Preface

      This 2020 cumulative supplement is the fifth supplement to accompany the fifth edition of this book. The supplement essentially covers developments in the law of fundraising as of the close of 2019.

      From a federal law standpoint, probably the most significant recent development in the realm of fundraising occurred when the U.S. Tax Court, in response to considerable litigation on the point, found a way to salvage charitable gift substantiation where the charitable donee has not supplied a gift substantiation letter (or at least not a qualifying one) to the donor, doing so in the context of gifts of easements: the deed of easement may serve as the gift substantiation document. This development is discussed in a section added by this supplement, but in essence the court is disregarding as mere boilerplate a provision in the deed reciting consideration by reason of a merger clause.

      Also notably, what would have been an important development in the realm of charitable fundraising occurred when the Department of the Treasury and the IRS published proposed regulations to implement the exception to the general charitable gift substantiation requirement. Pursuant to this exception, donee organizations would have been able to file information returns with the IRS that report the required information about contributions. The fundraising community has become rather familiar with the general substantiation rules, using the required contemporaneous written acknowledgment letters as an opportunity to communicate with (as in say thank you to) their donors. If these rules concerning this exception had been implemented, administrators of charitable organizations would have had to make the decision as to whether to stay with the general substantiation regime or begin filing information returns with the IRS. The professional fundraising community certainly had a vested interest in the outcome of that decision‐making. The decision not only would have had an impact on donor relations efforts but, as the Association of Fundraising Professionals noted in its October 28, 2015, eWire, the proposal raised problems regarding donor confidentiality and privacy. The fundraising community, however, sidestepped these dilemmas when the IRS, overwhelmed and frustrated by the controversy, summarily, on January 7, 2016, withdrew the proposed regulations. Indeed, the underlying statute was repealed upon enactment of the Tax Cuts and Jobs Act.

A section has been added to the book, addressing the matter as to when an organization can be considered a tax‐exempt charitable entity where its sole functions are fundraising and grantmaking. As we discuss, it has been IRS policy since 1924 that a nonprofit organization that only carries on operations that involve generation and receipt of contributions (and perhaps investment income) and distribution of its income to public charities is eligible to receive recognition of tax exemption as a public charity. This point has often been restated over the years. The IRS caused a major shift in thinking concerning this topic when, in 1964, the agency introduced the commensurate test. As applied to fundraising and grantmaking charities, this test requires that the amounts distributed to one or more charities must be “significant.” (This aspect of the topic was raised to a much higher level of concern when, a few years ago, the IRS launched its “charitable spending initiative.” This could have been a major development for the fundraising community; the initiative, however, collapsed and disappeared in the aftermath of the chaos surrounding the brouhaha over the IRS's mishandling of certain applications for recognition of exemption.)

      In recent months, however, largely by means of private letter rulings, the IRS has taken a harder line as to fundraising charities, principally by adversely applying the doctrines of private benefit and commerciality. There has been an unusually large number of IRS private letter rulings concerning nonprofit organizations established to engage in forms of online fundraising for charity. The IRS has denied recognition of tax exemption as a charitable entity in every one of these cases. Some of these rulings are inconsistent with law that has been in existence for more than 90 years, concerning exemption for entities whose functions are solely fundraising and grantmaking. The IRS's fixation on the commerciality doctrine has spilled over into this area, causing policy shifts, with the agency resting its denial positions on that doctrine and, in some instances, as noted, also the private benefit doctrine. We added this section to explore this aspect of the IRS's recent ruling policy.

      Recent years have brought many court cases concerning the matter of disclosure of donor information. This issue has arisen in the fundraising setting but, as recent cases illustrate, this issue is ballooning beyond the fundraising context. The extent to which donor disclosure is permissible and when it violates fundamental principles of free speech and privacy may be considered by the U.S. Supreme Court. This litigation is summarized in this supplement.

      The IRS's focus in this area notwithstanding, online fundraising by charities that are tax‐exempt continues to grow, and thus we expanded our portrait of charitable giving to include a look at this phenomenon.

      Other topics we have covered include a study of state‐level oversight and regulation of charitable organizations, discussion of a troubling IRS technical advice memorandum finding a charitable organization's fundraising program to be an unrelated business (a matter now before the Tax Court), the import of the IRS's new streamlined application for recognition of exemption, fundraisers' compensation, and more law concerning raffles conducted by charities.

      We appreciate the assistance we have received from John Wiley & Sons in the preparation of this supplement. Our thanks are extended, in particular, to our development editor, Brian T. Neill, and Beula Jaculin, production editor, for their assistance and support in connection with this cumulative supplement.

      Bruce R. Hopkins

      Alicia M. Beck

      March 2020