Saturday, December 29, 2007
Taxprof Blog reports that Anup Malani and Eric Posner, two University of Chicago professors hewing to the Chicago economic tradition, have published a provocative argument for subsidizing profit-takers who engage in charitable activity. Malani and Posner's basic assertion is that the distribution of profit should not deprive an organization of tax benefits designed to subsidize charitable activity. Indeed, the profit incentive might even serve to increase the delivery of "public goods. But doesn't the charitable contribution deduction already do what these scholars advocate on an activity by activity basis (rather by an entity-by entity basis)? See Caron's report for more details and to download a copy of the article.
Professor Nancy McLaughlin (Utah) posted an abstract of her draft Ecology Law Quarterly article about conservation easements on SSRN's Nonprofit and Philanthropy Law Abstracting Journal. The article is entitled "Conservation Easements: Perpetuity and Beyond." Here is the abstract:
Perpetual conservation easements are intended to protect the particular land they encumber for the conservation purposes specified in the deed of conveyance in perpetuity, or at least until circumstances have changed so profoundly that continued protection of the land for those purposes is no longer feasible. To protect the public interest and investment in perpetual conservation easements, and, at the same time, permit adjustments to be made to respond to changing conditions, such easements should be treated like any other form of charitable asset acquired by a government or charitable entity for a particular charitable purpose -i.e., as subject to equitable charitable trust principles. This Article outlines the considerable support for applying charitable trust principles to perpetual conservation easements, including uniform laws, the Restatement of Property, federal tax law, and judicial activity on this issue to date. This Article cautions that perpetual land protection is not appropriate in all circumstances and recommends a more considered use of perpetual conservation easements as a land protection tool. This article also explores the possible use of a number of nonperpetual conservation easements to accomplish land protection goals.
We previously blogged Harvard's new plan to provide financial grant assistance to middle class students. On December 29, 2007, the New York Times reports that Harvard's move is likely to pressure other colleges and universities to follow suit. Here is an excerpt from the article:
Some colleges had already been moving to eliminate loans from all their financial aid packages and replace them with grants. In the weeks since Harvard’s announcement, a stampede of additional institutions — the University of Pennsylvania, Pomona, Swarthmore, Haverford — have taken the same step, which will help middle- and upper-middle-income families.
But Harvard, in adopting that practice, has also gone far beyond it: for families earning $120,000 to $180,000 a year, costs will now be limited to about 10 percent of income, meaning that students from such families will pay a maximum of $18,000, a deep discount from the university’s full annual cost of more than $45,600.
Friday, December 28, 2007
A Maureen Downey editorial in yesterday's Atlanta Journal Constitution highlights growing concerns over a $1.6 million golden parachute (plus $100K plus per year for life -- its good to be loved!) given to former United Way Metropolitan Atlanta CEO Mark O'Connell. Here is part of the editorial:
United Way of Metropolitan Atlanta. On its Web site, the nonprofit has posted a long defense of the generous deal that gave former Chief Executive Mark O'Connell nearly $1.6 million in cash on top of a pension that assures him about $106,000 a year for life.
The organization's jitters are understandable. Its entire mission depends on the willingness of people to sacrifice money and time to fund good works in the community. If the United Way organization and its staff are themselves seen as unwilling to sacrifice, the organization loses credibility.
I intend to use the organization's written statement in defense of the retirement package this spring in my class on Tax Exempt Organizations. No doubt written by counsel, the statement focuses almost entirely on the benefits derived by the organization as a result of the compensation package, asserting that the package is commensurate with other compensation packages paid to CEO's of "similar sized" organizations. Obviously the authors are familiar with the excess benefit regulations. It is interesting too to see how lawyers must mesh law and public relations. An accompanying document makes assertions relating to the method by which the board agreed upon the retirement package. It seems apparent that United Way Atlanta is taking preemptive action against an allegation of excess benefit or private inurement. It is also engaging in an aggressive PR campaign.
Summer Ayers LePree Posts "Taxation of US Tax-Exempt Entities' Offshore Hedge Fund Investments- Application of the Section 514 Debt-Financed Rules to Leveraged Hedge Funds and Derivatives and the Case for Equalization"
Summer Ayers LePree posted an an abstract of her draft Tax Lawyer article about invesments in hedge funds by tax-exempt entities on SSRN. The article is entitled "Taxation of US Tax-Exempt Entities' Offshore Hedge Fund Investments- Application of the Section 514 Debt-Financed Rules to Leveraged Hedge Funds and Derivatives and the Case for Equalization." Here is the abstract:
Several tax issues involving hedge funds have been receiving substantial attention, both in the media and in Congress. One of these issues involves the immense amounts being invested in offshore hedge funds by tax-exempt entities such as university endowments and pension trusts. These investments are made offshore, in sunny spots like the Cayman Islands, to enable these tax-exempt investors to avoid tax liability. If the same investments were made domestically, the tax-exempt investors would be subject to tax at a rate of 35% on some portion of their investment income. This paper examines this disparate tax treatment and the history and policy behind the rules that give rise to it, and then considers several potential means of equalization.
Hat tip to Paul Caron's TaxProf Blog.
From a press release by the U.S. Tax Court yesterday:
Chief Judge John O. Colvin announced today that the United States Tax Court has published on its Web site “U.S. Tax Court Requirements for Academic Clinical Programs,” “U.S. Tax Court Requirements for Nonacademic Clinical Programs”, and “U.S. Tax Court Requirements for Office of Chief Counsel Student Practice Program”. The requirements may be accessed by clicking on the “Clinics & Student Practice” tab from the menu of options on the Court’s web site at www.ustaxcourt.gov. The requirements are in substance the same as, and will replace, the contracts that the Court has relied upon in the past to establish its relationship with tax clinics and student practice programs. The Court expects that publication of the requirements on its Web site and a new procedure for the clinics to provide information to the Court will improve the Court’s communications with tax clinics and simplify the process for recognition of such programs. For everything you ever wanted to know about nonprofit law practices, see Revenue Procedure 92-59, 1992-2 C.B. 411.
Crimm Posts "The Global Gag Rule: Undermining National Interests by Doing Unto Foreign Women and NGOs What Cannot Be Done at Home"
Professor Nina J. Crimm (St. John's) posted an abstract of her draft Cornell International Law Journal article about the Mexico City Policy (aka the Global Gag Rule, a foreign assistance policy that constrains USAID financial aid for family planning programs in developing countries) on SSRN's Nonprofit and Philanthropy Law Abstracting Journal. The article is entitled "The Global Gag Rule: Undermining National Interests by Doing Unto Foreign Women and NGOs What Cannot Be Done at Home." Here is the abstract:
The Mexico City Policy, also known as the Global Gag Rule (GGR), is an executive-based foreign assistance policy that constrains USAID financial aid for family planning programs in developing countries. It has had enormous unconscionable impact on the lives of individuals and to the operations of foreign nongovernmental organizations (NGOs). The policy has compromised women's health and welfare, jeopardized children's well-being, and adversely affected victims of HIV/AIDS. It unjustly has denied women's rights to self-determination and dignity with respect to reproductive matters. The GGR also has caused NGOs to curtail programs vital to maintaining health clinics and essential to delivery of critical healthcare services. It financially has threatened the existence of some foreign NGOs, has caused the demise of others, and has precluded alliances of NGOs essential for solving public health crises. The GGR has chilled the speech and stifled expressive associations of foreign NGOs, which likely would be constitutionally impermissible with respect to domestic NGOs. The many problematic consequences of the policy have been contrary to U.S. national interests in advancing the spread and stability of political democracies, free markets, and in enhancing the health, education and economic well-being of populations in developing countries. And, as a foreign assistance policy not true to the best U.S. traditions adopted from Judeo-Christian precepts, the GGR has tainted the image of the U.S. as a model democracy. Its real, but objectionable, contribution has been only to the self-interests of several U.S. presidents. So, now the Senate and House of Representatives, with their recently installed Democratic majorities, should enact legislation to reject the GGR.
Thursday, December 27, 2007
A Chinese official says that the Chinese government should implement tax preferences for private foundations, which rely entirely on donations from private individuals and organizations. The official also said, more opaquely,"We will also draw up policies to guarantee the social welfare of the staff of these charity groups." (What exactly does that mean -- that employees for private foundations will get better benefits?)
According to the Chinese government, the number of private foundations has grown rapidly in recent years. By the end of 2006, China had 795 public foundations (which can accept public funds), up 3.1 percent (from previous year?) and 349 private foundations, an increase of 71.1 percent. In some cities, including Beijing, there are more private foundations than public ones.
On December 27, 2007, the New York Times published an interesting article about how blogging can be a low-cost high-return marketing tool for small businesses. Here is an excerpt from the article:
[S]ome companies are suited to blogging. The most obvious candidates, said Aliza Sherman Risdahl, author of "The Everything Blogging Book" (Adams Media 2006), are consultants. “They are experts in their fields and are in the business of telling people what to do.”
For other companies, Ms. Risdahl said, it can be challenging to find a legitimate reason for blogging unless the sector served has a steep learning curve (like wine), a lifestyle associated with certain products or service (like camping gear or pet products) or a social mission (like improving the environment or donating a portion of revenues to charity).
Since the essence of "charity" is mission, it makes sense that small nonprofits might benefit from blogging. For the entire article, see "Blogging's a Low Cost, High Return Marketing Tool" in the New York Times.
On December 27, 2007, several newspapers - including Los Angeles Times and USA Today - reported that billionaire Barron Hilton will leave about 97% of his net worth to his family's charitable foundation. Here is an excerpt from the LA Times article:
Hotel magnate Barron Hilton, grandfather of heiress Paris Hilton, has bequeathed 97% of his estimated $2.3-billion net worth to his father's charity foundation, officials said Wednesday.
The contribution to the Conrad N. Hilton Foundation, to come from the sale of Hilton Hotels Corp. and the pending sale of Harrah's Entertainment Inc. after the money is placed in a trust, is the largest in the foundation's history and will bring its value to about $4.5 billion.
To see the entire article, go to the LA Times website.
On December 27, 2007, the Atlanta Journal Constitution (AJC) published an editorial concerning the compensation package for the former CEO of United Way of Metropolitan Atlanta.
Revelations that its outgoing CEO departed with a seven-figure retirement supplement have flustered the United Way of Metropolitan Atlanta. On its Web site, the nonprofit has posted a long defense of the generous deal that gave former Chief Executive Mark O'Connell nearly $1.6 million in cash on top of a pension that assures him about $106,000 a year for life.
For the entire article, go to the AJC website.
The AJC editorial points up a number of recurring issues: (1) Transparency in nonprofit governance: The organization erred, it is alleged, by only getting two board committees to approve the CEO's raises (in the form of a supplemental retirement plan), instead of the entire board -- as a half-dozen board members are now saying they didn't know about the raises. The organization disputes this, saying that the changes were unanimously approved by the whole board. We should be able to get to the bottom of that dispute by checking the minutes: what did these half-dozen know or didn't know, and when did the know or not know it? In any event, the board committees that approved the raises were hardly covert operations. The committee that recommended the raise, the Executive Compensation Committee, included the current board chair, the board chair-elect, and the current campaign chair, among others. The procedural issue is just a sideshow for the real source of indignation (and envy?) by the media, and perhaps donors and the public -- the actual amount of the former CEO's compensation. Seems like a lot, doesn't it? (2) Responsible use of funds: One of the former CEO's raises was counter-cyclical: it occurred at the same time that charity was laying off two dozen workers and reducing grants by nearly 30%. Of this infelicitous timing, a former board member says "What we didn't want to do was something that would cause [the CEO] to leave." The CEO presumably didn't cause the economic slump, and the slump would have been an especially bad time for the organization to have to start looking for a new CEO. (3) Public perception: Who gets more exercised at compensation for nonprofit executives: a charity's supporters; members of the broader public; or journalists and editorial writers? The AJC editorial states that the organization's "entire mission depends on the willingness of people to sacrifice money and time to fund good works in the community. If the United Way organization and its staff are themselves seen as unwilling to sacrifice, the organization loses credibility." But the organization would also lose credibility if it's run poorly or loses its bearings during setbacks. Would the world be a better place if charitable organizations were run by underpaid but altruistic amateurs? Perhaps the real issue here is the need for copy by journalists who cover the nonprofit sector. What can be done to get them to find more novel and probing issues to investigate, instead of repeatedly hauling out the old warhorse of executive compensation?
For the AJC's responses to FAQs about its former CEO's raises, see http://www.unitedwayatlanta.org/docs/news/2007/UWMA_FAQ_121907.pdf
Jean Roberston and Karen Visocan publish "Considerations For Nonprofit Health Care Facility Directors and Officers Before Filing"
Attorney Jean Roberston and Adjunct Professor Karen Visocan publish "Considerations For Nonprofit Health Care Facility Directors and Officers Before Filing" in the American Bankruptcy Institute Journal. Here is an excerpt:
When faced with severe financial difficulties, nonprofit health care facility directors and officers may shy away from the thought of filing for bankruptcy protection and the subsequent sale of the health care facility. This is understandable given that the primary purpose of a sale under the Bankruptcy Code of maximizing the return to creditors often conflicts with the nonprofit's charitable purpose. Furthermore, the filing may be viewed as a violation of the nonprofit directors' and officers' fiduciary duty to the health facility and invite actions for violation of their duty of care to the organization. Finally, there is a fear that the filing may impute the stigma associated with the filing of a bankruptcy petition, especially among the general public. Although these are all valid concerns, a strong case can be made that a bankruptcy filing will provide greater protections and benefits than a liquidation of the business outside of bankruptcy.
There are three considerations for the directors and officers when they are preparing for a bankruptcy filing: (1) the possibility that a §363 sale may limit director and officer liability, (2) the shield of the automatic stay and (c) the recoupment roadbumps.
To obtain a copy of the issue containing this article, go to the American Bankruptcy Law Institute Journal website for information on how to purchase the December/January 2008 issue.
Tuesday, December 25, 2007
Recently Forbes magazine released its list of the 200 largest U.S. Charities. What's interesting about this list is that the reader can rank charities by "fundraising efficiency," defined as the percent of private support remaining after fundraising expenses, "charitable commitment," defined as the amount of charitable services as a percent of total expenses, "donor dependency" defined as the percent of private support remaining after surplus, as well as net assets and total private support.
Monday, December 24, 2007
In an opinion piece in Monday's USA Today, columnist Mary Zeiss Stange says that while federal tax law may bar churches from endorsing candidates, churches nonetheless "provide powerful and sometimes-threatening nudges to the faithful." She argues that "[w]hen salvation is dangled as an incentive, some voters could feel they have no choice at all."
Stange points to a document by U.S. Conference of Catholic Bishops to guide Catholic voters. In this document (p. 15, no. 34), the bishops assert that "A Catholic cannot vote for a candidate who takes a position in favor of an intrinsic evil, such as abortion or racism, if the voter's intent is to support that position. In such cases a Catholic would be guilty of formal cooperation in grave evil." The bishops acknowledge that a voter may decide to vote for a candidate who holds an "unacceptable position" but should do so "only for truly grave moral reasons," (pp. 15-16, no. 35) and knowing that the vote "may affect the individual's salvation." (p. 16, no. 38) Stange observes that "This is not quite to say, "If you vote for a pro-choice candidate, you risk going to hell." But it comes reasonably close."
Jewish Republicans do sometimes get told to "gay gehenna" (Yiddish for "go to hell!"), but somehow that seems different.
Sunday, December 23, 2007
The cover story for this week's edition of the South African "Financial Mail" is entitled "The Business of God." Many of the stories, such as Guarding the Guardians involve religious finances and tax exemptions. The cover story, for example, describes the lack of transparency with regard to church finances and wealth, comparing that lack of transparency to the supposed transparency that exists in the U.S. and UK. All nine stories -- dealing with the taxation and finances of different religions in South Africa -- can be obtained through either of the last two links. It is interesting to see that other countries are struggling with the same issues that we struggle with.
According to a report from the Australian Broadcasting Corporation, an Australian charity has received up to $20,000 for a family who lost two children in a house fire yesterday. Will Australian authorities bend to sentiment to define this fund as legally charitable, even though the fund's beneficiaries are too definite and few to qualify as a charitable class? See Jack Siegel's and Rob Katz's discussion of this recurring issue in other contexts. Katz argues (at pp. 274-275) that in such cases, donated funds should be deposited in a private trust for the family's benefit.
An article in today's LA Times headlines that "Obama slams Edwards over nonprofits' use: The ex-N.C. senator, who had earlier decried their spending, then urges a '527' group to cancel its ads for him in Iowa." Obama is charging that John Edwards, a rival for the Democratic nomination for president, committed campaign hypocrisy by deriding political organizations called 527s at the same time he allegedly will benefit from their spending. (The Federal Election Commission explains that "Entities organized under section 527 of the tax code are considered "political organizations," defined generally as a party, committee or association that is organized and operated primarily for the purpose of influencing the selection, nomination or appointment of any individual to any federal, state or local public office, or office in a political organization.") In Iowa, a group called "The Alliance for a New America," seemingly funded by the Service Employees International Union (SEIU), appears poised to spend $750,000 on television ads in support of Edward's campaign. Edwards subsequently called on the group "not to run the ads," and stated that "I would prefer if all the 527s, not just this one, that all 527s stay out of Iowa."
According to web-blog Campaign Diaries, Obama's attack on 527 support for Edwards may be related to the fact that no 527 has jumped in on Obama's behalf. This fact, says the blog,
"has led Obama to boast that he is pure and unhelped by opaque 527 money. But this is a very weak argument from Barack: The main 527s that are helping Hillary and Edwards are not shady organizations (like the Swift Boat Veterans for Truth were) -- they are some of the most important unions and core constituencies of the Democratic Party. Hillary and Edwards receiving so much help because they were endorsed by big unions like the AFSCME, AFT, and SEIU. You bet that Obama would have loved to receive any of their endorsement and the 527 help that would have gone with it. Obama failed to clinch endorsements from big Iowa players, and he is thus left out of the independent expenditure ground game. And in a contest in which everything is based on turnout, that could very well cost Obama a few points."