Saturday, January 12, 2008

JCT Lists Charitable Giving Provisions That Expired at End of 2007

The Joint Committee on Taxation issued a list of federal tax provisions that either expired at the end of 2007 or will expire in future years.  Included in the list were several charitable giving provisions that expired on December 31, 2007, including the popular IRA charitable rollover provision found in Internal Revenue Code section 408(d)(8) and several charitable giving incentives targeted at specific types of contributions.  These types of contributions included capital gain real property contributed for conservation purposes, food inventory, book inventory contributed to public schools, and computer equipment contributed for educational purposes, all found in section 170.  Attempts to extend these provisions before they expired failed, but Congress is expected to consider these and other expired provisions later this month, according to Independent Sector.

LHM

January 12, 2008 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Hall and Conover Consider Public Health Impact of Blue Cross For-Profit Conversions

Mark A. Hall of Wake Forest University School of Law and Chris Conover of Duke University's Center for Health Policy, Law and Management, have just posted on SSRN a chapter that was published in the Annual Review of Public Health in 2006 titled "For-Profit Conversions of Blue Cross Plans: Public Benefit or Public Harm?"  Here is the abstract:

Conversions of Blue Cross plans to for-profit status have the potential to remake the corporate landscape of health care finance. Absent regulatory intervention, current trends could easily result in more than half of Blue Cross subscribers being in for-profit plans, a phenomenon far more significant than the conversion of nonprofit hospitals. Therefore, regulators' deliberations over conversion proposals are beginning to focus on the health policy impacts. This chapter surveys the full range of health policy implications by analyzing all existing studies of Blue Cross conversions and reporting on the authors' own case studies of conversion impacts. These studies conclude that conversions have not caused major negative impacts on the availability or accessibility of health care in the states in which conversions have occurred so far. However, a great deal of uncertainty exists about the actual effects of previous conversions, and each state is unique; therefore, even if the historical record were clear, it is difficult to predict with great certainty what the actual effects will be in another state undergoing a Blue conversion.

LHM

January 12, 2008 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

IRS Asked to Investigate Whether Foundation Helped Re-elect Texas Governor Perry

The Dallas Morning News reports that the Texas Freedom Network, which monitors church-state issues, has filed a complaint with the IRS alleging a Houston-based foundation, supported by financial backers of Gov. Rick Perry, aided his successful re-election effort by donating more than $1 million to the Texas Restoration Project.  The Texas Restoration Project hosted closed-door "Pastor's Policy Briefings" for thousands of pastors and their spouses in 2005.  Gov. Perry, who was seeking re-election in 2006, participated in the briefings, as did a number of other statewide officeholders.  The Project did not invite any of the other gubernatorial candidates to participate.  The Project also apparently gave Gov. Perry access to its mailing and e-mail lists.  A spokesman for Gov. Perry stated that neither the governor nor the Texas Restoration Project had done anything improper.  According to the Texas Freedom Network's press release, the foundation involved was the Niemoller Foundation, and two of its three directors were the chairman of the Texas Restoration Project and his wife.

LHM

January 12, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Leaders of Islamic Charity Convicted of Fraud for False Exemption Application

The New York Times reports that three leaders of a defunct Islamic charity were convicted on Friday of defrauding the federal government.  The government alleged that Massachusetts-based Care International, which is not related to the worldwide organization of the same name, supported militant fighters in Afghanistan, Bosnia and Chechnya while representing to the IRS that they were helping war orphans, widows and refugees in Muslim nations.  Care International apparently made its misrepresentations when it filed its application for recognition of exemption under Internal Revenue Code section 501(c)(3).  The IRS granted the application, and Care International eventually raised $1.7 million in tax deductible charitable contributions from 1993 to 2001.  The defendants face up to five years in prison and a $250,000, with sentencing scheduled for April.  Their attorneys have stated they will appeal the verdict.  No terrorist financing chargers were brought against the charity or its leaders.  Additional articles about the conviction are available from the Boston Globe and the Washington Post.

LHM

January 12, 2008 in Federal – Judicial | Permalink | Comments (0) | TrackBack (0)

Basic Nonprofit Practice Point - Never Claim to Be a Tax Exempt Charity if You Can't Show Your Exemption Letter

Many of you who teach nonprofit or philanthropy law have no doubt also given advice on the subject.  One piece of advice that I routinely give, and am always surprised when it is not done, is that one should not give assurances that contributions to an organization are tax deductible without having a exemption letter to that effect.  Well, here is a story from the January 11, 2008, Atlanta Journal Constitution about an on-going saga at the Atlanta City Council.  A very persistent reporter for the AJC, Cameron McWhirter, alleges that a member of the Atlanta City Council, H. Lamar Willis, may have collected more than $150,000 from some big-wig corporations for a charity that no one seems to have a record of ever existing - at least not legally.  Here is an excerpt from the article, "Ethics Inquiry on Atlanta Councilman Languishes":

In August, the ethics board opened an investigation into whether Councilman Willis, a practicing attorney, operated the H. Lamar Willis Foundation from his city offices. It also is examining whether Willis used city staff to run and promote the organization, which gave away annual scholarships to Atlanta public high school students.

Willis raised money — he claimed more than $150,000 — from area businesses such as AirTran, Comcast and Coca-Cola. In July, The Atlanta Journal-Constitution reported Willis never registered the organization with the Internal Revenue Service or with the state, as required by federal and state law.

McWhirter previously reported about this situation in a front page article in the July 27, 2007, AJC entitled "Did Councilman Misrepresent Charity? Foundation Raised Money by Claiming to be Nonprofit, But There's no Record it Ever Was." In the July 27, 2007, article, McWhirter explains that after his initial interview with Willis about the charitable donations "material has been removed from the foundation's Web site, including assertions that donations to the foundation are tax deductible."  On July 30, Councilman Willis published a response to the July 27, 2007, McWhirter article stating that he did not personally profit from the donations.  Willis' response is also in the AJC and is entitled "Equal Time: Foundation Used Contributions Appropriately." (You have to obtain the two July 2007 articles from the AJC for a fee - they are not on-line for free.  Just go to www.ajc.com and enter the phrase "did councilman misrepresent charity" in the archive search field.)

DAB

January 12, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Friday, January 11, 2008

Nonprofits' Role in Closing the Racial Wealth Gap

The Baltimore Sun published an article today describing an innovative example of nonprofits working with businesses and other community leaders to accomplish charitable goals.  According to Sun reporter Kelly Brewington, the More in the Middle Project, "spearheaded by Associated Black Charities, is the culmination of 2 1/2 years of research among business and nonprofit leaders.  Through public and private partnerships, the program aims to take on the large task of closing the black-white wealth gap, while trying to reverse decades of black flight and help low-income residents climb to the ranks of the middle class."  In the article, College of Notre Dame Associate Professor of Nonprofit Management Ann Breihan acknowledges the complexity of the issues but comments that "[T]he steps toward solutions seem practical and inviting."  University of Baltimore School of Public Affairs Professor Lenneal J. Henderson is quoted as saying "We are not doing this at the expense of the lower classes. . . . We are really asking how do we bring those at the lowest rungs up to the middle class."

lhm

January 11, 2008 in In the News, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Temple Rejects $1.5 Million Donation: Concern of Terrorism or Racial Profiling?

Ever since 9/11 charities have been unwillingly pulled into the global war on terror (GWOT).  Soon after 9/11, Congress passed IRC 501(p), effectively denying tax exemption to any organization identified as a terrorist organization.  Ever since, nonprofits -- particularly those with international ties or relationships -- have had to tread lightly.  To some people, the highest risk comes with any sort of relationship with individuals or organizations identified with the Middle East or the Islamic faith.  Now comes word that just the mere suggestion that a group might somehow, some way be linked to any sort of "radical" cause is enough to cause a charity to start gnashing its teeth.  A recent article in the Philadelphia Inquirer relates the story of how Temple University rejected a $1.5 million endowment to create a chair in honor of one of its own.  According to the article, Temple's Board of Trustees rejected the donation for fear the University might ge linked to an organization that had scarcely even been investigated.  To some of our readers, this type of action might harken back to the great read scare.  Here is an exerpt from the article:

Last spring, an Islamic group came to Temple University with an extremely generous offer: $1.5 million for an endowed chair in Islamic studies to honor religion professor Mahmoud Ayoub. But after months of talks, the deal fell apart when trustees and others raised concerns about the donor, the International Institute of Islamic Thought (IIIT), a nonprofit research organization that was included in a government probe into funding of suspected terrorists."They did not want a chair of Islamic studies funded by a Muslim organization," said Ayoub, a blind, 69-year-old Islamic and interreligious scholar who was to be the first occupant of the chair. "That is really a sad thing, because part of the chair's mandate was to encourage and engage in interfaith dialogue with Jews and Christians and others.

Is the board's action simple prudence or a variant of racial profiling?  One has to wonder, for example, whether the board would have looked askance at the offer had it been for a chair in Greek Orthodoxy.  The article suggests that Temple caved to pressure and racial bigotry from outside groups that labeled the donor organization an "Islamo-facist". 

dkj

January 11, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

National Governance of Locally Affiliated Nonprofits: The Case of Habitat for Humanity

How much control should a national office have over a local nonprofit affiliate?  Two days ago we blogged Habitat For Humanity San Antonio, Inc. v. Habitat for Humanity International, Inc (Case No. SA08CA0013, United States District Court for the Western District of Texas, July 4, 2008). As previously noted, the case involves HFHI’s insistence that HFHSA (and all other affiliates) agree to what we thought was a 27 page “franchise” agreement, under which all organizations previously affiliated with HFHI (over a 30 year period) under a two page aspirational “covenant” must now agree to much more detailed terms governing everything from employee relationships to mortgage financing.  As it turns out, the actual agreement is more like 157 pages, including all the various schedules (from A to G).  Plaintiff’s counsel was kind enough to provide Nonprofit Tax Prof Blog with a copy of the agreement.  Unfortunately, I am still an amateur blogger and can't figure out how to upload the entire file (I've tried several times but I must be doing something wrong; its a big pdf file).  So if you want a copy, please shoot me an email or, better yet, post a comment.  I'll be sure to send it right out to you.  The prior post talked about the impication that HFHI might be treading into the commerciality quicksand.  There are more troubling “commerciality doctrine” allegations in the complaint.  Paragraph 26, for example alleges that HFHI hired a new CEO to convert the organization into a $1.8 Billion franchise operation, eschewing less profitable works, and generally adopting the operation strategies of large franchises such as McDonalds, Inc.  Overall, the complaint alleges that "HFHI abandoned the independent grass-roots, faith-based ministry arrangement that had energized local volunteers and communities in favor of a corporate, centralized franchise arrangement that could maximize revenues to HFHI from the franchise name."  I am quite sure, of course, that HFHI will have its own say on these matters but it sure ought to consider the implications for its tax exemption of these allegations if they turn out to be true.  Of course, we should all consider the survivability of nonprofit organizations in a world increasingly driven by the profit motive.  From a geopolitical point of view, the disputed agreement also contains provisions that demonstrate the new donor accountability and post 9/11 world in which nonprofits must operate.  Take the financial provisions, for example.  In the past local affiliates operated independently and were not required to share their financial books and records with any outside parties, save the Internal Revenue Service and then only in the summarized 990 form.  But paragraph 2.6 and 2.7 of the new agreement states:

Section 2.6 Reports.  Upon reasonable requests HFHI and Affiliate will provide promptly to each other such financial and operations reports as agreed upon by the parties.  Without limiting the generality of the foregoing, the reports will include:

a.  Form 990 and Annual Report;

b.  Financial records created and maintained in the ordinary course of business, including such items as financial statements, e.g., statement of position (balance sheet), statement of activities and changes in net assets (income statement) for such year;

c.  Records Related to house production numbers, volunteer numbers, mortgage refinancing, delinquency rates and such other information as may be requested from time to  tim;

d.  Such other information as may be reasonably requested from time to time, including but not limited to copies of tax returns, other regulatory filings and data concerning officers, directors, agents and contracting parties (subject to applicable privacy laws).

Section 2.7 Inspection of books and records.  HFHI will be given access and the right to exame all books, documents, papers and records of Affiliate.   Affiliate will take all reasonable steps to make the books and drecords promptly available to HFHI during regular business hours.  Affiliate may request HFHI documents not publicly available.  HFHI will take all reasonable steps to make such documents promptly available to Affiliate during regular business hours.

In the accompanying FAQ to the new agreement HFHI explains its rationale for demanding these rather extensive rights from local nonprofits:

Habitat for Humanity International and Habitat affiliated organizations are under increased scrutiny by individuals and organizational donors.  Therefore, it is important to include the financial and programmatic activities of the affiliates and support organizations in overall Habitat financial accounting.  By reporting financial information to Habitat for Humanity International, Habitat-affiliated organizations are assisting in creating the accurate and comprehensive picture of Habitat for Humanities activities.

Paragraph 5.2 of the agreement contains an “anti-terrorism” clause:

Section 5.2.  Anti-terrorism.  The parties agree that they have not knowingly provided, and will take reasonable steps to ensure that they do not provide material support or resources to any individual, entity or organization that commits, attempts to commit, advocates, facilitates or participates in terrorist acts, or has committed, attempted to commit, facilitiated or participated in terrorist acts.

These statements perhaps demonstrate the increasing “federalization” of nonprofit law – a trend, inevitable perhaps, but pretty much universally condemned by most interested observers.  While HFHSA doesn’t complain about these specific provisions too much (it objects to the first more than the second), the underlying implication of its complaint is that it objects to the federal “hostile takeover”  (in the words of the complaint) of its operations.  Indeed, while the HFHI contract assets a belief in local control, its contract (Schedule G) contain pretty detailed instructions and mandates on everything from (1) political activity – lobbying must be consistent with the interests of other Habitat affiliates, (2) Board of Director Governance (including mandatory term limits), (3) Collaborative Development, (4) Communications and Technology, (5) Comprehensive and Standardized Financial Requirement, (6) Conflicts of Interests – including prohibitions against private inurement and nepotism (the prohibition on immediate family members in the same supervisory chain has both advantages and  disadvantages in small nonprofits, of course, (7) Construction Standards, (8) Donor Intent, (9) financial reporting , (10) acceptance and use of government funds, . . . (14) affiliate restructuring, . . . (16) Employment and Volunteer Practices, . . . (17) Record retention and . . . (26) Nondiscrimination amongst Homebuyers.  So much for local control (experimentation, nimbleness and all that!)  That the agreement is so detailed and that at least twelve Habitat affiliates have been kicked out for their failure to get in lock step probably speaks to the need for a book about “good governance for national organizations with state affiliates.”  The unfortunate lawsuit might have been avoided via a national conference during which the local chapters were given a serious opportunity to review and comment on the proposed terms.  Even the IRS goes through a notice and comment process.  From the standpoint of nonprofit governance on the grassroots level, I am not at all bothered by some provisions, slightly bothered by others, and completely put out by others; the independent sector is rightly comprised of, well, independent actors who do not and should not to take kindly to top-down management – that is a model for government and business.

dkj

January 11, 2008 in Federal – Judicial, In the News | Permalink | Comments (0) | TrackBack (0)

Chronicle of Philantrhopy to Host On-Line Question and Answer Session Regarding Principles of Good Governance

The Chronicle of Philantropy will host an on-line question and answer session regarding the Independent Sector's recently promulgated Guidelines for Good Governance:  Here is the full text of the announcement:

In the wake of several high-profile charity scandals and with observers predicting that Congress will pass legislation similar to the Sarbanes-Oxley Act for nonprofit organizations, Independent Sector created a set of guidelines designed to help groups govern themselves.

Those guidelines, which spell out principles of governance, fund-raising, and management that charitable groups should follow, were approved in October. But several key questions remain. Will nonprofit leaders pay attention to them? Do they go far enough? Are the guidelines enough to satisfy those on Capitol Hill who want to pass new legislation to regulate charities?

Diana Aviv, Independent Sector's president, will answer your questions about the guidelines, her organization's agenda now that the principles have been ratified, and what nonprofit leaders should expect from lawmakers in Washington during the next several months.

Go here to post questions that will be answered live online on Tuesday, January 15, 2008 at 12:00 noon, eastern standard time.

dkj

January 11, 2008 in Conferences | Permalink | Comments (0) | TrackBack (0)

Thursday, January 10, 2008

Intel Pulls Out of Charity Founded to Distribute Computers to Children Around the World

Widely reported, Intel recently withdrew its support for the One Laptop Per Child Charity ("Charity") over charges that Intel was competing with the Charity in foreign countries where the nonprofit had contracts (or potential contracts) to distribute its low-cost ($100 US) laptop.  (see NY Times Article and UK Article (1)).  The articles report that the partnership between Intel and the Charity dissolved over multiple concerns voiced by the Charity that Intel salespeople openly competed for sales with the Charity.  The incident that ultimately triggered Intel's withdrawal involved a salesperson who allegedly tried to persuade a Peruvian government official to breach its deal with the Charity to buy the Charity's low-cost laptops in favor of buying Intel's competing, low-cost laptop.

Nicolas Negroponte, a computer scientist and formerly an MIT professor, is the founder of the Charity.  The Charity was started to bring low-cost technology to poor children around the world.  (see laptop.org and Article).  Mr. Negroponte expressed concern that Intel's practices were undermining the Charity's goal of selling five million low-cost laptops across the world, including in developing countries.  (If you are interested in hearing directly from Mr. Negroponte about the controversy, click here - Founder Discusses Intel - Video Stream).

An interesting take on the controversy involves the fact that the Charity's laptop runs on the AMD microprocessor, instead of the Intel microprocessor.  One article, in particular, suggests that the Charity controversy stems from this fact.  (see Article)  AMD (Advanced Micro Devices), a smaller rival competitor, sued Intel in 2005 in the United States District Court in Delaware over perceived anti-competitive practices by Intel.  (see Article).  In addition, the European Union charged Intel with anti-competitive practices in July 2007, alleging that Intel cut its prices to drive AMD out of the market.  (see Article and Link to EU Press Release).  These charges stem from complaints made by AMD to the European Union about Intel.  Intel denying the charges filed its response to the EU on January 7.  (see Article and UK Article (2)).

amt

January 10, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 9, 2008

National Taxpayer Advocate 2007 Annual Report to Congress

On January 9, 2008, the National Taxpayer Advocate's Office issued its 2007 Annual Report to Congress.  Among the Exempt Organization items of interest are two "most serious problem[s] encountered by taxpayers" and two "legislative recommendation[s]."  Here are some excerpts from the Executive Summary of the Report:

"most serious problems encountered by taxpayers"

1.  Exempt Organization Outreach and Education. The U.S. tax-exempt sector consists of more than 1.6 million organizations (not including most churches). These exempt organizations (EOs) are diverse in size, ranging from large hospitals and universities to small volunteer-run charities. Approximately half of all EOs have all-volunteer staffs and another third have fewer than ten employees. Smaller EOs frequently lack professional tax guidance. The IRS has increased enforcement actions against EOs and the resources dedicated thereto. However, resources devoted to EO education and outreach, which were never adequate, have continued to decline. Existing IRS outreach and education programs for EOs are beneficial. However, the National Taxpayer Advocate believes the IRS can and should do more to help EOs, particularly small organizations, comply with the complex requirements to which they are subject. The National Taxpayer Advocate urges the IRS to conduct research to assess the service needs and preferences of the spectrum of EOs and to develop a strategic plan to enhance the scope and effectiveness of its outreach to these organizations.

2.  Determination Letter Process.  Unreasonable delays in the processing of applications for exemption from federal income tax have persisted for several years. Three years after the National Taxpayer Advocate raised concerns about these delays in the 2004 Annual Report to Congress, the processing time for many organizations’ applications still exceeds the IRS’s goal. These delays can have a serious, detrimental effect on charitable organizations’ finances and activities. The IRS has employed a number of measures to fix the problem but must do more to eliminate processing delays and keep organizations informed about the status of their applications.

"legislative recommendation[s]"

1.  Extend Exempt Organizations’ Advance Ruling Periods in Cases of Extreme Application Processing Delays.  An advance ruling provides that an organization will be treated as a publicly supported organization for its first five taxable years. Delays in processing Forms 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, result in some organizations’ receiving advance ruling letters only months before the advance ruling period ends. Organizations unable to obtain a favorable determination letter until shortly before the expiration of the advance ruling period are likely to have difficulty garnering financial support and therefore are likely to be reclassified as private foundations. Private foundations are subject to various operating restrictions and excise taxes for failure to comply with such restrictions, making private foundation status far less favorable than public charity status. The National Taxpayer Advocate recommends that Congress provide for the extension of the advance ruling period by one year when, as a result of a delay of 270 days or more in the processing of an exemption application, an advance ruling letter is issued not more than eight months prior to the end of the advance ruling period.

2.  Legislative Recommendations to Reduce the Compliance Burden on Small Exempt Organizations.  More than 73 percent of public charities reported annual expenses of less than $500,000 in 2004. Approximately half of all exempt organizations (EOs) have all-volunteer staffs and another third have fewer than ten employees. The National Taxpayer recommends that Congress lessen the burden on these small EOs by (i) amending the Code to provide that non-private foundations with gross receipts not normally more than $25,000 may submit a short-form application for recognition of IRC § 501(c)(3) status (i.e., a Form 1023-EZ), (ii) requiring the IRS to continue to offer a separate short-form ("EZ") version of Form 990 that may be filed by small organizations in lieu of the long-form Form 990 or parts thereof, and (iii) requiring the IRS to create a broad-based, formal, and ongoing voluntary compliance program for EOs similar to those offered in the areas of employee plans, tax-exempt bonds, and Indian tribal governments.

To see the full NTA 2007 Annual Report, go to the IRS website.

DAB

January 9, 2008 in Federal – Executive, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Holden Karnofsky, Founder of GiveWell, a Nonprofit, Demoted by Board of Directors

The New York Times reported yesterday, January 8, that the founder of a charity, GiveWell, a new nonprofit research organization, was demoted from "founder/CEO" to "program officer" last week for promoting GiveWell on a website by posing as a prospective charitable donor seeking information.  This is a good example of when boards take their fiduciary duties seriously.  In response to the founder's poor judgment, the board required him to enroll in a professional development course, paid for with money withheld for the founder's salary.  To see the full article, New York Times.

amt

January 9, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Local Habitat for Humanity Chapter Sues National Office -- Commerciality Doctrine implicitly raised

The New York Times reports this morning that Habitat for Humanity San Antonio, Inc. has filed a federal lawsuit against Habitat for Humanity, Inc ("HFHI").  According to the 27 page complaint, HFHI is seeking to coerce local chapters to sign an "onerous" and "overreaching" franchise agreement.  In the past, HFHI has only required affiliates to sign a simple two page "covenant".  The new agreement imposes a requirement that local affiliates "tithe" 10% of their revenues to HFHI -- the San Antonio office alleges that this requirement will result in ten fewer houses being built for needy beneficiaries.  The complaint is interesting from a tax law perspective because it alleges that HFHI has abandoned its Christian principles in favor of "lucrative commercial franchising" profits.  That allegation will likely catch the eye of the folks at TE/GE.  The complaint seems to raise the "commerciality doctrine" without actually using the phrase.  This will be interesting.  In the meantime, if any of our good readers knows how to get a copy of the agreement at the heart of the suit, please email me asap.  I'd like to post it here.

dkj

January 9, 2008 in Federal – Judicial | Permalink | Comments (2) | TrackBack (0)

Tuesday, January 8, 2008

Yale University to Increase Endowment Payout

Here is the full text of Yale University's press release regarding its recent decision to increase endowment payout to further access and scientific research.  See the immediately prior post for news reports and Senator Grassley's remarks on the subject.

dkj

January 8, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Senator Grassley Calls for 5% Mandatory Payouts; Yale University Responds To Harvard's New Financial Aid Plan

Senator Grassley continues to use his position on the Senate Finance Committee as a "bully pulpit" to push charitable organizations towards his view of higher accountability and transparency.  Whether one agrees or disagrees with the gentleman from Iowa, one should probably consider the attention he brings to the nonprofit sector a good thing, not a bad thing.  Here is the full text of Senator Grassley's recent press release regarding endowment payouts.

MEMORANDUM

To: Reporters and editors

Fr: Jill Gerber for Sen. Grassley, 202/224-6522

Re: Yale announcement on endowment pay-out

Da: Monday, Jan. 7, 2008

Sen. Chuck Grassley, ranking member of the Finance Committee, with jurisdiction over tax policy, has a long-standing interest in tax-exempt policy. Last September, the committee held a hearing that focused in part on the size of college endowments, at Grassley's urging. In December, Harvard University announced reduced tuition costs for families below certain income levels. Today, Yale announced an increased pay-out of its endowment to increase student financial aid and for other purposes. Grassley made the following comment on today's announcement.

"This is a great day for parents and students. The Yale bulldog might take a bite out of tuition costs for middle and low-income families. For the first time in years, we're hearing good news about tuition and affordability. Harvard has the largest endowment, and Yale has the second-largest. It's a big deal that the two wealthiest colleges are making tuition more affordable. They set an example for all other well-funded schools to do the same. More student access is the goal. Yale is looking at expanding the size of its undergraduate student body. More slots combined with lower tuition could help improve access to a top university. I also hope to see certain, reliable tuition costs from Yale and others so families can crunch numbers and see what they can really afford. I look forward to the details to come from Yale in the days ahead.

"This isn't just an issue of college access. It's also an issue of tax fairness. Universities hold at least $ 340 billion in endowments. The donations to those endowments and the endowments themselves are all tax-exempt. American taxpayers are subsidizing that tax-exemption, and they deserve public benefit in return. Meanwhile, I hope Congress is motivated by Harvard and Yale's action to continue a discussion of whether to impose a mandatory endowment pay-out requirement on well-funded colleges. Colleges are tax-exempt, and other tax-exempt entities, such as most private foundations, have a mandatory pay-out requirement of 5 percent a year. It's reasonable to consider a mandatory endowment pay-out requirement for colleges.

For more reporting on Yale's response to Harvard's recent announcement regarding the expansion of its fianncial aid program to assist more middle and lower class students see the article in today's Washington Post.

dkj

January 8, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

The Efficiency Rationale and Nonprofit Organizations

Last Sunday morning in New York, the AALS Section on Nonprofit and Philanthropy Law sponsored a discussion entitled, "Roundtable on Nonprofit and Philanthropy Law Scholarship."  We discussed (1) the development of Nonprofit Law as a discrete discipline, (2) the current state of scholarship in the field, and (3) fruitful areas for future research.  With regard to the first question, Professor Rob Atkinson made the fascinating assertion that the factor working most against the continuing development of "nonprofit law" (however we might define that phrase) is the implicit belief that any field of law can be evaluated for its effectiveness using the falsely objective analytical tools of the law and economic movement.  "Efficiency," he noted, "is not necessarily the standard against which we should measure the legitimacy of any particular rule relating to nonprofit organizations."  Atkinson reminded us that social justice is the historical and contemporary impetus for the nonprofit sector.  The assertion seems both indisputable and obvious; certainly it is worth repeating.  Indeed, nonprofit organizations arise because of the lack of profit potential with respect to certain goods and services.  This doesn't mean that every "charitable" activity holds no potential for great profit (profit being the implicit driver of efficiency in the law and economic sense) -- the existence of well endowed institutions of higher education and "nonprofit" hospitals proves that point.  By coincidence, a Sunday (January 6, 2008) morning editorial in the New York Times entitled, "Can Foundations Take the Long View Again" argued that using "efficiency" as a measurement of charitable effectiveness or worthiness would likely lead to short-sighted activities:

AS business leaders like Ted Turnder, Bill Gates and George Soros have moved vast swaths of their private wealth into the philanthropic sector, market expertise has migrated there, too. As a result, foundation directors, trustees and advisers from corporate America have taken a stance that the return on charitable dollars should be tangible and measurable, and should drive capital flow in much the same way that earnings figures do in commerce.  But a small and increasingly vocal group of foundation leaders is challenging the benefits of this approach.

My co-editor and co-author David Brennen, has written eloquently on this issue in his recent article, A Diversity Theory of Charitable Tax Exemption:  Beyond Efficiency, Through Critical Race Theory, Towards Diversity.  I have not previously thought of the efficiency rationale in quite such stark terms as those used by Professor Atkinson -- certainly not as a threat to the very existence of a separately recognized and respected social sector.  But I suppose even people who don't think deeply about how to define the "nonprofit sector' have already agreed, at least implicitly, that efficiency should not necessarily dictate how we legislate on the subject of nonprofit organizations.  For example, it was almost a given that Sarbanes Oxley should not apply to nonprofit organizations.  Instead, nonprofits have been urged to carefully consider whether particular mandates in Sarbox should be adopted voluntarily by nonprofit organizations and nonprofit organizations continue to be left alone to self-regulate, notwithstanding the occasional calls for more federal or state oversight.  It is good to be reminded that the nonprofit organizations exist precisely because "losers" are inherent to a society that values winner take all ideals.

dkj

January 8, 2008 in Conferences, In the News | Permalink | Comments (0) | TrackBack (0)

Monday, January 7, 2008

Chronicle of Philanthropy Correspondent Suzanne Perry Reports on New Hampshire Primary Project Bird-Dogging of Candidates

This post is a follow-up to the post of January 6 where we reported that national organizations of nonprofits were promoting The Primary Project in order to put nonprofit sector issues on the front-burner in the 2008 election.  Below is a link to an article published yesterday in the Chronicle of Philanthropy by their correspondent in New Hampshire, Suzanne Perry, who worked with the New Hampshire Center of Nonprofits staff in the last few days before the primary following and questioning candidates for the bird-dogging aspect of the Primary Project.  In the article, she reports on, among others, an exchange between Candidate Senator Hillary Clinton and a nonprofit leader of the arts.  See Article for more information.

amt

January 7, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Nonprofit Leaders and Experts Offer their Predictions for 2008

The Chronicle of Philanthropy recently published an article on December 31, 2007 wherein it reported the 2008 predictions of nonprofit leaders and experts.  Below is an excerpt of the article:

The new year promises to be a pivotal one in the world of philanthropy.

A hotly contested presidential election, a turbulent economy, heightened concerns about charities among government leaders, rapidly evolving technology, and shifting demographics are all expected to shape the way nonprofit groups and foundations operate in 2008 and beyond.

As a result, many organizations will face significant fund-raising and investment challenges. Others will confront strains in the way they deliver services.

Despite all of the potential challenges, however, charities and foundations will also have opportunities.

Many nonprofit leaders see the arrival of a new president as a chance to press for key changes.

They see technology as a way to reach out to volunteers and donors in different and exciting ways.

And as a growing number of baby boomers reach their 60s, nonprofit groups will face new opportunities to gain the support of a committed and highly skilled group of volunteers and donors.

For the full article, including comments by specific nonprofit leaders and experts see 2008 Predictions

amt

January 7, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Sunday, January 6, 2008

The New Hampshire Center for Nonprofits host the Primary Project

The Nonprofit Primary Project (website) is a national effort to educate Presidential Candidates about the needs of the nonprofit sector and to infuse the sector's points of view into the national debate during the 2008 Presidential Campaign Season.  Spearheaded by the Nonprofit Congress (website) and the National Council of Nonprofit Associations (website), the Nonprofit Primary Project began in New Hampshire with the New Hampshire Center for Nonprofits (Center).  The Center launched the project by piloting a series of “living room chat” style sessions with the Presidential Candidates, both democratic and republican.  These chat sessions and other candidate interviews are posted on the Center's website (candidates).  In addition, the New Hampshire Nonprofit Center partnered with a correspondent from the Chronicle of Philanthropy to follow both democratic and republican candidates during the final weekend of campaigning in New Hampshire before Tuesday's primary.  The site includes postings of these "bird-dogging"events and summaries (bird-dogging).  The reported exchanges with the candidates provide some invaluable insight into how the candidates view the partnership between the public and nonprofit sectors.

amt

January 6, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Archana Sridhar on "Tax Reform and Promoting a Culture of Philanthropy: Guatemala's 'Third Sector' in an Era of Peace"

Archana Sridhar, Assistant Dean of Research and Special Projects, at Indiana University School of Law - Bloomington, is a relative newcomer.  Her scholarship interests include international philanthropy, post-conflict development and tax reform.  Prior to joining Indiana University - Bloomington, she represented tax exempt organizations in private practice and spent a year in Guatemala on a U.S. Student Fulbright Fellowship studying tax reform and nonprofit organizations.  Her research culminated in an article entitled, "Tax Reform and Promoting a Culture of Philanthropy: Guatemala's 'Third Sector' in an Era of Peace," 31 Fordham Int'l LJ 186 (2007) (Lexis access required).  An abstract of the article is posted on SSRN.  Here is the abstract:

This article addresses the gap between the visionary documents of Guatemala's emerging democracy and public policy when it comes to tax reform and the nonprofit sector. It formulates possible ways to utilize Guatemalan tax reforms to both expand the country's meager tax base and generate a thriving culture of philanthropy to benefit nonprofit and/or non-governmental organizations (NGOs). By mapping and analyzing the laws affecting the formation and oversight of Guatemalan civil society organizations, which were important agents of change during Guatemala's long civil war and peacemaking process, the article builds on a scholarly conversation about philanthropy in Latin America. The author makes recommendations for Guatemala, analyzing in part the proposals of Guatemalan civil society groups during the 2006-07 "Pacto Fiscal" tax reform effort. The regulatory framework of the NGO sector in developing countries like Guatemala is particularly important in an atmosphere of increased government contracts and partnerships with NGOs for traditionally State-sponsored public services.

Please tell Assistant Dean Sridhar's Indiana University School of Law - Bloomington colleagues you read about her article on Nonprofit Law Blog!

amt

January 6, 2008 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)