A groundbreaking new law aimed at protecting donors from bogus charities gives the Oregon Attorney General valuable new tools to prevent nonprofit abuse and
protect donors.
Recently approved legislation eliminates the state income tax deduction for donors who give money to charities that fail to spend at least 30 percent of their donations on their charitable mission. Disqualified charities will be required to disclose their status to prospective donors or face civil penalties up to $25,000 per violation under the Unlawful Trade Practices Act.
The Oregon Department of Justice regulates the state’s 18,000 charities. It estimates fewer than 100 charities registered in Oregon will be affected by the law.
Oregon and other states once had laws prohibiting charities from soliciting donations if they were paying too much to themselves and their fundraising apparatus. The statutes were repealed in 1980 after the U.S. Supreme Court ruled the attempts to restrict a charity’s solicitation efforts violated their First Amendment rights.
The new law, however, does not restrict a charity’s ability to fundraise. It does eliminate, at the state level, the tax advantages of donating to a charity that doesn’t meet minimal standards. The disclosure requirement will also impose a new level of transparency.
Currently, Oregon’s tax code provides that if a charity has IRS 501c(3) status, donors can deduct their contribution on their state income tax returns to the same extent as their federal return. The new law excludes charities from that beneficial tax status if they do not use donations effectively.
This new law will protect consumers from the handful of bad actors that consistently fail to do so. Still, they get to keep 70 percent of their donations for administration if they so choose! So the best advice before donating to a charity is to check their expenditures and avoid any charity spending too much on administration costs and not giving to their mission.
