Ruling opens door to CFC campaign: new regulations were judged a substantive change.

A court ruling has opened the door for several charities to get into the 2007 Combined Federal Campaign (CFC) after initially being denied access. The Office of Personnel Management (OPM) will accept organizations that are tax-exempt and receive tax-deductible contributions, regardless of whether they are classified as a public charity or a public foundation, as long as they meet "all other eligibility requirements and public accountability standards for admission."

The Memphis, Tenn. based Stuttering Foundation of America (SFA) was rejected for the 2007 CFC because it was not classified as a public charity by the Internal Revenue Service (IRS) under 26 U.S.C. 501(c)(3). SFA had filed suit to be included in the campaign, which raised $271 million for various charities last year soliciting federal employees from September 1 through December 15.

In a letter dated Aug. 2, 2007 to SFA President Jane Fraser, OPM's Chief of Staff and Director of External Affairs, Tricia Hollis, wrote that the organization will be admitted into the CFC, in which it has participated since 1992. At least three similar organizations, which did not challenge their denials and were not part of the suit, also will be accepted into the 2007 CFC as a result of the court ruling: The Impact Movement in Orlando, the Chicago-based National Black United Front Educational Fund, and the Roger L. Von Amelunxen Foundation of Ozone Park, N.Y.

REQUIREMENTS INCONSISTENT

U.S. District for the District of Columbia Judge John D. Bates ruled that the 2006 regulations, which the CFC argued were a clarification of existing rules, were actually a new requirement not consistent with the 1984 regulations.

Under the 1984 regulations, an organization was required to demonstrate at least half of its revenue came from sources other than the federal government or at least 20 percent from direct and/or indirect contributions, Bates wrote in his ruling. The percentage test in the 1984 regulations has been replaced with a "substantively different four-category test" in the 2006 regulations, which according to the judge uses a 33-percent standard.

"The criteria used in the 2006 regulations--that an organization be a public charity as defined" by statute--"corresponds to neither a 20-percent test nor a 50-percent test," Bates wrote.

The judge sided with the foundation that the 2006 regulations were "not a mere clarification, but a substantive change," said SFA's attorney MacKenzie Canter, of Copilevitz and Canter in Kansas City and Washington, D.C., and ordered OPM to reconsider the application in light of the previous eligibility criteria.

FEELING REJECTED

CFC regulations were revised in this past November, clarifying the intent that an applicant must be a public charity, according to Mark Lambert, acting director of the Office of Combined Federal Campaign Operations (OCFCO).

Under CFC requirements, an organization must certify that it's recognized by the IRS as a 501(c)(3) tax-exempt public charity, such as an IRS determination letter, in addition to verification against the IRS business master file. To be qualified as a public charity by the IRS requires broad public support, whereas a private foundation gets support from individuals, families or corporations.

The existing regulation "wasn't necessarily clear," Lambert said in an interview several weeks before the SFA filed suit. "We became aware after last year, after a GAO (General Accounting Office) reviewed the number of organizations were participating that did not meet all these criteria."

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Of the 2,165 applicants to the national/international part of the CFC this year, only eight, less than 0.4 percent, were affected by the new regulation, Lambert said, but declined to identify them, citing CFC policy.

ONE IN 5,000

Founded in 1947, The Stuttering Foundation is a private operating foundation and doesn't qualify as a public charity because one donor provides more than 2 percent of all contributions (Fraser) and it has too much money (a $22-million endowment).

With only 5,000 private operating foundations among more than one million charities, Fraser thinks confusion abounds. Private operating foundations fall within the private foundation (PF) category, she said, but operate like a public charity in every way and are not subject to the PF requirement to distribute 5 percent of their assets annually.

The Stuttering Foundation had qualified for the CFC since 1992, and was part of the Health and Medical Research Charities Federation since 1993. The federation in January submitted SFA's application for the 2007 CFC as a national, unaffiliated independent charity. In her letter to OFCFC, SFA President Cindy Schneible said the federation was unable to certify the foundation because it could not comply with the public charity requirement. "We found the organization to be otherwise CFC eligible," she wrote, and unsuccessfully requested OPM to consider a one-year waiver of the public charity requirement to SFA and similar organizations.

The nonprofit had argued in its appeal to CFC that under the Hoyer-Hatfield Act of 1987, once a charity has qualified for the program, unless it no longer meets the qualifications, it cannot be kicked out. Fraser said her foundation still meets the requirements, including operating in at least 15 states and one foreign country. "We believe that Hoyer-Hatfield protects all charities that qualify in every other way from any blanket change in regulations," she said.

The Hoyer-Hatfield act, Lambert said, requires the office to make sure the eligibility and public accountability standards remain similar and consistent to those that were in effect in 1984. OCFCO also required in 1984 that organizations be financed by contributions from the public, said Lambert, who added that they were not aware of any other organizations that have raised concerns.

Maybe the decision can help to create a better understanding of what private operating foundations are, Fraser said. "Our only detriment is that someone cared enough to give us a big endowment."