Nonprofits can engage in lobbying, but be careful

By Andrew Zashin*

A nonprofit can engage in lobbying efforts, but you probably already knew that.

It is difficult to think of a time in recent memory during which the political battle lines have been so clearly drawn. Arguably with the help of social media – even beyond the trolls – our society has become more divided and divisive. No matter one’s viewpoint, it seems much is at stake. And nonprofits have stepped up to push different political agendas. You could probably easily think of many examples of organizations that work hard to push for particular political agendas. Their activities include drumming up support from the general public, as well as lobbying local, state and federal governments for legislative change. These organizations frequently make headlines.

How much can they lobby? The answer is not entirely clear and depends on the type of organization. In some cases, it can be pretty subjective.

Tax-exempt charitable entities organized under Section 501(c)(3) may lobby so long as efforts don’t constitute a substantial part of their total organization’s activities. That is, the charitable cause is supposed to be the focus of their work and lobbying should only amount to a small part of that. Substantial in this context is not clearly defined and can be measured in two ways. The first way is the substantiality test, which will depend on the facts and circumstances of each case. The second is the expenditure test, which determines allowable lobbying expenditures based upon the organization’s exempt purpose or charitable expenditures.

On the other hand, social welfare entities organized under Section 501(c)(4) may exist for the purpose of lobbying, so long as the organization’s lobbying efforts are germane to the organization’s mission. That might include some participation in specific political campaigns, though not direct donations. But qualifying as a 501(c)(4) social welfare organization is much tougher than qualifying as a 501(c)(3) charitable organization. Rather than a charitable organization that might focus on providing help to a particular cause or subset of people, such as women or the LGBTQ community or those with cancer, or a religious institution, a social welfare organization should look to better society at large.

For either type of organization, the price for violating the lobbying restrictions could be loss of tax-exempt status, a steep price, to be sure, making it important to tread carefully.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:10-05:00May 15th, 2019|Lobbying, Non-Profit|

Philanthropic giving for average donor

By Andrew Zashin*

The Internal Revenue Service identifies some 29 different types of organizations that are exempt from federal income tax.

In the most basic of terms, these are “nonprofit” organizations, or entities that exist generally for a purpose other than making money, and it is to nonprofits that we think about directing our philanthropy.

While you may make donations to causes such as a fraternal organization or a political campaign, in terms of philanthropic giving, you are probably most familiar with 501(c)(3) organizations. These are more commonly known as “charitable” organizations, and the “501(c)(3) label refers to the specific subsection of the Internal Revenue Code under which they are organized.

These types of organizations include only those which are “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals…”

So what does this mean for the average donor?

In deciding where to put your donation dollars, obviously it is most important to select a cause that you believe in. However, people choose to donate for many reasons beyond the simple “feel good” factor of helping a good cause. Of course, the deductibility of charitable gifts has been impacted by the recent tax reforms. But if tax deductibility is on your radar you will want to speak with your accountant or financial planner before making any large donations to be certain the donation will be deductible.

When searching for that perfect charitable cause, know that you will come across many, many options vying for your money, and it can be difficult to know where to start. Websites like Charity Navigator, Charity Watch, GuideStar and Consumer Reports evaluate an astounding number of organizations on topics such as operating and fundraising overhead, total contributions, sources of contributions, and other information that may be of interest.

The majority of donors will look to contribute to public charities. That is, most people will make donations toward an organization that regularly receives contributions from the general public and has active programs. Organizations in this category might include a synagogue/temple/shul, an animal welfare organization, an educational organization, or a benevolence organization, just to name a few.

Of course, private foundations are another option. These entities are typically nonprofits that have been established from funds from a single source or small group of sources, such as a family or corporation. They often have no active programs of their own, but support the work of other public charities through grants.

Ultimately, what is right for you will depend on your personal tastes and how you prefer to see your funds allocated. With a little research you are sure to find the right fit for you.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:12-05:00February 15th, 2018|Charitable Donations, Non-Profit, Tax Planning|

Tax reforms may pose significant hit to charitable giving

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Every level of government, from the smallest municipality to the federal government, must tackle tax issues. Politicians, pundits and, of course, prospective tax payers will each weigh in, offering separate opinions as to how best to generate the funds the government needs to operate without breaking the back of the average citizen or losing his vote.

President Donald Trump recently released a skeleton outline of his tax plan. The plan proposes sweeping overhauls that, among other things, aims to significantly increase the standard deduction to $12,000 for a single filer and to $24,000 for a jointly-filing married couple. And, for many middle-class Americans, higher standard deductions do away with the complicated process of itemizing deductions for things like qualifying medical expenses, state and local taxes paid, and charitable contributions.

A simplified tax filing process is certainly something taxpayers could get behind. But charitable organizations have some concern as to what impact this plan may have on their bottom lines. Certainly, people donate for benevolent reasons; they do it because they genuinely want to see a cause succeed and because it feels good to do good in the world.

But charitable organizations are well aware that people also give because they derive some direct benefit from it. At certain levels of giving, name recognition may be involved. Perhaps the giver will see their name in a printed program or on an inscribed plaque or brick, or even on the entrance to a hospital wing or theater. Maybe they benefit by having a cleaner home after donating unwanted clothing or household goods.

Or, maybe they get a tax write-off. And, it is the last reason that is causing some concern; if the average taxpayer will no longer get the same tax benefit for his charitable contributions, will he still give at the same level? Nonprofit leaders certainly don’t think so, and experts are estimating that overall giving could decrease by as much as $13 billion to $26 billion per year.

Support is increasing for the concept of a universal charitable deduction, and one congressperson, U.S. Rep. Mark Walker, R-N.C., has introduced the Universal Charitable Giving Act, which proposes to offer an incentive for lower and middle income families to keep or start giving, by allowing them to deduct their charitable donations in an amount of up to one-third of the value of the standard deduction, without itemizing.

Clearly, it is far too soon to know if any of these tax changes may come to fruition or in what form. But, it is apparent that the proposed Trump reforms would mean that as many as 95 percent of taxpayers would derive no value from itemizing deductions and, therefore, no additional tax benefit for charitable giving.

The National Council of Nonprofits responded with a statement calling for Congress and charitable nonprofits to “quickly identify relevant data and come to a consensus on how best to improve the universal charitable deduction so that all American taxpayers, not just 5 percent, benefit from the tax incentive for donations designed to make a difference in local communities across the country.”

2023-11-10T13:38:12-05:00October 18th, 2017|Charitable Donations, Non-Profit, Tax Breaks, Tax Planning|

Naming rights can make donations more complex

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Philanthropy happens at all levels of giving. Some donors are comfortable writing checks with one or two zeroes at the end. Others may add a few more zeroes or, perhaps, sponsor a table at a gala or donate a valuable item. But the pinnacle of philanthropic giving involves naming rights.

Who isn’t familiar with Carnegie Hall or Rockefeller Center? Cleveland’s local universities are filled with buildings named for donors. Naming rights can be very useful for a nonprofit institution. After all they are very expensive, and naming rights can encourage major donations. A wing, hall, or building becomes part of the local landscape, and the name lives on beyond the person. There is something very appealing about leaving a lasting legacy, and the right to do that can encourage the sort of major donation that can help an organization meet its philanthropic goals.

Large anonymous gifts get publicity. Each December, for example, we hear news blurbs about generous but anonymous donations into Salvation Army buckets. But publicity surrounding large public donations tends to be much more beneficial for the organization overall, attracting more attention and often more donations from other large donors.

But naming rights require a delicate balance between satisfying the donor’s (or donor’s heirs’) wishes for the name to live on and the need to attract future large donations by having the latitude to bestow further naming rights. After all, the things that get named require upkeep. Maybe a wealthy donor provided needed funds for a facility overhaul and negotiates naming rights as a condition of the gift. What then happens when the next overhaul is required? Do those same naming rights get bestowed on the next donor?

There are differing schools of thought surrounding the “best” way to manage these types of issues. Many donors and organizations believe that revolving naming rights are the best way to further the organization’s mission, by enticing new donations. On the other hand, many large endowments have fallen through when an organization refused to honor certain naming demands. And sometimes rights that were to be in perpetuity are bought out or otherwise terminated in some way in order to meet future goals.

For tax purposes, the Internal Revenue Service has long taken the position that public recognition does not count as a measurable benefit that would impact any tax deduction. So, a $20 million gift has the same tax benefit irrespective of whether or not the donor gets a new museum wing named after him in perpetuity, for a limited period of time, or not at all.

Ultimately, significant consideration and negotiation goes into giving at this level, both from the standpoint of the donor, as well as the nonprofit organization, and lengthy legal contracts must be drafted to carefully spell out the terms of the naming rights and the contingencies surrounding the donation.

How to start a nonprofit in five (not so) easy steps

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Most people prefer to direct their philanthropic dollars toward an existing organization that is dedicated to the cause of his or her choice. And, there is a very good chance your preferred cause is being serviced by at least one – and maybe many – organizations.

GuideStar, perhaps the largest databases of IRS-registered charitable organizations, lists more than 4,400 Jewish nonprofits. If the performing arts are your thing, you will find more than 30,000 options for consideration. International human rights organizations? More than 800 are available for your perusal. From animal protection to domestic violence victim support to veteran services you can almost certainly find an organization to which to donate your philanthropic dollars.

On the other hand, maybe you are unsatisfied with your options, for whatever reason. Certainly, it is very possible to start your own nonprofit organization, whether to fill an unmet need, or simply do it better than the organizations already doing what you want to do.

At its most basic, starting a nonprofit is like starting a business. You will want to:

• Identify your organization. Create your mission statement. What cause are you supporting? Now refine it. A charitable organization dedicated to “helping animals” is too broad and ill-defined to succeed. An organization dedicated to preserving honey bee colonies in Northeast Ohio, focusing on support for local apiaries and beekeepers, as well as public education and outreach regarding the importance of honey bees to the food chain? That is specific enough to focus efforts and attract dollars from interested donors.

• File your paperwork. You will need an official – and unique – name. You will need to register that name with the Ohio Secretary of State. Apply for a federal employee identification number. And, perhaps most importantly, you will need to apply for your tax-exempt status. You may want to seek help from a lawyer experienced in nonprofit law for this step.

• Set up your business plan. How do you intend to fundraise? Do you believe you will get funding from other sources, such as the United Way? What are your projections for funds raised in year one? In year five? How will you spend those dollars raised? Will you, personally, work for free or will you get paid? What will you spend on fundraising? Even the best-run charitable organizations have overhead costs. But you will want to make sure those costs are as low as possible so that you can channel the fruits of your fundraising labors toward the cause you want to help. You may wish to have an accountant involved in this step.

• Organize your organization. How will you complete basic office tasks like making phone calls and copies? Will you have physical office space? Work from a home office? Will you have employees? A bookkeeper? What will your record-keeping system look like? Your accounting system? An accountant can be useful for this step.

• Advertise, fundraise, and start your good work!

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:13-05:00May 23rd, 2016|Charitable Donations, Non-Profit|
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