Barbara Berg, Counsel, Downey Brand LLP

Nonprofit Integrity Act of 2004

  This Act imposes new requirements on many California charities including preparing annual financial statements, obtaining an audit, establishing an audit committee, reviewing and approving executive compensation, and charitable fundraising. Click on the following link to the Downey Brand our website for a detailed discussion of the Act: http://www.downeybrand.com/publications/updates/050126_nonprofit.php.

Electronic Corporate Communications

  California corporate law is working to keep pace with technology by authorizing nonprofits as well as other corporations to use e-mail and electronic bulletin boards as a means of communicating with their members, directors and officers. Corporations may now elect to hold board meetings and member meetings by means of electronic communication, so long as certain requirements of authentication, consent, contemporaneous participation and recordkeeping are met. In addition, electronic transmission of the following is now permitted: (1) notices to members; (2) written consents of members; and (3) the corporation's annual report to members or shareholders. Finally, this law eases a corporation's document retention burden by providing that corporate documents such as bylaws, minutes of meetings, and adopted resolutions may be retained in electronic form if capable of being converted into clearly legible tangible form. Nonprofits desiring to use e-mail or other electronic communications with their board or members should consider adopting guidelines and procedures to ensure compliance with the law. A copy of this new law (SB 1306) is available from Legislative Counsel's website at: http://www.leginfo.ca.gov/bilinfo.html.

Vehicle Donations

  Effective January 1, 2005, a donor of a used vehicle with a value of over $500 may only deduct the amount of the gross proceeds from the sale of the vehicle (if the vehicle has not been significantly used or improved by the charity before the sale), instead of fair market value as before. The charity will need to provide a donor with a written acknowledgement of the gift within 30 days of the sale of the vehicle. The acknowledgement must state the amount of the gross proceeds and a certification that the vehicle was sold to an unrelated party in an arm's length transaction. If the charity intends to significantly use or improve the vehicle rather than sell it, the charity must provide a receipt and a certification to the donor within 30 days covering the charity's intended use or improvement of the vehicle.

Tax Amnesty

A tax amnesty program is in effect from February 1, 2005, through March 31, 2005, for taxpayers who are delinquent in the payment of Sales and Use Tax, Corporation Tax, or Personal Income Tax. Penalties (but not interest) will be waived for amnesty participants for tax periods beginning before January 1, 2003. Taxpayers eligible for the amnesty program who do not participate will be subject to enhanced penalties. Further information on Sales and Use Tax amnesty is available on the Board of Equalization website: http://www.boe.ca.gov/sutax/pdf/taxamnestytbrochure.pdf ; and on the Franchise Tax Board website for corporate tax: http://www.ftb.ca.gov/amnesty/index.html.

Proposals in Congress Impacting Nonprofits

  The Joint Committee on Taxation has identified at least a dozen proposals for closing the budget gap which generally either increase taxes on exempt organizations, or limit or restrict charitable deductions. These proposals include imposing a requirement that every five years public charities and private foundations must submit information to the IRS supporting their continued qualification for exemption, thus increasing the IRS's oversight and providing it more opportunity to review and revoke the exemption or impose unrelated business or excise taxes, if warranted. Excise tax increases are also proposed for public charities, private foundations and social welfare organizations. The intermediate sanction rules would be more restrictive. Charitable deductions for contributions of clothing and household goods would be limited to $500 per year, regardless of the number of contributions or value of the contributed property. Contributions of appreciated property (excluding publicly traded securities) would be limited to the donor's tax basis, rather than fair market value. In addition, a modification of the charitable deduction for contributions of conservation easements is proposed, substantially reducing the deduction and imposing new standards on appraisals of such easements. The full report of the Joint Committee can be accessed at: http://www.house.gov/jct/s-2-05.pdf.

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© 2005 All rights reserved. Please note that the information contained herein is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.