It’s scary when bad laws are passed in reaction to nonprofit scandals. Lawmakers too often react to the bad actors when drafting law instead of taking a proactive approach to strengthen the ability of the vast majority of honest, well-intentioned nonprofits to advance their charitable missions more effectively and efficiently. And lawmakers sometimes have their own agendas in seeking changes that attract media attention and knee-jerk public support. While everybody would like to stop fraud in the nonprofit sector, there typically are no studies made on how proposed laws that might help stop fraud perpetrated by a tiny minority of nonprofits will adversely impact the rest of the sector. So, laws can be passed that might prevent 0.01 percent of bad actors from defrauding the public at a huge cost to 99.99 percent of nonprofits, the great majority of which are led by trustworthy individuals often working at below market pay doing their best to make effective use of their charitable resources.
Among some of the scares we discussed on the show:
- A major donor gets her or his charitable contribution deduction denied (with no chance to fix it later) because the donation receipt didn’t contain all the required items. See Two Recent Tax Court Rulings on Charitable Contribution Deductions That Charities Should Be Aware Of (Lisa Runquist, Exempt Organizations Blog).
- Board member personal liability for the nonprofit operating while suspended (without knowing about the suspension) because it failed to file a single required state form. See Proposed Regulations Threaten California Nonprofits.
- The right of the state Attorney General to compel a nonprofit to give away all of its assets to another nonprofit because it operated while suspended. See Proposed Regulations Threaten California Nonprofits.
- Conflict of interest disclosures required of city officials being required of compensated nonprofit officers (no matter how modest the compensation rates) [not yet passed into law]. See Conflict of interest bill receives hearing (Times Ledger); Queens Library Scandal Spurs Nonprofit Oversight Bill (Gotham Gazette).