Nonprofit & Tax-Exempt Organizations

In my post yesterday about The Extraordinary Give, I mentioned that each participating organization must be a 501(c)(3) organization. If you’re anything like me, you may have wondered – how did those organizations get to be a 501(c)(3)?

I’m glad you asked: here’s an overview of the typical process of starting a community benefit organization in Pennsylvania. Continue Reading How to Start a Community Benefit Organization in Pennsylvania

The 6th annual Extraordinary Give is coming soon: this year on Friday, November 17, 2017 from midnight to 11:59 pm, you’ll be able to support the community benefit organizations that you love by donating with your dollars. In addition to benefiting from your donations, there are several additional prizes that the participating organizations will be eligible to win.

Hosted by the Lancaster County Community Foundation, the Extraordinary Give is Lancaster County’s largest day of charitable giving, and over the past five years, over 500 organizations have benefitted from the event, with more than $22.5 million in total donations.

To learn more about the Extraordinary Give, check out their website here: extragive.org. There, you can browse the participating community benefit organizations by category or see a full list of all participating organizations. On November 17, you can keep track of all donations in real time on The Extraordinary Give Leaderboard. Continue Reading Save the Date: The Extraordinary Give is Next Friday, November 17, 2017

Although I don’t spend much time watching TV, I came across the new Netflix series House of Cards in which all 13 episodes were released at once for back to back watching. I enjoyed the series for its political perspective, but found it interesting as an employment lawyer as well.

Claire Underwood played by Robin Wright is the cold and beautiful wife of Francis Underwood, House Majority Whip (Kevin Spacey). Claire is the director of the non-profit Clean Water Initiative (CWI). In the beginning of the season, she fires half her staff, assigning the actual serial ax job to the office manager, who is terminated by Claire immediately after the firings are completed. She then actively recruits Gillian Cole (Sandrine Holt). When Claire first interviews Gillian, she is ill and, even before she is hired, Claire sends her to her personal physician, all expenses paid, a novel recruiting tool. Once she is on the job for a few months, Gillian tells Claire that she is pregnant as an explanation of why she cannot fly on CWI business. Gillian begins missing work periodically, and childless Claire makes a remark questioning her priorities and commitment to CWI. Ultimately, Gillian defies Claire on a matter of principal and Claire fires her on the spot for her insubordination. When Claire is later visited by counsel, we find out that not only has Gillian sued CWI but that she will not accept any monetary amount to settle her claim. Gillian tells Claire that the publicity resulting from her suit will cost CWI, Claire and her high profile politician husband more than any settlement payment and insure a better world for her unborn child. She also has many witnesses happy to testify for her including the former office manager, and adds that any embellishment of her testimony is justified by the need to expose CWI as a sell-out to corporate interests.  

Continue Reading THINK Before You Fire – What Claire Underwood Did Wrong

"Lessons from the Lion’s Den:  Employment Law Takeaways from the Penn State Scandal" is the title of one of the sessions I will be attending at the Employment Law Institute, a gathering of employment lawyers in Philadelphia later this month. I anticipate this will be a popular session as the Penn State scandal has changed much of the way we approach not only employment law but education processes and non-profits’ conduct as well. 

As a volunteer Master Gardener through the Penn State Cooperative Extension, I have been recently notified that all Master Gardeners must have background checks performed. One of the forms that I just received and must complete, along with all other volunteer Master Gardeners, is a Disclosure Statement in which I must report professional misconduct or sanctions, and any harassment or discrimination that I was found to have committed by any court, adjudicative body or administrative body including, but not limited to, any findings of harassment or discrimination made by present or former employers. I am further to report any felony or misdemeanor for which I was convicted or pled no contest. 

Although I am told that engagement in such conduct may not, in and of itself, disqualify me, failure to disclose this information or any misrepresentation is grounds to revoke my volunteer certification as a Master Gardener. 

Certainly, criminal convictions in which an individual is afforded due process protection, and which are public record, are something that is reasonable to report. However, findings of harassment or discrimination made by present or former employers is not in the same category. I advise both employers and employees that any internal investigation of harassment or discrimination in the workplace is distinguishable from criminal process in that due process rights do not exist. Someone about whom a harassment or discrimination complaint is made is not entitled to counsel, not entitled to cross-examine his or her accuser and not entitled to notice of interrogation.

Requirements for disclosure, such as I just received, will increase the pressure on both employers and employees to engage in a more legalistic process within the workplace before findings are made that could have long term ramifications. 

 

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. She received her law degree from Duquesne University School of Law and has practiced in the area of employment law for over 25 years.

  

One challenge many nonprofit organizations face is competing against for-profit businesses to attract key employees and administrators to run their operations. More often than not, nonprofits just do not have the funds to match their for-profit counterparts. Fortunately, there are plenty of qualified administrators out there who are willing to take a lower salary from a nonprofit because they believe in that organization’s mission. However, there is another incentive that most nonprofits have that is not available to for-profit businesses:  Section 457 Deferred Compensation Plans (“457 Plans”). 

As the name suggests, 457 Plans are authorized by Section 457 of the Internal Revenue Code. This section allows tax-exempt organizations and government agencies to establish a deferred compensation plan for key employees. Each year the nonprofit can divert a portion of the employee’s salary (up to $17,500 in 2013) into the 457 Plan instead of paying it directly to the employee. Because those funds go into the Plan the employee is not taxed at that time. Instead, taxes on the amount diverted into the Plan are postponed until the Plan is authorized to dispense funds from the 457 Plan to the employee.

The Plan then acts similarly to a pension or 401K plan in that the money accumulates from year to year in the Plan and generates income on investments. As a result, these Plans are extremely helpful in helping a nonprofit’s key employees plan and save for retirement. Another advantage of a 457 Plan is that the tax on the income on those investments is also postponed until the employee actually starts receiving benefits from the Plan.

Continue Reading Nonprofits and Deferred Compensation Plans

In the wake of the devastation caused by Hurricane Sandy, the Internal Revenue Service announced an expedited review and approval process for organizations formed to aid victims of Sandy that are seeking tax-exempt status.  Qualifying organizations still need to apply for tax-exempt status by filing a Form 1023 with the IRS. However, if they write “Disaster Relief, Hurricane Sandy” on the top of the form, the IRS will give immediate attention to the application.  The IRS did not state exactly how long it will take them to grant tax-exempt status, but the process would normally take approximately four to six months.

In addition, organizations who have already applied for tax-exempt status where IRS approval is pending can also apply for expedited review if they intend to provide relief for victims of Hurricane Sandy. In such cases, the organization needs to send a fax labeled “Disaster Relief, Hurricane Sandy” and include the organization’s name, employer identification number, contact name and phone number to 513-263-4554.

Please note that if you are looking to donate to a charitable organization providing relief to victims of Hurricane Sandy, the IRS recommends donating to existing tax-exempt organizations who they believe will be able to administer relief programs more efficiently than newly formed organizations. If you want to check to make sure the organization you are giving to is tax exempt, the IRS features a Select Check tool that allows taxpayers to search a database to determine if the charity has IRS approved tax-exempt status. For more information, about applying for tax-exempt status, please see the IRS website.  

 

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree and LL.M. in Taxation from Villanova University.

 

The Lancaster County Community Foundation has announced “The EXTRAordinary Give,” a unique event that will help local community benefit organizations raise funds.  The Foundation has set aside $250,000 to match a portion of donations made to preregistered nonprofits on November 30, 2012.  There will also be an additional $50,000 in prizes.  This  program will be an effective way to fire up your existing donor base and help cultivate new supporters.  The deadline for nonprofits to register is October 31, 2012.  For more information and to register your organization, please see the Lancaster County Community Foundation’s event webpage.

Also, don’t forget to mark your calendar for Friday, November 30, 2012 to donate to those nonprofit organizations that benefit the community you live, work, and play in.  You can make your donation at www.extragive.org on that day.       

Matthew Groshis an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. He received his law degree from Villanova University and practices in a variety of areas, including Nonprofit & Tax-Exempt Organizations.

Some charities and other tax exempt organizations rely heavily on contributions from generous donors. On the other hand, those donors benefit by being able to deduct those donations from their taxes. However, a recent decision by the US Tax Court makes it clear how a simple mistake by the tax-exempt organization can prevent a donor from making the deduction.

In Durden v. Commissioner, TC Memo 2012-140, the Court prevented a married couple from claiming $25,000 in charitable deductions. The donations had been made to a church in various amounts throughout 2007. The Internal Revenue Service initially disallowed the deductions, and the taxpayers responded by producing records of their donations, which included a January, 2008 letter from their church acknowledging the donations.

Unfortunately, the 2008 letter did not include any statement that the church had not provided goods or services to the taxpayers in return for their donations. Because applicable tax laws specifically require such a statement, the IRS rejected the 2008 letter as an adequate acknowledgment of the donations. 

In response, the taxpayers obtained a June, 2009 letter from the church that included the required statement, however the IRS rejected the 2009 letter as untimely. The IRS based their decision on a specific tax law that requires taxpayers to receive acknowledgments from charities by the date on which they file their returns for the year the deduction is claimed, or by the return due date, including any extensions, whichever occurs earlier. In this instance, the 2009 letter was received by the taxpayers well after the return was filed in 2008.

Continue Reading Charitable Deductions Denied by Insufficient Acknowledgment

On November 14, 2012, Matthew Grosh will be a course instructor for the Nonprofit Resource Network’s Fall training. The session, entitled “Are You Legal? Ensuring the Integrity of Your Community Benefit Organization,” will assist organizations in managing risk.

Attorney Grosh is a Preferred Consultant for Millersville University’s Nonprofit Resource Network.

See the Nonprofit Resource Network Fall 2012 Training brochure for more information. 

Some of the nonprofit and charitable organizations I work with are formed for an immediate purpose. For example, the purpose may be to aid victims of a hurricane, earthquake or other natural disaster. In those situations, it is important for the nonprofit corporation to be organized and formed quickly so that it can be up and running as soon as possible.  A common question I get from those clients is whether donations will be tax deductible.  The answer hinges on the nonprofit’s status with the Internal Revenue Service.

When a nonprofit organization is formed, it generally cannot simply deem itself as "tax-exempt". Instead, if the organization is not a church, it must apply to the IRS for recognition as a tax-exempt organization. This is accomplished by filing an IRS Form 1023 (or Form 1024 depending on the organization’s mission) and some related documents with the IRS. The organization must then wait for several months before they hear back from the IRS and, in some instances, there are delays because the IRS might require a few changes or modifications to the organization.  Eventually, once all the conditions have been met, the IRS will send the organization a letter either granting or rejecting tax-exempt status.

Now back to the question at hand: can a donor deduct a donation to an organization that has not received a determination from the IRS?  The answer depends on the outcome of the organization’s application. If tax-exempt status is granted by the IRS, that status is pushed back retroactively to the date the organization was created.  That means donors who had previously donated to the organization can deduct those donations. However, if the IRS rejects the tax-exempt status, the rejection is also deemed retroactive and the donor will not be able to deduct the donation.

That answer tends to beg another question: what should a nonprofit whose tax-exempt status is still pending tell its donors? The simple answer is that donors should be told the truth: that the organization’s tax-exempt status is pending and that their donations may not be deductible if tax-exempt status is rejected. In no way should the organization make any representations or guarantees that donations will be deductible because they may not be. Because so much is hinging on the tax-exempt application, I recommend that new nonprofits seek professional help in forming the corporation and applying for tax-exempt status.

Matthew Grosh is an attorney at Russell, Krafft & Gruber LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including Taxation and Nonprofit & Tax-Exempt Organizations.