Top 10Here are our top 10 events of 2011 affecting the nonprofit sector (listed in chronological order):

  1. The Arab Spring
  2. NPR fundraising scandal
  3. The Great East Japan Earthquake
  4. 275,000 organizations lose tax-exempt status
  5. Mortensen and the ‘Three Cups of Tea’ scandal 
  6. 501(c)(4) gift tax examinations halted
  7. Occupy Wall Street
  8. Steve Jobs dies 
  9. Corporate Flexibility Act of 2011 signed into law in California
  10. Super committee and the charitable deduction 

1. The Arab Spring – 2011 kicked off with eyes and ears across the nation focused on a series of grassroots uprisings and demonstrations that were occurring across the Middle East in what is now referred to as the Arab Spring. As the new year began, a revolution continued from late 2010 in the streets of Tunisia after a young fruit seller, Mohamed Bouazizi, set himself ablaze in front of the provincial headquarters in an individual act of anti-government protest and we watched as Tunisian protesters successfully overthrew the government and forced then-President Zine el Abidine Ben Ali to flee into exile. In January, we also witnessed Egyptian protesters organize a day of revolt in Tahir Square that lasted for 18 days until former President Hosni Mubarak stepped down from power. Uprisings in Libya soon followed in February and by the end of August, Libyan protesters had overthrown the government and ousted then-dictator Moammar Gadhafi who was later killed by transition forces in late October. Other demonstrations occurred in nearby countries such as Syria and Yemen and the Arab Spring has been credited with inspiring anti-government movements throughout the world, including the U.S. Occupy Wall Street movement. These events have amplified an ongoing conversation about the evolving role of social media in revolution and social change, not only in reporting but also organizing large-scale demonstrations, as well as raised discussions about the role of philanthropy in these areas and during these times of transition. What we witnessed throughout 2011 with the Arab Spring has been nothing short of a powerful and emotional showing of grassroots democracy.

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2. NPR fundraising scandal – On March 8, National Public Radio (NPR) found itself in the middle of a fundraising scandal after a secretly taped video was released of then-Senior Vice President for Development Ron Schiller making inappropriate comments during a meeting with people disguised as prospective donors. Ron Schiller resigned within hours after the scandal broke and then-Chief Executive Officer Vivian Schiller (no relation) submitted her resignation to the NPR Board of Directors by the end of the same day. This story spread quickly in part because NPR, which reaches 26.8 million listeners each week, is a highly respected organization by many groups and Ron Schiller’s behavior on the video was in such contrast to the practices and values that would be expected of NPR and its senior managers. It also came at a particularly sensitive time for NPR, following on the heels of a negative backlash stemming from the firing of Juan Williams, then-NPR senior news analyst, for certain comments made as an analyst and commentator for Fox News and in the midst of Congressional battles after the U.S. House had approved a proposed $50 million cut in public broadcasting funding. Public concerns about NPR’s practices were only exacerbated by a subsequent release of another secretly recorded conversation, this time with Betsy Liley, NPR’s director of institutional giving, about shielding a donor group from a government audit. The NPR controversy spurred many sector-level conversations about the jeopardy of federal funding for public broadcasting and also underscored many lessons to be learned regarding fundraising tactics and the importance of succession planning in preparing for unexpected absences of leadership. 

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3. The Great East Japan Earthquake – On March 11, Japan experienced a 9.0 magnitude earthquake, the most powerful earthquake in Japan’s recorded history, which also caused a devastating tsunami along Japan’s coastline. The earthquake and tsunami caused widespread damage including explosions at three nuclear plants in Japan and resulted in 15,844 deaths, 5,890 injured persons, and 3,451 missing persons, according to the National Police Agency of Japan (current as of December 2011). It was estimated by The Chronicle of Philanthropy that $246.9 million was raised from donors in the United States in the first month following the disaster. What many hoped for in this situation was the benefit of hindsight and lessons learned from previous disaster relief efforts such as the Haitian earthquake relief efforts last year that generated tremendous criticism. Effective disaster relief can be difficult, particularly when it takes place abroad, and educating donors to give the right things to the right organizations is critical especially given the current technological age where we are instantly inundated with requests from a myriad organizations and individuals to help through social media posts, cell phone text messages, and online donations. Understandably, there will be more lessons learned from these relief efforts and as the efforts in Japan continue, it is an opportunity for both individuals and organizations to regularly evaluate how to give more effectively in such situations.

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4. 275,000 organizations lose tax-exempt status – On June 8, the IRS announced that approximately 275,000 organizations (which accounted for 16 percent of nonprofit organizations nationwide) had automatically lost their exempt status for failing to file their legally required annual information return (Form 990, 990-N, or 990-EZ) with the IRS for three consecutive years, a requirement under the Pension Protection Act of 2006 (PPA). The sheer number of organizations that lost their exempt status was a jarring reality check to the sector. It highlighted a widespread deficit in the capacity of many organizations to meet their legal filing requirements. Despite the fact the PPA requirements had been in effect since 2007 and the IRS’s big push to get organizations in compliance before the applicable deadlines, many organizations that had their status revoked were simply not aware of the requirements. Now, such organizations must jump through administrative hoops to get back their exempt status. Other organizations, however, are likely no longer in operation or are already on their way to shutting their doors. As the Urban Institute reported in “Revoked: A Snapshot of Organizations That Lost Their Tax-Exempt Status,” 64 percent of all organizations founded before 1950 had their exempt status revoked for failure to file. This suggests that many of these organizations may have not properly dissolved before closing their doors. Accordingly, this event should serve as a reminder to all nonprofit organizations to inquire about their periodic and final filing requirements.

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5. Mortensen and the ‘Three Cups of Tea’ Scandal – In April, a New York Times best-selling author, Greg Mortensen, and the nonprofit organization he founded, Central Asia Institute (CAI), were the center of a "60 Minutes" segment raising allegations such as private inurement to Mortensen from CAI in helping to fund Mortensen’s speaking engagements, fabricated stories in Mortensen’s best-selling book, and misleading representations by CAI about the use of its assets.  It was a cautionary tale for all nonprofits about the heightened scrutiny nonprofits are currently facing and the increasing importance of the publicly available Form 990 as a marketing tool. Perhaps one of the most important lessons from this tale is public perception matters. Following the scandal, the media was abuzz with stories about the potential legal liability for CAI board members and Mortensen personally if wrongdoing is found in a court of law and two Montana residents even tried to bring a class action suit against Mortensen. To date, there have been no court rulings stemming from the events that led to the "60 Minutes" expose but, as evidenced by the continued backlash against Mortensen and CAI, legal standards do not necessarily temper the level of care and loyalty expected by the public from nonprofits and their leaders. 

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6. 501(c)(4) gift tax examinations halted – It was reported in May that the IRS had sent letters to five taxpayers regarding a thirty year-old, rarely enforced rule that imposes a gift tax on certain contributions to 501(c)(4) organizations. Many suspected this was a politically motivated move on behalf of the IRS or at the direction of the White House as a result of the Citizens United v. Federal Election Commission decision by the U.S. Supreme Court in 2010 which opened the door to certain political campaign expenditures by corporations. The IRS responded to these concerns in late May, stating these were not politically motivated letters and in July, the IRS announced it would no longer pursue 501(c)(4) donors for gift tax. Although the controversial investigations have been halted for now, it indicates that regulatory concerns about our post-Citizens United world and the accompanying increased scrutiny on the tax-exempt organizations affected by the Citizens United ruling are still apparent.

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7. Occupy Wall Street – On September 17, protesters gathered in Zuccotti Park in New York City’s financial district to protest against the growing inequality between America’s wealthiest 1% and the remaining 99% of the country in a movement called “Occupy Wall Street.” Inspired by the Arab Spring protests, this initial gathering was organized by Adbusters, an anti-commercialism nonprofit based in Vancouver, British Columbia. Within a month, it was reported that other Occupy demonstrations were taking place in 951 cities and 82 countries. With so many decentralized demonstrations occurring throughout the country and otherwise, the Occupy movement has been criticized for a lack of agenda and clear objective unifying the movement. This criticism has not however deterred the large domestic support for the U.S. Occupy movements both in manpower and monetary contributions. Some Occupy groups were reported to have formed nonprofit corporations as well as applied for 501(c)(3) tax-exempt status while other groups seeking maximum tax benefits may be pursuing avenues such as fiscal sponsorship. Although the height of the U.S. demonstrations have passed for the moment, discussions about current inequalities, next steps for the Occupy movement, and what will come from the Occupy demonstrations of late-2011 continue to carry on into 2012. 

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8. Steve Jobs dies – When Steve Jobs passed away on October 5, many reflected on the legacy left by one of the most iconic figures of current times. While none could argue his impact on the technological world, debate stirred about his impact on the philanthropic world. In recent years, we have seen public acts from some of our nation’s wealthiest such as the Giving Pledge effort started by Bill Gates and Warren Buffett, Buffett’s call in The New York Times to tax the super-rich, and Mark Zuckerberg’s first major philanthropic move in a $100-million pledge to improve the public schools in Newark, New Jersey. Not much is known of any philanthropic efforts by Jobs along the more traditional and public routes of giving. Some have argued that Jobs created philanthropy, but in a different way, for example, by enriching lives and reinvigorating industries with innovative Apple products and creating employment for thousands of people. Others have argued this is not enough and much more should be demanded of our most powerful and wealthiest individuals in society. Jobs is not the first nor will he be the last iconic figure to raise these age-old questions about what it means to be "a philanthropist" and what society expects from the super-rich.

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9. Corporate Flexibility Act of 2011 signed into law in California – Although the concept of social enterprise originated with nonprofits, attention to social enterprise has garnered heightened attention over the past three years due to new for-profit legal structures commonly referred to as “hybrid legal structures” that combine mission and financial bottom lines. The first hybrid legal structure was enacted in 2008 when Vermont allowed for the creation of a Low-profit Limited Liability Company (L3C). Another structure came onto the scene in 2010 when Maryland allowed for the creation of a Benefit Corporation. A third structure was introduced last October when California became the first state to allow for the creation of a Flexible Purpose Corporation by enacting the Corporate Flexibility Act of 2011 (SB 201) in addition to becoming the sixth state to allow for the creation of a Benefit Corporation (AB 361). Such structures have been introduced with much excitement as well as hesitation and skepticism. For every discussion promoting the utility of hybrid legal structures pursuing double- or triple-bottom lines, there is likely a discussion about whether such structures are only a fad and their potential competition with nonprofits. With more states currently considering whether to adopt one or more of these three legal hybrid structures and the potential for new structures (such as the "social purpose corporation" being proposed in Washington), there is no sign that the interest in hybrid legal structures on a public or legislative level is dying anytime soon regardless of which side of the conversation one falls.

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10. Super committee and the charitable deduction – The challenge of finding new sources of income to solve America’s debt crisis put the charitable deduction at risk for much of 2011. Early in the year, President Obama announced his proposed plan which included reducing itemized tax deductions for tax payers in the highest tax bracket. Then, in August, President Obama signed into law the Budget Control Act of 2011 (S. 365), which called for a federal-deficit reduction of more than $2 trillion. $1.5 trillion of such cuts were to be identified by a 12-person bipartisan committee, also known as the super committee, igniting concerns that nonprofits would be on the super committee chopping block. In response to the uncertain future of the charitable deduction and government funding, nonprofits were being called on throughout the year to ramp up their advocacy efforts. Now that the super committee has announced its failure to reach an agreement by its November 23 deadline, discussions about nonprofit advocacy and federal tax policies continue to be a major concern heading into the new year.

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Last year's post on the Top 10 Events of 2010 can be read here.