ARTICLE
11 September 2024

Current Status Of The Idaho Charitable Assets Protection Act

It has been four years since the Idaho Charitable Assets Protection Act ("ICAPA") became effective on July 1, 2020
United States Corporate/Commercial Law

Background

It has been four years since the Idaho Charitable Assets Protection Act ("ICAPA") became effective on July 1, 2020. This arti cle gives a brief summary of ICAPA and provides an update on its impact. For perspective, Idaho had over 4,500 charitable organizations holding over $8 billion in charitable assets in 2019.1 Those figures have increased over the past few years, as Idaho charitable organizations held over $11.1 billion in charitable assets in 2022.2

ICAPA and Its History

Persons regularly create charitable entities, many of which are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. There are significant federal income tax and estate tax incentives to using such entities.

An aspect of human nature is to take advantage of incentives. For some individuals, there is a temptation to "over indulge." The Idaho Attorney General's Office had almost no authority to monitor such overindulgence as a result of the 1938 Idaho Supreme Court decision of Hedin v. Westdala Lutheran Church.3 That limitation was significantly changed by the Idaho Legislature in 1963, which gave the Idaho Attorney General authority over charitable trust assets in conformity with the common law.4 The Attorney General felt that the tools under the 1963 law were insufficient as they did not provide the necessary tools, such as subpoenas or investigative demands, to conduct examinations of charitable entities.5 Thus, Brett T. DeLange and Stephanie Guyon worked over several years to develop ICAPA and it was passed by the Idaho Legislature in 2020, effective July 1, 2020.

In very general terms, ICAPA prohibits a charitable organization or an accountable person from knowingly misusing charitable assets.6 It also imposes an obligation for a charity to notify the Idaho Attorney General at least 30 days before dissolving, converting to a noncharitable organization, terminating, or otherwise disposing of all or substantially all of the charitable organization's charitable assets.7 The details of these reporting obligations are found on the Idaho Attorney General's website by searching "FAQ" on ICAPA.8 In addition, Stephanie Guyon's excellent article titled "The Idaho Charitable Assets Protection Act: Better Protection of Idaho's Charitable Assets and Donor Intent" is a great resource. It can be found in the October 2020 issue of The Advocate on pages 38-40.9

ICAPA Track Record

What is ICAPA's track record over the four years since its enactment?10 Let's start with the number of charitable organizations that have provided prior written notification to the Idaho Attorney General of their intent to dissolve, convert to a noncharitable organization, terminate, or otherwise dispose of all or substantially all their charitable assets.

Of those 22 notifications, all were accepted as filed, five resulted in follow up by the Idaho Attorney General, zero resulted in an active investigation by the Attorney General, and zero resulted in action by the Attorney General, such as by providing an assurance of voluntary compliance, a consent judgment, or a lawsuit.

In addition, there were no investigations by the Idaho Attorney General in cases where there were not any notifications. While subjective, the notification requirement has some deterrence effect.

Observations

Due to their very nature, charities tend to be trusted by the general public. Oversight is often limited to a charity's Board of Directors and key staff. The Internal Revenue Service historically has lacked the staff to do anything more than minimal audit coverage. These factors illustrate a need for ICAPA.

On the other hand, most Idaho charities are not large and lack the skill set to even be aware of ICAPA requirements. Rather, their focus is on keeping their doors open to provide charitable services. If those doors are forced to close, ICAPA compliance may be the furthest thing from the charity's mind. Noncompliance is easy to envision – with no one harmed. While legal assistance may be advisable, there may not be funds available to pay for such advice. One can envision the situation of a charity on its last legs and trying to wind up its operations by selling its heavily mortgaged offices. Then a few days before closing it learns of the 30-day notice that must be given to the Idaho Attorney General. While this is hope fully a rare occurrence, it illustrates how a well-meaning law can have (hopefully rare) undesirable consequences.

Conclusion

ICAPA is a well-intended statute. Many attorneys with little or no expertise serve as volunteer members on the Board of Directors of charitable entities, often with little, if any, knowledge of ICAPA. Both Stephanie Guyon's October 2020 article in The Advocate and the FAQ on ICAPA listed on the Idaho Attorney General's website can greatly increase that knowledge.

As to ICAPA's impact on charitable fraud, early results are unclear. While waiting on additional data from future years will help in measuring such impact, the deterrence factor will be present, but almost impossible to measure.

Footnotes

1 Stephanie N. Guyon, The Idaho Charitable Assets Protection Act: Better Protection of Idaho's Charitable Assets and Donor Intent, advoCaTe, Vol. 63, Issue 10 (October 2020), pp. 38–40.

2 See https://www.irs.gov/charities-non-profits/exempt- organizations-business-master-file-extract-eo-bmf, which offers per-state data on exempt organizations, as tabulated by the IRS (last visited April 30, 2024).

3 59 Idaho 241, 80 P.2d 741 (1938).

4 See 1963 Idaho Legislative Laws 475 and Idaho Code § 67-1401.

5 There were existing tools. At the state level, Idaho had (and has) statutes making theft a criminal offense. The Internal Revenue has both civil and criminal penal ties applicable to Section 501(c)(3) entities.

6 See Idaho Code § 48-1906.

7 See Idaho Code § 48-1901, et. seq.

8 The search terms "Idaho attorney general ICAPA" should lead to the Idaho Code § 48-1907(1) Notice Form as well as Frequently Asked Questions dated June 17, 2020. See https://www.ag.idaho.gov/idaho-code-%C2%A7-48 19071-notice/; see also https://www.ag.idaho.gov/content/ uploads/2020/05/ICAPA-Frequently-Asked-Questions.pdf.

9 Stephanie N. Guyon, The Idaho Charitable Assets Protection Act: Better Protection of Idaho's Charitable Assets and Donor Intent, advoCaTe, Vol. 63, Issue 10 (October 2020), pp. 38–40.

10 Because of submission deadlines, the period covered is from July 1, 2020, through April 30, 2024.

Originally published in The Advocate

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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