Will Romney Cap Charitable Deduction?

During an interview Monday with a Fox affiliate in Colorado, Republican presidential candidate Mitt Romney suggested that, if elected, he would consider placing a $17,000 cap on charitable deductions for middle-class families.

As reported in The Wall Street Journal, Romney also said that this cap would be lower for wealthier individuals. The Republican candidate has previously stated that he would cut tax rates across the board by 20 percent, and would limit or end other tax breaks as a way to pay for this change. His new focus on deductions would be another way to generate revenue to pay for the tax breaks.

"You could use your charitable deduction, your home-mortgage deduction, or others—your health-care deduction, and you can fill that bucket, if you will, that $17,000 bucket that way," Romney told Fox affiliate KDVR in Denver. "And higher-income people might have a lower number."

Romney is not alone in proposing limits on charitable deduction. President Barack Obama has repeatedly tried to cap it at 28 percent for families with more than $250,000 in annual income. The attempt has been met with heavy resistance from leaders in the nonprofit sector, who argue that it would cause individuals to give less to charities. In The NonProfit Times' "Platform for the Nonprofit Sector," 22 nonprofit executives once again urged both candidates to avoid caps on charitable deduction.

According to data from the Internal Revenue Service (IRS), about 30 percent of Americans who file tax returns itemize their deductions. The average break for those who itemized in 2009 was around $26,000. In his 2011 tax returns, Romney claimed $2.25 million in charitable deductions.

You can read the full story in The Wall Street Journal.

NJ City Asks Nonprofits For Revenue

The City Council of Lawrence, N.J. is asking nonprofits to "voluntarily" contribute 25 percent of what they would pay in property taxes, in an attempt to generate revenue for the town.

Nonprofits hold more than 90 plots of land in Lawrence Township and account for $287 million of its assessed property value, according to a report in The Times of Trenton. Two of the largest organizations in the town, Lawrenceville School and Rider University, are already making payments to the town, but those fall short of what is now requested.

If the two schools were to agree to a 25 percent contribution, Lawrenceville would have to pay more than $217,852, and Rider University would have to contribute around $141,470. They gave $35,000 and $65,000, respectively, during the last budget year.

"The time has come that we not only seek financial support from Rider University and The Lawrenceville School for voluntary contributions, but, as a matter of equity, we request a voluntary contribution from all tax-exempt organizations in Lawrence Township," said Councilman Greg Puliti in a statement announcing the plan.

While the Lawrence council's plan is voluntary, some experts believe that organizations will see the move as a threat. Linda Czipo, executive director of New Brunswick, N.J.-based Center for Nonprofits, wondered aloud to The Times what will happen when cash-strapped organizations decline to make the payments.

Lawrence is certainly not the first U.S. city to make such a request to local nonprofits. Brown University in Providence, R.I. recently agreed to double its payments to the city, and the Memphis, Tenn. City Council approved a new payments in lieu of taxes (PILOT) program in the beginning of July.

You can read the full story about Lawrence's payment request in The Times of Trenton.

U.K. Backs Off Charitable Deduction Cap

U.K. Chancellor of the Exchequer George Osborne has withdrawn his proposal for a cap on charitable deductions after significant push back from opponents of the measure.

Bloomberg Business Week reported that Osborne, who had earlier defended the measure by saying that some wealthy people were abusing the system, announced his decision today, saying that any cap could have damaged charitable giving. If it had been implemented, the new rule would have capped tax relief at 50,000 pounds or 25 percent of income.

This prompted nonprofits in the country to cry foul, claiming they would lose a huge portion of their income. The Charities Aid Foundation (CAF) hailed Osborne's decision in a statement from its CEO, John Low.

“We are delighted that the government has responded to the challenging calls from philanthropists and charities across the country and taken the bold decision,” he said.

Yet it wasn't just nonprofits that opposed the plan. Members of Osborne's own Conservative Party also criticized it, with lawmaker Zak Goldsmith saying he was "ashamed" of the proposed cap. Academic institutions were also not in favor, most notably the University of Oxford, which had raised nearly 1.25 billion pounds at a recent fundraiser.

The reversal is the latest setback for Prime Minister David Cameron's budget plans. Just three days earlier, Osborne changed course on another of his proposals, a plan to levy value-added tax on hot snacks and charge the full 20 percent rate.

You can read the full story in Bloomberg Business Week.

Nonprofit Director Pleads Guilty

The head of a Washington, D.C.-based nonprofit pleaded guilty to lying about her 2009 tax returns and is cooperating with prosecutors in their investigation of former D.C. councilman Harry Thomas Jr.

Danita Doleman, who is the executive director of Youth Tech, received $110,000 from the D.C. Children & Youth Investment Trust in 2009, according to a report in The Washington Post. Doleman admitted to funneling $100,000 of that money, which was supposed to be used for drug prevention programs, to the D.C. Young Democrats.

Ayawana Chase Webster, a staffer for Thomas Jr. and head of the D.C. Young Democrats in 2009, used the money from Youth Tech to fund a ball at the John A. Wilson Building. Thomas Jr., who was sentenced to 38 months in prison last week for theft of public funds from the trust, admitted to steering the $100,000 to the ball.

The executive director of the D.C. Youth Investment Trust at the time, Millicent D. West, told prosecutors that she worked with Thomas Jr. and his staff to find a way to pay for the ball. She told them that a non-political group would have to pay for it. That's where Youth Tech came into play.

Doleman's role in the scandal had not been mentioned in the original court documents. A two-page charge filed Wednesday accused her of failing to report $20,000 in income she received from Youth Tech in 2009. Her lawyer, Michelle Peterson, said her client filed an amendment to reflect the $4,000 she owed in taxes and, as part of her plea agreement, would provide information for the government's investigation of Thomas Jr.

You can read the full story in The Washington Post.

Activities Excluded From UBIT

As a nonprofit manager, you've probably heard of the term unrelated business income tax (UBIT) and, chances are, you aren't too fond of it. We have some good news for you: There are plenty of activities that are excluded from UBIT!

Here's a quick recap of the rule: According to Marci Thomas, CPA, MHA, and Kim Strom-Gottfried, Ph.D. in their book "The Best of Boards," UBIT applies to any income from a trade or business that is carried on regularly by a nonprofit when the purpose of the activity is not related to the mission. Even if the net proceeds from the activity will be used to further the nonprofit’s mission, it is still subject to UBIT.

Now on to the good news. There are at least five activities that are excluded from UBI taxes. Thomas and Strom-Gottfried list them as:

• Volunteer work force. If the activity is conducted with volunteers, then the income is not UBI even if the business is regularly carried on and not related to the organization’s tax-exempt purpose.
• Convenience of members. If the activity is operated for the convenience of members, students, patients, officers, or employees it is not UBI.
• Sponsorship payments. When a nonprofit receives a payment from a sponsor and the only benefit the sponsor gets is the inclusion of his or her company’s name or logo or use of products.
• Selling donated merchandise. When substantially all of the merchandise being sold in a business activity is donated.
• Telephone Pole rental. Pole rentals are not considered unrelated trade or business when rented by a mutual or cooperative telephone or electric company described in section 501(c) (12).

IRS Adjusts Disclosure Requirements

As we creep ever closer to tax season, the IRS has announced some changes to its disclosure requirements in an effort to make them easier to understand.

The North Bay Business Journal reported today that, in a recently released Jan. 11 memo, the IRS outlined changes to Form 990 for the 2011 tax year.  While the changes are relatively small, they are designed to help reduce some of the headaches that come with disclosure requirements.  Among the changes is a clarification of what could be considered income for executives and other highly compensated employees, including information from their W-2 forms.  This change should make it easier for nonprofits to know what they need to report when it comes to executive compensation.

Another change that was discussed in the memo involves how nonprofits should treat partnerships on their balance sheet.  It is now required that organizations report the share of assets between the partner organizations as a separate item, showing the ending capital from the joint venture.  The IRS also sought to clarify requirements to foreign activity, which is important for nonprofits that run missions overseas.  Foreign investments can now be valued up to $100,000 before disclosure, whereas organizations were only required to disclose this information if the investments resulted in a $10,000 net revenue or expense.

While all these changes are designed to make the Form 990 easier to understand, it will undoubtedly lead to more work for nonprofits come tax day.  We'd like to hear your thoughts on these new changes.  Do you think they will make things easier, or do you foresee new headaches because of them?

You can read the full story in The North Bay Business Journal.

Nonprofits Get Hotel Tax Revenue

Nonprofits in Crystal Lake, Ill. are going to be seeing an influx of revenue thanks to some local hotels and motels.

The TribLocal reported today that local nonprofits were awarded a portion of hotel and motel tax funds that are collected by the city each year.  The City Council distributed the money Feb. 21 among the 10 groups that submitted proposals.  Each of the organizations received a portion of the funds requested, with the total money doled out adding up to $292,167.

The revenue that the city collects from hotels comes from a 5-percent tax on overnight stays at hotels and motels.  The funds are invested in the community towards programs and events that promote overnight stays in the city.  Here is a breakdown of the money received by the nonprofits:

• The Raue Center for the Arts got the largest amount of money at $150,000.  The group has received over $422,000 the last three years.
• The Lakeside Legacy Foundation got more than $35,000 after receiving $20,000 the previous year.
• The Historic Downtown District of Crystal Lake also received $35,000, the same amount they got last year.
• The McHenry County Youth Sports Association was awarded $52,000.  Last year they had requested $80,000, but they lowered their initial request to $60,000 this year.

You can read a full report of the funds distributed in The TribLocal.

Romney's Tax Returns Shed Light On His Giving

One of the big issues that had surrounded GOP presidential hopeful Mitt Romney was his tax returns.  Romney was under intense pressure to release them and he said they would be available in April.  After a loss in the South Carolina primary last week, he decided he would hasten that schedule.

The NonProfit Times took a look at Romney's tax payments and found that he had given more to charitable organizations ($7 million) than he paid in federal income taxes ($6.2 million).  During a recent Republican debate in Florida, Romney said that the American public would be satisfied that he had paid his fair share during the past two years.  Let's take a deeper look and see exactly where Romney's money went:

• The largest charitable contribution noted was a $1,525,000 donation to the Church of Jesus Christ of Latter-day Saints.  Romney is a noted member of the Morman faith, and he has donated at least $4.1 million to the church over the past two years.
• For 2010, available tax returns show Romney's itemized deductions totaled $4,519,766.  His total income was $21,661,344, with an adjusted gross income of $21,646,507.
• None of his income came from wages.  They came instead from capital gains, stock dividends, and interest payments.
• Romney had an effective tax rate of 13.9 percent.  Note that, according to the nonpartisan Tax Foundation, the average effective tax rate for millionaires is 25 percent.

In President Barack Obama's annual State of the Union address last night, he stated his belief that millionaires and billionaires pay a lower rate than average Americans.  He announced the so-called "Buffet Rule," where individuals who make more than $1 million would pay 30 percent in taxes.  If that rule were in effect in 2010, Romney would have had to pay a lot more in taxes.

Read the full article on Romney's tax returns in The NonProfit Times.

Can't Miss Tax Deductions

Tax season is beginning to heat up as we move closer to April.  Here's the big question: Are you getting all you can from your tax deductions?

In an article for The Huffington Post, Lisa Greene-Lewis, managing editor of the TurboTax Blog, wrote about the advantages of filing your tax returns early.  She wrote that an estimated 80 percent of taxpayers will get a federal tax refund if they file before the end of February.  How much is that refund, you ask?  It's expected to top $3,000 this year.  That's certainly not chump change.

Lewis also wrote about the value of claiming standard tax deductions.  It's important not to leave any money on the table while filing your taxes.  Lewis offered some deductions you can claim that will help your cause:

• Job Search Expenses: Most Americans were involved in the job search last year, but many probably didn't know they could claim job search expenses as a deduction.  It's true: As long as you were searching for work in your same profession, you can deduct expenses such as resume preparation, career seminars, and even travel.
• Dependent Friends: Good news: Your support for your deadbeat roommates can finally pay off!  If they have been out of a job for a while, they may count as a "qualifying relative."  This will allow you to treat them as dependents.
• Income Tax Credit: The down economy of the past few years has caused the loss of income for many Americans.  If you are counted among that group, you may now qualify for the Earned Income Tax Credit (EIC).  The EIC allows you to keep more of what you earned, and can give you a credit of up to $5,000 depending on the size of your family.
• State and Local Sales Tax Deduction: If you live in a state with no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington, or Wyoming), you can claim a state and local sales tax deduction.  If you don't live in one of those states, a year of heavy spending may still give you a greater deduction.

Read more in The Huffington Post.

The UBIT Bowl?

Is the Sugar Bowl disclosing all of its taxable incomes?  That's exactly what the IRS will have to find out.

Last night's 2012 Allstate BCS National Championship Game is run by the registered 501(3)(c) organization, and tickets for it ranged from $300 to $350, face value.  A steep price to pay but, presumably, that money was going to a good cause.  ESPN reported a few days ago that the Sugar Bowl's IRS disclosure form showed that the organization gave away $6.21 million in grants in the fiscal year ending June 2010.  Pretty charitable, right?  Not so fast.

A closer inspection reveals that the $6 million is a grant in name only.  It's really just a payment to the BCS, which theoretically uses that tax-free money to fund higher education.  But, according to ESPN, the BCS uses a majority of those funds to subsidize the high ticket prices they force universities to buy.  In total, the Sugar Bowl gave only $210,056 to charities in 2010, and those grants were the Southern Yacht Club and the Friends of New Orleans Lacrosse.

In the same blog post, ESPN reported some news that won't make the bowls too happy.  A lobbying group called the Playoff PAC plans to ask the IRS to look into the spending of all of the bowls.  They say there is a pattern of frivolous spending amongst the organizations, as well as undisclosed lobbying payments.  The IRS is already looking into the regime of former Fiesta Bowl CEO John Junker who is accused, among other things, of reimbursing employees for donations they made to political candidates and throwing extravagant parties that included trips to strip clubs.  This was covered in more detail in an article in last year's edition of The NonProfit Times.

Playoff PAC plans to officially file their complaint to the IRS later this month and, should it be confirmed, the bowls will be forced to pay more in unrelated business income taxes (UBIT).  To put in perspective how little the bowls have paid, the Orange, Sugar, and Rose Bowls all claimed zero in UBIT revenue in 2010.  The Fiesta Bowl claimed only $3,054.  If the allegations by Playoff PAC turn out to be true, it means the bowls are seriously underreporting their taxable incomes.

Read the full story on ESPN.

Eliminate Charitable Deduction?

Should charitable deduction be eliminated?  One former foundation president thinks so.

Jack Shakely, who ran the California Community Foundation for 25 years, recently wrote an opinion piece in The Los Angeles Times that is sure to cause some controversy in the nonprofit sector.  He proposes that the best way to reduce the national debt is to completely scrap the charitable-giving tax deduction.  If you've been following politics lately, you already know that capping charitable giving at 28% for the nation's highest earners has been a priority of the Obama administration.  They have tried it four times already, most recently in the American Jobs Act.  Each time it has failed after major backlash from nonprofits. 

Yet even with the administration's proposal, charitable deduction would remain in place.  If Shakely's suggestion was to be put into place, the deduction would completely disappear.  His reasoning comes down to this: After nearly a century of existence, nobody can say for sure whether it truly stimulates giving.  The argument has been put out there, most recently by Brian Gallagher of United Way of America, that capping charitable deduction for high earners at 28% would cause donors to "withhold the difference to cover the tax."  But is that really the case?

Shakely argues that it isn't.  He cites what happened when the cap on deductions for the top tax brackets was reduced in the past.  In 1980, it went from 70 percent to 50 percent, and then from 39 percent to the current 35 percent in 2003.  If stood to reason that giving should have declined as the cost of giving increased.  But according to the Giving USA Foundation, charitable donations over the last 25 years have remained consistent, staying around 1.7-percent and 1.95-percent of personal income.  If giving didn't decrease then, he argues, why would it decrease now?

All these examples are when the deduction was reduced.  Shakely's suggestion, however, is to get rid of it entirely.  Would that have any significant impact on giving?  It's hard to say because, as he argues, it's hard to pinpoint how much it really stimulates giving.  Regardless, the article is a great read, and we suggest you check it out if you have the time.

Japan Easing Towards Nonprofit Groups

Note: This is a summary of an article from an outside news organization.  To read the full article, click on the links in this post.

It's no secret that Japan has a negative view of nonprofit organizations.  During natural disasters, such as the recent tsunami or the 1995 Kobe earthquake, the government advised relief organizations to keep away.  Those that came anyway found that it was almost impossible to get anything done.  This is because the country lacks a long history of private philanthropy.  Support for those in need is supposed to come from the family, and nonprofits are viewed as interfering.  And with restrictive laws in place, life for nonprofits in Japan is very difficult.  All this is about to change, however, according to a story in The Economist.  Well, at least for the most part.

On June 22, a law was passed in Japan that will allow nonprofits to get tax relief much easier.  Currently, only 223 of the 90,000 NPOs in Japan have a special tax status.  To put this in even greater perspective, that number is at 160,000 in the UK and 1.8 million in the US.  The new law will drastically change the way the current cumbersome process is handled.  Now, municipal authorities will handle the certification process instead of the national tax agency handling certification.  This is a big deal, as the latter views most NPOs as a detriment to the country's finances.  Other changes include:

• The so-called "public support test" will be scrapped, removing a huge burden for nonprofits eligibility.
• Contributions will be nearly 50% tax-deductible.  This is an increase from the current 10% level

When the law comes fully into effect, it will be a huge boon for any future disaster relief efforts.  The way nonprofits are viewed by Japanese officials may never change, but this law will at least make it easier for them to operate in times of need. 

If you want to read the full story, head on over to The Economist.

NPTtv Summary: Tax Policy Hurts Charity, Says CBO

New findings by the Congressional Budget Office suggest that potential changes in the federal tax code could leave a huge mark on the nonprofit sector.

The CBO says that adding a contribution floor would reduce the total federal tax subsidy, as well as donations to charity. The reduction in the subsidy would lead to an increase of government revenue larger than the reduction of giving, whether measured in dollars or a percentage change. Introducing a floor would continue to provide a tax incentive for giving above its level. At the same time, it might reduce the tax subsidy for donations that people might have made; even without a tax incentive.

Here are some additional findings by the CBO report:

• Allowing all taxpayers to claim a deduction for charitable giving would have increased donations in 2006 by $2 billion (or 1%).
• This also would have increased the total tax subsidy by $5.2 billion (or 13%).
• Combining a deduction for all taxpayers with a contribution floor could increase donations and decrease the tax subsidy. 

NPTtv Summary: More US Cities Want Nonprofits to Pay Up

Note: This is a summary of a story from the latest episode of The NonProfit Times TV.

First it was Boston, now Providence and DC are demanding payments from nonprofits.

In Providence, Mayor Angel Taveras is following in Boston's footsteps by asking nine nonprofit hospitals and universities to make payments of $24 million; roughly 25% of the real estate taxes they would pay if they were for-profit. The reason for this increase?  The city is currently dealing with $110 million budget deficit and, according to Mayor Taveras, nonprofits control nearly 40% of real estate in Providence. This would effectively negate a 2003 payments in lieu of taxes (PILOTs) agreement with the four universities targeted under this new plan (Brown, Johnson and Whales University, Rhode Island School of Design, and Providence College).

Meanwhile, DC Mayor Vincent Gray has thought of a different way to get payments from nonprofits.  He wants the governing council to pass a law that would impose a 6% tax on tickets to art institutions. If passed, the tax would impact over 200 nonprofit organizations in DC.

Tax Exempt Organizations Pay Taxes Anyway

We just posted an article about how many tax-exempt organizations end up paying fees and taxes to their local governments.  Here is a bit of the article:

Some 63 percent of nonprofits reported paying various types of fee and taxes to local and state governments during 2010. Of these types of assessments, 17 percent reported paying field-specific taxes, 36 percent paid “other payments,” 9 percent paid PILOT (payments in lieu of taxes) and 42 percent of nonprofits paid user fees.


These are among the results of surveying by the Johns Hopkins University Center for Civil Society Studies and published in a report, “Taxing the Tax-Exempt Sector -- A Growing Danger for Nonprofit Organizations,” written by Lester M. Salamon, Stephanie L. Geller and S. Wojciech Sokolowski.


The study illustrated that although nonprofits have generally enjoyed the benefits of a tax-exempt organization, for the past five years a majority of nonprofits have been paying charges accrued to local and state governments.


Salamon, director of the Baltimore, Md., located Johns Hopkins Center for Civil Society Services, described this tactic as self-defeating. “What these governments are essentially doing is driving more need to the government side, by taxing these nonprofits, programs need to be eliminated. It’s really cutting off its nose despite its face.”


The types of fees encumbered by nonprofits have varied in their scope and application to their size. PILOTs have been generally applied to larger nonprofits. This is a type of fee that is negotiated by local governments and nonprofits.


Of the responding organizations, 9 percent paid a fee like this with the largest share of payments coming from elderly housing & service organizations (26.4 percent).


The average amount paid in PILOTS by survey respondents was $422,095. Again, PILOT payments are generally reserved for larger organizations thus the explanation for such a large sum of money.

Read the full article about this subject at The NonProfit Times website.

Who will be our next President?

The economy was on everyone’s minds last week as the final Presidential debate between John McCain and Barack Obama got underway. McCain launched his attack concentrating on Obama’s $60 billion proposal to improve the economic problems in the U.S, suggesting that this plan would mean tax increases for many Americans. Both candidates spoke directly to “Joe the Plumber” who had confronted Obama Monday at a rally in Ohio regarding his tax policies. Joe Wurzelbacher, the plumber, suggested that Obama’s plan would increase his taxes. According to Obama, his plan would increase taxes on wealthy American’s making over $250.00, so “Joe the Plumber” must expect to do pretty well if he thinks he will be impacted. McCain asked Obama why he would want to increase anybodies taxes right now. “We both want to cut taxes,” Obama said. “The difference is who we want to cut taxes for.”

Obama fought back using his running mate, Sen. Joe Biden’s comment that McCain’s campaign advertising had been 100% negative according to a study by the University of Wisconsin Advertising Project that examined TV ad spending by the two candidates from September 28 to October 4.

According to the Campaign Media Analysis Group,"An analysis of campaign commercials aired over the last seven days shows Obama outspent McCain nationwide by more than 2-1: $21.5 million vs. $9.2 million. But just under half of the money Obama is spending is going toward negative spots, meaning the Illinois senator is roughly keeping pace with his GOP rival when it comes to negative commercials, in terms of cash spent," the story said.

Was there a clear winner in that debate? Which plan will offer the best hope for a bright future in the nonprofit sector? Let us know what you think.