Give Thanks With Caution: New Rules and Charitable Giving
November 2013
IN THIS ISSUE
— Not-So-Sweet Charity: New Rules Could Affect Groups’ Activities and Fundraising
— Making Informed Donor Decisions: Steps to Remain Vigilant
GREETINGS!
Welcome to the November edition of our newsletter! In this issue, we’ll look at several trends, and new regulations, affecting charitable giving, and discuss some ways your clients can remain vigilant as they remain generous.
NOT-SO-SWEET CHARITY: NEW RULES COULD AFFECT GROUPS’ ACTIVITIES AND FUNDRAISING
As the year draws to a close and time is spent thinking of those less fortunate, many people reflect on their prosperity for this year by reaching out to help others. Most of us do this by supporting a local food bank or hospital, or a national group like the United Way. Many of these groups, especially larger ones, have often behaved in a manner befitting a for-profit company, differing chiefly in that their earnings are distributed to those in need, not shareholders. Like retailers, airlines and other industries, non-profit groups lobby politicians on issues of importance to their constituents. Some proposed new rules aimed at limiting the political influence of social welfare organizations, classified under Section 501(c)(4) of the tax code.
Despite the name of their category, in recent years many such groups have acted solely with the goal of disseminating information favored by their political allies, and attacking those on the opposite side (often while keeping the identities of their donors hidden.) Currently, the Internal Revenue Service conducts what it terms “fact-intensive inquiries” to determine if an entity is engaging in political activity outside of its social welfare scope, including holding town-hall style forums as well as buying advertising.
MAKING INFORMED DONOR DECISIONS: STEPS TO REMAIN VIGILANT
For prospective donors, the proposed new rules (if adopted as anything resembling their current form) will not change the fact that contributors to 501(c)(4) groups can choose to remain anonymous. But for wealthy donors who seek to be both socially conscious and politically active, the stain of an IRS inquiry into a group’s activities can bring unwanted attention. Although these new rules have yet to be put in force, requests can be made to determine if the Internal Revenue Service, state attorneys general or consumer protection agencies have looked into a group’s activities before a donation is made. Additionally, although pro-disclosure litigants file their claims bringing their agenda to the fore,a search of any such civil litigation could yield information that would be useful in making a decision. An experienced fraud examiner can help you and your clients navigate this information and assess if any reputational threat may exist before a donor decides to support a certain group.
The last half-decade has seen more than one seismic shift in how various groups can express political views, and the situation remains fluid enough that any assumption about the matter being settled in short order seems premature. Yet this climate does not need to inhibit your clients from supporting their favored causes, either monetarily or by joining a groups’ leadership. Given the sensitivity in many quarters to seemingly political activity by supposed social welfare groups, however, a proper due diligence effort can prepare your clients for any potential public relations blow-back and assist them in making an informed and reasoned decision.