Nonprofit News

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Posted:  May 20, 2013

 

 

Political Scandal Focuses on IRS Decision-making

The Internal Revenue Service is acknowledging that it applied inappropriate political considerations by flagging for extra scrutiny the applications of conservative groups seeking tax-exempt status as section 501(c)(4) social welfare organizations. At a hearing Friday before the House Ways and Means Committee, the first of several scheduled hearings in the House and Senate, Members of Congress initially expressed bipartisan outrage but then appeared to split along partisan lines. Generally, Republican Representatives sought to determine when the Obama Administration learned of the investigation and whether politically-appointed officials were involved. Democratic Members tended to focus on the vagueness of the law that requires the IRS to apply subjective scrutiny to 501(c)(4) applications, due in part to the Supreme Court’s Citizens United decision which struck down many prohibitions on political activities of such groups. Left unclear after the hearing is whether the scandal and ensuing investigation will delay or undermine efforts in this Congress to enact comprehensive tax reform.

 

Equally unclear is the extent to which the headlines linking the terms “political scandal” and “nonprofits” will hurt the work of section 501(c)(3) charitable nonprofits, which cannot engage in political activities. The IRS scandal relates to IRS decision-making regarding section 501(c)(4) social welfare nonprofits, which may engage in some political activities without being required to disclose the names of donors, as is required of section 527 political organizations that are devoted primarily to influencing partisan elections.

 

To protect charitable nonprofits from becoming collateral damage in the fallout from the IRS scandal, the National Council of Nonprofits issued a statement pointing out that “federal law is crystal clear that ‘charitable nonprofits,’ which are tax exempt under section 501(c)(3) of the Tax Code, may not lawfully engage in partisan political electioneering activities.” The statement calls on policymakers and the news media to note with clearer distinction the laws governing the nonpartisan work of charitable nonprofits in communities across the country. 

 

Combined Federal Campaign Changes Threaten Donations

The U.S. Office of Personnel Management (OPM) releasedproposed regulatory changes to the Combined Federal Campaign (CFC), a giving program that allows federal employees to donate to eligible charitable nonprofits. Many nonprofit groups have expressed concern that several proposed changes would harm the effectiveness of the giving program. For instance, one OPM proposal would shift the burden of the cost of the campaign by imposing an up-front flat application fee for participating charitable nonprofits rather than continuing the past practice of charging 10 percent of donations actually collected. This approach could hurt smaller charities unable to pay the higher “entry” or “participation” fee. The proposed changes would also restrict giving options to electronic ones, and move administration of the program from local to regional or centralized offices, potentially creating a disconnect between local nonprofits and the federal employees making the donations. The proposed changes are open for public comment until June 7, 2013 and, if approved, would take effect in 2014.

 

 

Charitable Giving Incentives at Risk in the States

This year’s tax reform efforts in Minnesota and North Carolina have threatened to turn the two states with the best package of charitable giving incentives – where they have provided incentives for individuals to give to their local communities even if they don’t itemize their tax deductions – into some of the most restrictive states. Last month the Minnesota House approved a tax reformproposal that would have eliminated the state’s charitable deduction and replaced it with an eight-percent, nonrefundable tax credit available only to those who gave more than $400 ($800 for married joint filers) or two percent of their adjusted gross income. In response to intense advocacy on the part of the Minnesota Council of Nonprofits and many other organizations. The House passed the bill that preserves current charitable incentives and Senate approval is expected on May 20.

 

In North Carolina last week, leaders in the House unveiled a flat-tax reform plan that would eliminate the non-itemizer tax credit and cap all itemized deductions (including not only charitable giving, but also home mortgage interest and more) at $12,500/individuals and $25,000/couples. The new legislation is one of several comprehensive reform packages that changes nonprofit exemptions and incentives for charitable giving that the North Carolina Center for Nonprofits is tracking (see comparison of legislative proposals).

 

New York Considers New Nonprofit Governance and Compensation Regulations

The New York Attorney General and several state legislators released two bipartisan bills last week that seek to reform nonprofit governance and compensation practices. The Nonprofit Revitalization Act would require nonprofit boards to perform financial audits and better oversee insider transactions and contracts. The proposal also would impose an obligation that the nonprofit adopt conflict of interest policies and prohibit any employee from serving as a board chair. A separate measure, theExecutive Compensation Reform Act, would require nonprofit boards to review CEO and staff pay to determine the appropriate compensation level. The bill also would mandate that boards at nonprofits with more than $2 million in revenue must review and approve the compensation of the five highest paid employees each time compensation is changed or employment is renewed.

 

Government-Nonprofit Contracting Reform

Texas Steps Closer to Permanent Nonprofit Council

In recent years, Texas has been aggressively pursuingnonpartisan solutions to government-nonprofit contracting problems, setting up task forces with nonprofit representatives, and recommending cost- and time-saving contracting reforms that improve accountability and results. Having twice created temporary task forces, the Texas Legislature this year is considering establishment of a permanent body to ensure the ongoing involvement of charitable nonprofits in streamlining contract processes and procedures. Legislation would set up theTexas Nonprofit Council to advise the heads of several state agencies, with a goal of improving relationships with faith-based and community nonprofits. The measure passed the Texas Senate without controversy. Thanks to quick advocacy work by the Texas Association of Nonprofit Organizations and others, a last-minute snag in the House Human Services Committee was averted last week and the bill has been sent to the House floor, where it is scheduled for a vote on May 20, 2013. 

 

When Charity Replaces City Services

Nonprofits, volunteers, and donors in Detroit are stepping up toprovide public services that the City has abandoned. Members of a local church boarded up vacant houses that the City is supposed to demolish, while volunteer landscapers repaired dilapidated City parks. The Kresge Foundation paid for the City’s emergency vehicles ($1 million) and pledged contributions for needed economic and infrastructure improvements ($150 million). Yet, while the story is hope-inspiring in some ways, others point out that government’s reliance on charity to deliver core public services is a major problem: "The idea that we are now outfitting first responders through charitable contributions should be very concerning," a representative from the Center for Effective Government said. "There are certain functions that you want government to perform that should not be at the whim of individuals or charities." What do you think? We’d like to know.

 

More Stories on National Council of Nonprofits Website

• More Cities Ban For-Profit Collection Bins
• North Carolina County Increases Nonprofit Reporting Requirements

 

Nonprofit Engagement: Statewide, Nationwide

Charitable nonprofits across Washington State recently were given the opportunity to engage with key congressional staffers on the leading federal issues of the day (sequestration and tax reform), thanks to innovative outreach efforts conducted byWashington Nonprofits, the state association of nonprofits in the Evergreen State. Participants learned the latest about the arbitrary federal spending cuts known as “sequestration” from a senior budget and policy advisor for Senate Budget Committee Chairman Patty Murray (D-WA). Three-quarters of the nonprofits on the program reported experiencing or knowing another nonprofit that has experienced cuts under sequestration.

 

During the second half of the call, the legislative director and tax counsel to Representative Dave Reichert (R-WA) discussed federal tax reform, including the examination by the House Ways and Means Committee’s charitable working group of the charitable deduction, non-cash contributions, and other issues affecting nonprofits. Webinar participants were able to weigh in on various tax reform proposals and discuss the effects on the charitable work of their nonprofits. For instance, more than 90 percent of the nonprofits on the policy forum call identified the charitable giving incentive as a priority for them in federal tax reform.

 

Both presenters, one representing a Senate Democrat and the other resenting a House Republican, expressed a shared request: to help them to do their jobs, they need input from charitable nonprofits – your stories, your data, and your passion for what communities need.

 

Worth Reading

 

“Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review,” Treasury Inspector General for Tax Administration, May 14, 2013, finding that IRS staff singled out organizations with conservative-oriented names for more detailed review of applications  for 501(c)(4) social welfare tax-exempt status.

 

“Minnesota tax proposal could cut charitable giving,” by Jon Pratt and Sarah Caruso,Minneapolis Star-Tribune, May 13, 2013, making the case for charitable tax deductions and against conversion to tax credits, proposals adopted by the Minnesota House but, following publication of this op-ed, were eliminated from the tax reform legislation.

 

State and Local Governments’ Fiscal Outlook: April 2013, Government Accountability Office, April 29, 2013, providing a gloomy outlook for the widening gap between revenues and expenses and predicting that governments must cut expenditures by 14.2 percent to avoid deficits.

 

New Nonprofit Resource

The National Council of Nonprofits has created the new Nonprofit Audit Guide to provide charitable nonprofits with the tools they need to make informed decisions about independent financial audits. Because state laws vary in the scope of their regulation of charitable nonprofits, this Guide includes a 50-state chart that shows whether a state's laws require an audit, and if so, under what conditions. The Guide explains what independent audits are and helps nonprofits prepare for the audit. Additionally, the Guide includes information about special audit requirements that apply to nonprofits that receive funding from the federal government.

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The GSK IMPACT Awards honor innovative, collaborative, and evidence-based programs that are helping people – especially underserved populations – live healthier lives, and contributing to the health of the Triangle Region. The deadline to apply is May 31.

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Wilmington, N.C.-based Indo Jax Surf Charities provides camp experiences to help at-risk youth around the world build self-esteem and overcome challenges. A series of programs for differently abled youth is being offered this summer in Wrightsville Beach.

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NGOsource recently launched a new service that makes it easier for donors and grantmakers to provide international aid. While such philanthropy used to be fraught with risk, there now is increased assurance that funds directed thousands of miles away will be managed by a foreign non-government organization (NGO) that meets the rigorous standards imposed on tax-exempt organizations in the U.S.

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Start: 06/13/2013 11:00 am End: 06/13/2013 12:00 pm Start: 06/13/2013 11:00 am End: 06/13/2013 12:00 pm Organization:  NTEN Cost:  $50 Members / $75 Non-members Teaser: 

Building community should incorporate on and offline engagement. You need a strategy that isn't focused on Facebook or other tools, but is focused on your community and the topics they are interested in.

Event Details: 

This is part three of our three part webinar series Social Change Anytime Everywhere: Multichannel Strategies to Reach Your Mission.  Check out parts one and two:

• Multichannel Strategies for Advocacy (5/30/13)
• Multichannel Strategies for Fundraising (6/6/13)

Building community should incorporate on and offline engagement. You need a strategy that isn't focused on Facebook or other tools, but is focused on your community and the topics they are interested in. In this webinar, the co-authors of Social Change Anytime Everywhere will help you:

• Learn the basic steps to building a multichannel community building campaign
• Get practical tips you can start using today
• Learn how other organizations have succeeded  

> Register Now!

About the Presenters

Amy Sample Ward is a blogger, facilitator and trainer focused on leveraging social technologies for social change.  She is also the Membership Director at NTEN.  In 2009, Amy co-authored Social by Social: a handbook in using new technologies for social impact, that you can read for free at SocialBySocial.com.  She has worked in and with advocacy organizations, private foundations, and community groups in the US, UK and around the world.

Allyson Kapin has been named one of "Top Tech Titans" by the Washingtonian, one of the Most Influential Women In Tech by Fast Company and one of the top 30 women entrepreneurs to follow on Twitter by Forbes for her leadership role in technology and social media. As Founding Partner of Rad Campaign she leads the firm’s client and online strategic services. Her campaigns have been recognized with several prestigious web awards and featured on several top media networks ranging from CNN to NPR and the Daily Show with Jon Stewart. Allyson has spearheaded campaigns for organizations ranging from American Rights at Work to National Breast Cancer Coalition and Save Darfur Coalition. Allyson started the Radical Tech blog for Fast Company focusing on trends in technology and Web 2.0 and serves as the Blogger-In-Chief for one of the top-ranked nonprofit communications blog, Care2's Frogloop.

Registration Key:  https://www.ntenonline.org/EWEB/DynamicPage.aspx?WebCode=CSCEventsRegM&evt_key=50d521c6-1aae-49fe-aacb-66a04db0b2a6&egp_evt_key=50d521c6-1aae-49fe-aacb-66a04db0b2a6&ParentObject=CentralizedOrderEntry&ParentDataObject=Registrant&DoNotSave=yes&action=Add&evt_title=Multichannel%20Strategies%20for%Community%20Building&Site=nten

Community First Fund awarded grant; University of Cincinnati Foundation hires new president; Meyer Foundation elects board chair; InterConnection launches computer store for nonprofits; Clinics Can Help of Palm Beach County receives award; GOOD and TOMS partner for the Start Something That Matters Challenge, and more.

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New research by Stephen V. Burks, Bo Cowgill, Mitchell Hoffman, and Michael Gene Housman (paper available here) looks at the performance of employees hired as a result of a referral vs. those hired from other sources. They knew from previous research that referred employees often performed better, but couldn't explain why.

Through their research, they found that, relative to non-referred workers, referred workers are a better deal, even though both groups have similar characteristics and score similarly on standard productivity measures. Referred workers:

• Are less likely to quit
• Are more innovative
• Have fewer accidents

The graphs below shows worker likelihood of quitting based on referral status:
Referrals result in employees who are better suited for the job at hand, which, their research found, makes them 25 percent more profitable than non-referred workers. (See the math in Table 16 below.) Also of note, is that "people tend to refer others like themselves, making referrals from high productivity workers especially valuable."



The practical take-away here for entrepreneurs? If you can find employees through referrals from trusted sources, do so. If you don’t have one already, start an official employee referral program to find the best-fit candidates. If you already have such a program, you’re good to go for now. The authors are planning future research to explore the benefits of expanding existing employee referral programs.

Kate B. Reynolds Charitable Trust announced grant awards; Kangaroo Express supports Victory Junction; Second Harvest Food Bank of Northwest NC receives grant; Salvation Army of Winston-Salem names new development director; Our State magazine celebrates anniversary; Leadership North Carolina calls for applications; and more.

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Following Tuesday’s release of the Treasury Inspector General for Tax Administration’s harsh audit, some nonprofits are concerned that IRS mismanagement of certain 501(c)(4) tax exempt social welfare organizations will negatively impact perceptions of their 501(c)(3) charitable operations.

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I'm trying to square two seemingly contradictory trends. First, as we've known for several years, geographic mobility in the United States is today half of what it once was. This applies to interstate, intrastate, and intra-county moves. At the same time, apparently, we are living in a new era of freelancing and independent work, such that 58 percent of Millenials surveyed called themselves an entrepreneur becasue of freelancing work. That Forbes article also references an Intuit study purporting to find that 40 percent of US workers will be freelancers in 2020, only seven years from now. That seems astoundingly high, and would seem contrary to the steady downward trends in mobility, which predate the recession.

So what's going on here? One possibility is that the data are wrong. It seems unlikely that decades of Census data, based on IRS records, are incorrect. Self-reported survey responses seem a likelier candidate for error. It's important to note, too, that the Intuit report identifies "contingent employees" and contractors as the source of this freelancing growth, which is not necessarily the same as what we typically associate with freelancers. The latter term has a certain romance about it and conveys a sense of independence and control which, not surprisingly, are the attractions identified in the Millenial survey.

Identifying oneself as a "contingent employee" doesn't really have the same ring to it and, in fact, probably highlights some economic forces at work here. I was speaking to someone the other day whose twenty-something daughter is a freelance illustrator who wants nothing more than a steady job. Companies utilizing the services of freelance illustrators, according to this one source at least, solicit samples based on a proposed project--with the condition that the company owns the resulting intellectual property. What inevitably happens is that scores of freelancers submit bids, one is chosen, and the company is free to use the other "free" bids.

Contingent employees and contractors are not owed benefits and so are perhaps a more attractive option for companies in certain sectors. A few years ago, the IRS made noise about cracking down on companies' classification of workers as freelancers and contractors, but I'm not sure where that ended up. In any case, we should take care when celebrating the increase in freelancing because it's not always the romantic notion we assume it be. And it's notable that such large percentages of people in the aforementioned survey said they wanted to leave their job to be independent--no word on the subsequent revealed preferences and resulting satisfaction. Self-employment rates have not risen alongside the reported increases in freelancing, with the exception of a one percentage point increase in the incorporated self-employed.

(Worth another blog post: lots of people seem to equate freelancing with being an entrepreneur. That's one of the points of the Forbes article, that "being an entrepreneur" today is more about freelance work than starting and building a company. That's highly debatable.)

But the larger puzzle remains: if freelancing is really on the rise and set to rise further, why has geographic mobility been falling, and will that suppress the expected increase in freelancing?

It could be the case that people reporting themselves to be freelancers still hold a steady day job and engage in supplemental work through places like Etsy. So perhaps we are missing large chunks of economic activity. Perhaps a rise in freelancing actually explains falling mobility? If you are a freelancer/contractor/contingent employee, depending on the sector, you need to be in a location with a dense concentration of relevant companies. The illustrator mentioned above would probably have more difficulty in Helena, Montana, than New York City. This presumes that the physical density of some industries has been rising; I don't know to what extent that is true.

Alternately, the opposite could be true: perhaps the severing of the relationship between physical location and work means these footloose workers choose a place to live based on quality of life because all they need is an Internet connection to manage their freelance/contingent career. That would also presuppose a narrowing of the places that are attractive to freelancers. In its last State of Metropolitan America report, the Brookings Institution pointed out that while the country as a whole is aging, certain metro areas are actually "younging" because they have become magnets for twenty- and thirty-somethings. If it's true that Millenials are more predisposed to the contingent career than older Americans, this could mean a close link between freelancing and immobility. (At the same time, however, self-employment rates are generally much higher among older age groups.)

So I don't know what to think. Geographic mobility is undoubtedly down; we know that. Perhaps this "boom" in freelancing is a combination of self-reported classifications and people engaging in more freelance activity on the side, while they continue to hold down a job. And I suppose that with more companies using contingent labor--perhaps facilitated by the Affordable Care Act's exchanges--these two seemingly contradictory trends could continue to coexist. Or maybe all freelancers and contractors and contingent workers will simply move to the states that set up those health exchanges.

Days before the scandal broke regarding scrutiny of tax exempt conservative political organizations, the IRS named Joseph H. Grant as Commissioner of the Tax Exempt and Government Entities Division and Sheldon Kay as Chief of Appeals.

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Founding Executive Director Bobbi Hapgood looks forward to becoming an active member as Ret Boney transitions into the leadership role at the N.C. Network of Grantmakers.

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Philanthropy Journal seeks your feedback through an online survey regarding ways we can improve our website and weekly e-newsletter. Submit your comments and give your favorite nonprofit a chance to win free advertising.

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