Maximizing Your Impact: When to Consider Separating Investments into a Separate Foundation

Dear Nonprofit Organizations,

We hope this newsletter finds you well and thriving in your mission to create positive change in the world. Today, we would like to delve into an important topic that can significantly impact the sustainability and growth of your organization: separating investments into a new nonprofit foundation.

As a nonprofit organization, you’re constantly striving to make a difference and generate lasting impact. Funding is a critical aspect of sustaining and expanding your initiatives, and it’s essential to ensure your financial resources are managed effectively. In some cases, separating your investments into a separate foundation can provide numerous benefits and unlock opportunities for growth. Here are some key considerations to help you determine if it’s the right move for your organization:

  1. Enhanced Financial Stewardship: By establishing a separate foundation, you can establish clearer lines between your organization’s operational budget and investment funds. This separation facilitates better financial management. Your organization’s board and management should be focused on the current year operating budget, and perhaps three years of planning. While your Foundation Board should be concentrating on long term objectives including the sustainability and management of the investment funds, and long term building projects capital campaigns.
  2. Improved Governance and Accountability: Creating a separate foundation can help streamline governance processes, as the board members and investment advisors can focus solely on investment-related decisions. Creating a separate Foundation, allows that Board to have dedicated attention to investment strategies, risk management, and compliance. This allows your regular nonprofit Board to concentrate on what is important for the organization for this year’s budget, this year’s projects, key employees, facility issues, etc, without spending excess time in Board meetings on investments.
  3. Long-Term Financial Sustainability: A separate foundation can act as an endowment, generating income to support your organization’s ongoing programs and activities. This can help reduce reliance on donations and grants, providing a more stable and sustainable funding source for your initiatives. With a dedicated investment strategy focused on growth and preservation, you can safeguard the future of your organization and ensure your mission is carried out for years to come.
  4. Attracting Donors and Partners: A well-managed separate foundation can increase your organization’s credibility and attractiveness to potential donors and partners. Donors often appreciate knowing that their contributions are not only supporting immediate needs but also generating lasting impact through strategic investments. A separate foundation can demonstrate your commitment to long-term financial stewardship, fostering trust and confidence among stakeholders.
  5. Flexibility and Risk Mitigation: Separating investments into a separate foundation can offer more flexibility in managing and allocating resources. It allows you to diversify your investments across different asset classes, geographies, or sectors, reducing risk and increasing the potential for sustainable returns. Furthermore, it provides an opportunity to explore innovative funding models, impact investing, or aligning investments with your organization’s mission.

However, it’s important to note that creating a separate foundation is not a one-size-fits-all solution. Each organization has unique circumstances and should carefully assess the potential benefits and challenges before making such a decision. Consulting with legal and financial professionals experienced in nonprofit governance is strongly recommended to navigate the complexities involved in establishing and managing a separate foundation.

We encourage you to explore this option if it aligns with your long term goals and objectives. Separating investments into a separate foundation can offer a range of advantages, including enhanced financial stewardship, improved governance, long-term sustainability, increased credibility, and flexibility in resource management. Remember, your organization’s financial well-being plays a vital role in achieving your mission. As you consider this important decision, we wish you success in your endeavors and continued impact in the communities you serve.

Best regards,
Randy Walker & Company

(A portion of the above article was created by ChatGPT)

IRS Has Extended the Ability to File a Late Portability Election

Filing an IRS Form 706 for portability is an important aspect of estate planning that can have significant consequences for your beneficiaries. Portability refers to the ability to transfer any unused estate tax exemption from a deceased spouse to the surviving spouse. This can be an invaluable tool for married couples looking to maximize the amount of assets they can pass on to their heirs without incurring estate taxes.

The IRS Form 706 is the federal estate tax return form that must be filed after a person’s death if their estate exceeds the applicable exclusion amount. In addition to calculating the estate tax owed, Form 706 is also used to determine whether any unused exemption can be transferred to the surviving spouse.

The importance of filing Form 706 for portability cannot be overstated. If the form is not filed, any unused exemption from the deceased spouse is lost, which could result in the surviving spouse having to pay significantly higher estate taxes upon their death. For example, if a married couple has a combined estate of $12 million, and the first spouse to die leaves all of their assets to the surviving spouse, but no Form 706 is filed for portability, the surviving spouse would only have a $6 million exemption to use upon their death. This means that $6 million of their estate would be subject to estate taxes, resulting in a significant tax bill for their heirs.

On the other hand, if Form 706 is filed for portability, the surviving spouse would be able to take advantage of the unused exemption of the deceased spouse, effectively doubling their own exemption to $12 million. This would result in a significant tax savings for their heirs and could allow them to pass on more assets to future generations.

Filing Form 706 for portability can also provide flexibility in estate planning. For example, if a married couple has significant assets, but one spouse is in poor health, they may want to transfer as much of their assets as possible to the healthier spouse in order to maximize their estate tax exemption. By filing Form 706 for portability, any unused exemption from the deceased spouse can be transferred to the surviving spouse, allowing them to pass on more assets to their heirs.

The IRS has now issued a revenue procedure (Rev. Proc. 2022-32) that allows estates to elect “portability” of a deceased spousal unused exclusion (DSUE) amount as much as five years after the decedent’s date of death.

Estates of decedents dying after Dec. 31, 2010, who are survived by a spouse, if not required to file an estate tax return, may do so under Sec. 2010(c)(5)(A) for the sole purpose of passing on the decedent spouse’s DSUE to the surviving spouse, who may add it to his or her own basic exclusion amount under Sec. 2010(c)(2)(B) in calculating an applicable credit amount. The due date of an estate tax return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained).

In conclusion, filing an IRS Form 706 for portability is an essential aspect of estate planning for married couples with significant assets. It can provide significant tax savings for their heirs and offer greater flexibility in estate planning. Failing to file the form can result in the loss of the unused exemption from the deceased spouse, which could lead to a significant tax bill for the surviving spouse and their heirs. If you are unsure whether you need to file Form 706 for portability or have any other questions about estate planning, please contact us at RWC.

Some of the above information was generated through ChatGPT.

The Effect of Nonprofit Grading Agencies on Your Organization

Grading agencies for nonprofit organizations have become increasingly important in the world of philanthropy. These organizations provide valuable information to donors, helping them make informed decisions about where to direct their charitable contributions.

There are several grading agencies for nonprofit organizations, including Charity Navigator, GuideStar, GiveWell, and BBB Wise Giving Alliance. Each of these organizations has a slightly different focus, but all provide information on a nonprofit’s financial health, accountability, and transparency.

  • Charity Navigator, founded in 2001, rates nonprofits on a scale of 0 to 100, with a higher score indicating better financial health and transparency. The organization evaluates a nonprofit’s financial health by looking at their revenue, expenses, and assets. They also evaluate a nonprofit’s accountability and transparency by looking at their governance, ethical practices, and how they report their finances to the public.
  • GuideStar, founded in 1994, provides information on over 2.7 million nonprofits. The organization collects and provides data on a nonprofit’s mission, programs, and finances. They also offer a profile level system, where nonprofits can add additional information to their profile to increase their visibility and credibility.
  • GiveWell, founded in 2007, evaluates nonprofits based on their ability to make a significant impact. The organization looks at a nonprofit’s evidence of impact, cost-effectiveness, and transparency. GiveWell focuses on charities that work in global health and poverty alleviation.
  • BBB Wise Giving Alliance, founded in 2001, evaluates nonprofits based on 20 different standards. The standards cover a nonprofit’s governance, effectiveness, finances, and fundraising. BBB Wise Giving Alliance also provides tips for donors on how to make informed decisions about their charitable contributions.

Each of these grading agencies for nonprofit organizations has its own strengths and limitations. For example, Charity Navigator and BBB Wise Giving Alliance focus on a nonprofit’s financial health and transparency, while GiveWell focuses on a nonprofit’s ability to make an impact. However, all of these organizations provide valuable information to donors, helping them make informed decisions about where to direct their charitable contributions.

While grading agencies for nonprofit organizations are a valuable resource for donors, it’s important to remember that they are not the only factor to consider when deciding which charities to support. Donors should also consider the impact that a nonprofit is making and how well their values align with the donor’s own beliefs and priorities.

In conclusion, grading agencies for nonprofit organizations provide valuable information to donors, helping them make informed decisions about where to direct their charitable contributions. By evaluating a nonprofit’s financial health, accountability, and transparency, these organizations help donors make informed decisions about which nonprofits to support. However, it’s important for donors to consider multiple factors when deciding which charities to support, including the nonprofit’s impact and how well their values align with the donor’s own beliefs and priorities.

At RWC, we review your ratings on Charity Navigator and other grading agencies with which you are registered. If your nonprofit organization has an unacceptable grade with one of the nonprofit grading agencies, please contact us.

Some of the above information was generated through ChatGPT.

Recent Court Cases May Subject Independent Schools to Title IX Regulations

Two recent court cases, noted below, have ruled that an independent school’s tax-exempt status should be considered federal financial assistance, which would subject these institutions to Title IX regulations.

  • July 21, 2022: the U.S. District Court for the District of Maryland – Buettner-Hartsoe v. Baltimore Lutheran High School Association
  • July 25, 2022: the U.S. District Court for the Central District of California – E.H. v. Valley Christian Academy

In Buettner-Hartsoe v. Baltimore Lutheran High School Association, the court ruled that the School is subject to the requirements of Title IX of the Education Amendments Act of 1972 (Title IX) because, according to the ruling, its (501(c)(3) status, in and of itself, constitutes receipt of federal financial assistance. Shortly thereafter, the California court came to the same conclusion in E.H. v. Valley Christian Academy. These rulings represent a dramatic change in the understanding of the existing law.

The National Business Officers Association is partnering with the National Association of Independent Schools (NAIS), Southern Association of Independent Schools (SAIS), and the Association of Independent Schools of Greater Washington (AISGW), and a team of legal experts to author an amicus (friend of the court) brief in support of the school’s motion to the Maryland federal court in the Buettner-Hartsoe case to reconsider its decision or, alternatively, to grant an immediate appeal. 

According to NAIS’ legal counsel, “…this opinion does not necessarily mean that all nonprofit schools must have Title IX programs today”. Maryland and California institutions should seek the advice of legal counsel regarding the potential impact of these specific rulings on their institutions. Independent schools across the country may also wish to take proactive steps in anticipation of additional similar rulings, including seeking the advice of legal counsel and reviewing existing policies.

This content was written by CLA’s John Toscano, Principal and Independent School Segment Leader. 

The following additional information provided by RWC, Randy Walker, CPA;

“ A recipient institution that receives Federal funds must operate its education program or activity in a nondiscriminatory manner free of discrimination based on sex, including sexual orientation and gender identity. Some key issue areas in which recipients have Title IX obligations are: recruitment, admissions, and counseling; financial assistance; athletics; sex-based harassment, which encompasses sexual assault and other forms of sexual violence; treatment of pregnant and parenting students; treatment of LGBTQI+ students; discipline; single-sex education; and employment. Also, no recipient or other person may intimidate, threaten, coerce, or discriminate against any individual for the purpose of interfering with any right or privilege secured by Title IX or its implementing regulations, or because the individual has made a report or complaint, testified, assisted, or participated or refused to participate in a proceeding under Title IX. For a recipient to retaliate in any way is considered a violation of Title IX.”

FASB Proposes Major Changes to Not-for-Profit Reporting Rules

In its first major rewrite since 1993, the Financial Accounting Standards Board (FASB) is proposing to “refresh” accounting standards geared toward how not-for-profit organizations report their financial information.

On Wednesday, the FASB issued an Accounting Standards Update, Presentation of Financial Statements of Not-for-Profit Entities, which contains recommended enhancements to the current financial reporting model for not-for-profit organizations.

“We believe these changes will refresh the model in ways that will make not-for-profit financial statements even more useful to donors, lenders, and other users,” said FASB member Lawrence Smith.

Individuals and organizations have until Aug. 20 to review the exposure draft and provide written comments to the FASB about the proposed changes to not-for-profit accounting rules. Instructions on how to submit comments can be found in the Accounting Standards Update.

Under the proposal, the FASB has targeted improvements to current net asset classification requirements and information presented in financial statements about a not-for-profit’s liquidity, financial performance, and cash flows.

Among the proposed changes that not-for-profit financial statement preparers should be aware of include:

Net asset classification. The proposal would require not-for-profit organizations to present on the face of the statement of financial position the amount for each of two classes of net assets – net assets with donor restrictions and net assets without donor restrictions – as opposed to the three classifications currently under US Generally Accepted Accounting Principles (unrestricted, temporarily restricted, and permanently restricted).
Liquidity information. The proposal includes some specific requirements directed at improving a financial statement user’s ability to assess a not-for-profit organization’s liquidity and how it is being managed. Specifically, the proposal would require the disclosure of both quantitative and qualitative information about the liquidity of assets and near-term demands for cash as of the reporting date, including:

  • The amount of financial assets at the end of each period.
  • The amount that, because of restrictions or limitations on their use, is not available to meet the cash needs in the near term.
  • The amount of financial liabilities that require cash in the near term.
  • The way an organization manages its liquidity, including the time horizon it uses in the management of liquidity.

Statement of activities. The proposal would require presentation on the face of the statement of activities of the amount of the change in each of the two classes of net assets, rather than that of the currently required change for each of the three classes. A not-for-profit organization would continue to report the currently required amount of the change in total net assets for the period.
The Accounting Standards Update would also require presentation of two measures (subtotals) of operating activities associated with changes in net assets without donor restrictions. Those subtotals would reflect operating activities for the period, which would be distinguished from other activities on the basis of whether the resource inflows and outflows are from or directed at carrying out a not-for-profit organization’s purpose for existence and available for current-period operating activities.

  • First subtotal: operating revenues, support, expenses, and gains and losses that are without donor-imposed restrictions and is before internal transfers.
  • Second subtotal: effects of internal transfers resulting from governing board designations, appropriations, and similar actions that place (or remove) self-imposed limits on the use of resources that make them unavailable (or available) for current-period operating activities.

In addition, all not-for-profit organizations would be required to provide information about their operating expenses by both nature and function – on the face of the statement of activities, as a separate statement, or in the notes to the financial statements, supplemented with enhanced disclosures about the methods used to allocate costs among functions.

Presentation of operating cash flows. The proposal would require two fundamental changes to increase the understandability and usefulness of the statement of cash flows.

  • Present cash flows provided by operating activities using the direct method of reporting, rather than the indirect (reconciliation) method.
  • Classify cash flows in ways that are more consistent with classifications in the statement of activities.

The effective date for the proposed changes to not-for-profit accounting rules will be determined by the FASB after the comment period has ended.
The FASB first undertook this project in 2011 based on input provided by its Not-for-Profit Advisory Committee (NAC) and other stakeholders. NAC members said they believed that, while sound, existing standards for financial statements of not-for-profit organizations could be updated and improved to provide better information to donors, creditors, and others.

Qualified Tuition Reduction Programs

Several years ago, AACS published a Legal Report on the subject of “qualified tuition reduction programs,” i.e., tuition discounts. In that Report, we discussed the issue of Christian schools offering tuition discounts to the students of school employees. We concluded that these discounts must be offered as a “fringe benefit” to employees, and they must not be a payment for services rendered by employees. We also discussed the fact that a “qualified tuition reduction program” had to meet other requirements established by the IRS.

One of these requirements was that the tuition discount had to be offered to the employees of a tax-exempt educational organization. The earlier Report concluded that, if the tuition discount program met all of the requirements established by the IRS, then the discount would not result in taxable income to school employees.

The conclusions we reached in our earlier Report continue to be valid under current law. Nevertheless, one question that we did not address in the earlier Report was whether a Christian school could offer tuition discounts to employees of the sponsoring church. At the time we published our earlier Report, the IRS had not addressed this issue in a written opinion.

Six years after our Report, the IRS has addressed the question of offering tuition discounts to church employees. In particular, the IRS recently considered this issue in an opinion referred to as a Private Letter Ruling. Unfortunately, in its recent opinion, the IRS did differentiate between “school” employees and “church-only” employees in the area of tuition discounts. We will discuss the IRS Ruling below.

Please note at the outset, however, that it will be important for you to read this entire Legal Report to understand the implications of the recent IRS opinion. In particular, even though the IRS opinion is not favorable, it does provide a small amount of good news and direction. In addition, even though the Private Letter Ruling represents the current position of the IRS on this issue, the Private Letter Ruling itself is not binding on anyone other than the specific parties involved in the dispute that gave rise to the Ruling. The “binding effect” of the Private Letter Ruling is discussed at the conclusion of this Report.

In its recent Private Letter Ruling, the IRS distinguished between school employees and church-only employees in addressing the issue of “qualified reduction tuition programs.” In sum, the Ruling provided some bad news as well as some good news. The bad news is that the IRS has now taken the position–at least with respect to tuition discounts–that a religious school (and its employees) can be considered as a distinct entity from the sponsoring church, even if there is no separate incorporation. Potentially, this position could result in unfavorable results on other issues where it is beneficial to consider all the ministries of the local church (and all employees) under one ministry umbrella. The good news, however, is that the IRS upheld tuition discounts for school employees. In other words, the IRS did not take the position that, because the church/school employees were actually employees of the church, the tuition discount could not be offered to these employees. The opinion also did not prohibit giving tuition discounts to church employees who have some school responsibilities. We will discuss the pros and cons of the Private Letter Ruling in more detail below.

Before addressing this opinion, however, it may be helpful to review the basic elements of a “qualified tuition reduction program.”

A. What is a “qualified tuition reduction program”?

A qualified tuition reduction program is a way for a Christian school to offer a tax-free fringe benefit to its employees. Under a qualified tuition reduction program, the school can offer a tuition discount to the students of its employees, and this tuition discount is not considered as taxable income to the employees.

Under one typical scenario, First Christian School charges $2,000.00 per year in tuition and allows the students of its employees to attend the school for free. As long as this program meets certain requirements, the tuition benefit offered to school employees is not considered to be taxable income to the employees. Therefore, if an employee has one child in school, then the employee receives a $2,000.00, tax-free benefit each year.
Under our scenario, the benefit increases for each student a particular employee has enrolled in the school, and could result in a very significant tax-free benefit for employees with large families.

Please note, however, that before a tuition reduction program will be considered “qualified”–(and therefore, tax-free to the employee)–the program must meet certain requirements. These requirements were listed in our previous Legal Report, but for the sake of convenience, we have listed them again below.

  • The educational institution offering the tuition reduction program must be a taxexempt
  • The educational institution must maintain a regular faculty and curriculum, it must have a regularly enrolled student body in attendance at the place where its educational activities are regularly carried on, and it must operate at the primary, secondary, or college level;
  • The tuition discount must be applied toward the education of the employee or the employee’s spouse or dependent child;
  • The tuition discount must be for education below the graduate level;
  • The tuition discount must be available on substantially the same basis to each member of a defined group of employees, and the school should not discriminate in favor of “highly compensated employees” when offering the reduction;
  • The tuition discount must not be a payment for services rendered by the employee. In other words, the school must pay the employee a certain salary and then offer the tuition discount as a fringe benefit in addition to the employee’s salary. If the tuition discount is considered as compensation for services rendered by the employee, then it constitutes taxable income to the employee. For this reason, a tuition discount should NOT be included in an overall “salary package,” as this could be construed as taxable income to the teacher. If a tuition reduction program meets these requirements, then it will be considered “qualified,” and therefore, tax-free to the employee.

B. The Private Letter Ruling

As noted above, the IRS recently considered the issue of tuition discounts in the context of a Catholic church operating a religious school system. The school system was not separately incorporated. In addition, certain individuals were considered to be church employees, and other individuals were considered to be school employees. The same tuition discount was offered to all employees, regardless of whether they were church employees or school employees.

  1. The bad news. In considering whether there should be a distinction between church employees and school employees, the IRS noted that the relevant portion of the tax code stated that a qualified tuition discount is available only to employees of “educational organizations.” The IRS further noted that this portion of the tax code did not extend the tuition discount to employees of “religious organizations.” Based on the language of the statute, the IRS concluded that only school employees could take advantage of the tuition discount being offered by the schools. In other words, if the schools offered the tuition discount to church employees, then the church employees were required to report this discount as taxable income.
  2. The good news. As noted above, the Ruling does contain a silver lining. First, the IRS could have taken the position that all employees were employees of the church, and therefore, were prohibited from taking advantage of the tuition discount. The IRS did not reach this conclusion. To the contrary, the IRS confirmed that the tuition discount was available to all school employees, including secretarial, managerial, administrative, and support function employees. In addition, the IRS did not address the issue of whether the discount would be available to church employees who also had some school responsibilities, e.g., a pastor who served as president of the school, or a youth director who taught one or two classes at the school. Accordingly, if a ministry employee has both church and school responsibilities, then he or she may be entitled to take advantage of the tuition discount offered by the school.

C. What is the impact of a Private Letter Ruling?

As noted above, an IRS Private Letter Ruling sets forth the current position of the IRS with respect to a particular issue. Nevertheless, a Private Letter Ruling is not binding on any parties other than those specifically addressed in the Ruling, and it cannot be cited as precedent in other cases. For this reason, the Private Letter Ruling that is discussed in this Legal Report is not binding on your ministry. Please note, however, that if the conclusions reached in this Private Letter Ruling become part of a Revenue Ruling or a court decision, then the conclusions could become binding on your ministry. This is an important point because the situation in your ministry may present certain factors that would cause the IRS to reach a different conclusion on this issue. In addition, your ministry may be able to make certain legal arguments that were not considered in connection with the Private Letter Ruling discussed above. On the other hand, you should be on notice that–with respect to qualified tuition discounts–the IRS currently takes the position that school employees must be distinguished from church–only employees. Accordingly, you may want to make certain adjustments in your ministry based on the current position of the IRS concerning this issue.


Although the IRS has issued a Private Letter Ruling concluding that tax-free tuition discounts are not available to church-only employees, there is some good news. First, the IRS confirmed that qualified tuition discounts are available to employees of Christian schools, even if the school is operated under the umbrella of a church ministry and is not separately incorporated. In addition, the IRS did not address the situation in which a church employee has responsibilities at the school, leaving open the possibility that employees who have duties at both the church and the school may be able to take advantage of the tuition discount being offered by the school. Finally, because the conclusions of the IRS were issued in the context of a Private Letter Ruling, they are not binding on your ministry.

Non-Profit Bylaws – The Dos and Don’ts

For many nonprofit’s, their bylaws are just some forgotten document, full of legalese, gathering dust in a file cabinet somewhere. No one on the current board of directors knows who prepared them, nor what any of the provisions mean. They certainly are not referring back to them for any reason. For a nonprofit that actively uses its bylaws, the bylaws can be an interesting glimpse into the organization’s governing psyche. Are they control freaks… or just the opposite?

One fact is sure: a nonprofit’s bylaws are considered a legal document that dictates how the organization must be governed. Failure by a board to follow the stipulations outlined in the bylaws can have devastating consequences to the organization…and potentially even to the board members themselves. Since bylaws are such a big deal, it stands to reason that what they contain and how they are used should be taken extremely seriously. But what about that?

Let’s take a look at some Dos and Don’ts regarding nonprofit bylaws.

DO: Get assistance in drafting or amending your bylaws from an expert experienced in nonprofit matters. This could be an attorney or a professional services firm like Foundation Group. Two words of caution here: 1) Don’t assume your attorney understands nonprofit issues. We have helped fix countless attorney-prepared bylaws, and 2) Bylaws are a legal document, so using a non-attorney professional means you are getting self-help assistance. It is still the board’s responsibility to have input into the provisions and to vote to adopt the final product.

DO: Stick to the basics. It is a good practice to think of your bylaws much like the US Constitution. Like the Constitution, your bylaws should deal with only the highest level of governing issues such as: Organizational purpose, board structure, officer position descriptions and responsibilities, terms of board service, officer/board member succession and removal, official meeting requirements, membership provisions, voting rights, conflict-of-interest policy and any other non-negotiables that your governing body deems necessary. One critical element often erroneously omitted is the provision for amending the bylaws in the future.

DO: Know what is in your bylaws. As a board member, you have a duty to understand what each and every provision means. If there are provisions you do not understand, ask another board member or consult a professional.

DO: Follow the provisions religiously. You not only have a duty to understand your bylaws, you a legally accountable for following them. This is not optional. A court of law will side with your bylaws in any dispute brought by another board member, an employee, volunteer or recipient of services who may have a grievance.

DO: Keep your bylaws relevant. Times and circumstances change…and your governing document should reflect those changes. If your bylaws need to be amended to reflect current realities, do it. Make sure the changes make long-term sense (see below) and follow the amendment procedures as outlined.

DON’T: Treat your bylaws as a policy and procedure manual. We have seen bylaws that contain everything from employee vacation rules to the organization’s anti-smoking policy. These are totally inappropriate for bylaws. Create a separate policy manual for management purposes. Again, think Constitution vs. US Code (laws).

DON’T: Include provisions that tie the hands of future boards. I currently sit on the board of an HOA with absurd provisions that negatively affect all homeowners. But, amending them requires a 2/3 approval of every member eligible to vote (about 200 households). We can’t get 2/3 of the members to vote, much less get super-majority approval. Think long and hard about the downstream consequences to all provisions.

DON’T: Fail to review the bylaws. At least annually, all board members should re-familiarize themselves with the provisions. This will go a long way toward preventing costly errors. New board members should be provided with a copy immediately upon installation.

Proper use of an organization’s bylaws not only provides the necessary structure to effective governance, it eliminates the willy-nilly guesswork so common among ineffective nonprofits. Good governance establishes a foundation for good work.

Section 529 Plans

These state-sponsored qualified tuition programs, offered as prepaid tuition plans or college savings plans, are valuable tools to help finance your child’s college education. Prepaid tuition programs allow you to lock in today’s tuition rates at participating private and public colleges and universities. College savings plans, on the other hand, offer a variety of investment options, and funds can be used to pay for tuition and other qualified higher education expenses at most colleges and universities nationwide.

While state tax benefits for 529 plans vary by state, all 529 plans offer Federal tax benefits: earnings grow tax free, and funds withdrawn to pay for qualified educational expenses, including the cost of computer equipment and Internet access, are also tax free.

Contributions to a 529 plan on behalf of a beneficiary are considered a gift for gift tax purposes, and in 2015, up to $14,000 may be given tax free ($28,000 for joint filers). Furthermore, a special gift tax rule allows individuals to make a tax-free, lump-sum contribution to a 529 plan of up to $70,000 ($140,000 for joint filers) in 2015, which represents 5 years of giving; however, you will be unable to make tax-free gifts on behalf of the same beneficiary for the next five years.


The Achieving a Better Life Experience (ABLE) Act creates tax-favored savings accounts for individuals with disabilities for tax years beginning after December 31, 2014. The ABLE Act authorizes states to create an ABLE Program (similar to Code Sec. 529 college savings programs). Specific to the discussion on 529 plans, the ABLE Act authorizes investment direction for 529 plans by an account contributor or designated beneficiary up to two times each year. The change is effective for tax years after December 31, 2014.

Please call Randy Walker at 210-366-9430 if you have any questions.

Identity Theft

Three people from Killeen have been sentenced to prison for using stolen identities to collect more than $490,000 in false tax refunds from the IRS.

Albert Powell was handed a punishment of more than four years in prison, while Paris Stephens and Ronnie Cole received sentences of three years and more than a year incarceration, respectively, according to records filed April 15 in the U.S. Western District of Texas.
The three were said to have filed at least $1.3 million in false claims through TurboTax from 2010 to 2012, using identities taken from job applicants at a Wendy’s restaurant in Chicago, where Powell had previously been employed as a manager, according to court documents filed in a U.S. district court in Austin.

IRS criminal investigators said the victims included college students in their 20s and two parents collecting Social Security disability. All tax returns were filed electronically through the IRS service centers in Austin and Kansas City, they said. The defendants, who had been living in Killeen, pleaded guilty this week to charges of identity theft and conspiracy to defraud the government. They had each faced up to 25 years in prison.

So lucrative is the crime of tax return identity theft, that criminals, many of them drug dealers, armed robbers and gang members, who once relied upon firearms and violence to commit crimes, are now tucking them away in favor of laptops, direct deposit, prepaid debit cards and blind mail drops.

Tax return identity theft has become so popular that politicians, government workers – including IRS employees — professional athletes, police officers, firefighters, lawyers and military personnel have been accused of and charged with identity theft and tax fraud schemes nationwide. Several have been sent to federal prison.

So staggering are the numbers of reported identity theft crimes, that according to the General Accountability Office, the Internal Revenue Service detected almost 915,000 cases of identity theft last year. Most victims are unaware they have been victimized until they file their tax returns. Only at that time do they learn that someone else has already claimed a refund in their name.
Astronomical as it sounds, these statistics do not include the almost 480,000 fraudulent refund claims filed using the Social Security numbers of Puerto Rican citizens, who generally do not file federal tax returns unless earning stateside income, or the almost 1.5 million bogus tax returns claiming over $5 billion in refunds, according to the IRS.

The following examples of Identity Theft Investigations are written from public record documents on file in the courts within the judicial district where the cases were prosecuted in Texas.

  1. Texas Man Sentenced for Role in Tax Refund Fraud Scheme
    On Dec. 19, 2014, in San Antonio, Texas, Abasi Paki Brown was sentenced to 33 months in prison, three years of supervised release and ordered to pay $78,258 in restitution. Brown pleaded guilty to mail fraud on Sept. 16, 2014. According to court documents, from about Jan. 1, 2011, to about Aug. 31, 2011, Brown obtained the personal identifiable information (PII) of certain individuals. Brown then used the PII to file fraudulent federal income tax returns through Electronic Return Originators (EROs) using various computers and selected the debit card option. Based on the fraudulent tax returns, funds were deposited into an account associated with the refund and debit cards were mailed, via the US Postal Service, to the addresses provided by Brown. Once Brown received the debit cards, he used them to purchase items or withdraw cash from ATM machines.
  2. Former El Paso Couple Sentenced for Identity Theft and Fraudulent Tax Refund Scheme.
    On April 30, 2015, in El Paso, Texas, Curtis Joshua Cooper (a/k/a “Kelvin Afanador-Rodriguez”) and Brandie Malfavon were sentenced to 29 months and eight months in prison, respectively, two years of supervised release and ordered to pay $22,749 in restitution to the IRS for their roles in an identity theft and fraudulent tax refund. On Jan. 13, 2015, Cooper and Malfavon pleaded guilty to conspiracy to commit wire fraud. Cooper also pleaded guilty to aggravated identity theft. From January 2010 until March 2011, the defendants conspired to obtain refunds derived from fraudulently prepared income tax returns. Cooper admitted to using names, dates of birth and social security numbers he purchased to electronically submit fraudulent income tax returns to the IRS. The refunds, which were claimed and received by Cooper based on those fraudulent income tax returns, were transferred by wire from the Federal Reserve Branch in New York to bank accounts in El Paso that were opened by Malfavon
  3. Tanzanian National Sentenced for Tax Fraud Scheme
    On March 19, 2015, in Houston, Texas, Amon Rweyemamu Mtaza, a Tanzanian national, was sentenced to 87 months in prison and ordered to pay $404,409 in restitution, as well as forfeiture of a 2006 Maserati and a 2007 Mercedes Benz as proceeds gained from the illegal scheme. Mtaza pleaded guilty Sept. 16, 2014 to conspiracy to commit wire fraud, wire fraud and aggravated identity theft. Mtaza is expected to face deportation proceedings following his release from prison. Mtaza ran a stolen identity refund fraud (SIRF) scheme that targeted more than 600 people and involved the filing of hundreds of fraudulent tax returns. Mtaza used stolen and unlawfully obtained personal identity information, including the names and Social Security numbers, to prepare fraudulent United States income tax returns. Mtaza electronically filed the fraudulent tax returns then directed the tax refunds to be deposited onto reloadable debit cards, or disbursed as U.S. Treasury checks, and used the monies to obtain cash and goods for his own benefit. The tax refund filings account for an intended loss of more than $1.8 million with an actual loss of $404,409 to the IRS. A total of 685 victims were identified as victims in Mtaza’s scheme.
  4. Texas Man Sentenced for Theft of Public Funds and Aggravated Identity Theft
    On March 19, 2015, in Dallas, Texas, Roberto Boris Fernandez was sentenced to 60 months in prison and ordered to pay $466,405 in restitution to the IRS. On Nov 20, 2014, Fernandez pleaded guilty to conspiracy to commit theft of public funds aggravated identity theft. During January 2012, Fernandez conspired with others to engage in a scheme to obtain tax refunds by electronically filing fraudulent income tax returns using stolen names and social security information. The returns falsely represented that the taxpayers were entitled to a refund because of a falsely created Earned Income Credit. The returns were directed to deposit the refunds onto debit cards that were mailed to co-conspirators’ addresses. Fernandez and the co-conspirators used the debit cards at automatic teller machines (ATMs) to withdraw cash. During the evening and early morning hours of January 30-31, 2012, a police officer stopped a limousine for a traffic violation. At the time, Fernandez was the sole passenger. While searching the limousine, officers seized Fernandez’s backpack, a cell phone, an air card, several Turbo Tax envelopes and debit cards, $8,295 in cash, as well as ATM receipts. Inside the backpack, officers found handwritten personal identifying information for approximately 200 individuals, together with notations as to refund amounts, personal identification numbers and dates on which refunds were xpected. Eight additional unopened Turbo Tax envelopes containing debit cards issued in third party names were also found in the backpack.
  5. Texan Sentenced for Using Stolen Personal Identity Information and Fabricated Documents to Defraud the IRS.
    On Dec. 15, 2014, in Wichita Falls, Texas, Bobby J. Hicks, Jr. was sentenced to 63 months in prison and ordered to pay approximately $114,000 in restitution to the Internal Revenue Service (IRS). Hicks Jr. pleaded guilty in August 2014 to one count of wire fraud. According to court documents, Hicks ran his scheme from 2009 through approximately mid-February 2011. During that time Hicks submitted 15 fraudulent returns 11 of which were submitted electronically. In one instance, in January 2010, Hicks submitted a Form 1040EZ income tax return in the name of an individual Hick met in 2009 in Wichita Falls and had hired to do day labor. In connection with that labor, the individual had provided Hicks his social security number, but he did not authorize Hicks to use it or to submit a tax return in his name. As part of his scheme, Hicks also stole the identities of family members, including the identity of his deceased mother.
  6. Texas Man Sentenced in Identity Theft and Tax Refund Fraud Scheme.
    On Nov. 17, 2014, in Los Angeles, California, Fidelis Negbenebor, of Sugar Land, Texas, was sentenced to 36 months in prison and ordered to pay $258,142 in restitution to the IRS. Negbenebor pleaded guilty in August 2014 to using the identity of another person to commit a tax refund fraud scheme. According to court documents, Negbenebor possessed a credit report and a banking application for an unidentified individual which contained the individual’s name, date of birth, and Social Security number. The banking application was used to open an account in the individual’s name to receive a fraudulently obtained tax refund in the amount of $103,241 issued by the IRS. Negbenebor also possessed credit reports and other personal identifying documents for two other individuals for whom fraudulent tax returns were filed. The total loss to the IRS for the identity theft and tax fraud scheme that Negbenebor participated in was $1,131,895.
  7. Texans Sentenced for Aggravated Identity Theft and Mail Fraud.
    On Oct. 22, 2014, in San Antonio, Texas, Sasha Cher-Von Beckett was sentenced to 51 months in prison and three years of supervised release. Beckett previously pleaded guilty to mail fraud, aggravated identity theft and access device fraud. Her co-defendant, Michael Floyd White was sentenced Oct. 1, 2014 to 39 months in prison and three years of supervised release for mail fraud and aggravated identity theft. Beckett and White were ordered to pay restitution of $113,642 joint and severally. According to court documents, from January 2011 to February 2012, White and Beckett knowingly devised a scheme to defraud the Internal Revenue Service by submitting fraudulent income tax returns. Throughout the scheme, White and Beckett would use names, dates of birth and social security numbers of other individuals to electronically file numerous income tax returns, then collect the refunds by using the debit card option and having those debit cards mailed directly to them.

Protect yourself from identity theft with these basic tips:

  1. Consider subscribing to an identity theft protection service. Several companies offer services to help you in the case that you become victim to identity theft.
  2. Keep personal documents in a safe. Consider keeping a personal safe for your home as well as a safety deposit box elsewhere. You can use your safe at home to protect items such as your social security card, birth certificate and passport.
  3. Protect your purse or wallet at all times. The best purses are those that can be zipped or closed shut. Try not to use bags that others can easily see or reach into, and keep bags close to your body with a tight grip at all times. Do not leave wallets or purses in the car, or if you must, do not leave them exposed or in an obvious place.
  4. Photocopy the contents of your wallet. Make copies of credit cards, ID cards, and all other personal documents you keep in your wallet. Also, keep records of phone numbers to contact in case you need to close accounts or order replacement items.
  5. Examine your bank account statements monthly to ensure that your accounts have no unauthorized charges. If they do, contact your banking institution immediately.
  6. Remove yourself from promotional lists such as junk mail and pre-approved credit card lists. This added clutter doesn’t do any good, and you at risk of ID theft if a stranger gets their hands on your pre-approved cards.
  7. Cancel credit cards that you aren’t using. There’s no reason to have open credit for the taking. Besides, the less credit you have open, the less you’ll have to monitor.
  8. Select passwords that are difficult for others to uncover. An impersonal combination of letters and numbers is the best.
  9. Protect your computer with anti-spyware and anti-virus software. Make sure you keep them up to date.
  10. Do not reveal personal information to unverified sources whether over the phone or the Internet. Do not feel pressured to answer personal questions if you do not trust the source. Feel free to request verifying information before giving anything up.
  11. Monitor your credit. Take advantage of your free credit reports and consider purchasing additional copies throughout the year for continuous monitoring. Consider placing fraud alerts and credit freezes on your account for greater protection.
  12. Shred personal documents before throwing them away. Dumpster diving is a common method of stealing personal information for the sake of identity fraud. Purchase a shredder for your home and make sure you destroy paperwork containing personal information before discarding. This includes mail, credit card statements and even receipts.

Please call Randy Walker 210-366-9430.