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Nonprofits and Cybersecurity: Make it a Priority

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Not long ago, Harvard University was hacked. So was Penn State University. But they are huge institutions – you may be thinking – likely to interest cyber thieves.

That may have been the mindset of the directors of the Utah Food Bank until – in a single data breach – hackers stole personal and financial data of over 10,000 donors: names,  addresses, email addresses, and credit card numbers.

Hacking is big news these days. There is a false belief that cyber threats are aimed at major businesses, governments, news organizations and other political targets. The reality is sobering: The risk is much more widespread, and has devastating consequences, financially and legally. “Cyber threats are a factor for any organization with digital record-keeping. Hackers do not care what you do, only whether you have records they can harvest.”

As part of any nonprofit’s ongoing risk management strategy, cybersecurity should now be near the top of the list. That means getting informed about: the nature and extent of the threat; what precautionary steps are available, including possible insurance coverage; and the organization’s responsibilities under law. Many states, including California, have laws on the books requiring action by any entity that was hacked and where outsiders’ data has been compromised.

   Resources on Nonprofits and Cybersecurity

Recognizing that this a daunting issue for most people who are not cybersecurity experts, there are, nevertheless, many useful introductory articles and publications. Here are just a few:

   Laws Applicable to Cybersecurity

In 2002, California took the lead in addressing the duties of hacked entities and government agencies; they must give notice to victims of data theft. Since then, most other U.S. jurisdictions and many nations around the world have adopted similar laws.

California has, from time to time, updated its data security breach notification laws; the most recent were amendments effective January 1, 2016 to California Civil Code sections 1798.29 and 1798.82.  “These amendments represent significant changes to [these] security breach notifications provisions. In particular, they impact how to respond to security breaches, how to protect personal information and the scope of what information is protected.”

All Californians, including consumer customers, employees, and residents of California, are covered by these amended laws. Although residents of other states or countries are not expressly granted protection, as a practical matter, “the California law has caused millions of people outside California to receive breach notifications.”

The data protected includes “personal information” which is defined to include an individual’s first name or first initial and last name in combination with any one or more of the following data elements: (a) social security number; (b) driver’s license or CA identification card number; (c) account number, credit or debit card number, in combination with any required security code, access code, or password that would permit access to an individual’s financial account; (d) medical information; (e) health insurance information; and (f) information collected through an automated license plate recognition system.

The data breach notification is not required if either the name or other data elements are “encrypted.” The new law defines the term “encrypted” to mean  “rendered unusable, unreadable, or indecipherable to an unauthorized person through a security technology or methodology generally accepted in the field of information security.”   

The website of the California Attorney General includes information including a sample security breach notification form.

   Conclusion

No nonprofit or business is too small for hackers to notice. The fact is, small nonprofits often make perfect targets precisely because they are not protected by security teams like many large companies are. Additionally, if your nonprofit has any type of online presence, it can be penetrated using software that scavenges the internet and sends out automated attacks without requiring the hackers to have any prior knowledge of the targets.”

All nonprofits should make cybersecurity a priority, setting a tone for the organization to take it seriously, develop data security policies, provide cybersecurity training for all directors, officers, and other personnel, and consider buying cybersecurity insurance coverage.

 

The post Nonprofits and Cybersecurity: Make it a Priority appeared first on For Purpose Law Group.


Charities in the Courtroom: Part 1

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Although, occasionally, a high-profile charity scandal hits the headlines, most people are unaware that nonprofits go to court (or are summoned there by others) on a fairly regular basis.

This unawareness may arise from blissful ignorance of all the laws that apply to charitable organizations – some unique to the philanthropic mission and others that apply across the board.

It may arise from something vague they’ve heard about including the notion of “charitable immunity.” There have been times in the distant past that charities had some protection against negligence lawsuits, but those days are long gone.

It may arise from an acute sense of karma – as in “it’s bad karma to sue a charity” or just plain tacky. Sadly, though, enough people have overcome any such reticence to keep many trial lawyers busy.

   Types of Lawsuits

So what types of matters arise and which are the most common?

There’s a surprisingly broad range of legal issues that may bring a charity into the courtroom either as a plaintiff or as a defendant. These can include disputes among or against board members, issues arising in connection with memberships, contract or real estate problems, and negligence liability – just to name a few.

According to insurance specialists, though, the most frequent issues that arise for nonprofits are ones not specific to the charitable sector. They are employment problems and disputes: for instance, discrimination and harassment claims, wrongful terminations, violations of labor laws about pay and working conditions, and contract disputes. 

A handy way to appreciate the scope of possibilities is to take a quick peek back at courtroom cases we’ve already highlighted in this blog.  Here are just a few:

  • A Rose by Any Other Name…: A large charity brought an infringement lawsuit against a much smaller one with a deceptively similar name
  • Charitable Gifts in Perpetuity: Not a Great Idea: Potential donor to struggling Paul Smith’s College wanted her name in lights, but a court refused to change the terms of testamentary trust that mandated that the original name be kept “in perpetuity.”

And our favorite –

  Conclusion

Some new cases are coming up in Part 2: a college that spends several years and hundreds of thousands of dollars to get a divorce from its alumni association; a famous museum that fights a quadriplegic patron’s request for a membership-fee discount under the Americans with Disabilities Act; and a lawsuit attempting to force the federal government to abide by animal protection statutes – thrown out for lack of “standing” of our almost-upright primate cousins.                                                       

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Labor and Employment Law – New Year’s Resolutions for 2017

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Now that the hustle and bustle of the holidays are over,  it’s time to start making resolutions for the New Year.

As a small business or nonprofit organization, January is the perfect time to look forward and ensure you have the best employment foundation and plan for the coming year.

For example, do you have an employee handbook? When was the last time it was updated? Did all of your employees receive the most recent version and execute a signature page? How long has it been since your employment agreement was updated?

There have been significant changes in California employment law, with more to come throughout 2017 and 2018. A well-drafted, up to date employee handbook can help a business prevent employee disputes and avoid litigation.

Any good employee handbook should address leave, compensation and other provisions – and considering the changes on the calendar, the time to ensure they are up to date is NOW.  Below is a brief summary of relevant labor and employment law updates affecting businesses across the state of California in the coming year. Many of these updates are set to take effect on January 1, 2017. Employers should review their policies and practices to ensure compliance and to limit potential exposure depending on their varying needs and concerns.

Tip: Did you know that in 2016 For Purpose Law Group established a new employment practice group in order to better serve our clients with the goal of assisting nonprofit and business employers of all sizes with their employment related needs including litigation and best practices?

We look forward to providing services and insight to our clients in this field. There have been significant changes in California employment law, with more to come in 2017 and 2018. Well-drafted, up to date employee documents can help a business prevent employee disputes and avoid litigation.

California Paid Family Leave Updates

California Paid Family Leave (PFL) provides wage replacement benefits to individuals who lose wages when they need to take time off work to care for a seriously ill child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner, or to bond with a new child entering the family by birth, adoption, or foster care placement. Benefits are payable for a maximum of 6 weeks during a 12 month period.

Effective January 1, 2018, AB908 established an increase in employee’s weekly PFL benefits of 60% or 70% of their weekly wages, depending on the highest quarterly wages earned during a base period instead of the former flat 55%. These increased benefits also apply to disability benefits for individuals who are unable to work due to non-work related illness or injury, pregnancy, or childbirth. Effective January 1, 2018, the amendment also eliminates an existing 7-day non-payable waiting period for PFL benefits.

It is important to understand there is a difference between the job protection and other benefits provided by FMLA and the California Family Rights Act (CFRA) and California Paid Family Leave. It is an area that can get confusing, and even the best-intentioned employers can make a costly mistake. If your information is incorrect, you risk interfering with or improperly withholding your employee’s benefits, subjecting you to a possible legal action.

Tip: Do you have a leave of absence policy? Be sure your employee is actually on ‘unpaid leave’ before requiring or allowing them to use accrued paid leave, vacation or sick time.

The California Family Rights Act (CFRA), Gov. Code, § 12945.2, was established to ensure job protection rights. The CFRA applies to private employers that have employed at least 50 employees within a 75 mile radius and provides eligible employees up to 12 weeks of protected, unpaid leave during a 12-month period to care for a seriously ill child, parent, parent-in-law, grandparent, grandchild, sibling, spouse, or registered domestic partner, or to bond with a new child entering the family by birth, adoption, or foster care placement, or due to an employee’s own serious medical condition that prevents the employee from performing his or her job duties.

Employers may have complementary leave policies which may include requiring or allowing employees to use accrued paid leave, vacation or sick time, when an employee goes on unpaid leave, which is permitted and regulated by both the CFRA and FMLA. Do you have a stated paid leave policy? It is important to make sure these internal policies align with CFRA and FMLA. This is one of the top areas where employers get tripped up and their policies can unintentionally violate the law, leading to an employee complaint or legal action.

Employees who are receiving disability benefits or partial wage replacement benefits while on CFRA leave are not considered to be on “unpaid leave.” Therefore, while employers can require employees to utilize accrued paid leave PRIOR TO or AFTER CFRA leave, they cannot require those employees to use any accrued paid leave DURING the CFRA leave.

Further, pregnancy is not considered a serious health condition under the CFRA. Where employee leave relating to pregnancy disability is covered under the FMLA, pregnancy itself is not covered as a “serious health condition” under the California Family Rights Act. Instead, in California, a pregnant employee is entitled to a Pregnancy Disability Leave (PDL) of up to 4 months (16 weeks). Unlike CFRA leave, Employers with only 5 or more employees are subject to this Act. There is no eligibility period for employees seeking PDL. The first 12 weeks of PDL can run concurrently with FMLA for eligible employees, and for that period, employers need to keep eligible employees’ health benefits. The eligible CFRA employee can then take their 12-week CFRA baby bonding leave in addition to the PDL.

Changes and Updates to California Sick Leave

California sick leave was established by the Healthy Workplaces Healthy Families Act of January 2015. You should already be complying with California Sick Leave requirements, which went into effect on 7/1/2015, however multiple cities in California have now enacted their own sick leave requirements heading in to 2016. The following California cities now have sick leave ordinances applicable to some or all of the employees working within their boundaries: Berkeley, Emeryville, Oakland, Long Beach, the City of Los Angeles, the County of Los Angeles, San Diego, San Francisco, and Santa Monica. No two ordinances are exactly the same, so it is important to make sure you are in compliance. Employers with employees in some or all of those cities or counties must comply with both state law and the applicable city/county ordinance, which can result in a patchwork of necessary policies for one employer.

Tip: Do you have a sick leave policy? Does it comply with both state and local regulations? Are your managers properly trained on how and when an employee may use sick leave?

The New Year is a good time to take a look at your sick leave policies and ensure that managers understand paid sick leave general requirements, reasons for using paid sick leave, and there is no retaliation against employees for using paid sick leave.

Wage and Hour Update – Minimum Wage on the Rise and the Ripple Effect

As of January 1, 2017, minimum wage will increase for California businesses with 26 or more employees. Smaller businesses, with 25 or less employees, will have an extra year before seeing higher rates, with their increase to take effect on January 1, 2018. Senate Bill 3 established rates up and through 2022, with future increases to be linked to increases in the consumer price index.

California state minimum wage will be increase incrementally, as follows:

For employers with 1-25 employees:

  • $10.00 as of 1/1/16
  • $10.50 as of 1/1/18
  • $11.00 as of 1/1/19
  • $12.00 as of 1/1/20

For employers with 26 or more employees, the increases are accelerated:

  • $10.00 as of 1/1/16
  • $10.50 as of 1/1/17
  • $11.00 as of 1/1/18
  • $12.00 as of 1/1/19 

Tip: Make sure you’ve properly classified your workers as exempt, or non-exempt from California’s overtime rules. The criteria for classification include

Minimum salary for overtime exemption increases as California minimum wage increases: the exemption is currently pegged at $41,600.00 in California, but as the minimum wage increases, that number will climb! The exemption will increase to $43,680 on 1/1/17 for employers with 25+ employees, and will increase to $45,760 on 1/1/18 for businesses with 25+ employees. If the fight to increase the minimum wage to $15 succeeds, the exemption will become $62,400 annually! This is a flat minimum salary, and cannot be prorated for a part time exempt employee. As we’ve posted about previously, the United States Department of Labor has long sought to increase the salary and compensation levels necessary for employees to be exempt from the federal Fair Labor Standards Act.

Local Minimum Wages are also going up as the “Fight for $15” movement continues. For example, San Diego’s minimum wage will increase to $11.50 as of January 1, 2017. Los Angeles will increase to $12.00 on July 1, 2017. These, and a number of other local municipalities have legislated their own scheduled increases. Additionally, not all of these wage increases take effect in January, so it’s important to stay on top of your locally scheduled increase!

Defending Wage and Hour Cases: Getting More Expensive

Regular review and annual vigilance is crucial to ensuring compliance with the new wage requirements and avoiding an employee wage and hour action. Assembly Bill 2899 expands the requirement that employers post a bond upon appeal of wage violations under California Labor Code Section 1971.1 AB 2899 now applies the bond requirement to appeals for cases that were initiated by the Labor Commissioner for violations of wage laws. It also requires that employers post a bond with the Labor Commissioner prior to filing an appeal of a decision by the Labor Commissioner relating to violation of minimum wage laws. The bond must cover the total amount of minimum wages, liquidated damages, and overtime compensation owed to employees. The total amount of the bond is to be forfeited to the employee if the employer fails to pay the amounts owed within 10 days from the conclusion of the proceedings.

Fair Pay Act and the Elimination of Wage Disparities

California law prohibits employers from paying employees at rates less than the rates paid to employees of the opposite sex for substantially similar work when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions. (Labor Code Section 1197.5) This year the California legislature further accentuated the need to use objective, non-discriminatory factors in determining wages, advancement, bonuses and any other compensation.

Question: Are all of your employees being equally compensated for equal work?

Assembly Bill No. 1676 provides that an individual’s prior salary cannot, by itself, justify any disparity in compensation. It’s easier to make this mistake than you think. Maybe a new hire comes in demanding less than market value for their position. Maybe in considering an employee’s compensation, you consider how much they are making now or have been making and just ‘bump it up’. Next time it’s time to hand out raises or bonuses, or bring on a new employee, employers should consider a number of factors including market value of the position, seniority, merit, that employee’s production.

Question: What factors do you consider when issuing employee compensation? Is that enough?

Senate Bill No. 1063 also amends Labor Code Section 1197.5 to expand the Fair Pay Act to prohibit employers from paying lesser wages to employees of another race or ethnicity for substantially similar work. An employer is going to need to affirmatively demonstrate that wage differentials are based on lawful, nondiscriminatory factors such as: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) a bona fide factor other than race or ethnicity.

It is clear this is an area of focus for the California Department of Labor in the coming year, and employers should expect strict enforcement and penalties. Now is the time to dust off the books, take a look at your employees, their compensation and job descriptions, and make sure there are no glaring disparities to an outsider looking in.

Pay Stub Reform – Itemized Wage Statements for Exempt Employees 

Labor Code Section 226 currently requires employers to state the total number of hours worked by the employee on his or her itemized wage statements. Previously, the only exception to this requirement applied to employees paid solely by salary and exempt from overtime pay under Labor Code Section 515(a) or applicable Industrial Welfare Commission (IWC) Wage Orders.

Assembly Bill 2535 expands this exception to cover other employees who are exempt from minimum wage and overtime. Employers will not be required to list an employee’s total hours worked if the employee is exempt from the payment of minimum wage and the employee is exempt from overtime.

Medical Marijuana: California’s Prop 64 Impact on Employers

California voters passed Proposition 64, which permits the recreational use of marijuana for adults 21 years old and over. Prop 64 continues to prohibit smoking while driving a vehicle, in all public places, and anywhere that smoking tobacco is prohibited. Possession of marijuana on the grounds of a school, day care, or youth center while children are present is illegal.

Question: Do you have a drug testing policy in place? Can an employer regulate an employee’s marijuana use now that Prop 64 has passed?

First, it’s important to note that marijuana remains a crime under federal law. Regardless of state and local regulations, federal law supercedes and is the supreme law of the land. Prop 64 contains provisions that codified case law that emerged after the legalization of medical marijuana, making clear that employers remain free to test workers for marijuana use before hiring them, or at any point during their employment if there is a reasonable suspicion of impairment. If employees test positive, Prop 64 allows businesses to terminate their employment even if there is no indication that they were actually impaired on the job.

Notable Employee Handbook Updates

Based on the new regulations, it is highly likely you are going to need to update your employee handbook. If you cannot remember the last time your employee documents were updated, or worse, you have multiple versions circulating, it is time to update your handbook and related documents. Here are some updates you will need in 2017:

SB1241: FORUM SELECTION CLAUSE

Senate Bill No. 1241, now codified as California Labor Code Section 925, mandates that an employer cannot require employee who lives and works in California to agree, as condition of employment, to non-California venue or choice of law.

Section 925 permits employees who primarily reside and work in California to unilaterally void forum selection or choice of law clauses in most agreements with their employers that are entered into, modified, or extended after January 1, 2017 that would require the employee who primarily resides and works in California to adjudicate claims arising in California in any locale outside the state. This applies to all employment agreements required as a condition of employment—such as arbitration agreements, executive agreements, and commission agreement. An employee may void only the specific provision, however, not the entire agreement.

AB 1843: BAN THE BOX

Assembly Bill 1843 Prohibits employers from seeking or using juvenile criminal history in consideration of employment. California Labor Code Section 432.7 prohibits most employers from asking an applicant to disclose any arrest or detention that did not result in a conviction, or from using such information. AB1843 expands this prohibition to include any information concerning or relating to an arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.

AB2337: NEW NOTICE REQUIREMENTS

Assembly bill 2337 is going to require written notice to new employees, and current employees on request, regarding domestic violence, sexual assault, and stalking protections. Existing law prohibits an employer from discharging or in any manner discriminating or retaliating against an employee who is a victim of domestic violence, sexual assault, or stalking for taking time off from work for specified purposes related to addressing the domestic violence, sexual assault, or stalking.

The bill requires the Labor Commissioner, on or before July 1, 2017, to develop a form that an employer may elect to use to comply with these provisions. Employers are not required to comply with the notice of rights requirement until the Labor Commissioner posts the form, but it is worth preparing your documents now.

Cases Worth Watching

These are the major highlights of new California regulations that employers will face in 2017. In addition to the slew of new legislation, there are some notable cases on the horizon worth watching including:

Troester v. Starbucks Corp., Docket No. S234969: Which will address whether FLSA de minimis doctrine applies under California law, meaning whether infrequent and insignificant periods of time beyond the scheduled working hours, which cannot as a practical matter be precisely recorded for payroll purposes, may be disregarded. The courts have previously held that such periods of time are insignificant “de minimus”. In some industries, particularly where time clocks are used, there has been the practice for many years of recording the employee’s starting and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Such practices of recording working time have generally been acceptable, provided they do not result in failure to count all the time the employees have actually worked. This decision may affect a large number of employers, and is one we will be keeping an eye on.

McLean v. State of Cal., 1 Cal.5th 615 (2016) regarding how final paycheck timing rules apply to employee who is retiring.

Alvarado v. Dart Container Corp. of California, Docket No. S232607 regarding the proper method for calculating overtime rate based on hourly wage plus flat-sum bonus.

Doe v Google – regarding the breadth and legality of employee confidentiality agreements and corporate internal surveillance of employees.

New Year Checklist

Based on the new regulations taking effect and in anticipation of the current trends in California employment law, employers should review their policies and practices—preferably with legal counsel—to ensure compliance and to limit potential exposure depending on their varying needs and concerns.

To assist employers prepare for 2017, we have prepared a checklist:

  • Update employee handbook and all employment documents for compliance with new laws for 2017
  • Review current employment contracts and applications for non-compliant terms and provisions
  • Conduct pay audits of current employee salaries and consider eliminating prior salary questions from job applications
  • Train staff and managers on new laws
  • Review state and local sick leave requirements and ensure policies are in compliance
  • Ensure all CA employees are receiving paid sick leave or PTO
  • Post updated state and local workplace notices
  • Assess workplace drug policy in light of Prop 64
  • Review I-9 procedures to ensure they are being followed
  • Update no-smoking policy
  • Ensure all single occupancy bathrooms are now designated ‘all gender’
  • Ensure compliance with state and local minimum wage increases for both hourly and salaried employees.

 

The post Labor and Employment Law – New Year’s Resolutions for 2017 appeared first on For Purpose Law Group.

Renewed Efforts to Rein In College Endowments

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Over the past year or so, there’s been significant attention and discussion about the multi-billion-dollar endowments enjoyed by some of the nation’s most prominent colleges and universities.

There have been “growing concerns in recent years about the massive nest eggs of the nation’s most prestigious institutions of higher learning.”  

These criticisms arise against a background of record-breaking fundraising. In 2015, for instance, Harvard University, received some $1.05 billion in charitable donations. This continues a trend in which the wealthiest schools receive a disproportionate share of the philanthropic dollars flowing nationwide into higher education.

  Endowments Concerns Raised Previously

Earlier in 2016, the Senate Finance and the House Ways and Means Committee “had issued joint letters to over 50 colleges and universities, each of which has an endowment valued at $1 billion or more. In that letter, there were 13 endowment-related questions; answers were requested by April 1, 2016.”

This isn’t the first time that officials and legislators have raised concerns over these massive endowment funds. In 2008, the IRS sent out compliance questionnaires to approximately 400 colleges and universities in connection with a larger IRS review program focusing on “the  growth of endowment funds, the compensation paid to fund managers, and whether more money from such funds should be used to offset the rising tuition rates being charged by educational institutions that are ‘charitable’ organizations.”

Congress was not at all mollified by the responses from these 50 educational institutions. This included the argument that some institutions, including Harvard University, have recently suffered slower-than-usual investment returns on their massive endowment portfolios.

In September 2016, Congressional leaders announced the scheduling of additional hearings for follow-up questions. Though the House Ways and Means Committee proceedings was “nominally about the tax-exempt status of college endowments, … much of the discussion focused on college affordability — a broader issue clearly on the minds of both Republicans and Democrats on the panel.” A spokeswoman for the House committee explained: “This is another step that the committee is taking to understand what colleges are doing to address soaring college costs through their endowments and nonprofit tax status.”

Lawmakers also sent an additional round of questions to some of those institutions.

The matter was also raised during the presidential election campaigns; the Democratic platform, for instance, called for free college tuition in some circumstances for certain students.

  Current Congressional Action on Endowments

A Congressional proposal raised last year is now being pushed forward again.

New York’s Republican Representative Tom Reed had, in early 2016, called for the universities with the largest endowments to “direct 25 percent of their annual endowment income to financial aid for middle- and working-class students – or lose their tax exemption.”

As originally set out, this measure would apply to institutions with endowments of $1 billion or more – estimated to be approximately 100 universities and colleges.

Now that proposal is being given new life, thanks to Rep. Reed who was recently vice chair of the then President elect’s transition team, and has moved into a position of greater influence. These institutions with $100-billion+ endowments would be called on to –

offer steep discounts to families with annual incomes of between $24,000 and $145,000. The proposal also would require all universities receiving federal aid to provide more disclosure about administrative salaries and perks and file “cost-containment plans” designed to keep tuition increases below the inflation rate.

This news has spooked not just the targeted universities but also wealthy donors. “The super-rich often slim their tax bills by swelling the coffers of their alma maters through donations for pet projects. Now, under a tax overhaul in Washington, the tax benefits of such gifts could be curtailed.” These one-percenters and their alma maters argue that this change in the rules regarding college endowments may force them to curtail charitable giving to universities that focus on other areas than general student education.

“This kind of restriction will not address the cost of higher education,” according to University of Southern California president. “At USC, which has a $4.6 billion endowment, Oracle Corp. co-founder Larry Ellison’s recent $200 million gift in support of a cancer research center would not be fully deductible under the Reed plan.”

  Conclusion

This will be an interesting push-and-pull to watch at the beginning of this new Administration and new Congress. It’s anyone’s guess what the outcome will be.

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MacArthur $100-Million Contest Semifinalists Announced

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Early last summer, we reported in “The MacArthur $100-Million Grant Contest,” on the launch by the highly regarded MacArthur Foundation of an exciting contest: there is to be a $100-million award for a “single proposal that will make measurable progress toward solving a significant problem.

“Big problems require bold solutions.”

That was the pitch for “proposals from any sector” with  no preferred “single field or problem.” The sole parameter is that the proposal must “have a charitable purpose” and be focused on a present-day “critical issue.”

Excluded from consideration are individuals or government entities; otherwise, “eligible organizations may be of any type, for-profit, nonprofit, or other, from anywhere in the world.” The only limitation is that “[e]ach must show the capacity to manage and deliver on the proposed solution.”

While there was some early skepticism and criticism of plunging such an enormous amount of money into a single project, the contest generated enormous interest. Within the few months of the contest-application period, some 1900 applications were filed “for an incredibly diverse range of creative, thoughtful, and potentially effective projects” were received.  Foundation officials were “inspired by the number of people and teams who had taken the time and energy to participate, and who shared […the…] belief that solutions are possible for even the most daunting global problems.”

These initial submissions were winnowed down to about 800 proposals that met all of the conditions and qualifications.  

A requirement of each submission was inclusion of a 90-second video summarizing the proposal. Many have been posted online via YouTube; they are quick and easy peeks into the exciting proposals under consideration for this prestigious prize.

This video clip includes a provocative selection of remarkably creative projects: https://www.macfound.org/press/perspectives/look-100-change-through-video/

On February 16, 2017, the Foundation announced eight semi-finalists for the global “100&Change” competition:

  • Catholic Relief Services, which, in partnership with Lumos and Maestral International, proposes to unite children in orphanages with supportive and nurturing families and transform orphanages into family service providers
  • HarvestPlus, which hopes to eliminate so-called hidden hunger — diets lacking vitamins and minerals that can lead to blindness, stunting, cognitive impairment, disease, and death — by fortifying staple crops such as corn, cassava, and wheat
  • Himalayan Cataract Project, which will work to deliver sustainable eye care in Nepal, Ethiopia, and Ghana using an adaptable, replicable, and scalable “train-the trainer” model
  • Human Diagnosis Project, which has proposed to provide three million underserved patients in the U.S. with virtual access to a hundred thousand volunteer specialists
  • the Internet Archive, which hopes to expand free and long-term public access to knowledge by providing libraries and learners with free digital access to some four million books
  • Rice University‘s Rice 360° Institute for Global Health, which hopes to boost newborn survival rates in Africa with low-cost solutions and technologies that enable clinicians to provide quality newborn care in low-resource settings
  • Sesame Workshop and the International Rescue Committee, which propose to develop and deliver multimedia content to meet the educational needs of children displaced by conflict and persecution in Iraq, Jordan, Lebanon, and Syria
  • the Carter Center, which is focused on eliminating transmission of river blindness in Nigeria by administering ivermectin through community-directed distribution systems.”

To browse project summaries and watch a video overview of the eight semi-finalist projects, see the MacArthur Foundation website.

For the next step, each semi-finalist group will “work with an expert team to address questions about its technical and organizational capacity and refine its proposal” and have to “demonstrate authentic engagement with their target communities and stakeholders.”

Finally, the expert teams will prepare and submit an assessment to the MacArthur Foundation’s Board of Directors which will choose up to five finalists in September 2017. Following presentations by these finalist-applicants in December 2017, the Board will select a single winner that will receive the $100-million.  

   Conclusion

“Big problems require bold solutions.”  We look forward to seeing which entrant’s bold solutions will get a $100-million chance to succeed.

 

The post MacArthur $100-Million Contest Semifinalists Announced appeared first on For Purpose Law Group.

Patient Advocacy Nonprofits’ Dark Ties to Industry

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In recent years, the secretive relationships between healthcare businesses and physicians have been exposed, leading to some much-needed reforms of the sordid practice of doctors being paid to direct patients to certain prescription drugs or to medical products or services.

Two new studies – just announced in the national media – may bring needed sunlight to another unsavory trend: the incestuous connections between patient-advocacy groups and the healthcare industry.

Patient Advocacy Organizations Cozy Up to Business

“Patient groups are supposed to represent patients. But many have deep ties to industry.”

Dr. Ezekial Emanual, well-known University of Pennsylvania health-policy expert, is a co-author of the first study titled “Conflicts of Interest for Patient-Advocacy Organizations.

According to this report in the Journal of the American Medical Association, “[m]ore than eight in 10 patient groups take money from the medical industry,” and “[a] quarter of the largest patient advocacy groups in the U.S. get more than $1 million each year from the industry.”

Just as alarming is that, “in addition to the financial support, at least 39 percent of patient groups had current or former industry executives on their boards, meaning industry players are helping guide and govern these organizations.”

These researchers looked at Form 990 tax records, annual reports, and websites of the largest US-based patient advocacy groups; those with annual revenues of at least $7.5 million. “They found patient groups were failing miserably at managing their conflicts of interest. The vast majority took money from industry, and yet 88 percent of the organizations the authors looked at had not published policies for conflicts of interest.”

These include such powerhouses as the American Diabetes Association, the Arthritis Foundation, and the Epilepsy Foundation. Of course, these findings don’t necessarily mean that these groups have been compromised, according to Matthew McCoy, a postdoctoral fellow leading the research team. “I don’t want to impugn them,” he said. “But I think we have a right to know more. Several of the named organizations responded to this report denying any problems associated with this funding.

A second study, with similar conclusions, was published recently in JAMA Internal Medicine. Author Susannah Rose, Ph.D., reported that some 67% of a national sample of patient advocacy organizations, had received “funding from for-profit companies. Twelve percent received more than half of their funding from industry; a median proportion of 45% of industry funding was derived from the pharmaceutical, device, and/or biotechnology sectors.”

“A lot of people believe and really trust in patient advocacy groups,” said Dr. Rose.

These groups are often very powerful — not only providing care and direct access to patients and physicians — but they are also big players in national and state and local governments in terms of policy development and driving research agendas….[T]hey need to maintain their independence from the industry to keep their credibility.

Patient Advocacy Groups’ Unsavory Ties: Recommendations

The study authors point out that “[r]esearch for decades has shown that cozy relationships between doctors and industry — for instance, industry-sponsored medical education and free drug samples from pharmaceutical companies — can bias doctors’ judgment in all sorts of negative ways.” The remedy has been to bring out these relationships into the sunlight and mandate that conflict-of-interest policies be adopted. Indeed, “[medicine] has become more transparent over the past decade –

with drug and device makers now publishing information about which doctors and teaching hospitals they give money or gifts to, and medical journals and research institutions pushing for clear disclosures on conflicts of interest. The idea is that transparency is a disinfectant that reduces the risk of bias in research and medical practice.

A similar approach – “more transparency” – is needed for the patient-advocacy groups and their business funders.

Drop in on any of the fierce debates about drug prices or the need for new medicines in the US, and you’ll find patient advocacy groups right in the middle, speaking up for the sick. These organizations represent millions of people with diseases like cancer, MS, and diabetes, and they are among the first places people turn to for help when they get sick.

“Patient groups have been seen to be knights in shining armor and above reproach,” Dr. Emanuel says. “They haven’t established [the conflict of interest] policies that everyone else — from major hospitals to researchers and journals — has had to.”

  Conclusion

These important new studies, highlighted by national media attention, should spur action on the part of the patient-advocacy nonprofits to come out into the sunlight and make necessary reforms and disclosures.

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Charity Shenanigans of the Billionaire-Philanthropist Doctor

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In “Patient-Advocacy Nonprofits’ Dark Ties to Industry,” we examined some practices in the nonprofit sector that need a huge dose of sunlight on them to expose apparent conflicts of interest. Specifically, we referred to the often too-cozy relationships between patient-advocacy organizations and drug companies or other healthcare businesses that fund them.

This post tells the tale of  Patrick Soon-Shiang, M.D., a billionaire doctor and entrepreneur. He can’t seem to step away from the spotlight, attracting attention to unsavory charitable-giving practices for all the world to see. The title of a recent article about Dr. Soon-Shiong is:  “How the world’s richest doctor gave away millions — then steered the cash back to his company.” This gives a strong clue about the heap of trouble facing him.

   The Creation of the Philanthropist

In 2013, Fortune magazine ran a lengthy, highly revealing profile – “Who’s the Richest Guy in L.A?” – of this colorful character.  It’s a fascinating story of this now-60-something physician/entrepreneur, from his birth as the ninth of 11 children of  Chinese parents living in South Africa.

He moved to Los Angeles over 30 years ago, armed with a medical degree and “a plan to save the world.”  Dr. Soon-Shiong was “a pioneering transplant surgeon at UCLA in the 1980s, a widely published researcher, and the inventor of the cancer drug Abraxane.”

But there was always another side to Soon-Shiong,” recalls a friend. “You just meet some guys in your life who know how to make money….Patrick is one of those guys.”

In 1998, the enterprising physician-entrepreneur “cobbled together loans to buy a struggling generic drugmaker. He turned the company around, used the profits to develop Abraxane, preserved his equity, and cashed out a decade later with two spectacular deals that catapulted him into the upper reaches of the American plutocracy.”

He is brilliant and driven. He believes –

we are on the cusp of a transformative moment in medicine …., [c]onvinced that by leveraging all the cool stuff that’s happening right now in mobile technology, supercomputing, machine vision, artificial intelligence, cloud storage, mega-high-speed data transmission, genomics, and proteomics, medicine will emerge at long last from the Dark Ages. He sees paradigm-shifting implications for how researchers develop new therapies and doctors diagnose and treat even the most terrifying diseases — especially the terrifying ones….”

Patrick Soon-Shiang is very much a “self-promoter.”  Recently, he met twice with Donald Trump, actively seeking the job of the “nation’s health czar.” He and his wife, a former actress, are now “among L.A.’s newest A-list philanthropists.”

   The Undoing of the Philanthropist

Dr. Soon-Shiong is in the news right now because of some highly irregular “charitable” transactions revealed by “[a] bombshell investigative report.” That it took much digging at all seems doubtful because the man is notoriously public about everything he does.

“This looks like another ugly example of self-dealing philanthropy in the world of medicine—but this one comes with some unusual bells and whistles,” according to the editor of Nonprofit Quarterly.  

Reportedly, Dr. Soon-Shiong “…orchestrated a charitable donation in a way that would ensure almost all of the money would be funneled back into his own companies.” More specifically, he made a $12-million donation to the University of Utah that was “ostensibly meant to spur genetic research for a number of diseases.”

“Hidden in the wording of the University of Utah grant agreement,” though, was the  “requirement that had $10 million of that funneled back into NantHealth,” one of the multi-billionaire’s own companies.

There were additional oddities: “The money came through two private foundations controlled by him,” as well as via his NantHealth Foundation, ‘a type of public charity classified as a medical research organization.’” All NantHealth Foundation board members are “designated by Patrick Soon-Shion, who is neither a member or a stockholder.” These appointee-directors take office upon designation, “… serve at [his] pleasure, and “… hold office until a successor has been designated and qualified.”

The transaction landed him a tax deduction, the philanthropic halo, a stream of steady cash, and access to the university’s patient data, which he needed to build a new commercial product meant to assess patients’ risk of rare and inherited diseases. *** But, that’s not the end of it. Through its relationship with the university, the company then inflated the number of test orders it reported to investors late last year by more than 50 percent.

But wait! There’s more:

NantHealth, the Soon-Shiong company that markets GPS Cancer, appears to have misled investors in reporting its third-quarter earnings last November. The company said that during the quarter it had received 524 orders for the GPS Cancer test, which analyzes tumor genetics and recommends treatments for patients. One-third of those orders came from the University of Utah deal, a company representative told investors on the earnings call.

University of Utah representatives, though, told the media that “the work they ordered from NantHealth had nothing to do with GPS Cancer. They paid for straightforward genetic sequencing, meant strictly for preclinical research,” and “could not understand why NantHealth would count the work as orders for GPS Cancer.”

The author of the investigative report about these dealings asked four tax experts “to review the contracts.” They agreed that this Utah deal “did not pass a sniff test, as it appeared to violate rules concerning charity and self-dealing. To emphasize this point,  one of the experts – Marcus Owens, who formerly headed up the IRS’s Exempt Organizations Division – said “the University of Utah was essentially laundering  the money for Soon-Shiong.” And in an homage to understatement, another of the experts remarked that “[w]e pretty clearly have an optics problem.”

  Conclusion

Remarkably, this is not Dr. Soon-Shiong’s first trip around the block. Some six months earlier than the Utah deal,  Soon-Shiong’s public charity –

announced it would donate $20 million to children’s hospitals in California and Pennsylvania for a research study on sequencing brain tumor samples. In the same press release …, , it [was] also announced that Soon-Shiong’s company NantHealth would be contracted under the grant. A later press release revealed that a portion of the grant would also go to buy NantHealth’s GPS Cancer tests.

Optics, indeed.

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What’s Up These Days with the Form 1023-EZ?

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The Internal Revenue Service used to have a huge problem: it generally took 18 months to two years to process even a fairly straightforward 501(c)(3) tax-exemption application.

That’s when a big change was proposed: the introduction of the Form 1023-EZ for the many new, smaller, organizations.

We posted about that rollout in July 2014, and about the early reaction and results here, here, and here.  Tim Delaney, the President and CEO of the National Council of Nonprofits summed it up fairly well: “It’s easier to get tax-exempt status under Form 1023-EZ than it is to get a library card.”

It did, however, clear up the backup.

  So, How is the Form 1023-EZ Doing These Days?

The Taxpayer Advocate Service “is an independent organization within the IRS.”  Its job is “to ensure that every taxpayer is treated fairly and …[knows and understands its] …rights.”

Each year, the TAS issues a report to Congress that “analyzes the most serious problems facing taxpayers, recommends tax law changes to Congress, and presents original research studies into issues affecting taxpayers.”

  Report on 2015

About a year ago, in “Critics’ Concerns About Form 1023-EZ: Spot On,” we told you about the parts of the 2015 Annual Report to Congress, that relate to exempt organizations. It was brutal.

The “highlights” section on the cover had this observation: “Recognition as a Tax-Exempt Organization is Now Virtually Automatic for Most Applicants.” It went downhill from there.

The rebuke about the tax-exemption application process is one of 9 selected areas of concern. It is a ‘stinging indictment of the IRS’s “absurd” handling of applications for tax exemption, especially the recently introduced 1023-EZ “short form” designed for use by small new charities.

Specifically, the full 2015 TAS discussion on the Form 1023-EZ applications problem are summarized as:

  • The Form 1023-EZ “invites noncompliance, diverts tax dollars and taxpayer donations, and harms organizations later determined to be taxable.
  • The approval rate for 1023-EZ applications is 95%, but when the agency does a pre-determination review on a sampling basis, the approval rate is just 77% when documents or basic information are reviewed, “rather than relying only on the attestations contained in the form.”
  • In the same pre-determination samplings, almost 20% of applicants, “despite their attestations to the[ contrary, did not qualify for exempt status as a matter of law.”  These results are consistent with the Taxpayer Advocate Service’s own representative sample of 1023-EZ applications: “37% of the organizations … did not satisfy the legal requirements for exempt status.”

The National Taxpayer Advocate recommended revisions to the Form 1023-EZ; in particular, to –

require applicants to submit their organizing documents, unless they are corporations in states that make articles of incorporation publicly available online at no cost. Form 1023-EZ should also require applicants to submit a description of their actual or planned activities and financial information such as past and projected revenues and expenses. The IRS should make a determination only after reviewing the application and these supporting materials, and when there is a deficiency in an applicant’s organizing documents, the IRS should require the applicant to submit a certified copy of reformed articles before it confers exempt status.

  Report on 2016

Did the situation improve in 2016? The Taxpayer Advocate Service just issued its most recent report. Here’s how the relevant section of the 2016 Annual Report to Congress begins:

Form 1023-EZ: The IRS’s Reliance on Form 1023-EZ Causes It to Erroneously Grant … § 501(c)(3) Status to Unqualified Organizations.

Ouch!

The problem continues to be that the streamlined application requires applicants only to “attest that they meet the requirements for qualification as” 501(c)(3) organizations.

Since – now – “most applications” for 501(c)(3) status are “submitted on Form 1023-EZ” and, also, “the IRS approves 94 percent of Form 1023-EZ applications,” too many organizations that are either unqualified or are not eligible to use the Form 1023-EZ process, manage to slip through and get approved.

The IRS erroneously approves Form 1023-EZ applications at an unacceptably high rate. The IRS agreed to revise Form 1023-EZ to require a narrative statement of applicants’ activities, but additional information is needed. Analysis Treasury regulations generally require IRC § 501(c)(3) organizations to pass an “organizational test” by including acceptable purpose and dissolution clauses in their organizing documents. According to the IRS’s pre-determination reviews of a portion of Form 1023-EZ applicants, 25 percent do not qualify for exempt status because they do not meet this organizational test.

Next, the Report commented on the comparative results of representative sampling:

A 2015 TAS study of a representative sample of approved Form 1023-EZ applicants in 20 states that make articles of incorporation viewable online at no cost showed that 37 percent do not meet the organizational test. A similar 2016 TAS study showed that 26 percent of approved organizations do not meet the organizational test. In the 2016 TAS study, four percent of the approved organizations consisted of two limited liability companies; two churches; seven schools, colleges, or universities or supporting organizations; and one private operating foundation. Such organizations are never eligible to file Form 1023-EZ.

What are the current recommendations?

What are the current recommendations? The National Taxpayer Advocate recommends that the IRS require Form 1023-EZ applicants to submit their organizing documents, unless they are already available online at no cost, and summary financial information; and make a determination only after considering narrative statements and this additional information.

  New Form 990-EZ

There’s more news about the “EZ” 501(c)(3) process: The IRS has recently released an “updated Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, that will help tax-exempt organizations avoid common mistakes when filing their annual return.”

This new form “includes 29 ‘help’ icons describing key information needed to complete many of the fields within the form. The icons also provide links to additional helpful information available on IRS.gov. These “pop-up” boxes share information to help small and mid-size exempt organizations avoid common mistakes when filling out the form and filing their return.

This change was made in part to encourage online filing which produces fewer errors than paper-filed returns.  

  Conclusion

We’ll monitor and report on any new developments related to this alternate format available to many – though not all – 501(c)(3)s.

 

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Berkshire Museum Drama Heats Up

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Recently, in Controversial Decision for Berkshire Museum, we reported on the uproar caused by last summer’s announcement that the Pittsfield, Massachusetts, institution will sell some 40 valuable and cherished works of art at a November 2017 Sotheby’s auction. Describing the Berkshire Museum’s perilous finances as an “existential threat,” the trustees concluded that the museum must “adapt, migrate or go extinct.”  Despite the board’s explanation that this move had been carefully studied for some two years, it came as a surprise and shock to many in the local community who quickly organized as a force of opposition and resistance.

Nationally, the art world had a collective apoplectic fit at the news. “Deaccessioning” an art collection violatesa cardinal rule of museums:  Don’t sell stuff to pay the bills.” Generally, works of art are  sold only to fund further acquisitions.”  This sale would create an endowment and funds to chart a new path forward for the 100-year-old Berkshire cultural icon.

Well-known art journalist and lecturer Lee Rosenbaum, aka @CultureGrrl, has provided a blow-by-blow account of each and every twist and turn in this saga – albeit from her standpoint as an ardent opponent of this deaccessioning plan. In mid-October, she wrote that “the only realistic hope to stop Berkshire Museum’s misguided course would be legal action, either by the Massachusetts Attorney General’s Office (which is reviewing the case but has not yet announced whether it will act) or by opponents to the sale.”

On October 11th, in the conclusion to Controversial Decision for Berkshire Museum, we posed the question: “Who gets a say in a decision like this?

If the people with the fiduciary duties towards the Museum have pursued all reasonable due diligence, and thoughtfully and carefully made this painful decision, are there any other possible stakeholders? Are there overriding considerations that can be raised by colleagues and community members?  And if a decision to deaccession some of the artwork is the only reasonable path, in light of financial realities, would the trustees violate their fiduciary duties by caving to pressure from the local community and arts representatives?”

 

With the auction set for the week of November 13th, opponents had no time to lose.  Events have moved quickly and provided some answers.

  Auction Opponents File Lawsuits

Several plaintiffs, including the sons of artist Norman Rockwell, filed a lawsuit in Massachusetts Superior Court on October 20, 2017, seeking injunctive relief. The sell-off plan includes two multi-million-dollar paintings donated to the Museum by Rockwell; he had been a long-time, honored, member of the Berkshire community.

The Complaint, here, includes several claims and arguments including the board’s alleged: (1) breach of fiduciary duty; (2) violation of a Massachusetts statute establishing the museum, which requires it to maintain any gifts “for the people of Berkshire County and the general public”; and (3) overblown claim of financial necessity.

Several days later, a separate group of plaintiffs filed a second lawsuit. The Massachusetts Attorney General’s office also joined in the proceedings.

  Plaintiffs Lose First Round

Among certain law and accounting professors who regularly tweet about developments in the exempt-organizations world, there was at least one spot-on prediction of the (initial) litigation outcome: “And [U. of Kentucky Law Professor] Brian Frye called it.  (Yes, he did.)”

Brian Frye rules:  ‘The plaintiffs lack standing & the complaint fails to state a viable cause of action. No written gift condition & “public trust” is pure BS.’

 

The trial judge, John A. Agostini, issued a 25-page ruling on November 7th, declining to halt the sale. It’s well worth the read for a full history of the matter and an exhaustive and thoughtful legal analysis.  The museum trustees were happy. The folks at Sotheby’s were, too. Art Law Blogger Donn Zaretsky reacted in an entertaining rant approving the win against what he terms “the Deaccession Police.”  

But not everyone was pleased. The plaintiffs were not. The Attorney General’s office was not; Judge Agostini slammed it hard for dithering around about getting involved, because the AG – unlike the  plaintiffs – generally has standing in such matters.

And the aforementioned @CultureGrrl was also quite miffed.

  Plaintiffs Get Temporary Reprieve

At the eleventh hour, on Friday, November 10th, the AG’s office appealed Judge Agostini’s ruling.

Late Friday night, a Massachusetts Appeals Court judge granted a preliminary injunction to block the Berkshire Museum from selling art from its collection at Sotheby’s on Monday, 13 November. Justice Joseph Trainor found that ‘the risk of irreparable harm’ weighed in the favour of the petitioners, including Rockwell’s sons, Berkshire Museum members and the Attorney General’s Office (AGO), which recently asked to be added as a plaintiff to the cases. The injunction expires on 11 December, but the judge has given the AGO the option to extend the injunction until its investigation into the deaccessioning can be completed.

 

The Art Law Blogger reacted to the temporary stay: “I guess the appellate court wasn’t as impressed with Judge Agostini’s decision as I was.”

   Conclusion

Beyond the particulars of this Berkshire Museum case, this drama reflects an emerging trend in 501(c)(3) governance: A wide variety of “stakeholders” are challenging the decisions of boards of their important community institutions.

See Proposed Pittsfield Museum Art Sale Raises Core Questions Regarding Nonprofit Stewardship and Boards Should Heed This Multi-Stakeholder Revolt in Western Mass by editor Ruth McCambridge of The Nonprofit Quarterly. See – also – our 2015 series of posts on the stakeholder revolts at Virginia’s Sweet Briar College and the San Diego Opera, here.

 

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Happy Thanksgiving from ALL of Us at For Purpose Law Group!

Charity Navigator Announces New Service

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New Jersey-based Charity Navigator (CN) is “the country’s leading online charity evaluation service.” A 501(c)(3) itself, this organization helps donors make informed decisions about spending their charitable dollars. It gives information and data for about 1.6 million nonprofits including evaluations of these organizations’ financial condition, accountability to the public, and transparency in operations.” Charity Navigator offers this service free of charge to the organizations it evaluates, as well as to the general public; this helps ensure “unbiased evaluations” of the nation’s 501(c)(3)s.

Late last year, Charity Navigator launched a new, expanded service that now includes “impact statements and progress reports.” As of the late 2017 launch, it applies to over 2,400 charities in its database.

This project is the first joint venture with three other important organizations that serve the nonprofit sector:  “We are delighted to be working with GuideStar, GlobalGiving, and Classy,” said Charity Navigator CEO Michael Thatcher, “to encourage thousands of organizations to provide their results information alongside our latest charity evaluations.”

  Collaboration by Charity Sector Leaders

The most significant aspect of the more comprehensive service is the inclusion of the impact reports, according to Mr. Thatcher, who characterizes it as a “radical expansion” of the information already offered by Charity Navigator. It gives donors more of the information they frequently request. In addition to the data already available – that is, financial analyses that Charity Navigator had developed from each organization’s Form 990 filings – site visitors can now review the impact reports that are prepared by the charities, themselves, and supplied by GuideStar, Classy, and GlobalGiving.

This is an initial joint project with these participants; there are some additional collaborations in the planning stages.

The first partner is GuideStar, itself a 501(c)(3), the “world’s largest source of nonprofit information, connecting people and organizations with data on 2.5 million current and formerly IRS-recognized nonprofits.” It has more than eight million site visitors every year including a broad swath of individuals, organizations, public entities, and the media interested in the philanthropic sector. The information offered by GuideStar includes data from the IRS, as well as directly from the 501(c)(3)s, and “via other partners in the nonprofit sector.” Users also “see GuideStar data on more than 200 philanthropic websites and applications.”

Jacob Harold, President and CEO of GuideStar, told reporters that “GuideStar is excited to partner with Charity Navigator to share our quantitative and qualitative data about nonprofit programs.” He added:  “We believe the inclusion of GuideStar’s Gold- and Platinum-level data will enrich donors’ experience on Charity Navigator.”

The second partner in this new project is San Diego-based Classy, a social enterprise that “creates world-class online fundraising tools for nonprofits, modernizing the giving experience to accelerate social impact around the world.”

Classy’s mission “is to mobilize and empower the world for good.” According to Co-Founder Pat Walsh, the organizers of Classy “always felt that showcasing the impact nonprofits are making in their communities is a critical piece of empowering the sector.”

The third participant is GlobalGiving, a 501(c)(3) public charity, that is the “largest global crowdfunding community connecting nonprofits, donors, and companies in nearly every country. This group helps “nonprofits access the tools, training, and support they need to be more effective” and to attract “more donations to more effective organizations.”  

  Conclusion

During this experimental phase, progress reports shared by Charity Navigator will not have any effect on the star or numerical rating nonprofits receive from CN.

A list of all 2,400 organizations currently supplying their progress reports is available upon request.

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Alert About Your Nonprofit’s Website

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If it isn’t one thing, it’s another.” 

Popular idiom recognized as true by most people on Earth

Now that you’ve come to grips with, and accept, that every computer on the planet is likely to be hacked sooner rather than later, and now that you understand that the new General Data Protection Requirements (GDPR) from the faraway European Union may affect you, there’s something else you need to know about – and handle – as soon as possible.

It’s an important change in the latest version of Google’s Chrome, the world’s most popular web browser.  And what happens in Chrome will not long afterward show up as a feature of the other web browsers like Mozilla Firefox and Internet Explorer.

In a nutshell, here it is: Websites that use the prefix “https” will be designated as secure, but sites that still use the prefix “http” will be flagged as insufficiently secure.

   Background on the Website Prefixes

If you’re like us, you’ve probably briefly wondered about – but never lost any sleep over – why some websites have the prefix “http” while others use “https.”  In the early years of the internet, most sites used the prefix “http.” In recent years, the “https” alternative has become more commonplace, though.

The helpful folks at howtogeek.com explain why:

HTTPS, the lock icon in the address bar, an encrypted website connection—it’s known as many things. While it was once reserved primarily for passwords and other sensitive data, the entire web is gradually leaving HTTP behind and switching to HTTPS.

The ‘S” in HTTPS stands for ‘Secure’. It’s the secure version of the standard “hypertext transfer protocol” your web browser uses when communicating with websites.

For a deeper dive into the specifics of how and why the “https” sites are more secure, read further on at HTTPS is and why it’s important and A secure web is here to stay, for example.

“In the past, when a nonprofit wanted to assure a donor that its website was secure, the nonprofit could suggest that the donor look for the little “lock” icon in the address bar which confirms that a site is using HTTPS. Because of this, using HTTPS was akin to a bonus point in the nonprofit’s favor.”

But change was brewing. About three years ago, Google told the computer-nerd community that at some point in the future, Google Chrome would be changed so that any websites not using the “https” prefix would be flagged as insecure. The change was delayed to give website owners a chance to make the necessary adjustments.

In the years since then, Google has “helped users understand that HTTP sites are not secure by gradually marking a larger subset of HTTP pages as ‘not secure.

On February 8, 2018, Google issued the notice titled “A secure web is here to stay,” explaining that Google had been moving “toward a more secure web by strongly advocating that sites adopt HTTPS encryption.” And, beginning in July 2018 with the release of Chrome 68, Chrome will mark all HTTP sites as “not secure.” On schedule, Google rolled out the latest version of its Chrome browser over the summer. Now, the new programming will automatically flag any website not using the HTTPS security standard as “not secure.”

An article dated July 24, 2018, by a techy nerd at CNET explains this important Google change, effective that day:   “Chrome’s long-promised HTTP ‘not secure’ website warnings arrive.” He includes a reassuring caveat, though: “Take note if you see the warning, but don’t panic.

   A More Secure Website

Ok. We won’t panic.

In early August 2018, the National Council of Nonprofits issued a post titled:  New website security warnings raise the bar for nonprofits:

Nonprofits need to take notice that Google just raised the bar when it comes to demonstrating a website is secure. Failing to make changes to comply with the new standards can hinder your nonprofit’s ability to interact with the public, including potential clients and donors.

If this message appears on your site, does it mean that your site is not secure or that any information entered on it by your supporters, donors, and constituents is now at risk?  “Not necessarily.

The precise significance of a website not using the prefix “HTTPS” is that it fails to meet the “best practice standards that Google is now enforcing.”

What if a nonprofit never asks anyone to enter data or personal information on its website: does any of this matter? Not really, but the move to the “HTTPS” is a good idea, anyway. In particular, it “matters for SEO, it will score higher in search results.” And it’s not a good practice to give visitors to your website any reason at all to be wary about proceeding or about interacting with you in any way.

   Conclusion

To change a website address that still begins with “http,” contact your IT department or website support consulting firm. “Any respected web host should be able to easily make this change. Some may charge you for the required SSL certificate. You can also get an SSL certificate at a significant discount via TechSoup. For more technical users, check out this guide on how to quickly add HTTPS to your site. Another great resource on this comes from Aespire, “Safe and Secure: Creating a Trusted Web Experience.”

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Charity Navigator Announces New Service

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New Jersey-based Charity Navigator (CN) is “the country’s leading online charity evaluation service.” A 501(c)(3) itself, this organization helps donors make informed decisions about spending their charitable dollars. It gives information and data for about 1.6 million nonprofits including evaluations of these organizations’ financial condition, accountability to the public, and transparency in operations.” Charity Navigator offers this service free of charge to the organizations it evaluates, as well as to the general public; this helps ensure “unbiased evaluations” of the nation’s 501(c)(3)s.
Late last year, Charity Navigator launched a new, expanded service that now includes “impact statements and progress reports.” As of the late 2017 launch, it applies to over 2,400 charities in its database.
This project is the first joint venture with three other important organizations that serve the nonprofit sector:  “We are delighted to be working with GuideStar, GlobalGiving, and Classy,” said Charity Navigator CEO Michael Thatcher, “to encourage thousands of organizations to provide their results information alongside our latest charity evaluations.”

  Collaboration by Charity Sector Leaders

The most significant aspect of the more comprehensive service is the inclusion of the impact reports, according to Mr. Thatcher, who characterizes it as a “radical expansion” of the information already offered by Charity Navigator. It gives donors more of the information they frequently request. In addition to the data already available – that is, financial analyses that Charity Navigator had developed from each organization’s Form 990 filings – site visitors can now review the impact reports that are prepared by the charities, themselves, and supplied by GuideStar, Classy, and GlobalGiving.
This is an initial joint project with these participants; there are some additional collaborations in the planning stages.
The first partner is GuideStar, itself a 501(c)(3), the “world’s largest source of nonprofit information, connecting people and organizations with data on 2.5 million current and formerly IRS-recognized nonprofits.” It has more than eight million site visitors every year including a broad swath of individuals, organizations, public entities, and the media interested in the philanthropic sector. The information offered by GuideStar includes data from the IRS, as well as directly from the 501(c)(3)s, and “via other partners in the nonprofit sector.” Users also “see GuideStar data on more than 200 philanthropic websites and applications.”
Jacob Harold, President and CEO of GuideStar, told reporters that “GuideStar is excited to partner with Charity Navigator to share our quantitative and qualitative data about nonprofit programs.” He added:  “We believe the inclusion of GuideStar’s Gold- and Platinum-level data will enrich donors’ experience on Charity Navigator.”
The second partner in this new project is San Diego-based Classy, a social enterprise that “creates world-class online fundraising tools for nonprofits, modernizing the giving experience to accelerate social impact around the world.”
Classy’s mission “is to mobilize and empower the world for good.” According to Co-Founder Pat Walsh, the organizers of Classy “always felt that showcasing the impact nonprofits are making in their communities is a critical piece of empowering the sector.”
The third participant is GlobalGiving, a 501(c)(3) public charity, that is the “largest global crowdfunding community connecting nonprofits, donors, and companies in nearly every country. This group helps “nonprofits access the tools, training, and support they need to be more effective” and to attract “more donations to more effective organizations.”  

  Conclusion

During this experimental phase, progress reports shared by Charity Navigator will not have any effect on the star or numerical rating nonprofits receive from CN.
A list of all 2,400 organizations currently supplying their progress reports is available upon request.

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Alert About Your Nonprofit’s Website

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If it isn’t one thing, it’s another.” 

Popular idiom recognized as true by most people on Earth

Now that you’ve come to grips with, and accept, that every computer on the planet is likely to be hacked sooner rather than later, and now that you understand that the new General Data Protection Requirements (GDPR) from the faraway European Union may affect you, there’s something else you need to know about – and handle – as soon as possible.

It’s an important change in the latest version of Google’s Chrome, the world’s most popular web browser.  And what happens in Chrome will not long afterward show up as a feature of the other web browsers like Mozilla Firefox and Internet Explorer.

In a nutshell, here it is: Websites that use the prefix “https” will be designated as secure, but sites that still use the prefix “http” will be flagged as insufficiently secure.

   Background on the Website Prefixes

If you’re like us, you’ve probably briefly wondered about – but never lost any sleep over – why some websites have the prefix “http” while others use “https.”  In the early years of the internet, most sites used the prefix “http.” In recent years, the “https” alternative has become more commonplace, though.

The helpful folks at howtogeek.com explain why:

HTTPS, the lock icon in the address bar, an encrypted website connection—it’s known as many things. While it was once reserved primarily for passwords and other sensitive data, the entire web is gradually leaving HTTP behind and switching to HTTPS.

The ‘S” in HTTPS stands for ‘Secure’. It’s the secure version of the standard “hypertext transfer protocol” your web browser uses when communicating with websites.

For a deeper dive into the specifics of how and why the “https” sites are more secure, read further on at HTTPS is and why it’s important and A secure web is here to stay, for example.

“In the past, when a nonprofit wanted to assure a donor that its website was secure, the nonprofit could suggest that the donor look for the little “lock” icon in the address bar which confirms that a site is using HTTPS. Because of this, using HTTPS was akin to a bonus point in the nonprofit’s favor.”

But change was brewing. About three years ago, Google told the computer-nerd community that at some point in the future, Google Chrome would be changed so that any websites not using the “https” prefix would be flagged as insecure. The change was delayed to give website owners a chance to make the necessary adjustments.

In the years since then, Google has “helped users understand that HTTP sites are not secure by gradually marking a larger subset of HTTP pages as ‘not secure.

On February 8, 2018, Google issued the notice titled “A secure web is here to stay,” explaining that Google had been moving “toward a more secure web by strongly advocating that sites adopt HTTPS encryption.” And, beginning in July 2018 with the release of Chrome 68, Chrome will mark all HTTP sites as “not secure.” On schedule, Google rolled out the latest version of its Chrome browser over the summer. Now, the new programming will automatically flag any website not using the HTTPS security standard as “not secure.”

An article dated July 24, 2018, by a techy nerd at CNET explains this important Google change, effective that day:   “Chrome’s long-promised HTTP ‘not secure’ website warnings arrive.” He includes a reassuring caveat, though: “Take note if you see the warning, but don’t panic.

   A More Secure Website

Ok. We won’t panic.

In early August 2018, the National Council of Nonprofits issued a post titled:  New website security warnings raise the bar for nonprofits:

Nonprofits need to take notice that Google just raised the bar when it comes to demonstrating a website is secure. Failing to make changes to comply with the new standards can hinder your nonprofit’s ability to interact with the public, including potential clients and donors.

If this message appears on your site, does it mean that your site is not secure or that any information entered on it by your supporters, donors, and constituents is now at risk?  “Not necessarily.

The precise significance of a website not using the prefix “HTTPS” is that it fails to meet the “best practice standards that Google is now enforcing.”

What if a nonprofit never asks anyone to enter data or personal information on its website: does any of this matter? Not really, but the move to the “HTTPS” is a good idea, anyway. In particular, it “matters for SEO, it will score higher in search results.” And it’s not a good practice to give visitors to your website any reason at all to be wary about proceeding or about interacting with you in any way.

   Conclusion

To change a website address that still begins with “http,” contact your IT department or website support consulting firm. “Any respected web host should be able to easily make this change. Some may charge you for the required SSL certificate. You can also get an SSL certificate at a significant discount via TechSoup. For more technical users, check out this guide on how to quickly add HTTPS to your site. Another great resource on this comes from Aespire, “Safe and Secure: Creating a Trusted Web Experience.”

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Ready to Start a Nonprofit Exempt Organization? 5 Steps to Legal Success

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You have a purpose, a vision, and a plan to make it all happen — and now it’s time to legally establish your nonprofit organization.

Generally speaking, as long as your organization exists for religious, charitable, scientific, literary, or educational purposes, it qualifies as a nonprofit that is eligible for state and federal tax exemption under Section 501(c)(3). Other exemptions exist, too, for social welfare organizations, labor unions and business leagues under other 501(c) designations.

In the state of California, as well as many other states, you first need to form a nonprofit corporation. You will then apply to be recognized as a 501(c) organization with tax-exempt status. That’s how it works in a nutshell, but let’s take a look at some of the steps you’ll need to take along the way.

1) Start with the basics

First things first: your nonprofit needs a name, at least one director (but best practice – and what the IRS expects – is three independent directors), and a structure. The name can’t be too similar or identical to an existing nonprofit name on record, it can’t be misleading to the public, and it can’t infringe on anyone else’s trademark rights.

 Then you will decide on one of the four possible nonprofit corporate structures:

  • A religious corporation.
  • A public benefit corporation (for charitable purposes).
  • A mutual benefit corporation (not for a public, charitable, or religious purpose – and many times a 501(c)(4) or (c)(6))
  • A mutual benefit common interest development (CID) corporation (for a common interest development such as a homeowner’s association).

2) File your nonprofit articles of incorporation

Make your nonprofit entity official by filing articles of incorporation with the California Secretary of State. The articles will contain information like the name of your entity, street and mailing addresses, and a statement that identifies your corporation as a nonprofit. For tax-exempt status, you will also need to include a few other specific statements, like your nonprofit’s purpose and an acknowledgment that it will not engage in prohibited activity.

3) Draft bylaws for your nonprofit

Your nonprofit needs bylaws to dictate the rules and procedures you’ll need to manage the corporation’s affairs. They must comply with California law, and they’ll need to be filed with the California Attorney General’s Registry of Charitable Trusts.

Your bylaws might include guidelines for the following, to name a few:

  • How you will hold and conduct meetings;
  • How you will elect officers and directors;
  • What the duties and responsibilities of the officers will be.

4) Hold a board of directors meeting

You will adopt your bylaws, approve initial transactions, appoint officers, and take other preliminary actions in your nonprofit’s first board meeting. Make sure to record accurate meeting minutes and keep copies in a safe place.

5) Apply for your income tax exemption

Your established nonprofit corporation can now apply for federal and state tax exemptions. File Form 1023 or 1023-EZ (for smaller nonprofits) with the IRS for federal tax-exempt status. Then, for tax exemption with the state of California, you will file either Form 3500 or 3500A with the Franchise Tax Board. 

… and a final step for California Nonprofit Public Benefit Corporations

Don’t forget to register with the California Attorney General’s Registry of Charitable Trusts. For this registration, you would complete the CT-1 and attach all of your formation and exemption documents (along with a fee). Check with an attorney to make sure you don’t forget about any other state reporting or registration requirements that might apply to your particular nonprofit.

Ready to get started? Remember that a qualified tax and business lawyer can help you avoid costly mistakes on your forms, create effective bylaws, and stay compliant with laws and regulations. For Purpose Law Group has the knowledge and experience to guide you through the process step by step. To start your nonprofit exempt organization off on the right foot, give us a call.

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California Probate Explained

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After a person passes away, their assets must go through a legal process called probate. This can be time-consuming and costly, depending on the size of the person’s estate and the types of estate planning documents they prepared during their life. To simplify things, let’s go through some common questions about the California probate process.

What is probate?

The probate process involves dividing up a deceased person’s money and property, and then distributing it to the appropriate heirs.

What are the basic steps?

The basic steps of probate are as follows:

  1. Someone comes forward to initiate the process by filing a petition. This could be an executor named in a Will or a court-appointed administrator.
  2. Notices are published in the local newspaper and sent to everyone named in the Will.
  3. The courts verify the Will’s validity.
  4. The executor takes possession of any of the decedent’s assets that are subject to probate, then takes inventory and appraises property if necessary.
  5. The executor pays off debts, estate taxes, and funeral expenses using the probate assets.
  6. Once the executor’s actions are approved by the courts, the estate is closed.

How long does it take?

If you’re acting as an executor, your job could last six months to a year. Remember that you’ll have to file forms, take inventory of assets, manage accounts, pay bills, and more while waiting for the California courts to approve your actions.

What assets go through probate?

Not all assets go through the probate process. The property could include money, real estate, cars, furniture, or any number of items — what matters is who owns that property. Typically, any property the deceased person owned solely in their own name will go through probate. That includes separate property (acquired outside of marriage or inherited during marriage).

Assets owned in joint tenancy with others do not go through probate, nor does survivorship community property owned with a person’s spouse.

Is probate always necessary?

No. Some types of documents, like trusts and insurance policies where a beneficiary is named, are technically not owned in the person’s name. A trust holds property on the person’s behalf, for example. If your estate is small enough, you may not need probate at all. To avoid probate, the total value of the estate at the time of death must not exceed $150,000 (not including certain assets).

For larger estates, many people strategically use trusts and similar documents to save on probate fees. In other words, you can avoid the probate process by using legal estate planning strategies.

Do you need a lawyer?

An attorney can greatly simplify the probate process by helping you file forms, gather necessary documents, handle conflicts with family and creditors, and much more. A capable attorney can also help you create an estate plan that minimizes the time and expense of probate.

If you’re still uncertain about probate and what it means for your family, don’t hesitate to call For Purpose Law Group. Our friendly attorneys will use their extensive legal knowledge to guide you through every step of the process.

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Another Pfishing Tale

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Headquartered in suburban Baltimore, the Harry and Jeanette Weinberg Foundation is one of the nation’s largest private charitable foundations with annual grants topping $100 million each year. The primary recipients are nonprofit service providers to low-income and vulnerable people in the United States and Israel.

A side project is the Israel Mission program, in which community and government leaders, mainly from Maryland, are taken to Israel for an “intense educational orientation” including the opportunity to meet Israeli leaders and community representatives. Out of this successful endeavor came the Alumni Scholars Program, now a group of some 600 past participants in the Israel Mission. There are now annual educational events as well as an alumni directory and reunion dinners.

In early June 2018, one of these Alumni Scholars opened an email that appeared to be from the Foundation but didn’t look quite … kosher. He called Craig Demchak, the Foundation’s director of marketing and communications, who understood right away what happened. The Foundation was the victim of a cybersecurity breach into its computers and databases; the scheme was in the form of a now-all-too-common scheme, a “pfishing email” intrusion.  

Mr. Demchak immediately took action including posting an alert on the Foundation’s website to inform supporters about the phony email scheme.  Part of this warning including the following language:

Phishing is the attempt to obtain sensitive information such as usernames, passwords, and credit card details (and money), often for malicious reasons, by disguising as a trustworthy entity in an electronic communication. In this case, the perpetrator has used source emails which appear to be from the Weinberg Foundation, but which are not. Phishing is typically carried out by means including email spoofing, often directing users to enter personal information at a fake website (or a donation portal—even one that is legitimate, in this case Paypal).

Readers were told to ignore any such phony email solicitations.  The matter continues to be under investigation.

Pfishing Email Schemes

The pfishing email in The Weinberg Foundation case indeed “appears to be of the typical pfishing variety.” These emails generally “seek to obtain information by posing as a familiar and trusted entity.” The cyber breach can go on for a while without being discovered because the named sender has not in fact sent the email, so is unaware of its existence until and unless someone receiving one of the emails gets suspicious and reports it. Without the quick action of the Scholar who alerted the Foundation official of his suspicions, this cyber intrusion may have continued without detection, all the while causing significant damage.

In 2017, we highlighted this insidious practice in Key Cybersecurity Threats for Nonprofits and  Nonprofits Beware: Pfishing Trips which had been identified as one of the three most common cyber threats, although its origin dates back to the earliest days of the internet in the 1990s.  “‘Phishing – the word – is not new, although only recently has it started popping up in mainstream media stories and worried conversations at the office coffee bar.’” Why the play on the word “fishing”?: “(u)sing email ‘lures,’ [the earliest hackers] set out hooks to ‘fish’ for valuable data from the ‘sea’ of Internet users. The analogy to the sport of angling was obvious enough that the term ‘pfishing’ emerged.”

Widespread Pfishing Vulnerability

“In 2016, phishing went mainstream”; by 2017, it had escalated dramatically. Worse still, pfishing is often weaponized by adding a “ransomware” element.  The hackers make the intrusion, let it cause some damage, and then demand a ransom amount to remove it. Ransomware is now to “go-to-method of attack”; the “epidemic of our time.”

We wrote in Nonprofits Beware: Pfishing Trips that early in 2017, the Internal Revenue Service issued a specific warning about a practice that targets certain entities including nonprofits: the Form W-2 Spear-phishing Scam. This notice includes common examples that had appeared during the 2016 tax season and which were brought to the government’s attention by groups that had been victimized.

One such example is a phony email under the name of an existing supervisor sent to the person in an organization with access to financial data or worker information; the language would be something like: “Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.”

Nonprofits are particularly appealing targets for hackers because (1) some groups are required by law to make certain information available to the public, and (2) substantial information is available from organization websites (including logos and signatures that can be copied) and Form 990s and annual reports.

Conclusion

Cybersecurity must now be at or near the top of each and every nonprofit’s risk-management strategy. It’s not a matter that can be punted over to one person or a consultant; it must be addressed head-on by the board of directors.

Necessary steps include become fully informed about the nature and extent of various threats, available precautionary steps and insurance coverage, and the organization’s responsibilities under law.

Many states, including California, have laws on the books requiring immediate action by any hacked organization, especially where outsiders’ data have been compromised. California has updated its data security breach notification laws, from time to time, including amendments effective January 1, 2016 to California Civil Code sections 1798.29 and 1798.82.

At the end of June 2018, the California legislature passed, and Governor Jerry Brown signed into law, a sweeping new data privacy law similar to – although not quite as tough as the European Union’s GDPR that went into effect on May 25, 2018. It appears that California’s new law may exempt nonprofits, but the GDPR does not have such a blanket exemption and does, indeed, affect certain larger nonprofits in the United States.

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Charities’ Congressional Wish List

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It’s safe to say it’s a new day in the U.S. Congress.

There’s an entirely different House of Representatives after the blue wave of November 2018. Of course, there’s still a GOP-controlled Senate and White House, so the power dynamics won’t significantly change. Nevertheless, the lower chamber has the power of the purse; controlling appropriations is a significant cudgel.   

In addition, Democrats now control which issues are explored in committee and which bills make it to the House floor for votes.  Of particular interest to the nonprofit sector is the House Ways and Means Committee; the new chairman is Representative Richard Neal (D-MA). He – along with Charles Grassley (R-NE) (now) Ranking Member of the Senate Finance Committee – have expressed interest in working in a bipartisan manner for tax policy in the new Congress.

The National Council of Nonprofits (NCN), the nation’s largest network of nonprofits with some 25,000 members, took the opportunity, just a few weeks after the November election, of approaching lawmakers Neal and Grassley with a wish-list of America’s charities. NCN takes pain to remind them that the nonprofit sector is more than a bunch of do-gooders; it is a big slice of the national economy that employs more than 14 million people. The 4-page letter is here.

Writing for NCN, Tim Delaney, CEO & President, and David L. Thompson, Vice President for Public Policy, emphasize that “(t)ax policy does far more than just define the nonprofit sector as tax exempt; whether intentionally or not, it also can promote fairness or its opposite, pick winners and losers, and support or ruin well-managed operations trying their best to improve the lives of others.”

Against that framework, NCN offers recommendations that address ongoing problems in tax administration, deficiencies and unfairness in last year’s Tax Cuts and Jobs Act, and suggestions for policies that will advance and promote charitable giving.

Wish 1: Protect Johnson Amendment

Right out of the gate, NCN’s Delaney and Thompson exhort these tax-writing legislators to “first, do no harm” by protecting the Johnson Amendment that has worked for 64 years to shield “charitable nonprofits, houses of worship, and foundations from the rancor of divisive partisanship and schemes by the unscrupulous to profit from tax deductions for disguised political campaign contributions.”

They assert, correctly, that “the 501(c)(3) nonprofit community – frontline charities, churches, and foundations – stands strongly united in support of” current federal law banning political campaign activities. (This support is not unanimous, of course, but NCN’s characterization of robust support is accurate.)  They ask for a “pledge” to preserve the Johnson Amendment and reject “all effectors to repeal or weaken this vital, and … existential, protection.”

Wish 2: Correct TCJA Problems

In the next section titled “restoring balance, removing impediments,” Delaney and Thompson draw up a list of what the charitable sector sees as missteps in adopting the Tax Cuts and Jobs Act of 2017 (TCJA). Since most American charities are small- or mid-sized organizations who struggle financially to fulfill their missions, it is “quite troubling,” they write, that offsets for revenue losses on account of tax cuts for businesses and wealthy individuals were put on the backs of the nonprofit sector by eliminating benefits or imposing new excise taxes.

Fringe Benefits

NCN takes aim at the 21% unrelated business income tax under Internal Revenue Code section 512(a)(7) on nonprofits which give transportation fringe benefits, including parking and transit passes, to their workers. The stated rationale was to create “parity” between for-profits and nonprofits under the new tax scheme, but the effect was to impose a significant new burden on charities. “Nonprofits received little, if any, gains under the Tax Cuts and Jobs Act,” argues NCN, “and yet are now subject to a new, illogical income tax on transportation benefits in the name of “parity.”  They ask for the repeal of this misguided new tax.

Note: In mid-December, the IRS issued Notice 2018-99 which included some interim guidance as well as the news that Treasury will publish proposed regulations soon. We’ll have a post on this specific development soon.

Separate “Trade or Business”

NCN also urges repeal of the mind-numbingly misguided, confusing, and unfair  new rule for 501(c)(3)s subject to the unrelated business income tax with more than a single, separate and distinct, “trade or business.” As Delaney and Thompson aptly explain, “[n]ew Section 512(a)(6) of the tax code directs nonprofits ‘with more than 1 unrelated trade or business’ to somehow compute their unrelated business income (and related losses) earned ‘separately with respect to each such trade or business.’”

The law does not define what constitutes a “separate” trade or business, and there has been no final or reasonable guidance by Treasury or the IRS, notwithstanding that it was effective almost immediately on January 1, 2018.

Paid Leave Tax Credit

The TCJA added a generous new tax incentive for some employers who pay their workers who take family and medical leave. The benefit, though, comes in the form of an income tax credit; nonprofit employers, of course, cannot take advantage of it. Once again, the tax legislation gives tax cuts and credits to for-profit employers, with no corresponding benefit to charities. “This oversight in the law is easily remedied by permitting nonprofits,” who the NCN officials again remind lawmakers are a big, important part of the U.S. economy, “to apply the credit to payroll and other taxes they do pay.”

Excess Compensation; Endowments

NCN also criticizes the two new taxes on excess executive compensation and on endowment returns of certain higher-education institutions. While these new measures target relatively few nonprofits, nevertheless, “[e]very dollar taken from nonprofit entities as a tax is a dollar diverted from missions of serving individuals and communities.”  More to the point, argues NCN, these new measures are “unsound policy,” that make attracting qualified executives more difficult, improperly “invade the boardrooms of independent organizations,” and override “the fiduciary-based decisions of trustees.” Delaney and Thompson politely ask lawmakers to refrain from imposing their “political judgments that do not take into account the challenges and solutions that these local experts deal with every day.”

Wish 3: Strengthen Giving Incentives

An important part of the charities’ wish list for Congress is for lawmakers to reconsider the changes in the 2017 TCJA that had the “undeniable adverse consequences” of depressing incentives for Americans to give to charity. “Experts from across the political spectrum agree: the 2017 tax law significantly reduced tax incentives for Americans to” make donations. NCN asks that lawmakers enact “immediate tax-law changes to provide stronger tax incentives” for charitable donations, offering “three potential solutions, all of which are needed”:

  • Create a universal or non-itemizer charitable deduction
  • Extend the IRS charitable rollover to retirement security plans
  • Increase the volunteer mileage rate

Wish 4: Beef Up Tax Enforcement

NCN pulls no punches in asking for more oversight as well as resources and support for the Internal Revenue Service’s charity-regulating functions. “As the primary cop on the nonprofit beat, the IRS needs resources and support of lawmakers in promoting transparency, ethical conduct, and close attention to the laws that protect nonprofits, taxpayers, and the public.”  

The most pointed attack is directed at the decision to introduce the Form 1023-EZ in 2014. “In doing so, [the IRS] ignored strong opposition and warnings expressed by its own expert Advisory Committee on Tax Exempt and Government Entities, the National Association of State Charity Officials (state regulators of nonprofit organizations), and the National Council of Nonprofits, among others.”  This ill-fated move has resulted in close to universal approval of applicants submitting the streamlined tax-exemption application, and the “agency’s near abdication of its duties to protect the public by screening out unqualified or unscrupulous individuals who seek charitable tax-exempt status.” These duties are “being shirked with every application process.” Not for the first time, NCN, on behalf of the charitable sector, asks that the Form 1023-EZ be “withdrawn immediately.”

Conclusion

NCN’s letter ends “with the offer made at the outset…”: the willingness of the charitable community to work with the House and Senate tax-writing committees to develop legislation that “promote stronger nonprofits and stronger communities.”

 

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UBIT Transportation Rules: Interim Guidance

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By the fall of 2017, GOP leaders of Congress were determined to pass a major tax overhaul before the end of the year. But much of the detail work had not yet been done. They moved draft legislation through each chamber so quickly that many lawmakers were unable to read all, or even a substantial part, of the proposed additions and amendments to the federal tax code before the scheduled votes.

Nevertheless, The Tax Cuts and Jobs Act (TCJA), including sweeping changes affecting almost all entities and individuals, was passed and signed into law at the end of December 2017.

When the dust settled, there was surprise and dismay – including by many legislators who voted for passage – about many parts of the newly enacted tax law. To add insult to injury to the rushed manner in which this legislation was crafted, lawmakers included effective dates for most provisions on January 1, 2018.   Ordinarily, there are delayed effective dates or transition provisions to allow affected parties to make necessary plans for the changes.

It is common practice for Congress to pass technical-corrections bills to fix errors or ambiguities or to mitigate parts of a new law that are poorly received. In this case, though, little in the way of such corrective measures occurred by the end of 2018.

UBIT Changes

Among the provisions of the TCJA are several changes directly or indirectly affecting tax-exempt organizations. One of the most controversial is a new limitation on businesses deducting transportation fringe benefits related to employee transportation unless the employee recognizes income related to the fringe benefit. There are unintended negative consequences to many exempt organizations, though, although the original intent of applying the new rules across the board was to create parity between for-profit and nonprofit employers.

Specifically, under new Section 512(a)(7) of the Internal Revenue Code, tax-exempt organizations must increase their unrelated business taxable income (UBTI) by the amount paid or incurred for “qualified transportation fringe benefits” (QTFs) provided to employees.  This delightful new acronym includes parking and mass-transit benefits. There is now taxable income to the employee whether or not the employer pays for the benefits directly or allows employees to pay for the benefits on a pre-tax basis. “Made effective Jan. 1, 2018, mere days after the new law was enacted, many tax-exempt organizations were facing the daunting requirement to calculate, report, and pay income tax for the first time.”

New Guidance

Right out of the gate, there were howls of protest from across the nonprofit sector including, particularly, from houses of worship. There has been considerable discussion in the philanthropy community about possible tweaks to new Section 512(a)(7) to ease the pain  – or, preferably, to eliminate it entirely by outright repeal.

All year this opposition and frustration brewed, buoyed from time to time by talk from lawmakers recognizing the problem. There was no Congressional action by the end of 2018, but in mid-December, the Treasury and IRS released two notices which are designed to answer some of the perplexing questions about how to comply with the new UBIT statute and to alert interested parties that the government intends to issue proposed regulations – in the event the new Congress fails to act.  

In a statement, Secretary Steven Mnuchin explained that “Treasury is sensitive to the concerns of the tax-exempt community, and hopes this guidance can significantly limit the impact on non-profit groups” by adding a “…roadmap for navigating their responsibilities” under the new law. “ The guidance … aims to provide flexibility while minimizing the burden on non-profit groups that provide employee parking.”

Notice 2018-99 gives  “interim guidance for taxpayers to determine the amount of parking expenses considered to be QTF.”  Specifically, until Treasury issues final regulations on this topic, “taxpayers and tax-exempt organizations that own or lease parking facilities where their employees park may use any reasonable method, as provided in section B of the Interim Guidance on QTF Parking section of this notice, to determine the amount of nondeductible expenses under § 274(a)(4) or the amount of the increase in UBTI under § 512(a)(7).” They may also “rely on the guidance in this notice to determine the amount of nondeductible parking expenses for QTFs under § 274(a)(4), and tax-exempt organizations may rely on the guidance in this notice to determine the amount of the increase in UBTI under§ 512(a)(7).”

The second document, Notice 2018-100, provides certain tax-exempt organizations that are first-time Form 990-T filers, due to the imposition of the new QTF rule, a waiver of penalties for underpayment of estimated income tax payments required to be made on or before December 17, 2018.

Reaction to Feds’ Advice

This interim guidance is not all good news. “In a law intended to create tax simplification, this notice explains how to apply the section by requiring nonprofits of all sizes to follow a four-step calculus that will vary for each organization, and can vary from month to month,” according to David L. Thompson, vice president of public policy for the National Council of Nonprofits.

Mr. Thompson adds: It “provides minimal instruction, relieves some organizations of penalties that result from the IRS’s own delay, and completely ignores the imposition of the new taxes on transit benefits — benefits that are mandated for some employers in various cities.”

Conclusion

Following standard procedure for issuing proposed regulations, the public is invited to submit comments by February 22, 2019. Comments should refer to Notice 2018-99. They may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2018-0038 in the search field on the regulations.gov homepage to find this notice and submit comments).

Alternatively, interested parties may send submissions by mail to: Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2018-99) Room 5203 P.O. Box 7604 Ben Franklin Station Washington, D.C. 20044 or by hand or courier delivery to 1111 Constitution Ave., NW, Washington, D.C. 20224.

 

 

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UBIT Transportation Rules: Interim Guidance

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0

By the fall of 2017, GOP leaders of Congress were determined to pass a major tax overhaul before the end of the year. But much of the detail work had not yet been done. They moved draft legislation through each chamber so quickly that many lawmakers were unable to read all, or even a substantial part, of the proposed additions and amendments to the federal tax code before the scheduled votes.

Nevertheless, The Tax Cuts and Jobs Act (TCJA), including sweeping changes affecting almost all entities and individuals, was passed and signed into law at the end of December 2017.

When the dust settled, there was surprise and dismay – including by many legislators who voted for passage – about many parts of the newly enacted tax law. To add insult to injury to the rushed manner in which this legislation was crafted, lawmakers included effective dates for most provisions on January 1, 2018.   Ordinarily, there are delayed effective dates or transition provisions to allow affected parties to make necessary plans for the changes.

It is common practice for Congress to pass technical-corrections bills to fix errors or ambiguities or to mitigate parts of a new law that are poorly received. In this case, though, little in the way of such corrective measures occurred by the end of 2018.

UBIT Changes

Among the provisions of the TCJA are several changes directly or indirectly affecting tax-exempt organizations. One of the most controversial is a new limitation on businesses deducting transportation fringe benefits related to employee transportation unless the employee recognizes income related to the fringe benefit. There are unintended negative consequences to many exempt organizations, though, although the original intent of applying the new rules across the board was to create parity between for-profit and nonprofit employers.

Specifically, under new Section 512(a)(7) of the Internal Revenue Code, tax-exempt organizations must increase their unrelated business taxable income (UBTI) by the amount paid or incurred for “qualified transportation fringe benefits” (QTFs) provided to employees.  This delightful new acronym includes parking and mass-transit benefits. There is now taxable income to the employee whether or not the employer pays for the benefits directly or allows employees to pay for the benefits on a pre-tax basis. “Made effective Jan. 1, 2018, mere days after the new law was enacted, many tax-exempt organizations were facing the daunting requirement to calculate, report, and pay income tax for the first time.”

New Guidance

Right out of the gate, there were howls of protest from across the nonprofit sector including, particularly, from houses of worship. There has been considerable discussion in the philanthropy community about possible tweaks to new Section 512(a)(7) to ease the pain  – or, preferably, to eliminate it entirely by outright repeal.

All year this opposition and frustration brewed, buoyed from time to time by talk from lawmakers recognizing the problem. There was no Congressional action by the end of 2018, but in mid-December, the Treasury and IRS released two notices which are designed to answer some of the perplexing questions about how to comply with the new UBIT statute and to alert interested parties that the government intends to issue proposed regulations – in the event the new Congress fails to act.  

In a statement, Secretary Steven Mnuchin explained that “Treasury is sensitive to the concerns of the tax-exempt community, and hopes this guidance can significantly limit the impact on non-profit groups” by adding a “…roadmap for navigating their responsibilities” under the new law. “ The guidance … aims to provide flexibility while minimizing the burden on non-profit groups that provide employee parking.”

Notice 2018-99 gives  “interim guidance for taxpayers to determine the amount of parking expenses considered to be QTF.”  Specifically, until Treasury issues final regulations on this topic, “taxpayers and tax exempt organizations that own or lease parking facilities where their employees park may use any reasonable method, as provided in section B of the Interim Guidance on QTF Parking section of this notice, to determine the amount of nondeductible expenses under § 274(a)(4) or the amount of the increase in UBTI under § 512(a)(7).” They may also “rely on the guidance in this notice to determine the amount of nondeductible parking expenses for QTFs under § 274(a)(4), and tax-exempt organizations may rely on the guidance in this notice to determine the amount of the increase in UBTI under§ 512(a)(7).”

The second document, Notice 2018-100, provides certain tax-exempt organizations that are first-time Form 990-T filers, due to the imposition of the new QTF rule, a waiver of penalties for underpayment of estimated income tax payments required to be made on or before December 17, 2018.

Reaction to Feds’ Advice

This interim guidance is not all good news. “In a law intended to create tax simplification, this notice explains how to apply the section by requiring nonprofits of all sizes to follow a four-step calculus that will vary for each organization, and can vary from month to month,” according to David L. Thompson, vice president of public policy for the National Council of Nonprofits.

Mr. Thompson adds: It “provides minimal instruction, relieves some organizations of penalties that result from the IRS’s own delay, and completely ignores the imposition of the new taxes on transit benefits — benefits that are mandated for some employers in various cities.”

Conclusion

Following standard procedure for issuing proposed regulations, the public is invited to submit comments by February 22, 2019. Comments should refer to Notice 2018-99. They may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2018-0038 in the search field on the regulations.gov homepage to find this notice and submit comments).

Alternatively, interested parties may send submissions by mail to: Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2018-99) Room 5203 P.O. Box 7604 Ben Franklin Station Washington, D.C. 20044 or by hand or courier delivery to 1111 Constitution Ave., NW, Washington, D.C. 20224.

 

The post UBIT Transportation Rules: Interim Guidance appeared first on For Purpose Law Group.

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