The Law of Fundraising E-Book

Bruce R. Hopkins

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Nonprofit Authority
• Sprache: Englisch
• Veröffentlichungsjahr: 2019

Seitenzahl: 200

Beschreibung

Untangle the web of fundraising regulations, with the latest updates for 2019 The Law of Fundraising is the definitive reference by the field's most respected authority, and the only book to tackle the increasingly complex maze of federal and state fundraising regulations. Updated to cover the latest changes to fundraising law for 2019, this book includes new coverage of donor-advised funds, international fundraising, and the IRS's charitable spending initiative alongside updates on Form 990, political fundraising, and more. Both state and federal regulations are covered with an emphasis on administrative, tax, and constitutional law, alongside expert discussion on compliance issues, trends, and upcoming legislation. Accessible language aids in conceptual understanding, while extensive tables of cases, IRS rulings and pronouncements, checklists, and sample forms facilitate correct application. The companion website features additional tables, appendices, IRS guidelines, and other useful documents, providing attorneys, accountants, and nonprofit professionals with a rich toolkit for ensuring compliance. With all topics pertaining to finance under increasing federal scrutiny, laws surrounding fundraising are becoming increasingly difficult to parse. Mistakes can impact the nonprofit's bottom line, so keeping up-to-date is crucial; this book provides a comprehensive reference to the latest developments, along with expert forecasting of what is to come. * Understand the latest state and federal laws surrounding fundraising activities * Learn how the law governs Internet fundraising and other emerging issues * Get up to date on the new rules surrounding donor-advised funds and international fundraising * Examine prospective laws, regulatory trends, and how new rules impact fundraising professionals Fundraising is critical to the nonprofit's ability to carry out their mission, yet the regulatory tangle at both the state and federal level can be a nightmare to navigate. The Law of Fundraising streamlines compliance with the latest legal developments and invaluable tools for application.

Leseprobe

Table of Contents

Cover

Preface

About the Authors

CHAPTER ONE: Government Regulation of Fundraising for Charity

§ 1.2 CHARITABLE FUNDRAISING: A PORTRAIT

§ 1.3 EVOLUTION OF GOVERNMENT REGULATION OF FUNDRAISING

§ 1.4 CONTEMPORARY REGULATORY CLIMATE

NOTES

CHAPTER TWO: Anatomy of Charitable Fundraising

CHAPTER THREE: States' Charitable Solicitation Acts

§ 3.2 DEFINITIONS

§ 3.4 ANNUAL REPORTING

§ 3.20 MISCELLANEOUS PROVISIONS

§ 3.22 UNIFIED REGISTRATION

NOTE

CHAPTER FOUR: State Regulation of Fundraising

§ 4.2 POLICE POWER

§ 4.2A REGISTRATION AND LICENSING REQUIREMENTS (NEW)

§ 4.2B CHARITABLE PURPOSES REVISITED (NEW)

§ 4.3 FUNDRAISING AS FREE SPEECH

§ 4.8 OTHER CONSTITUTIONAL LAW ISSUES

NOTES

CHAPTER FIVE: Federal Regulation of Fundraising

§ 5.2A PRIVATE BENEFIT DOCTRINE

§ 5.3 CHARITABLE GIFT SUBSTANTIATION REQUIREMENTS

§ 5.6 INTERMEDIATE SANCTIONS

§ 5.7 UNRELATED BUSINESS RULES

§ 5.8 EXEMPTION APPLICATION PROCESS

§ 5.11 PUBLIC CHARITY CLASSIFICATION

§ 5.13 FUNDRAISING COMPENSATION ARRANGEMENTS

§ 5.14 CHARITABLE DEDUCTION RULES

§ 5.15 COMMENSURATE TEST

§ 5.18 POSTAL LAWS

*§ 5.21 FTC TELEMARKETING RULES

§ 5.22 INTERNET COMMUNICATIONS

§ 5.25 POLITICAL CAMPAIGN FINANCING

§ 5.26 FUNDRAISING ORGANIZATIONS

NOTES

CHAPTER SIX: Import of Form 990

§ 6.11 SCHEDULE B

NOTES

CHAPTER EIGHT: Overviews, Perspectives, and Commentaries

§ 8.1 CHARITABLE FUNDRAISING AND THE LAW

§ 8.8 CHARITY AUCTIONS

§ 8.12 CHARITABLE SOLICITATIONS AND SUBSTANTIATION

§ 8.12A CHARITABLE FUNDRAISING AND DISCLOSURE

§ 8.13 SOME PROPOSALS FOR RELIEF

NOTES

CHAPTER NINE: Standards Enforcement by Watchdog Agencies

§ 9.15 RATING THE RATERS

NOTES

APPENDIX D: Inflation-Adjusted Insubstantiality Threshold—$50 Test

APPENDIX E: Inflation-Adjusted Insubstantiality Threshold—$25 Test

APPENDIX F: Inflation-Adjusted Low-Cost Article Definition

Cumulative Table of Cases

Cumulative Table of IRS Pronouncements

Cumulative Table of Private Letter Rulings and Technical Advice Memoranda Discussed in

Bruce R. Hopkins' Nonprofit Counsel

Cumulative Table of Cases Discussed in

Bruce R. Hopkins' Nonprofit Counsel

Table of Tax Reform Legislation

OVERVIEW OF LEGISLATION

TAX-EXEMPT ORGANIZATIONS LAW CHANGES

INCOME TAX CHARITABLE DEDUCTION LAW CHANGES

DELETED PROPOSALS

NOTES

Cumulative Index

End User License Agreement

Guide

Cover

Table of Contents

Begin Reading

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the law of fundraising

Fifth Edition

2019 Cumulative Supplement

Bruce R. Hopkins and Alicia M. Beck

Copyright © 2019 by John Wiley & Sons, Inc. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished 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, [phone], fax [phone], 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, [phone], fax [phone], or online at www.wiley.com/go/permissions.

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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: WileyCover Image: © Comstock / Jupiter Images

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 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

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 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.

CHAPTER ONEGovernment Regulation of Fundraising for Charity

§ 1.2 Charitable Fundraising: A Portrait

(a) Scope of Charitable Giving in General

(b) Online Charitable Fundraising

*§ 1.3 Evolution of Government Regulation of Fundraising

§ 1.4 Contemporary Regulatory Climate

§ 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 (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); and to environmental and animals groups, $11.3 billion (3 percent).24

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 statistics on this approach to gift solicitation.25.1 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 fundraising, with the theme being “Digital Giving Goes Mainstream.”25.2 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 very small portion of the money charities rely on.”25.3 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 Center, United States Fund for Unicef, University of Michigan).25.4

About one year later, another report speaks of the “transformative promise of online fundraising” that has yet to materialize.25.5 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 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 newsletter.”25.6

§ 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 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.