Non-Profit Update #9
July 9, 1997
Below you will find several items of interest to the non-profit community. Most importantly, as detailed below, we have very tentatively scheduled the upcoming educational seminar for late October.
President Clinton signs Volunteer Protection Act into Law
As may be seen in the attached letter from Congressman Bob Inglis, two weeks ago President Clinton signed into law the Volunteer Protection Act. This legislation will hopefully provide volunteers with greater protection from tort litigation. (Note that only the volunteer -- and not the non-profit organization -- is provided immunity.) Please advise if you would like more details on the Act, or a copy of the legislation.
Department of Revenue Non-Profit Advisory Board
The Department of Revenue recently established a Non-Profit Advisory Board which will meet quarterly to discuss items of mutual interest. Please let me know if you would be interested in serving on it. Our next meeting is Wednesday, July 23, 1997 at 2:00 p.m. at the corporate headquarters of Blackbaud in Charleston. Blackbaud is the largest vendor of software tailored for the philanthropic community in the world. We will be discussing financial statement requirements, the profession of volunteer administration, annual reporting requirements under state law (including the Non-Profit Corporation Act, Charitable Fundraising Act and state tax law), legislative update, charitable resources available on the internet as well as a demonstration of Blackbaud’s new non-profit software.
State Law Update
The South Carolina General Assembly made several changes this year. First, on the tax side, the property tax exemption for non-profit groups which build or renovate home residences for low income persons is no longer capped (i.e. limited) to five years.
Second, local chambers of commerce and parent-teacher organizations are now exempted from the reporting requirements of the Solicitation of Charitable Funds Act provided that none of their fundraising activities are carried on by professional solicitors.
The special rule which provided a full fair market value deduction to taxpayers who donate appreciated publicly traded stock to private foundations expired on May 31, 1997, and the provision to make the rule permanent was not included in the budget resolutions recently passed by Congress.
The IRS recently issued proposed regulations concerning a variety of issues involving Charitable Remainder Trusts.
In TAM 9724006, the IRS continues to impose the unrelated business income tax on income derived from advertising in a charity’s monthly publication (which the IRS felt did not meet the strict test of educational relatedness), from the rental of the charity’s membership mailing list, and from the charity’s affinity credit card arrangement.
There is a good chance that the IRS will raise the filing threshold for Form 990, the annual information return for tax exempt organizations. The current rule generally requires the form to be filed by organizations, other than churches, with annual revenue of more than $25,000.
The amount of Unrelated Business Taxable Income (UBTI) paid to the IRS in 1996 was more than $500 million, which was a 70% increase over the year before. This, no doubt, results in part from the increased IRS activity in this area.
Department of Revenue Criminal and Civil Law Update
As previously indicated, the Department of Revenue is paying a great deal more attention to compliance by charitable organizations than perhaps was done in the past. Our compliance activities include a criminal deterrent. In the past six months we have convicted a minister for failure to file income tax returns; we have indicted an officer of a "charity" for allegedly forging signatures on bingo applications and falsely certifying that the "charity" had received an IRS Exemption Letter; and we have indicted an individual for claiming charitable deductions on his income tax return for which he had no substantiation from the charity. We have additional criminal cases underway, including a major case involving abuse of charitable trusts in which we expect arrests to be made within the next 30 days. I previously provided a newspaper clipping regarding arrests made by local law enforcement arising out of a "casino night" purportedly run by a charity, here in Columbia.
We are also in the process of beginning revocation proceedings against roughly 20 "charities" primarily on private inurement grounds.
We are also working with the IRS to insure that South Carolina non-profits with UBTI are filing tax returns with the Department of Revenue.
The Department of Revenue is helping organize a Non-Profit Educational Seminar in late October. The four hour seminar will feature topics including: the Charitable Fundraising Act Requirements, Liabilities for Volunteers and Board Members, Non-Profit Corporation Act Requirements, UBTI, IRS Audit Update, Lobbying and Prohibited Activities. A panel of experts from the non-profit community (federal, state and local) will be on hand to answer questions as well. The seminar will be held in Columbia.
Several months ago I mailed a set of news clippings from state and national media for the time period which ended roughly on December 1996. I will have a new set of clippings available at the end of this month for the time period January - August 1997. Please write or call Jane Baker (803) 737-1906 if you would like a set. (In order to keep postage and copying costs down, I will only be mailing the clippings upon request.)
The Department of Revenue recently published Local, State, and Federal Tax Aspects of Conservation Easements (PDF Format). We are continuing our work on State Tax Guide for Non-Profits.
We are creating a section on non-profits on the Department of Revenue internet home page and would appreciate any advice from you as to what it should contain. As stated above, our upcoming advisory committee meeting, as well as the upcoming seminar, will include a demonstration of internet resources of interest to non-profits. The IRS recently announced that its website now contains the list of organizations (Publication 78) to which donations made will qualify as charitable deductions. The list will be updated each calender quarter.
Statutory Annual Requirements
State law imposes certain annual meeting and reporting requirements on most non-profits in South Carolina. Requirements which are unique to non-profits are mainly found in three separate areas of the S.C. Code: the Non-Profit Corporation Act; the Charitable Fundraising Act; and the state tax code. Below you will find a very brief synopsis of the Non-Profit Corporation Act. My assistant Melinda Diller has written a memo on this subject which will be posted on our internet home page in the next several months.
The Non-Profit Corporation Act imposes three major annual requirements. First, the Act requires non-profit corporations with members to hold membership meetings annually. "At the annual meeting: The president and chief financial officer shall report on the activities and financial condition of the corporation."
Second, if the corporation has members entitled to vote for directors, the directors must be elected at the annual meeting (unless the articles or bylaws provide otherwise.)
Lastly, except for certain religious corporations, the corporation must provide annual financial statements upon demand to any member or the Attorney General.
Let me know what else we should be working on.