Dec 1, 2006 12:00 PM

By Christie A. Lohkamp, manager, Deloitte Tax LLP, San Diego

Nonprofits, especially those operating or fundraising in multiple states, are under a great deal of pressure these days to maintain compliance with both federal and state regulations. Much of that pressure is fallout from the Sarbanes-Oxley Act of 2002 (SOX).¹ Although most of SOX's provisions applies only to publicly traded companies, the spirit of the law is impacting nonprofits. California responded to SOX early by adopting its Nonprofit Integrity Act in 2004. Several other states — including Connecticut, Kansas, Maine, Massachusetts and New Hampshire — also have passed increased audit and/or disclosure requirements for nonprofits. Massachusetts is considering additional legislation,² and a number of other state legislatures are thinking about jumping on this bandwagon. There are, also, some proposals that actually should decrease the reporting requirements by raising the dollar limit for determining when financial information must be submitted or audited.³

On top of all of this state activity, there's continuing activity at the federal level. Various congressional committees have been holding hearings on nonprofit accountability and possible reform. Two recently passed laws have provisions affecting charities: The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)⁴ and the Pension Protection Act of 2006 (PPA).⁵ TIPRA, enacted earlier in 2006, increased disclosure requirements and instituted a new excise tax for exempt organizations (including charities, state and local governments, and certain deferred compensation and retirement plans) participating in certain tax shelter transactions. And, despite its name and focus, the recently enacted PPA contains a large number of provisions that apply to charitable entities. The Government Accounting Office and the Internal Revenue Service have been busy with various surveys and initiatives aimed at the charitable community as well.⁶ Pressure also is coming from nongovernmental sources. Bond ratings agencies have indicated that they will take into account SOX's best practices in setting bond ratings for tax-exempt bond financing. In June 2005, Moody's Investor Services issued Governance of Not-For-Profit Healthcare Organizations that emphasized the importance of governance as a “component of the credit profile” of an organization.⁷ Similarly, Fitch Ratings published Sarbanes-Oxley and Not-For-Profit Hospitals: Increased Transparency and Improved Accountability in August of 2005, in which it addressed those sections of SOX that Fitch Ratings felt were most relevant to not-for-profit hospitals and healthcare systems.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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