Thanksgiving 2016


Happy Thanksgiving Greeting, Fall Leaves Background and text Happy Thanksgiving


This Thanksgiving, I intend to think about all the things for which I’m grateful, but beyond that, I intend to commit myself to acting to preserve those things.

I’m thankful for the First Amendment (“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”).

I’m thankful for the Equal Protection Clause (“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”).

I’m thankful for the charitable nonprofit sector and for all the charities and all the people working for and supporting those charities, including those advancing social and racial justice, addressing climate change, and promoting and protecting a healthy independent sector.

I’m thankful for the emergence of for-profit social enterprises bringing social good and environmental protection/sustainability as additional bottom lines for companies to pursue and for consumers making decisions based on companies’ social and environmental performance.

I’m thankful for family, friends, and my wonderful colleagues at NEO Law Group, without whom I could not pursue the work I love doing.

With the growing threat to our civil liberties, rights, and personal safety, it’s time for us to move beyond processing and venting and disrupt our personal lives to protect and hopefully make things better for our communities. For too long, much of the citizenry has been in reactive rather than proactive mode so a wait-and-see attitude would only signal weakness and/or uncaring complacency. I hope we’ll be stronger and better as a community and a country.


New Frontiers: 2016 Independent Sector Annual Conference


Washington DC is the site for New Frontiers, the 2016 Independent Sector Annual Conference and Public Policy Action Institute, taking place  November 15-18. The Conference comes at a pivotal time for the nonprofit sector and our nation, rigidly divided on so many issues and characterized in many ways by a disengaged and disenchanted citizenry. The opening reception will be held at the Smithsonian’s brand new National Museum of African American History and Culture.

The Independent Sector Conference is the meeting ground for leaders and changemakers looking to drive momentum for the charitable community, set the sector’s agenda for the coming year, and collaborate on strategies for success.


We’ll take our messages to Capitol Hill, learn from insiders about how we can connect with the new administration, and collaborate to revitalize the ideals of democratic engagement in service of the common good.

Public Policy Action Institute (pre-conference)

Whether you’re a policy novice or an expert, the Public Policy Action Institute gives charitable sector leaders, policy advocates, and communications specialists effective strategies for getting your mission and message front and center with policymakers. And new this year, we’ll take our messages directly to the Capitol for Independent Sector Hill Day. You’ll meet face-to-face with policymakers about the issues most important to your work.

Making our Voices Heard in an Election Year and Beyond

  • “America is great because America is good, and if America ever ceases to be good, America will cease to be great.” – Alexis de Tocqueville
  • “The independent sector is our best line of defense for vulnerable populations. … Advocacy is not a luxury; it’s essential.” – Tom Sheridan
  • America doesn’t believe government is working for them but overwhelmingly believe in the nonprofit sector. See The Power of Nonprofit Advocacy: Best Lobbying Resource
  • 85% of young voters believe fed gov’t should be doing more to engage charitable sector to help address economic & social challenges. United For Charity (p. 8)
  • Report Shows Foundation Funding of #Advocacy Produces a Return on Investment of $115 to $1. NCRP
  • We don’t change without some level of disruption and revolution. Allow and don’t suppress millennial activism. Focus on engagement and empowerment of millennials.
  • To leverage engagement with elected officials, some charities (like Save the Children) have formed an affiliated 501(c)(4) organization that can lobby without limitation and endorse and/or oppose political candidates. The 501(c)(4) allows you to “thank and spank;” it’s the hammer to hold elected officials accountable.
  • Use the arts to further your message and engagement with elected officials.
  • Data is important (particularly for federal grants – see the Commission on Evidenced-Based Policy Making) but it’s expensive, can be skewed, and campaigns have been shown to win without good data. Sheridan advised organizations to “spend just enough on data to get you where you need to go.” He added that organizations should do (1) message-focused research to ensure they are avoiding the common trap of simply preaching to the choir and (2) impact-focused research to ensure they are satisfying donors and funders. Of course, impact-related data is important to inform nonprofits and their boards about their activities and decision-making.

Positioning our Tax Policy Soapbox for 2017

Continuing the Public Policy Legacy of John Gardner

  • “We can’t write off the danger of complacency, growing rigidity, imprisonment by our own comfortable habits and opinions.” – John Gardner, Personal Renewal
  • “You have within you more resources of energy than have ever been tapped, more talent than has ever been exploited, more strength than has ever been tested, more to give than you have ever given.” – Gardner – appropriate on an organizational and national level too

Sway the Other Branches of Government

Effectively Communicating with Congress: How to Develop and Implement an Effective Communications and Advocacy Strategy

  • Consider allies and opponents resulting from your advocacy and how that may play out in the future
  • Review levels of engagement mapped against audiences – see Evaluating Public Policy Advocacy (Framework for Policy & Advocacy Outcomes)
  • Communications: modern storytelling with peer voices (e.g., Humans of New York); humor; real-time; value-based; best practices (curating content, inviting others to conversation)
  • Jab-jab-jab-right hook – only every fourth piece should be an “ask”
  • “If you’re not at the table, you’re on the menu.” Keep messaging (use social media but don’t let it be stagnant).
  • “We in America do not have government by the majority. We have government by the majority who participate.” – Thomas Jefferson
  • Congressional offices are using social media to help gauge public opinion but district services still #1
  • How many similar comments on a social media post would be enough for your office to pay attention to? 80% of Congressional staff say less than 30. But you have to respond to them in 24-48 hours tops.

2020 Census

  • Census is connected to when redistricting [gerrymandering] gets done.
  • Policy decisions will matter. Immigration status could be added, which would result in significant reporting issues with many in fear of sharing information with the government.
  • Get-out-the-count will matter. Note that in the 2010 Census over 10% of Blacks and Latinos were missed in certain urban areas because of undercounting, particularly of children under 5.
  • Check out Annie B. Casey Foundation’s Kids Count Data Center

New Frontiers – Independent Sector Annual Conference

The Great Shared Task (Opening Plenary)

Christylez Bacon, Grammy-nominated hip hop music artist, opened the plenary with It’s the Beatbox. Immediately after, a panel reacted to the recent Presidential election.

  • Media may be the most effective check against the President; the First Amendment is first for a reason.
  • How do we discuss race and sexism in ways that aren’t so divisive? How can we listen to racists without getting angry at them? We should be angry.
  • Americans have deliberately chosen to blow up the system and elect a leadership in which anything is possible. But power is not permanent. – Michael Steel
  • Charitable organizations provide a voice for marginalized groups. The sector has a collective responsibility to influence policymakers.
  • Must work like hell to make sure we make good decisions on the state level. – Ellen Alberding
  • Private foundations should be much more aggressive on the advocacy front on the issues they care about. Many private foundations do not take the opportunity to fund advocacy.
  • What people care about are big issues, not your institution. Charities of all sizes and types must have a policy strategy, lock arms, and go after the big issues (including tax policy). – Brian Gallagher
  • Anti-establishment sentiment has already colored how people think about foundations and charities. – Gallagher

Live From IS: Where Nonprofits Fit After ‘Primal Scream’ – The NonProfit Times

Frame-Breaking Ideas for 21st Century Fundraising

  • Jeanne Bell (CompassPoint) shared with the audience the following publications:
    • Underdeveloped – nonprofits struggling with high turnover & long vacancies in development director post – results in vicious cycle –
    • Fundraising Bright Spots – 1. Fundraising is core to the organization’s identity; 2. Fundraising is distributed broadly across staff, board, and volunteers; 3. Fundraising succeeds because of authentic relationships with donors built on strong, trusting relationships among staff, board, and volunteers; 4. Fundraising is characterized by a systematic approach to donor engagement and continuous improvement
  • Discussion Issue: What is most challenging about engaging the broader staff in fundraising at your organization? Groups quickly moved to looking at solutions, including focusing on understanding charitable motivations of staff and framing it also as leadership training.
  • Anne Wallested (BoardSource) noted our unhealthy obsession with cost of fundraising and introduced a new way of measuring fundraising effectiveness with a preliminary draft paper:

1. Are we raising enough money to fund our mission now and in the future? (Total Fundraising Net)

2. To what extent are we dependent on a small number of large-scale donations? (Dependency Quotient = sum of contributions from top five donors or funders/total expenditures)

3. How efficiently are we raising funds? (Cost of Fundraising = total fundraising expenses/total fundraising net)

Equation: Enough money to fund programs + A responsible balance of risk and reward = Healthy fundraising programs

Communications: Talk impact, not percentages; focus on overall results, not individual tactics; be transparent, but holistic

  • Ann Hale (AFP) discussed competencies of fundraisers – relationship building, leadership, professional judgment, and organizational management.

Opening Reception (National Museum of African American History and Culture – Smithsonian)

The reception allowed us to visit the National Museum of African American History and Culture and it was a powerful, moving experience.

Community Town Hall (Plenary)

The Duke Ellington School of the Arts Show Choir opened the plenary with Hit Me With a Hot Note.

  • We were introduced to Independent Sector President and CEO Dan Cardinali (bio).
  • Dan learned from Native Americans in Philanthropy CEO Sarah Eagle Heart that “New Frontiers” meant something other than intended to some people, which left him feeling embarrassed but also hopeful that we could openly have this discussion at a meeting with newcomers to the Conference.
  • “We as a community care about the means as much as the ends.” – Cardinali
  • Through relationships, toxic stress diminishes in the body and the community. Nonprofit sector has the treasure of public trust and the public confidence in having expertise. Nonprofit sector is trusted to heal the country. – Cardinali

Community Dialogues

  • What are the three unique assets the sector has that are critical to healing the nation?
  • What are the commitments of the nonprofit sector?
  • What are the commitments we should expect of government?

Philanthropy Making a Difference with Government

  • Bad systems trump good programs – this is why philanthropy must partner with government
  • Philanthropy allows government to be more nimble, take risks, and create change
  • Lessons learned from collaborations: (1) role confusion and conflation; (2) defined responsibilities; (3) resources – whose; (4) results – shared definition; (5) risk – allocation (and who is going to move first). Add readiness (agencies may have many barriers to saying “yes” to anything but some barriers may be historical and not true legal barriers).
  • Foundations should invest heavily in having the community’s voices heard. One type of investment is higher risk tolerance.
  • Lean in, don’t step back in collaborating with government now. Mechanisms may be different, your missions are the same.

Dog Whistle Politics: How Racism Wrecks the Middle Class

  • “Strategic racism helps win elections…and not just this one.” Ian Haney Lopez
  • Call to Action: “This is the best opportunity in a generation to convince people that racism is a divide and conquer weapon that hurts all of us.”
  • “To restore our country–we need an inclusion revolution.” – Lopez. We must organize around identity, not class.

Keeping Up With Forces Shaping Our Future

  • Futurists look for trends and signs of change across the “STEEP” categories: social, technological, environmental, ecological, and political.
  • A futurist can help shape plans – see Perez Art Museum’s plans for surviving a hurricane.
  • Changing future of work – jobs are rapidly changing, millennials change jobs every 2 years or less (is this a symptom of a big problem?), rise of the “gig” economy, fight for $15 hour minimum wage, technology (e.g., artificial intelligence, diverless cars) automating work.
  • Pace of change is so rapid, it may require multiple pivots in organizational direction and structure.
  • Scenario planning is a structured way for organisations to think about the future.. The Economist

America Divided: How Can Our Sector Work Together Better? (Screening)

This series cuts to the heart of the inequality crisis, exploring life-and-death struggles around the economic, social and political divide. Our aim is to expose the damage extreme inequality inflicts on all Americans, reveal its systemic causes, and celebrate real-world heroes fighting for solutions.

The creator and executive producer of America DividedSolly Granatstein, provided us with a glimpse at some of our problems with inequality, including through subtle (to the prospective tenant) but pervasive housing discrimination.

On Shifting Ground – A Production of the Hilton Prize Coalition (Screening)

Steve Connors, Master Storyteller and Director, Hilton Prize Coalition Storytelling Program, noted the challenges of collaboration among local NGOs after the devastating 2015 earthquake in Nepal. They simply didn’t know each other.

With the production of “On Shifting Ground” as the Storytelling Program pilot, The Hilton Prize Coalition has created a new model for collaboration to achieve collective impact. With tools and support from the Coalition, the organizations featured are now formalizing a collaborative framework around program delivery that arose organically from their participation in the film.

Leadership Awards Luncheon

The Luncheon celebrated the transformative leadership of Bryan Stevenson, recipient of the 2016 John W. Gardner Leadership Award, and Diana Nambatya Nsubuga, recipient of the 2016 American Express NGen Leadership Award. Stevenson’s powerful messages inspired and resonated with the attendees:

  • “I don’t believe slavery ended in 1865, it just evolved.”
  • Whenever you allow yourself to be governed by fear and anger, you will tolerate inequality and oppression.
  • “If we do the uncomfortable things, we’ll find something on the other side of that.” We don’t create change when we only do what’s convenient and comfortable. Progress is never comfortable.
  • We need to change the narrative and be willing to talk about things we’ve been afraid to talk about.
  • You are beating the drum for justice. “We’ve got to be brave, brave, brave.”
  • Hopelessness is the enemy of justice. Hope will get you to speak, stand when others try to hold you down.
  • There is power in proximity. Too often we are trying to help suffering people from afar.
  • Beware of any romanticization of civil rights activism; it’s nothing like a “3-day carnival”.

Some final words from the Conference:

  • “America faces breathtaking opportunities disguised as unsolvable problems.” – Gardner
  • Make a career of humanity. Commit yourself to the noble struggle for equal rights.

Johnson Amendment: 501(c)(3) Prohibition on Political Campaign Intervention


The Johnson Amendment refers to the law codified in Section 501(c)(3) of the Internal Revenue Code prohibiting organizations exempt from taxes under 501(c)(3) from participating in any political campaign on behalf of (or in opposition to) any candidate for elective public office. Churches & Political Activity: The Call to Repeal the Johnson Amendment, an article written by our senior counsel Erin Bradrick, was published by The Nonprofit Quarterly yesterday.

The most significant call for repealing the Johnson Amendment is from the Republican Party in its official 2016 Platform:

We value the right of America’s churches, pastors, and religious leaders to preach and speak freely according to their faith. Republicans believe the federal government, specifically the IRS, is constitutionally prohibited from policing or censoring the speech of America’s churches, pastors, and religious leaders. We support repeal of the Johnson Amendment, which restricted First Amendment freedoms of all nonprofit organizations by prohibiting political speech.

Additional Resources:

Know the law: Avoid political campaign intervention (IRS)

The Rules of The Game: A Guide to Election-Related Activities for 501(c)(3) Organizations (Alliance for Justice)

Republican Platform Calls for Repeal of Ban on Political Organizing by Churches (TIME)


Gene Takagi Awarded 2016 Outstanding Nonprofit Lawyer Award from ABA


The American Bar Association Nonprofit Organizations Committee of the Business Law Section has announced the 2016 Outstanding Nonprofit Lawyer Award recipients.  NEO Law Group is very proud to share that Gene was awarded the Outstanding Lawyer Award for distinguished service as outside counsel to nonprofit organizations.  In announcing the award, the ABA stated:

After several decades of successful career ventures in various fields, Gene Takagi founded NEO Law Group, based in San Francisco, ten years ago to serve the legal needs of the nonprofit sector. NEO Law Group provides general corporate, charitable-trust, governance, and income-tax counsel exclusively to nonprofits and exempt organizations.

He has provided expert legal counsel and thoughtful advice to hundreds of nonprofit organizations throughout California and the country. Gene repeatedly exhibits professionalism, dedication, and thoughtfulness in his approach to each and every client, regardless of the scope of the matter or the size of the organization. He has intentionally structured his practice to make his services available to even the smallest of organizations, which may otherwise be unable to afford or access legal counsel, while simultaneously serving organizations with annual revenues in the tens of millions of dollars.

Gene approaches his role as legal counsel from the perspective of an educator and uses every opportunity to empower his clients by providing information and useful tools. He is particularly well known in the sector as the contributing publisher of the Nonprofit Law Blog and as a regular contributor to Tony Martignetti Nonprofit Radio.


The other 2016 Outstanding Nonprofit Lawyer Award recipients included:

  • Thomas A. Troyer, Vanguard Award
  • Judith Andrews, Outstanding Lawyer Award
  • Sherry Hibbert, Outstanding In-House Counsel Award
  • Brandon Dickerson, Outstanding Young Lawyer Award

Congratulations to each of the recipients of this prestigious award!


Nonprofit Radio: New Overtime Rules – Temporarily Stopped (11/22/16 update)


I’ll be on Nonprofit Radio this Friday at 10:30 am PT / 1:30 pm ET discussing the new overtime rules and their impact on nonprofits with host Tony Martignetti. Catch us live on Talking Alternative or a few days later on iTunes.

The Department of Labor’s final overtime rule updates the salary level required for the executive, administrative, and professional (“white collar”) exemption to ensure that the Fair Labor Standards Act’s (FLSA) intended overtime protections are fully implemented, and it provides greater clarity for white collar workers and their employers, including non-profit organizations. The final rule will also lead to better work-life balance for many workers, and it can benefit employers by increasing productivity and reducing turnover. – U.S. Department of Labor

Important Update (11/22/16)

A federal district judge issued a preliminary injunction temporarily stopping the implementation and enforcement of the new overtime rules we discussed that were slated to take effect on December 1, 2016. Whether the preliminary injunction turns into a permanent injunction is still unknown. Read more about the preliminary injunction here (National Council of Nonprofits).


The FLSA requires that most employees in the United States be paid at least the federal minimum wage (currently, $7.25) for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

A common set of exemptions from the overtime rule, referred to as the white-collar exemptions, applies to employees employed as executive, administrative, or professional (EAP) employees*, generally only if (1) they are paid on a salary, not hourly, basis (the salary basis test); (2) their duties primarily involve executive, administrative, or professional duties as defined by the Labor Department regulations (the duties test); and (3) their salary meets the minimum threshold (salary level test). Note, however, that the minimum salary threshold does not apply to teachers, lawyers, or doctors.

There is another exemption from the minimum wage and overtime rules for highly compensated employees* if their total annual compensation meets or exceeds the minimum threshold.

* As of the posting date, these links do not have updated thresholds resulting from the new rules described below.

New Overtime Rules

Updated Thresholds:

Most employees earning a salary of less than $47,476 per year ($913 per week) will be entitled to overtime compensation. This approximately doubles the previous threshold of $23,660 (unchanged since 2004), effectively requiring employers to pay overtime for most salaried employees receiving between $23,660 and $47,476 per year, which they were previously not required to do under the FLSA. Further, the threshold will be automatically be updated every three years, starting on January 1, 2020. Note that the salary level does not include payments for medical, disability, or life insurance, or contributions to retirement plans or other fringe benefits. Nondiscretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10 percent of the standard salary test requirement so long as such payments are paid on a quarterly or more frequent basis.

The highly compensated employee minimum compensation threshold is now $134,004 (previously, $100,000).

Effective Date:

December 1, 2016

What Employees (and Nonprofits) are Covered by the New Rule:

The overtime rules generally apply to employees covered by the FLSA. These include:

  • Employees of organizations considered a “covered enterprise” – generally organizations that engage in ordinary commercial activities that result in sales made or business done that of at least $500,000. Most charitable nonprofits that do not engage in ordinary commercial activities will not be subject to the new overtime rules except employees of the following named enterprises: hospitals; institutions primarily engaged in the care of older adults and people with disabilities who reside on the premises; schools for children who are mentally or physically disabled or gifted; federal, state, and local governments; and preschools, elementary and secondary schools, and institutions of higher education. Note that the term ordinary commercial activities is similar to, but not synonymous with, the term unrelated business activities (as such term is used for purposes of determining unrelated business income tax liability).
  • Employees who engage in interstate commerce (including through the phone or the internet) or in the production of goods for interstate commerce and employees whose work involves or relates to the movement of persons or things (including donated items) across state lines.
  • Employees who are covered by operation of specific state laws. According to the National Council of Nonprofits: “In at least 11 states [or jurisdictions], the changes to the federal rules will automatically apply to virtually all employees and employers.”

See the excellent flowchart on National Council of Nonprofits site: Is Our Nonprofit Organization Covered by the FLSA?

What Nonprofit Employers Can Do:

According to the Department of Labor:

Non-profit organizations may ensure compliance for those employees affected by the Final Rule in a number of ways, including providing pay raises that increase workers’ salaries to the new threshold, spreading employment by reducing or eliminating work hours of individual employees working over 40 hours per week for which no overtime is being paid, or paying overtime.


In 2014, President Obama directed the Department of Labor to update its regulations regarding minimum wage and overtime standards to ensure “workers are paid a fair day’s pay for a hard day’s work.” The new $47,476 threshold represents the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (the South). According to the Department of Labor Q&A site:

The Department has concluded that the standard salary level of $455 weekly ($23,660 annually for a full-year employee) set in 2004 was too low to adequately account for the elimination of the former “long” duties test that ensured that employers could not avoid paying overtime by assigning lower-paid employees a minimal amount of exempt work. Furthermore, the real value of the salary level has fallen significantly since it was set 12 years ago. Today, the annualized equivalent of the standard salary level is below the 2015 poverty threshold for a family of four, making it inconsistent with Congress’ intent to exempt only “bona fide” EAP workers, who typically earn salaries well above those of workers they supervise and presumably enjoy other privileges of employment such as above average fringe benefits, greater job security, and better opportunities for advancement.


The Department considered several alternatives for setting the standard salary level to determine which method would work most effectively with the current duties test to effectively distinguish between overtime-eligible white collar employees and those who are bona fide EAP employees. Because the Department decided not to revise the current standard duties test, it set a salary threshold at a level reflective of employees who historically have received overtime protections from those who have not. Specifically, because the current standard duties test is substantially similar to the former “short” duties test, which before 2004 had been associated with a higher salary threshold, the Department looked at the historical ratios between the short and long test salary levels in order to assure that we restored the historical relationship between having a less rigorous duties test and an appropriately high salary threshold. The Department set the standard salary level at the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage Census Region (currently the South), because it was at the low end of the historical range of short test salary ratios and would be appropriate across all areas and industries. The new salary amount will be $913 per week (which is $47,476 annually for a full-year worker) when this Final Rule takes effect on December 1, 2016.

Reaction from the Nonprofit Community

According to The Nonprofit Quarterly:

Among the more than 270,000 comments the DOL received to the proposed rule were many voices speaking for the nonprofit community, and they seemed to see only the negative impact on their operations; mission seemed to take a backseat to the difficulty of meeting a higher standard. Rick Cohen’s “brief review of one third of the posted comments found there was not one positive comment from a nonprofit.” The comments he saw predicted dire outcomes, staff reductions, service cuts, and even agency closings. No one seemed to see the increased pay for those earning low salaries as an important benefit to be supported. – Nonprofit Reactions to New Overtime Rules Run the Gamut

Independent Sector commented:

While IS believes that employees should be paid a living wage and similarly supports an increase in the salary threshold for eligibility to receive overtime compensation, there are many concerns that IS and others in the nonprofit sector have regarding this rule. As expressed in the submitted comments, IS is troubled by the agency’s lack of engagement with nonprofit organizations in developing its proposed new overtime rule, and urged four specific revisions to the plan before it is implemented: moving to a phased-in implementation; revising the terms of federal grants and contracts with nonprofit organizations; allowing for regional market differences to the proposed salary threshold; and implementing an open process for any changes to the duties tests.

Resources (updated 7/6/16)

Overtime Regulations and the Impact on Nonprofits (National Council of Nonprofits)

Breaking down your nonprofit’s obligation to pay overtime under the new federal rules (National Council of Nonprofits)

Overtime Final Rule and the Non-Profit Sector (Department of Labor)

Guidance for Non-Profit Organizations on Paying Overtime under the Fair Labor Standards Act (Department of Labor)

Overtime Rules for Nonprofits – videos (Independent Sector)

New overtime rules for nonprofits: what’s different about California? (CalNonprofits)

What’s different in California: Although the federal threshold for exempt status has been $23,660, in California the threshold for exempt status is set as twice minimum wage. So with the current minimum wage of $10/hour, the minimum for exempt status is $41,600/year, and as of January 1, 2017 when the minimum wage goes up to $10.50/hour, the minimum salary for exempt employees will be $43,680/year. So the gap between the old and new thresholds is narrower in California.

New Report: The Nonprofit Overtime Implementation Conundrum (National Council of Nonprofits)

Nonprofits Already Subsidizing Governments: The National Survey confirmed that seven out of eight nonprofits with government grants and contracts currently subsidize governments by providing services for which they are not fully compensated. Only 13 percent expressed the view that government grants contracts pay the full cost of the services provided on behalf of governments.


California’s Dangerous Nonprofit Warning Label Bill – AB 2855 – Will Not Advance

Jubilant people

5/28/16 Update: Costly bill that would have required charities in California to post a “warning label” on their websites and fundraising documents was held in committee and will not advance.

AB 2855 was a dangerous bill that threatened nonprofits raising funds in California and reflected the lack of understanding of its author/sponsor, California Assemblymember Jim Frazier (D –Oakley), of the nonprofit sector’s work, influence, and scope. Had this bill passed, it would have ranked among the worst laws in the country in its characterization and treatment of nonprofits. The bill was considered by the Assembly’s Appropriations Committee on May 11. Thanks to the strong advocacy efforts of over 700 nonprofits led by CalNonprofits and to members of the Appropriations Committee and its Chair Lorena Gonzalez (D-San Diego), AB 2855 was held in committee on May 27 and will not advance.

For more information about the dangers of bills like AB 2855, read our Senior Counsel Erin Bradrick‘s article The Ongoing Overhead Myth and the Dangers of Overly Zealous State Legislators in The Nonprofit Quarterly (4/14/16).

Our original analysis of AB 2855 (before it was shelved)

Background of the Bill – Mandated Overhead Disclosures

AB 2855 originally was drafted to require charities operating or engaging in charitable solicitations in California to post their administrative overhead expenses or a link to such information on each and every one of their web pages and on the first page of each and every fundraising document.

Requirements of the ‘Warning Label’ Bill

Likely because of Constitutional issues related to compelling such speech, AB 2855 was amended to delete the overhead disclosure requirement and replace it with a requirement for charities to include what CalNonprofits terms a warning label, more specifically:

  1. a required prominent link on charities’ websites to “the Attorney General’s Internet Web site which contains information about consumer rights and protections and charity research resources”; and
  2. the Web site address of such Attorney General’s Internet Web site on all charities’ fundraising documents (including old ones) used to solicit in California.

AB 2855 would require hundreds of thousands of charities operating or engaging in charitable solicitations in California (regardless of what state in which they are based) to put a link to a California Attorney General website with unknown content that would also be freely available to the public without such link. And it would require those charities to put the Attorney General website address on tens of millions of fundraising documents that are distributed within California.

First Amendment Issues

A general principle of the First Amendment requires a court to review any government regulation of the content of a person’s or organization’s speech with strict scrutiny. Generally, this involves asking two questions:

  1. Does the regulation further a compelling governmental interest?
  2. Are the means used narrowly tailored to accomplish that governmental interest?

The government’s interest, according to the Legislative Analysis, is “to give consumers more information about how to research a charity before making a gift ….” The additional substantive information would be required of, and provided by, the Office of the Attorney General. Such information would be accessible to the general public without requiring charities to add any information to their communications. But advocates of the bill appear to be making an argument that giving consumers an easier time to find such information on a government web address is the compelling government interest requiring the consumer protection ‘warning label’ on what would amount to tens of millions of documents.

Requiring hundreds of thousands of charities fundraising in California to include such website addresses and links on all of their websites and fundraising documents will require much work. It’s difficult to see how proponents of the bill will claim that the bill is narrowly tailored particularly in relation to the rather narrow goal of making information on the Attorney General’s website easier for the general public to find. It would be the first law of such nature governing charities in the country and a strong signal of the state government’s distrust of the charitable sector based on a minuscule fraction of charities involved in scandals picked up by the media. It essentially would put charities in the same category as tobacco companies that are required to put a warning label on their products. And it would undermine the incredibly valuable work of the charitable sector, the sector most trusted by the public.

The U.S. Supreme Court dealt with content-based regulation of speech in a charitable solicitation context in Riley v. National Federation of the Blind, 487 U.S. 781 (1988). In Riley, the Court held that the North Carolina Charitable Solicitations Act was unconstitutional content-based regulation of speech. Members of the Assembly Committee should be fully aware of this case and how the Supreme Court protects free speech before voting on compelling the speech of nonprofits in the manner described by AB 2855.

Imagine if all states had the same requirements. Every charity raising funds in all states would have 50 links to include on their website and on all of their national fundraising documents.


See CalNonprofits letter to Assemblymember Lorena Gonzalez, Chair, Appropriations Committee:

The impact of AB 2855 – and thus any effort to ensure compliance with its requirements – would be far-reaching. AB 2855 would require every charity to include what feels to nonprofits like a “warning label” on their website in a “prominent” location and also requires nearly every document they produce to direct donors and others to the state’s top law enforcement’s website. Mandating content in the ways proposed by AB 2855 would be expensive and burdensome, and would detrimentally interfere with nonprofits’ ability to communicate with their constituents and the public. AB 2855 arguably compels speech in an unconstitutional manner by dictating specific content to be included on nonprofit websites and documents and seems ripe for challenge on this basis.

See CalNonprofits revised letter to the Honorable Ed Chau, Chair, Assembly Privacy and Consumer Protection Committee:

The AG’s office is already communicating this information to the public – their web site is the first listing in a Google search for “California charities.” Burdening nonprofits in and beyond California with required speech on “any document” which seeks donor support to simply advertise what the public can easily find is unnecessarily punitive without serving any compelling public interest. Imagine all the “documents” that non-profit organizations create to solicit funds to support their mission-based work: signs on coin collection jars, private letters to individual donors, billboards and other large-scale outdoor advertisements, flyers posted in laundromats, neighborhood association newsletters, to name just a few. And AB 2855’s provisions would apply to any charity – regardless of where they are based – that solicits donations from Californians. So, every inbound piece of mail from any charity in the world would have to include this unnecessary disclosure. The additional cost of including this provision on “any document” would be extraordinary.

Also see the Opinion piece by Tim Delaney, chief executive of the National Council of Nonprofits, in The Chronicle of Philanthropy:

The bill, as amended late last week, would force every nonprofit in the country that seeks funds in California to put a link on its home page – plus a disclosure on all other solicitation materials directing potential supporters to  the California Attorney General’s Office.  That office is instructed to provide “information about charities, informational materials containing consumer rights and protections and charity research resources to allow donors to become informed about a charity before making a decision to give.” Such legislative  language puts nonprofits at the mercy of an elected partisan’s changing views on what’s “appropriate” on such things as overhead, compensation, and advocacy – as well as which charitable causes are worthy. It probably will prompt copycat legislation in other states, transforming nonprofit website homepages into huge advertisements for the offices of state charity regulators, rather than the mission of the actual nonprofit.

Burdens and Costs to the State Government

AB 2855 will create substantial burdens for the State’s Office of the Attorney General in developing a website with appropriate information on how to research a charity (a very complex matter approached in myriad ways by grantmakers), developing regulations related to the law (including determining the minimum contacts required to fall within AB 2855 – e.g., a “donate” button on a passive website clicked by 5 California residents?), educating the public about the law and its associated regulations, re-designing registration and registration renewal forms, enforcing the law in audits, defending litigation on the constitutionality of the law (which would be expected in light of the almost universal opposition by the nonprofit sector).

You can access the May 11, 2016 Bill Analysis for the Appropriations Committee (which includes the comment “unduly onerous”) here.


Multistate Registration and Filing Portal

Register text on keyboard button

Currently, 39 states and the District of Columbia each require some form of periodic charity registration, which creates a substantial administrative and filing burden for organizations fundraising in multiple jurisdictions. 36 states and DC will accept the Uniform Registration Statement (URS), but that still requires an organization to file the URS with each state’s charity official (typically the Attorney General) and, in 13 jurisdictions, specific supplemental forms.

The Multistate Registration and Filing Portal, Inc. (MRFP), the National Association of State Charities Officials, and the National Association of Attorneys General started development of a Multistate Registration and Filing Portal,  to make it easier for nonprofits to register in multiple jurisdictions using a one-stop online portal. According to the Portal’s website:

The portal will maximize efficiency, data transparency, and information sharing by enabling compliance with registration requirements for all participating states without duplication of data entry. It will make the collected data available to the public in a searchable and interactive format. Academics, policy makers and the public will be able to conduct their own inquiries or download data in machine-readable format. Multistate registrants will realize reduced administrative costs and inefficiencies in complying with 39 states’ different registration requirements, allowing more resources to be devoted to charitable mission. Single state filers will avoid the inconvenience and uncertainty of paper filings. Registration service providers will be able to electronically transmit data for multiple clients. State filing fees will be collected and disbursed to states through the Single Portal.


We intend that the system will enable population of data fields from electronically filed Forms 990, thus avoiding further reentry of data. The system will enable regulators to combine 990 data with state registration data. Analytics will enable regulators to better understand charitable resources and solicitations, to better focus law enforcement and fraud prevention resources, and enable better policy making for protection of charitable resources. Electronic filing will allow states to direct limited resources from processing paper to our core regulatory responsibilities of preventing fraud and abuse of charitable funds and solicitations.

On February 17, 2016, MRFP posted a Request for Information (RFI) to invite input and proposals for development of the Portal. The RFI will remain open until April 1, 2016. To allow for additional feedback, MRFP is hosting a conference call on March 15, 2016 open to the public.

5 Likely Implications

  1. Easier registration process for charities with online capacity.
  2. Greater enforcement of registration, including use of penalties and sanctions for noncompliant organizations, in all states in which an organization engages in more than minimal fundraising.
  3. More clarity about the thresholds triggering registration requirements in states other than the charity’s state of formation.
  4. Growth of charity ratings services and the sophistication of their methodologies.
  5. Improved use of data and analytics by charities.

Additional Resources

New developments in the Single Portal Multi-State Charitable Registration project (National Council of Nonprofits, 1/20/16)


Nonprofit Radio: Wounded Warrior Project and Overhead

Budget Concept

I’ll be on Nonprofit Radio this Friday at 10:30 am PT / 1:30 pm ET discussing the Wounded Warrior Project controversy and overhead with host Tony Martignetti. Catch us live on Talking Alternative or a few days later on iTunes.

I’ve previously expressed my views on the overhead myth here and talked with Tony about good overhead and bad overhead. But the criticism of Wounded Warrior Project goes beyond a single statistic. I look forward to my discussion with Tony to see if we can share some insights about this case and on reviewing a charity’s activities.


Wounded Warrior Project accused of wasting donation money (CBS News, 1/26)

[A]ccording to public records reported by “Charity Navigator,” the Wounded Warrior Project spends 60 percent on vets.


According to the charity’s tax forms, spending on conferences and meetings went from $1.7 million in 2010, to $26 million in 2014. That’s about the same amount the group spends on combat stress recovery — its top program.

Ex-employee: Wounded Warrior Project conduct “makes me sick” (CBS News, 1/27)

CBS News has interviewed more than three dozen former employees of the Wounded Warrior Project and nearly all of them told us they’re concerned that the organization has become more focused on raising money than on serving wounded veterans.

Charity watchdogs question Wounded Warrior’s spending on vets (CBS News, 1/27)

“I couldn’t tell the number of people that were assisted. I thought that was truly unusual. If the organization is asking for money and purportedly spending money to assist veterans, and talking about it, I would like to know,” said Owens.

Letter from Wounded Warrior Project to CBS (1/27)

Based on our most recent independently audited financial statements, 80.6% of total expenditures went to provide programs and services for wounded service members, their caregivers, and families.

Wounded Warrior Project on Charity Navigator’s watch list (CBS News, 1/30)

But CharityWatch president and founder Daniel Borochoff said his biggest concern is the group is sitting on a $248 million surplus — and that not enough of it is being spent on veterans.

Wounded Warrior Project Spends Lavishly on Itself, Insiders Say (New York Times, 1/27)

About 40 percent of the organization’s donations in 2014 were spent on its overhead, or about $124 million, according to the charity-rating group Charity Navigator.

Wounded Warrior Project Investigation: What CBS News Got Wrong (Nonprofit Pro, 1/28)

Then there’s the issue of the $26 million Wounded Warrior Project spent on conferences and meetings. That figure is almost indefensible if all of it went toward staff-only team-building events and office parties, but the charity lists $24.4 million of it as a program expense, $491,000 as a management expense and $1.2 million as a fundraising expense.


That could be a crafty way for Wounded Warrior Project to skirt the system in an attempt to inflate its program numbers, or it could be that some number of these events involved veterans. (Or, it could be both.)

Wounded Warrior Project: The Fundraising Factory Issue (Nonprofit Quarterly, 2/1)

This focus on expanding the fundraising base among individuals would, in fact, require capital well above what most organizations would spend, since acquiring new donors at a fast pace is an expensive endeavor, so there is a different “model” at play here—a donor acquisition and growth model or a “fundraising factory” -but the fact that it appears to be funded by current donors without an acknowledgement of that is a very big problem. We also have no sense of when and if there will be a “big enough” moment at which time we might expect a smaller fundraising cost.

What Forms 990 Can and Can’t Tell Us About Wounded Warrior Project (Guidestar, 2/3)

[T]he 990 has little to say about the allegations that have been made by CBS and by the New York Times.  But it does indicate an organization that has grown very quickly, and one that could be more transparent about its operations on its Form 990.

Wounded Warrior Project Response to False News Reports

Wounded Warrior Project provides more than 20 needs-specific, free programs and services to more than 83,000 wounded veterans, who we call Alumni, and more than 15,000 family support members. We are constantly expanding our services to better support warriors.

Wounded Warrior Project Form 990 (for fiscal year ending 9/30/14)

  • The mission of the Wounded Warrior Project is to honor and empower wounded warriors.
  • Number of voting members of the governing body: 10 (all independent)
  • Total revenues: $342,066,114
  • Total expenses: $248,005,439
  • Total expenses of the three largest program services (by expenses): $81,892,441 (33% of total expenses)
  • Total program services expenses: $189,558,100 (76% of total expenses), including $40,916,885 in joint costs from a combined educational campaign and fundraising solicitation
  • Total fundraising expenses: $43,441,173
  • Net assets: $248,285,483
  • Principal officer: Steven Nardizzi

Additional Resources

(updated 3/12/16)

Myths, Misconceptions, and Mistakes: The Wounded Warrior Project (GuideStar Blog)

Wounded Warrior Project execs fired (CBS News, 3/10)

After Complaints on Wounded Warrior Project, Pressure From Donors (New York Times, 3/11)


Nonprofit Radio: IRA Charitable Rollover

nonprofit radio


I’ll be on the first Nonprofit Radio program of 2016 on Friday, January 8, at 10:30 am PT / 1:30 pm ET discussing the IRA Charitable Rollover with host Tony Martignetti. Catch us live on Talking Alternative or a few days later on iTunes.


Until the PATH Act was signed into law at the end of 2015, the last day an individual could make a qualified charitable donation from an IRA was December 31, 2014. The PATH Act permanently extended this charitable giving incentive, which was first temporarily established under the Pension Protection Act of 2006 and renewed annually thereafter through the end of 2014. By making the incentive, among certain other temporary breaks (tax extenders), permanent, Congress must now factor it into the budget and stop using it as a point of political negotiation.

What is the IRA Charitable Rollover?

The IRA Charitable Rollover provision allows individuals aged 70½ and older to donate up to $100,000 from their traditional or Roth IRAs to eligible public charities without having to count such qualified charitable distributions as taxable income. Distributions from traditional IRAs, which are required starting at age 70½, are otherwise typically included in the individual’s adjusted gross income (AGI) and subject to income tax.

Because the qualified charitable distributions aren’t counted in an individual’s AGI, the individual cannot claim an itemized charitable deduction for them. But the IRA Charitable Rollover, unlike the charitable contribution deduction, is available to taxpayers, regardless of whether they itemize their deductions.

A Tax-Efficient Way of Giving

If a taxpayer wants to make a charitable contribution and can do it through a donation of cash or through the IRA Charitable Rollover, it will be advantageous to do it through the IRA Charitable Rollover.

  • A charitable contribution deduction is only available to taxpayers that itemizes their deductions; the IRA Charitable Rollover is available to taxpayers regardless of whether they itemize their deductions.
  • The charitable contribution deduction is subject to certain limitations based on the taxpayer’s AGI; the IRA Charitable Rollover is not.
  • The IRA Charitable Rollover counts as part of a taxpayer’s minimum required distributions and doesn’t increase the taxpayer’s taxable income or AGI (which has other benefits, including more favorable tax treatment of Social Security benefits and lower Medicare Part B & C premiums).
  • In certain states, it is not possible to take a charitable contribution deduction for state income tax purposes, but states generally adopt the federal definition of gross income.

Senate Finance Committee Working Group Report (July 7, 2015)

“The now-expired rules allowing taxpayers to exclude qualified charitable distributions from gross income have the salutary effects of encouraging and facilitating charitable giving. The rules accomplish this by allowing an IRA owner to arrange for a distribution to be made directly from his or her IRA to a qualified charity and generally to exclude the amount of the distribution from the IRA owner’s gross income. As a result, a taxpayer who has accumulated more assets in an IRA than she will need to fund her retirement expenses need not arrange both for a distribution from the IRA to the IRA owner and a subsequent donation to charity.

The intended benefits of the provision may be diminished by extending the provision only on a temporary basis, particularly where the provision is enacted late in the year to which it applies. When the provision was last extended in December 2014 for calendar year 2014, for example, many IRA owners who otherwise might have benefited from the provision were not able to use it. Some taxpayers were unable to arrange an IRA distribution, because their financial institutions’ deadlines for requesting distributions for the 2014 calendar year already had passed. Others took required minimum distributions from their IRAs before the extension was enacted and were no longer in a position to arrange for further distributions. While the Working Group does not make specific recommendations, the Committee may wish to consider proposals for qualified charitable distribution rules that would increase certainty for taxpayers and increase the amount of funds that flow to charity.

While the exclusion for qualified charitable distributions provides a critical incentive for charitable giving, the Working Group is mindful of the importance of ensuring income security for retirees. Some might argue that the exclusion for qualified charitable distributions encourages IRA owners to redirect retirement savings to a non-retirement income security use (charitable giving) before they know the full extent of their income needs during retirement. Others, however, believe that the IRA owners most likely to take advantage of the income exclusion are well-advised taxpayers who have excess accumulations in an IRA or who would make many of the same charitable contributions even in the absence of the special exclusion.” – Read more here.

Urban Institute

“In 2008, the National Committee on Planned Giving (NCPG) conducted an informal survey asking charitable organizations to report qualified IRA distributions. Approximately 900 charities (mostly institutions of higher education) reported nearly 8,700 such distributions. Donations of less than $5,000 accounted for nearly 60 percent of all distributions, although they represented only 6 percent of the total dollar value reported. Donations in excess of $25,000 accounted for less than 20 percent of donations, but nearly 75 percent of the total dollar amount.” – Read more here.

Additional Resources (updated 3/28/16)

Popular IRS Charitable Tax Break Can Be Valuable—for Those Who Know How to Use It (Wall Street Journal, 3/27/16)


10 Predictions for the Nonprofit Sector in 2016 and Beyond

fortune teller forecasting 2016 new year it's coming soon,

Below are some of my predictions of events and trends that will impact the nonprofit sector in 2016 and beyond. Last year, while noting that good prognosticators have to go beyond stating obvious trends, I made only one prediction: “Nonprofits will increasingly recognize the importance of understanding and responding to the for-profit social enterprise movement.” And over the year, nonprofits certainly took note of such events as the announcement of the Chan Zuckerberg Initiative LLC, the non-charity vehicle for Priscilla Chan’s and Mark Zuckerberg’s $45 billion social good pledge, and the continuing emergence of the benefit corporation, a taxable “hybrid” entity bearing characteristics of both a traditional and nonprofit corporation. This year, I’ve made a few more predictions, mostly reiterating or reworking those of others who study these things.

1. Country Divided Over Issues Exacerbated by Terrorism

I hesitated to lead off with a prediction of bad news, but terrorism is growing exponentially as a critically important issue many nonprofits will need to factor into their planning. Beyond the direct physical harm caused by such acts, there will be continuing conflicts between those who demand social justice and those who demand laws that they believe will create greater security even at the expense of equitable treatment and the Constitution. The far right will continue growing stronger as it advances a campaign based on public fears of extremist Islamic terrorists, despite the fact that most terrorist acts are associated with domestic far right extremists.

2. Black Lives Matter

This social movement will rapidly grow and exhibit its political strength. Racial justice, particularly involving Black Americans, is an all-too-obvious problem, and citizens, especially those who are younger and/or belong to minority groups that have traditionally neglected their voting responsibilities, will step up and influence elections based on this simple, yet terribly complex, issue.

3. Gun Control

President Obama will use his executive powers to create stronger gun-control regulations focused on licensing requirements and background checks. Nevertheless, gun violence will continue to be a critical public health crisis for the country with over 100,000 victims a year.

4. Extreme Weather

A very warm El Niño, a strong Arctic Oscillation, and the continuing consequences of human-caused climate change will continue to produce some extreme weather conditions. Climate-related disasters will become more frequent occurrences. And cities (and their residents) that have not previously experienced such disasters will be very ill-prepared.

5. Greater State Regulation of Nonprofits

State regulators will be more assertive in enforcing registration requirements for charities and professional fundraisers. This will be a consequence of increasing media coverage of scandals in the nonprofit sector, decreasing enforcement by a seriously weakened Internal Revenue Service, and diminishing public confidence in the sector (even though it will continue to be by far the most trusted of the three sectors). Some states will attempt to clear their rolls by revoking the right of charities to operate within their jurisdictions for failure to register and threatening board members with potential liability. Unfortunately, this will disproportionately impact smaller, volunteer-run charities that provide services to neglected segments of our population.

6. Increased Push for Federal Regulation of Nonprofit Activities

While the budget cutbacks have greatly harmed the Internal Revenue Service’s ability to enforce existing federal laws applicable to nonprofits, there will be a greater push for more laws and regulations to address problems in the sector. Dark money utilizing 501(c)(4) and 501(c)(6) organizations to support and/or oppose political candidates will continue to be exposed as a horrible problem for the country, and there will be a stronger push for reforms throughout the election season. The Bright Lines movement to make clearer guidance for nonprofit political activities will gain political and popular support. But reforms, which will eventually be made, will not be seen until after the election. Donor-advised fund regulations will again be deferred, but the push for a minimum distribution requirement will strengthen and may be inevitable. The move to tax colleges on their enormous endowments will also continue to gain popularity (but will ultimately fail).

7. Rise of Nonexempt (for-profit) Social Enterprises

The Chan Zuckerberg Initiative LLC received much of the attention last year as a nonexempt alternative to a private foundation or donor-advised fund for social good giving. While it isn’t the first example of this nontraditional form of giving, it may mark the moment where the definition of “philanthropy” started to expand to include giving through nonexempt vehicles not subject to the laws of 501(c)(3). Benefit corporation legislation will continue to be passed by some of the 19 remaining states that have yet to adopt such corporate form (eventually, it will be adopted in all states). Mission-related investments and program-related investments (PRIs) by private foundations in for-profit entities will rise markedly as recognition that such investments may, under certain circumstances, be more effective and efficient than grants to nonprofits in creating the desired social change.

8. Collaborative Management Practices

More examples of collaborative management practices, like holacracy, will continue to be tested and implemented, including in nonprofits, with varying degrees of success.

9. U.S. Presidential Election

Hillary Clinton will be elected as President over Paul Ryan, the Republican candidate emerging from a brokered Republican convention.

10. Academy Awards

Spotlight, a movie about the media’s exposure of the greatest nonprofit scandal in our country’s history, will win “Best Picture” at the 88th Academy Awards.