A recent New York Times’ article attacked American charities that help build communities in  Israel’s West Bank and IRS policy that enables donations to these organizations to be tax-deductable.  As with any piece about the Palestinian-Israeli conflict, many people have been quick to attack or defend the veracity of the article.

To nonprofit organizations, the value of the article is not the accuracy of the authors’ claims, but rather the article’s insight into current concerns and trends influencing the nonprofit sector.  These can serve as warnings and guidelines to US charities that operate internationally.

Towards this end, I have highlighted themes in the article through blocks of text.

Charity Law as an Extension of US Policy

Using tax-exempt donations to help Jews establish permanence in the Israeli-occupied territories – effectively obstructing the creation of a Palestinian State.

Mr. Obama has particularly focused on them as obstacles of peace.

As the American government seeks to end the four-decade Jewish settlement enterprise…the American Treasury helps sustain the settlements through tax breaks on donations to support them.

Washington has consistently refused to allows Israel to spend American government aid in the settlements.

The article hints to a link between United States charity regulation and governmental policy.   While there necessarily shouldn’t be a connection between the two, the facts on the ground seem to hint otherwise.  More because of increased scrutiny by the governmental department tasked with overseeing nonprofits rather than because of changes in law.

It would behoove organizations operating overseas to consider this growing link (at least during President Obama’s tenure) and to consider US policy when formulating strategy and governance.

Board Members and Officers Should Not Be A Rubber Stamp

It [Shuva Israel, a US tax-exempt charity] has two volunteers who double as board members. “I’ve never been to the board,” said one of them, Jeff Luftig.

Independence and control: two running themes in nonprofit legislation, regulation, and audits.

Volunteers who agree to serve as a board member should understand that this voluntary service comes with mandatory responsibilities. The same holds true for a nonprofit searching for potential candidates.  The United States Government and the public look to a Board of Directors as the brains and power behind a charity; as such, the board is expected to actively participate in the running and planning of a nonprofit.

Local Charity, Local Board

Although IRS rules require that American charities exhibit “full control of the donated funds and discretion as to their use,” Shuva Israel [a US tax-exempt charity] appears to be dominated by Israeli settlers.

The IRS does not want an American charity to be a puppet, subservient to the wishes of another organization or individual — local or foreign.  While foreigners are allowed to sit on the boards of American charities, the nonprofit should never appear as if it has lost its American identity and independence.

Silence Speaks Volumes

Settlements violate international law…

In some ways, American tax law is more lenient than Israel’s.

Asked whether it had ever filed a tax return, he responded, “I’m not in a position to answer that.”

Records from the group [Manhigut Yehudit] say a portion of the $5.2 million collected has gone to Israeli “community facilities”…neither man would answer questions about the nature of the “community facilities.”

Silence can sometimes be the worst answer an organization can give as it hints that perhaps no employee knows the answer or, even worse, that the organization has never bothered to ask the question.  Conferencing with lawyers, accountants, and other professionals can often turn up most of the potential challenges facing the charity. It is to the benefit of the organization to prepare responses to expected Frequently Asked Questions and designate  employees and volunteers best equipped to answer them.

The organization’s reputation demands an answer better than silence.

Filing with the IRS: The Best Defense is a Good Offense

Religious charities are still more opaque; the tax code does not require them to disclose their finances publicly.

Religious groups have no obligation to divulge their finances, meaning that settlements may be receiving sums that cannot be traced.

Religious organizations – like many of the charities that support Israel – that expect to come under government or general scrutiny should consider filing relevant IRS paperwork even though they are not required. Entering background, managerial, and financial information information ahead of any “investigative piece,” is convincing evidence that the nonprofit’s intentions are noble, as well as legal.

Conclusion

As the United States Government loses millions of dollars from noncollectable donations to tax-exempt organizations, charities will always be subject to public and governmental scrutiny.

After reading the excerpts from the Times article, one can certainly understand more of the public and regulatory sentiment towards US registered charities operating abroad, especially those supporting Israel. This said, American nonprofits can still fulfill their mission, operating at their peek capacity.

Among the many DON’Ts mentioned by the authors were also some excellent DOs, which, if followed, can prevent the very accusations highlighted in the article:

The [US] tax code encourages citizens to support nonprofit groups that may diverge from official policy, as long as their missions are educational, religious or charitable.

The Time’s review of pro-settler groups suggests that most generally lie within the rules o the American tax code. Some, though, risk violating them by: (1) by using the money for political campaigning and residential property purchases, (2) by failing to file tax returns, (3) by setting up boards of trustees in name only and (4) by improperly funneling donations directly to foreign organizations.

But the IRS does allow deductions for donations to American nonprofits that support charitable projects abroad, provided the nonprofit is not simply a funnel to another group overseas.

Truly, good advice to follow.

Tizku Lemitzvot,

Shuey

Disclaimer: This blog houses my personal opinions and is for informational purposes only – not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

Professor Joel Fleishman, author of “The Foundation: A Great American Secret; How Private Wealth is Changing the World,” is very clear on one thing: America has a long history of positive social change affected through the initiatives of private individuals and foundations.   These nongovernmental institutions have been succesful because of their greatest weapon, independence.   An article that was recently forwarded to me in The Commentary Magazine entitled, “The War on Philanthropy”, by David Billet, argues that this autonomy is under fire.

First, by the United States Government.

The Obama administration has been trying to pass a law that will “reduce the charitable deduction for the highest two income-tax brackets by almost 30 percent.”  As it stands right now, these two brackets get to write off 39 percent while the other brackets only get to write off 28 percent; this initiative would cap all citizens at 28 percent.  But not to worry, it is all in the name of fairness.  And no, the President doesn’t address the fact that most charity is received from these top two brackets.  The President only offers a consoling “There is very little evidence that this program has a significant impact on charitable giving.”  Not so consoling when you read that the article cites a noted economist who concludes that “the President’s proposal would reduce the amount of money given to charity by at least 10 percent.”

Billet explains that “the specific indictment against private philanthropy goes something like this: Because the Treasury forfeits some $30 billion every year in various tax exemptions for charity, government has a responsibility to see that this subsidy is  justified by the use to while the money is put.”   Making things worse, the author is worried by the President’s “casual dismissal of the role of incentives in altruism” and that Obama “makes little of the fact that a donor does not consume a single penny of the charitable donation that is currently exempted from taxes.”  While currently, the Senate is refusing to pass the President’s bill, the economic downturn might force the Senate to rethink its position.

Second, by the nonprofit sector itself.

In recent years a number of think-tanks and organizations have sprung up that seek to police the “philanthropic status quo.”  Spurred by ideas of social and racial equality, these organizations are releasing widely-read authoritative reports and taking legal action in an attempt to impose “ideological mandates,” and to establish guidelines and percentages that will govern how foundations can allocate their funds.  In essense, the article concludes, these groups “rather than encourage the proliferation of views and ideas in the nonprofit world, they seek instead to stultify sameness.”

Third, by the socialists.

The article points out that the success of private institutions in providing public works is something that discomforts the public sector: “Virtually, wherever public and private groups take up the same task, the private group outperforms [the public sector].”  This is understanding considering that private individuals and foundations are energetic and passionate about their work, are more flexible than governmental agencies hampered by bureaucracy, are able to take more risks,  are more able to weed out corruption and are more fluid in moving on to the next pressing task.  The role of private philanthropy in the United States, thus, has been a matter of concern to those that believe that these tasks are justly the responsiblity of the government whose true function is “the administrator of social justice.”

This fight for independence is all the more prevalent in Israel, claims Hillel Shmid, Director of the Study of Philanthropy in Israel at the Hebrew Universityand Director of the Haruv Institute.  In a recent conversation I had with him, Prof. Shmid explained that the last decade has seen the government shifting away from being a socialist state.  Israel has been filling its void by contracting much of its former responsibilities out to nonprofit organizations.  To make sure that these institutions are up for the task, the government regularly issues guidelines and regulations.  In essense, Shmid argues, these institutions are slowly turning into mere extensions of the government.  The uniqueness and diversity once prevelant in Israeli nonprofits is starting to disappear.

The cure?  In Israel, the answer, while not easy, is straight forward according to Professor Shmid: He prescribes a complete withdrawal and refusal of governmental financial support.  A tall order, indeed, as these nonprofits would then need to rely soley on donations.  In the United States, the answers vary.  Some argue that as with natural disasters, one can only bunker down and wait for these policing trends to pass.  Others disagree and make a case for taking a stand and fighting in the necessary arenas.  Surely a costly venture.

Note: While I have summarized some of the points of the “The War on Philanthropy,” the full article is worth the read.

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey