Tax Issues Affecting Nonprofits – Program Notes, 10/1/09

On October 1, Joe Kroll, Internal Revenue Service Exempt Organizations Audit Manager spoke at the Bar Association of San Francisco on “Tax Issues Affecting Nonprofits and the IRS”. Since IRS EO programs are in continual evolution, this was worth a run downtown on BART, and Kroll did not disappoint with a well organized PowerPoint outline and in-depth knowledge to answer questions from experienced practitioners. The presentation specifically covered audits, the new Form 990 with focus on 501(c)(3) public charities.

IRS is not doing random EO audits but looking to known problem areas and practitioners (file multiple applications without adequate c3 purposes or multiple clients with same problem catagory) and to the exempt organization community to police itself with complaints from competitor organizations or even anonymous allegations of lack of charitable activities, for example a letter from a disgruntled employee. IRS never discloses the identify of an informant.

5 Risk issues for audits:

1. Inurement, i.e. private benefit to either insiders or outsiders must be incidental. IRS uses a clipping service to monitor reports of charity improprieties and scandal.  There are shaded differences between an elaborate volunteer appreciation party and actually distributing cash/equivalent to “appreciated” volunteers. 

2. Attempts to influence legislation: lobbying is allowed but IRS recommends c3 use the (h) test.

3.  Political activity: endorsing a candidate for public office – example, full page ads by churches or a candidate speaking at a church. (Note: churches may but do not have to file for exemption yet can lose exempt status by running afoul of requirements.) IRS has an elaborate system to monitor election cycles and is still working on the presidential election with complaints still coming in.

4. Urelated Business Income (UBIT) – (taxable starting at $1K UBIT revenue) IRS gets information from state and local agencies.

5. Worker characteristics: IRS prefers employees to independent contractors but has no specific program to target and noted it’s not uncommon for organizations to do withholding but never actually pay IRS.

Filing requirements (due by 15th day of 5th month following end of fy, automatic 3 mos extention, 2nd 3 mos extention with application and receipt); all processed in Ogden; IRS wants everyone to file electronically as it reduces errors.

IRS’s master file of organizations still has every applicant with none yet removed even though many apply and never begin operations or just stop in exhaustion. Now, the 990N filing requirement (currently revenues under $25K annually but rising to $50K ) Organizations that do not file (tax years 2007, 2008, 2009) will be dropped from the master list and have exemptions revoked. In 2010, revenues up to $50K annually will be included in the 990N instead of the Form 990-EZ. The challenge for IRS has been lack of contact addresses. (Note – A frequent problem for volunteer animal organizations for all legal compliance areas.) Small organizations can and should use the extension process, but if you are responsible for one (or more) of these that have not filed, GO AHEAD AND FILE ASAP, no late filing penalty and as required to avoid the announced cutoff in 2010 from which there may or may not be any leeway.

The completely revised Form 990 (2008) is essentially an information return, open to public inspection and developed with stakeholder input, particularly from donors and states. 40 states are using this. There is an 11 page core form with 16 schedules, one a blank Schedule O that must be used to provide additional information as NO ADDITIONAL ATTACHMENTS are allowed now. (Note, Guidestar images 990s but does not include attachments, so this discrepancy from Guidestar will be eliminated. Guidestar uploads IRS filings but is not error free. Guidestar does not satisfy IRS requirement for EOs making filings publicly available.) 990PF and 990EZ forms have not changed, and the threshold for the 990 is either $2.5 million in assets or $1 million gross receipts, so that more entities can use these while IRS “works the bugs” out of the new 990. The 990 had not changed for 30 years but the exempt organization industry had. The new 990 is 75% an activity/governance report and $25% financial report (last 3 pages)with the demand for more activity reporting coming from the funding/donor community. The first page now resembles a grant application with information about the mission, board, employees and growth allowing organizations to attract donors looking for transparency and actual activity. The 990 instructions are now written in plain English and include a glossary and appendices on things like inurement and excess benefit transactions. Note that the prior 5-year advance ruling for public charity status has been discontinued as a separate process, BUT the equivalent information is now included in the new Form 990. (Note, small organizations should have the equivalent information even if not required to file the detailed form.)

Useful resources:

Customer Service 877-829-5500 for inquiries about exempt status, etc. and now can furnish copy of lost determination letters.

http://stayexempt.org An IRS site based on computer training, useful for new board members.

The monthly email update, subscribe at http://www.irs.gov – go to the Charities & Non-profits tab on navigation bar.

CA SB 250, amended 8/31, integrated text now available.

http://www.theanimalcouncil.com/files/CA_SB_250_8_31_09_am_integrated_9_1_09.pdf

CA DHS new 8/17/09 Draft Rabies Control Report used to support A.R.C. 91 (Lieu, Smyth) Adopt a Shelter Pet Month Resolution

The California Department of Health Services Veterinary Public Health Section on August 17, 2009 released an updated draft of its Annual Report of Local Rabies Control Activieis, 2008 with most jurisdictions now reporting.  Updating our July 10 entry here, the 2008 data still are a fraction of our file’s base year of 1980, when 437,776 dogs were euthanized in California shelters compared to 159,231 in 2008, a decline of almost 65%.  For reference, the California human population in 1980 was 23,667,764 and in 2008 was 36,756,666, an increase of of 35.61%.  Adjusted for the increase in human population, the decline in shelter euthanasia of dogs since 1980 is even more dramatic. 

This new DHS Draft was just in time for the first amendment on August 25 of Assembly Concurrent Resolution 91, introduced on August 20 by Assemblymember Ted Lieu (D-53) of Torrance and co-author Cameron Smyth (R-38) of Santa Clarita.  A.R.C. 91 would declare September 2009 Adopt a Shelter Pet Month and “encourage” pet adoption based on a long list of recitals.  They used the DHS Draft to dramatize the “high” shelter numbers, igoring the context of long term decline and expected short term increase due to the harsh economy.  The amendments also added other pet species to the resolution.  Promoting shelter adoptions is a worthy cause that should stand on its own merits without misrepresentation and innuendo. 

For more information on these topics, see our main web site at http://www.theanimalcouncil.com

CALIFORNIA VETERINARY MEDICAL BOARD MULTIDISCIPLINARY ADVISORY COMMITTEE KICKS OFF THIS WEEK

2008 California SB 1584 authored by Senator Alex Padilla (D-20), former Los Angeles City Council member, was one of the few animal bills to squeak through in the chaotic 2008 legislative session after gaining support of both the Veterinary Medical Board and the California Veterinary Medical Association and despite partisan opposition based on fiscal concerns.  The billl required(among other things) the VMB to create a Multidisciplinary Committee which is just now getting started and will hold its first meeting on August 25-26 to consider inspection, enforcement and other issues of requirements imposed by SB 1584.  The committee members are 3 vets – Dr. William Grant, II, Dr. Richard Johnson and Dr. Jon Klingborg (small animal practitioner from Merced, son of Dr. Don Klingborg of UC Davis), one Registered Veterinary Technician, Jennifer Boyle, RVT, one Public Member, Diana Woodward Hagle and VMB Board President, Linda Starr as Liason to the VMB. 

Business and Professions Code Section 4809.8 (added by SB 1584): 
   4809.8.  (a) The board shall appoint a voluntary, advisory multidisciplinary committee to assist, advise, and make recommendations for the implementation of rules and regulations necessary to ensure proper administration and enforcement of this chapter. Members of the committee shall be appointed from lists of nominees solicited by the board. The committee shall consist of no more than nine members.
   (b) The committee shall be subject to the requirements of Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code.
   (c) Committee members shall receive a per diem as provided in Section 103 and shall be compensated for their actual travel expenses in accordance with the rules and regulations adopted by the Department of Personnel Administration.
   (d) This section shall become inoperative on July 1, 2011, and as of January 1, 2012, is repealed, unless a later enacted statute, that becomes operative on or before January 1, 2012, deletes or extends the dates on which it becomes inoperative and is repealed. The repeal of this section renders the committee subject to the review required by Division 1.2 (commencing with Section 473).

For SB 1584 details, see our 2008 California Bill Tracking page at
http://theanimalcouncil.com/CA2008.html

San Mateo County animal licensing renewal notices compete for attention with junk mail postcards.

Which postcard is the San Mateo County Animal License Renewal Notice?

Which little green post card is the San Mateo County Animal License renewal notice from Irving, Texas based PetData?  Waiting for the renewal notice for a dog license due 9/1/09, one after another small green postcards were dropped through the mail slot where hazards abound for small pieces of paper.  The retirement planner, then the local dentist with a new patient special… and finally on August 10, the little green card from Texas, retrieved before it could be blown away.  This dog needs a rabies vaccination this year, so we need to send this card back with the certificate and check in an envelope we’ll need to prepare.  So far, so good, but what about others in SMC where the demographics are weighted to aging people and those whose first language does not use the English alphabet?  I guess the price is right, for me and the County, but it will still take the rest of August to be ready to send off the renewal.  As for current San Mateo County licensing data, the County administration of the entire Animal Control Program was placed under the Health Department by ordinance amendment at the end of 2006 and ever since, licensing reports to the California Department of Health Services have ranged from incredibly high to incredibily low to none at all, providing no reliable data at all through this source.  See 7/10/09 post for more information or

http://www.theanimalcouncil.com/Reference.html

Sharon A. Coleman
President, The Animal Council

California Rabies Control: From a tiny virus, and way beyond.

At last night’s Summer Science Lecture at Stanford University, The Secret Live of Viruses, by Stanford faculty member Dr. Robert Siegel, between my companion and myself, we corrected guessed each of the “guess the virus” questions posed to the audience — she knowing best those associated with vaccines and I, those with animals. Easiest for me was the one that stumped most of this sophisticated audience –rabies. In the 1990’s, TAC was a member of the California Department of Health Services Veterinary Public Health Unit Animal Welfare, Public Health & Safety Working Group. That effort produced a comprehensive understanding of rabies as a public health issue and a large collection of materials, all hard-copy in those days. These included the historic Annual Reports of Local Rabies Control Activities that included some animal control data as reported by county public health departments. Every year, we would call the DHS-VPHU office to ask when the prior year’s report might be available — usually well delayed but worth waiting for, at least to evaluate trends.

After the Hayden bill (1998 SB 1785) was enacted (the law required keeping shelter data, Food & Ag Code Section 32003*), a number of regularly reporting counties lagged for years with the Rabies Control reports, and the DHS just stopped releasing these reports until the issue came to the fore after the 2005 SB 861 required local jurisdictions to have current reports on file in order to enacted ordinances enabled by that bill (i.e, breeding and/or sterilization regulation of any specified dog breeds). Eventually, DHS began releasing reports with cautionary notice as to incomplete data. Knowledgeable readers would also realize that some individual categories, especially licensing that is administered by other agencies or outside contractors, were not “real” numbers, if reported at all.

Despite the context limitations, these reports do clearly show the drastic decline in shelter euthanasia of dogs from our file’s base year of 1980 — 437,776 to the 2008 draft report of 151,874 (7 counties of 58 not reporting). Remember, this is raw data, not adjusted for increased human population over 28 years. That’s statistically significant no matter how you do the math. Remember, too, that California has been very effective with its rabies control efforts with only rare, isolated cases in either dogs or cats. This underscores the over-arching public policy interest in keeping animal control regulations, local or state, simple to understand and minimally punitive for California’s diverse population. To do otherwise is to ignore the danger of Stanford’s Dr. Siegel’s description of the rabies virus — only one survivor, ever.

Sharon A. Coleman
President, The Animal Council

* California Food & Ag Code, Section 32003. All public pounds and private shelters shall keep accurate records on each animal taken up, medically treated, or impounded. The records shall include all of the following information and any
other information required by the California Veterinary Medical Board:
(a) The date the animal was taken up, medically treated, euthanized, or impounded.
(b) The circumstances under which the animal was taken up, medically treated, euthanized, or impounded.
(c) The names of the personnel who took up, medically treated, euthanized, or impounded the animal.
(d) A description of any medical treatment provided to the animal and the name of the veterinarian of record.
(e) The final disposition of the animal, including the name of the person who euthanized the animal or the name and address of the adopting party. These records shall be maintained for three years
after the date the animal’s impoundment ends.

Holiday Pet Adoptions: The Enlightened Approach

Shhhhh…  What an ironic and heart heart-warming sight in the Macy’s San Francisco SFSPCA “adoption” windows, in fact, the most prominent corner window at O’Farrell and Stockton — 3 large Harlequin Great Dane figures with cropped ears!  Surely the window designer was independent of the SFSPCA that has sunk  deeper into AR-think under the current management.  The windows’ sponsors’ names are shown on the outside of this window.  Side windows on each street as far as the entry doors accommodated the adoptable dogs and cats while an SFSPCA representative on the street was available to field passerby inquiries.  This tradition began in the 90s under the Rich Avanzino administration at the old Gump’s store with much smaller, simpler windows, and started the enlightened approach to promoting the December holidays as a ideal time for many people to get a new pet.  Unlike the “party line” refusal to do holiday season adoptions, both SFSPCA and Peninsula HS & SPCA take full advantage of demographics and downtime when many households have the time and quiet to start a new pet. 

Yes Virginia, the Rottweiler is a docked breed!

Here’s “Pig Titus the Rottweiler” by FAO Schwarz and featured in this year in Macy’s holiday merchandise with the traditionally docked tail, providing protection from predatory or accidental injury.  We commend The American Kennel Club for its principled denunciation of the American Veterinary Medical Association’s latest mischaracterization of tail docking as an inappropriate “cosmetic” procedure. 

“Pig Titus” joins our small “kennel” of plush, docked Rottweilers, collected over years and all from mass merchandisers.

The Enemy Within: AKC Registration Numbers as Barometer of Public Opinion

Please keep in mind my perspective. It comes from working in the rank and file within the sport of dogs attempting to assist in keeping it viable in today’s society. It is one of respect for the AKC.� The AKC has established and maintained a uniform method of competition across our large nation. Its record-keeping has kept pace with modern technology. These functions reflect its mission statement.�� My writing while critical comes with the hope that the AKC will do what it takes so that future generations are able to enjoy the pleasure and contentment that sharing lives with canines brings.� My concerns in recent years about the AKC’s future were further crystallized by Ron Menaker’s September 2008 Chairman’s Report.

I am the second generation of my extended family involved in the sport of dogs.� I have been raised in awe of those true “dog” men and women that have dedicated their lives, talent and seamless blend of learned and instinctual knowledge to canine endeavors. The AKC’s own “breeding program” is not producing these exceptional caretakers in the number they once were. I grew up during the ‘50’s when the word breeder was a term of respect. It was a profession you wanted to aspire to, not be apologetic about in general society.

Yes, our society is rapidly evolving. Though well intended, AKC’s actions are more reactive than proactive. The writing was clearly on San Mateo’s wall in 1990. By AKC’s reaction to outside forces, they have turned up the heat on the people that were their support base. While having high morals standards within should be something expected and continually strived for, they should have quickly provided the public a real reason for joining in the sport, believing in the joy of pure-bred animals and really worked at making it easier to maintain a breeding program in today’s life-style.

Allow me to state a few of the obvious reasons, people are no longer actively breeding dogs and dedicating their lives to this activity.

•�Two people in a household need to work outside the home. This doesn’t leave time to raise puppies and take care of multiple dogs.

•�Limit laws prevent an active breeding establishment. Breeding one champion to one champion may produce a champion but it does not define a breeding program that will improve the breed.

•�Air travel is being hampered by laws, expenses, public attitude toward dogs and increasingly intrusive security scrutiny.

•�Cost of showing has increased. There are more shows with less leisurely quality time spent there.

•�Veterinarians, influenced by those against breeding, discriminate against breeders or particular breeds. Veterinarian costs have increased greatly while the local veterinarian’s average reproductive knowledge declined.

•�Breeders are not valued by the general public.

Placing more arbitrary standards on those within the sport can be compared to the education of our children in this country. Requiring more testing doesn’t really equate with better education. We must find the way to inspire and create curiosity so that individuals are self-motivated to be educated. If we educate well, the student will test well. However, conversely, if a student tests well doesn’t imply he has necessarily been well educated.

The analogy applies to the artificial promotion of health testing and care regulations as “gold standards”. Testing for testing sake shouldn’t be the end goal. Of course, we want people to care for their animals and do the best health and genetic screenings available. This should be morally promoted and accepted practice. Standards of care shouldn’t be to impress the public; they should exist because it is morally right and efficacious. The public naturally expects this. Therefore this should not be relied upon to create public incentive to own a purebred.� Promoting purebreds supersedes promoting purebreds that have passed a string of testing. The soft, fuzzy love of owning a purebred is why someone wants to purchase a purebred. Their true companionship and life benefiting love is why they keep those purebreds.� The “soft-sell” emotional commercial models are the ones to probably consider primary. We don’t need movies the likes of Disney’s 101 Dalmatians nor the up-coming Beverly Hills Chihuahua to spike registration numbers; but we could use the promotion of devoted, purposeful individuals integrated into a modern day life-style, a current Lassie, Rin-tin-tin, and Old Yeller figuratively, to keep us company. Smoltzy, yes. But it cuts to the core of human motivation.

Two unintended negative consequences of making the “gold standard” of health testing a primary public strategy must be addressed. The reflected increased costs per puppy prohibit both breeding and then purchasing puppies. Either the public is then convinced to go to their shelters to obtain a mixed breed that does not have this expense to cover; or they now expect guarantees on a puppy for its full life that only a plush toy could offer.

A conclusion can be drawn that if care and testing standards are written in a reactionary manner to animal rights pressure, we have allowed them to set us up for failure. No finite list of acceptable results on tests can assure that a puppy will be healthy and desirable. Like the above education analogy, the AKC must inspire and instill in its breeders the desire to morally use every possible tool to produce a desirable dog to the best of the breeder’s ability.�

I realize the concept of how to “inspire and instill” morals is a difficult one. It is one of motivation.� Today’s trend of legislative restrictions adds many additional constraints onto breeders. If the AKC adds further regulation in attempts to “prove itself”, it invites the real danger of snuffing the creativity of those truly gifted individual thinkers. I believe that one of the strong incentives to being a breeder is to have a hobby that is continually challenging while utilizing creativity and problem solving abilities. An activity that is highly regulated will not attract a gifted individual. The end result of over-regulation is mediocrity.� AKC should explore the concepts employed by Genentech, Google, think-tanks and innovative research facilities. This could help explain the decease of higher echelon participants in this sport.

At first I was disappointed that my children’s generation isn’t anxious to get involved in dog competition. Then I worried about where my grandchildren, when they become adults, will be able to purchase a family pet.� Unfortunately, I am now worried about whether they will even consider owning one, especially considering an AKC purebred. The AKC’s public relations campaign addressing the reasons to want to share your life with a purebred is too little and far too late. From advice given from experience in ring competition, the AKC shouldn’t concentrate so much on the competitor (other registries, designer breeds, etc.). Instead the AKC must concentrate on improving its own excellence! There is a passion in those that succeed. The uniqueness of successfully accomplishing its goals will then bestow recognition. Another way of stating this is if the people involved within the sport are truly enjoying what they do and receiving personal benefits, others will want to join in. The AKC has much ground to make up against the animal rights lobby. It must attack this far more aggressively. It must find its terrier within!

Until the AKC finds ways to push back against those forces, by finding ways to encourage and make a breeder’s life legal, more desirable, and a respected part of society, its registration numbers will continue to decline.� Until the AKC increases the activities that a normal working family can engage doing with their dog and encourage public places to be accessible and acceptable to people with dogs, its registration numbers will continue to decline. Until the AKC gives people reason to keep a registered purebred and/or rescuing another in just about every home, its registration numbers will continue to decline.

Since every organization needs fiscal soundness to survive, I have one further observation to make regarding the survival of AKC. I will address Ron Menaker’s noble comment concerning down-sizing. So far, the effort has been a beginning token. I’m sure there are corporate models that have successfully re-organized in order to survive which can inspire a more extensive expense cut-back.� Flat line expenses can only balance flat line revenue.� Until there is not a revenue problem, the balance solution remains the expense problem. Taking the advice we promote with breeders, selectivity is a main tool to achieve your goal.

The Board can respond, “But we have tried all that”. They have expanded their income base with parentage testing. They have fostered more programs than just breeding/conformation, recognizing the new revenue possibilities that activities like agility and rally have provided. They have fostered public education days, breeder recognition awards and televised dog shows. My intent is not to berate the AKC. I have done my very best to keep positive over the years and help in whatever capacity I am able; however, to be silent with these concerns would be tantamount to not helping. Until the AKC addresses some of the core directional issues I have mentioned, I question its ability to turn the present situation around.�

Obviously with the continued decline in registrations, the AKC will not be able to continue to sustain our beloved sport of dogs. Registration numbers should be considered the barometer of public opinion of the value of an AKC registered dog.� The “Gold Standard”? If a major redirection is not considered, I fear that, like the US dollar, the AKC won’t be worth a silver certificate.

Respectfully,

Marge Kranzfelder

Pomeranian Charitable Trust, Founding Trustee

American Pomeranian Club, President 2005-2006

American Pomeranian Club AKC Delegate 1999-2004

American Pomeranian Club Life Member

Northern California Pomeranian Club, Board Member

The Animal Council, Treasurer

San Mateo County Animal Task Force, 1991