Nonprofit Law Prof Blog

Multiple Perspectives on Nonprofits and Advocacy

Nonprofits engaging in public policy advocacy has often been a controversial topic, and a recent mix of reports and articles indicate that there are still widely divergent perspectives on the wisdom, benefits, and costs of such advocacy.  Here are some notable examples:

• ARNOVA's Finances of Nonprofits and Public Policy:  Focused on the financial challenges now facing nonprofits and related emerging public policy issues, this report is from a June 2011 symposium and describes "the challenges now facing nonprofits in the realm of public policy, especially as they pertain to the financing of nonprofits presently and in the future. The report outlines an agenda for research needed to develop a better understanding of these challenges and issues."

• NCRP Report on Foundation Funding of Advocacy:  Titled "Leveraging Limited Dollars: How Grantmakers Achieve Tangible Benefits by Funding Policy and Community Engagement," this report asserts that even modest financial support for nonprofit advocacy can lead to large benefits for marginalized groups.  Based on a study of 110 organizations, it concludes that for every $1 invested in such advocacy a $115 in benefits flowed to such groups or over $26 billion in total.

• "Pandering for Profit: The Transformation of Health Charities to Lobbyists":  For a more critical perspective on at least one aspect of nonprofit advocacy, there is this article by James T. Bennett (George Mason University - Department of Economics).  Here is the abstract:

This study explores the metamorphosis of three major voluntary health agencies — American Cancer Society, American Heart Association, and American Lung Association — from charities supported primary by donations into lobbying organizations seeking taxpayers’ funds and grants from commercial enterprises in exchange for supporting private or political initiatives only peripherally related to their charitable missions. Prior to the 1980s, lobbying was all but nonexistent, limited to seeking increased funding for disease research. Fearing loss of tax-exempt status, health charities largely avoided political advocacy. The AIDS movement revealed that vast sums could be acquired from government by intense lobbying, and this advocacy evidently did not threaten tax-exempt status. All three of these charities copied the AIDS movement and targeted tobacco tax revenues at the state level. The American Lung Association, in particular, has acted as a public relations flack for both government agencies and corporations — selling its charitable reputation as a selfless entity concerned only with public health for self-interested purposes. The implications of this transition for both the charities themselves and the public interest are analyzed and discussed.

LHM

Jury Says Hospital Must Return Gift - and Pay Damages

Garth Brooks gave an Oklahoma hospital $500,000 several years ago, but then sued to get it back.  Brooks argued that the hospital had agreed to build a women's center and name it after his mother.  The hospital countered that Brooks had given it the money with no strings attached and that conversations may have been misremembered. Brooks brought a breach-of-contract lawsuit, and the jury awarded Brooks his $500,000 - and an extra $500,000 in punitive damages.  A juror said the decision to award punitive damages came because: "We wanted to show them not to do that anymore to anyone else."

Curiously, the AP story says that Brooks had admitted in a deposition that he could not remember what had been promised.  The story does not mention a written agreement.

Thanks to Fred Hopengarten who sent me this link to the story on boston.com.

sng

 

Zolt: "Tax Deductions for Charitable Contributions: Domestic Activities, Foreign Activities or None of the Above"

Eric M. Zolt (UCLA) has posted Tax Deductions for Charitable Contributions: Domestic Activities, Foreign Activities or None of the Above (63 Hastings L.J. 361 (2012) on SSRN.  Here is the abstract:

Warren Buffett, Bill Gates, and sixty-seven other billionaires have pledged to give a majority of their wealth for charitable purposes. The total dollar amount of potential funding for charitable activities is staggering. So is the potential loss of tax revenue. Because of past, current, and future tax benefits, U.S. taxpayers have funded and will fund a substantial portion of these charitable activities without any input in how the money is spent. These billionaires are not just being generous with their own money, but with the money of the American people.

Should we allow tax benefits to subsidize charitable activities and allow donors to dictate how funds are spent? This Article seeks to contribute to the debate on the desirability of charitable tax deductions by focusing on a smaller part of the charitable tax world: charitable deductions for foreign assistance. Tax benefits for foreign assistance raise several of the same issues that arise in the purely domestic context, as well as issues that may be less important or absent in the subsidizing of domestic charitable activities.

Recent scholarship has argued for continuing to allow tax benefits to foreign charitable activities, and for extending charitable tax benefits to foreign charities and to for-profit entities engaged in charitable activities. These arguments rest partly on the notion that there is no meaningful way to distinguish these activities or entities from domestic charities engaged in domestic charitable activities. These scholars may be right in arguing for consistent tax treatment for domestic and foreign charitable activity, but they may be wrong in their conclusions. The best approach may be to consider changes to the current charitable-deduction regime for both domestic and foreign charitable activities and to consider other alternatives for the government to provide financial support and other incentives for charitable activities.

LHM

No Supreme Court Consideration of Political Activity Ban

Earlier this week the Supreme Court of the United States denied the petition for a writ of certiorari filed by Catholic Answers (see docket) in its case challenging the Internal Revenue Code section 501(c)(3) prohibition on political campaign intervention.  As previously blogged, the lower courts had dismissed the tax refund case as moot because the IRS had refunded the excise taxes assessed on the alleged political campaign intervention expenses under section 4955.  For reasons I stated last fall, the denial is no surprise. Nevertheless, it shows how difficult it will be for groups challenging the ban to actually have their day in court, at least as long as the IRS either refuses to penalize their actions (remember All Saints Episcopal Church in Pasadena?) or drops any penalty when challenged, as happened here.

LHM

IRS Conservation Easement Audit Techniques Guide

The IRS has issued a Conservation Easement Audit Techniques Guide. The Guide provides that it is not an official pronouncement of the law or the position of the IRS, and it cannot be used, cited, or relied upon as such. The Guide nonetheless provides a summary of many of the requirements that must be met to be eligible for a federal charitable income tax deduction for the donation of a conservation easement under IRC § 170(h). The Guide also alerts readers to issues that may be considered and raised on audit. The Guide is periodically updated to reflect case law and other developments.

For a general discussion of the IRS’s use of Audit Techniques Guides, see Charles P. Rettig, IRS Audit Techniques Guides and Current Tax Enforcement Priorities. Rettig explains that “[t]he IRS Audit Techniques Guides (ATGs) focus on developing highly trained examiners for a particular market segment or issue.”

NAMcL

Romneys Use Straightforward Charitable Giving Methods But More Generously Than Most

Mitt and Ann Romney released their 2010 federal income tax returns (for themselves, three grantor trusts, and a private foundation) and an estimated 2011 federal income tax return for themselves.  As highlighted in a Bloomberg article focusing on their charitable giving, the level of their giving at $7 million or 16.4% of their gross income over the two-year period was relatively high even compared to the wealthiest Americans.  At the same, time their methods of giving were fairly straightforward for a wealthy family - a mix of cash and (presumably appreciated) stock contributions, including to what is apparently their family foundation (the Tyler Family Foundation).  The foundation in turn has given away significantly more than the required five percent annual payout in recent years, although it has also accumulated over $10 million in total assets.  As noted by various commentators in the article, including myself and new contributing editor to this blog Miranda Fleischer (Colorado), these are common and widely used philanthropic techniques.  The Romney could in fact have been more tax efficient with their giving if they had made proportionately more stock donations and as opposed to cash donations.  The primary recipient of the cash contributions - the Church of Jesus Christ of Latter-Day Saints, which received over $4 million during these two years - appears more than willing to accept stock donations.  There was no sign in the returns of charitable trusts or other, more sophisticated charitable giving techniques.

LHM

Symposium on Conservation Easements

The Duke Journal of Law and Contemporary Problems has published a symposium edition entitled Conservation Easements: New Perspectives in an Evolving World. The purpose of the symposium is to "avoid restating the conventional wisdom about conservation easements and, instead, to stimulate innovative thinking and reforms in conservation easement law and practice." The symposium articles address a host of interesting and sometimes controversial issues, including the challenges posed to perpetual protection by climate change, the weaknesses in state conservation easement enabling legislation and suggested reforms, the inefficacy of the federal tax incentive program relating to conservation easement donations, the risks state legislatures pose to perpetual conservation easements, and why the doctrine of merger generally should not apply to perpetual conservation easements.

NAMcL

Pulpit Politics and the Ministerial Exception

A little over a week ago Professor Vaughn James blogged in this space about the Supreme Court's recent Hosanna-Tabor Evangelical Lutheran Church and School decision unanimously concluding that religious organizations benefit from a "ministerial exception" to employment discrimination laws.  I want to focus on one possible ramification of this decision that does not appear to have been noted publicly yet - does the reasoning supporting this exception also support a "pulpit exception" to the tax law prohibition on political campaign intervention?   (Shameless self promotion - I explored this possibility in the last part of my 2009 Boston University Law Review article on Politics at the Pulpit.) 

The strongest argument for not having such a "pulpit exception" is that the prohibition is a valid and neutral law of general applicability and so does not violate the Free Exercise Clause under the reasoning of Employment Div v. Smith, 494 U.S. 872 (1990).  But in Hosanna-Tabor the EEOC and the plaintiff were unsuccessful in making this argument with respect to the Americans with Disabilities Act.  Here is the Court's reasoning for rejecting that argument:

It is true that the ADA’s prohibition on retaliation, like Oregon’s prohibition on peyote use [in Smith], is a valid and neutral law of general applicability. But a church’s selection of its ministers is unlike an individual’s ingestion of peyote. Smith involved government regulation of only outward physical acts. The present case, in contrast, concerns government interference with an internal church decision that affects the faith and mission of the church itself. See id., at 877 (distinguishing the government’s regulation of“physical acts” from its “lend[ing] its power to one or the other side in controversies over religious authority or dogma”). The contention that Smith forecloses recognition of a ministerial exception rooted in the Religion Clauses has no merit.

If Smith does not bar the ministerial exception because that exception relates to "an internal church decision that affects the faith and mission of the church itself," it certainly seems reasonable to conclude that Smith also does not bar a pulpit exception, at least if a pulpit-delivered endorsement of a candidate is religiously motivated and communicated to the congregation as part of the minister's role in teaching them how to faithfully live out their beliefs.  That this would be the case for many if not most ministers who chose to deliver such a message from the pulpit seems likely, for reasons detailed in my article.  The Supreme Court in Hosanna-Tabor appears to have provided solid grounds for arguing that the Free Exercise Clause requires such a pulpit exception.

LHM

 

Campus Based Micro-Loan Programs

I will round out my week with yet another blog about campus-based Social Innovation (or Social Entrepreneurship, or Community Empowerment, or plain old charity).  Earlier this week, I mentioned my work with a Social Innovation Incubator on my college campus and the fact that student organizations were pitching their ventures to panels of older folks (of which I was one) who would decide which organizations would gain support.  I did not mention that one of the organizations is involved in making micro-loans to low-income members of the surrounding community, particularly people who are homeless.  Coincidentally, today the Chronicle of Higher Education reported that campus-based micro-loan programs are an increasing trend across the country.  I suppose this means that our local group may be effective (there is plenty of evidence that they are) but they are not necessarily on the cutting edge of innovation. 

Another Nonprofit Scandal

The Los Angeles Times and many other news outlets are reporting that Ward Connerly, a former University of California regent who led efforts to end affirmative action in California and across the country, has been caught with his hand in a nonprofit cookie jar.  Connerly is a principal of the American Civil Rights Institute, a nonprofit that works to end affirmative action.  According to various reports, he has been drawing a salary of $1.3 million from the Institute, far more than similar officials at similar organizations.  (He says that the group reduced his pay to $850,000 after the 09-10 fiscal year.)  There are dark hints of additional improper financial behavior.  This would have been a relatively run-of-the-mill nonprofit scandal, perhaps good fodder for Nonprofit Law class discussions about fiduciary duties, private inurement, intermediate sanctions and the like, were it not for the juicy fact that whistle blower was none other than Jennifer Gratz, the named plaintiff in Gratz v. Bollinger, the case that struck down U. Michigan's diversity admissions plan.

TAK

State Limits on Executive Compensation?

The New York Times reports that Governor Cuomo has proposed a number of budget saving measures to address his state's fiscal crisis, including steps to improve monitoring and spending controls for nonprofit organizations that receive state funds.  One proposal would limit state reimbursement for executive salaries at state-subsidized nonprofit groups to $199,000.  As we all know, many hold the view that states, not the IRS, ought to be addressing executive compensation issues.

990 Troubles

A recent Chronicle of Philanthropy story higlights problems faced by nonprofit organizations that lost their tax exempt status as a result of failing to file their Forms 990for three years in a row.  The IRS's process for granting reinstatement has been cumbersome, murky, and slow. 

Although the article does not say so, it seems clear that most of the organizations dropped from the list were low-budget charities that under the previous law were not required to file 990s.  As we all know, many of those organizations run on a shoe-string and lack the assistance of lawyers and accountants.

My clinic is representing one such organization.  They are an African-American community center whose primary function for many years has been to receive food pantry donations and distribute them to hungry community residents, mostly senior citizens.  They were unaware of the new requirement and only discovered their plight when the food pantry agency informed them that they could no longer receive distributions because they had lost their tax exempt status.  Last summer, they filed a new Form 1023 and paid a fee to the IRS as required, but they still have heard nothing and have had great difficulty determining the status of their application.  In the meantime, people are going hungry.

TAK

More on Social Innovation and a Brief Rumination on Language

I just returned from my first pitch session at the UNC Social Innovation Incubator I wrote about yesterday.  Turns out I was wrong about one thing: the Incubator is not exclusively or even primarily for projects that will become c3s.  In fact, two of the three organizations that gave their pitches are more likely to form as for-profits, though their motivations are largely charitable.  Over the coming days I will serve on a panel that will hear pitches from ten finalists.  We will narrow the group to three organizations that will receive space and support from the Incubator.

Hearing the pitches got me ruminating on the language employed by young, campus-based idealists and those who encourage them. 

When I was in college in the early 1980s, the Community Service movement was sweepingthe land.  I volunteered as a coach in an urban soccer league and for a homeless shelter and a therapeutic horseback riding organization and felt I was doing my part to better the world.  A bit later, Service Learning became a rage and it was no longer enough to volunteer for charitable organizations.  With Service Learning, students (and professors) were encouraged to use the classroom to study the systemic causes of poverty and other social ills.  The notion -- essentially correct, I still believe -- was that the service and the learning would both be improved if they were combined.  Along the way, Community Empowerment became the watchword, and those who merely addressed the effects of poverty  -- putting Band-aids on the problems -- were wasting their time.

For a while, in the mid-1990s, the Service Learning and Community Empowerment efforts and language were crowded out by Leadership Studies.  It always struck me as a dubious notion that you could train idealistic young people to be leaders, partly by sending them out to communities in need to lead them toward a better life.  I thought the best thing for the aspiringyoung leaders and the communities in need would be to teach the young ones to listen more carefully, not jockey for leadership positions.  But that's just me.

In more recent years, college campuses have been guided by updated labels for the same sort of work.  When I arrived at UNC, it was all about Engagement.  College campuses were supposed to create symbiotic but essentially charitable relationships by engaging the communities that surrounded them.  Later, similar work took place under the label of Social Enterprise.  Entrepreneurship centers (and clinics) started popping up across college campuses.  More recently, we began marching under the banner of Innovation, Social Innovation in particular; thus the Incubator I have begun working with.

It's mostly the same people, doing mostlythe same things, and much of it (though a diminishing percentage) happens in the charitable sector; however, the labels and the language have changed significantly over the past thirty years.  Anyone want to predict the next wave?

Back to law in the next post.

TAK

Social Innovation

The Community Development Law Clinic that I supervise recently agreed to become a partner in UNC-Chapel Hill's Social Innovation Incubator.  The Incubator will be a space on campus where student groups engaged in social enterprise and social innovation can get advice, capacity-building training, and back office support for their ventures.  If the ventures grow to the point that they can be sustainable charitable organizations, the Incubator will assist them with the process of forming and launching a c3 organization.  My law students and I will do some of the training and much of the legal work.

The concept is appealing for several reasons.  One is the simple fact that the Incubator may bring some order and reason to what heretofore have been unruly (but often effective) groups of students who have charged off the campus to do work in communities of need.  Too often they launch into their community projects blithely unaware of legal problems.  They conduct potentially high risk programs without insurance or waivers, they run finances through their personal bank accounts, and, as often as not, they make no plans for sustaining the organizations after they graduate.  The Incubator will provide support and guidance to help them avoid some of these problems.

There is, I believe, a potential downside to launching a campus based incubator.  Far too often, bright young men and women on college campuses -- thetypes who come to campus with prestigious fellowships that are supposed to groom them as future leaders -- are told that one mark of leadership is forming a nonprofit organization.  It's something they all seem to want on their resumes these days.  Predictably, many of the c3 organizations these "young leaders" form wither and die as soon as the young leaders graduate and move on to law school or business school.  Although the Social Innovation Incubator may prepare these impressive young folks for the legal (not to mention moral) responsibilities of operating nonprofit organizations, I fear that it may also legitimize the notion that all young people of promise and ambition ought to start one.

TAK

India—Troubling Developments Regarding Taxation of Commercial Income

A number of leading public charitable trusts and institutions that for years enjoyed tax exemption have lost their 12Aa registration and their total income has been made taxable. Virtually all of them are well established, credible, well governed and contributing to the commonweal of society - be it empowering women and creating self-sufficiency or promoting art and culture, according to an update by Noshir Dadrawla, Chief Executive of the Centre for Advancement of Philanthropy (CAP) (www.capindia.in). He notes that the Finance Act 2008 changed the definition of “charitable purpose” under Section 2(15) of the Income Tax Act so that “advancement of any other object of general public utility” would not be considered as a “charitable purpose” if it involves carrying on any activity in the nature of trade, commerce, or business or any activity of rendering any service in relation to any trade, commerce, or business for any fee, assessment, or other consideration. Later, the Finance Act 2010 attempted to provide some relief by exempting the aggregate value of the receipts from such activities up to Rs. 10 Lakhs and finally under the Finance Act 2011 to Rs. 25 Lakhs from taxation. Nonetheless, some NPOs that engage in consultancies, etc. are now subjected to tax on all their income. Noshir has urged all affected trusts and institutions to write to him at noshir@capindia.in.

KWS

 

Supreme Court Upholds "Ministerial Exception"

Yesterday, the Supreme Court decided Hosanna-Tabor Lutheran Church and School v. Equal Employment Opportunity Commission.  The Court affirmed that religious organizations benefit from a “ministerial exception” to employment discrimination laws.

Commenting on the decision, the NonProfit Times explained that

The unanimous ruling culminated a case in which a woman sued Hosanna-Tabor Evangelical Lutheran Church and School in Redford, Mich. The woman, Cheryl Perich, said she was fired for pursuing an employment-discrimination claim, based on her having narcolepsy. Hosanna-Tabor didn’t deny the facts, but responded that it fired Perich for violating religious doctrine by taking the case to court rather than trying to settle it within the church.

The High Court, in a unanimous decision written by Chief Justice John Roberts, affirmed religious entities’ right to choose who will preach their beliefs, teach their faith and carry out their mission.

 The Reporter, the official newspaper of the Lutheran Church -- Missouri Synod, gave more details:

In the case, Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission, et al.,a former commissioned-minister (teacher) at the now-closed Hosanna-Tabor school sued the school after she was dismissed in 2005 for "insubordination and disruptive conduct in violation of church teaching," according to Hosanna-Tabor's Petition for Certiorari.
 
The fourth-grade teacher, Cheryl Perich, sued the congregation for disability discrimination, claiming the church rescinded her call as a commissioned minister because of her narcolepsy, a sleep disorder that typically causes excessive daytime sleepiness.
 
A federal district court dismissed the case based on the "ministerial exception," a First Amendment doctrine that bars lawsuits that would interfere in the relationship between a religious organization and employees who perform religious functions.
 
But the U.S. Court of Appeals for the Sixth Circuit later reversed the district court and ruled in favor of Perich, holding that the teacher had a predominantly "secular" role because she spent more time each day teaching secular subjects than religious ones.

In his opinion, Chief Justice John G. Roberts said that, in light of the First Amendment's guarantee of the free exercise of religion, "it is impermissible for the government to contradict a church's determination of who can act as its ministers."
 
Justice Roberts continued:

Since the passage of Title VII of the Civil Rights Act of 1964 and other employment discrimination laws, the Courts of Appeals have uniformly recognized the existence of a 'ministerial exception,' grounded in the First Amendment, that precludes the application of such legislation to claims concerning the employment relationship between a religious institution and its ministers. The Court agrees that there is such a ministerial exception.

As a minister of religion, I am delighted with the Court's decision.  In fact, I agree with the writer at the North American Religious Liberty Association who opined that this was "likely the most important religious liberty case to come down in the past two decades." 

VEJ
   

China—112 Charities to Join Online Disclosure Platform

To restore public trust in charities, 112 Chinese organizations are on track to participate in a government-sponsored information disclosure platform, according to Caixin Online.  In the wake of immense public backlash against China's charities over millions in misused funds, these organizations have pledged to promote information transparency through a new government disclosure platform. Through the China Charity & Donation Information Center’s (CCDIC) forthcoming online platform, the 112 charities said they will publish their accounting records according to a new set of information disclosure guidelines.  The announcement at an annual philanthropy conference sponsored by the Ministry of Civil Affairs—which oversees the CCDIC—comes just three weeks after 24 foundations publicly pledged to ensure the integrity of philanthropy in China. The new standards will also clarify how and when third parties should audit charities, the charities said, although they did not clarify what the exact requirements will look like.  The joint effort includes China Charity Federation, as well as the China Youth Development Federation and the Red Cross Society of China. For more see http://english.caixin.com/2012-01-09/100347049.html. 

KWS

 

Laysha L. Ward Elected Chairperson at CNCS

Today's NonProfit Times is reporting that Laysha L. Ward, president of Community Relations for Target Corporation and leader of the Target Foundation, was yesterday elected chair of the board of the Corporation for National and Community Service (CNCS).

According to the Times, as the nation's largest grant maker for service and social innovation, "CNCS engages more than five million Americans through Senior Corps, AmeriCorps, and other programs, and leads president Barack Obama's United We Serve initiative."

The bipartisan board, whose members are nominated by the President and confirmed by the Senate, sets overall policy and direction for the agency and its programs and provides guidance to the agency’s CEO. Ward was appointed to the CNCS board by President George W. Bush in 2008.

Ward replaces outgoing CNCS board chair Mark Gearan, president of Hobart and William Smith Colleges in New York, who served three terms on the CNCS board, including board chair since June 2010.

VEJ 

 

 

 

 

Fuller Seminary Awarded $5.3 Million Grant

The John Templeton Foundation has awarded a $5.3 million grant to Fuller Theological Seminary's Thrive Center for Human Development.  The grant will fund a three-year project studying "The Science of Intellectual Humility."  According to a press release from Fuller, the project will help find answers to questions such as:

How do we come to hold and retain our beliefs? With today’s deepening religious, political, and societal divisions there are calls for tolerance, but can people simply decide to put aside the intellectual differences that divide them?

 The release also states that

The three-year project will produce a significant volume of research with the goal of leading other scientists—as well as theologians, traditional philosophers, and experimental philosophers—to devote more attention to the subject of intellectual humility. The centerpiece of the project will be an open grant competition administered by Fuller's Travis Research Institute, which will award $4 million to 16 "sub-grantees" who will engage in scientific research on the nature, implications, and ultimate causes of intellectual humility and arrogance—resulting in a body of literature and two conferences that will promote dialogue and collaboration on the topic.

The project’s ultimate goal is to inform work in philosophy, theology, and clinical psychology in ways that will lead to greater openness, more civil discourse, and flourishing in human relationships.

Noble goals, for sure, and goals that, if realized, will help us be, in the words of President George H.W. Bush, "a kinder and gentler nation."

VEJ   

  

China--New Audit Requirement for Chinese NPOs Effective January 1, 2012

The new Audit Guidelines, available in Chinese at http://www.mca.gov.cn/article/zwgk/fvfg/mjzzgl/201112/20111200248698.shtml, for the first time require that financials of foundations be reviewed by certified public accountants.  This guidance comes in response to a series of scandals in “public foundations” (those with close ties to the government such as the Chinese Red Cross Society and the China Charity Federation) that occurred over the course of the summer and fall 2011.  An in depth analysis of the issues and how the government is responding to them can be found in the English language service of China’s Xinhua news agency at http://news.xinhuanet.com/english/indepth/2012-01/02/c_131338859.htm (this story only refers to the November announcement that the audit guidelines would be promulgated, not to the policy itself).  Prior to the new requirement, financials only had to adhere to the Chinese Accounting System for NPOs, available at http://www.iccsl.org/pubs/ChinaAccountingSystemofNPOs.pdf. 

KWS