Laura Solomon is a nonprofit attorney extraordinaire based on the East Coast (read more about her after the post).  The topic addressed is especially relevant with today’s focus on the IRS’ increased scrutiny of Americans’ activity abroad and Israeli charaties’ reliance in general on foreign charity.

Every year the IRS Exempt Organizations Division (“EO”) releases a Work Plan that shows where it plans to deploy its resources. The Work Plan is essentially a roadmap for EO activity in the coming year and, this year, the Plan includes a renewed focus on international activities by American charities.

The EO’s goal is to assure that, in keeping with US tax laws and regulations, charitable assets used internationally are not being diverted for non-charitable purposes. The Work Plan announces that “we will continue to examine exempt organizations that operate overseas to ensure that those activities are consistent with their charitable purpose. “ In addition, the EO has signaled that it plans to examine large private foundations and organizations that report ownership of a foreign bank account.

Nonprofit professionals interested in learning more may want to look at the Work Plan itself or watch the IRS August 2011 Webinar on International Activities.

This renewed focus may make Israeli charities that get funding from the US a little jittery – particularly following the IRS’s release of two private letter rulings (2010 and 2012) that denied exemption to new organizations seeking exemption for American charities that planned to do fundraising for Israeli charities. In any case, it should serve as a wakeup call to all American charities that conduct activities internationally that they need to strictly comply with the law and must avoid serving as a mere “conduit” to their foreign grantees.

Further evidence of the EO’s focus on international activities is evident in the newly proposed regulations that illustrate permissible PRI’s or “program related investments” by private foundations (Issued April 19, 2012). The regulations include helpful examples that demonstrate that a private foundation can use a broad range of programs (including investments, grants, and loans to foreign individuals, business enterprises and charities) to support their purposes through PRI’s. Perhaps the most important clarification that the proposed regs provide is confirmation that an activity in a foreign country is charitable if it would be considered charitable when conducted in the US. Interestingly, they don’t address L3C entities. For more information about low-profit limited liability companies, you can access this information on the Community Wealth Ventures site.

Laura N. Solomon, Esq. is the founder of Laura Solomon Esq. & Associates, a law firm devoted to the representation of nonprofit, charitable, and other tax-exempt organizations. She and her associates provide a full range of corporate and tax legal services, including representation for mergers, joint ventures, and complex financings.

Ms. Solomon is on the Faculty of the Nonprofit Institute and Animal Law Institute of the Philadelphia Bar Institute, and currently serves on the Charitable Organizations Committee of the Pennsylvania Bar Association, the Tax-Exempt Organizations Subcommittee of the American Bar Association, the Standards for Excellence Committee of the Pennsylvania Association of Nonprofit Organizations, and the Advisory Committee for the Pennsylvania Volunteer Lawyers for the Arts. She is a columnist for the Pennsylvania Nonprofit Report who is quoted frequently in the media, and lectures often for lawyers, accountants, and other professional and community groups on nonprofit, corporate, and tax issues. Ms. Solomon also lectures at the La Salle University Nonprofit Center, the University of Pennsylvania, and Villanova, Drexel, and Temple Universities.

You can find more information about her practice along with links to helpful information on nonprofits at her website: www.LauraSolomonEsq.com.

“Why or why not should one be incorporated?” is the question American lawyer Don Kramer asked in his Weekly E-Newsletter back in 2010.

For Mr. Kramer, the question is a legal one. The pros and cons that he outlines deal with personal liability and procedural/substantive questions.  His fantastically succinct answer refers to state statute and case law.

For some, incorporation is relevant not because of legal concerns but rather taxation benefits.  Others might contemplate incorporation through the lense of fundraising and its effects on donors.  And yet to others, the act of incorporation or registration is simply a question of time and money — lacking either of the two might automatically render incorporation as an unwarranted expense.

As a banker, and more specifically, as a banker that deals with international nonprofits, I’m interested in easing a charity’s ability to open and manage a bank account.

So like any good Jew, I’ll answer a question with a question.  When seeking to solve the riddle of “Should I incorporate?” I ask the following: Will your charity operate internationally?

If the answer is yes, then incorporate.  It will make banking abroad much easier.

WHAT IS INCORPORATION

The definition of Incorporation as listed on Investopedia.com:

The process of legally declaring a corporate entity as separate from its owners.  Incorporation has many advantages for a business and its owners, including:

1)   Protects the owner’s assets against the company’s liabilities
2)   Allows for easy transfer of ownership to another party
3)   Achieves a lower tax rate than on personal income
4)   Receives more lenient tax restrictions on loss carry forwards
5)   Can raise capital through the sale of stock

A founder might consider incorporating his project or program for any of the reasons listed above, to allow donations to be tax-deductible or just to seem more legitimate in the eyes of donors, to name just a few reasons.

(Again, Don Kramer very nicely summarizes two benefits of incorporation in the article referenced above.)

The regulatory requirements demanded of Charities, as can be expected, vary from country to country; some governments give nonprofits the option to incorporate, others force it, while other deny it outright.

INCORPORATION: THE COMMON DENOMINATOR

The question whether to incorporate is not one of right or wrong, but rather, one of priorities and circumstance.

The United States, among other countries, does not force incorporation upon charities. As Mr. Kramer points out, a U.S. nonprofit can be formed as a Trust or an Unincorporated Association.

Since not all legal entities are internationally recognized (or even exist overseas), problems may arise when organizations that are not incorporated do business abroad.

As a general rule, when choosing to operate internationally it is best to fit into preexisting or predefined conceptions.  This is true for bank accounts and other institutional processes where there is a need to define the legal entity of the account owner.

Corporations, in contrast to entities like a Trust or an Association, exist in most countries — albeit with different legal and tax ramifications — and are generally listed with some governmental registry and/or monitoring system. As such, for-profit and nonprofit corporations can generally rely on the somewhat universal concept of incorporation to become recognized and establish an official presence abroad.

Israeli institutions are sometimes unsure — and rightfully so — how to categorize charities that are unincorporated abroad, created as legal entities that have no local equivalent.  This confusion may delay or hamper a nonprofit’s operations.

In conclusion: while a nonprofit doesn’t have to incorporate to do business abroad, it is definitely worth considering.

What has been your experience?

Tizku Lemitzvot,

Shuey

I was hesitant to write this piece as it touches on many legal issues, and I am not a lawyer.  However, after helping a few unincorporated charities open accounts, I believe that spreading the lessons learned from these experiences is important.  As always, please refer questions to the appropriate experts.

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.

Photo Credit: “Registration Desk Sign” by NHS Confederation

Links to the articles I’ve reviewed and posted to Twitter between November 28 – December 4, 2011.  This week’s topics include:  U.S. Regulations  •  Jewish & Israel  •  Management & Strategy  •  Fundraising

You can stay up-to-date with these articles and more by following me on Twitter or subscribing to receive The Nonprofit Banker by email.

Tizku Lemitzvot,

Shuey
@nonprofitbanker

U.S. REGULATIONS

DonKramer: Is it legal/ethical for former staff to take donor list? ow.ly/1BgdnE

JEWISH & ISRAEL

Power of the People: Israel’s social protests hit profit at Supermarket chain, CEO quits ow.ly/1BcGaz

Against the Grain: Why People Shouldn’t Jump to Criticize Jewish Federation’s GPT ow.ly/7O479 on eJPhil

Op-Ed on Jewish innovation as independent sector vs inherent aspect of nonprofit orgs ow.ly/1BsKjP on eJPhil

MANAGEMENT & STRATEGY

Semantics or What Defines a Good Manager? “There’s No Such Thing as Constructive Criticism” on HarvardBiz ow.ly/7IFyE

Golden! >> Alicekorngold: Lessons 4 Nonprofit Boards per Penn State + 2nd Mile ow.ly/1Btpe0 by GTak & Emilychan

GTak: Should Philanthropies Operate Like Businesses? Interesting debate on WSJ

How Philanthropy Taught Me to Embrace Failure: A Precondition to Success, by Rmarker ow.ly/1Ba1oT via eJPhil

FUNDRAISING

IndSector & CharityIdeas: How Non-Profits Can Use Mobile Digital Wallets for Fundraising on.mash.to/uFxuSj on Mashable

CharityNav: Donations inch back up after recession decline ht.ly/7IjbZ on USATODAY

4 ways to nurture social enterprise (hint: not from the Gov) ow.ly/7AG2V via SVPMinnesota & ColleenEbinger

Links to the articles I’ve reviewed and posted to Twitter between November 21 – November 27, 2011.  This week’s topics include:  Jewish Federations’ New GPT Directive  •  Jewish & Israel  •  Management & Strategy  •  Fundraising & Marketing  •  Social Media & Internet

You can stay up-to-date with these articles and more by following me on Twitter or subscribing to receive The Nonprofit Banker by email.

Tizku Lemitzvot,

Shuey
@nonprofitbanker

JEWISH FEDERATIONS’ NEW GPT DIRECTIVE

Global Planning Table Recommended to JFNA’s Board - JFNA Briefing

Federations Drop Overseas Giving Formula – The Forward

Global Planning Table Ends Funding Split between Two Agencies – Jewish Ledger (nice history & background)

The Jewish Federations’ Big Gamble – Op-Ed by Dan Brown on eJewishPhilanthropy (great discussion in the comments)

JEWISH & ISRAEL

New Canadian Foundation aims 2 expedite donations to worthy nonprofits in Israel ow.ly/1B6hiS on eJPhil // expect serious scrutiny (as with all Canadian charitable ventures)

Congratulations to Prof Eliezer Jaffe, Israel “Dean of Philanthropy”, on receiving Knesset Speakers Prize ow.ly/7AlXA on eJPhil

MANAGEMENT & STRATEGY

Global recession impact: new study shows nonprofit orgs seek financial stability ow.ly/1B4McE on eJPhil

Donor Advised Funds: answer to our prayers or devil in disguise? Op-ed on NyTimes ow.ly/7G7s3 via IndSector

Calling All Boomers: Don’t Start More Nonprofits ow.ly/7Dp5e on Philanthropy via NAFund

Does your boss know that worker disengagement costs $300 billion a yr in lost productivity? ow.ly/1AKOpk

FUNDRAISING & MARKETING

Awesome & Inspiring >> Pndblog: (12 min VID) I am a Philanthropist: Diverse Voices in Giving ow.ly/7GqzM

PatrickSternal: The World’s 7 Most Powerful Philanthropists Forbes onforb.es/v7bV6R | The .000000001%

Principles that apply to so many things >> Johnhaydon: 3 Ways To Keep Cause Marketing Authentic zite.to/uHZTx9

SOCIAL MEDIA & INTERNET

Askdebra: Twitter donors worth the most on social media via Stevebridger | Scoopit bit.ly/v9vL79

VID – Are LinkedIn pgs actualy more robust than Facebook pgs 4 your nonprofit ? ow.ly/1AKRai via Johnhaydon

It’s more than just Likes & Shares >> Franswaa: Thoughtful engagement matters more than we think ow.ly/7yVQp

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.

Online donations are rising every year, becoming an increasingly important fundraising tool for nonprofit organizations.  To facilitate the growing demand and varied needs of charities, the number of online donation processors has been expanding accordingly.

As a result, charities have expressed their difficulty in sorting through the nuances and assorted extras to find the online solution(s) that’s right for them.

For this reason, I was thrilled to co-produce an event early in July that hosted representatives from the leading Online Donation Processors here in Israel (and the world); including Paypal Israel, IsraelGives, Taramta, Give2Gether, and Tranzilla.

The format allowed for a five minute presentation from each company-representative and a follow-up Q&A session. Each speaker was encouraged to forgo the usual humility and reserve expected of a panel participant and to, instead, guiltlessly sell themselves and their product.

What transpired was more of an intimate exploration into the concerns of nonprofit organizations than a survey of the various services.  I say this because in addition to the processing of donations, each portal offers added-value that is shaped, in part, by an understanding of the challenges facing today’s charities.

So which donation processor is right for you? Well, naturally, it depends on the particular fundraising-priorities for your organization. 

SOCIAL MEDIA

Reports have come out over recent years about how social media can be an instrumental tool for engaging an organization’s supporters. The hope being that increased engagement will at some point (sooner rather later) lead to increased fundraising or a stronger fundraising network.

With social media still in its infancy, however, organizations are finding it difficult to create a social network that is “showing them the money.”

Give2Gether’s solution to this conundrum is to harness the power of networks inherent in social media.  As a matter of fact, it seems that its platform has the most robust integration of social media around (but don’t take my word for it).

A nonprofit creates a page on the Give2Gether site whose goal is to mimic the power of giving circles and “matching” challenges.  Proving this point, another of Give2Gether’s intriguing (and some might say crazy) options, is the All or Nothing Campaign.  Organizations can set a goal and if not matched – even if short by only a few dollars – all of the money raised is returned to the various donors. Like I said, a tad insane and virtually unheard of in the nonprofit sector but similar to how an organization might fundraise face-to-face.

The Give2Gether representative advised organizations that do not have a developed social media presence to think twice before joining Give2Gether as there are fixed monthly charges (in addition to percentage fees).

CELL PHONES & SPONTANEOUS CHARITABLE GIVING

The Red Cross was all the rage when it came to Text-Donations for Haiti: a donor saw the ad, understood the pain, and was immediately able to help the cause.  Thousands of stories like this one led to a multitude of $10 donations through cell phones, totaling an approximate $7 million dollars.

While impressive as this might be, analyses of the phenomenon showed that the success of Text-Giving is generally limited to disasters and relatively small donations; thus, only truly great numbers (and truly horrific events) can raise significant money.  Furthermore, the simplicity of the text-giving process reduces engagement between the donor and the charitable recipient to virtually zilch.

But this doesn’t mean that we should abandon cell phones as an excellent source of fundraising!

The Israeli donation portal, Taramta (in collaboration with Merkaz HaMatara), released Cellarix. The product, developed especially for cell phones, combines the availability and ease of a cell phone with the flexibility and longevity of a bank account.

The system, basically an acquirer, assigns a user an account with the same number as his cell and essentially mimics a PayPal or GoogleCheckOut account.  Donations (or any payments for that matter) can be made easily between Cellarix accounts (both the donor and nonprofit must have accounts) whenever inspiration hits, without the limitations of Text-Giving.

OLD FASHIONED, DONATE DIRECTLY ON THE SITE

While technology is making inroads even with the more traditional users, not everyone is operating circa 2005 (let alone 2011). These users are comfortable entering their personal and financial information into any and every website, whether to buy clothes or to donate to local charitable campaigns.  These consumers do not want nor need the added security and “convenience” of user names, passwords, or third-party vendors.

If this is the case, why limit them?

Tranzilla offers the donor the chance to donate directly on the organization’s website with virtually any credit card.  No third-party verification or linking required.  Short and to the point.

INCREASED SECURITY AND CONVENIENCE

For a slightly more sophisticated user, entering personal and financial information on different websites can be seen as both tedious and risky.

PayPal acts as a third party “gatekeeper,” allowing users to input their information only once and will coordinate payments with various for-profit and nonprofit merchants when the user/donor chooses to execute a transaction.

With over 230 million PayPal users worldwide, the chances are good that your customer or donor either already has a PayPal account or trusts the company enough to register for a new one.

In short, nonprofits that are looking for a no-thrills way to receive funds (i.e. don’t need a true fundraising platform) will find PayPal an excellent choice.  By-the-way, did I mention that nonprofits are eligible to receive a 1% discount?

CONDUIT SERVICES 

Sometimes, donation processing isn’t enough as many charities lack the tax-deductible status that encourages an initial gift. In such case, a Fiscal Agent or Conduit is necessary.

Groups that use Conduits in this way are charities located outside of the United States (and, thus, not considered tax-exempt in the eyes of the IRS) that are looking to fundraise in America.

(For more information, see this previous post “Defining a Conduit Organization.”)

Designed with the multidisciplinary needs of Israeli charities in-mind, IsraelGives can function both as a American or UK “Friends of” Organization, issuing tax-deductible receipts directly to donors abroad.  A crucial service for those organizations lacking a formal presence in the United States.  Of course, if your organization is only looking for a donation processor, IsraelGives can do that, as well.

(For more an “Friends of” Charities, please see my previous posts, “4 Reasons Why NOT to Establish an “Friends of” Charity” and “6 Questions to Help You Choose the Right Conduit Organization.”)

CONCLUSION: A CHECKLIST

The brief descriptions above only scratch the surface of what these donation processors offer their nonprofit clientele.

Furthermore, the considerations listed above in GREEN are not all-inclusive. The discussions and questions at the end of the event honed in on a more expansive list of concerns and priorities facing charities that are looking to raise funds on the internet:

• How are donations made? Does the organization insert code into its existing site or create a separate page on the processor’s domain?
• Does the donor also have to have an account with the processor? (ex: PayPal)
• How quickly are donations processed?
• What are the fees involved? Flat, monthly or percentage?
• What other services are offered or available (for free or fee)? (i.e. one-stop shop)
• Can the processor act as a Conduit?
• What type of receipts are offered? Are receipts provided at all? What names appears on the receipt?
• Can the processor integrate with your Customer Relationship Management (CRM) software or database?
• Can the portal be integrated into social media efforts?
• Can unique landing pages be created to better facilitate fundraising through tailored pages?
• What payment options are available/lacking? What kind of donor will, therefore, be left out?
• Can the portal handle Text-Giving or integrate with cell phones, smart phones and/or tablets?
• How is the customer service and/or tech support? How easy is it to reach a human being if something goes wrong?

Any considerations that you would add?  Did you get any different/additional takeaways from the session?

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.

It was a pleasure to co-produce with Charlie Kalech (volunteer coordinator of JWP) and his team at J-Town Productions. See their other events here.

Many thanks to the people that live-tweeted the event: TheBigFalafel, IsraelGives, & Reach_3K

Dan Brown: While this piece wasn’t entitled, “Technology as a Journey” I do think it fits the bill. I guess that only leaves me one more piece for the series.

Photo: “Credit Card Swipe” by Robert Bahn

Links to the articles I’ve reviewed and posted to Twitter between June 20 – July 17, 2011.  This week’s topics include:  United States  •  Jewish & Israeli Sector  •  International  •  Governance & Strategy  •  Fundraising & Marketing  •  Social Media & Internet

I’m making up for lost time, so bear with me — this one’s a doozy. With more to come tomorrow.

You can stay up-to-date with these articles and more by following me on Twitter or subscribing to receive The Nonprofit Banker by email.

Tizku Lemitzvot,

Shuey
@nonprofitbanker

UNITED STATES

Stare of the Union address…for the USA Nonprofit Sector – by T. Cohen http://ow.ly/5n220 via Nonprofitatty & Nonprofitlawyer & Nonprofitdirect

Must a nonprofit disclose the names of anonymous donors? DonKramer answers http://ow.ly/1u0aEf via GTak

DonKramer: Are nonprofit orgs restricted in number of allowed fundraising events per year? http://ow.ly/1uzOAi

How does your House of Worship’s tax status affect donations it receives? fromDonKramer http://ow.ly/1uB0mt

You can never overstate the importance of getting proper receipts for your donations http://ow.ly/1u0cxQ via GTak

Legal & regulatory considerations when changing a mission statement, by EmilyChan http://ow.ly/1tZzms via FundraisingNews

Considerations, legalities & resources when naming a nonprofit org http://ow.ly/1tWhw3 by Joannefritz via FundraisingNews

JEWISH & ISRAELI SECTOR

Well said! >> The Challenge of Fundraising in Israel http://ow.ly/1tZzCj in eJPhil

End of an era for Israel nonprofit sector as Prof Eliezer Jaffe’s GivingWisely voluntarily closes http://ow.ly/1utNne

Interesting analysis & good questions >> Broken Business Models in Nonprofit Start-ups; Case Study: JDub (on eJPhil) http://ow.ly/5EW92

INTERNATIONAL

Tremendous opportunities for growth or failure >> PatrickSternal: Scandal Underscores Chinese Distrust of Charities http://ow.ly/1uH42V

Charity gains official acceptance in Russia >> eJPhil: Dawn of a New Era for Russian Philanthropy http://ow.ly/1uHQga

GOVERNANCE & STRATEGY

Kanter ‘s takeaways from the Millennial Donor Summit “How To Put Fire in Your Organization’s Belly” http://ow.ly/1u1l8s

I’m a fan! Pndblog: “Michael J. Fox: Getting Results By Going the Unconventional Way” http://ow.ly/1uzNNj via CEP_CambSanFran

Does a recent survey of nonprofit executives draw the right conclusions? http://ow.ly/1uzOdt on CEP

Recharge those batteries! Npmaven: Only after a break can you have a breakthrough, by Johnsonwhitney http://t.co/E4aESar via Umairh

Open Letter from leaders of the Bronfman Foundation about its decision to spend-down http://t.co/jfR8ejb via eJPhil

EmilyChan: A key to performance measurement: Creating a Learning & Accountability Culture, by BridgespanGroup http://ow.ly/1tWdhV

Steven Donshik discusses Achieving Buy-In: The Key To A Committed Board http://ow.ly/5wpdd in eJPhil

FUNDRAISING & MARKETING

Dabbling in fundraising won’t get you there – either do it fully or not at all http://ow.ly/1tYCWH via eJPhil

Nonprofitnate shares from Geoffliving 7 tips to create killer engaged fundraising campaign http://ow.ly/1u23gO

Local Businesses: Are you missing out on this important source of funding? http://ow.ly/1u6qKq by Stephen Donshik in eJPhil

Dan Pallotta in HBR: A Logo Is Not a Brand. A brand is how you’re perceived & is comprised of these: http://ow.ly/1ubtwk

How to convey your nonprofit org’s ROI when preparing a foundation grant application http://ow.ly/1uyZTw

7 tips to ensure that your brand listens to your “voice” (by JocelynHarmon) http://ow.ly/1uvViv via Nptechblogs

NonProfitBanker: Slides & Take-aways from my pres “Raising Capital: Strategies to Help Your Biz Grow or Simply Survive”http://ow.ly/5DdD4

SOCIAL MEDIA & INTERNET

Franswaa: 39 Questions Your Nonprofit Can Answer with Facebook Insights http://ow.ly/1u09l6 // now do something with the data!

When developing a social media policy, Trust Is Cheaper Than Control (byKanter) http://ow.ly/5lIIO via Johnhaydon

Online communication is changing, so I hope your nonprofit org’s strategy is changing too (by Bigduck) http://ow.ly/5wrmh on eJPhil

CharlieKalech: iWalk: Toronto UJA makes great use of QR & Mobile Tech for fundraising http://ow.ly/1tWEqJ

Paypal is one of the leading Internet-payment options in the world for for-profits and nonprofits, alike.  With only a PayPal logo and some code easily inserted onto a website, payments are a breeze.  And with over 230 million PayPal users worldwide, the chances are good that your customer or donor either already has a PayPal account or trusts the company enough to register for a new one.

Combine the above with the one percent discount PayPal offers qualifying charitable organizations and you’re looking at a strong argument why PayPal should be the online payment-system of choice — for local donations.

However, for international fundraising, PayPal’s “cross-border fees” should prompt nonprofits to tread carefully before jumping head first into this particular pool.  

A SCHOOL PURSUES TIME SAVING MEASURES

A little over two months ago, a friend that sits on the Board of a local (a.k.a. Israeli) educational institution called me with some questions about PayPal.  I’ll repeat some of our conversation as I believe the school’s challenges are shared by many.

The Israeli school also has an international program, specifically a large contingent of students from the United States.  To improve cash flow and minimize aggravation, the school was pursuing ways to get the students to pay their down payment in a more a timely manner.

Someone suggested PayPal and the school was hooked. Written payments were a multi-step process — reading the letter, finding the check book, and then actually having to mail the check — that was failing to encourage timely payments.

With the introduction of PayPal into the equation, the school followed up a letter campaign with an email that contained a link to pay via PayPal.  The result was right on target.  In just a week over 40% of the students had paid their down payment.  A far higher number in a far shorter period of time than ever before.

It was then that the school wanted to forward the money collected from their PayPal Israel account to their bank account in Israel.  That’s when things took a turn for the unexpected and I was subsequently called.

REDUCED RATE FOR NONPROFITS

PayPal understands the important role it plays in fundraising. Whether for altruistic or capitalistic reasons, the company graciously offers qualified nonprofit organizations with a reduced rate of 2.4% — instead of the regular 3.4% handling fee — a very competitive rate.  (And let’s be honest, nothing in life that’s worth it, is free.)

However, when money arrives from outside your registered country, PayPal adds other fees to the mix.

But first, some ground rules…

PAYPAL 101

Principle 1: Recipient Pays the Fees

Whether sending a donation or payment, the recipient/seller pays the fees.  The service is essentially free to the sending/buyer. In other words, the nonprofit absorbs any and all costs.

Principle 2: Local Organization Connects to Local PayPal

PayPal exists in tens of countries.  Essentially, each country is a separate corporation.  So nonprofits in Israel, for example, will open a PayPal account with PayPal Israel.  American charities will register with PayPal USA. And so on.

Principle 3: Money Released Only to Local Bank Accounts

One of the benefits is that PayPal can accept money from other PayPal accounts throughout the world in a variety of currencies.  However, the local PayPal company will only release the money to a bank in the same country.  So PayPal Israel, following the example, will only release an organization’s money to a bank account located in Israel.

Principle 4: Money Released Only in Local Currency

Regardless of the currency in which the money was originally sent, PayPal will only release the money in the recipient’s local currency.  Thus, PayPal Israel will only release (and obviously convert) the money in New Israel Shekels.

COSTS CAN MORE THAN DOUBLE WHEN ARRIVING FROM OVERSEAS

The various additional charges can more than double the 2.4% modest fee to a somewhat daunting 5.4%.  This is assuming, of course, that the nonprofit is actually approved for the 1% discount mentioned earlier. (Otherwise, it’s 6.4%.)

Continuing the example mentioned earlier, this Israeli educational institution opened a PayPal account with PayPal Israel.  Money arrived from outside Israel, in this case from the United States, incurring a “Cross-Border” Fee.  As the money was received in Dollars, when the order was issued to PayPal to release the money into the organization’s bank account in Israel, it was then converted into Shekel, incurring a Conversion Fee.

Base Price = 2.4%
+ Cross-Border Fee = 0.5%
+ Conversion Fee = 2.5%

Total = 5.4%

What I didn’t include, but which is important to note, is the actual rate of exchange. It is quite possible that the rate itself isn’t the best.  While not an actual fee, a poor rate of exchange does ultimately mean that less money reaches the charity’s coffers.

HAPPY ENDING?

Just so that I don’t leave you in suspense…

As you can imagine, the call I got from this particular board member was to find out if there was anyway to get the money out of PayPal without paying the higher rate of 5.4%.  Unfortunately, there was no way to avoid paying the 5.4%, short of returning the money back to the students’ accounts.

It is important to note that the misunderstanding of the fee structure wasn’t necessarily PayPal’s fault.  Sometimes, misunderstandings do happen (not that that made him feel better about the situation).

BOTTOM LINE: USE PAYPAL FOR INTERNATIONAL DONATIONS, OR NOT?

Depends. (Yeah, I know that seems to be my answer for just about everything.)

The following is a list of considerations that should provide some concrete information to help answer this question:

1. Ease of Use

Whether for local or international fundraising, donating through PayPal is a cinch.  Let us not forgot the percentage increase of students that paid their down payment.  Time is money, and getting your money in a timely fashion could in the end certainly be worth the investment.

2. ETA (Estimated Time of Arrival)

PayPal minimizes lag, helping the money reach its intended destination in a timely fashion.  Once the PayPal account is setup (arguably, the biggest unknown of this whole equation), money can be in the nonprofit’s bank account and ready to use in just day(s) after the payment is made.

3. Cost

So the price can jump up to 5.4% of the donation, this doens’t mean that other options are cheaper.  Yes, it is higher, but probably not the highest.

4. Tax Deduction

PayPal is merely a funnel, not a conduit.  Those foreign organizations that have tax-exempt status can issue tax-deductible receipts through PayPal. Those that don’t, might need another option.

5. Transparency

When fundraising, donors like to know who is getting the money and that it is being received. PayPal receipts clearly show who received the money and that the money arrived in the beneficiary’s PayPal account.

Whatever you decide, be sure that your decision is based on rational factors.  It is the only way to measure the service’s effectiveness and to provide adequate answers should curious donors question your choice of payment method.

Tizku Lemitzvot,

Shuey

Additional Resources: 6 Questions to Help Choose the Right Conduit Organization

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.

Photo Credit: Free Money Collection in Cash by epSos.de

I am donning my Superman cape (doesn’t everyone have one?) in the hopes of accomplishing the near-impossible task of setting the record straight on what could potentially be a turning-point for Israeli charities.

Since early January of this year, the topic of Funding from Foreign Governments to Israeli NGO’s (Non-Governmental Organization) has been making headlines. Two ideas to promote Transparency, though, in very different contexts — a proposal put forth in January and a bill approved in February — have politicians, nonprofits, and European Governments lamenting the destruction of democracy and human-rights in Israel.

However, the pursuant rhetoric, innuendos, politicking, and here-say makes it near impossible to filter out fact from fiction and to distinguish these two very different initiatives.  

JUST THE FACTS, MA’AM

January 5, 2011 – The House Committee of the Knesset (Israel’s Parliament) proposes establishing a Parliamentary Panel of Inquiry into “left-wing” Israeli organizations that allegedly participate in “delegitimization campaigns again Israel Defense Forces soldiers.” (Ha’aretz)

February 21, 2011 – The Knesset gave final approval to a bill that “requires nonprofit organizations to report which foreign entities contribute to them, whether governmental or government supported.” (Ha’aretz)

Some background:
The Bill was submitted in 2010 way before the Proposal to establish Knesset panels to probe left-wing groups. After passing its first reading (bills need to pass three readings to become law), the Bill lost momentum, finding itself in cryogenic-stasis. A number of months later as the controversy surrounding the Panel Proposal heated up, the Bill got a “push” in late January of 2011, quickly passing both its second and third readings in February. The day after the Bill was passed, the Proposal for the Parliamentary Panel fizzled out, its proponents having asked for the vote to be postponed (effectively shelving the matter entirely).

To summarize:
Parliamentary Panel of Inquiry of only left-wing organizations doesn’t exist.
Bill requiring all nonprofits to report foreign-governmental funding does exist.

REACTIONS: SLANDER & CONFUSION

Immediately after the introduction of the Panel Proposal in early January, critics quickly labeled it anti-democratic, comparing it to the investigations initiated by Joseph McCarthy against Communists in the United States during the 1940′s and 50′s.

These claims of witch-hunting were subsequently hurled onto the Bill, as well, seemingly because both the Proposal and the Bill were within a short time of each other and both dealt with Transparency. The ensuing result was the distortion of the vast differences between the two ideas and in some cases, confusing the pubic into thinking that the two were one-and-the-same.  And I’m not referring to the unknowing masses either – even newspapers and government officials were intentionally or inadvertently grouping the two together.

(See Appendix B below for specific examples.)

THE MOST IRONIC PART IS…

On February 21st when the Bill was approved, a Member of Parliament who had voted against it “criticized the government for becoming increasingly McCarthyist.” And he wasn’t the Bill’s only opponent, not by a long shot.

But here is the punch-line: The Israeli Government hasn’t become increasingly McCarthyist (if a law pertaining to all nonprofits can even be labeled as such). The requirement for charities to report on foreign-governmental funding has existed for years!

Ofer Katz, a lawyer and expert in Israeli nonprofits who participated in Knesset discussions about the bill, said as much in a recent radio interview: February’s bill represents “nothing new.”

A careful review of the Law of Charities [Chok Ha’amutot], Paragraph 36a, shows the pre-existing stipulations:

Charities — with a yearly turnover of more than 300,000 NIS and whom have received at least a combined 20,000 NIS from foreign governments — must state in their financial statements the (1) name of the foreign government or governmental entity (2) amount of the donation (3) purpose or objective of the donation and (4) if applicable, the conditions of the donation.

SURELY, THE LAW MUST ADD SOMETHING NEW!

While not as earth-shattering as some would have us believe, the new law does introduce additional reporting measures.

1. Charities are now required to report foreign-governmental funding four times a year, within a week of the closing of each quarter (in addition to the yearly report in its financial statement).
2. The reporting requirement isn’t dependant upon yearly turnover or aggregate amount of donations. Any organization that receives any amount.
3. If the foreign grant was for a printed ad — billboard, flyer, newspaper, magazine etc. — the ad must state the source of the funding.
4. Everything that is required to appear in the quarterly report, must also be clearly and easily found on the charity’s website.

OBJECTIVE vs SUBJECTIVE

The collapse of the Knesset the Panel of Inquiry was a good thing.

Rules and stipulations of charities should be objective and established by a strict set of criteria.  These conditions can then be used to select relevant charities.  When one of the Proposal’s initiators immediately declared a list of “left-wing” nonprofits that should be examined, the objectivity of the Proposal was called into question.

Furthermore, an adhoc committee isn’t the place for this debate, but rather laws established by Israel’s Parliament (Knesset) and the Registrar of Charities (Rasham Ha’amutot).

(For a more detailed analysis, please see “NGO Inquiry Committee Has Wrong Focus, Framework” by Jason Edelstein and Prof. Gerald Steinberg of NGO Monitor.)

WHY DO WE NEED THIS NEW BILL?

Israel’s charitable-waters are a little murky.

Israel allows political advocacy groups to be considered charities and for their donations to be tax-exempt.  In America, for example, donations to political advocacy groups (designated as “c4″ organizations) are not tax-exempt and, as such, other tax-exempt charities are not allowed to forward monies to these 501(c)4 organizations.

Before February’s adoption of the new bill, the only place where one could find details about foreign funding was in an organization’s financial statements and reporting to the Registrar of Charities.  There was a large consensus that the Public was not seeing this information.

Generally, countries interact and influence each other through diplomacy.  Not so with Israel’s nonprofits.  The bill is aimed at NGOs that are advocacy and education nonprofits that are receiving grants from foreign governments.  This financial support is bypassing the diplomatic arena and is appearing in the guise of homegrown nonprofit organizations; thereby, allowing these foreign powers to push their own agendas in a much more unassuming manner.

The new bill forces charities to be more transparent on their printed media so that those seeing the content of these billboards, advertisements, and websites can get a clearer picture of whose interests are being represented.

Additionally, nonprofits that receive foreign-government funding will now report these donations quarterly, instead of yearly; thus, allowing the Israeli Government to react much faster should the need arise.

(For a more detailed argument, please read, “Transparency for NGOs is not Anti-Democratic” by Prof. Gerald Steinberg of NGO Monitor.)

CONSEQUENCES FOR THE FUTURE

The claim that the new law was made to single out government funding — while leaving other types of foreign-funding untouched — is correct.

Dissidents, though, should not be so quick to judge the unfairness of the new Bill.  Yes, the Knesset passed a law only about foreign-government funding, but this is because the foundations for the extra reporting-measures were already in place in the preexisting, previously mentioned paragraph of the Law of Charities.

However, the true significance of the Bill, what makes it a potential turning-point for Israel’s nonprofit sector, is that it lays the groundwork for further transparency measures for all types of foreign-funding.

How’s that for democratic?

Tizku Lemitzvot,

Shuey

Disclaimer: This blog expresses my own 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.

Photo Credit: “Flags” by RambergMediaImages

Appendix A: Additional Recommended Reading

The President and staff of NGO Monitor (Amuta for NGO Responsibility) have written various reports and op-eds in the previous years that are dead-on.

1. “NGO Inquiry Committee Has Wrong Focus, Framework” by Jason Edelstein, Communications Director of NGO Monitor, and Prof. Gerald Steinberg, President of NGO Monitor. January 12, 2011 in the Jewish Telegraphic Agency.
2. “Transparency for NGOs is not Anti-Democratic” by Prof. Gerald Steinberg, President of NGO Monitor. February 23, 2011 in Ha’aretz.
3. “Manipulating the Marketplace of Ideas” by Prof. Gerald Steinberg, President of NGO Monitor. November 2009 in Ha’aretz.
4. ”Resetting Europe-Israel Relations” by Prof. Gerald Steinberg, President of NGO Monitor. June 2010 in The Jerusalem Post.
5. “Europe’s Hidden Hand” June 2008 Report by NGO Monitor.

Appendix B: Examples of Inadvertent or Intentional Misrepresentation

1. In the March 25th weekend-edition of Ha’aretz, an author wrote that “Peace Now [a left-wing organization] is on the brink of a parliamentary investigation.” As the Proposal has been shelved, the author’s wording is incorrect.
2. Ha’aretz headline on February 22nd read “Knesset Passes Bill to Make Israeli NGOs Report Foreign Contributors.”  In reality and as detailed previously, the Bill didn’t “make” NGOs report anything, this requirement already existed. The new Bill only adds additional reporting measures.
3. In the above article, on the day the bill was passed a government official asked: “Why is money from the Netherlands’ government, by definition, dangerous, but money from radical evangelist organizations permitted?”  By using the word “permitted,” this minister is misrepresenting the true nature of the new bill.  February’s bill only relates to transparency and reporting; it does not touch upon what is permitted or not allowed. (Not to mention, money from the Netherlands’ Government is permitted anyway.)

Click here to return to the article “The Most Ironic Part Is…”

Links to the articles I’ve reviewed and posted to Twitter between March 7 – 13, 2011.  This week’s topics include:  Donating to Japan  •  U.S. Regulations  •  Israel & Jewish Sector  •  Strategy & Governance  •  Budgeting  •  Fundraising  •  Marketing  •  Social Media  •  Personal Finance  

This week’s a doozy because it includes last week’s, as well.  (I didn’t post last week because of the Jewish holiday of Purim.)  I’ve added a few more categories to make finding articles of interest a bit easier.

You can stay up-to-date with these articles and more by following me on Twitter or subscribing to receive The Nonprofit Banker by email.

Tizku Lemitzvot,

Shuey

DONATING TO JAPAN

GuideStarUSA offers 6 good tips for people thinking of international relief efforts http://ow.ly/4h0lG

Wow, 256 comments so far! Do u agree? >> Pndblog & FelixReuters: Don’t donate money to Japan http://ow.ly/1sfrpc >> While the main point of this piece is noteworthy, I cannot agree with its recommendation of Doctors without Borders, a group which is virulently anti-Israel.

U.S. REGULATIONS

DonKramer: Can a pastor discuss politics at the pulpit or host political events? http://ow.ly/1saE6S

DonKramer: Can a nonprofit own a for-profit subsidiary taxed as a C Corp? http://ow.ly/1saJww

On Philanthropy: The important difference between hiding your donation from the public & from the IRS http://ow.ly/1sbsOL feat. interview with GTak

DonKramer: Does the IRS restrict nonprofit orgs to use donations only as donor intends? http://ow.ly/1sfr4s #Fundraising

ISRAELI & JEWISH SECTOR

Wow, this certainly inspired some response >> Marketing Israel Nonprofit Orgs to the Diaspora http://ow.ly/1sb6Ab on eJPhil // read the first 2 comments

Why management & fundraising for synagogues should resemble regular nonprofit orgs (on eJPhil) http://ow.ly/1sdpYt

STRATEGY & GOVERNANCE

Study: Funders should share expertise & knowledge about their fields for bigger impact http://ow.ly/1sac8g via eJPhil

When & how should a nonprofit org set up a subsidiary for-profit company? (by Charitylawyer) http://ow.ly/1saFag

State of Nonprofit Sector 2011 results are in. Nedgington provides great summary: http://ow.ly/4nkIr via GTak

“We analyze failure often, but successes rarely”: Dan Heath at the Nonprofit Technology Conference (on Philanthropy) http://ow.ly/4nlxq via GTak

How nonprofit orgs can manage free-agents & vice versa http://ow.ly/1sb7YK Notes by Askdebra

BUDGETING

NAFund: Nonprofits need to be realistic about “wear & tear” on building, tech & other assets 

Never take foundation support for granted (& how to react when the support disappears) http://ow.ly/1saiLf via eJPhil

FUNDRAISING

Gaylegifford: 7 ways that fundraising can strengthen your nonprofit programs // it’s the journey that’s important

Seemabhende: Top 12 Online Fundraising Platforms for Donors & Nonprofit Orgs from Mashable http://ow.ly/1sb85B

NonProfitBanker: New post: “Fundraising as a Journey” http://ow.ly/1sbqAz

How to manage a volunteer led initiative to encourage more Board fundraising http://ow.ly/1sb7rm

Helpful, concrete tips >> Askdebra: Awesome: “How much money should your NPO be fundraising online?” by Jocelynharmon http://ow.ly/1sfr0q

Nonprofit Orgs That Invested in Fundraising Resources Were More Likely to See Increases in 2010 http://ow.ly/1sdTQh

Worth reading: Bill Gates on philanthropy, metrics, CSR http://ow.ly/4gonB via AuctionExpert & LJacobwith

MARKETING

3 mistakes nonprofit marketers should avoid http://ow.ly/4eO4W via Marcapitman, AuctionExpert & LJacobwith

SOCIAL MEDIA

Npquarterly Your social media and you. Tweet freely http://bit.ly/hOQh0f via GTak

5 things that really don’t work in email, by KatyaN4G http://ow.ly/1sag2G

Wild Apricot offers a convincing argument why your nonprofit organization should consider LinkedIn http://ow.ly/1sdsT8

No need to reinvent the wheel! >> Askdebra: 30 Facebook Pgs for inspiration & info, by Karvetski “BorrowNobly”

Recommended: Askdebra reflects on her NTC presentation “Integrating Social Media Into Your Website” http://ow.ly/1seasf

PERSONAL FINANCE

The 4 components of a personal financial plan (by Jon Degani, Shomer Shekalim) http://ow.ly/1sageh