Maine Nonprofit Law E-Bulletin – September 2011

In this Issue:

• Introduction
• Changes to Maine Charitable Solicitation Filings – Mostly Good News
• Loss of 501(c)(3) Status for Over 1,300 Maine Nonprofits

Introduction

Welcome to the latest issue of the Maine Nonprofit Law E-Bulletin.  I send E-Bulletins 3 or 4 times per year to provide updates and analysis on legal and policy matters respecting Maine nonprofit organizations.  I do my best to keep the messages brief, timely, and useful to nonprofit staff, board members, volunteers, advisors, and donors.  At the same time, no one may rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.

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Changes to Maine Charitable Solicitation Filings – Mostly Good News

At least one helpful piece of legislation came out of the recent session in Augusta.  For years, Maine’s Charitable Solicitations Act had a troublesome provision that essentially required charities to submit a “financial audited statement” along with their licensing renewal applications.  If enforced, this provision would have been prohibitively expensive for many small and mid-sized organizations, as a full-blown audit costs several thousand dollars.  Fortunately, the Department of Professional and Financial Regulation’s (PFR) practice was to accept much less formal financial statements in lieu of an audit, such as profit and loss statements, balance sheets, or an annual budget.

Now, via L.D. 1560, enacted as 2011 P.L. Ch. 286, the law reduces the financial reporting requirements.  In particular, here is what the statute requires: First, whatever version of the IRS Form 990 was filed with the IRS must also be included in the renewal application.  Second, if an audited financial statement exists, it must be included.  But if an audited financial statement does not exist, then “a balance sheet identifying assets and liabilities and an income statement identifying revenues and expenditures may be substituted.”

Great, so the law now aligns with PFR’s practice and everyone is clear on what is required to be filed, right?  Wrong.  PFR has changed its practice.  In August 2011 PFR overhauled all of its charitable solicitation forms, including the renewal application.  The renewal application is now much simpler, which overall is a wonderful development.  In fact, the renewal application is so simplified that it does not even request the financial information required by 2011 P.L. Ch. 286!  Instead, a PFR employee indicated to me that PFR will randomly select a certain percentage of renewal applicants to supply the required financial information as a follow-up filing.  So now there is a new gap between what the law states and PFR’s practice.  As was previously the case, organizations will have to choose whether to follow PFR’s practice or comply with the more demanding standard set forth in the law.

Meanwhile, somewhat disappointing news affects those organizations that have previously filed the Unified Registration Statement (URS) in Maine.  Effective immediately, PFR will no longer accept the URS.  This is unfortunate, as the URS is a nationwide collaborative effort to simplify the charitable solicitation registration process for organizations that must register in multiple states.  Rather than filling out the different forms in each state, organizations are able to file the URS as an alternative in many states (36 by last count).  Ironically, a statement by PFR announces that the rejection of the URS is part of an “effort to streamline the application process and reduce the amount of paperwork required for licensure.”  In fact, rejecting the URS and insisting on Maine’s own form arguably will have the opposite effect for many organizations with a multi-state presence.

 

Loss of 501(c)(3) Status for Over 1,300 Maine Nonprofits

Since 2008, federal law has required all tax-exempt organizations to file a Form 990-N if they fall below the Form 990 or 990-EZ $50,000/year gross receipts threshold.  If a charitable organization fails to file a 990-N for three consecutive years, then its 501(c)(3) status is automatically revoked.  In November, the IRS announced that over 250,000 organizations nationwide had lost their tax-exempt status due to a failure to file the 990-N.  Over 1,300 of those organizations were incorporated in Maine.  The list of Maine organizations can be seen here: http://www.irs.gov/pub/irs-tege/me.pdf.  If an organization would like to regain its 501(c)(3) status, it must reapply with a Form 1023.

However, all is not hopeless.  Although the usual Form 1023 filing fee is either $400 or $850, depending on the level of the organization’s budget, if an organization that has lost its 501(c)(3) status due to a failure to file the 990-N reapplies by December 31, 2012, then the filing fee will only be $100.

If you know of any Maine organizations on the above list, you might want to check to make sure they’re aware of this issue.  Details of the reduced-fee opportunity are available here: http://www.irs.gov/pub/irs-drop/n-11-43.pdf.

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              CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.

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