Recent IRS Changes Increase Transparency
By Judy Keller
Senior Vice President
Changes at the Internal Revenue Service will make financial data about the nonprofit world more broadly accessible to the public—and that’s a good thing.
According to the Chronicle of Philanthropy, the tax agency has come under pressure in recent years by open-government advocates who wanted the information available in a format that is easy to put in a spreadsheet and analyze. Until now, the IRS has released this kind of data only to a few research groups; everybody else could obtain only a set of DVDs that allowed readers to look one by one at each charity’s informational tax return, but made large-scale analysis tough to do.
The data released by the IRS doesn’t include everything on the informational returns filed by charities and foundations. Mostly it includes figures on sources of financial support, total assets and revenue, spending on overhead and programs, and compensation paid to a group’s top-paid officials. It also lacks the names and locations of the organizations, instead just offering a federal employee identification number for each group’s form.
So while the changes aren’t as user friendly as they might be, they are an improvement and will allow for wider use of information.
Nonprofits should welcome this change, take advantage of it, and encourage their donors to do the same.
As our donors become more sophisticated in analyzing how their charitable dollars are spent, the nonprofit community is under increased pressure to be not only more efficient and effective with each dollar, but more transparent as well. A well-managed organization has nothing to fear with the increased potential for scrutiny and should encourage efforts to educate and evaluate, whether by donors or peer organizations.
To encourage this drive for efficiency, The Bill & Melinda Gates Foundation is holding a competition that will offer $100,000 grants to projects that help nonprofits and donors pull together information on a wide variety of sources, such as data that would show a nonprofit program’s results, what beneficiaries and grant makers thought about the project, and what other experts say about its value.
The competition, which could finance as many as 80 projects, expects to receive at least 1,000 applications. Details about how to apply are available at www.grandchallenges.org.
Everyone in the philanthropic community grows stronger when we raise the standards of accountability by which we are all measured.
For more information on how to help your organization meet transparency standards, reach out to me directly through Jeffrey Byrne + Associates, Inc. at firstname.lastname@example.org.
As a longtime California resident, Phil Mickelson vented after shooting a final-round 66 for a 17-under-par 271 total and tie for 37th in his 2013 debut at the Humana Challenge (January 22, 2013).
Recently Phil also made headlines in the business sections of newspapers across the country. Now, as one of the best golfers in the world, I’d expect to see Phil on the sports pages. But Phil was complaining about the California voters’ approval of Proposition 30 – which would cause an increase in the income tax rates by 3%. He threatened to pick up and move his family and residence to another state.
I was interested in what’s been happening with this and yesterday saw a clip on Fareed Zakarias GPS on CNN. Interestingly enough, a recent study by Christopher Young (Stanford) and Charles Varner (Princeton) about New Jersey raising the top income rate by 2.6% on incomes over $500,000 in 2006 (pre-Governor Chris Christie) showed some interesting results.
First, yes – New Jersey lost revenue or forgone levies of $16,400,000. But second, New Jersey saw 65 times this lost revenue made with nearly $1,000,000,000 (yes that’s Billion) in new revenues. This new revenue was from the increase in the tax but also from new income earners coming into the tax rolls at this level. Other studies in California and Maryland have shown similar findings.
Now, I’m not advocating across the board tax increases for millionaires and high income earners. Clearly, you can question policies, but not the numbers. Clearly, an increase on high earners does generate more money than it produces losses. This is true up to a point. That’s what the states and federal government are debating, and that’s why I think it’s so interesting to be involved in the business of philanthropic fundraising and fundraising consulting. We deal every day with the Phil Mickelsons of the world, and can share a little information around facts, just not opinion.
Now, I’m a fan of Phil’s and a great admirer of his. Here’s what he said the next day: “My apology is for talking about it publicly, because I shouldn’t take advantage of the forum that I have as a professional golfer to try to ignite change over these issues.” Mickelson said he understood immediately that his comments could be seen as unsympathetic. “I think it was insensitive to talk about it publicly to those people who are not able to find a job, that are struggling paycheck to paycheck,” he said.
For the record, my Internet search over the weekend about Phil’s residency couldn’t find that he has moved. Stay tuned.
At the Giving Institute and Giving USA Foundation Spring Board meeting (the publisher of the Giving USA annual report on philanthropic giving) where I am a Board member, we had the pleasure to engage with Dr. Una O. Osili, PhD, Director of Research for The Center on Philanthropy at Indiana University. Una’s presentation was around tax policy changes proposed in the U. S. Congress on itemized charitable giving.
As you may know, Congress enacted the charitable giving deduction in 1917, four years after instituting a federal income tax. Changes over the past 96 years have occurred in various ways, but the charitable deduction, as we know it, has not been in jeopardy of elimination until recent discussions by Congress.
Congress is currently debating a number of options to close “loopholes” in the tax code to raise revenues. Philanthropic Industry Leaders are watching closely these actions and are quickly reacting and mobilizing their constituencies to inform their Congressmen and Congresswomen and Senators about the impact that their votes can have on constituencies in their districts and states.
Recently, C. Eugene Steuerle, the Richard B. Fisher chair, an Institute Fellow at the Urban Institute, a cofounder of the Urban-Brookings Tax Policy Center and the Center on Nonprofits and Philanthropy, in his testimony before the Committee on Ways and Means of the House of Representatives (2/14/13) said: a tax subsidy like that for charitable contributions should be treated like any other government program, examined regularly, and reformed to make it more effective. The good news is that the charitable deduction can be designed to strengthen the charitable sector and increase charitable giving at the same or even lower revenue cost.
Steuerle further stated that to increase giving, Congress can:
- create a charitable contribution for all taxpayers, not just itemizers;
- allow people to make contributions until the filing of their tax returns or April 15;
- make it easier for people to donate from accumulated amounts, such as retirement accounts and lottery winnings; and
- remove or reduce and certainly simplify the dysfunctional excise tax on foundations.
Congress can more than pay for these changes with little or no reduction in giving if it would:
- put a floor under deductions, which would have little effect on giving incentives;
- reform subsidies that tend to be highly ineffective and invite abuse, such as the deduction for household goods and clothing; and
- provide a better information system for charitable giving.
Our responsibility is to participate and actively engage with our elected officials. The stakes are too high. Our elected representatives need our active involvement and expertise because they will use our input in their calculations on how to maneuver through the maze of policy options. Don’t be shy. Engage.
For more information on how to become involved, reach out to me directly through Jeffrey Byrne + Associates, Inc. at email@example.com.
You’ve worked hard to engage your board in the year-end appeal and it showed. They’ve suggested new prospects, and opened doors to these individuals. Feedback showed that year-end giving is increased over that in 2011. These efforts paid off with new donors, increased gift size and happy faces at the first board meeting of the year. Share more than just the totals with your board. Be certain that they know how many are new donors, renewed donors and increased gifts. Involve them in the acknowledgement process, by phone calls, notes or emails. Engage them.
Bloomerang completed a study comparing the activities critical to keeping board members engaged with those critical to keeping donors engaged and retained givers. Recent statistics regarding new donors shows that 70 percent of new donors give only one year or make one gift. Some of the reasons cited for this disturbing statistic show that the donor:
- Doesn’t feel that the organization needs their support
- They are not reminded to give to the organization
- The organization did not inform them of how the monies were used
The effectiveness of a board is related directly to how they perceive their performance. They want to make a difference, make new connections, give back to their community through your organization and enjoy the experiences.
Engaging board members in the same way you would a donor will reap great rewards. Whether it’s inviting them to a special event, including them in your newsletter mailing, providing quick email updates or attending a meeting, studies show that increased engagement has a direct relationship to increased fundraising efforts. Charitable Advisors report that an engaged board has a clearer vision and purpose, and ultimately provides more sustained fundraising efforts.
The following offers suggestions for engaging your board throughout the year. Make 2013 your most effective one with your board and your donors.
- Know exactly what you want a board member to do before asking them to do it. Be as specific as possible with your request.
- Have a beginning and end date in mind for each activity you request a board member to accomplish. Communicate that timeline. Volunteers should not worry that their commitment will go on forever!
- Be sure what you are asking them to do cannot be done faster, easier, better-or, more appropriately by staff.
- Provide all the necessary resources and staffing needed to get the job done right and in a timely manner.
- Make the accomplishment of your request as easy as possible to achieve by providing the board member with necessary tools (e.g. self-addressed, stamped return envelopes; easy to read and respond to lists; phone call rosters; specific instructions, etc.)
- Consider whether or not the board member has the skills, knowledge and expertise to accomplish what you are asking them to do.
- Assess the time the board member has already given to your organization before asking for that “extra” project. Consider the number of committee or task force meetings they are already committed to attend. Will they have the time and inclination to do this new task also-the way it should be done?
- Is this board member the best person for the job?
- Will they enjoy taking on this task? (Although this is certainly not a prerequisite, it does help motivate volunteers and keep them engaged if they enjoy what they are doing-so contributing their time does not begin to seem like a burden.)
- Is there a cost involved in the activity? Will they feel they are already giving a lot of time and enough money, and that this is an inappropriate expectation?
The important thing to remember is that by giving careful consideration to how you use your board members’ time, you motivate and encourage each of them to continue sharing this precious commodity with your organization. Good experiences increase the likelihood of repeat performances. (Click here to go to the Bloomerang blog page.)
by Jeffrey D. Byrne
As Congress passed legislation in the early hours of the New Year, much changes for tax and fiscal issues for 2013. The two things we know about life is: sooner or later we all pay taxes and we can’t take our money with us when we die. So, let me tackle what I know about the fiscal and tax changes that were enacted earlier this month.
Two-Year Retroactive IRA Charitable Rollover Extension: H.R. 8 includes a two-year retroactive extension of the IRA Charitable Rollover provision that lapsed on December 31, 2011. Specifically, the new law retroactively reinstates the Rollover for 2012 and allows any otherwise eligible gifts made after December 31, 2012 and before February 1, 2013 to be treated as a 2012 donation. The new law also specifies that any portion of a distribution from an IRA to a taxpayer made after November 30, 2012 and before January 1, 2013 may be treated as a qualified charitable distribution for purposes of the IRA Charitable Rollover. Finally, the IRA Charitable Rollover has been reinstated for all of 2013 and will now expire at the end of this year, on December 31, 2013. (The Chronicle of Philanthropy, 7 Jan. 2013)
Core of the Fiscal Cliff Legislation & Tax Changes: According to an article I read in a U. S. Trust Investment Strategy Strategic Insights Advisory recently: The core of the 2012 tax Act once again extends “most” of the so-called Bush tax cuts, but not all. The 2012 Tax Act will permanently extend taxable income tax rates for all single taxpayers with taxable incomes below $400,000 and married couples with incomes below $450,000. The top marginal income tax rate increases to 39.6% from 35% and the top marginal dividend and capital gain tax rates rise to 20% from 15% on investments held for more than one year. Adding in the 3.8% health care tax results in an even higher effective tax rate. Additionally, various tax deduction and credits phase out for individuals earning more than $250,000 and couples making more than $300,000. The agreement also extends unemployment benefits for one year, delays automatic spending cuts for two months, raises the estate tax rate to 40% from 35% with a $5 million exemption, indexes the Alternative Minimum Tax (AMT), extends accelerated depreciation allowances for businesses for another year, renews the research and development (R&D) tax credit and extends the “Doc Fix” (cuts in Medicare payments to doctors).
Finally, the Estate Tax Exemption beginning January 1, 2013 is $5,250,000. This exemption is permanent. It is subject to an inflation adjustment annually.
The bottom line is it’s all generally good news for your organization and the donors who care for it. While there are still discussion of further limits on charitable deductions, we will keep you informed of major changes in legislation that impact your donors. In the meantime, I recommend letting your donors know about the opportunities presented to them by the changes in the IRA Charitable Rollover. They may find that NOW is the time to make a gift to your organization.