There is debate raging in the United States about tax incentives and the Nonprofit Sector. The U.S. government, by allowing donations to be tax-deductible, is surrendering money “owed” to it for the sake of encouraging charity. Many believe that the two – the rate of deductions and the amount donated to charity – are directly linked. Any decrease in the rate of deductions will lead to a decrease in the aggregate amount of charity donated to nonprofit organizations.

A recent study in Israel advocates the same theory, claiming that Israel’s poor standing in charitable-giving is directly related to the Israeli Government’s comparatively lower tax-deductible incentives.

However, by placing the blame squarely on the Israeli Government – instead of sharing the burden with the nonprofit organizations operating in Israel – these researchers are causing the Israeli Nonprofit Sector to leave a huge well of potential-donors untapped. The charities in Israel are failing to engage would-be donors, and it is this lost opportunity that should really be addressed.

Study: Israelis Don’t Donate

A recent article in Haaretz quotes two studies that highlight Israelis’ lack of charitable nature and provides some hard-to-ignore numbers:

Support for nonprofits in Israel — from outside and inside Israel — stands at 1.34% of GDP, second only to the United States (1.85% of GDP).  If donations from abroad are not counted, the rate plunges to 0.8% of GDP, less than in most of the West.

In 2006, revenues of nonprofit organizations [in Israel] totaled NIS 6.6 billion, of which only NIS 590 million originated with Israelis, while NIS 3.5 billion came from abroad. The rest came from the income the organizations generated themselves and from the government.

The 6,377 foundations in Israel dish out a combined $150 million a year.  Compared to the 1500 foreign philanthropic funds operating in Israel, which donate a combined $1.5 billion a year.

The Johns Hopkins study found that only 6% of Israelis volunteer, slightly more than in emerging markets but well below the roughly 15% rate in the West.

The government provides 51% of the funding to nonprofits. That rate is far above the Western norm: the average proportion of government support among the other 22 nations surveyed stands at 37%.

The Israeli research team, all big names with “facts on their fingertips” – Dr. Nissan Limor, Prof. Benny Gidron, Raanan Dinur, Zvi Ziv, Ahuva Yanay, and representatives of Israel’s Tax Authority – noted that Israel’s tax-deductible policy does not encourage charity.

One way to measure this is the lost tax-revenue from claimed donations to nonprofit organizations; this number stood at NIS 170 million in 2009, which was 0.08% of total tax-revenue of that year. In the United States, the equivalent cost stood at 2% and in Canada at 0.4%. In other words, percentage-wise, less tax-deductible donations are made in Israel than in other countries.

Are We Selling Israeli Donors Short?

The article continues:

Why don’t Israelis donate more? Because the government doesn’t encourage it, says the team. “It isn’t a question of culture, but of policy,” says Limor. “Philanthropy needs encouragement. The Israeli government never did encourage it. Incentives for donors are quite limited.”

In other words, Dr. Limor points the finger solely at the government, not at the Israeli people and not at the nonprofits operating in Israel.  If ind it hard to believe that there is nothing more that can be done by the charities to encourage more donations and by the donors to get more involved.  Thus, this explanation, sells the Israeli people short.  The grim numbers shown above cannot be easily dismissed by blaming it all away on the Israeli government.

Israelis Want to Give, They Just Don’t Know It

I attended an event organized by Shiur Acher [A Different Lesson] on April 25th. This Israeli charity encourages companies to donate manpower to teach classes in schools located in underprivileged neighborhoods.

At their event, Shiur Acher unveiled the findings of a survey sent out to the 1,600 past-and-present Israelis who have volunteered their time to the organization; 275 volunteers, or 17%, responded. (The survey had a dizzying, 40 questions. Additional answers can be found after the post marked *)

Highlights:

59% Reported that they do not volunteer outside of Shiur Acher.

67% Replied that their time at Shiur Acher awakened in them a desire to become more socially involved.

89% Recommended or plan to recommend Shiur Acher to others

Conclusion

With only 270 people answering the Shiur Acher survey, it can hardly be seen as decisive proof. However, the evidence shows that the Israeli non-giving culture can be changed when donors are properly engaged.

The study showed that volunteering for the organization was, for a majority of the volunteers, their first encounter with charity. Additionally, a majority noted that volunteering had “awakened in them a desire to become more socially active.” In other words, those that have been successfully engaged, those that had a chance to volunteer at a place that made them excited, actually want to do more charitable acts and want to encourage their friends to do the same.

The Nonprofit Sector in Israel needs to look within itself how to inspire the population to become more socially involved. Yes, the government can improve its tax-deductible incentives. But this will only increase the amounts given to charity. The desire to initially give lies within the donors themselves. So too, the responsibility to stoke that desire, to transfer that yearning into action, lies within the organizations themselves. Let us not be complacent. Donor relations is not a job title, it is a challenge. It is a call to arms.

Tizku Lemitzvot,

Shuey

* Additional highlights from the Survey:

How many years have you been volunteering with Shiur Acher?

• 44% 1 yr
• 44% 2-3 yrs
• 12% 4 or more

Would you recommend volunteering at Shiur Acher to your colleagues?

• 89% Have recommended or plan to recommend volunteering with Shiur Acher to their peers
• 74% Of the above 89% would recommend volunteering with Shiur Acher to their colleagues

What motivated you to volunteer? (Can choose more than one reason)

• 68% The desire to help educate children and help a community in need
• 22% Breakup routine, pleasure, curiosity, interest, satisfaction
• 15% Volunteering is an integral part of working in my company
• 14% Recommendation from a colleague
• 14% Request from the coordinator working for the charity
• 10% A chance to try out teaching
• 7% Existed an expectation in the company that I would volunteer
• 3% Other reasons

Do you volunteer outside of Shiur Acher?

• 59% Reported that they do not volunteer outside of Shiur Acher
• 41% Reported that they do volunteer. Of which 47% of those, belong to neighborhood watch, PTA, youth movement or give charity.

Other Survey Highlights:

• 67% Replied that their time at Shiur Acher awakened in them a desire to become more socially involved
• 77% replied that their volunteer work was very, very important to them.
• 50% Believe that volunteering is important to their company
• 47% Appreciate/value their employer more because of their participation in the Shiur Acher Project
• 57% Reported that participation in the project brought them closer to their coworkers

International organizations have been highly successful in raising funds from the United States through U.S. based charities commonly referred to as “Friends of” organizations. These charities are registered in the States and have 501(c)3 tax-exempt status, allowing donations to these essentially foreign organizations to be tax-deductible.

As you can imagine, many charities registered outside of the United States consider an “American Friends of” organization as a vital part of their fundraising strategy.

Jewish causes, especially those based in Israel, are no exception to this rule. A recent report compiled by Dr. Nissan Limor estimated that foreign donations to Israeli charities from sources outside of Israel stood at 2.165 billion dollars in 2007, with much of that coming from the United States (although, he didn’t stipulate how much). There are about 1,000 new Israeli charities [amutot] created every year and it would hold that many of these organizations will seek to create an “American Friends of” supporting charity.

Hence, recent conversations I have had are causing me to worry.

The Reduction of 501(c)3 Exemptions Granted

In late July, I wrote about the scandal that rocked the Jewish community of Brooklyn and Deal, culminating in the arrest of three mayors, five respected community rabbis, and a score of government officials. Specifically, my third post on the scandal described the The IRS Expected Response.

In that post, one prediction I made was the “Reduction of 501(c)3 Exemptions Granted”

The easiest way to prevent future international fraud is to restrict the organizations that can gain tax-exempt status…The U.S. Department of Treasury has only enough manpower to audit between 2 – 3% of registered charities in America. Scrutiny of organizations that already have 501(c)3, then, seems almost like an impossibility. However, as every new organization that wants tax exempt status needs approval from the IRS, it would be a relatively simple procedure to restrict approval to new charities; more specifically, to new charities that donate to international causes.

Well, unfortunately, this seems to becoming a reality. Three recent conversations are shedding light on what seems to be new practices by the IRS. (Specific names are being withheld as applications and relationships are still ongoing.)

The Name “American Friends of” Bothers the IRS

On a recent trip to the States, I had the fortune to sit with a prominent lawyer that represents many Jewish nonprofits. He informed me that he submitted a file for 501(c)3 approval for the “The American Friends of _______,” an organization that would like to raise funds for a charity operating outside of America (but not in Israel). The application is taking an inordinate amount of time, mostly due to the staggering number of questions the lawyer has received from the IRS representative assigned to his file. His application folder measures an astounding 2.5 inches! Having been submitting similar applications for decades, the lawyer is quite surprised at the level of scrutiny and feels that it is the organization’s name that is evoking this reaction. The lawyer is losing patience and if nothing changes, will close the application and resubmit under a different name, hoping this will solve the problem.

Charities Should be Supporting a Mission, Not Supporting an Organization

The following day I met with a well known nonprofit consultant that works with both Jewish and non-Jewish charities. He informed me that it has come to his attention that the IRS will no longer approve 501(c)3 status for organizations that are founded simply to support one specific institution. In other words, when applying for exemption, the papers should list the mission or objective that the charity supports, not what organization it supports. It was implied, however, that in practice, a 501(c)3 charity can transfer money to (i.e. support) a single foreign organization without fear of losing its tax-exempt status — the American nonprofit, though, must be able to prove its independence. (More analysis, tips and background on international charity emanating from America can be found on an article I wrote: “International Charity in the Face of Global Terrorism.”)

Don’t Go Against American Policy

And finally, upon returning to Israel, I was speaking to a director of a Israeli nonprofit who told me of a colleague of his whose American charity had applied for 501(c)3 tax-exempt status.  At the time, the applicant informed this director that in his application he stated that the mission was to support Judea/Sumaria/Gaza. The applicant assured the director that the approval was imminent. A half a year later, his approval had yet to come and this applicant soon gave up.

The Obama administration is not in favor of what it calls the “Territories.” Leaving politics aside, we are seeing organizations whose mission clashes with American policy and/or opinion having trouble obtaining 501(c)3 tax-exempt status.

Conclusion

In closing, I would like to stress that whether these trends are good or bad is not the issue. The important point is that Israeli nonprofits and their American supporting counterparts should take notice and act accordingly.

These conversations stress:

1. New organizations that have the words “American Friends of” in their name will have trouble getting their 501(c)3 tax-exempt status approved.
2. By-laws of organization should list the cause that the organization is supporting, and should not specify particular organizations.
3. When applying for tax-exempt status from the American government, it might be best to “tow the party line.”

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.