I was dismayed when I heard that some American (and European) Foundations are requiring amutot [Israeli nonprofit organizations] to have the Se’if [Paragraph] 46a status, which declares donations to a charity to be tax-deductible.

This latest phenomenon demonstrates a lack of understanding of the intricacies of international nonprofit regulations and makes it harder for worthy Israeli charities to raise money abroad. 

WHY DEMAND THE EXTRA LEVEL OF TAX-DEDUCTIBLE (SE’IF 46) STATUS?

Simply put, people are scared.  As a result, Foundations, in particular, are subjecting their recipients to increasing levels of scrutiny; in this case, requiring Se’if 46 to provide an additional measure of protection.

An “additional measure” because Israeli nonprofits are assumed to have already received the Nihul Takin [Certificate of Proper Management] from Israel’s Rasham Ha’amutot [Registrar of Charities].

At the outset, this seems like a reasonable request.  After all, in the United States a charity or nonprofit organization is one which is categorized as 501(c)3, which declares donations to this charity to be tax-deductible.

THE DEMAND OF “PARAGRAPH  46″ ISN’T FAIR

In Israel, three different government bodies oversee charities: the Knesset, Rasham Ha’amutot [Registrar of Charities], and Mas Hachnasah [Tax Authority].  Each evaluates Israeli charities with its own particular set of lenses and priorities.

Stage 1

The Knesset, Israel’s Parliament, defines the context and framework of an Israeli charitable organization through Chok Ha’amutot [Law of Charities].   Charitable, effective, or well-governed are of no importance at this first and most basic stage.

Stage 2

The Rasham Ha’amutot, or Registrar of Charities, is the executor of the Law of Charities, reviewing the applications of charities and assigning them their amutah [charity] number.  More importantly for evaluation purposes, the Rasham oversees the Nihul Takin [Certificate of Proper Management]. This status is granted to those organizations, for lack of better word, which are governed well. The 45 page guideline detail such things as: how to transfer money, minimum number of signatories, proper way to reimburse board members, and other things (like I said, it’s 45 pages).

(It is this document, I feel, which lacking anything better, is the best test to judge if a charity is worthy).

Stage 3

The last, and certainly not least, is the Se’if 46 that is granted through both Mas Hachnasah [Tax Authority] and a Knesset sub-committee. The Tax Authority checks if the charity is financially sound (pay close attention, I didn’t say charitable) and recommends the organization for Se’if 46 — but it is the Knesset sub-committee that has the final say and  actually approves the granting of this much-coveted tax-deductible status.

This last stage poses a number of tough questions that are the roots of the incongruities between 501(c)3 and Se’if 46:

The Tax Authority — through a serious of predetermined ratios, number games, and fiduciary rules — determines if an organization is for the public good.  Isn’t this the Registrar’s job? Isn’t the Nihul Takin already tasked with determining if an organization is charitable and run well?

Furthermore, why is a Knesset sub-committee part of the process? What sort of expertise is wielded by this group of lawmakers that is somehow lacking from both the Registrar of Charities and the Tax Authority?

The message implied is that the decision to grant tax-deductible status is as much a political decision as it is a meritorious one.  (And I know of at least one organization that was approved by Mas Hachanasah but rejected by the Knesset panel.)

ADDITIONALLY, IT’S A TIME ISSUE

Much like in the States, in Israel tax-deductible status isn’t issued immediately.  More specifically, it takes a minimum of approximately two years to receive Se’if 46 (for a variety of reasons).  This means that many worthy charities can exist in their early years without the possibility — through no fault of their own — of achieving tax-deductible status.  Effectively, holding a charity’s age against them.

And yes, the process takes less time in the United States.

THE DIFFERENCE BETWEEN 501(c)3 AND SE’IF 46

Contrary to Israel, the United States has a much more simple approach to what is considered tax-deductble, focused around two ideas:

1. Cannot be organized or operated for private benefit
2. Must be serving some public good (a.k.a. charitable), or what the IRS refers to as exempt purposes.

This is in contrast to Israel, which will first inspect (for better and for worse) a nonprofit’s management & organizational composition (Nihul Takin) and then it’s financial structure (Se’if 46) in order to grant tax-deductible status.

While not declaring one set of regulations to be better than the other, it can still be said that comparing the two is nothing short of comparing apples to oranges.

So it all comes down to this:

American Foundations do not have to play by Israeli rules, so why voluntarily choose to do so?

Have you experienced increased scrutiny? Has your experience been positive or negative?  I’d love to hear them in the comments.

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 and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

Additional information on the structure of Israeli charities can be found in a previous post, Defining an Amutah [Israel Charity].

Photo Credit: “Money and Magnifying Glass” by Images_of_Money

ADDENDUM:  WHAT SHOULD AN ISRAELI CHARITY DO IF THEY ARE LACKING SE’IF 46?

I hope this post serves as the basis for an explanation to American Foundations why an Israeli nonprofit might lack Se’if 46.  Armed with the new-found understanding, hopefully the Foundation will process the request and forward the grant as promised.

However, it is also quite possible that if a particular Foundation already believes that the requirements for tax-deductible status in the two countries — 501(c)3 and Se’if 46 — are similar, then it is predisposed to a negative answer.

If this is the case, it might be best to immediately re-apply, using a Conduit with a Se’if 46 instead.  Obviously, both the Conduit and the Foundation would have to be open to this idea.  The colleague who suggested this idea was in the process of having his organization do exactly this.

While there will be a delay as the application will have to be re-processed, he explained that this was the only way to bypass the American Foundation’s insistence and suspicion regarding the lack of tax-deductible status — getting money late is better than not getting money at all.

A list of the essential articles that I posted to Twitter from April 11 – April 24, 2010.  This week’s topics include: Strategy & Governance; IRS Trends; Social Media & Fundraising; Jewish Nonprofits; Israel Economy & Finance; and Potpourri.

Man, does time fly by.  This list is for the last two weeks. When did last Sunday happen and why didn’t anyone tell me?

Tizku Lemitzvot,

Shuey (@nonprofitbanker)

<br>

Strategy & Governance

5 take-aways from The Networked Nonprofit session by @kantar & @afine at #10NTC by@sokunthea http://ow.ly/1xiw3 via@johnhaydon

6 Reasons why starting a new nonprofit might not be the answer, by @sbsfundraisinghttp://ow.ly/1xCqo via @npmaven@zyOzyfounder

RT @PamelaGrow: Why board assessment is so important: http://ow.ly/1yM42 #nonprofit #fundraising

Komen & Kentucky: When Charity is Just a Marketing Stunt http://ow.ly/1BJCT via@koodooz

RT @johnhaydon: “Komen & KFC’s Cause Marketing Program Isn’t Finger Lickin’ Good”http://ow.ly/1BJTQ by @joewaters

<br>

IRS Trends

Abuse of Charities & Deductions included in 2010 IRS List, by @charitylawyer http://ow.ly/1xBUy // List hints to IRS pet peeves!

New blog post: Are “American Friends of” Organizations a Thing of the Past?http://ow.ly/1BOu8

I’m a believer! >> How Increased Government Intervention Undercuts American Philanthropyhttp://ow.ly/1yOJF

<br>

Social Media, Internet, & Fundraising

How & why to use social media to engage Foundations (& hopefully get more funding), by@askdebra http://ow.ly/1xLqR

3 Ways to Overcome Your Fear of Fundraising, by @sandyrees http://ow.ly/1y2yO

Just listened 2 #afpmeet session review by@amandaharas on European fundraising trends http://ow.ly/1yAhJ via @BTalisman

How is social media impacting giving? Survey, overview & predictions on USA Todayhttp://ow.ly/1ylXC via @JGooderscom

RT @GuyKawasaki: 10 Ways for Small Businesses to Use LinkedIn http://om.ly/iFSl

RT @PaulDunay: 5 Ways B2B Companies Can Use New Twitter Ads http://ff.im/-j4B1a

RT @johnhaydon: Creating Online Marketing Strategy in 2 Hours, by @kivilm http://ow.ly/1yXi6 // awesome, story shows strategy as it unfolds

RT @GTak: Social Media and the Law -> For Professional Associations - http://is.gd/bBH85 (American Society of Association Executives)

RT @CharlieKalech: Facebook Changes – Like Anything, Anywhere – Social Sharing goes Mainstream! http://bit.ly/bWlyG0

<br>

Jewish Nonprofits

Will reforms to NY Jewish charities prevent future misuse or just paper over underlying problems? http://ow.ly/1x2yn

Jewish Funders’ Gathering: Economy is recovering but is it too late for some Jewish organizations? http://ow.ly/1zPVa

Israeli orgs don’t get it that their US counterparts need to be independent & accountable to the IRS. http://ow.ly/1zTiv

Interesting Case Study? >> RT @CharlieKalech: Campaign against@NewIsraelFund by Im Tirzu boosted donations to NIF http://ow.ly/1Bsv0

<br>

Israel Economy & Finance

Good overview of the 6 types of people active in day trading in #Israel. http://ow.ly/1xmbp

Why are investments in #Israel real estate declining? Should you be thinking along the same lines? http://ow.ly/1xpC2

Nice overview of currency risk and options on@haaretzonline http://ow.ly/1A6qr

Bank of #Israel sees tycoons as danger 2 stability–Israel is 1 of most centralized Western countries http://ow.ly/1BCgV

<br>

Potpourri

RT @HilzFuld: Seinfeld Talks BlackBerry and iPhone with Conan O’Brien (VIDEO)http://bit.ly/bmbsTH

->@nytimes: Goldman Sachs could help British Finance Regulator prove its got teethhttp://ow.ly/1B51v

RT @avinashkaushik: Amazing photos of lightning in the ash column of Iceland’s troublesome volcano: http://zqi.me/9xbjG6

Four separate times in my life, I have hit the proverbial pavement looking for a job.  I remember very clearly the two types of rejection that I received:

1. The “Outright” No – Painful and deflating but leaving no doubts. I moved on, hoping the future had something better in store.
2. The “We Were Very Impressed but Need Time to Decide How Best to Employ You” No – Slow and dragged out.  A lot of positive energy and upbeat words professed.  Encouraged, I even stopped looking at other prospects. Yet, despite all the enthusiasm, in the end no position was offered or available.

Give me the “Outright No” any day of the week and twice in a recession; you win some, you lose some.  The second, drawn-out no, is still a no, but wasted my time and got my hopes up over nothing.  Why not tell me no from the beginning instead of playing achy-breaky games with my heart?

Unfortunately, nonprofit organizations are being subjected to this same treatment, even more so now after the recession and the Madoff scandal.

I am hearing too many stories of charities that have been promised or reassured by private donors and foundations, alike, that it’s “business as usual” and the “check is in the mail.”  Not having any reasons to doubt, the organizations strategize their fundraising and structure their budget accordingly – only to find out later that:

• “business as usual” = reorganizing our priorities (a.k.a your organization is no longer a priority) or some other vague-sounding rejection.
• “the check is in the mail” = you ain’t getting squat.

To say that these stories upset me, is an understatement.   Donations and grants (should) serve one purpose and one purpose only: to help a nonprofit. In what Scrabble® dictionary or farmer’s almanac does this delayed surprise translate as helping a charity?

Last week, I shared the shock with a Nonprofit CEO of an organization that I am close with as she related a story with a painfully, similar theme: Earlier in the year, the charity received a letter from a foundation telling them that their grant had been reduced by $10,000 but that “it is still business as usual” and that thankfully the foundation wasn’t hard hit by recent economic events.  Then, out of the blue, the organization received a letter two weeks ago – an impersonal, standard letter mind you – telling them that the foundation was “rethinking its priorities” and, unfortunately, would not match its previous commitments.  And just like that, one-sixth of this organization’s budget had disappeared.

If any readers of this post are donors or foundations, please believe me that the “Outright No” is the preferred method of rejection by both recipients and applicants.  If nothing else, it gives an organization some additional time to adjust its fundraising goals and budget constraints to this new reality.  Even this can be charity.

Tizku LeMitzvot,

Shuey

N.B. An article entitled, “Working with Foundations, Never Taking Support for Granted” in eJewish Philanthropy details a similar story and how the charity responded.

A list of the essential articles that I posted to Twitter from January 10, 2010 – January 16, 2010.  This week’s categories: Crisis in Haiti; Internet, Social Media & Fundraising; Accounting, Economy, & Finance; Israel Economy & Finance; and Potpourri.

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

Shuey

<break>

Crisis in Haiti

Beware of scam charities popping up to “help” the rescue efforts in Haiti.http://ow.ly/Wnro via @Charitynav

RT @CharityNav: Tips, Tips And More Tips For Funding Haiti Earthquake Relief Efforts.http://ow.ly/WusL // Good tips in general!

<break>

Internet, Social Media & Fundraising

<break>

Goldman Sachs weighs requiring executives to donate % of their salary to charity http://ow.ly/V0BC // Is forced charity still charity?

U.S. Bankers are fed up with British regulations & say that they just won’t take it anymore. http://ow.ly/V0Gm // With whom do you side?

Signs of a slowdown in recovery. Will be harder for Governments to wean economies off public money. http://ow.ly/V0Pr

Vital Accounting/Investment Principle: Cash flow is the true reality check NOT earnings.http://ow.ly/V0VF

<break>

Another good sign of Israe’s economy: Israel’s debt grew only 3% despite global crisis. http://ow.ly/ULcD

Delaware, offering “world’s most efficient corporate law,” might be good option for Israel companies opening in USA.http://ow.ly/ULeh

<break>

59 sec video on 5 steps that enable a person or NPO to achieve a New Year’s Resolution http://ow.ly/WdQO via@johnhaydon

Importance of a philanthropic strategy as expressed by one Jewish community leaderhttp://ow.ly/VAw7 via @religion_state

A list of the essential articles that I posted to Twitter from January 3, 2010 – January 9, 2010.  This week’s categories: Nonprofit Strategy & Governance; Internet, Social Media & Fundraising; Israel Economy & Nonprofits; and Potpourri.

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

Shuey

<break>

Nonprofit Strategy & Governance

Internet, Social Media & Fundraising

Israel Economy & Nonprofits

New blog post: “Rise, Knight of the Nonprofit Round-Table” http://ow.ly/TEu9

Haaretz: Israel kicked off its version of “Cash for Cunkers” this past weekend. http://ow.ly/Sc9A

RT @jtanews: Can tax-deductible donations fund settlement construction? http://ow.ly/THSw // Repercussions aside of donations to Israel

Things are looking up: Fischer to soon raise 2010 Israel’s growth forecast.http://ow.ly/UBAr via @Israel_News

<break>

Potpourri

UK Banks Vote to Phase Out Paper Checks—Will the US Follow? http://ow.ly/Se1H

Great analysis: How much pay is “too much” for a bailed-out bank exec (little long but well worth it) http://ow.ly/SbZJ

Awesome! A visual take on how Americans give charity. “Charity: Who Cares?”http://ow.ly/Se8l via @eJPhil

USA consumer, save yourself money! Type a PIN when using debit card instead of signing the receipt. http://ow.ly/T6fd

Doing Charity is Healthy: Giving to others may have direct health benefits to the giver.http://ow.ly/T6Fq

Top reason to smile at a passing stranger: it will increase his or her good samaritan behavior. http://ow.ly/UBx8

The holiday season of November & December has nonprofits both excited and nervous at the same time. Gaily Perry writes that:

For many nonprofits, one out of every two gifts comes in the last three months of the year…Online Giving is even more important at year-end. About 40 percent of online gifts are made in December. And 40-60 percent of those gifts are made the last two days of the year.

So naturally, everyone is rushing to find the best fundraising medium that will net their organization the most donations possible.  But charities need to take a step back because, believe it or not, proper fundraising encompasses more than just “direct mail vs. email solicitations” and even “Facebook vs. Twitter.”

A few weeks ago I was sitting with Nirit Roessler, Director of the Pradler Empowerment Program.  During the meeting she summarized her five strategic sources of fundraising, or what she calls the chamsa of fundraising (referring to the five fingers of the hand incorporated into the chamsa symbol).  They are:

1. COMMUNITY – private donations from individuals that identify with or benefit from a particular charity.
2. BUSINESS – funding from companies that either agree with a cause or see value in the publicity gained by associating with a cause or organization.
3. INCOME – revenue gained from selling a product or service that benefits others and that advances the mission of the organization.
4. FOUNDATION – grants from local/international foundations and institutions.
5. GOVERNMENT – grants or contracts from either local or federal governments where the nonprofit operates.

These are the points that should be driving the fundraising policy of an organization; these different areas can help an organization decide whether to play to its  strengths or work on its weaknesses.  As with anything else, fundraising after all,  is a question of strategy. Only after a well thought out approach should the medium or mediums to carry out this plan be discussed.

Is it too late for this holiday to rethink strategy? Perhaps.  But with the world’s economies seemingly on the rise and organizations rethinking their fundraising goals and focus, it is vital next year to adopt a pertinent and responsible fundraising strategy.  But don’t be too lazy, next year is only three weeks away.

Good hunting and happy Holidays.

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

Shuey

I came across this article from Guidestar (reprinted from Opportunityknocks.org).  Actually, the full title is “Stories of Smart (and not-so-smart) Grantmaking in a Tough Economy.”  This article is a great example of short and sweet.  The author, a fundraising consultant with more than 20 years of experience, shares three stories from clients.  The questions in each story are the kind of questions that nonprofits are asking every day; each with a different lesson.

I repeat: short, easy reading with a nice moral.  So much so that writing about it anymore is defeating the purpose of this post.

Click here for the link to Guidestar article (I wanted to link the original article on OpportunityKnocks but couldn’t find it).

Click here for the archive of posts on the OpportunityKnocks site (quite a few that are handy).

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

Shuey

An article was recently posted on Midot’s website highlighting a joint study done by Midot and Sheatufim.   The study was presented at a Sheatufim conference on June 23, 2009.  The many findings of the study include:

• Israeli philanthropic foundations are investing great resources in the grant process and in grant selection before the transferring of funds to nonprofits; however, most foundations lack clear criteria that accompany the process and rely only on the reports from the recipients themselves.
• Even though the processes of the different foundations are similar, there exists little cooperation between the various foundations.
• Most foundations do not rely on external professionals to help check the recipients’ usage of the grants.
• Most foundations do not implement a suitable analysis before the donation is given.
• Foundations reported a lack of evaluation and measurement tools to check recipient organizations.  Foundations also noted a lack of tools to help analyze the financial statements of the organizations.

In response to the report, the article quoted Shlomo Dushi, Sheatufim’s CEO:

“During a period of a world financial crisis, the purpose of philanthropic foundations  is critical as they can provide much needed oxygen to organizations.  There is a need to formulate a shared tool that will provide an answer to the needs of  the foundation so that it can invest its grants in an effective manner.”

Recommendations of the Study:

1. To create a shared tool that foundations can use to evaluate nonprofit organizations.
2. To request help and advice from external professionals in the field when reviewing charities.
3. To define clear criteria to analyze nonprofits.
4. To work in cooperation [shituf pe’ulah] between the various foundations.

Personally, I wonder if item #4 will actually help foundations analyze their recipients better or if it will just lead to a Big Brother syndrome, with all foundations sharing information to the detriment of the nonprofit organizations.  Jury is still out with this question.  Any thoughts?

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

Shuey

—————————————————————————————-

Some Background Information:

• Midot is an Israeli version of Charity Navigator.  The biggest glaring difference is that while Charity Navigator grades charities based only on their financials, Midot analyzes many different aspects, such as board participation and target audience.  Midot was founded by Meitav Investment House and the JDC.
• Sheatufim is an organization whose goals boil down to making nonprofits function better.  Contact Sheatufim to see if your charity can qualify for their programs.  The organization was founded by Zionism 2000,  the Rashi Foundation, the JDC, and the Gandyr Foundation.   For a full list of their partners and cooperating organizations, click here for Hebrew and here for English.

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