Once a gift becomes tainted, the institution must make the decision whether to refuse or to keep the gift.  Nonprofit organizations have three options to tackle the situation of tainted gifts.  One option is to keep the donor’s money and name.  The second option is to return the donation and remove the name.  The third option is to adopt a compromise position, i.e., to do nothing.  A popular suggestion to tackle such a situation is to have a strong institution policy.  Many institutions tend to follow the step to return the money when the nature of the charges involving their donor is highly incompatible with its core values, beliefs, and activities.  It becomes more or less an ethical obligation to return the money.  Still there are many institutions that choose to keep the money because the nature of the charges is not against what they stand for.  Universities top the list of having received the most number of donations from individuals with current, future or implied legal difficulties.  Many Universities have returned tainted donations and donations from tainted donors, whereas there are many who have kept the money with themselves in favor of their own needs.

Non-profits should carefully screen and examine the donors and their background before accepting any kind of donations, grants or gifts.  This can reduce the dilemma of the institutions although the institutions will be left with the three options if the donor gets tainted subsequently.

Sources:

The Globe and Mail
Nonprofit Quarterly

Disputes between mosque members over elections are unfortunately nothing new.  Such a dispute was at the center of the case Abdulbasith v. Muslim Community Center, Inc., decided September 17, 2009 by the Cook County Circuit Court in Illinois.  While the dispute was somewhat unusual in that it led to litigation, it highlights important governance issues that many mosques continue to confront and so mosque boards would be well served to study the court’s decision.

The plaintiff in the case, a member of the Muslim Community Center in Chicago, Illinois, brought suit against the mosque board and its then-president alleging voter fraud in recently held board elections.  According to the decision, shortly before the voter registration deadline, the mosque received hundreds of applications for registration and absentee ballots.  Alarmed by the influx of applications and the fact that dozens of the new registrants shared the same few addresses, various mosque members raised concerns of impropriety to the board.  After reviewing the applications, the board’s election committee purged some of the registrants from the rolls, but allowed the majority of the new applications.

Unsatisfied with the result, the plaintiff requested an emergency hearing before the mosque’s arbitration committee, a committee that was not described in the mosque’s bylaws.  The arbitration committee agreed to hear the matter but failed to notify or otherwise seek the participation of the board.  After holding the hearing, the arbitration committee determined that the elections should be suspended and that the president should be granted emergency powers to run the mosque and to revise its bylaws.  The president refused to implement the decision and the elections were held as planned.

The plaintiff then filed a complaint requesting that the court prevent the board from holding the elections, which the court denied.  After the elections were held, the plaintiff filed an amended complaint, arguing that the board was obligated to respect the decision of the arbitration committee and requesting, among other things, a declaration that the elections were invalid because of the use of absentee ballots and the perpetration of voter fraud.  The court ruled in favor of MCC, finding that the plaintiff had failed to meet his burden of showing voter fraud by the requisite standard.  The court determined that the board was not bound by the arbitration committee’s decision because, pursuant to state law, the board should have been notified of the hearing so that it could present its case as it was a key party to the dispute over the use of absentee ballots.  The court found that the arbitration committee’s decision improperly divested the board of its authority because, under state law, in an organization where members were entitled to vote in board directors, those board directors could only be removed by a vote as well.

While some may lament the incidence of this litigation or its outcome, there are important lessons for board members of other mosques and non-profit institutions.  One lesson is that a description of the arbitration committee and the parameters of its decisionmaking authority should have been set forth with precision in the mosque’s bylaws.  In addition, a board committee like MCC’s arbitration committee should consult with a lawyer to ensure that its decisions are consistent with any applicable state law and the organization’s own bylaws.

Another lesson learned concerns how elections are conducted.  One of the central issues of this case was the legitimacy of numerous last minute voter registrations and requests for absentee ballots.  Mosque boards should carefully review their requirements for voter eligibility to ensure that the identity of voters can be readily verified.

A third lesson is the importance of not only constructing a strong governance structure for a mosque, but also abiding by it.  The arbitration committee’s decision in this case to invest the president with emergency powers to run the mosque and modify its bylaws unilaterally would have amounted to a coup d’état.  As with governance on a national level, the laws of an organization must not be so easily cast aside.  It is adherence to the organization’s governance structure that ensures conflict-free transitions of power and the representation of a diversity of views within the mosque community.  To ensure the construction of a sound governance structure and adherence to it, mosque boards should consult with an attorney regularly and not just when things come to a boiling point.

The listed purposes of the Act are:

1. To enhance the ability of the nonprofit sector to address public challenges and maximize opportunities to improve quality of life in the communities where nonprofit organizations work.
2. To strengthen communities across the United States by making the Federal Government a more productive partner with nonprofit organizations through the establishment of better Federal coordination with respect to, enhanced transparency with respect to, and greater support for the work of nonprofit organizations,
3. To collect, assemble, and make available Federal data and research on the nonprofit sector and to generate new data and research where necessary to support the development of effective Federal policy, and
4. To raise awareness of the nonprofit sector and the vital civic, social, and economic contributions nonprofit organizations make to the United States.

The Act would create a United States Council on the Nonprofit Sector and Community Solutions in order to advise the President and Congress about how the federal government can work more effectively with nonprofit organizations. The Act lists in detail the duties and powers of the Council. The Act would also create an Interagency Working Group on Nonprofits and the Federal Government to coordinate administrative policies regarding contracting with, supporting, and managing relationships with nonprofits. The Act empowers the Secretary of Commerce to collect and assemble all data relating to nonprofit organizations from federal agencies. The Act also provides for establishing research programs in the filed of nonprofit.

Sources:

Text of Bill
Independent Sector
National Council of Nonprofits

Plaintiffs argued that the provisions violated the First Amendment even when support is solely to promote the lawful and non-violent activities/purposes of a designated organization. Plaintiffs claimed that they could not provide support, for fear of prosecution, for the humanitarian and political activities of two organizations in the form of monetary contributions, other tangible aid, legal training and political advocacy. Plaintiff contended that the definition is impermissibly vague because the statute fails to notify a person of ordinary intelligence as to what conduct constitutes “material support or resources” and that some of the terms in it could be interpreted to criminalize protected speech and expression.

The Supreme Court of the United States in a 6-3 decision held that the law did not violate First and Fifth Amendment rights. The court added that the provision does not criminalize mere association, but instead prohibits the act of knowingly giving material support to designated foreign terrorist groups. On the vagueness issue, the court found that Plaintiff’s claims of vagueness lack merit and that most of the activities in which plaintiffs seek to engage readily fall within the scope of the terms under “material support.” The court came to the conclusion that these terms readily and naturally cover Plaintiff’s conduct, without any vagueness.

1 Holder v. Humanitarian Law Project, 2010 U.S. LEXIS 5252 (U.S. June 21, 2010)

Sources:

The Chronicle of Philanthropy
Center for Constitutional Rights
Cornell Law Analysis

PRIs help foundations to make investments to accomplish an exempt purpose.  In order to qualify as a PRI, the following criteria are to be met: (1) should be primarily made to accomplish a charitable, scientific, literary, religious or educational purpose and that significantly furthers the accomplishment of the Foundation’s exempt activities, (2) the significant purpose should not be production of income or appreciation of property, and (3) it should not be used directly or indirectly to accomplish any political or legislative purposes.  Foundations make distributions primarily in the form of grants or donations.  PRIs are gaining popularity and foundations are largely investing in PRIs.  PRIs are normally structured as interest-free or below-market loans, loan participations or guarantees, mission-related deposits, recoverable grants, asset purchases, letters of credit and equity investments and are normally used to support community revitalization, low-income housing projects, microfinance, historic preservation, social services, education and other charitable causes.

There is no legal requirement that PRIs can be made only to public charities.  Foundations are free to make PRIs in both nonprofit and for-profit entities as long as the criteria are met.  Unlike grants, PRIs may be repaid and foundations can get return on its investment.  Any returns received from the investment from PRIs are not counted as profit and such returns should be reinvested in other charitable activities within the same year.  PRIs have the potential to bring growth to the available funds and thereby widen the scope of charitable activities of a foundation.

Sources:

Council on Foundations
Program-Related Investment Promotion Act of 2008
The Olin Group
IRS Resources

• $400 for organizations whose gross receipts are $10,000 or less annually over a 4-year period
• $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period

Also, during 2010, the IRS plans on launching an internet based service, called Cyber Assistant, to help nonprofits with their applications.  Once that service is in effect, rates will change again as follows:

• $200 for organizations using Cyber Assistant (regardless of size) to prepare their Form 1023
• $850 for all other organizations not using Cyber Assistant (regardless of size) to prepare their Form 1023

• Donor-Advised Funds are gaining in popularity reports the Wall Street Journal
• Donor-Advised Funds have certain advantages over Private Foundations, namely:
  • Lower Cost
  • Less Hastle
  • Tax Advantages
  • Flexibility
  • Privacy
• Even still, Private Foundations serve certain purposes and many individuals and families will stick with them for control, family legacy, cachet and permanence reasons

Private Foundations vs. Donor-Advised Funds

Safia Hussain, JD
Asbahi Law Group

The impact of the recent economic downturn on charitable donations has been not only to decrease giving, but also to change the vehicle for giving. Indeed, many donors who previously gave through their own private foundations are now closing their foundations and contributing to their causes through donor-advised funds, according to Wall Street Journal article published recently (“Time to Convert,” Jilian Mincer, November 9, 2009).

The number of accounts at donor-advised funds – charitable giving vehicles administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, family, or individual – have increased by 11% over the last year, according to the article. Many donors hold accounts at popular donor-advised funds, such as Schwab Charitable Fund, the Fidelity Charitable Gift Fund and the Vanguard Charitable Endowment Program.

The increased popularity of donor-advised funds is due to their significant advantages to donors over private foundations, such as the following:

1. Lower Cost. Running a private foundation can be expensive because it involves paying for lawyers, accountants, office supplies, and sometimes even a staff. Donors to donor-advised funds avoid having to pay for such overhead costs. Also, because donor-advised funds are part of a larger pool of money, they incur lower investment fees than small foundations, which have fewer assets.  Cost can be an important factor for donors whose assets may have lost value during the recent economic downturn and so they value the opportunity to make their funds go further through giving through a donor-advised fund.
2. Less Hassle. A related upside of giving through a donor-advised fund is that the donor can avoid the significant amount of work involved in running a private foundation. Tasks such as filing paperwork, researching potential recipients, conducting due diligence of donations, and managing staff are taken care of by the administrators of donor-advised funds. The reduced workload means that donors can spend more time on their own businesses, which often require more attention during an economic downturn.
3. Tax Advantages. While donors to both a donor-advised fund and a private foundation get an immediate tax deduction when they make a charitable contribution, deductions to donor-advised funds are more substantial because donors can deduct cash contributions to a fund totaling up to half of their adjusted gross income each year while the limit for donations to a private foundation is 30%.  Similarly, donors to a donor-advised fund can deduct up to 30% of their annual gross income for donations of securities that have appreciated in value since acquired by the donor, but for a donor to a private foundation, the limit for such donations is only 20%.  Finally, investment gains in an account at a donor-advised fund are generally free of tax whereas a private foundation’s investment gains are subject to an excise tax.
4. Flexibility. Private foundations are required by the IRS to make annual distributions totaling 5% of their total assets.  Donor-advised funds are under no such obligation. This flexibility can be important to donors when the value of their assets has decreased. Similarly, once a private foundation’s founder passes away, surviving family members may disagree on the direction the foundation should take. By dividing the private foundation’s assets among several accounts at a donor-advised fund, money may be used to accomplish different goals.
5. Privacy. Information about donor-advised funds is not made public and donations to such funds can be made anonymously.  Private foundations’ tax forms, on the other hand, are public documents, and so the details of the foundations’ operations and some personal information may be available to the public.

Despite the numerous advantages of contributing to donor-advised funds, there are still several important reasons that may persuade donors to stick with a private foundation:

1. Control. Private foundations give donors complete control over where their contributions are going. While donor-advised funds usually make donations as requested by account holders, they can only write checks to charities and not to individuals or groups that do not qualify as charities. As a result, individuals who support causes that are out of the mainstream may prefer to give through private foundations.
2. Family legacy. Philanthropists are often inclined to set up family foundations to teach other family members about philanthropy. It should be noted, however, that some donor-advised funds allow account holders to name successors to their account who can continue to advise the account after the account holder’s passing so as to create a legacy.
3. Cachet. There is no doubt that there is a certain prestige associated with having a named private foundation.  For example, everyone is familiar with The Bill and Melinda Gates Foundation, the John D. and Catherine T. MacArthur Foundation, the Soros Foundation, and so on.
4. Permanence. Contributions to a donor-advised fund are irrevocable and donors may not put their money to other use.

If a private foundation philanthropist decides that a donor-advised fund makes more sense, it is not difficult to convert from one vehicle to the other. The first step is to shut down the foundation. To do so, the donor should first contact the relevant state authorities that regulate charities because each state has its own requirements on that process. Donors must be sure to file the final federal tax form for the foundation. Donor-advised funds can then provide additional assistance on transferring funds and any other steps required.

Kareem Shora, former executive director of the Arab American Anti-Discrimination Committee, has been appointed to the post of Senior Policy Advisor for the Department of Homeland Security.  Kareem’s intelligence, judgement and in-depth understanding of homeland security issues will be a major asset to DHS, and to our country.

The umbrella group South Asian Americans Leading Together (SAALT) celebrated, along with Asian Americans and Pacific Islanders around the country, the signing of an Executive Order, establishing a Advisory Commission and White House Initiative on Asian Americans and Pacific Islanders.  The Commission will be housed at the Department of Education.   Click here for a transcript of the President’s remarks at the signing.

The National Council of La Raza held an important forum recently on the health and welfare of Latino children in the U.S.  Health Secretary Kathleen Sebelius and Senator Robert Menendez (D-NJ) in Washington D.C.  The forum highlighted a key study that finds that by 2030, without intervention, Latino American children will account for half of all children living in poverty.

The Islamic Society of North America, in partnership with other national faith organizations, recently participated in an interfaith initiative entitled: Fighting Poverty with Faith: Good Jobs, Green Jobs.

The Interfaith Youth Core recently concluded its 6th Annual Conference entitled “Leadership for a Religiously Diverse World” in Evanston, IL.  IFYC is lead by my good friend, Eboo Patel, who was recently honored as one of America’s Best Leaders by U.S. News and World Report.

About NNAAC

The National Network for Arab American Communities (NNAAC) is a national network of independent Arab-American community-based social service organizations.  The Network is dedicated to helping strengthen grassroots institutions that can meet the needs of and represent the concerns of Arab Americans at the local level and help bring these concerns to the national level on a collective basis.  Led by my very good friend, Taleb Salhab, NNAAC provides a forum for shared learning and shared resources among a network of approximately 17 social service organizations scattered around the country.  NNAAC is blessed to have a very deep reservoir of talented staff, especially in the person of Mike Coburn, the senior program manager.  Mike brings over 30 years of nonprofit management experience to his role.

About the Workshop

Nonprofit organizations of all types share common challenges.  Among those challenges:

• Helping members of nonprofit boards understand and appreciate the legal duties they owe to the organization;
• Improving transparency; and
• Developing systems of accountability.

These issues will be at the heart of what I hope will be a memorable workshop.  We’ll tackle the substantive material while also engaging the audience in a spirited discussion.  (We’ll have to since its the first session in the morning).

Paris Hodge of HHH Accounting, a Detroit-based CPA firm, will be a co-presenter during the Workshop.  She’ll be focused on the new Form 990 rules, which were recently adopted by the IRS.  The new Form 990 has changed in significant ways with a major focus on a nonprofit’s governance, conflicts of interest procedures and financials.

For anyone in the area interested in attending, NNAAC is providing a day rate for registration.  If interested, please contact NNAAC or come by registration Saturday morning to attend.  If anyone is interested in a copy of my slides, please email me at masbahi@asbahilaw.com.

The site is inspiring in look and feel and also, most importantly, in substance and purpose.  It is a forum intended to inspire South Asians to become more involved in philanthropy and volunteering.  Its Blog is active and constantly updated with interesting news.  It has an excellent collection of articles, research and white papers, and it maintains an extensive Blog Roll of other philanthropic and South Asian sites and blogs.

The contributions of the South Asian community to American civic society has yet to be fully recognized and appreciated.  One very funny piece involving John Stewart and Aasif Mandvi speaks volumes about the South Asian community (even as it dwells in over-exagerated ethnic caricatures and stereotypes).

Kudos to Archana and Venu and everyone else who has a hand in SAPP.  Keep up the great work!