.3

FW/PBS, Inc. v. Dallas, § 4.2A

Higgins v. American Society of Clinical Pathologists, §§ 9.3, 9.10

General Conference of the Free Church of America v. Commissioner, § 4.7

Higgins v. Commissioner, § 5.7

Gillette v. United States, § 4.7

Hill v. Colorado, § 5.25

Glazewski v. Coronet Insurance Co., App. G, H

Hirsch v. Feuer, App. H Holloway v. Brown, § 4.3

Golf Life World Entertainment Golf Championship, Inc. v. United States, § 5.26(a)

Holy Spirit Association for Unification of World Christianity v. Hodge, §§ 4.3, 4.12

Gospel Army v. City of Los Angeles, § 4.7

The Hope School v. United States, § 5.7

Gospel Missions of America v. Bennett, §§ 4.2, 4.3, 4.4, 4.6, 4.7, 4.8, 4.13, 9.14

Hornsby v. Allen, § 4.2 Houston Chronicle v. City of Houston, § 4.5

Gospel Missions of America v. City of Los Angeles, § 3.2(a) 81

CUMULATIVE TABLE OF CASES

Jews for Jesus, Inc. v. Board of Airport Commissioners, § 4.3

Hurley v. Irish-American Gay, Lesbian & Bisexual Group of Boston, App. H

Jimmy Swaggart Ministries v. California Board of Equalization, §§ 4.3, 4.7

Huron Clinic Foundation v. United States, § 5.7 Hutchinson Baseball Enterprises, Inc. v. Commissioner, § 2.1

Johnson v. Board of Regents of University of Wisconsin System, § 9.10

Hynes v. Mayor & Council of Oradell, §§ 4.3, 4.6, 4.8

Johnson v. United States, App. I

Illinois v. Telemarketing Associates, Inc., §§ 4.3(g)(vii), 8.15

Jones v. City of Opelika, § 4.6 Kentucky Bar Foundation, Inc. v. Commissioner, § 2.1

Illinois ex rel. Madigan v. Telemarketing Associates, Inc., §§ 3.3, 4.2A

Kentucky State Police Professional Association v. Gorman, §§ 3.9, 4.3, 8.1

Illinois ex rel. McCollum v. Board of Education, § 4.7

Kirk v. Commonwealth, § 4.7

In re. See name of party

KJ’s Fund Raisers, Inc. v. Commissioner, §§ 5.7, 5.26(c)

Indiana Voluntary Firemen’s Association, Inc. v. Pearson, §§ 4.2, 4.3

Kushnir v. American Medical Center at Denver, § 5.13

International Society for Krishna Consciousness of Houston, Inc. v. City of Houston, Texas, §§ 4.1, 4.3

Kusper v. Pontikes, § 5.25 Laborer’s International Union of North America v. Commissioner, § 5.7

International Society for Krishna Consciousness, Inc. v. Lee, § 4.3

Lagen v. Lagen, App. H Largent v. Texas, § 4.3

International Society for Krishna Consciousness, Inc. v. Rochford, §§ 4.3, 4.7

Larson v. Valente, § 4.7

Irby v. Commissioner, § 5.3(c) Jamison v. City of St. Louis, § 4.3

Lee v. International Society for Krishna Consciousness, § 4.3

Jamison v. Texas, § 4.3

Lefkowitz v. Burden, §§ 3.23, 4.1

Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., § 5.25

Lemon v. Kurtzman, § 4.7

League of Mercy Association, Inc. v. Walt, § 4.6

Jacobson v. Massachusetts, § 4.7

Lewis v. Congress of Racial Equality, § 3.13 82

CUMULATIVE TABLE OF CASES

Lidecker v. Kendall College, App. H

Miller v. Internal Revenue Service, § 5.14

Linc-Drop, Inc. v. City of Lincoln, §§ 2.1, 4.2A, 4.2B, 4.3(c), 4.8

Mills v. Alabama, § 5.25 Mississippi State University Alumni, Inc. v. Commissioner, § 5.7

Lindsley v. Natural Carbonic Gas Co., § 4.5 Lintzenich v. United States, § 5.6 (b)(viii)

Missouri ex rel. Nixon v. RCT Development Association, § 3.23

Losantiville Country Club v. Commissioner, § 5.7(a)(iii)

Molinas v. National Basketball Association, § 9.10

Lovell v. City of Griffin, § 4.3

Monfore v. United States, § 5.7

Mainstream Marketing Services, Inc. v. Federal Trade Commission, § 5.21

Monitor Patriot Co. v. Roy, § 5.25 Montejo v. Louisiana, § 5.25

Make A Joyful Noise, Inc. v. Commissioner, § 5.15

Moore v. City of Kilgore, Texas, § 4.3

Marjorie Webster Junior College v. Middle States Association of Colleges & Secondary Schools, § 9.3

Morey v. Doud, §§ 4.5, 4.6 Murdock v. Pennsylvania, §§ 4.3, 4.7, 4.12

Martin v. City of Struthers, §§ 4.3, 4.6

NAACP v. Alabama, § 5.25

Massachusetts v. Oakes, § 4.3 McConnell v. FEC, § 5.25

National Association of American Churches v. Commissioner, § 5.7

McCutcheon v. Federal Election Commission, § 5.25

National Awareness Foundation v. Abrams, §§ 4.5, 4.12

McDowell v. Ribicoff, § 5.7

National Collegiate Athletic Association v. Commissioner, § 5.7

NAACP v. Button, § 5.25

McClure v. Salvation Army, § 4.7

McGlotten v. Connally, §§ 1.1, 9.3

National Federation of Nonprofits v. Lungren, §§ 3.9, 4.3, 8.1

McGrady v. Commissioner, § 8.12(d)

National Federation of the Blind v. Federal Trade Commission, § 4.2A

McIntyre v. Ohio Elections Commission, App. G, § 5.25 Meyer v. Grant, App. H

National Foundation v. City of Fort Worth, Texas, §§ 4.2, 4.3, 4.5

Michigan v. Jackson, § 5.25 Miller v. California, App. G 83

CUMULATIVE TABLE OF CASES

National Foundation, Inc. v. United States, § 5.13

People ex rel. Brown v. Illinois State Troopers Lodge No. 41, § 3.13

National Water Well Association, Inc. v. Commissioner, § 5.7 New York v. Ferber, App. G

People ex rel. Scott v. Gorman, § 3.21

New York Times Co. v. Sullivan, §§ 4.3, 5.25, App. H

People ex rel. Scott v. Police Hall of Fame, §§ 3.21, 4.3

Niemotko v. State of Maryland, § 4.5

People of God Community v. Commissioner, § 5.13

Nixon v. Shrink Missouri Government PAC, § 5.25

People of the State of Illinois v. Police Hall of Fame, Inc., § 1.3

Optimist Club of North Raleigh v. Riley, § 4.3

Perlman v. Time, Inc., App. H

Orange County Builders Association, Inc. v. United States, § 5.7

Perry Education Association v. Perry Local Educators’ Association, § 4.3

Oregon State University Alumni Association, Inc. v. Commissioner, § 5.7

Philadelphia Newspapers, Inc. v. Hepps, App. G Pinsker v. Pacific Coast Society of Orthodontists, § 9.10

Ozee v. American Council on Gift Annuities, § 5.19 Packel v. Frantz Advertising, Inc., § 3.2

Planned Parenthood Federation of America, Inc. v. Commissioner, § 5.7

Parklane Residential School, Inc. v. Commissioner, § 5.7

Planned Parenthood League v. Attorney General, §§ 4.2A, 4.3

Pearson v. Callahan, § 5.25

P.L.L. Scholarship Fund v. Commissioner, §§ 5.7, 5.13, 5.26

Pence v. United States, App. G, H

Police Department of City of Chicago v. Mosley, § 4.5

People v. Caldwell, § 3.13 People v. Framer, § 4.10

Pollock v. Farmers’ Loan and Trust Co., § 1.1

People v. French, § 4.3 People v. Gellard, § 3.22

Presbyterian Church v. Hull Church, § 4.7

People v. Handzik, § 4.7

Rachford v. Indemnity Insurance Co. of North America, § 4.8

People v. Stone, § 4.1 People v. Telemarketing Associates, App. H

Randall v. Sorrell, § 5.25

People v. Tosch, § 4.5

R.A.V. v. City of St. Paul, App. G 84

CUMULATIVE TABLE OF CASES

Schaumburg, Village of v. Citizens for a Better Environment, §§ 4.2, 4.3, 9.1, App. G, H, I

Redlands Surgical Services v. Commissioner, § 5.13 Rehabilitation Center and Workshop, Inc. v. Commonwealth, § 4.1

Schneider v. Irvington, § 4.3 Schneider v. State (Town of Irvington), §§ 4.3, 4.6, App. G

Rensselaer Polytechnic Institute v. Commissioner, § 5.7

Schrimsher v. Commissioner, § 5.3(c)

Reynolds v. United States, § 4.7

SEC v. Federal Trade Commission, § 5.23

Riley v. National Federation of the Blind of North Carolina, Inc., §§ 4.2A, 4.3, 8.1, App. G, H, I

Secretary of State of Maryland v. Joseph H. Munson Co., Inc., §§ 4.2A, 4.3, 4.4, 8.1, App. G, H, I

Ritchie v. American Council on Gift Annuities, § 5.19

Securities and Exchange Commission v. Children’s Hospital, § 4.1

Robertson v. United States, § 3.2 Roemer v. Maryland Public Works Board, § 4.7

Senior Citizens of Missouri, Inc. v. Commissioner, § 5.13

Roth v. United States, § 5.25 RP Golf, LLC v. Commissioner, § 5.3(c)

Shannon v. Telco Communication, Inc., § 4.3

Rutkoske v. Commissioner, § 5.14(d)

Sherbert v. Verner, § 4.7 SICO Foundation v. United States, § 5.7

Ryan v. Telemarketing Associates, Inc., §§ 4.3, 8.15, App. G, H, I

Sierra Club, Inc. v. Commissioner, § 5.7

Ryan v. World Church of the Creator, § 3.2(a)

Simmons v. Commissioner, § 5.3(c)

Sable Communications of California, Inc. v. Federal Communications Commission, § 4.3

Simon & Schuster, Inc. v. Members of New York State Crime Victims Board, § 5.25

St.Louis Union Trust Company v. United States, § 1.1

Smith v. California, § 4.8 Social Workers v. United States Postal Service, § 5.20

Salvation Mission Army Workers Holy Orthodox Christian Church v. Commonwealth, § 3.5

Sound Health Association v. Commissioner, § 5.12 Southeastern Fair Association v. United States, § 5.26(a)

Saucier v. Katz, § 5.25 85

CUMULATIVE TABLE OF CASES

Southeastern Promotions, Ltd. v. Conrad, § 4.2A

Texas Monthly, Inc. v. Bullock, § 4.7

Speiser v. Randall, App. G

There to Care, Inc., v. Commissioner of Indiana Department of Revenue, § 4.3

Spiegel v. Associated Community Services, Inc., § 5.22

Thomas v. Chicago Park District, § 3.3

State v. Blakney, §§ 3.2, 8.14 State v. Delaware Fire Co. No. 3, § 9.6

Thomas v. Collins, §§ 4.2, 4.3, 4.7

State v. Events International, Inc., §§ 4.1, 4.3

Thomas More Law Center v. Becerra, § 6.11(d)

State v. Maine State Troopers Associations, § 4.5

Thomas More Law Center v. Harris, § 6.11(d)

State v. Mauer, § 4.10

Thomason v. Commissioner, § 5.2A

State v. O’Neill Investigators, Inc., § 4.3

Thornhill v. Alabama, § 5.25

State v. W.R.G. Enterprises, Inc., § 4.3

310 Retail, LLC v. Commissioner, § 5.3(c)

State Marine Lines, Inc. v. F.M.C., § 9.3

Trinidad v. Sagrada Orden de Predicadores, § 1.1

Staub v. City of Baxley, § 4.6

Trinity Church v. City of Boston, § 1.1

Streich v. Pennsylvania Commission on Charitable Organizations, § 4.3

Tripp v. Commissioner, § 5.2A Trustees of the First Methodist Episcopal Church v. City of Atlanta, § 1.1

Suffolk County Patrolmen’s Benevolent Association, Inc. v. Commissioner, § 5.7

2121 Arlington Heights Corp. v. IRS, § 5.6

Sylte v. The Metropolitan Government of Nashville and Davidson County, § 4.7

United Cancer Council, Inc. v. Commissioner, § 5.6

Taylor v. City of Knoxville, § 4.7

United Nuclear Corporation v. NLRB, § 4.8

Telco Communications, Inc. v. Carbaugh, §§ 4.3, 8.1

United States et al. v. Toy National Bank et al., § 4.7

Texas Farm Bureau v. United States, § 5.7

United States v. Albertini, § 4.4

86

CUMULATIVE TABLE OF CASES

United States v. American Bar Endowment, §§ 3.2, 4.13, 5.1, 5.7, 8.16

Veterans of Foreign Wars, Department of Michigan v. Commissioner, §§ 5.2, 5.7

United States v. American College of Physicians, § 5.7 United States v. Automobile Workers, § 5.25

Veterans of Foreign Wars, Department of Missouri, Inc. v. United States, §§ 5.2, 5.7

United States v. Brown University, § 5.19

Vigilant Hose Company of Emmitsburg v. United States, § 5.7

United States v. Ciccone, App. H

Village of Ruidoso v. Warner, § 4.7

United States v. Danielczyk, Jr., & Biagi § 5.25

Village of Schaumburg v. Citizens for a Better Environment, §§ 4.2, 4.2A, 4.3, 8.1, App. G, H, I

United States v. Kokinda, § 4.3, App. H

Virginia v. Hicks, § 5.25

United States v. Nobles, App. I United States v. NorCal Tea Party Patriots, § 5.15(d)

Walz v. Tax Commission, §§ 1.1, 4.7, 7.3

United States v. O’Brien, § 4.4

Ward v. Rock Against Racism, § 4.4

United States v. Playboy Entertainment Group, Inc., § 5.25

Watchtower Bible & Tract Society of New York v. Village of Stratton, § 4.3, App. I

United States v. Powell, § 5.6

Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner, § 3.2

United States v. Thomas, § 4.13 United States v. Tomey, § 4.3(g)(viii)

Whipple v. Commissioner, § 5.7

U.S. CB Radio Association, No. 1, Inc. v. Commissioner, §§ 5.7, 5.16

Wickman v. Firestone, § 4.3 Williams v. Golden, § 4.6

Universal Life Church, Inc. v. United States, § 5.7

Williams v. Rhodes, § 5.25

Valente v. Larson, § 4.7

Wisconsin v. Yoder, § 4.7

Valentine v. Chrestensen, § 4.3

Wisconsin Right to Life, Inc. v. Federal Election Commission, § 5.25

Winters v. New York, § 5.25

Van Wart v. Commissioner, § 5.7

87

CUMULATIVE TABLE OF CASES

Witt, In re, App. G, H

Yates v. Evatt, App. G

Woodbury v. Commissioner, § 5.14

Young v. New Haven Advocate, § 4.13

World Family Corporation v. Commissioner, § 5.13

Zagfly, Inc. v. Commissioner, § 5.26(c)

WRG Enterprises, Inc. v. Crowell, § 4.3

Zippo Mfg. Co. v. Zippo Dot Com, Inc., § 4.13

Wyatt v. Tahoe Forest Hospital District, § 9.10

Zorach v. Clausen, § 4.7

88

Cumulative Table of IRS Pronouncements

Revenue Rulings

Sections

54-243 55-676 56-152 56-304 56-511 59-330 64-182 66-221 67-4 67-149 67-246 67-325 67-367 68-432 69-268 69-545 69-574 69-633 71-477 71-581 72-431 73-504 75-201 75-472 76-204 77-72 78-84 78-85 78-144 80-108 80-200 80-286 81-178 84-132 85-184 89-51 92-49 98-15 2004-6

5.14 5.7 5.7 5.2A 5.7 5.7 5.1, 5.13, 5.15, 5.26(b) 5.7 5.15 5.26(a) 5.1, 5.2 5.12 5.2A 5.3 5.7 2.1 5.7 5.7 5.12 5.7 5.7 5.11 5.7 5.7 2.1 5.7 2.1 2.1 5.7 5.8 2.1 2.1 5.7 5.14 5.14 8.10 5.2 5.13 5.25

89

Private Letter Rulings

Sections

7946001 8127019 8203134 8232011 8725056 8747066 8823109 8832003 9250001 9315001 9320042 9450028 9509002 9623035 9703025 9709029 9712001 9740032 9810030 9816027 200022056 200108045 200114040 200128059 200230005 200303062 200443045 200533001 200634046 200722028 201103057 201245025 201251019 201309016 201310046 201323037 201332015 201338052

5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.2 5.7 5.6 5.7 5.7 5.7 5.3 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.13 5.7 7.13 5.16 8.16 5.14 5.15 5.7(b)(viii) 5.26(b) 5.26(c) 5.7 5.26(c) 5.10, 5.26(c) 5.26(c) 5.15(d), 5.26(b) 5.2A

CUMULATIVE TABLE OF IRS PRONOUNCEMENTS

Private Letter Rulings

Sections

201350042 201407014 201410035 201415003 201416010 201429027 201440023 201442066 201452017 201503016 201507026 201517014 201523022 201541013 201544025

5.26(c) 5.26(c) 5.26(c) 5.26(b) 5.26(c) 5.26(c) 5.26(c) 5.26(c) 5.26(c) 5.26(c) 5.26(c) 5.2A 5.26(c) 5.6(a) 5.7(a)(i), 5.7(b)(iv), 5.26(a) 5.5(b)(i) 5.26(c)(iii) 5.7(b)(viii) 8.12(d) 5.7(b)(vi-1) 5.26(c) 5.7(b)

201630016 201632022 201635006 201719004 201734009 201814009 201825032 Technical Advice Memoranda

Sections

9147007 9502009 9652004 9712001 9723001 200021056 200128059 200243057 200244028 200437040

5.7, 5.16 5.7 5.7 5.7 5.7 5.7 5.7 5.6 5.6 5.6(a)(xii)

90

Revenue Procedures

Sections

72-54 75-50 82-23 83-23 90-12 90-27 92-58 92-85 92-102 93-49 94-72 95-53 96-59 97-57 98-61 99-42 2001-13 2001-59 2002-70 2003-85 2004-71 2005-70 2006-53 2007-66 2013-1 2013-8 2013-9 2013-15 2015-5 2015-9 2016-55 2017-5 2017-58

5.12 5.12 5.5 5.9 App. E, F; 5.2 5.8 App. E, F 5.8 App. D, E, F; 5.2 App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F App. D, E, F 5.8 5.8 5.8 5.14 5.8(b) 5.8(b) App. D, E, F 5.8(b) App. D, E, F

Cumulative Table of Private Letter Rulings and Technical Advice Memoranda Discussed in Bruce R. Hopkins’ Nonprofit Counsel

The following IRS private letter rulings and technical advice memoranda, referenced in the text, are discussed in greater detail in one or more issues of the co-author’s monthly newsletter, as indicated. PLR/TAM

Book Sections

Newsletter Issues

9502009 9712001 9740032 200114040 200128059 200230005 200243057 200437040

5.7 5.7 5.7 5.13 5.7 7.13 5.6 5.6(a)(xii)

200533001 201103057 201245025 201251019 201309016 201310046 201323037 201332015 201350042 201407014 201410035 201415003 201416010 201429027 201440023 201442066 201452017 201503016 201507023 201523022 201541013 201544025

5.14(l) 5.26(b) 5.26(c) 5.7(b)(ii) 5.26, 5.26(c) 5.26, 5.26(c) 5.26(c) 5.15(d), 5.26(b) 5.26(c) 5.26(c) 5.26(c) 5.26(b) 5.26(c) 5.26(c) 5.26(c) 20.11(b) 4.10, 20.11 4.10 5.26(c) 5.26(c) 5.6(a) 5.7(a)(i), 5.7(b)(iv), 5.26(a)

201630016

5.5(b)(i)

February 1995 June 1997 December 1997 June 2001 September 2001 October 2002 December 2002 November 2004 November 2005 March 2011 January 2012 March 2013 May 2013 May 2013 August 2013 October 2013 February 2014 May 2014 May 2014 February 2014 June 2014 October 2014 October 2014 December 2014 March 2015 March 2015 April 2015 August 2015 December 2015 December 2015, January 2016 October 2016

91

CUMULATIVE TABLE OF PRIVATE LETTER RULINGS AND TECHNICAL ADVICE MEMORANDA

PLR/TAM

Book Sections

Newsletter Issues

201632022 201635006 201719004 201734009 201814009 201825032

5.26(c)(iii) 5.7(b)(viii) 8.12(d) 5.7(b)(vi-1) 5.26(c) 5.7(b)

October 2016 November 2016 July 2017, August 2017 November 2017 June 2008 August 2018

92

Cumulative Table of Cases Discussed in Bruce R. Hopkins’ Nonprofit Counsel

The following cases, referenced in the text, are discussed in greater detail in one or more issues of the co-author’s monthly newsletter, as indicated. Case

Book Sections

Newsletter Issues

Addis v. Commissioner

5.3

Alumni Association of the University of Oregon, Inc. v. Commissioner American Bar Endowment v. United States American Campaign Academy v. Commissioner Americans for Prosperity Foundation v. Becerra American Target Advertising v. Giani Americans for Prosperity Foundation v. Harris Auburn Police Union v. Tierney Averyt v. Commissioner Bellotti v. Telco Communications, Inc. Big River Development, LLC v. Commissioner Bob Jones University v. United States Boone Operations Co., LLC v. Commissioner Brentwood Academy v. Tennessee Secondary School Athletic Association Camps Newfound/Owatonna, Inc. v. Town of Harrison, Maine Capital Gymnastics Booster Club, Inc. v. Commissioner Caracci v. Commissioner Center for Competitive Politics v. Harris Church by Mail v. Commissioner

5.7

September 2002, September 2004, April 2005 December 1999

5.7, 5.4

April 1984, July 1985

5.13, 5.15

July 1989, June 2001

6.11(d), 8.12A

November 2018

4.2A, 4.3 6.11(d), 8.12A 4.3 5.3(c) 4.3 5.3(c)

November 1998, March 2000 March 2016, July 2016, August 2016 July 1991 September 2012, May 2016 May 1987 October 2017

2.1, 5.12 5.3(c)

July 1985 June 2013

9.3

April 2001

4.2

July 1997

5.26(c)(i)

November 2013

5.6 6.11(d), 8.12A

6.11(d) 5.7(b)(iv)

July 2002 July 2015, January 2016, January 2018 September 1985, December 1985, June 2001 October 2015, April 2018 April 2017

5.7

August 1999

Citizens United v. Schneiderman College of the Desert Alumni Association, Inc. v. Commissioner Common Cause v. Commissioner

5.13

93

CUMULATIVE TABLE OF CASES DISCUSSED

Case

Book Sections

Newsletter Issues

DiDonato v. Commissioner Disabled American Veterans v. Commissioner est of Hawaii v. Commissioner Executive Network Club, Inc. v. Commissioner Federal Trade Commission v. Mainstream Marketing Services, Inc. French v. Commissioner. Fund for the Study of Economic Growth and Tax Reform v. Internal Revenue Service Hernandez v. Commissioner Illinois v. Telemarketing Associates, Inc. International Society for Krishna Consciousness v. Lee Irby v. Commissioner Jimmy Swaggart Ministries v. California Board of Equalization Kentucky Bar Foundation, Inc. v. Commissioner Laborer’s International Union of North America v. Commissioner Lintzenich v. United States Losantiville Country Club v. Commissioner Mainstream Marketing Services, Inc. v. Federal Trade Commission McGrady v. Commissioner National Collegiate Athletic Association v. Commissioner National Foundation, Inc. v. United States National Water Well Association v. Commissioner Oregon State University Alumni Association, Inc. v. Commissioner Redlands Surgical Services v. Commissioner Riley v. National Federation of the Blind of North Carolina RP Golf, LLC v. Commissioner

5.3(c) 5.7

September 2011 April 1990

5.13 5.7

June 2001 March 1995

5.21

December 2003

5.3(c) 8.12

May 2016 May 1998, February 1999

3.2, 4.1, 4.7, 5.14 4.3(g)(vii), 8.11

July 1989 December 2003

4.3

May 1991, August 1992

5.3(c) 4.3, 4.7

December 2012 March 1990

2.1

March 1985

5.7

October 2001

5.6(b)(viii) 5.7(a)(iii)

December 2005 June 2017, October 2017

5.19

December 2003

8.12(d) 5.7

March 2017 April 1989, November 1990

5.13

January 1998

5.7

March 1989

5.7

December 1999

5.13

September 1999, June 2001

2.6, 4.3, 8.1

September 1998

5.3(c)

December 2012, May 2016, July 2016, August 2017, September 2017 October 2017 January 2003

Rutkoske v. Commissioner Ryan v. Telemarketing Associates, Inc.

5.14(d) 4.3, 8.11

94

CUMULATIVE TABLE OF CASES DISCUSSED

Case

Book Sections

Newsletter Issues

Schrimsher v. Commissioner Secretary of State of Maryland v. Joseph H. Munson Co., Inc. Senior Citizens of Missouri, Inc. v. Commissioner Sierra Club, Inc. v. Commissioner

5.3(c) 4.3, 4.4, 8.1

May 2011, May 2016 August 1984, January 1985, March 1985, July 1985 March 1989

Simmons v. Commissioner 310 Retail, LLC v. Commissioner Thomas More Law Center v. Becerra United Cancer Council v. Commissioner United States v. American Bar Endowment United States v. NorCal Tea Party Patriots U.S. Security v. Federal Trade Commission Veterans of Foreign Wars, Department of Michigan v. Commissioner Veterans of Foreign Wars of the United States v. Department of Missouri, Inc. Vigilant Hose Company of Emmitsburg v. United States Village of Schaumburg v. Citizens for a Better Environment WRG Enterprises, Inc. v. Crowell Watchtower Bible Tract Society of New York v. Village of Stratton Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner West 17th Street LLC v. Commissioner West 17th Street LLC v. Commissioner Zagfly v. Commissioner

5.13 5.7 5.3(c) 5.3(c) 6.11(d), 8.12A 5.6

July 1993, October 1994, August 1996, May 1999 November 2009, May 2016 October 2017 November 2018 January 1998, April 1999

3.2, 5.1, 5.7

August 1986

5.15(d)

May 2016

5.21

December 2003

5.2, 5.7

August 1987

5.2, 5.7

December 1984

5.7

August 2001

2.6, 4.2, 4.3, 9.1 4.3 4.3

January 1985, March 1985, July 1985 February 1989 April 2002

3.2

November 1986

§ 5.3(b) 5.3(b) 5.26

March 2017 April 2013, July 2015

95

Table of Tax Reform Legislation

Congress completed its work on the tax reform legislation on December 20, 2017. The initial version of this legislation passed the House of Representatives 1 on November 16, 2017; the Senate passed its version of the bill on December 2, 2 2017. The conference report on this legislation was made public on December 3 15, 2017. The conference version passed the House on December 19, 2017; the Senate voted and the House revoted on the report on December 20, 2017. 4 President Trump signed the measure into law on December 22, 2017.

OVERVIEW OF LEGISLATION The law retains the seven income tax brackets, albeit lowering the top bracket to 37 percent; sets the corporate tax rate at 21 percent; nearly doubles the standard deduction; provides income tax deduction for state and local income, sales, and property taxes, capped at $10,000; provides a deduction of 20 percent for qualified business income from pass-through entities; increases the estate and gift tax unified credit exclusion amount to $10 million; increases the generation-skipping tax exemption amount to $10 million; repeals the corporate alternative minimum tax; increases the alternative minimum tax exemption amount for individuals; and repeals the Patient Protection and Affordable Care Act’s individual shared responsibility payment (aka, the individual mandate). Charitable organizations are distressed over the projected loss of contributions, expected by reason of the near-doubling of the standard deduction and the tax rate reductions, coupled with expansion of the estate tax exclusion amount. Some economist are predicting that charitable giving will decline by $13–20 billion annually as the consequence of this legislation. The Act does not contain the so-called “universal” charitable deduction. Tax-exempt organizations in general are now facing some striking changes in the federal tax law directly applicable to them. Taking into account changes in the charitable contribution rules, there are 16 provisions in the new law that directly impact various types of exempt organizations. 1

H.R. 1, 115th Cong., 1st Sess. (2017). S. Amdt. 1855, 115th Cong., 1st Sess. (2017). 3 H. Rep. No. 115-466, 115th Cong., 1st Sess. 2017). 4 Pub. L. No. 115-73, 115th Cong., 1st Sess. (2017). 2

97

TABLE OF TAX REFORM LEGISLATION

TAX-EXEMPT ORGANIZATIONS LAW CHANGES The additions to and alterations of the federal law of tax-exempt organizations, occasioned by this legislation, are the following: • In an instance of a tax-exempt organization with two or more unrelated businesses, unrelated business taxable income must first be computed separately with respect to each business. The organization’s unrelated business taxable income for a year is the sum of the amounts (not less than zero) computed for each separate unrelated business, less the specific deduction. A net operating loss deduction is allowed only with respect to a business from which the loss arose (new IRC § 512(a)(6)). • An excise tax of 21 percent on tax-exempt organizations paying compensation in excess of $1 million is imposed, where the employee is one of the five highest compensated employees. Compensation for the performance of professional medical services is exempt from this tax base (new IRC § 4960). • An excise tax of 1.4 percent on the net investment income of private colleges and universities, and their related organizations, is imposed where the institution has at least 500 students and the fair market value of its investment assets is at least $500,000 per student (new IRC § 4968). • The corporate tax rate for unrelated business taxable income is set at 21 percent (IRC §§ 11(b); 511(a)(1), (2)(A)). • The deduction for local lobbying expenses is repealed; this law change alters the rules concerning the deductibility of dues paid to tax-exempt business leagues (revised IRC § 162(e)). • A tax-exempt organization’s unrelated business income is increased by the amount of certain fringe benefit expenses for which a deduction is disallowed (new IRC § 512(a)(7)). • The contribution limitation as to ABLE accounts is increased under certain circumstances; a designated beneficiary of an ABLE account is allowed to claim the saver’s credit from contributions made to the account (revised IRC § 529A(b)(2)(B), new IRC § 529A(b)(7), revised IRC § 25B(d)(1)). • An aggregate, up to $10,000, of 529 account distributions may be used for elementary and secondary school tuition (IRC § 529(c)(7)). • Rollovers between qualified tuition programs and qualified ABLE programs are allowed (revised IRC § 529(c)(3)(C)). • The exclusion from gross income for interest on a qualified 501(c)(3) bond issued to advance refund another bond is repealed (IRC § 149). 98

TABLE OF TAX REFORM LEGISLATION

• The exclusion of student loan discharges from gross income is modified, by including within the exclusion certain discharges on account of death or disability (IRC § 108).

INCOME TAX CHARITABLE DEDUCTION LAW CHANGES The additions to and alterations of the federal law concerning the income tax charitable deduction are the following: • The annual limit on cash contributions to the preferred category of charities (IRC § 170(b)(1)(A)) is increased to 60 percent (new IRC § 170(b)(1)(G)). • The existing deduction for college athletic event seating rights is repealed (revised IRC § 170(l)). • The alternative charitable gift substantiation rule, by which donees would report to the IRS, is repealed (IRC § 170(f)(8)(D)). • The charitable contribution deduction of an electing small business trust is now determined by the rules applicable to individuals, rather than those applicable to trusts (new IRC § 641(c)(2)(E)). • The partnership rules are modified to clarify that a partner’s distributive share of loss takes into account the partner’s distributive share of charitable contributions for purposes of the basis limitation on partner losses (revision of IRC § 704(d)).

DELETED PROPOSALS Twenty-two provisions in the House and/or Senate bills were deleted during the course of the legislative process. They are: • Sale or licensing by an exempt organization of the entity’s name or logo (including any related trademark or copyright) would be treated as an unrelated business regularly carried on (proposed IRC §§ 512(b)(20), 513(k)). Income derived from such licensing would be included in the organization’s gross unrelated business income, notwithstanding the exclusion for certain types of passive income (including other forms of royalties). • An exception from excess business holdings taxation for a private foundation’s holdings in an independently operated philanthropic business (proposed IRC § 4943(g)). • If an initial tax is imposed by a disqualified person pursuant to the intermediate sanctions rules, the exempt organization involved would be subject to 99

TABLE OF TAX REFORM LEGISLATION

an excise tax equal to 10 percent of the excess benefit, unless the organization’s participation in the transaction is not willful and is due to reasonable cause (proposed IRC § 4958(a)(3)). This tax would not be imposed if the organization establishes that minimum standards of due diligence (see next item) were met or establishes that other reasonable procedures were used to ensure that an excess benefit was not provided. • The rebuttable presumption of reasonableness would be eliminated. Instead, procedures would be formulated that establish that an organization has performed minimum standards of due diligence (essentially the same as those that pertain in connection with the presumption) with respect to a transaction or other arrangement involving a disqualified person (proposed IRC § 4958(d)(3)). • The rule by which an organization manager’s participation in a transaction ordinarily is not knowing participation for purposes of the intermediate sanctions rules if the manager relied on professional advice would be eliminated (proposed IRC § 4958(g)). • The definition of disqualified person, for purposes of the intermediate sanctions rules, would be expanded to encompass investment advisors and athletic coaches at private educational institutions (proposed IRC § 4958(f)(1)(G), proposed revision of IRC § 4958(f)(8)(B)). • The intermediate sanctions rules would become applicable to labor organizations (IRC § 501(c)(5) entities) and business leagues (IRC § 501(c)(6) entities) (proposed revision of IRC § 4958(e)(1)). • Repeal of tax exemption for professional sports leagues (in IRC § 501(c)(6)). • Additional reporting requirements for sponsoring organizations, consisting of the average amount of grants made from donor-advised funds expressed as a percentage of asset value and a statement as to whether the organization has a policy as to the frequency and minimum level of distributions (proposed IRC § 6033(k)(4)). • A rule allowing charitable organizations to make statements relating to political campaigns in the ordinary course of religious services and activities, where the expenses are de minimis; this law change would take effect after 2018 and would sunset after 2023 (proposed IRC § 501(s)). • The private foundation excise tax on investment income would be reduced to a single rate of 1.4 percent (revised IRC § 4940(a), repeal of IRC § 4940(e)). • A rule stating that an entity cannot be a private operating foundation as an art museum unless the museum is open during normal business hours to the public for at least 1,000 hours annually (proposed IRC § 4942(j)(6)). 100

TABLE OF TAX REFORM LEGISLATION

• The exclusion from unrelated business income taxation for research would be limited to publicly available research (proposed revision of IRC § 512(b)(9)). • Clarification of unrelated business income tax treatment of state and local retirement plans (proposed IRC § 511(d)). • The mileage rate for automobile use for charitable purposes would be changed from a fixed percentage to a rate taking into account the variable costs of operating an automobile (proposed revised IRC § 170(i)). • Modification of the American Opportunity credit and repeal of the lifetime earning credit (IRC § 25). • A prohibition on new contributions to Coverdell accounts (IRC § 530). • Repeal of an exception from the exclusion from gross income for interest paid on qualified activity bonds, including 501(c)(3) bonds (IRC § 103). • Repeal of the above-the-line deduction for interest paid on qualified education loans (IRC § 221). • Repeal of the above-the-line deduction for qualified tuition and related expenses for higher education paid by individuals (IRC § 222). • Repeal of exclusion from gross income for the provision, by an employer to an employee, of certain educational assistance programs (IRC § 127). • An effort to repeal the exclusion for qualified tuition reductions for certain education provided to employees, and their spouses or dependents, of certain educational organization (IRC § 117(d)) failed. • A provision concerning qualified tuition programs (IRC § 529) to revise the law to make it clear that unborn children qualify as designated beneficiaries (proposed IRC § 529(e)(6)).

101

Cumulative Index

Abuses: alleged, § 2.5 costs of fundraising as, § 1.3 Advocacy, door-to-door, § 4.3(e) Administrative agencies: defined, § 3.1(k) delegation of legislative authority to, § 4.6 Affinity card programs: postal rates, § 5.18(d) unrelated business rules, § 5.7(b)(vi) American Association of Fund Raising Counsel, § 2.3(c), (e) American Institute of Certified Public Accountants, § 7.3(d) American Institute of Philanthropy standards: asset reserves, § 9.9(b) fundraising expenses, § 9.9(a) American Jobs Creation Act of 2004, §§ 5.14(c), 5.14(h), 5.14(k), 5.17 American political philosophy, as to charitable sector, § 1.1 Annual giving programs, § 2.2(a) Annual information returns: basics, reporting, § 6.1 Form 990-EZ, § 5.7 and gaming regulation, § 6.10 guiding principles, IRS, § 6.2 import of, § 6.3 instructions, § 6.9 parts of, preparation of, § 6.13 parts of, summary of, § 6.4 preparation of, § 6.5 Schedule B, § 6.11 Schedule G, preparation of, § 6.12 Schedule M, preparation of, § 6.14 schedules, summary of, § 6.6 transition rules, § 6.8 103

Antitrust laws, §§ 5.13, 5.19 Applicable property, § 5.14(e) Appraisal requirements, § 5.14(i) Appraisers: definition of, § 5.17 penalties on, § 5.17 Association for Healthcare Philanthropy, § 2.3(c), (d), (e) Association of Fundraising Professionals, §§ 1.2, 2.3(c), (d), (e) Attorneys general, powers of, § 3.19 Auctions, charity: acquirer of deduction, § 8.8(c) businesses, as, § 8.8(a) contribution deduction, § 8.8(b) Internet, on, § 5.22(c)(v) quid pro quo rules, § 8.8(e) reporting rules, § 8.8(g) sales tax rules, § 8.8(f) substantiation rules, § 8.8(d) Audit guidelines, IRS, see IRS audit guidelines BBB Wise Giving Alliance, § 9.5 Bingo games: IRS checklist, § 5.1 limits of free speech doctrine, § 4.3(e) Blue sky statutes, § 3.22 Boards of directors: BBB Wise Giving Alliance standards, § 9.5(b) Evangelical Council for Financial Accountability standards, § 9.6(a) Philanthropic Advisory Service standards, § 9.4(e)

CUMULATIVE INDEX

Bonds: charitable solicitation act, model, § 8.7(f) fundraising professionals, §§ 3.6, 8.2 solicitors, professional, §§ 3.6, 8.2 Boorstin, Daniel J., § 1.1 Business, concept of, § 5.7(a)(i), (iii), (b)(i) Brauer, Robert I., § 5.1 Bulk third-class mailing rate, see Postal rates, preferred Campaign committees, annual giving programs, § 2.2(a) Canvassing, door-to-door, § 4.3(e) Cause-related marketing, § 5.7(b)(ix) Charitable, defined, § 2.1 Charitable contribution deduction rules: appraisal requirements, § 5.14(i) deduction reduction rules, § 5.14(e) fractional interests, § 5.14(h) gift, meaning of, § 5.14(a) gift properties, § 5.14(c) intellectual property, § 5.14(m) motor vehicles, § 5.14(n) noncharitable donees, § 5.14(o) partial interest gifts, § 5.14(g) percentage limitations, § 5.14(d) qualified donees, § 5.14(b) record-keeping and reporting, § 5.14(j), (k), (l) twice-basis deductions, § 5.14(f) Charitable deduction property, § 5.14(l) Charitable fundraising: and law, in general, § 8.1 portrait of, § 1.2 Charitable organization: defined, § 2.1 scope of term, § 2.1 Charitable sales promotions. See also Commercial coventurers defined, §§ 3.2(i), 8.4(c) 104

regulation of, § 8.4(b), (d) terminology, § 8.4(a) Charitable sector, § 1.1 Charitable solicitation act, model: bonds, § 8.7(f) compensation, § 8.7(g) contracts, § 8.7(f) definitions, § 8.7(e) elements, § 8.7(b) exemptions, § 8.7(h) preapproval, § 8.7(c) prohibited acts, § 8.7(j) reason for, § 8.7(a) registration, § 8.7(c) reporting, § 8.7(d) sanctions, § 8.7(k) Charitable solicitation act, prospective federal: advantages of, § 7.1 AICPA audit guides, § 7.3(d) Commission on Private Philanthropy and Public Needs, § 7.1 cost of fundraising, disclosure of, § 7.3(c) direct mail fundraising, § 7.2(c) emerging issues, § 7.3 enforcement, federal agency charged with, § 7.3(e) exemptions, § 7.3(f) Federal Trade Commission, § 7.2(c) Filer Commission Report, §§ 7.3(e), 7.3(i) fundraising professionals, § 7.2(c) interstate solicitations, §§ 7.3(i), 7.3(j) jurisdiction, federal agency, § 7.3(e) legislative proposals, § 7.2 mode of disclosure, § 7.3(b) preemption of state law, § 7.3(g) public charities, applicability, §§ 7.2(b), 7.3(f) religious organizations, exemptions, § 7.3(f)

CUMULATIVE INDEX

fundraising costs, limitations on, § 3.9 fundraising counsel, defined, § 3.1(g) fundraising expenses, defined, § 3.1(k) health care providers, exemptions for, § 3.5(f), (g) hospitals, exemptions for, §§ 3.5(f), 7.3(f), 8.7(h) interstate commerce, § 4.2 investigative authority, § 4.2 libraries, exemptions for, § 3.5(d) license requirements, § 3.2 membership, defined, § 3.2(f) membership organizations, exemptions for, §§ 3.5(h), 7.3(f), 8.7(h) miscellaneous provisions, § 3.20 model act, § 8.7 museums, exemptions, § 3.5(e) named organizations, exemptions, § 3.5(m) notice requirements, § 3.17 officials’ concerns, § 8.8 organizations affected, § 2.1 permit requirements, § 3.3 police power, § 4.2 political organizations, exemptions for, § 3.5(k) preapproval requirements, § 3.3 preemption by prospective federal act, § 7.3(g) professional fundraisers: defined, §§ 3.2(g), 8.2 regulation of, § 3.6 professional fundraising firm, defined, § 3.2(g) professional solicitor: defined, §§ 3.2(h), 8.2 regulation of, § 3.7 prohibited acts, §§ 3.13, 8.5 rationale for, § 8.1 reciprocal agreements, § 3.16

sanctions, § 7.3(h) state law, preemption of, § 7.3(g) uniform accounting principles, § 7.3(d) Charitable solicitation acts, state: administrative agency involved, § 3.2(j) administrative enforcement, delegation of legislative authority, § 4.6 annual reports, § 3.4 attorneys general, powers of, § 3.19 charitable, defined, § 3.2(a) charitable organization, defined, § 3.2(b) churches, exemptions for, § 3.5(a) commercial coventurers: defined, § 3.2(j) regulation of, § 3.8 compliance, difficulty of, § 8.1 contracts, § 3.11 contribution, defined, § 3.2(e) costs of fundraising, limitations on, § 3.9 deceptive acts or practices, § 3.22 definitions, § 3.2 delegation of legislative authority, administrative enforcement subject to, § 4.6 disclosure statements and legends, § 3.15 due date of annual reports, § 3.4 due process rights, § 4.4 duration of registration or other authorization, § 3.3 educational institutions, exemptions for, § 3.5(c) effectiveness of, § 8.1 equal protection rights, § 4.5 exemptions, § 3.5 fiduciary relationships, § 3.18 financial statement filing requirements, §3.3 105

CUMULATIVE INDEX

Commercial coventures: charitable sales promotions, §§ 3.8, 8.4 defined, §§ 3.2(j), 8.4 unrelated income taxation, § 5.7(b)(vii) Commercial speech, § 5.19 Commission on Private Philanthropy and Public Needs, §§ 1.1, 7.3(i). See also Filer Commission Compensation arrangements for fundraising professionals, § 5.13. See also Contracts with professional fundraisers charitable solicitation act, model, § 8.7 commensurate test, IRS application of, §§5.1(c), 5.15 commissions, § 5.13 contract, §§3.11, 8.7(f) Evangelical Council for Financial Accountability, standards, § 9.6 intermediate sanctions, §§ 5.6, 5.13 limitations and antitrust laws, § 5.13 revenue-sharing arrangements, §§ 5.6, 5.13 unreasonable: private benefit doctrine, § 5.13 private inurement doctrine, § 5.13 Compliance: difficulty of, § 8.1 IRS annual information returns, § 5.9 Constitutional issues: commerce clause, § 4.2 compensation limitations, § 5.13 delegation of legislative authority, § 4.6 due process rights, § 4.4 equal protection rights, § 4.5 establishment of religion, § 4.7

Charitable solicitation acts, state (Continued) record-keeping requirements, § 3.10 registered agent requirements, § 3.12 registration, § 3.3 regulatory prohibitions, § 3.14 religious organizations, exemptions for, §§ 3.5(b), 7.3(f), 8.7(h) sale, defined, § 3.2(d) sanctions, § 3.21 scope, § 8.1(f) small solicitations, exemptions for, § 3.5(i) solicitation, defined, § 3.2(c) solicitation notice requirements, § 3.17 specified individuals, solicitations for, exemptions for, § 3.5(j) statement requirements, § 3.3 summary of, § 3.1 veterans’ organizations, exemptions for, § 3.5(l) volunteer, defined, § 3.1(k) Charitable spending initiative, IRS, § 5.15(d) Charleston Principles, §§ 4.13(b), 4.13(c), 8.13 Child Protection and Obscenity Enforcement Act, § 4.3(c) Children’s Aid International, § 1.3 Churches, exemptions, §§ 3.5(a), 7.3(f), 8.7(h). See also Religious organizations Colleges and universities, as public charities, § 5.11(a) Commemorative giving, annual giving programs, § 2.2(a) Commensurate test: application in fundraising context, §§ 5.15, 5.26 in general, § 5.1(c) Commerce clause violations, § 4.2 106

CUMULATIVE INDEX

disclosure: dilemma, § 4.1(a) disclosure-on-demand, § 4.1(a) point-of-solicitation disclosure, § 4.1(a) regulated disclosure approach, § 4.1(g) factors used to measure, § 4.1(h) fallacy of high costs as fraud, § 4.1(b) floating average approach, § 4.1(d) fraudulence of high costs, fallacy of, § 4.1(b) limitations under state charitable solicitation acts, § 3.9 line item approach, § 4.1(c) lobbying expenditures, determining, § 5.10 most effective means, determining, § 4.1(h) percentage, expressed as, § 4.1(b) Philanthropic Advisory Service, standards, § 9.4 pluralization approach, § 4.1(e) reasonable, see Costs of fundraising, reasonable reasonableness, factors considered in determining, § 4.1(h) reasons for high costs, § 4.1(b) regulated disclosure approach, § 4.1(g) state regulation, §§ 3.9, 4.1 Costs of fundraising, reasonable: capital campaigns, § 2.2(d)(vi) corporations and foundations, § 2.2(d)(iv) determining, factors considered in, § 4.1 direct mail, § 2.2(d)(i) planned giving, § 2.2(d)(v) special events and benefits, § 2.2(d)(iii) unreasonable expenses, prohibited acts, § 3.13

exemptions for religious organizations, § 4.7 free speech, § 4.3(g) ordinances, § 3.22 percentage compensation disclosure, § 4.3 percentage limitations, § 4.3 police power, § 4.2 Postal Service property, solicitations on, § 4.3 rebuttable percentage limitations, § 4.1 religious organizations, treatment of, § 4.7 Contemporary regulatory climate, § 1.4 Contracts with professional fundraisers: basic elements, § 8.6(a) charitable solicitation acts, model, § 8.7(f) content requirement, state law, § 3.11 fee arrangements, § 8.6(c) solicitor status, § 8.2(c) specific elements, § 8.6(b) state laws, §§ 3.11, 8.3(e) Contributions: deductions, see Tax deductions for charitable contributions defined, § 5.14(a) how made, § 4.13 statistics, § 1.2 Cornuelle, Richard C., § 1.1 Corporate services, § 5.7(b)(ix) Corporate sponsorships: in general, § 5.16(b) Internet-based, § 5.22(c)(iii) Costs of fundraising: alleged abuses, § 1.3 average gift size factor, § 4.1(f) bottom-line ratio, § 4.1(e) constitutionality of percentage limitations, § 3.9 determining costs, § 4.1(b)-(f), (h) 107

CUMULATIVE INDEX

percentage compensation disclosure, constitutionality, § 4.3 point of solicitation, § 4.1 prospective federal legislation, § 7.3(b) quid pro quo contributions, § 5.4 solicitors, professional, § 3.17 statements and legends, state charitable solicitation acts, § 3.15 tax deductions for charitable contributions, § 5.14 Disqualified persons, fundraising context, § 5.6(b)(ii) Disregarded benefits, §§ 5.2, 5.3, 5.4 Document disclosure requirements, § 5.9(i) Doing business in a state, concept of, §§ 3.20, 5.9(f), 8.11 Donative intent, § 5.4 Donor clubs and associations, annual giving programs, § 2.2(a) Donor recognition programs, acknowledgment, § 5.16(b) Do-not-call registry, national, § 5.21 Door-to-door advocacy, § 4.3(e) Door-to-door and on-street solicitation, annual giving programs, § 2.2(a) Due process rights, § 4.4

Council for the Advancement and Support of Education, § 2.3(c), (e) Council of Better Business Bureaus, § 2.4(b) Credit cards, affinity card programs, § 5.7(b)(vi) Curti, Merle, § 1.1 Deceptive practices laws, § 3.23 Deceptive solicitations, § 7.4 Deductions, see Tax deductions for charitable contributions Delegation of legislative authority, § 4.6 de Tocqueville, Alexis, § 1.1 Direct mail fundraising: annual giving programs, § 2.2(a) costs of fundraising, reasonable, § 2.2(d) guidelines, § 4.11 risk sharing, § 5.18(d) unsolicited merchandise, § 2.2(a) Direct Mail Marketing Association, § 2.3(c) Disclosure requirements: annual information returns, § 5.9(i) commentary on, § 8.12A contracts with professional fundraisers, percentage compensation disclosure, § 3.11 costs of fundraising, state regulation: disclosure dilemma, § 4.1(a) disclosure-on-demand, § 4.1(a) point-of-solicitation disclosure, § 4.1(c) regulated disclosure approach, § 4.1(g) fundraising costs, § 4.1(a) gift substantiation, §§ 5.3, 8.12 in general, §§ 5.1, 5.2, 5.9(i) noncharitable organizations, § 5.5

Educational institutions: discriminatory policies, IRS denial of exempt status, § 5.12 IRS examination guidelines, § 5.24 preferred postal rates, § 5.18(b)(ii) public charity classification, § 5.11 record-retention requirements, § 5.12 Ekstrom, Helmer, § 8.1 Enforcement by administrative agencies, delegation of legislative authority, § 4.6 108

CUMULATIVE INDEX

Exemption application process, § 5.8 Expectation, defined, § 8.12(d)

Equal protection rights, § 4.5 Establishment of religion, § 4.7(b) Estate planning programs: bequests, § 2.2(c) charitable remainder gifts, § 2.2(c) life insurance/wealth replacement trusts, § 2.2(c) pooled income funds, § 2.2(c) wills and bequests, § 2.2(c) Estate tax, § 5.14(l) Evaluation process, § 9.12(b) Evangelical Council for Financial Accountability, standards: audited financial statements, § 9.6(b) board of directors, § 9.6(a) conflicts of interest, § 9.6(c) fundraising, § 9.6(d) Events, fundraising, §§ 5.7(b)(i), 5.9(e) Excess benefit transactions, fundraising context, § 5.6(b)(iii) Exclusivity test, § 5.7(a)(i) Exemptions: application contents, § 5.8(c) application exceptions, § 5.8(d) application procedure, § 5.8(b) charitable solicitation acts, federal prospective, § 7.3(f) charitable solicitation acts, model, § 8.13(a) charitable solicitation acts, state, § 3.5 federal legislative proposals, § 7.2 public policy rationale for tax exemptions, § 1.1 recognition of, § 5.8(a) religious organizations, § 3.5(a), (b) tax exemption application process, see Tax exemption application process Exempt purpose expenditure percentage, § 5.10

Fair market value of gift, § 5.14(h) Federal Communications Commission, § 5.21 Federal legislation, proposed: Luken bill, § 7.2(c) Metzenbaum proposal, § 7.2(d) Mondale bill, § 7.2(b) Wilson bill, § 7.2(a) Federal Program Improvement Act of 1993, prospective, § 7.4 Federal regulation of fundraising, prospective: agency jurisdiction, § 7.3(e) contemporary developments, § 7.4 emerging issues, § 7.3 exemptions, § 7.3(f) federal involvement in general, § 7.1 Filer Commission recommendations, § 7.3(i) Ford Administration proposals, § 7.3(j) IRS Implementing Guidelines, § 7.4 legislative proposals, § 7.2 sanctions, § 7.3(h) state law preemption, § 7.3(g) uniform accounting principles, § 7.3(d) Federal Trade Commission: charitable solicitation act, federal prospective, role in, § 7.2(c) telemarketing rules, § 5.21 Federal Trade Commission Act, § 2.6 Fees, registration: in general, § 4.12 sliding-scale, §§ 4.12, 8.9 Filer Commission report, §§ 1.1, 7.3(i) Filing requirements and tax-exempt status, § 5.9(k) 109

CUMULATIVE INDEX

First Amendment, see Free speech doctrine Ford Administration proposals, § 7.3(j) Form 990, see IRS annual information returns (Form 990) Form 1023, § 5.8(c) Fractional interests, gifts of, § 5.14(h) Fragmentation rule, unrelated income taxation, § 5.7(a)(iii) Fraternal organizations, preferred postal rates, § 5.18(b)(iv) Fraud, high-cost solicitation as, §§ 4.3(g), 8.11 Freedom Forum International, Inc., § 1.3 Free speech doctrine: airport terminal solicitations, § 4.3(d) door-to-door advocacy, § 4.3(e) fundamental principles, § 4.3(b) gambling, § 4.3(e) outer boundaries of doctrine, § 4.3(e) prior restraints on speech, § 4.3(e) state of law prior to 1980, § 4.3(a) state of law subsequent to 1980s Supreme Court cases, § 4.3(c) Supreme Court dissenting opinions, § 4.3(b)(iv) Supreme Court opinions, §§ 4.3(b)(i)-(iii), 4.3(g)(vii), 8.14 Functional method of accounting, §§ 2.4(a), 4.13, 5.7(b)(iv), 5.9(d), 7.3(d) Fundraising: definitions, § 4.13 distinction from program, § 4.13 as free speech, §§ 4.3, 8.1 types of, § 4.13 Fundraising costs: disclosure of, in general, § 4.1 disclosure of, prospective federal legislation, § 7.3(c)

high, §§4.3(g), 8.14 percentages, §§ 4.3(g), 8.1(b), 8.11, 9.12(b) reasonableness of, §§ 2.2(d), 4.3(g), 8.11 regulation of, § 4.1 Fundraising disclosure: by charitable organizations, § 5.2 by noncharitable organizations, § 5.5 percentage of contributions to charity, §§ 4.3(g), 8.11 Fundraising methods, § 2.2 Fundraising professionals: accreditation and certification, § 2.3(d) alteration of state charitable solicitation acts, § 8.14 associations, § 2.3(c) bond requirements, §§ 3.6, 3.7, 8.1(d) charitable solicitation act, federal prospective, § 7.1 compensation arrangements, see Compensation arrangements for fundraising professionals contracts, see Contracts with professional fundraisers definitions in state charitable solicitation acts, §§ 3.6, 3.7, 8.1(c), 8.2(a) fund development officer, § 2.3(a) fundraising consultant, § 2.3(a) IRS, engagement of, § 8.13 lobbying, §8.13 networking, § 8.13 political action efforts, § 8.13 professional solicitor, § 2.3(a) registration under state charitable solicitation acts, § 3.6 role of, § 2.3 solicitors, differences, §§ 4.10, 8.2 110

CUMULATIVE INDEX

Internal Revenue Code, inventory of, Appendix K International Society for Krishna Consciousness, § 4.3(c) Internet: auctions, § 5.22(c)(v) Charleston Principles, § 4.13(b), 4.13(c), 8.10 corporate sponsorships, § 5.22(c)(iii) coventure programs, § 5.22(c)(vi) fundraising by means of, §§ 4.13, 4.13(a), 4.13(c), 8.10 in general, § 5.22 jurisdiction questions, § 4.13(c) links, § 5.22(c)(ii) online storefronts, § 5.22(c)(vii) unrelated business conducted on, § 5.22(c)(i) virtual trade shows, § 5.22(c)(viii) Interstate commerce, § 4.2 Interstate solicitations, § 8.1(a) IRS annual information returns: auctions, § 8.8 delinquent, § 7.4(a)(i) disclosure of, § 5.9(i) filing categories, § 5.9(a) functional accounting, § 5.9(d) income-producing activities, § 5.9(e) public inspection requirement, § 5.9(h) related organizations, relationships with, § 5.9(g) special fundraising events and activities, §§ 5.9(e), 5.16(a) tax-exempt status recognition and, § 5.9(k) IRS audit guidelines, § 5.1 IRS commensurate test, see Commensurate test IRS examination guidelines, § 5.24 IRS information returns (Form 8282), § 5.14(k)

standards of conduct and professional practice, § 2.3(e) Treasury Department, engagement of, § 8.14 viewpoint on regulation, § 2.7 Gallagher, Raymond, § 7.3(i) Gaming, regulation of, § 6.10 Gannett Foundation, § 1.3 Gibbs, Lawrence B., § 5.1(a) Gifts: deductions, see Tax deductions for charitable contributions definition of, §§ 5.1(a), 5.14(a) in kind, annual giving programs, § 2.2(a) partial interest, § 5.14(g) Gift tax, § 5.14(l) Goods and services, definitions, § 8.12(d) Government regulation of fundraising, evolution of, § 1.3 Harassment campaigns, § 5.9(i) Health Insurance Portability and Accountability Act regulations, § 5.23 Increasing federal regulation, § 1.4 Independent Sector, § 3.23 Insider, fundraising company as, § 5.6(b)(ii) Inspection requirements, § 5.9(h) Insurance laws, § 3.22 Intangible religious benefits, §§ 5.3, 5.4 Intellectual property, gifts of, § 5.14(m) Intermediate sanctions: basic concepts, § 5.6(a) in fundraising context, § 5.6(b) penalties, § 5.6(a)

Joint ventures, § 5.13 111

CUMULATIVE INDEX

Labor organizations, preferred postal rates, § 5.18(b)(iv) Las Vegas and Monte Carlo nights, annual giving programs, § 2.2(a) Lawyer, role of, § 2.4 Legislative authority, delegation of, § 4.6 Lerner, Max, § 1.1 Libraries, exemptions, § 3.5(d) Lobbying restrictions, § 5.10 Look ahead, § 8.14 Lotteries, § 2.2(a) Low-cost articles, § 5.2, App. F Luken bill, § 7.2(c) Lyman, Richard W., § 1.1

Mondale bill, § 7.2(b) Museums, exemptions, § 3.5(e) National Association of Attorneys General, § 3.22 National Association of State Charities Officials, §§ 1.4, 2.6(b), 3.22, 4.13(b) National Charities Information Bureau, § 9.5 National Council on Planned Giving, § 2.3(c) National do-not-call registry, § 5.21 Neilsen, Waldemar A., § 1.1 New Era for Philanthropy Foundation, § 7.1 Noncharitable organizations, gifts to, § 5.14(o) Nongovernmental regulation, in general, § 9.1 Nonprofit corporation acts, § 3.23 Notice of solicitation requirement, § 3.7 Notice requirement, small organizations, § 5.9(a)

Mail, direct, see Direct mail fundraising Mailing list rentals, § 5.7(b)(6) Mailing rates, see Postal rates, preferred Marine Toys for Tots Foundation, § 1.3 Market segments, § 7.4(a)(i), (b)(ii) Membership, defined, § 3.2(f) Membership organizations, § 4.9 Metzenbaum proposal, § 7.2(d) Mill, John Stuart, § 1.1 Misrepresentation, affirmative, § 4.3(g) Model law: bonds, § 8.7(f) commentary on, § 8.7(l) compensation, § 8.7(g) contracts, § 8.7(f) definitions, § 8.7(e) elements of, § 8.7(b) exemptions, § 8.7(h) in general, § 8.7 preapproval, § 8.7(c) prohibited acts, § 8.7(j) reciprocal agreements, § 8.13(b) reporting, § 8.7(d) sanctions, § 8.7(k)

O’Connell, Brian, § 1.1 Ordinances, city and county, § 3.23 O’Rourke, Helen, § 9.2 Pallotine Fathers, §§ 1.3, 4.7(b) Pamphleteering, § 4.3(e) Panel on the Nonprofit Sector, § 9.8 Passive income, unrelated income taxation: modifications, exclusions provided by, § 5.7(a)(vii) royalties, § 5.7(b)(vi) Penalties, §§ 5.1(c), 5.5, 5.9(j) Pension Protection Act of 2006, §§ 5.11(c), 5.17(a) Percentages, fundraising costs and, § 4.1 (b) 112

CUMULATIVE INDEX

Philanthropic Advisory Service (PAS) standards: CBBB Standards for Charitable Solicitations, § 2.4(b) fundraising practices, § 9.5(d) governance, § 9.5(e) informational materials, § 9.5(c) public accountability, § 9.5(a) solicitations, § 9.5(c) use of funds, § 9.5(b) Philanthropic organizations, preferred postal rates, § 5.18(b)(iii) Pickle, J.J., § 7.5 Police power, §§ 4.2, 8.1(a) Political campaign financing, § 5.25 Political campaigning, § 4.3(e) Political organizations, postal rates, preferred, § 5.18(b)(iv) Postal laws, § 5.18 Postal rates, preferred: application for authorization, § 5.18(c) cooperative mailings, § 5.18(d) educational institutions, § 5.18(b)(ii) eligible and ineligible matter, § 5.18(d) ineligible organizations, § 5.18(b)(iv) miscellaneous organizations, § 5.18(b)(iv) philanthropic organizations, § 5.18(b)(iii) postage statement, § 5.18(e) qualifying organizations, § 5.18(b) rate determination, § 5.18(a) religious organizations, § 5.18(b)(i) revocation of authorization, § 5.18(c) substantially related test, § 5.18(d) Preapproval: charitable solicitation act, model, § 8.7(c) charitable solicitation act, state, § 3.3 Preemption of state law, § 6.3(g) 113

Preparatory time, § 5.7(b)(ii) Press, freedom of, § 4.3(e) Principal-agent relationship, § 5.7(b)(v) Private benefit doctrine: commensurate test, and, § 5.15(b)(iii) in general, §§ 5.7(b)(iii), 5.13, 5.15(b)(iii), 5.2A, 5.26(c) Private foundation rules, extension of, § 1.4 Private inurement doctrine: in general, §§ 5.6(a)(ii), 5.13, 5.26(c) intermediate sanctions and, § 5.6(a)(x) insider status and, § 5.13 private benefit doctrine compared, § 8.12 used vehicles, gifts of, § 5.14(n) Professional fundraiser, defined, §§ 4.10, 8.1(c), 8.2(a) Professional solicitor: defined, §§ 4.10, 8.1(c), 8.2(a) fundraising by, § 8.9 telemarketer as, § 8.3 Prohibited acts: basic prohibitions, § 8.5(a) duplicative rules, § 8.5(e) extraordinary prohibitions, § 8.5(a) in general, §§ 8.1(e), 8.5 solicitors’ activities, § 8.5(c) unusual provisions, § 8.5(d) Property, gifts of, deductibility, see Tax deductions for charitable contributions Public charity classification, § 5.11 Public policy rationale for tax exemptions, historically, § 1.1 Qualified conservation contributions, § 5.14(d) Qualified sponsorship payments, § 5.16(b)(2) Quid pro quo contribution rules, §§ 5.4, 8.8(e)

CUMULATIVE INDEX

Reasonable costs of fundraising, see Costs of fundraising, reasonable Rebuttable percentage limitations, § 4.3 Recapture requirement, gifts of tangible personal property, § 5.14(e) Reciprocal agreements, §§ 3.16, 8.13(b) Registration fees: in general, § 4.12 sliding-scale, §§ 4.12, 8.9 Registration requirements, § 3.3 Internet solicitation and, § 8.10 Internet use to meet, § 4.13(c) standardized, § 3.22 Unified Registration Statement, § 3.22 Regularly carried on, concept of, § 5.7(a)(iv), (b)(ii) Regulated disclosure, §§ 3.15, 3.17 Regulated professional, viewpoint of, § 2.7 Regulation: contemporary regulatory climate, § 1.4 system for coping with, § 2.8 views as to, § 8.1(g) Regulators, viewpoint of, § 2.6 Regulatory climate, contemporary, § 1.4 Relief, proposals for, § 8.13 Religion, free exercise of, § 4.3(e) Religious organizations: exemptions, § 4.7(b) First Amendment, § 4.7(a) Free Exercise Clause of Constitution, § 4.7(a) postal rates, preferred, § 5.18(b)(i) Religious proselytizing, § 4.3(e) Reporting requirements: disclosure requirements, § 5.9(i) filing categories, § 5.9(a)

functional accounting, § 5.9(d) income-producing activities, § 5.9(b) inspection requirements, § 5.9(h) Internet solicitation and, § 8.10 Internet use to meet, § 4.13(c) penalties, § 5.9(j) recognition rules and, § 5.9(k) related organizations, § 5.9(g) standardized, § 3.22 Rockefeller, John D., § 1.1 Rostenkowski, Dan, § 6.4 Royalties, as passive income, unrelated business income, § 5.7(b)(vi) Sale, defined, § 3.2(d) Sales tax rules, auctions, § 8.8(f) Sanctions, intermediate, § 5.6 Schools, record-retention requirements, § 5.12 Scientific organizations, preferred postal rates, § 5.18(b)(iv) Securities laws, § 5.22 Shultz, George P., § 1.1 Simon, William E., § 7.3(j) Sliding-scale registration fees, § 8.9 Small solicitations, exemptions, § 3.5(i) Solicit, defined, §§ 3.2(c), 8.2(b), 8.11 Solicitation: defined, §§ 3.2(c), 8.2(b), 8.11 means and methods, § 4.13 Solicitors, professional: bond requirements, § 3.7 fundraisers, differences, § 8.2 in general, §§ 8.2(b), 8.3 registration, § 3.7 solicit, defined, § 3.2(c) solicitation notice requirements under state charitable solicitation acts, § 3.17 telemarketing, role of, § 8.3

114

CUMULATIVE INDEX

Special fundraising events and activities: in general, §§ 5.9(e), 5.16(a) IRS annual information returns, § 5.9 Special-purpose programs: capital campaigns, § 2.2(b) grants from government agencies, foundations and corporations, § 2.2(b) major gifts from individuals, § 2.2(b) Speech. See Free speech doctrine Standards for Excellence Institute Standards, § 9.7 State action doctrine, § 9.3 State charity officials’ concerns, § 8.8 State laws: blue sky statutes, § 3.23 charitable solicitation acts, § 3.1 insurance laws, § 3.23 law changes, prospect of, § 3.24 nonprofit corporation acts, § 3.23 preemption of, § 4.13(c) Unified Registration Statement, § 3.22 State fundraising law, commentary on, § 8.1 State regulators, viewpoint of, § 2.6 Statistics, contribution, § 1.2 Substantially related, concept of, § 5.7(a)(v) Substantiation requirements: auctions, § 8.10(d) charitable contribution rules, § 5.3 deductibility of payments and, § 8.12 Support group organizations, annual giving programs, § 2.2(a) Supporting organizations, § 5.11(c) Sweepstakes promotions, § 2.2(a) System for coping with regulation, § 2.8

Tax Cuts and Jobs Act, §§ 5.3(e), 5.7(a), 5.14(a), 5.14(d) Tax deductions for charitable contributions: appraisal requirements, § 5.14(i) auctions, § 8.8(b), (c) gift, definition of, § 5.14(a) in general, § 5.14 partial interest gifts, § 5.14(g) percentage limitations, § 5.14(d) qualified donees, § 5.14(b) quid pro quo contribution rules, § 5.4 property, gifts of, § 5.14(c) receipt, record-keeping and reporting requirements, § 5.14(j), (k) Tax Exempt and Government Entities Division, § 7.4 Tax exemption application process: classification as public charity or private foundation, § 5.11 disclosure of application, § 5.8 15-month rule, § 5.8(c)(iii) importance of proper preparation, § 5.8(c)(iv) procedure, § 5.8(c) recognition of exemption, concept of, § 5.8(a) 27-month rule, § 5.8(c)(iii) Tax-exempt status: application for, § 5.8(b) and fundraising organizations, § 5.26 recognition of, §§ 5.8(a), 5.9(k) Telemarketing, §§ 5.19, 8.3 Telemarketing and Consumer Fraud and Abuse Prevention Act, § 5.21 Telephone and television, annual giving programs, § 2(a) Telephone Consumer Protection Act, § 5.19

115

CUMULATIVE INDEX

Trade or business, § 5.7(a)(iii), (b)(i) Travel arrangements, preferred postal rates, § 5.18(d)

regularly carried on, concept of, § 5.7(a)(iv), (b)(ii) royalties, § 5.7(b)(vi) substantially related trade or business, § 5.7(a)(v) tax returns, § 5.9(l) trade or business, defined, § 5.7(a)(iii) Unsolicited merchandise, mailings of, § 2.2(a) User fees, § 8.9

Unified Registration Statement, § 3.22 Uniform annual report, § 8.13(c) Universities, see Colleges and universities Unrelated business rules: affinity card programs, § 5.7(b)(vi) auctions, exception for, § 8.8(a) basic concepts, § 5.7(a) bingo games, § 5.7(a)(vi) businesses, activities characterized as, § 5.7(b)(i) cause-related marketing, § 5.7(b)(viii) commercial coventures, § 5.7(b)(vii) corporate services, § 5.7(b)(ix) deduction rules, § 5.7(a)(ii) exceptions, § 5.7(a)(vi), (vii), (b)(vi) exclusions provided by modifications, § 5.7(a)(vii), (b)(vi) financial counseling by organizations, § 5.7(b)(iii) fragmentation rule, § 5.7(a)(iii) fundraising, rules applied to, § 5.7(b) low-cost articles exception, § 5.7(a)(vi) modifications, § 5.7(a)(vii) partnership rule, § 5.7(a)(viii) passive income, § 5.7(a)(vii) preparatory time for activity, IRS consideration of, § 5.7(b)(2) principal-agent relationships, § 5.7(b)(v) qualified public entertainment activity exception, § 5.7(a)(vi)

Vagueness, unconstitutional, § 4.8 Vehicles, gifts of, § 5.14(n) Veterans’ organizations, postal rates, preferred, § 5.18(b)(iv) Viewpoints on regulation: fundraising professionals, § 2.7 state regulators, § 2.6 Volunteer, defined, § 3.1(k) Watchdog monitoring agencies: American Institute of Philanthropy standards, § 9.9 BBB Wise Giving Alliance standards, § 9.5 commentary on standards, § 9.12 commentary, response to, § 9.13 court intervention, § 9.13 credibility, § 9.13 Evangelical Council for Financial Accountability standards, § 9.6 function of, § 9.2 Philanthropic Advisory Service standards, § 9.4 prejudice against charitable sector, § 9.12 problems with, § 9.12 rating the raters, § 9.15

116

CUMULATIVE INDEX

ratings power, public concern, § 9.12 reply to response, § 9.14 role of, § 9.2 standards applied by, in general, § 9.3

standards enforcement, § 9.10 Standards for Excellence Institute Standards, § 9.7 Wilson bill, § 7.2(a) World Wide Web, document disclosure via, § 5.9(i)

117

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