Wednesday, April 16, 2014

Political Activity Regulations Will Be Re-Written Again . . . and Again (from scratch!)

Let's face it, any attempt at regulating political activity by grass roots organizations, charitable or otherwise, is bound to fail.  Why?  Because nobody has ever explained why engaging in political speech is not a public good, less deserving of subsidization than education, poverty relief, or any of the many other activities considered charitable or advantageous to the social welfare.  What's wrong with political participation through grass roots organizations?  Don't we want more political participation?  Of course we do, but somewhere along the way somebody decided, without ever explaining why, that political engagement was neither charitable nor beneficial to the social welfare.  And by the way, if the evil to be avoided is "capture" of the political process by those wealthy enough to pay to broadcast their speech to wider audiences, wouldn't subsidizing political speech through deductions, exemptions, credits, (maybe with a dramatic cliff so that those who don't need subsidization don't get it) reduce the advantage of money (even if only slightly)?  Why in the world do we assume that one taxpayer should not subsidize another's participation in the political process, when we -- "we" are the government, the government is not "them" -- subsidize all sorts of activities about which there can be no unanimity of opinion.  Remember, too, that we would not be subsidizing a particular viewpoint, just the act of participation.  Just participation.  Seems to me we are wasting an awful lot of time and money trying to stamp out something we don't even think is a bad thing.  And that really is why the effort to regulate political speech subsidized by tax exempt dollars will inevitably fail.  We don't even know why we think political activity is a bad thing.  Something about Lyndon Johnson trying to put a political opponent out of business, right?  I doubt anybody even thinks engaging in the political process is a bad thing.  I'll even go one step further.  Engaging in the political process, even as a staunch lunatic partisan, is probably consistent with most people's conception of "civic duty."  So we should do away with the various prohibitions of and limitations on political activity via collectives.  Then people can support whatever political cause they want through whatever non-governmental organization they want.  I don't necessarily support your position just because I am willing to subsidize (if failing to tax really is a subsidy) your participation in the process.  Look, the rich can talk to more people more often whether we limit nonprofits from engaging the political process or not.  Limiting grassroots participation by denying tax exempt organizations for groups that do only exacerbates that advamtage.  

But I digress.  Every [law school] administrator knows that when everybody complains about something you have done, you either have it perfectly right or all wrong.  Well, everybody is complaining about the proposed "candidate related activity" regulations.  The Service apparently believes the complaints indicate it has the proposed regulations all wrong and apparently is going to start all over again with the effort to stamp out (that is really what we are trying to do, isn't it?) political speech by social welfare organizations.  The Washington Post Blog reports:

The head of the Internal Revenue Service this week signaled that his agency will re-write proposed new limits on the political activities of nonprofit advocacy groups, quelling concerns from the left about overreach but failing to win over conservatives. Lawmakers and policy analysts on both sides of the political spectrum have voiced opposition to the draft guidelines, which would prohibit tax-exempt organizations from engaging in certain election-related activities including voter-registration and get-out-the-vote drives. Conservatives have argued that the proposals are part of an Obama administration plot to silence criticism from the right. Liberals have said the plans go too far and need reworking.

"Re-write" as in start all over again.  Just one big waste of time and effort unless and until we agree on a fundamental theory explaining the motivations for the exercise in the first place.



April 16, 2014 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 15, 2014

Interesting Source Documents re: 501(c)(4) application for exemption

One of the few beneficial effects of the faux scandal regarding the IRS' treatment of 501(c)(4) entities is likely to be public access to lots of stuff that would otherwise not be accessible.  Stuff that might be useful for someone teaching or writing about charities, social welfare organizations and political activity.  For instance, you can find almost the entire case file pertaining to Americans for Responsible Leadership's application for tax exemption here.  For those of us who are not in the trenches often enough (or maybe don't have a life!), this actually makes for interesting reading.


April 15, 2014 in Federal – Executive | Permalink | Comments (1) | TrackBack (0)

Nonprofit Finance Fund: State of the Nonprofit Sector Survey

New York – April 7, 2014– The economic recovery is not offering signs of relief for the nonprofit sector, and many organizations are now looking to new models of funding, according to the results of the Nonprofit Finance Fund’s 2014 State of the Nonprofit Sector Survey. Leaders from more than 5,000 nonprofits nationwide participated in this sixth annual survey. Many reported daunting financial situations, and said they are looking at new ways to secure the future of their organizations for the benefit of the people they serve.  The survey was supported by longtime partner the Bank of America Charitable Foundation as well as the Ford Foundation.

The economic recovery is leaving behind many nonprofits and communities in need:

  • 80% of respondents reported an increase in demand for services, the 6th straight year of increased demand.   
  • 56% were unable to meet demand in 2013—the highest reported in the survey’s history.  
  • Only 11% expect 2014 to be easier than 2013 for the people they serve.

“Americans rely on nonprofits for food shelter, education, healthcare and other necessities, and everyone has a stake in strengthening this social infrastructure,” said Antony Bugg-Levine, CEO of Nonprofit Finance Fund. “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”

For many nonprofits, the funding landscape is changing. Of respondents who receive government funding, nearly half have seen support decline over the past five years.

 Nonprofits are working to bring in new money; in the next 12 months:

  • 31% will change the main ways in which they raise and spend money.
  • 26% will pursue an earned income venture.
  • 20% will seek funding other than grants & contracts, such as loans or other investments.

“Today’s environment requires creative problem-solving and good communication with funders and partners,” said Robert Chávez, Chief Executive Officer of Urban Corps of San Diego County, which provides a high school education and green job training to young adults. “As a conservation corps, we have always relied on a fee-for-service program model to fund job training projects. Now, we are diversifying our services and exploring new income-generating partnerships in order to supplement at-risk funding, become fully self-sufficient, and ultimately better serve youth.”

41% of nonprofits named “achieving long-term financial stability” as a top challenge, yet:

  • More than half of nonprofits (55%) have 3 months or less cash-on-hand. 
  • 28% ended their 2013 fiscal year with a deficit.  
  • Only 9% can have an open dialogue with funders about developing reserves for operating needs, and only 6% about developing reserves for long-term facility needs.  

“The closer a system gets to failure, the harder it becomes to devote scarce resources toward building a better future,” said Bugg-Levine. “The nonprofit sector’s greatest asset is tenacious, creative, smart leaders who, despite significant challenges and with the right support, have the capacity to lead the United States into a new era of civic and social greatness.”

Nonprofits are taking wide-ranging steps to survive and succeed.
In the past 12 months:

  • 49% collaborated with another organization to improve or increase services.
  • 48% invested money or time in professional development.
  • 40% upgraded hardware or software to improve organizational efficiency.
  • 39% conducted long-term strategic or financial planning.

“Today, it’s clear that government funding and traditional philanthropy alone can’t cover the critical work of nonprofits addressing pressing challenges in our communities,” said Kerry Sullivan, president of the Bank of America Charitable Foundation. “Tools like the Nonprofit Finance Fund survey can help fuel discussion among nonprofits and the private sector about how new funding models and strategies can better support shared goals of stronger organizations and communities.”

For the first time, the annual survey delved into impact measurement, a core component of some emerging funding models such as pay-for-success:

  • Respondents said that more than 70% of their funders requested impact or program metrics.
  • 77% agreed that the metrics funders ask for are helpful in assessing impact.
  • Only 1% reported that funders always cover the costs of impact measurement; 71% said costs were rarely or never covered.

“The NFF survey results illustrate the ongoing risks of a frayed social safety net dealing with increasing demand,” said Hilary Pennington, vice president of the Ford Foundation’s program for Education, Creativity and Free Expression. “If we continue to expect nonprofits and their dedicated staff to meet society’s most critical needs at the most crucial times– we need to recommit as a society to strengthen the necessary supports to do just that.”


April 15, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Thursday, April 10, 2014

Did Nonprofit Law Prof Blog Precipitate IRS Scrutiny of (c)(4) political activity?

Most certainly not.  But on page 31 (and appendix 15) of Darrell Issa's report, "Lois Lerner's Involvement in the IRS Targeting of Tax-Exempt Organizations," the staff authors cite an email exchange between Policy and EO regarding this Nonprofit Law Prof post as evidence of a "secret" plan to target conservative (c)(4) organizations.  The email author describes the potential issuance of guidance on (c)(4) political activity "off-plan," meaning, of course, that the topic was not previously part of the yearly "to do" list the Service issues every year.   Unremarkable, if one understands that executive branch departments frequently issue annual workplans, sometimes supplemented as the year progresses.  Nevertheless, "information available to the Committee," says the report, conspiratorial music playing in the background, "indicates that Lerner played some role in the IRS's and the Treasury Department's secret "off-plan" work to regulate 501(c)(4) groups."   Can't make this stuff up.


April 10, 2014 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Michigan Radio: Are Tax-Exempt Properties Bleeding Cities Dry?

Last week we blogged on a report out of the University of Michigan regarding the impact of tax exempt property owners on city coffers.  Click here to listen to Michigan Public Radio discuss the report.  There is an accompanying article here.



April 10, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 8, 2014

A Case Study of Legislation vs. Regulation: Defining Political Campaign Intervention under Federal Tax Law

Ellen Aprill's latest article appears in the Duke Law Journal and is available from SSRN.  Here is the abstract:

The rules that should govern political campaign intervention by social welfare organizations exempt from taxation under § 501(c)(4) of the Internal Revenue Code have been the subject of recent controversy. Long before all the attention, a group of dedicated and experienced experts on the topic, under the auspices of two well-known nonprofit groups, undertook the task of clarifying the rules regarding tax-exempt political activity. In light of the issues becoming national news, the group, known as the Bright Lines Project, also converted the regulatory proposal into legislative language. These two versions of the same rules — as a set of regulations and as a set of statutes — provide a natural laboratory to compare the administrative law implications of choosing between legislation and regulation to establish a set of tax rules. This Article undertakes that examination. It concludes that, if revenue rulings interpreting regulations are afforded deference under Auer v. Robbins and Bowles v. Seminole Rock & Sand Co., promulgating the initial definition of political campaign intervention as a set of regulations may well give the Internal Revenue Service greater power to police political campaign intervention by exempt organizations than would the enactment of detailed legislation. It recommends, however, that broad statutory guidance, followed by regulations, and then by revenue rulings strike the best balance between democratic concerns and administrative flexibility.


April 8, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Repairing Facade Easements: Is This The Gift That Launched a Thousand Deductions

Martha Jordan has posted the article which is the title of this post.  Here is the abstract:

This article explores the impact of such a covenant on the characterization for tax purposes of expenditures to maintain the facade. In particular this article explores the following question: Given that the charitable easement holder owns a nonpossessory interest in the facade, which imposes on the charity an obligation to repair and maintain the facade and entitles it to benefit from increases in the value of the facade, is a donor's assumption of the charity's obligation to repair the facade an additional charitable contribution to the charity? If a donor gratuitously makes improvements to property owned outright by a charity, such improvements are deductible charitable contributions. Similarly, if a donor gives money to a charitable easement holder to enable it to maintain the property subject to the easement, such donations are deductible charitable contributions. This article goes one step further and asks whether a donor who assumes the cost of maintaining the charity's nonpossessory interest in the facade makes an indirect deductible charitable contribution to the charity when such repairs are made. Having done so, this article concludes that if the general rule imposes the obligation to repair the facade on the charitable easement on the easement holder, the covenant in which the donor assumes liability to repair the servient estate represents the donor's promise to make gifts in the future and that payments pursuant to such a promise constitute, to the extent of the charity's obligation to repair, additional indirect charitable contributions. This article also concludes that current law supports the allowance of a deduction for indirect, as well as direct, charitable contributions.

The article appeared in the Akron Tax Journal.


April 8, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Saturday, April 5, 2014

Kaufman v. Commissioner (Again)—Façade Easement Had No Value and Penalties Imposed

KaufmanIn the fourth in a line of cases, Kaufman v. Commissioner, T.C. Memo. 2014-52 (Kaufman IV), the Tax Court sustained the IRS’s complete disallowance of charitable deductions claimed under IRC § 170(h) for a façade easement donation. The court also sustained the imposition of penalties on the
 basis of gross valuation misstatement, negligence, or substantial understatement of income tax. The property involved is a residential rowhouse in the South End historic district of Boston, Massachusetts.

In the first two Kaufman cases (Kaufman v. Commissioner, 134 T.C. No. 9 (2010) and Kaufman v. Commissioner, 136 T.C. No. 13 (2011)), the Tax Court held that the mortgage subordination agreement obtained in connection with the façade easement donation, which granted the Kaufman’s lender priority rights to insurance or condemnation proceeds in the event of the easement’s extinguishment, caused the donation to fail as a matter of law to comply with the “enforceable-in-perpetuity” requirements of the Treasury Regulations interpreting § 170(h).

In the third Kaufman case (Kaufman v. Shulman, 687 F.3d 21 (2012)), the First Circuit vacated the Tax Court’s holdings in part, but remanded on the issue of valuation. The First Circuit noted that the IRS had pointed to evidence that the value of the easement was close to zero, and “170(h) does not allow taxpayers to obtain six-figure deductions for gifts of lesser or no value.” The First Circuit also explained that the Kaufmans had expressed concern to the donee—the National Architectural Trust (NAT)—about the high appraised value of the façade easement because it implied a substantial reduction in the resale value of their home. “In an effort to reassure them, a [NAT] representative told the Kaufmans that experience showed that such easements did not reduce resale value.” “This,” said the First Circuit, “could easily be the IRS's opening argument in a valuation trial.”

And so it apparently was. In Kaufman IV, in sustaining the complete disallowance of the deductions claimed with regard to the  easement donation as well as the imposition of penalties, the Tax Court placed particular emphasis on the fact that a NAT representative had sent an email to Mr. Kaufman explaining that façade easements do not reduce the value of the properties they encumber, and the Kaufmans nonetheless claimed charitable deductions based on an appraisal, obtained from an appraiser NAT had recommended, indicating that their easement reduced the value of the rowhouse by 12% (or by $220,800). In its opinion, the Tax Court reproduced portions of this “smoking gun” email, which explained, in part:

One of our directors, Steve McClain, owns fifteen or so historic properties and has taken advantage of this tax deduction himself. He would have never granted any easement if he thought there would be a risk or loss of value in his properties.

The Tax Court also noted an article written by a former President of NAT that stated, among other things:

By preserving a piece of historic architecture for future generations, the property owner can get a big tax deduction with little cost or risk.

The Tax Court further noted that, in requesting that the bank holding a mortgage on the rowhouse  subordinate its interest to the easement, the Kaufmans’ represented to the bank that:

The easement restrictions are essentially the same restrictions as those imposed by current local ordinances that govern this property.

While assuming the appraisal the Kaufmans obtained was a “qualified appraisal,” the Tax Court gave no weight to its estimate of value because the court found the appraiser’s method (application of a standard diminution percentage to the value of the property before the easement's donation) to be unreliable and his analysis unpersuasive.

On the other hand, the Tax Court found the IRS’s valuation expert, who determined that the value of the easement was zero, to be more persuasive. The IRS’s expert opined, among other things, that the typical buyer would find the restrictions in the façade easement no more burdensome than local historic preservation restrictions and, even if the façade easement were more restrictive, it would not necessarily reduce the value of the property because homeowners in historic districts place premium value on the assurance that the neighborhood surrounding their homes will remain unchanged over time.

The Kaufmans were also unable to persuade the Tax Court that they made a good-faith investigation of the value of the easement, or acted with reasonable cause and in good faith, or had a reasonable basis for claiming the deductions, and should therefore be able to avoid penalties. This was in large part due to the fact that NAT had represented to Mr. Kaufman, a sophisticated MIT Emeritus Professor of Statistics, that the easement would not reduce the value of the rowhouse, and the Kaufmans nonetheless proceeded, without further investigation, to claim charitable deductions based on the appraiser’s estimated $220,800 reduction in the value of the property.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

April 5, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, April 4, 2014

Article on Conservation Easements and Climate Change

Adena R. Rissman (Department of Forest and Wildlife Ecology, University of Wisconsin-Madison), Jessica Owle (SUNY Buffalo Law School), Barton H. Thompson Jr. (Stanford Law School) and M. Rebecca Shaw (Environmental Defense Fund) have posted Adapting Conservation Easements to Climate Change on SSRN.  Here is the abstract:

Perpetual conservation easements (CEs) are popular for restricting development and land use, but their fixed terms create challenges for adaptation to climate change. The increasing pace of environmental and social change demands adaptive conservation instruments. To examine the adaptive potential of CEs, we surveyed 269 CEs and interviewed 73 conservation organization employees. While only 2% of CEs mentioned climate change, the majority of employees were concerned about climate change impacts. CEs share the fixed-boundary limits typical of protected areas with additional adaptation constraints due to permanent, partial property rights. CEs often have multiple, potentially conflicting purposes that protect against termination but complicate decisions about principled, conservation-oriented adaptation. Monitoring is critical for shaping adaptive responses, but only 35% of CEs allowed organizations to conduct ecological monitoring. Additionally, CEs provided few requirements or incentives for active stewardship of private lands. We found four primary options for changing land use restrictions: CE amendment, management plan revisions, approval of changes through discretionary consent, and updating laws or policies codified in the CE. Conservation organizations, funders, and the IRS should promote processes for principled adaptation in CE terms, provide more active stewardship of CE lands, and consider alternatives to the CE tool.



April 4, 2014 | Permalink | Comments (0) | TrackBack (0)

Pittsburgh Nonprofit Target of Union, City Government Seeking Tax Revenue

The New York Times reports that the University of Pittsburgh Medical Center (UPMC), a nonprofit conglomerate of 22 hospitals and 62,000 employees, is facing a campaign by the Service Employees International Union to organize more than 10,000 of UPMC’s service workers.  The story describes the effort as, at times, seemingly “less a traditional unionization battle than an experimental labor effort to demonize, irritate and embarrass the hospital system into adopting a $15-an-hour wage floor, up from the current $11.”  According to union officials, says the story, UPMC’‘s adoption of a $15 minimum wage would render UPMC “a model for Pittsburgh and other cities where hospitals are the largest employers.”


The union is reportedly applying additional pressure by supporting the City of Pittsburgh’s attempts to subject UPMC’s land and facilities to property taxation.  Here is what the story reports on the subject of taxation:


Not stopping there, the union is backing Pittsburgh’s efforts to strip UPMC of $20 million in annual tax breaks on the grounds that it is a profit-seeking company. If it were a nonprofit, the union and city officials ask, why does UPMC, with $10.2 billion in revenues last year, run for-profit facilities in Italy, Ireland and Kazakhstan?


Hospital officials deny the union’s assertions.


W. Thomas McGough Jr., UPMC’s chief legal officer, defended the tax breaks, saying the hospital system provided $887 million last year in charity care, donations for scholarships and subsidies to its medical school. The corporate jet, he said, is largely used to fly teams of executives and doctors to Italy, Kazakhstan and other out-of-the-way places. He said the for-profit operations overseas provided $400 million in profit to bolster the nonprofit activities.



April 4, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 2, 2014

NPR's All Things Considered on Television Ministries and "Church" for Purposes of IRC 501(c)(3)

Yesterday's episode of All Things Considered on NPR had an interesting discussion of Congress and the Service's hands-off approach to Churches in general and large television ministries in particular.  The on-air report was generally negative towards the tax treatment of television mega-ministries.  The on-line report, while also mostly negative, is chock full of links to interesting basic data, including financial reports and transcripts of deposition testimony concerning the finances of television ministries.  If you are teaching, researching, or just interested, this is a source worth checking out. 


April 2, 2014 in Current Affairs | Permalink | Comments (0) | TrackBack (0)

Most Recent Nonprofit Advocacy Matters

The most recent issue of Nonprofit Advocacy Matters from the National Council of Nonprofits contains several stories of interest.  Here are some of the headlines:

Senate Action Likely on Expired Giving Incentives

Federal Agencies Shifted Sequestration Burdens on Nonprofits, Others

Connecticut Reconsiders Support for Some Nonprofit Property Exemptions

Public University Pegged for “PILOTS”

The Relationship Between Cities and Nonprofits: It’s Complicated


According to the first story listed above, the Senate Finance Committee plans to consider renewing “several dozen expired tax incentives,” including those described as follows:

The food inventory enhanced tax deductions allowed individuals, businesses, and corporations to donate wholesome food to nonprofits and deduct their cost basis plus one-half the difference between their cost and the market value of the donated goods. The enhanced tax deduction for conservation easement donations permitted landowners to donate or sell certain rights associated with his or her property, such as the right to subdivide or develop, and a private organization or public agency agrees to hold the landowner’s promise not to exercise those rights. The IRA charitable rollover allowed individual taxpayers older than 70 ½ years to donate up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs to charitable nonprofits without having to treat the withdrawals as taxable income.



April 2, 2014 | Permalink | Comments (0) | TrackBack (0)

AAAS Releases Report on Former President

The Boston Globe reports that the American Academy of Arts and Sciences (AAAS) released a report this week on its former president, Leslie C. Berlowitz, who allegedly “exaggerated her resume and manipulated the compensation process to boost her pay by nearly $2.2 million over her 17-year tenure.”  Berlowitz responded with her own written statement that characterizes the findings as “incomplete and unfair.”

The story contains a link to a letter from the Chair of the AAAS Board to its fellows concerning the scandal, the full AAAS report by the Board of Directors, and Berlowitz’s written response.  Nonprofit lawyers will be especially interested in the report’s findings concerning Berlowitz’s compensation.  The AAAS report concludes that she exerted “inappropriate influence” over the process of determining her compensation and that, as a result, she was excessively compensated.  Particular deficiencies, according to the report, include the use of inappropriate comparability data (supplied by Berlowitz) and the failure to rely on compensation consultants.  The report recommends several changes in governance procedures to address the concerns.

The Globe reports that the Massachusetts Attorney General’s office “is reviewing the report and changes the academy is making.”

Beyond the news value of this story, the facts set out in the AAAS Board’s report might provide an interesting case study for both the board room (where nonprofit lawyers try to educate charity managers) and the classroom (where nonprofit law professors try to educate students).  What allegedly transpired between Berlowitz and the AAAS compensation committee strikes me as similar to situations in which any number of other charitable nonprofits may find themselves. 


April 2, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 1, 2014

The Internet of Things and the Coming Dominance of the Nonprofit Society

As a follow up to a recent post discussing Jeremy Rifkin's theory regarding the decline of the capitalist economy and the rise of the sharing economy (moderated by nonprofits), I thought I would post this discussion of the theory on a recent episode of the Diane Rehm show.  (Audio Player required).  On second thought, I now kinda think the reports of the death of capitalism and the birth of the sharing economy are greatly exaggerated.


April 1, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

The Impact of Tax Exempt Properties on Michigan Local Governments

When it comes to the benefits and burdens that tax exempt organizations bring to local communities, there is always unsupported rhetoric on both sides.  Supporters of tax exempt organizations claim, if only meekly, that they bring more benefits to their communities then their communities bring to them.  Local government leaders claim just the opposite, particularly in connection with their demands for PILOTS.  A March 2014 report from the Gerald Ford Center at the University of Michigan contains a dispassionate discussion of the issue and, though it focuses on local governments in Michigan, is well worth reading.  Here is the conclusion: 

Michigan’s local governments have been hit by decreasing revenues, due largely to both falling property values and the taxes those properties generate, and cuts to revenue sharing from the state government. Property tax revenues—one of the most important sources of funding for local government—are further constrained by the fact that many properties within Michigan’s communities are exempted from paying taxes in the first place. While Michigan’s local leaders are more likely to say the tax-exempt properties (TEPs) in their communities are relatively insignificant when measured as a portion of their jurisdictions’ total land area, potential tax revenues, and sources of service demands, nonetheless, significant percentages say TEPs are in fact moderate or significant factors in these ways. Tax-exempt properties, and the organizations that own them, can be assets and/or liabilities to their local communities. On one hand, they can help attract tourists and can provide jobs, medical services, human services, a more highly educated workforce, and much more. In these ways they might help produce more economic and quality of life benefits to a community than they cost in forfeited revenues. On the other hand, they can also introduce additional costs and burdens on the local government, such as the need for police and fire protection, water and sewer services, street lighting, and street plowing and maintenance. And because they don’t pay property taxes, they enjoy these kinds of benefits while others in the community must cover the associated costs.
For the most part, the MPPS finds that local leaders in Michigan see the TEPs in their jurisdictions as a mixed blessing in terms of their impact on the jurisdictions fiscal health. Overall, 40% say their TEPs are both assets and liabilities to fiscal health, while 26% say they are primarily assets, and just 15% say they are primarily liabilities. However, in jurisdictions where TEPs have a significant presence, 40% of local leaders view them primarily as liabilities to fiscal health.  In terms of their impact on a community’s quality of life, TEPs are more likely to be viewed as assets. Overall, 46% of local leadersview their TEPs as assets in this way, while just 7% see them as liabilities. Statewide, a relatively small portion of Michigan’s local jurisdictions appear to be actively investigating options to generate new revenues to offset the property tax revenues that are currently exempted. Just 24% of local jurisdictions with TEPs say these kinds of issues have been discussed recently among local leaders. However, this shifts dramatically in locations where local leaders say TEPs have a significant presence. In these cases, 60% of MPPS respondents say local leaders in their jurisdictions have discussed these issues ecently, and note that they are looking into a range of options to charge currently exempted properties for the services they receive, with policies such as new millages, fees-for-service, payments-in-lieu-of-taxes agreements, and special assessment districts.

April 1, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Monday, March 31, 2014

Proposed Charitable Fundraising Legislation in Florida

An interesting opinion editorial in the Tampa Bay Times discusses proposed state legislation regulating charitable fundraising.  According to the editorial, an investigation conducted by the Tampa Bay Times/Center for Investigative Reporting found “that of the 50 worst offenders [among charities soliciting funds from the public] across the nation, 11 were based in Florida.” 

The proposed reforms are said to include the following: (1) enhancing “public disclosure of the inner workings of charities and solicitors;” (2) clarifying “when the state has the power to shut them down, including when they are banned in other states;” (3) requiring each employee who makes calls soliciting funds to submit to fingerprinting and a background check for a $100 registration fee; (4) requiring fundraisers “to provide copies of solicitation scripts, the locations and phone numbers from which calls are to be made, and details about what percentage of funds raised actually flow to the charity;” and (5) requiring charities that raise at least $1 million annually but devote less than 25 percent of proceeds to charitable purposes to “submit detailed reports on where the money went ” – the information from which would be made available “in a new online database, enabling Floridians to better investigate a charity before giving.”


March 31, 2014 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Compensation of CEOs of Atlanta Nonprofit Hospitals

In How Atlanta’s Hospital Chiefs Earn Their Millions, the Atlanta Journal-Constitution (subscription required) reports that several nonprofit hospitals in Atlanta are paying their CEOs very well, but a question remains as to whether compensation incentives are properly designed. 

For example, Northside Hospital reportedly paid $5.3 million in salary, a bonus and cash retirement benefits to its chief executive in 2011.  His bonus of $1.2 million was attributed to his having “met every goal in his incentive plan, including targets related to quality of care and ‘stakeholder satisfaction.’”  However, the hospital’s attorney declined to identify the specific goals achieved.

The story continues:

Atlanta's nonprofit hospitals routinely dangle six- and seven-figure bonuses in front of their chief executives, but experts say it's important to know what those CEOs are being paid to do. In a system distorted by gross inefficiency and dangerous lapses in quality, are leaders being incentivized to transform health care or simply squeeze more money out of it?


At Gwinnett Medical Center, for example, part of the CEO's bonus in 2013 hinged on whether the hospital performed a certain number of surgeries. At DeKalb Medical Center, the main emphasis was on cutting losses by growing revenue -- even nonprofits have to make a certain amount of money to survive -- but finances received a higher priority in the CEO's incentives package than quality goals.


Children's Healthcare of Atlanta, which paid its CEO a $547,000 bonus and "retention" payment in 2012, said quality was part of its chief executive's incentive plan. But Children's refused to reveal its quality measures or how they influenced the bonus. At Atlanta nonprofit hospitals that did reveal details, keeping patients safe from infections and achieving higher-quality standards in general rarely account for more than 30 percent of the CEO's total incentive plan.

The article also quotes U.S. Senator Chuck Grassley with respect to his concern that nonprofit hospitals “ratchet” salaries higher by relying on consultants, who can justify one hospital’s compensating its CEO at a level slightly higher than that paid by a second hospital, leading to a third hospital’s payment of still higher compensation, and so on.   

The full story also appears on FindLaw.  


March 31, 2014 | Permalink | Comments (0) | TrackBack (0)

Sunday, March 30, 2014

Glass v. Van Lokeren—Conservation Easement Donors Sue Land Trust

Glass v Van Lokeren copy 2In 1992 and 1993, Charles and Susan Glass donated two conservation easements protecting small portions of a 10-acre parcel located on the shoreline of Lake Michigan, known as Pineyrie. The donations were made to the Little Traverse Conservancy (LTC), a nonprofit organization dedicated to protecting the scenic beauty of northern Michigan.

The Glasses claimed federal charitable income tax deductions with regard to the easement donations, and the IRS challenged the deductions, claiming that the easements did not satisfy the habitat protection conservation purposes test under IRC § 170(h)(4)(A)(ii). Both the Tax Court and the 6th Circuit on appeal held for the Glasses. See Glass v. Comm'r, 471 F.3d 698 (6th Cir. 2006), aff’g Glass v. Comm'r, 124 T.C. 258 (2005).

The value of the easements, however, remained in dispute. The tax litigation had revealed that the legal descriptions in the easements inaccurately described the easements' boundaries, resulting in a substantial overstatement of their values. The Glasses and the IRS eventually agreed that the easements were not worth as much as the Glasses had claimed. Accordingly, in addition to incurring legal fees, the Glasses were ultimately liable for a substantial underpayment of federal income tax as well as interest and penalties.

In an effort to relieve some of their financial woes, the Glasses attempted to sell a portion of Pineyrie, including to their neighbor Van Lokeren, who was a member of LTC's board of directors. At the behest of Van Lokeren, LTC informed the Glasses and the listing real estate broker that the Glasses proposed division of the parcel violated the conservation easements. LTC eventually filed a lawsuit seeking reformation of the easements, asserting that the parties made a mutual mistake regarding the easements’ legal descriptions. The Glasses countered, arguing that LTC had interfered with their ability to sell Pineyrie by “threatening meritless litigation,” and that LTC’s Executive Director and others on LTC’s board engaged in

a common scheme and design constituting a conspiracy to wrongfully and tortiously interfere with an economic business interest of the Glasses, with the purpose and intent to destroy the marketability of the Glasses[’] property and/or to drive down its price in order to benefit both the LTC and a single member or members of its Board of Trustees.

The case was eventually voluntarily dismissed. Meanwhile, Pineyrie went into foreclosure and was sold at a sheriff’s sale.

The Glasses then filed suit, asserting that LTC and Van Lokeren had, among other things, engaged in unrelenting and concerted efforts to interfere with the Glasses’ attempted sale of Pineyrie. In a detailed but unpublished decision, Glass v. Van Lokeren, LC No. 09-002049-CZ (Mich. App. March 25, 2014), the Michigan Court of Appeals found no merit to any of the Glasses' asserted claims, which included conspiracy to tortiously interfere with business or economic relationships, slander of title, malicious prosecution, and abuse of process. The court also found that both LTC and Van Lokeren had legitimate reasons for questioning and objecting to the proposed division of Pineyrie due to the conservation easements.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

March 30, 2014 | Permalink | Comments (1) | TrackBack (0)

Friday, March 28, 2014

Northwestern Football Players are really employees. Is the football team really charitable?

Try as I might, I can't satisfactorily articulate the logical nexus between the decision that D-one college football players are not really students just playing football after classes but instead full blown employees who go to class after work and the argument that D-one football teams are not just student groups furthering the educational misssion of a tax exempt organization but instead very big business.  The only thing one has to do with the other is that there are legal fictions on both sides of the comparisons.  As in "student athletes are to employment as D-one college football teams are to professional football leagues?"  Another problem is that the NFL, too, is tax exempt.  A bill was recently introduced in the House and the Senate to strip the NFL, MLB, and NHL of their exempt status.  The bill has a snowball's chance so I won't even go back and find the link.  But somehow when I read the opinion -- the campus lives of our Saturday afternoon heros makes interesting reading -- I got the feeling that that exposing the myth of the student athelete somehow also exposes the myth of amatuer [nonprofit and tax exempt] competition.  I think the parties were cognizant of this issue. The  football players' brief takes issue with the whole concept of amateurism and the notion that the concept requires that the players not be treated as employees.  In fact, the brief explicitly accuses the University of just trying to protect its profits.  Northwestern's brief takes the contrary view, arguing that D-one football is all about education and amateur athletics and therefore the students should not be treated as employees, lest the charitable goals be sacrificed.  Northwestern stresses that college football is an "avocation" not a "vocation."  I have only skimmed the briefs, actually, but neither side explicitly or directly addressed the fundamental problem -- the whole idea that we are purportedly dealing with charitable organizations pursuing something other than profit.  Even the description of the lives of college football players calls to mind something other than amateur athletics:  

The first week in August, the scholarship and walk-on players begin their football season with a month-long training camp, which is considered the most demanding part of the season. In training camp (and the remainder of the calendar year), the coaching staff prepares and provides the players with daily itineraries that detail which football-related activities they are required to attend and participate in. The itineraries likewise delineate when the players are to eat their meals and receive any necessary medical treatment. For example, the daily itinerary for the first day of training camp in 2012 shows that the athletic training room was open from 6:30 a.m. to 8:00 a.m. so the players could receive medical treatment and rehabilitate any lingering injuries. Because of the physical nature of football, many players were in the training room during these hours. At the same time, the players had breakfast made available to them at the N Club. From 8:00 a.m. to 8:30 a.m., any players who missed a summer workout (discussed below) or who were otherwise deemed unfit by the coaches were required to complete a fitness test. The players were then separated by position and required to attend position meetings from 8:30 am to 11:00 a.m. so that they could begin to install their plays and work on basic football fundamentals. The players were also required to watch film of their prior practices at this time.  Following these meetings, the players had a walk-thru from 11:00 a.m. to 12:00 p.m. at which time they scripted and ran football plays. The players then had a one-hour lunch during which time they could go to the athletic training room, if they needed medical treatment. From 1:00 p.m. to 4:00 p.m., the players had additional meetings that they were required to attend. Afterwards, at 4:00 p.m., they practiced until team dinner, which was held from 6:30 p.m. to 8:00 p.m. at the N Club. The team then had additional position and team meetings for a couple of more hours. At 10:30 p.m., the players were expected to be in bed (“lights out”) since they had a full day of football activities and meetings throughout each day of training camp. After about a week of training camp on campus, the Employer’s football team made their annual trek to Kenosha, Wisconsin for the remainder of their training camp where the players continued to devote 50 to 60 hours per week on football related activities.


For a more direct discussion of the NCAA's status as a nonprofit, tax exempt organization fostering  amatuer athletics, see this post providing a link to John Colombo's article on the topic. 



March 28, 2014 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

Thursday, March 27, 2014

World Vision Reverses Decision: Won't Recognize Employee Same-Sex Marriage

On Monday, Christian relief organization World Vision announced that its employee conduct manual  would no longer define marriage as being between a man and a woman.  According to a report from the Religious News Service, the organization's U.S. branch would henceforth recognize same-sex marriage as being within the norms of "abstinence before marriage and fidelity in marriage" discussed in World Vision's conduct code for its 1,100 employees. 

In a letter to employees issued on Monday, World Vision President Rich Stearns stated that the organization was not endorsing same-sex marriage, but had "chosen to defer to the authority of local churches on this issue."

In an interview with Christianity Today, Stearns said that the organization's board was "overwhelmingly in favor" of the change.  However, he stressed that the decision was not driven by theology.  He added: "There is no lawsuit threatening us.  There is no employee group lobbying us.  This is simply a decision about whether or not you are eligible for employment at World Vision U.S., based on a single issue, and nothing more."

Today's NonProfitTimes is reporting that just two days after making its big announcement, World Vision reversed it.  In a letter to supporters yesterday, Stearns and Chairman of the World Vision U.S. Board, Jim Bere, announced that the organization was reversing its recent decision to change its "national employment policy."

According to the "Dear friends" letter sent to the organization's "trusted partners,"

The board acknowledged they made a mistake and chose to revert our longstanding conduct policy requiring sexual abstinence for all single employees and faithfulness within the Biblical covenant of marriage between a man and a woman.

Speaking directly to the organization's "trustred partners," Stearns and Bere stated: "We have listened to you and want to say thank you and to humbly ask for your forgiveness."

The initial decision was greeted with both criticism and support.  The reversal has drawn the same types of responses.  One skeptic posted the following comment on World Vision's Facebook page: "I can see that your board has got its priorities right -- money talked, and you not only listened, you obeyed."

That may not be necessarily true.  It is highly probable that upon prayerful reconsideration of its "new policy" and heated discusions concerning the change, the World Vision board reversed itself.  Either decision would be popular with some, unpopular with others.  In the final analysis, World Vision must do what it believes best helps the organization achieve its mission.




March 27, 2014 in Current Affairs, In the News, Religion | Permalink | Comments (0) | TrackBack (0)