• 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.

If you find this free E-Bulletin to be valuable and interesting, please share it with a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Land Conservation Law E-Bulletin can e-mail me at rob@roblevin.net.  If you’d like to be removed from this distribution list, simply drop me a line at that same address.

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.

• Introduction
• Outcome of Conservation-Related Bills Before Maine Legislature and Congress
• Case Law Update:  Maine Supreme Court Case
• Upcoming Event – Rally Seminar Featuring Prominent Maine Case

Introduction

Welcome to this issue of the Maine Land Conservation Law E-Bulletin!  I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation.  I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers.  At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.

If you find this free E-Bulletin to be valuable and interesting, please forward it to a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Nonprofit Law E-Bulletin can e-mail me at rob@roblevin.net.  If you’d like to be removed from my list, simply drop me a line at that same address.

Outcome of Conservation-Related Bills Before Maine Legislature and Congress

In the April Maine Land Conservation Law E-Bulletin, I warned about a range of proposed Maine and federal bills that would harm Maine’s environment.  The good news is that most of the state-level bills went down in defeat, thanks to an outcry from the conservation community.  In particular, efforts to dramatically scale back the shoreland zoning and vernal pool buffer areas failed.  However, attempts to increase development in the Unorganized Territories continue, as the Republicans seem intent on abolishing the Land Use Regulation Commission and devolving zoning and land use authority to the counties, which are generally seen to favor more development.  The Legislature voted to proceed with a study commission that appears stacked in favor of pro-development forces, and the issue will return for a vote in next year’s session.  Meanwhile, the Legislature, following Governor LePage’s lead, rejected all bond measures and vows to do so next year as well.  Thus, renewed funding for the depleted Land for Maine’s Future Program appears nowhere in sight.  For a full rundown of how environment-related bills fared in the recent session, and how your representatives and senators voted, see http://www.nrcm.org/2011.legislature.results.asp.

At the federal level, looming threats to funding of numerous conservation programs remain, especially in the wake of the debt ceiling deal.  This budgetary framework will create enormous pressure to cut (and perhaps even gut) a variety of programs, including the Land and Water Conservation Fund, the North American Wetlands Conservation Act, the Forest Legacy Program, and Farm Bill programs such as the Farm and Ranchlands Protection Program, all of which send millions of dollars to Maine each year to purchase conservation lands and easements.  Meanwhile, the land trust community continues to push for an extension of the enhanced conservation easement income tax incentives beyond the current expiration date of December 31, 2011.  For more on these threats and opportunities, visit http://www.landtrustalliance.org/policy/public-funding.

Case Law Update:  Maine Supreme Court Case

Under contract with the Land Trust Alliance, I research and compile a comprehensive database of land conservation-related court opinions.  The current edition of Land Conservation Case Law Summaries includes 243 cases and is available to Alliance members at http://learningcenter.lta.org.  Occasionally, I discuss particularly important or interesting cases in this E-Bulletin.

Recently, the Maine Supreme Court dismissed a suit in which an individual attempted to rescind a conservation easement.  Huber v. Dept. of Transportation, Mem 11-67, 2011 Me. Unpub. LEXIS 67 (Me. 2011)(Unpublished).  Although the opinion is only one paragraph and is unpublished (meaning that it carries no precedential value), it is still instructive of how Maine courts address the issue of standing to enforce or oppose a conservation easement.  The case involved Sears Island, a 936-acre State-owned island located in Penobscot Bay, connected to the mainland by a causeway.  For decades, the Island has been the site of various industrial development proposals, none of which have come to fruition.  In 2009, after an extensive planning process, the State, a legislative committee and other interested parties came up with a plan to preserve approximately 2/3 of the Island while allowing for development on the remaining 1/3.  As part of this resolution, pursuant to an executive order of the governor, the Department of Transportation conveyed a conservation easement to Maine Coast Heritage Trust on 601 of the 936 acres.  The remaining 335 acres are reserved for future transportation-related projects.

Most local conservationists supported the 2009 conservation easement.  But a few individuals objected, and three of them filed separate suits against the State to challenge the executive order and the conservation easement.  The suits were consolidated into one action, and the State moved to dismiss for lack of standing.  The trial court granted this dismissal, finding no injury to the plaintiffs because no development on the 335 acres was pending.  One of the plaintiffs appealed.  In a one-paragraph unpublished opinion, the Maine Supreme Court affirmed the dismissal for lack of any particularized injury to the plaintiff.

Curiously, Maine’s conservation easement enabling statute was not referenced in either the trial court or the Supreme Court’s opinions.  Perhaps this is due to the fact that the plaintiffs were challenging both the conservation easement and the executive order that gave rise to the easement.  This case is certainly not precedential, but it is mentioned here as another instance in which third-party standing to challenge or enforce a conservation easement has been denied.  A similar unpublished result was reached in another Maine case in Cluff  Miller v. Gallop, No. RE-03-022 (York Cty. Super. Ct. July 8, 2003)(Order Granting Rule 12(b)(6) Dismissal)(UNPUBLISHED), in which York Land Trust had been sued by a neighbor who claimed that it was not enforcing a conservation easement.

Upcoming Event: Rally Seminar Featuring Prominent Maine Case

 What:  Based on a True Story: The Life Cycle of a Conservation Easement

Where:  Land Trust Alliance Rally, Milwaukee, Wisconsin

When: Thursday, October 13, 2011, 9:00am – 5:00pm

Rob Levin and Karin Marchetti Ponte will lead this new Rally seminar that features the prominent Maine case of Windham Land Trust v. Jeffords, a conservation easement violation lawsuit that went all the way to the Maine Supreme Court.  Take a wild ride as we re-enact the life cycle of the famous conservation easement that led to the lawsuit, and gain a deeper understanding of the project-to-stewardship connection. Starting with planning, negotiation, drafting and deal closing, the seminar will proceed to stewardship, reflecting on issues such as landowner relations and monitoring protocol.   We will cover amendment scenarios, and then go down the log flume of a threatened violation that leads to a full-blown lawsuit.  The seminar is instructive for project managers, stewardship staff, administrators, board members and attorneys.

To register for this seminar and/or Rally, visit http://www.landtrustalliance.org/training/rally.

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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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94 Beckett St., 2nd Floor

Portland, ME 04101

207-774-8026

rob(at)roblevin.net

• Introduction
• A Primer on Waiver and Release Forms
• Upcoming Event – How to Keep Tax-Exempt Organizations in Compliance

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.

If you find this free E-Bulletin to be valuable and interesting, please share it with a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Land Conservation Law E-Bulletin can e-mail me at rob [at] roblevin.net.  If you’d like to be removed from the distribution list, simply drop me a line at that same address.

A Primer on Waiver and Release Forms

One of the most common requests I receive in my practice is to draft or review waiver and release forms (also sometimes called a “hold harmless agreement,” “indemnification agreement,” or “assumption of risk agreement”).  These are written forms that nonprofit organizations and businesses use to limit their liability exposure in the event that a person is injured while participating in an activity.  If you have ever been white water rafting, downhill skiing, or participated in just about any kind of organized recreational event, you have been asked to sign one of these forms.  Through such forms, one supposedly waives and releases any personal injury or property damage claims against the organization arising from the activity in question.

Before going any further into the details of waiver and release forms, it should be pointed out that the best way to protect an organization from liability is to prevent accidents in the first place.  It is far better for an injury never to have occurred at all than for an organization to not be held liable for an injury.  Having said that, even getting out of bed in the morning carries some degree of risk, and certain very worthwhile activities are particularly risky.  Therefore, if drafted very carefully, a waiver and release form can be an effective component of a broader risk management program.

A key starting point to understand about waiver and release forms is that any ambiguity in them will be resolved in favor of the person who has been harmed.  Thus, the waiver and release language should be clearly and prominently stated, and not hidden in the fine print of a larger agreement.  There are many examples of courts declining to enforce waiver and release forms because of one flaw or another.

More specifically, in order to be enforceable against negligence claims, a waiver and release form must “expressly spell out with the greatest particularity the intention of the parties contractually to extinguish negligence liability.” Doyle v. Bowdoin Coll., 403 A.2d 1206, 1208 (Me.1979) (waiver and release form for hockey clinic sponsored by Bowdoin College held unenforceable).  In other words, the form must clearly state that any negligence claims are waived and released.  A general release or waiver of all claims will not suffice.  I have reviewed many waiver and release forms without negligence-specific language, and these forms likely would be ineffective if challenged by an injured person.  An example of a waiver and release form that the Maine Supreme Court did find enforceable can be found in Lloyd v. Sugarloaf Mountain Corp., 2003 ME 117.

The form is also more likely to be enforced if it is specific in describing the activity that is expected to be covered, and the kinds of risks that are involved.  For example, one issue that arose in the Lloyd case is whether the form, which expressly applied to injuries arising from a mountain bike race, also covered practice runs leading up to the race itself.  The Supreme Court held that because the practice run was mandatory to participating in the race, the two were intimately connected, and the form did cover practice runs.  But in hindsight it would have been better to expressly cover practice runs in the form itself.

A form goes beyond a waiver and release if it also states that the signer will “indemnify” the organization for its expenses in defending a claim.  Such indemnification language can be an effective way to reduce the likelihood that the form will be challenged in court, because it means that not only is the injured person likely to lose on the negligence claim, but s/he will also have to pay the organization’s legal costs in defending itself.  For an example of a successful indemnification provision, see Lloyd.

Finally, it is generally understood that a waiver and release form is not effective to protect against instances of gross negligence (an extreme form of carelessness) or willful or malicious actions.  So even a well-drafted form cannot protect against all risks.

Upcoming Event – How to Keep Tax-Exempt Organizations in Compliance

Date: Monday, August 29, 2011, 9:00 a.m. – 4:30 p.m.
Location: Fireside Inn and Suites, Portland

Sponsor:  National Business Institute

Do you know all the ins and outs of tax-exempt compliance? Even inadvertently breaking the rules can jeopardize tax-exempt status.  Join us at this seminar to get the information you need to stay current on the latest regulations, avoid IRS penalties, and ensure accounting practices are up to par. Get answers to all of your tax-exempt compliance and operational questions.  Presented by a panel of three Maine attorneys, including Robert H. Levin.

• Gain strategies for safeguarding directors, officers and executives from potential liability.
• Create an environment of accountability by establishing comprehensive internal controls.
• Follow annual reporting requirements and comply with the rules governing disclosures and solicitation.
• Know how to identify what qualifies as unrelated business income – and what the exceptions are.
• Adhere to the accepted guidelines for determining appropriate executive compensation.

For more information and to register, click here.

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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.

• Introduction
• Important Conservation Bills Before Maine Legislature and Federal Congress
• Case Law Update: Dog Park Consistent With Conservation Purposes?
• Upcoming Event – Maine Land Conservation Conference

Introduction

Welcome to this issue of the Maine Land Conservation Law E-Bulletin!  I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation.  I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers.  At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.

If you find this free E-Bulletin to be valuable and interesting, please forward it to a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Nonprofit Law E-Bulletin can e-mail me at rob [at] roblevin.net.  If you’d like to be removed from my list, simply drop me a line at that same address.

Important Conservation Bills Before Maine Legislature and Federal Congress

With Republicans at the helm in Augusta and in control of the U.S. House of Representatives, it’s all hands on deck to protect our state and nation’s environmental laws and land conservation programs.  If you care about these programs, now is the time to make phone calls to your state and federal representatives.

At the state level, your influence is especially significant if you are represented by a Republican or a conservative Democratic representative or senator.  The difference between gutting and protecting a host of laws and programs is whether there are enough Republicans and conservative Democrats willing to stand up to the generally anti-environmental position of the LePage Administration and some of the more extreme legislators.

Maine Coast Heritage Trust, through its Public Policy Coordinator Jeff Romano (207-729-7366), is actively tracking a few dozen land-conservation-related bills.  The full list of such bills is available for download at http://mltn.org/resources/public_policy.html. Some of the most damaging bills have already died in committee, due to the efforts of the nonprofit and land conservation communities.  But among those still to be considered are a variety of bills before the Environmental and Natural Resources Committee that would loosen the protections of the Shoreland Zoning Act and the Natural Resources Protection Act.

To look up the names and contact information for your State Representative and State Senator, visit http://www.maine.gov/portal/government/edemocracy/lookup_voter_info.php.  And you can always call the House switchboard at 1-800-423-2900 or the Senate switchboard at 1-800-423-6900.   To see the membership on the key environmental committees, see http://mlcv.org/index.asp?pset=2&Cid=636.

At the federal level, Senators Collins (202-224-2523) and Snowe (202-224-5344) need to hear from Mainers in support of conservation funding programs such as the Land and Water Conservation Fund, Forest Legacy, and the North American Wetlands Conservation Act.  These programs have protected thousands and thousands of acres of Maine forests, wetlands, and parklands.  If the Republican leadership has its way, funding for these programs will be slashed.

Case Law Update: Dog Park Consistent With Conservation Purposes?

Under contract with the Land Trust Alliance, I research and compile a comprehensive database of land conservation-related court opinions.  The current edition of Land Conservation Case Law Summaries includes 223 cases and is available to Alliance members at http://learningcenter.lta.org.  Occasionally, I discuss particularly important or interesting cases in this E-Bulletin.

An interesting little case in Massachusetts raises the question of whether an unleashed dog park was consistent with deed restrictions that a property be used for conservation purposes.  Here’s what happened:  In 1962, certain donors gifted the Town of Foxborough three parcels to be used as conservation land. Each deed contained a provision that the lands are to be “managed and controlled by the Conservation Commission of the Town of Foxborough.”  In 2006, the Town Board of Selectmen (Board) and the Conservation Commission (Commission) decided to use a portion of the gifted parcels as a no-leash dog park.  Two years later opponents of the dog park filed a lawsuit, arguing, among other things, that the dog park use was contrary to the 1962 deed restrictions.  Wary of the litigation costs, the Board settled the suit, over the objections of the Commission, by agreeing to the removal of the dog park.   The appellate court affirmed, holding that the Conservation Commission did not have the right to block the settlement agreement.  In Hubrich v. Town of Foxborough, No. 10-P-396 , 2011 Mass. App. Unpub. LEXIS 37 (Mass. App. Ct. Jan. 12, 2011)(Unpublished).  The ultimate issue of whether the dog park was consistent with the deed restrictions was not addressed.

This unpublished case is not useful as formal precedent, but serves as a good reminder for land trusts to be proactive about pet-related issues in the drafting of conservation easements, deed restrictions, or management plans.

Upcoming Event: Maine Land Conservation Conference

What:  Maine Land Conservation Conference

Where:  Topsham, Maine

When: April 29-30, 2011

Maine Coast Heritage Trust presents the Maine Land Conservation Conference in support of its Maine Land Trust Network program and Maine’s land conservation community. The conference provides training on best practices in land trust management, land transactions, fundraising and stewardship. It provides a forum for learning about the most pressing issues facing land conservation today.  One of the workshop sessions will be Five Most Important Case Law Updates, presented by Rob Levin.  Register at http://mltn.org/meetings/conservation_conference.html.

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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.

• Introduction
• Nonprofit Exemptions Targeted By Various Bills
• Federal Tax Roundup
• New Form 990 Filing Requirement Thresholds

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.

If you find this free E-Bulletin to be valuable and interesting, please share it with a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Land Conservation Law E-Bulletin can e-mail me at rob [at] roblevin.net.  If you’d like to be removed from the distribution list, simply drop me a line at that same address.

Nonprofit Exemptions Targeted By Various Bills

Even when Democrats controlled the Maine governorship and legislature, fiscal realities created pressure to exact more tax revenues from nonprofits.  But with the recent transfer of power to Republicans in Augusta, Maine nonprofit organizations are now especially vulnerable.  A variety of bills have been submitted that would eliminate or narrow tax exemptions for Maine nonprofits.  The Maine Association of Nonprofits is tracking these bills, and will be coordinating opposition efforts.  A list of the worst bills can be found here.  Contact Brenda Peluso at bpeluso [at] nonprofitmaine.org if you’d like more information or to help out in stopping these bad ideas become law.

Federal Tax Roundup

We all read about the great tax compromise of 2010 brokered between President Obama and Congressional Republicans.  Most nonprofit corporations are tax-exempt and don’t have to worry about such matters, right?  Think again.  Some of the provisions directly affect tax-exempt organizations, and others affect the financial picture for major donors.  Here’s a quick summary of what the tax bill included, and how it might impact your nonprofit and its donors:

• Payroll Tax Cut For 2011 — Employees normally pay 6.2% of their first $106,800 in salary into Social Security.  (Employers match that amount, and each party also pays 1.45% into Medicare.)  The one-year payroll tax reduction will reduce employees’ contributions by two points, meaning employees will pay only 4.2%.  Also, the IRS announced a January 31, 2011 deadline for adjusting withholdings.  See IRS Notice 2010-1036.

• Extension of Tax-Free Charitable Donations from IRA’s — A 2006 law allows for tax-free charitable donations from Individual Retirement Accounts (IRAs) of taxpayers aged 70 ½ or older.  This was due to expire in 2010, but was extended through end of 2011.  Up to $100,000 per year per charity.

• Federal Capital Gains Rate Remains at 15% — Instead of returning to 20%, the federal capital gains tax rate will remain at 15% through 2012.  This will affect donors who are considering whether to donate appreciated capital gains property (land, stocks, etc.) to a charity.

• Federal Ordinary Income Tax Rates Remain at Bush-Era Levels – Instead of returning to Clinton-era tax rates (top rate of 39.6%), the rates will remain at Bush-era levels (top rate of 35%) through 2012.

• Federal Estate Tax Changes – There is a new federal estate tax exemption of $5 million per person, $10 million per married couple.  And the exemption is now “portable” between spouses, thus arguably reducing the need for trusts and other estate planning.  The top tax rate is 35 percent, down from the Clinton-era top rate of 45 percent.  As with the income tax rates, the effect on charitable giving is the subject of much debate.  Note that the Maine estate tax exemption remains at $1 million, although Republican efforts are afoot to increase this level.

• Federal Gift Tax Changes — Prior to 2011, federal gift tax lifetime exemption was $1,000,000 per individual.  For 2011 and 2012, lifetime exemption is linked to estate tax exemption, all the way up to $5,000,000.  Because of uncertainty over what happens after 2012, this means that wealthy people will be transferring many assets to their children in 2011 and 2012.

How do these various changes affect charities?  It’s complicated.  In general, these tax changes benefit the wealthy much more than the poor or middle class.  And they add greatly to the federal deficit, which, as we see above for Maine, creates fiscal pressures that target nonprofits.  Republicans claim that lower taxes on the wealthy will lead to stronger economic growth, but this is a very dubious claim among nonpartisan economists.  What about the effect on charitable giving?  One argument suggests that donors, with more money in their pockets, will have more capacity to donate.  Another view, to which I am partial, suggests that the incentive to donate is minimized as tax rates go down.

New Form 990 Filing Requirement Thresholds

There’s good news (assuming you don’t enjoy paperwork) for many small tax-exempt organizations:  Starting with tax year 2010, the filing requirement threshold for filing a Form 990 or Form 990-EZ has jumped to $50,000 (up from $25,000, where it stood for many years) in average annual gross receipts.  This means that organizations in the $25,000- $50,000 range that previously had to file a Form 990 or 990-EZ may now simply a file the much easier 990-N E-postcard.  Remember, annual gross receipts are just about any money or property (based on its fair market value) that comes in the door during the organization’s fiscal year.

However, for mid-sized tax-exempt organizations there are also new threshold requirement for filing the Form 990-EZ.  Organizations with gross receipts of less than $200,000 and with total assets of less than $500,000 may file the Form 990-EZ instead of the Form 990.  On the one hand, these thresholds are down from the $500,000/$1.25 million levels of the previous year.  On the other hand, they are up from the longtime thresholds of $100,000/$250,000.

Keep in mind that none of these filing thresholds apply to private foundations, which must continue to file the Form 990-PF.

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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.

• Introduction
• Conservation Easement Tax Incentives Extended
• Tax Treatment for Canadian Property Donations Now More Favorable
• Upcoming Event – Advanced Conservation CLE

Introduction

Welcome to this issue of the Maine Land Conservation Law E-Bulletin!  I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation.  I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers.  At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.

If you find this free E-Bulletin to be valuable and interesting, please forward it to a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Nonprofit Law E-Bulletin can e-mail me at rob [at] roblevin.net.  If you’d like to be removed from my list, simply drop me a line at that same address.

Conservation Easement Tax Incentives Extended

The recent tax deal brokered between President Obama and Congress extends through the end of 2011 the enhanced federal income tax incentives for the donation of conservation easements.  Those incentives previously had expired at the end of 2009.  Any conservation easement (but not land) donations made in 2010 or 2011 now qualify for the incentives.  These incentives:

• Raise the income tax deduction a conservation easement donor can take from 30% of their income in any year to 50%;
• Allow farmers (which includes those who derive the majority of their income from forest management) and ranchers to deduct up to 100% of their income; and
• Increase the carryover period (i.e., length of time over which a donor can claim deductions) from 6 to 16 years.

The tax deal also maintains the federal estate tax, although at a top rate of 35% and for estates with assets of $5 million or greater.  The estate-tax-related conservation easement incentives of § 2031(c) continue, but additional incentives championed by the Land Trust Alliance and local land trusts did not make it into the bill.

Tax Treatment for Canadian Property Donations Now More Favorable

The American Friends of Canadian Land Trusts (AFoCLT) and the Canadian Minister of Finance, Jim Flaherty, jointly announced a new environmental initiative that has opened the door to enhanced protection of natural areas across the country.  Canadian land trusts faced a major barrier to protecting many unique and significant natural areas across Canada owned by Americans.  Americans who wished to protect land in Canada were required to pay often hefty Canadian capital gains tax on their conservation gift.  In response land conservation leaders formed a new U.S. charity, AFoCLT to act on both sides of the border to provide the legal mechanism and structure required to make such ‘cross-border’ land conservation possible.  At the end of October changes to the Canadian Income Tax Act regulations removed the capital gains tax on cross-border gifts of land through the leadership of Minister Jim Flaherty and AFoCLT.  For more information, see http://www.nsnt.ca/af/.

Upcoming Event: Advanced Conservation CLE

 What:  Second Symposium on Advanced Legal Topics in Land Conservation

Where:  Boston, Massachusetts

When: February 7-8, 2011

This two-day symposium will feature Maine attorneys Rob Levin and Karin Marchetti Ponte, as well as many national land conservation legal experts.  It is an experts-only opportunity to stay current on the latest developments and collaborate with colleagues on approaches to perplexing issues.  This level of advanced discussion on emerging issues in land conservation is rarely available, so take advantage of this opportunity to gather with your colleagues to discuss and contribute insights on complex conservation challenges. Register at www.lta.org/legal.

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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.

• Introduction
• Proxy Voting
• Update on Health Care Credit for Nonprofits
• Upcoming Event: Recent Changes in Nonprofit Law

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.

If you find this free E-Bulletin to be valuable and interesting, please share it with a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Land Conservation Law E-Bulletin can e-mail me at rob [at] roblevin.net.  If you’d like to be removed from the distribution list, simply drop me a line at that same address.

Proxy Voting

There is much uncertainty in the nonprofit world about proxy voting.  What is it?  Is it permitted under Maine law?  Should our bylaws prohibit proxy voting or allow it?  This segment attempts to shed light on this issue, although readers are strongly encouraged to contact an attorney for advice specific to their organizations.

Proxy voting occurs when an individual who does not attend a meeting signs her name to a document that transfers her right to vote to another individual who does attend the meeting.  Under Maine’s Nonprofit Corporation Act, proxy voting is permitted for membership votes, unless the bylaws or articles of incorporation provide otherwise.  See Title 13-B MRS Section 604(2).  However, there is no similar provision allowing for proxy voting by Board Directors, and another provision of the statute provides that the “act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors…” (Emphasis mine).  See 13-B MRS Section 706(1).  Note that another provision allows for a person attending by conference call to be deemed present at that meeting, thus physical presence is not required.

Thus, under Maine law, proxy voting for nonprofit corporations is not permitted for Board Directors, but is permitted by members for those organizations that have voting members.  And unless proxy voting is prohibited by the bylaws or articles, then it must be allowed for members.  In other words, if the articles and bylaws are silent on the issue, then proxy voting by members cannot be prohibited.  However, many bylaws provide that Robert’s Rules of Order is the official parliamentary authority for the organization, and Robert’s Rules are not fond of proxy voting.  In fact, Roberts Rules themselves say that  if the relevant state statute allows for the prohibition of proxy voting in the bylaws or articles (as Maine’s statute does), then the citing of Robert’s Rules as the parliamentary authority in the bylaws or articles “should be treated as sufficient provision to accomplish that result.” (RONR 10th ed. pp. 414–415, l. 33-2)  That is to say, if your organization’s bylaws cite to Robert’s Rules as the parliamentary authority, then proxy voting by members should not be permitted, or the bylaws should be amended accordingly.

The reason that Robert’s Rules, as well as most experts who have considered the issue, recommend against proxy voting in the nonprofit context is because it is not consistent with the decision-making ideal of a board or membership gathering to discuss an issue, weighing various points of view, and then voting.  A proxy’s vote is usually granted before the meeting, before different points of view have been aired.  On a related note, proxy voting often leads to much procedural confusion or controversy, and it discourages attendance at meetings.  Although proxy voting was more useful in bygone days when attending a meeting was more difficult, these days it is usually relatively easy to participate by conference call.  For all of these reasons, the advice of most nonprofit experts is to expressly prohibit proxy voting in the bylaws, both for Board directors and members.

Update on Health Care Credit for Nonprofits

As part of the Affordable Care Act passed by Congress and signed by President Obama in March, nonprofit organizations are now eligible for a credit against their payroll taxes for certain health insurance expenses covering employees.  The details of this credit have been slowly revealed by the IRS over the past several months, and certain questions remain.  At the very least, however, there is now a draft Form 8941, to be used in conjunction with Form 990-T.  Brenda Paluso at the Maine Association of Nonprofits has been particularly dogged in tracking down information about the credit, and how to claim it.  For more information, see here two latest blog posts on the issue at:  http://blog.nonprofitmaine.org/2010/09/17/update-on-the-health-care-tax-credit-for-nonprofits/ and http://blog.nonprofitmaine.org/2010/11/09/more-information-on-the-small-business-health-care-credit/.

Upcoming Event: Recent Changes in Nonprofit Law

Date: Wednesday, January 12, 2011, 9:00 am. – 12:00 p.m.
Location: Unum Learning Center, South Portland

Sponsor:  Maine Association of Nonprofits

The past few years have been very busy in the nonprofit legal world, with significant changes occurring at the federal and state level. Start 2011 off on the right foot by catching up on these changes. Presented by Attorney Rob Levin, but designed for non-attorneys, this workshop will be valuable to the novice as well as the skilled nonprofit veteran.

This program will cover:

• What the IRS is focusing on in the nonprofit world
• Maine’s new Low Profit Limited Liability Company law
• Changes to the federal estate tax and how they affect nonprofits

To register, visit http://nonprofitmaine.org/skillbuilders.asp.

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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.

In this Issue:

• Introduction
• LMF Bond – November Vote
• Case Law Update: Stewardship Contributions

Introduction

Welcome to this issue of the Maine Land Conservation Law E-Bulletin!  I send E-Bulletins 3 or 4 times per year to provide updates and analyses on legal and policy matters respecting Maine land conservation.  I do my best to keep my messages brief, timely, and useful to conservation-minded landowners, as well as land trust professionals and volunteers.  At the same time, no one should rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.

If you find this free E-Bulletin to be valuable and interesting, please forward it to a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Nonprofit Law E-Bulletin can e-mail me at rob@roblevin.net.  If you’d like to be removed from my list, simply drop me a line at that same address.

LMF Bond – November Vote

On Election Day, voters will have the opportunity to re-affirm their commitment to protecting Maine’s special natural areas.  A small but much-needed infusion of funding for land conservation is on the ballot as a bond referendum.  Question 3 would provide $7.5 million to the Land for Maine’s Future program.

In addition to supporting the LMF program, Question 3 will also provide $1.75 million for the Working Waterfront Pilot Project, an initiative to protect important commercial fishing parcels.  Another $500,000 would go to Maine’s State Park system.

On four previous occasions since 1987, Maine voters have approved LMF bond measures by wide margins.  But given this year’s political climate, land conservation supporters should take nothing for granted, and actively spread the word about the importance of this bond measure.

Case Law Update: Stewardship Contributions

Under contract with the Land Trust Alliance, I research and compile a comprehensive database of land conservation-related court opinions.  The current edition of Land Conservation Case Law Summaries includes 196 cases and is available to Alliance members at http://learningcenter.lta.org.  Occasionally, I discuss particularly important or interesting cases in this E-Bulletin.

Two recent U.S. Tax Court cases suggest that certain stewardship contributions that accompany conservation easement donations may not be eligible for federal income tax charitable deductions.  Both cases, Scheidelman v. Commissioner, T.C. Memo 2010-151 (U.S.T.C. 2010), and Kaufman v. Commissioner, 134 T.C. 9 (U.S.T.C. 2010), involved historic preservation façade easements granted to the same organization.  The organization had a written policy requiring a stewardship contribution equal to 10% of the appraised value of the conservation easement.  The IRS challenged the deductibility of the stewardship contributions, claiming that because they were required by the easement holder, and because the donors received something of value in exchange for the payments, they were not deductible gifts.  In Kaufman, the Tax Court declined to rule either way on summary judgment, and preserved the issue for trial.  But in Scheidelman, the Court held that the stewardship payment was not a deductible contribution because the taxpayer failed to provide evidence that she had not received anything of value in exchange for the payment.  The Tax Court’s analysis here is not particularly sophisticated or useful, however, as it faults the taxpayer for failing to prove a negative.  Furthermore, the opinion does not delve into whether all required stewardship contributions are non-deductible, or only because the land trust in this transaction had performed considerable legal work for the grantor by undertaking the subordination of an existing mortgage.

In any event, these two cases should give land trusts and landowners pause in assuming that a required stewardship payment is deductible.  Land trusts that do require such contributions might consider changing their policies so as to only request or encourage a stewardship contribution.  There is no right answer here.  A request might result in fewer contributions being made.  The tradeoff would be a more satisfied donor, insofar as s/he could more safely assume that the contribution is deductible.

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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.

In this Issue:

• Introduction
• Extension for IRS Form 990-N
• A Primer on Membership Issues

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.

If you find this free E-Bulletin to be valuable and interesting, please share it with a friend or colleague.  Subscriptions remain free, and I respect my subscribers’ privacy.  Anyone who would like to receive this E-Bulletin or the Maine Land Conservation Law E-Bulletin can e-mail me at rob@roblevin.net.  If you’d like to be removed from the distribution list, simply drop me a line at that same address.

Extension for IRS Form 990-N

Who says the IRS has no heart?  In an unexpected act of clemency, the IRS is offering a one-time extension for those tax-exempt organizations that missed the May 15 filing deadline for filing the Form 990-N.  The new deadline is now October 15, 2010.

Brief background for those of you still catching up on this issue:  Since 2008, the Form 990-N has been a required annual filing for all tax-exempt organizations that are not required to file a Form 990 or 990-EZ because they fall below the $25,000/year gross receipts threshold.  If an organization fails to file a 990-N for three consecutive years, then its tax-exempt status (for charities, this means its 501(c)(3) status) is automatically revoked.  Because the filing requirement was first implemented in 2008, this year marks the third consecutive year, and thus the first time that the IRS can revoke any tax-exempt statuses.  If you know of any small 501(c)(3) or other tax-exempt organizations out there, you might want to check to make sure they’re aware of the Form 990-N filing requirement.

The IRS has published a state-by-state list of organizations at risk of losing their tax-exempt status because they have not filed for three consecutive years.  As of June 30, there were well over 1,700 Maine organizations on the list.  For more information and to see the list, click here.

A Primer on Membership Issues

In my eight years of working with Maine nonprofits I have come across all manner of questions and confusion concerning membership.  Do we have members?  Should we have members?  What does it mean to have members?  Can we switch from a membership organization to a non-membership organization?  Allow me to take a moment of your time to address a few of these questions.

One key distinction to appreciate from the outset is that the term “member” has a specific definition under the Maine Nonprofit Corporation Act, as well as a more colloquial usage that may be different for certain organizations.  Under the Nonprofit Act, a member is a person (either an individual or an entity) “having membership rights… in accordance with the provisions of its articles of incorporation or bylaws.”  Thus, to determine if an organization has “legal members,” as I shall call them, one consults the articles and bylaws.  Hopefully, these two documents are in sync on the issue, although occasionally an organization’s articles will discuss members but not the bylaws, or vice versa.  (Also note that “members” are different from “directors.”  A Maine nonprofit corporation must always have a Board comprised of at least three directors.  But it may or may not have legal members.  Creating some confusion, a director is sometimes referred to as a member of the Board, but this is a casual usage and is different from a legal member of the corporation.)

At the same time, there are many organizations that do not have legal members (i.e., their articles and bylaws do not call for members), but that nevertheless refer to their donors as “members.”  This practice is perfectly acceptable, and can be an effective fundraising strategy by building a sense of ongoing identity with donors.  However, the distinction between “legal members” should be kept clear, so as to avoid confusion internally or with those members.

For an existing organization, it is critical to know whether it has legal members because the Nonprofit Act grants them certain rights, such as access to records and the calling of meetings.  Typically, but not always, articles of incorporation and bylaws give legal members the right to elect Board directors.  Occasionally, legal members also have rights to approve certain key decisions.  Furthermore, the Nonprofit Act requires a corporation to keep accurate membership records, which is essential as a practical matter because in the event of a membership vote, it is necessary to know how many members constitute a quorum and/or a majority.  These calculations become impossible if no one can figure out how many members exist in the first place.

As a general matter, when I am helping a nonprofit corporation start up from scratch I usually recommend not establishing legal members unless there is a good reason to do so.  For example, certain founders want to purposefully cultivate a grass-roots base of supporters who will play a role in decision making; legal membership makes sense in this context.  But barring this exceptional circumstance, as a matter of simplicity, the fewer moving parts to an organization, the lighter the administrative burden and the less of a chance that something can go wrong.  As a non-membership organization, there are only two key arms to the organization, the board and the staff.  The principal arguments in favor of membership are that members make an organization more democratic and broad-based, and provide an additional check on a potential rogue board.  Although this argument has merit, I have generally found that having members adds a third arm whose advantages often do not outweigh the drawbacks.

It is not uncommon for an organization to have been established with legal member years ago, without much thought given to the matter.  Often, in the hustle and bustle of things, the membership aspect has withered away and the organization is no longer following its burdensome, albeit well-intentioned, articles and bylaws provisions on membership.  A Board in this position can do one of three things:  It can amend the articles and bylaws so as to become a non-membership organization (although usually this step requires the vote of the members, so can be easier said than done).  It can change its practices so as to start complying with the membership provisions.  A third and perilous option is to ignore the issue, and hope no one notices or cares.

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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.