“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.

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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.

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

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

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

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

Charity Law as an Extension of US Policy

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

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

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

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

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

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

Board Members and Officers Should Not Be A Rubber Stamp

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

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

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

Local Charity, Local Board

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

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

Silence Speaks Volumes

Settlements violate international law…

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

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

Truly, good advice to follow.

Tizku Lemitzvot,

Shuey

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

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.