Winter o government grants must be audited by an independent

Winter 2004- 200s o government grants)must be audited by an independent auditing firm. The auditing firm may provide nonauditservices the charitable to organization, may only do so in but accordance with standards for auditorindependence forth in set the Government Auditing Standards, issued the U.S. by ComptrollerGeneral(the Yellow Book). The auditedfinancial statements mustbe madeavailablefor inspection the AttorneyGeneral by andthe public, no later thannine monthsafterthe closeof the fiscal yearto which the statements relate. (continued on page 3) NEWS CALIFORNIA ADOPTS TOUCH NEW LECISLATION FORCHA RI T I E S A ND F UNDRA I S E R S NO NP RO F I T S E SU OFFI CE F P E RS O N N E L O MANACEMANT OVER TERRORIST EXCLUSION LIST CERTIFICATION .I3 o CALIFORNIA ADOPTS TOUG NEW LEGISLATION FOR CHARITIES AND FTJNDRAISERS A new Californialaw placestough new restrictionsand obligationson charitable or gatizations,commercialfr,rndrais (i.e. ers solicitors),fundraising consultants and cofilmercialco-venturers who carry on charitableactivities or solicit charitable contributionsin the state. The following is a brief summary of the most important of the California Nonprofit Integrity Act of 2004: BARNES FOUNDATION I PERMITTED TO DEVIATE FROM FOUNDER'S MANDATES Page2 13 NONPROFITS SUE TT.S. OVER TERRORIST EXCLUSION LIST TheAmericanCivil LibertiesUnion Foundation togetherwith twelve other ('?laintifFs") have nonprofit orgarnzations conrmenced federallawsuit objectingto a a new anti-terroristrequirementin a program that enables federalemployees contribute to moneyfrom their paychecksto participating charities. That law providesthat in order for charitiesto receivefunds from the program, known asthECornbinedFederalCampaign (CFC),participating nonprofitshaveto sign a certificationstatingthat they do not knowinglysupportor employpeoplelisted on certaingovernment. te,lroristwatch lists. The Plaintiffs are seekinga declaratory judgmentandan injunction preventingthe enforcement the certification language of andpenrrittingthem to participatein the CFC programwithout signing the (contonpage 2) certification. NEWYORK AC'SANNUA REPORT ON FUNDMISERS MAYB M I S LE A DI NG Page3 IRS CHANCES FORM102 TAX EXEMPTION APPLICATION Page4 All charitablecorporations must file annualfinancial statements using generallyaccepted accounting principles prepared by an i certified public accountantin TAXLAW CHANCES ON CARDONATIONS Page4 conformity with generallyaccepted auditing standards. a charitable If corporationis controlledby another organization,the controlling otganizationmay preparea consolidated financial statement meetingthe aboverequirements. o Charitablecorporations that receive accruegrossrevenue $2 million or of more in any fiscal year(not including ALLEN BROMBERCER BECOMES COUNSEL TO PERLMAN PERLMAN & Page 4 P E R L M A N P E R L M A N ,L PA r r o n r u e n s L n wr 4 1 M a d i s o n v e n u e , 4 0 t h l o o r , e w Y o r k ,N Y 1 0 0 1 0 - 2 2 0 21 2 1 2 l ' & L vr A F N t 13 NONPROFITS SUE Wompage I) The Plaintiffs havealleged" amongotherthings, that the certification requirementviolatesthe notice, commentand publication requirements the of Act, constitutes vague, Administrative Procedure a and burdenon their unreasonable, unconstitutional and activities,in violation of expressive associational and the First and Fifth Amendments, purportsto regulatefunds that were not receivedthroughthe CFC program. The ACLU Foundation formally objectedto the certification,refusedto sign it, andwithdrewfrom the programas a resuitof its objection. Several other plaintiffs have also withdrawn and thosewho havenot nevertheless strenuously objected the certification to for requirement variousreasons. the The defendant, United States Office of (OPM), which administers Management Personnel the (the"Guidanceo') CFC prograrn,hasissuedguidance on certification. The complyingwith the anti-terrorism Guidanceincludesbackgroundinformation on the rule, definitions for certaintenns usedin the ruleoand infonrrationto guidecompliance. The Guidancestatesthat the useof the term "knowingly'' is intended'oto protectorganizations againstpotential chargesof false certification" where the appropriate OPM determines organuationexercised fails carein checkingthe lists but ne-vertheless to identi$ an employeeor orgarizationon the lists. The Guidancealso specifiedthat the tenn "employ individuals" includesonly full-time andpart-time of compensated employees the organization, does and not apply to volunteers. The G-tridance narows the also definition of "contribute fi.rnds"to the immediate recipient of funds from the orgarrizationThe Guidancestatesthat charitiesmust check againsttwo lists maintainedby namesof employees and departments, Office of Foreign the federal agencies NationalsList AssetsControl SpeciallyDesigned ("OFAC SDNI"),andthe TerroristExclusionList ("TEL'). T};re20A4 OFAC SDN list is 191pages long, list and a supplementary showingonly changes the to long. CFC list sinceJanuaryl, 2004is 119 pages participantsare requiredto checktheselists annually, and may be requiredto checkthe lists during the year if the organaation reason believe has to campaign that an employee or recipient of funds commits or supportsterrorist acts. JeruriferLowe, policy analyst for OMB Watch, said the rule requires nonprofits to act as quasi-armsof law enforcement,yet most charities operateon budgetstoo small to perform such policing. Despite the Guidance issued,the Plaintiffs vowed to continue their lawsuit to invalidate the rule. FOUNDATIONPERMITTED BARNES TO DEVIATE FROM FOUNDEROS MANDATES of In contravention the donor'sspecific judge granted petitionof the a restriction, Pennsylvania to movethe Foundation the Trustees the Barnes of sionist sionistandPost-Impres collectionof Impres gallery to downtown paintingsfrom its suburban Philadelphia. founder,Dr. Albert Barnes, TheFoundation's restrictions the trust's charterandbylaws in had included galleries prohibitinganypicturesin the Foundation's from beingmovedfrom the specialgalleryhe built for it of of in the suburb Lower Merion. However,decades costsat the maintenance and limited attendance high gallery haveleft the Foundationnear subr.rban petitionto the thuspromptingthe trustees' bankruptcy, court. Ott's decision Montgomery CourtJudgeStanley of appliedthe doctrineof cy pres,which permitstrustees trust to reform administrativeprovisionsif a charitable to doing so is the leastdrasticmodificationnecessary ends." In grantingthe preserve settlor'so'desired the petition,Judge foundthat (1) the Ott Trustee's assets without of altemative sellingoff non-gallery movingthe art collectionfrom Merion would not raise enoughmoneyto "halt The Foundation'sdownward for financial spiral;" (2) the new facility envisioned feasible;and(3) the was in construction Philadelphia design. modelwas a feasible three-campus Foundation's The court took into accountarchivedmaterials that Drthat showed Barnes'expectation the art greaterexposure thanit hashad collectionwould have "'Whenwe addthis revelationto The and stated, guarantee Dr. Barnes' that absolute For.urdation's progrcnrs will be primarymission- formal education as preserved enhanced a resultof these and,indeed, this sanction bold new venturewith a we changes, can clearconscience.l' NEWYORKAG'S REPORT ON FUNDRAISERSCAN BE MISLEADING The New York StateAttorney Generalos Office's annualreport(the"Report') on charitable fundraising entitled,"Pennies Charity," is as for misleading its content, as which compares fundraising campaigns impress the public that certaincharities to on spendan inordinateamountof donationson administrative costswith little left over for programs. The 138-page Reportonly briefly acknowledges that therearestatistical problemswith the Report's presentation datashown. For example, Report of the acknowledges certaintypesof fiurdraising that campaigns, suchasthoseaimedat acquiringnew donors,canbe moreexpensive thereforeresultin and lessmoneyrefurned the charity. The public is not to told that suchcampaigns be necessary certain may for orgatizations build sources incometo servethe to of public interestin the future. The Reportalsonotesthat campaigns sometimes primarily designed are not to raisedollars,but ratherto raiseawareness, educate the public, or recruitvolunteers, of which produce all benefitsthat cannot quantifred. be At best,the Reportgivesinformationout of contextwhich is morelikely to distort the truth, and harmsthe reputations many charitieswho use of reputablefundraisers individuals campaigns in that may be successful, do not appear from the numbers but so reported the AG. This firm hasbeenandwill by continueto be outspoken its disapprovalof the in Pennies Charityreports. for o that it is'Just and reasonable." Reviews are required upon hiriog and whenever the officer's employment is renewed or extended or the officer's compensationis modified, except for compensationmodifications that extend to substantially all employees. Charitablecorporations, unincorporated associations,and trusts must register with the Attorney Generai within 30 days (instead of six months under prior law) after they first acquire or accrueassets. New California Legislation (continuedfrompage I) o Charitable corporations must have an audit committee appointed by the board of directors. Audit committee mernbers may include ,s directors or other persons,but cannot consist of any paid staff (including the president or CEO and the treasurer or CFO). Audit committee members may not receive any compensation for service (other than stipends as directors). Further, the members of the audit committee may not have any material financial interest in any entity doing businesswith the corporation. . The board of directors or a board committee must conduct reviews of the compensation (including benefits) paid to the CEO or President, and the CFO or treasurer, to ensure For everysolicitation campaign, eventor servic produced a commercial by fundraiser a for charitable corporation, unincorporated association, trust,theremustbe a written or contractsigned an official authorized the by by governing boardof directors andan authorized contracting officer for the fundraising counsel. The Act alsosetsforth specificprovisionswhic mustbe includedin suchcontracts. Commercial fundraisers mustregisterandfile annualreportswith the Attorney General. Contracts between commercial fiHrdraisers for purposes charitable charitable and organizations arevoidableunless commercial the fundraiser is registered with the AttorneyGeneral's Registry of Charitable Trustsprior to the startof the solicitationcampaign event. or If requested a solicitedperson, commercial by a fundraiser rnustdisclose percentage the the of total expenses the fi.rndraiser relationto the of in total revenue receivedby the fundraiser. If the requestis madein writing, the commercial fundraisermustdisclosein writing within five days. Disclosure mustbe madeimmediately if verballyrequested, followedin writing within five days. o Commercialfundraisers mustmaintainrecords relatingto solicitation campaigns not less for than 10yearsafterthe endof eachcampaign. Records subject inspection the are to by Attomey General. o Commercialftrndraisers fundraisingcounsel and mustnotiff the AttorneyGeneral, mostcases, in at least10daysin advance a solicitation of ptrposes. The form of campaign charitable for noticewill be specified the Attomey by General's Registryof Charitable Trusts. . In additionto the foregoing,the Attorney Generalhasthe authorityto adoptother pertaining firndraising regulations to counsel. (Continued page 4) on o New California Legislation (continuedfrom page 3) IRS CTIANGESFORM 1023 TAX EXEMPTION APPLICATION The IRS has substantially revised Form 1023; the form organrzationsmust complete and file in order to obtain tax-exempt status. According to the IRS, the revised Form is expectedto reduce the processing time for most organizations (although this firm has seenthe opposite occur). In addition, the instructions have been re-written and reorgantzedto be more clear, user-friendly and intuitive, while new information has been added to make the Form a more effective educational and reference resource for organizations. The instructions have also been revised and are now easierto follow, and we encourageclients to consider adopting the sample conflict of interest policy which the IRS, for the first time, provides with the application. The revised Form 1023 and instructions are available at www.irs.sov or bv -3676. calling 1-800-829 Failureto complywith the Act, which became effectiveJanuary , 2005,couldresultin the non1 complying entity being barredfrom carrying on any activitiesor solicitationin Califonria. The Act andthe summaryaboveshouldnot be used as a substifutefor reviewing andunderstanding of its all provisions. To obtainthe text of the Act, go to the websiteof the CaliforniaAttorneyGeneral, http:l/caae.ca.us click the "charities"link. If you and haveadditionalquestions would like to receive or Periman& Perlman'sdetailedsummary the Act, of please contact DanielAlcott at (212)889-0575. TAXLAWCTIANGES ON CAR DONATIONS Charities should be aware of new tax rules regarding automobile donations made after December 3t,2004. Underthe AmericanJobsCreationAct of 2004, if the claimedvalueof a motor vehicle,boator plane exceeds $500andthe item is soldby the charitywithout significantuseto furtherthe organization's tax-exempt purposes a materialrepair,the taxpayer'scharitable or deduction limited to the grossproceeds is received by the charityupon its sale.A written acknowledgment of the grossproceeds mustbe providedby the organization within 30 daysof the sale. If the vehicleis not sold andinsteadis retained for useby the charity(in which casethe usemustbe significant) or if the charity materially altersthe boat, plane or vehicle,the donormay deductthe fair market value of the automobile.A written acknowledgment of suchusemustbe providedby the organizationwithin30 daysof the contribution. Charitiesmustprovide written acknowledgment of an automobiledonatibnwheneverits value exceeds is $250,andan appraisal requiredif the valueexceeds $5,000. Charitieswho fail to providethe acknowledgment, who provide falseor fraudulent or informationwill facepenalties.To receivea deduction, the donor must submitthe acknowledgment with his or her tax return that includesthe deduction. The charity must also submitthe information in the acknowledgment the IRS. to ALLEN BROMBERGER BECOMTS COUNSEL PERLMAI\ & TO PERLMAN This firm is proud to annorxrce new its affiliation with Allen R. Bromberger "of counsel"to as Perlman& Perlman.Mr. Brombergerhasmore than 20 yearsof experience representing nonprofit organizations, charities,andprivate foundationsin a wide variety of business mattersand transactions. Brombergeris the Mr. authorof Getting Organizedand Advising Nonprofits, two widely usedbookson nonprofit formationand operation. is alsothe authorof numerous He articleson nonprofit legal matters,andis a frequentlecturerand speaker nonprofit legal issues. on Prior to joining PerLnan& Perlman,LLP. Mr. Brombergerservedas Presidentof Powerof Attorney, a private operating for:ndationlocatedin New York City, andas executive director of LawyersAlliance for New Yorh a public interestlaw firm devotedexclusivelyto meetingthe legal needsof nonprofit and communitydevelopment organizations. Brombergerhas servedon numerous Mr. public andprivate boardsand committees is and currently a mernberof the boardof directorsof the Alliance for Nonprofit Management Washington, in D.C. He holdsa B.A. from the Universityof (1977)anda J.D. from the Califonria/Berkeley Universityof CalifornLa/Hastings Collegeof the Law (1e82) E-Mail addressallen@perlmanandperlman. : com