“We Must Look To The Past To Know The Future” – George Santayana

The headlines in 2012 were all about looking to the future.

While there were some stories with immediate consequences, the effects of most of the headlines will only rear their heads in 2013 (at the earliest).  Change in the wind? Yes.  On the ground, not so much.

So what’s in store for Israel’s global nonprofit sector?  The following are nine of the top news stories of 2012 and their significance:

9. Charities  Advocate for Israel’s Nonprofit Sector in the Upcoming Elections

The end of November saw Manhigut Ezrachit [ICLA or Israel Civil Leadership Association in English] release a primer (Hebrew) on the contribution to Israel by its nonprofit sector.

The goal of the one-page summary was to educate citizens in the hopes that they would support candidates that expressed an interest in supporting, developing, and strengthening Israel’s voluntary sector.

While the effort didn’t seem to garner public support, it was defintely a step in the right direction and reminded me of the much more successful efforts in the United States.

This recent effort in Israel is very much in its infancy but with the election results showing that Israel is ready for a change, I’m very to interested to see if charities decide to band together and capitalize on it for the next elections.

8. Private-Philanthropy Database to be Initiated by the Statistic Bureau and Yad Hanadiv

While a Yearbook is  great for organizational statistics (see below number 4), it does nothing to analyze those that are actually doing the giving, the donors. Thus enters Yad Hanadiv (The Rothchild Foundation) and Israel Statistics Bureau who announced in late October (Hebrew) about a joint project to establish a database of giving statistics.

Currently, the numbers are gleaned from a hodgepodge of places, including: automatic reports generated from incoming money from foreign sources; data submitted by the Tax Authority on private and business donations; and various surveys done by private and government bodies.

The new initiative will gather data from three primary sources: data submitted by the Tax Authority on private and business donations (a previous contributor); information transferred from Guidestar Israel (see below number 4); and a survey to be conducted on 300 sample charities. Building the database will take a year from when they first pieces of information will be transmitted (approximately towards the end of 2013).

The new initiative database will:

• map donations from individuals and businesses, originating  from both within and outside Israel
• and will provide information on the sources, amounts, and destinations of the philanthropy received by Israeli charities.

It could be that the goal of this project is to mimic the Giving USA Report published yearly, whose vast data is used to “track reports of similar types of charity, train board members, assist in setting organizational strategy, identify funding gaps, and teach about current trends.”

With the continuous complaints about Israel’s lack of formal philanthropy, this is an important initiative indeed.

7. Acknowledgement that it’s Time to Explore New Organizational Structures for Charities 

Two announcements from the Israeli government signaled that the powers-at-be are realizing that charities come in all different shapes and sizes; something that other countries have known for quite some time.  (In America, the B Corporation and L3C legal entities are great examples.)

With traditional fundraising drying up, alternative funding sources and the entities that can support them are crucial.

In late November, The Third Sector Roundtable run by the Prime Minister’s Office expressed its support (Hebrew) for the creation of Socially-Minded Businesses in Israel.  The directive will provide the basis necessary for legislation, regulations, and a the fiscal structure necessary for the success of such an entity.  (Similar strides were recently made in the States when the IRS declared that social investments or PRI’s would be considered tax-deductible.)

This headline followed an earlier one in September that announced that the Israeli government had created an official Request for Information (RFI) on the establishment of a Social Entrepreneurship Fund.

As exciting as this sounds, with the recent Israeli elections and reports of overspending, deficit explosions, and subsequent looming budget cuts, all this great talk might be just that: talk.

6. Interior Ministry to Reward Local Authorities on Social Activities

Real change needs to come from within, despite the sometimes much-needed external push.

Misrad Hapnim (Israel’s Interior Ministry) announced (Hebrew) that they would give financial rewards to those Local Authorities that instituted social programs that meet eight predetermined criteria.  Officials were quick to point out that type of programming they are looking for is attainable even for smaller and more cash-strapped local authorities and wouldn’t require infusions of large capital.

In addition to changes how local governments approach and prioritize social programming (hopefully), this announcement will hopefully galvanize  charities into researching further ways to collaborate with the municipalities in which they operate.

Could this actually usher in a new era of government and charity collaboration?  (And yes, I’m ever the optimist.)

5. Midot: Acting More Like a Regulator than a Social Cause 

The Israeli nonprofit organization Midot made headlines a few times in 2012.

None more explosive than in September after its CEO in an interview with Haaretz / TheMarker, one of Israel’s leading business dailies, called the majority of Israel’s charities ineffective. The article was subsequently used to confirm the public’s worst fears in the countries’ nonprofits.

This story followed Midot’s pilot program with Israel’s Chashav Haklali (Hebrew) where Midot essentially served as the gatekeeper to the government’s coffers.  A program that many feared would be misused by the government as an excuse to refuse allocation of grants.

Manhigut Ezrachit [ICLA or Israel Civil Leadership Association in English] and the Hitarginut Hamankalim [The Organization of Nonprofit CEOs] banded together in September to issue a letter (Hebrew) defending against the claims of lack-of-effectiveness.   The letter was followed by a call for Midot to act more like a “social cause and less like a regulator.”

In the past years, Midot has made inroads with big companies and Israel’s elite (in addition to the government as was demonstrated above), convincing them of the organization’s critical mission.

Recent headlines seem to suggest that the organization’s effectiveness is not universally accepted.  Midot is at a fork-in-the-road and only time will tell which path they will choose and how Israel’s nonprofit sector will be affected accordingly.

4. Creation of Israel’s First Nonprofit Sector “Yearbook”

At the June Guidestar Israel conference, a “yearbook” (or Shnaton as its referred to in Hebrew) of Israel’s nonprofit sector was released.

Using the 12 internationally recognized nonprofit classifications (see pages 18-22), the report allows Israel to analyze its own sector, as well as, compare it to others around the globe.  The hard numbers (many of which were unattainable until now) shed light on many important statistics and were used by one reporter to combat the myth that high salaries are prevalent among Israel’s charities.

The yearbook released in June was Israel’s first.  Coming years will not only continue to deliver critical data but will provide the basis for trend-watching and true analysis.

More articles on the Yearbook can be found on NPTech’s (the organization that manages Guidestar Israel) site, here (Hebrew).  Don’t miss this one either: Aren’t You Tired of Suspecting Charity CEO’s? (Hebrew)

3. Supreme Court Rules that Charities Need to Pay Tax on Land Sales

The city of Ashkelon sold 53 plots of land to private individuals.  The city charged the individuals VAT (Value Added Tax) but didn’t transfer the VAT to the Tax Authority because it was granted a VAT  exemption by the Tax Authority — as most Israeli charities do.  Even though the exemption was granted to the municipality because of its “social” status, the Tax Authority claimed that the transaction was a  commercial and not social, thus not included in the exemption.

In October, Israel’s Supreme Court ruled in favor of the Tax Authority (Hebrew), in essence ruling that all charities will need to pay VAT (currently 17%) when they sell property they own.  Until then, it was a “Don’t Ask, Don’t Tell” policy that allowed those institutions that didn’t report tax they had collected as free from VAT payments to the Tax Authority.

In Israel, many organization received land from the government or from bequeaths — land that is not needed by the charity.  Many have already sold portions of their property, while most still maintain this “extra” real-estate.

The multitude of charities and other exempt organizations affected will now have to take VAT into consideration and rethink their plans.

2. One Year for the Tax Authority to Rethink Tax-Deductible Eligibility

Many people, including myself, have complained about the lack-of-clarity facing charities that are seeking tax-deductible status in Israel, known as Se’if [Paragraph] 46.

In addition to the basic requirements associated with applying to become a Mosad Tziburi [Public Institution], the Minister of Treasury prepares a recommendation to a Knesset sub-committee that must approve the organization’s request. The problem, as Prof. Nissan Limor pointed out, is that applicants do not know beforehand what is exactly required of them.  Furthermore, Limor notes that the procedures are gathered as guidelines that have not been incorporated into any legislation.

In August, Israel’s Supreme Court ruled (Hebrew) that the Treasury has one year in which to formulate clear criteria for receiving Se’if 46.

According to Guidestar’s Yearbook released in June of this year, only 12% (4,280 out of 34,398) of charities have  tax-deductible status.

It is hopeful that new, clearer guidelines will both encourage more charities to apply for tax-deductible status and give  those organizations struggling to get an approval the boost they need to finally be granted their well-deserved eligibility.

1. Corporations Authority Releases for First Time Instructions for Business Activities by Nonprofits

The world of nonprofit financing has been changing for a while, especially after the global economic. However, regulations here in Israel haven’t been keeping pace.  Actually, they’re trailing far behind.

But maybe not anymore?

A funding method making headlines in recent years is business related income generated by the nonprofit itself, as opposed to strict reliance on donations.

Maybe saving the best for last, Israel’s Corporations Authority (CA), which governs the Registrar of Charities, released in November (Hebrew) for the first time instructions for “business” activities by charities.  The guideline’s four sections cover:

1. How decisions should be reached
2. Relevant considerations concerning business activities
3. Collaboration with other nonprofit or for-profit entities
4. Restrictions of business activity

While not perfect, the guidelines are a work in progress.  More importantly, they are signal that the regulators are realizing that charities are multifaceted, complex, economic organisms and not simply operational sub-contractors.

- – - – - – - – - – - - – - – - – - – - – - -

I’ve got high hopes for 2013.  Looking forward to joining everyone for the ride.

What were your impressions? Which headline will reverberate the most for years to come?  Can you suggest a headline that wasn’t included in the list?

Tizku Lemitzvot,

Shuey

Thank you to the team at Zavit Hashlishit (@zavit3) headed by Eilat Navon that supplies me (and most of Israel) with the latest news affecting Israel’s nonprofit sector.  This list wouldn’t be possible without their hard work.

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.

With such as significant portion of donations to Israel’s charities coming from the United States, changes in American legislation can have a profound impact on Israeli nonprofit organizations.

For this reason, I was excited to co-host (along with Charlie Kalech of J-Town Productions) Laura Solomon, an attorney based in Philadelphia who specializes in nonprofits.   Laura was a powerhouse, leaving me and the other attendees racing to take notes fast enough.

Most revealing was what Ms. Solomon had to say about individual States’ severe rules governing fundraising registration, specifically the broad definition of those required to register and the consequences of failing to do so.    

Below are my notes from the event. Please remember that many of the things mentioned only scratch the surface and proper council should be consulted before acting on anything.

BACKGROUND TO U.S.A. STATE SOLICITATION REQUIREMENTS

Nonprofits are subservient to two forms of regulations, Federal and State. While the focus since 9/11 has been more on the Federal level – Patriot Act, Sarbones-Oxley 990 changes, etc – recent rulings in the State level are forcing charities to pay close attention to the additional guidelines (and penalties) emanating from this sphere, as well.

Federal law regulates how organizations use and report funds. In contrast, State law  regulates how funds are raised, which States call Solicitation (and what us normal folk call Fundraising).

As far as States are concerned, Solicitation is anything that leads to a request for a donation or collects data. And yes, organizations are held accountable to this broad definition.  Any solicitation requires registration & annual reporting in the State where the nonprofit is soliciting donors. (Though Laura estimates that only 20% of charities register with the State where they solicit.)

The recent push is a result of the tremendous pressure that States are under – even more than the Federal government – to shrink their vast deficits. Within the States, it is most often than not the Attorney Generals who are spearheading the efforts to examine tax exemptions and compliance by nonprofit organizations.

FILING REQUIREMENTS

40 out of 51 states, including Washington D.C., regulate solicitation of charitable funds.

Laura stressed that the filing requirements can be quite tricky.  Unfortunately, there is no master registration form that applies to all 51 jurisdictions. However, there are instruments that try to ease filing requirements. The Unified Registration Statement (URS) claims to offer one form for 37 participating States. Though, the site notes that even participating States may require supplemental forms.

Ms. Solomon stressed that it is best to ensure that the in-house employee or external firm tasked with organizing the solicitation registration have a propensity for detail, with a law degree being very helpful if not critical.

WHO NEEDS TO REGISTER?

An important point to remember is that even if the charity is using a fiscal agent (a.k.a. intermediary) the benefiting charity still needs to register at the State level. The exception to this would be when a fiscal agent or fiscal sponsor lists the benefiting project in its own filings with the State. In such a case, it could be possible that the benefiting charity would then be exempt from submitting its own paperwork.

Along the same lines, independent solicitors (individuals or companies) that are hired by a nonprofit to fundraise must also register. Failure to do so will affect the recipient charity.

In contrast, grassroots volunteers or community-based (unpaid) “fundraisers”  do not have to register.  However, charities are ultimately responsible for the conduct of the volunteers and must register if volunteers are collecting donations on behalf of the organization. Laura suggested that charities should have a written agreement with their volunteers to create a paper-trail that can prove or deny any official connection / responsibility between the volunteer and the nonprofit.

Most relevant for Israeli charities is the need for foreign nonprofits to register, as well. Much like a fiscal agent, it is also possible that a “Friends of” organization in the States can list it’s Israeli nonprofit  as a benefiting charity, thus, enabling them to avoid registration. Again, please consult with legal counsel to determine if and how this can be done.

CONSEQUENCES OF FAILING TO REGISTER

The fines for noncompliance are pretty steep, with 5 to 10 thousand dollars being the norm. It could very well be that the decision whether or not to register in a particular State might just boil down to simple math: $125 to register vs. $5,000 if fined. But of course, the ultimate decision resides with the charity and its licensed advisers.

Non-registration can have operational side-effects, as well. Laura reported that foundations are starting to require proof of registration when potential recipients apply for grants.

POINTS OF INTEREST

• Most States prohibit fundraisers from receiving a percentage of the money they raise.
• Merely having a website might not be considered Solicitation.  However, a “donate” button can change this perception.
• While slightly out of date, the Charleston Principles listed on NASCONET.org, provides a great working definition of Solicitation.

Do you have experience with State solicitation that you think others can learn from?

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.

Photo Credit: “Paperwork” by Curtis Gregory Perry (Flickr)

The June 26th Conference Organized by Guidestar Israel — a collaborative project of the Justice Department, Registrar of Corporations, Guidestar International, NP Tech, Joint Distribution Committee (JDC), and Yad Hanadiv (a.k.a. The Rothchild Foundation) — was June’s best prediction for “The Tomorrow of Jewish Philanthropy.”

In the global nonprofit sector there is much talk of cooperation and the need to combine forces to increase efficiency and cut costs, yet this synergy is hard to find. Guidestar Israel, in contrast, is actually doing it. Local charities, international organizations, private funds and government resources have all cooperated to bring the Guidestar Israel project into fruition. (And yes, it took over six years for the parties agree and get things off the ground, but we’ll choose not to focus on that for right now.)

Like many conferences, there was the good and the less good, but for those paid attention, there was also the surprising — announcements foretelling actual progress.

THE SECTOR MUST POLICE ITSELF

Advocate Alon Bachar, Director of Israel’s Corporations Authority, which oversees the Registrar of Charities and the Registrar of Companies, was quick to declare that transparency is the foundation of Israel’s nonprofit sector. Scandals, he continued, harm the sector as a whole. Thus, he concluded – and this is where things got interesting – self interest dictates that the nonprofit sector should police itself. (It would appear from his words that he considers himself and the Government office he represents to be card-carrying members of Israel’s nonprofit sector.)

Furthermore, Bachar blames the local nonprofit sector’s lack of transparency for Israel’s lack-luster standing in philanthropy as compared to other modern countries. This is a bold statement considering other experts have pointed fingers at lax Government tax incentives as the root of the problem or Israeli charities overall lack of strategic engagement with their constituents (my personal belief, which I elaborated in a previous post, “The Real Reason Israelis Don’t Donate to Charity“).

Bachar didn’t leave much to the imagination for those that were looking to understand the criterion upon which the Registrar inspects nonprofits. Bachar stressed that organizations should pay close attention to the Nihul Takin, as it explains “our priorities and how we evaluate charities.”

INFRASTUCTURE CHANGES IN THE REGISTRAR OF CHARITIES

The part of his speech that had the most practical application was Bachar’s announcement that the Registrar of Charities is adding services to increase its own transparency. In the past, Bachar explained, Israeli charities essentially had five addresses within the Registrar of Charities — including accounting, legal, managerial and compliance — where they could address their problems, seek answers, or submit reports. Two years of analysis determined this method to be less than effective and a decision was made to revamp the entire system.

As part of the Registrar’s overhaul, multidisciplinary staffs will be created to combine the five different needs into one address. Instead of five addresses, each charity will be assigned a team that will handle any and all of their requests. Furthermore, this new type of team will allow the Registrar to further specialize its staffs by discipline — whether it be sports, education, welfare, health, environment, religious etc — to better cater to nuance, experience, and trends of the different types of causes.

In a similar vein, Bachar’s Deputy Director, Advocate Avital Shreiber, announced that charities will soon also be labeled by size.  Shreiber acknowledged the difficulty of smaller organizations — many of whom function with no paid staff — to adequately file the multitude of government initiated paperwork.  Much like a system that has existed in the United States for a few years, “smaller” organizations will face scaleddown reports.  Shreiber added that it is even conceivable for their to be specialized reporting for the different philanthropic disciplines.

Transparency, as Bachar defines it for the Registrar of Charities, is uploading information quicker so that it can be utilized in a timelier manner. Toward this end, he said, the Registrar is turning totally digital, with every form and appeal to be handled online. He also announced that the Nihul Takin will be updated soon and would probably only be released on the internet.

USE GUIDESTAR OR ELSE…

Bachar also encouraged amutot to take advantage of Guidestar Israel and upload as much information as possible — even more than is necessary — so as to increase transparency of the organization and the sector as a whole. While some might see this recommendation of Guidestar as mere self-promotion, it should be taken much more seriously considering these two statements:

Bachar’s claim that the Registrar of Charities will be increasing cooperation with various Government agencies, specifically the Tax Authority & Anti Money Laundering Compliance, so as to decrease overlap.

This declaration was preceded by statements from Dr. Guy Rotkopf, CEO of the Justice Ministry which overseas Bachar’s Registrar of Corporations, in which he boldly claimed that Israeli charities that choose not to participate in Guidestar Israel have something to hide.

Definitely hints of trends to come.

Tizku Lemitzvot,

Shuey

Don’t Miss the Next & Final Post in the Series: Israel’s ONLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 2)

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.

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 October 10 – November 6, 2011.  This week’s topics include:  Regulations  •  Israel  •  Strategy  •  Impact & Innovation  •  Fundraising  •  Social Media & Internet  •  Entertainment

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

REGULATIONS

Especially relevant after this yr’s revocations RT @DonKramer: How 2 reinstate an inactive nonprofit ow.ly/1zf1Rz

Interesting take on taxes & their affect on how society interacts (by Kimberlytso) ow.ly/1zBaMs via HildyGottlieb & Alexandrapeters

ISRAEL

NonProfitBanker: Increasing Demands on Israeli Charities, but is it Fair? ow.ly/7if2j

STRATEGY

Very, very sound principles >> The New 10 Commandments of Strategy: Planning for our Uncertain World ow.ly/1yrnBR on eJPhil

A timely title >> God is in the Details: Planning & Implementing for Success, by Stephen Donshik ow.ly/1yrPPS on eJPhil

An oldy but especially relevant nowadays >> Charitylawyer: Collaboration Case Study – Failed Merger ow.ly/1z8o1s

Love the empirical evidence! RT KatyaN4G: 3 Leadership Skills That Count, by GreatbyChoice ow.ly/1z8mAY on HarvardBiz

Who would have thought: Leadership starts in the middle, not at the too ow.ly/1zeOEb on FastCompany

THE Question in Giving: Defining a Meaningful Gift (checkbook or S.O.B.) ow.ly/1zJqhM in Nytimes via eJPhil

IMPACT & INNOVATION

NAFund: Yes! >> SmartNonprofits & NonprofitBooks: 3 things musts to address to sustain impact ow.ly/6Z6Q2

Cool, a double whammy >> NAFund & SmartNonprofits: Foundations use investments to achieve their missions ow.ly/7cbQI

Nicely put >> NAFund: & Smartgivers: What’s really needed for nonprofit innovation? by mjwera ow.ly/1yHA9J

SOCIAL MEDIA & INTERNET

Makes a great case >> Nonprofitorgs: 4 Reasons Why Nonprofit Orgs Should Follow More on Twitter ow.ly/1yumoF

It’s almost like we need a monthly update >> HildyGottlieb: A New Guide to Facebook Safety & Privacy ow.ly/1zuB1D

Compelling argument for doing a profile on GuideStarUSA >> Nptechblogs: How Do U Measure Nonprofit Impact ow.ly/1zTZRj via Convio

FUNDRAISING

A cure for your fundraising crisis? Do you suffer from Scatterization? ow.ly/70AyN on HarvardBiz

Do you kill your #fundraising efforts by talking too much? By GailPerrync gailperry.com/2011/08/the-fu…

Don’t set yourself up for failure: 5 Lies to Stop Telling Donors, by Nedgington socialvelocity.net/2011/10/financ…

Incredibly Informative: How to find the right fundraising model for your nonprofit tow.ly/1zlADw on SSIReview

Chuck-full of gr8 tips >> GailPerrync: Killer fundraising strategy for 2012! My Best Practices 4 Monthly Giving Programs http://www.gailperry.com/2011/07/20-best-practices-for-monthly-giving-programs 

Put your money where your mouth is >> GailPerrync: This donor-centered appeal letter uses the word “you” 16 times. ow.ly/7iUXm

ENTERTAINMENT

Philanthropy CAN be funny: Clinton Fdn “celebrity” video celebrates 10 yrs ow.ly/78vt7 via IShopForIsrael

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.

Links to the articles I’ve reviewed and posted to Twitter between September 26 – October 9, 2011.  This week’s topics include:  Regulations  •  Strategy & Accountability  •  Fundraising  •  Tech  •  Op-Ed

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

REGULATIONS

DonKramer: What kind of record-keeping, policies/procedures are required of nonprofit orgs? ow.ly/1xGlxL

Does your nonprofit org solve problems or address difficulties? Yes, there is a dif (by @p2173) bit.ly/pqoRHx via FundraisingNews

Emerging Legal Questions in Today’s Boardroom, by Emilychan http://ow.ly/6RZ5X // great links & additional resources for further study

STRATEGY & ACCOUNTABILITY

Performance Measurement System 4 Social Investors Unveiled ow.ly/1xZaAm via SmartNonprofits // Any other good summaries out there?

Intriguing >> AlisonRapping: Transparency is the Key to Sustainability (by CSR guru Elainecohen) ow.ly/1xLd9a

A brief overview of the new CharityNav (what they’re calling CN 2.0) from Craignewmark http://ow.ly/6GVCS

Strategic plans arent enough: Budgets are lousy financial plans, by KateSBarr ow.ly/1yc1J0 via NAFund

FUNDRAISING

GailPerrync: Love this! Nathan_hand: Tis popcorn season. 10 fundraising tips from a 10 yr old

7 ways to thank a donor 7 times a yr (clicking heels of ruby slippers not required) http://ow.ly/6GVUD via Johnhaydon

SocialGoodToday & Razoo 5 Tips to Make Donating Easy ow.ly/1y7LWQ

Multi-channel, the Holy Grail of Fundraising ow.ly/1ym5KZ via Franswaa

TECHNOLOGY

IndSector: How can philanthropists make the most of socialmedia? http://ow.ly/6OtTL via Guardiannews

FYI, you nonprofit techies >> Joewaters: Goodbye QR Codes, Hello Near Field Communication? ow.ly/1xY3eM

What Facebook’s Changes Mean for Cause Marketing, by Joewaters ow.ly/1xIGeT

OP-ED

Johnhaydon: Why should we hire a consultant? by NancyIannone http://ow.ly/6EXIu

This is one sassy blogger! >> Get Off Your Butt & Learn, by AmberCadabra ow.ly/1y5vsx via eJPhil

Links to the articles I’ve reviewed and posted to Twitter between September 12– September 25, 2011.  This week’s topics include:  U.S. Regulations  •  Israel & Jewish  •  Accountability & Impact  •  Fundraising & Marketing  •  Social Media & Internet  •  Personal Development

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

Lesson learned the hard way: Nonprofit run business is not always exempt from state/local taxes ow.ly/1x0ntz via PatrickSternal

JEWISH & ISRAEL

Report by EHL Consulting: Giving to Israel down 16%. How will your nonprofit cope? ow.ly/1wZCkE on eJPhil

Great analysis in haaretz of S&P’s decision to raise Israel’s credit rating & its implications ow.ly/1x20Qb

Just in time for the 2nd recession! >> 23 Jewish Nonprofit Orgs Lose their CharityNavigator 4 Star Rating http://ow.ly/6EfOZ via eJPhil

ACCOUNTABILITY & IMPACT

CEP_CambSanFran Study: Ever wonder how foundations judge effectiveness in their grantees? ow.ly/1wZPvy

GTak: Accountability in Social Enterprises (ie nonprofit org that sells product/service) ow.ly/1x54k6 // 22 pgs thorough

Do accountability measures undermine public confidence in nonprofit orgs? ow.ly/1xCBBD via Npquarterly

And none of these ideas cost $$! Ppanepento: 5 Ways Foundations Can Strengthen Nonprofit Boards http://ow.ly/6APdJ

FUNDRAISING & MARKETING

NonProfitBanker: New Post: “Priorities When Deciding to Accept Donations Online” http://ow.ly/6yH3D

NAFund & GrantSpace: Mission-Related Investing: A Cautionary Tale ow.ly/1x57Uj via Pndblog // why risk charitable funds?

Is the word nonprofit no longer adequate to describe today’s sector? ow.ly/1x63t8 on eJPhil // skip to last 4 paragraphs

How to frame your fundraising ask 2 get the right respinses (+ mucho links), by GailPerrync http://ow.ly/6uWD6 via TonyMartignetti

Increase gifts by $200 per donor: 7 ways to a committed relationship with a donor, by KatyaN4G bit.ly/n6bJcW via SocialGoodToday

Definitly unique >> Sldoolittle: ‘He will melt your face w/ his philanthropy.’ Super fresh donor stewardship video! ow.ly/1xvvDN

Want to weaken nonprofit fundraising? >> 5 Online Donation Form Bad Practices, by Blackbaud ow.ly/1xCEAA via Npquarterly

SOCIAL MEDIA & INTERNET

Bite-size & easy to digest >> Kanter & Blackbaud: 20 Twittertips for Nonprofit Orgs, by Christuttle ow.ly/1x7Oku

PERSONAL DEVELOPMENT

6 Networking Coups to Win Jobs, by Asklizryan ow.ly/1x0c8s // and win clients too!