Fifth Edition
2016 Supplement
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This 2016 supplement is the first supplement to accompany the fifth edition of this book. The supplement essentially covers developments in the law of fundraising for the multi-month period ending as of the close of 2015.
From a law standpoint, probably the most significant development in the realm of fundraising occurred when the Department of the Treasury and the IRS published proposed regulations to implement the exception to the general charitable gift substantiation requirement. Pursuant to this exception, donee organizations will be able to file information returns with the IRS that report the required information about contributions. The fundraising community has become rather familiar with the general substantiation rules, using the required contemporaneous written acknowledgement letters as an opportunity to communicate with (as in say thank you to) their donors. When these rules concerning this exception are implemented (if they are), administrators of charitable organizations will be making the decision as to whether to stay with the general substantiation regime or begin filing information returns with the IRS. The professional fundraising community certainly has a vested interest in the outcome of that decision-making. The decision not only may have an impact on donor relations efforts but, as the Association of Fundraising Professionals noted in its October 28, 2015 eWire, the proposal in its current form raises problems regarding donor confidentiality.
A section has been added to the book, addressing the matter as to when an organization can be considered a tax-exempt charitable entity where its sole functions are fundraising and grantmaking. As we discuss, it has been IRS policy since 1924 that a nonprofit organization that only carries on operations that involve generation and receipt of contributions (and perhaps investment income) and distribution of its income to public charities is eligible to receive recognition of tax exemption as a public charity. This point has often been restated over the years. The IRS caused a major shift in thinking concerning this topic when, in 1964, the agency introduced the commensurate test. As applied to fundraising and grantmaking charities, this test requires that the amounts distributed to one or more charities must be “significant.” (This aspect of the topic was raised to a much higher level of concern when, a few years ago, the IRS launched its “charitable spending initiative.” This could have been a major development for the fundraising community; the initiative, however, collapsed and disappeared in the aftermath of the chaos surrounding the brouhaha over the IRS's mishandling of certain applications for recognition of exemption.)
In recent months, however, largely by means of private letter rulings, the IRS has taken a harder line as to fundraising charities, principally by adversely applying the doctrines of private benefit and commerciality. There has been an unusually large number of IRS private letter rulings concerning nonprofit organizations established to engage in forms of online fundraising for charity. The IRS has denied recognition of tax exemption as a charitable entity in every one of these cases. Some of these rulings are inconsistent with law that has been in existence for over 90 years, concerning exemption for entities whose functions are solely fundraising and grantmaking. The IRS's fixation on the commerciality doctrine has spilled over into this area, causing policy shifts, with the agency resting its denial positions on that doctrine and, in some instances, as noted, also the private benefit doctrine. We added this section to explore this aspect of the IRS's recent ruling policy.
The IRS's focus in this area notwithstanding, online fundraising by charities that are tax-exempt continues to grow, and thus we expanded our portrait of charitable giving to include a look at this phenomenon.
Other topics we have covered include expanded Form 990 filing requirements in the states, discussion of a troubling IRS technical advice memorandum finding a charitable organization's fundraising program to be an unrelated business, the import of the IRS's new streamlined application for recognition of exemption, fundraisers' compensation, and more law concerning raffles conducted by charities.
Talk of federal tax reform is rampant. While the likelihood of any major tax law changes in the coming months is slim, there are a number of proposals being floated that would directly and indirectly have an impact on the law of fundraising. We have included a table summarizing these proposals in this supplement. This table includes references to the relevant law changes occasioned by enactment of the Protecting Americans from Tax Hikes Act of 2015, which was enacted, as Division Q of the Consolidated Appropriations Act, 2016, on December 18, 2015 (Pub. L. No. 114-113).
We appreciate the assistance we have received from John Wiley & Sons in the preparation of this supplement. Our thanks are extended, in particular, to our development editor, Matthew Davis, and Dawn Kilgore, production editor, for their assistance and support in connection with this supplement.
Bruce R. Hopkins
Alicia M. Kirkpatrick
February, 2016
Bruce R. Hopkins is a senior partner in the law firm of Polsinelli PC, practicing in the firm's Kansas City, Missouri, and Washington, D.C., offices. He specializes in the representation of charitable and other tax-exempt organizations. His practice ranges over the entirety of law matters involving exempt organizations, with emphasis on fundraising law issues, charitable giving (including planned giving), the formation of nonprofit organizations, acquisition of recognition of tax-exempt status for them, governance and the law, the private inurement and private benefit doctrines, the intermediate sanctions rules, legislative and political campaign activities issues, public charity and private foundation rules, unrelated business planning, use of exempt and for-profit subsidiaries, joint venture planning, tax shelter involvement, review of annual information returns, and Internet communications developments.
Mr. Hopkins served as chair of the Committee on Exempt Organizations, Tax Section, American Bar Association; chair, Section of Taxation, National Association of College and University Attorneys; and president, Planned Giving Study Group of Greater Washington, D.C.
Mr. Hopkins is the series editor of Wiley's Nonprofit Law, Finance, and Management Series. In addition to co-authoring The Law of Fundraising, Fifth Edition, he is the author of The Law of Tax-Exempt Organizations, Tenth Edition; Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries; Bruce R. Hopkins' Nonprofit Law Library (e-book); Tax-Exempt Organizations and Constitutional Law: Nonprofit Law as Shaped by the U.S. Supreme Court; IRS Audits of Tax-Exempt Organizations: Policies, Practices, and Procedures; The Tax Law of Charitable Giving, Fourth Edition; The Tax Law of Associations; The Tax Law of Unrelated Business for Nonprofit Organizations; The Nonprofits' Guide to Internet Communications Law; The Law of Intermediate Sanctions: A Guide for Nonprofits; Starting and Managing a Nonprofit Organization: A Legal Guide, Sixth Edition; Nonprofit Law Made Easy; Charitable Giving Law Made Easy; Private Foundation Law Made Easy; 650 Essential Nonprofit Law Questions Answered; The First Legal Answer Book for Fund-Raisers; The Second Legal Answer Book for Fund-Raisers; The Legal Answer Book for Nonprofit Organizations; The Second Legal Answer Book for Nonprofit Organizations; and The Nonprofit Law Dictionary; and is the coauthor, with Jody Blazek, of Private Foundations: Tax Law and Compliance, Third Edition; also with Ms. Blazek, The Legal Answer Book for Private Foundations; with Thomas K. Hyatt, of The Law of Tax-Exempt Healthcare Organizations, Fourth Edition; with David O. Middlebrook, of Nonprofit Law for Religious Organizations: Essential Questions and Answers; with Douglas K. Anning, Virginia C. Gross, and Thomas J. Schenkelberg, of The New Form 990: Law, Policy and Preparation; with Ms. Gross, of Nonprofit Governance: Law, Practices, and Trends; and with Ms. Gross and Mr. Schenkelberg, of Nonprofit Law for Colleges and Universities: Essential Questions and Answers for Officers, Directors, and Advisors. He also writes Bruce R. Hopkins' Nonprofit Counsel, a monthly newsletter, published by John Wiley & Sons.
Mr. Hopkins maintains a website providing information about the law of tax-exempt organizations, at www.nonprofitlawcenter.com. Material posted on this site includes current developments outlines concerning this aspect of the law, summaries of court opinions, discussions of his books, various indexes for his newsletter, and a “What's New” listing of recent developments in exempt organizations law.
Mr. Hopkins earned his JD and LLM degrees at George Washington University National Law Center, his SJD degree at the University of Kansas School of Law, and his BA at the University of Michigan. He is a member of the bars of the District of Columbia and the state of Missouri. He is an adjunct professor at the Kansas University Law School, teaching courses on nonprofit and tax-exempt organizations.
Mr. Hopkins received the 2007 Outstanding Nonprofit Lawyer Award (Vanguard Lifetime Achievement Award) from the American Bar Association, Section of Business Law, Committee on Nonprofit Corporations. He is listed in The Best Lawyers in America, Nonprofit Organizations/Charities Law, 2007–2015.
Alicia M. Kirkpatrick is an associate in the law firm of Polsinelli PC, practicing in the firm's Kansas City, Missouri, office. She specializes in advising both nonprofit and for-profit entities. Her clients include national hospital systems, research organizations, private foundations, colleges, universities, associations, social welfare organizations, and governmental entities. Ms. Kirkpatrick assists these clients with formation, structure, and operational issues, including fundraising regulation. She also has experience with various tax restructuring issues relating to international entities.
Ms. Kirkpatrick received her JD degree from the University of Kansas School of Law. Ms. Kirkpatrick received an LLM in taxation from Northwestern University. She received a B.A. in Supply and Value Chain Management from Texas Christian University. She is a member of the bars of the states of Illinois, Kansas, and Missouri.