June 7, 2008
Virginia Supreme Court Rejects Donors' Trust Law Based Challenge to Randolph-Macon College's Admission of Men
In Jenna Dodge v. Trustees of Randolph Macon Woman's College, a case decided yesterday, students alumni and donors sued the University alleging that it violated the Uniform Trust Code:
The plaintiffs allege in their amended complaint that the College was established in 1891 for the primary purpose of educating women, and that all gifts and donations to the College since its inception were given to support that objective. The plaintiffs allege that the College acquired, improved, and maintained real property with funds donated to the College for the purpose of supporting the College as a liberal arts, educational institution for women. The plaintiffs also allege that the College acquired numerous valuable works of art placed in various locations "across [the College's] campus and in [its] Maier Museum" and that the art and "the facilities to house such works[,] were bought and improved and are maintained by funds donated to [the College] for the purpose of supporting . . . a liberal arts, single-sex educational institution." The plaintiffs allege that the College plans to sell assets, including its valuable art collection, to finance physical changes at the campus that will enable the College to educate both men and women. The plaintiffs also allege that the College plans to amend its articles of incorporation to reflect that the College will educate men and women. The plaintiffs further allege that the aforementioned acts are "contrary to [the College's] original and ongoing express charitable purpose as an institution created primarily to educate women in a liberal arts curriculum under the name of Randolph-Macon Woman's College."
From these facts, plaintiffs allege that the College violated its fiduciary duties owed to the plaintiffs who are intended beneficiaries, as well as its obligations under the State's Uniform Trust Law. The court rejected the plaintiffs' claim. A significant and contemporary issue is whether trust or corporate law should apply to nonprofit orgnanizations. To that, the court stated:
We reject the plaintiffs' contention that Code § 2.2-507.1 requires the application of trust law, rather than corporate law, to the College, a nonstock charitable corporation. Acceptance of the plaintiffs' position would transform all charitable Virginia nonstock corporations into charitable trusts, and we find no language in [Virginia] Code §2.2-507.1 that manifests any intent of the General Assembly to make such a drastic change in Virginia's established law.
The case should provide interesting context for the debate regarding whether nonprofits should be governed under trust law or corporate law.
Hospital Care Is Becoming Less Public and More Private
The New York Times reported on June 5, 2008, about the state of hospital care in the United States in light of the significant reductions in federal and state sources of funding. The problem is especially acute in poor communities. Here is an excerpt from an article focusing on Southern California, but similar circumstances exist elsewhere:
Gov. Arnold Schwarzenegger, a Republican, has proposed another 10 percent cut in the state’s Medicaid program to balance the state’s budget while Congress contemplates a host of reductions to the program that, if approved, would mean $240 million less for Los Angeles.
Los Angeles County’s health department, the provider of last resort, is sagging under its own budget woes, and it adopted complex patient-transfer policies that have shifted an increasing number of its indigent patients to private hospitals, which are in barely better financial shape.
“We have an all-out crisis here,” said Carol Meyer, the director of governmental relations for the Los Angeles County Health Services Department. “In terms of lack of access to care, emergency room overcrowding and total underfunding of the health care system.”
In many ways, the woes of South Los Angeles mirror other poor urban health care systems. Medical centers in Philadelphia, Washington, Cleveland and elsewhere have closed or fallen into bankruptcy in recent years, leaving patients scrambling.
Also, Medicaid reductions in recent years have helped contribute to the rising tide of the uninsured — roughly 2.2 million more in 2006 than in the previous year — largely because of a decrease in employer-sponsored insurance and Medicaid reductions.
For the entire article, see "A City Where Hospitals Are As Ill As Patients" in the June 5, 2008, issue of the New York Times.
June 6, 2008
More on Zimbabwe's Blockade of Charitable Aid
The New York Times reported on June 6, 2008, that the tightening of controls on charitable aid groups in Zimbabwe is increasing. We blogged earlier this week about Zimbabwean government's ordered suspension of charitable activities of CARE in the impoverished country. The government has now apparently "ordered all humanitarian aid groups to suspend their operations in the deeply impoverished nation, a prohibition that relief agencies estimate will deprive two million people of food aid and other basic assistance." Here is an excerpt from the article:
Aid workers and human rights groups say the suspension of humanitarian operations and the detention of the diplomats are part of the governing party’s strategy to clear the countryside of witnesses to its brutal efforts to decimate the political opposition and drive its supporters out of the wards in which they are eligible to vote.
ZANU-PF, the governing party, is clearly determined to go ahead with the runoff in the hope of preserving a veneer of legitimacy for a government that is increasingly viewed internationally as a pariah, and the party is trying to win it at any cost, Zimbabwean political analysts say.
At an emergency meeting on Thursday in Harare, the capital, United Nations agencies and aid groups agreed to protest the suspension and issue a statement about its humanitarian implications, according to the minutes of the meeting. The nongovernmental organizations there worried about the safety of their field staff once the prohibition order reaches local administrators across the country.
For the entire article, see "Zimbabwe Tells All Aid Groups to Halt Efforts" in the June 6, 2008, issue of the New York Times.
Congressman's Relatives Charged in 31 Count Indictment to Defraud Charities
Three relatives of embattled U.S. Representative William Jefferson (D. La.) (shown above) were indicted yesterday in a 31 count indictment, according to the New Orleans Times Picayune. According to a U.S. Attorney press release issued June 4, 2008:
BETTY JEFFERSON, age 70, an elected tax assessor in New Orleans, along with BETTY JEFFERSON'S brother, MOSE JEFFERSON, age 66, and her daughter, ANGELA COLEMAN, age 53, all residents of New Orleans, Louisiana, were charged via a 31 count-indictment by a Federal Grand Jury today with conspiracy to commit mail fraud; and federal program fraud; aggravated identity theft; substantive program fraud; and mail fraud, and conspiracy to commit money laundering, announced U. S. Attorney Jim Letten. Additionally, BETTY JEFFERSON was charged with four counts of tax evasion and MOSE JEFFERSON was charged with three counts of making false statements to federal investigators.
The indictment alleges that these defendants controlled numerous specified for-profit and non-profit companies, thereby obtaining control over federal and state grant funds for these non-profit companies by applying for charitable and educational grants designed to assist needy, at-risk and disadvantaged youth and other individuals in need of assistance. According to the indictment, the defendants would and did write checks out of the non-profit bank accounts payable to individuals who did not work for the grant programs, thereafter depositing those checks into their (the defendants) own personal checking accounts, or otherwise using the funds to pay for their personal expenses.
It is also alleged that the defendants funneled federal and state grant funds to themselves by writing checks on the non-profits' bank accounts, thereby transferring monies into their companies in false attempts to create the illusion that the payments were for legitimate business purposes.
Additionally, the indictment charges that MOSE JEFFERSON used grant funds to pay for work performed at his direction on properties owned by him, and which had no relation to the non-profit grantees.
Download the full indictment here. If the allegations are true, this has to be one of the worst nonprofit scandals in a long time, effecting some of the most vulnerable, beset upon people in America. Many of the nonprofits were set up to encourage academic acheivement for a disturbingly underserved population (many of whom lived on highway overpasses for weeks during Hurricane Katrina). According to the Times-Picayune article:
The 47-page indictment, long even by federal standards, alleges a superficially complex but fundamentally simple scheme in which the three defendants founded nonprofits, solicited grant money for them, and then wrote checks to purported employees who never received the money. The proceeds of the checks made out to such "straw payees" -- who "did not work for the nonprofits, never received the checks or money, and were not aware that a payment had been issued to them," according to the indictment -- generally wound up in bank accounts controlled by one of the Jeffersons or Coleman, the indictment says.
Pathetic, and that ain't even the half of it. Just makes me want to spit!
June 5, 2008
More Angst Re College Endowments: Waldeck on Limiting Deductions for Gifts to Very Wealthy Universities
Speaking of huge untapped endowments, over on TaxProf Paul Caron reports that Sarah Waldeck (Seton Hall) has posted The Coming Showdown Over University Endowments: Enlisting the Donors, 77 Fordham L. Rev. ___ (2009), on SSRN. Here is the abstract:
This essay focuses on the discordance between universities with endowments in excess of one billion dollars and what is occurring in the rest of higher education, particularly with respect to skyrocketing tuition and a growing institutional wealth gap. The essay analyzes absolute endowment values, the amount of endowment per student, and expense-endowment ratios at 60 private universities. It concludes that a small number of schools have an excess endowment, and then provides a convenient proxy for determining when an endowment is so large that it should receive less-preferential tax treatment. The essay then considers the effects that large endowments have at their home institutions and throughout higher education, the arguments in defense of large endowments, and some frequently-proposed modifications to the tax code. The essay recommends that policymakers modify the charitable deduction for gifts to universities with mega-endowments, as part of a multi-faceted effort to spur endowment spending and control tuition.
The redistributive idea of drying up donations to universities with "excess endowments" (by reducing or removing the tax subsidy for the very wealthy, apparently) is provocative, to say the least. I suspect Waldeck's piece will be one of the more frequently downloaded papers (at least amongst nonprofit and higher ed scholars) over the next few months.
Business Week Debates College Endowment Payout Requirement
Business Week Magazine's Debate Room has published a short but interesting debate regarding the extent to which colleges and universities should be subject to a mandatory endowment payout, at the pain of losing their tax exempt status. Here is a snippett from the pro side:
Wealthy universities, such as Harvard with its $35 billion endowment, are part hedge funds, part universities. Tax policy should reflect this. Rich colleges should have to prove they’re not hedge funds in disguise by spending most of their investment profits on research and education. Or perhaps, as some Massachusetts legislators desire, all colleges with $1 billion-plus endowments should pay taxes. If not—and colleges can continue to accumulate vast endowments without negative tax consequences—expect some hedge fund to get tax exemption by starting a university and redesignating its investors as faculty and students.
Here is a snippett from the con side:
The nation’s 785 educational endowments have assets that exceed $411 billion, and the biggest, like Harvard’s $34.6 billion, get the headlines. But the vast majority are quite small—more than 400 have assets totaling less than $100 million. Any spend-down rule could have a disproportionate impact on the smallest endowments, which typically have the lowest investment returns.
Unlike foundations, which are designed to raise and spend all their funds for charitable purposes, endowments are meant to serve the financial needs of their institutions in perpetuity. They do that by investing their funds wisely, spending a small portion of their assets each year, and squirreling away the rest for the future. Requiring them to spend more than necessary diminishes the endowment’s size and ability to meet future needs of the institution.
Zimbabwe Blocks Charitable Aid
In addition to the issues in Myanmar, blogged here, it appears that charities in Zimbabwe are being hampered in their charitable efforts. Here is an excerpt from an article in the new York Times describing government orders to NGO's in Zimbabwe to suspend operations:
In recent days, CARE, one of the largest nonprofit groups working in the country, has been ordered by the Zimbabwean government to suspend all its operations, which help 500,000 of the country’s most vulnerable people. This month alone, CARE would have fed more than 110,000 people in schools, orphanages, old-age homes and in various programs, it said.
But the aid restrictions go far beyond any one group. Muktar Farah, deputy head of the United Nations Office for the Coordination of Humanitarian Affairs in Zimbabwe, said Tuesday that millions of people had lost assistance because of what he called “the shrinking of humanitarian space.”
“NGOs have been told to scale down or stop operations throughout the country,” he said, referring to nongovernmental organizations.
Zimbabwe’s president, Robert Mugabe, speaking on Tuesday at a United Nations food conference in Rome, accused nongovernmental organizations of interfering in politics and contended that the West had conspired “to cripple Zimbabwe’s economy” and bring about “illegal regime change.”
For the entire article, see "In a Crackdown, Zimbabwe Curbs Aid Groups" in the June 4, 2008, New York Times.
June 4, 2008
Pennsylvania Charitable Nonprofit Caucus
The Chronicle on Philanthropy reports that a group of Pennsylvania legislators have formed a caucus to focus on nonprofit issues. The Pennsylvania Alliance of Nonprofit Organizations (PANO) and the United Way of Pennsylvania worked with the General Assembly to create the caucus. The legislative caucus, composed of both Republicans and Democrats, will begin its work on June 17. A group of 30 charities and private foundations will serve as an advisory board to the caucus. Topics that could be discussed include charitable tax exemptions, sales taxes on services, lobbying, volunteerism, and government money for human services and the arts. The charities sought the creation of the caucus as a way to help legislators by providing helpful feedback that could improve bills considered by the legislature.
Comparative Funding - Europe and US Support for the Arts
An article in the New York Times describes different approaches to funding the arts in Europe and in the U.S. In Europe public (government) support is expected, and arts organizations can rely on government funding. Asking corporations and rich people for donations is still somewhat unseemly in Europe, and donors who do contribute in Europe do so without tax deductions. The article then describes the success of a performing arts nonprofit in Germany, the Festspielhaus Baden-Baden, one that operates without government subsidies.
FASB Guidance on Endowment Funds Governed by UPMIFA
During its meeting this morning, the Financial Accounting Standards Board considered the substantive issues raised in comment letters received in response to FSP FAS 117-a. The FASB received comments from 45 respondents, some from public accounting, some from university accounting, some legal (regulators, a lawyer, and an academic), and a few others.
The board handout noted "dissatisfaction with the existing guidance and the net asset classification scheme, which the FSP largely reaffirmed." The handout then identified two fundamental issues to be addressed at the meeting:
- Since UPMIFA takes a fund as a whole approach, should the net asset mirror that approach, treating the fund in one net asset class? If not, and if a piece should be singled out for characterization as permanently restricted net assets, should permanently restricted net assets be allowed to decreasein so-called "underwater" situations?
- If a piece of the endowment is characterized as permanently restricted, is the guidance in EITF Topic D-49 still appropriate?
The handout notes that although UPMIFA no longer requires a charity to track dollars contributed (no more historic dollar value - HDV), regulators commented that they want to know the amount of the original gift as a data point for enforcing the gift. Thus, the staff recommended that some portion of the fund be classified as permanently restricted net assets, probably the original gift amount (the amount called HDV under UMIFA). The Board will determine the amount, based on its interpretation of applicable law. The guidance will downplay any suggestion that the organization needs to maintain the purchasing power. The Board voted in agreement.
If a portion of an endowment fund is classified as permanently restricted, then the next question is the appropriate accounting treatment if the fund goes underwater. In the view of the staff, a drop in the permanently restricted amount does not represent a release of restriction. Under UPMIFA, a charity could spend from an underwater fund, but the staff views that spending as internal borrowing. The charity would still have an "accountability/fiduciary duty" with respect to the permanently restricted amount. The staff then recommended that underwater funds should be reflected as a reduction of unrestricted or temporarily restricted net assets. The Board agreed.
The handout turns next to the question of how to treat amounts other than the amount classified in permanently restricted net assets. The staff concludes, based on the comments received, that UPMIFA extends a donor-restriction to the portion of the fund not classified in permanently restricted net assets. The staff views the restriction as a time restriction and recommended that the amount should be classified in temporarily restricted net assets. The Board agreed.
For many organizations with existing endowments, this change will require a one-time reclassification of assets currently classified in unrestricted to classification in temporarily restricted.
Disclosures. The staff recommended retaining disclosures of (a) the governing board's interpretation of the law that underlies the organization's net asset classification of donor-restricted endowment funds, (b) a description of the organization's policy for the appropriation of endowment assets for expenditure, and (c) a description of the organization's endowment investment policies, including risk and return objectives, how those objectives relate to the spending policy, and the strategies employed for achieving those objectives. The Board agreed with the recommendation.
Comment letters included two requests for additional guidance, and the staff recommended that the Board reject both requests One request was that the disclosure requirement for investment expenses in paragraph 24 of Statement 117 be dropped. The other was a request for guidance on tangential issues concerning community foundations. The Board agreed to reject the requests.
The staff recommended that the effective date of the guidance be deferred to fiscal years ending after December 15, 2008. The Board agreed.
The staff recommended that the Board commit to doing a post-implemenation review in 1-2 years. The review could consider how UPMIFA is interpreted and enforced, how the FSP is applied, and whether the creation of a new net asset class might be appropriate. The Board did not want to commit to a post-implementation review and instead directed the staff to monitor implementation.
National Banking Crisis Results in Less Support for Community and For-Profit Colleges
It appears that that the ever-present banking crisis is adversely affecting the ability of students to attend two-year community colleges and for-profit colleges. According to this story in the June 2, 2008, issue of the New York Times, "[s]ome of the nation’s biggest banks have closed their doors to students at community colleges, for-profit universities and other less competitive institutions, even as they continue to extend federally backed loans to students at the nation’s top universities." Here is an excerpt from the article:
The practice suggests that if the credit crisis and the ensuing turmoil in the student loan business persist, some of the nation’s neediest students will be hurt the most. The difficulty borrowing may deter them from attending school or prompt them to take a semester off. When they get student loans, they will wind up with less attractive terms and may run a greater risk of default if they have to switch lenders in the middle of their college years.
Tuition and loan amounts can be quite small at community colleges. But these institutions, which are a stepping stone to other educational programs or to better jobs, often draw students from the lower rungs of the economic ladder. More than 6.2 million of the nation’s 14.8 million undergraduates — over 40 percent — attend community colleges. According to the most recent data from the College Board, about a third of their graduates took out loans, a majority of them federally guaranteed.
“If we put too many hurdles in their way to get a loan, they’ll take a third job or use a credit card,” said Jacqueline K. Bradley, assistant dean for financial aid at Mendocino College in California. “That almost guarantees that they won’t be as successful in their college career.”
For the entire article, "Student Loans Start to Bypass 2-Year Colleges" see the June 2, 2008, issue of the New York Times.
June 3, 2008
Latest SOI Bulletin Discusses Noncash Charitable Contributions
The Spring 2008 Statistics of Income Bulletin contains an informative discussion of the trend in noncash charitable contributions. All other things being equal (which they rarely are, I know), it is better to give property rather than cash because property donatins generally result in a deduction equal to fair market value, even if the property's appreciation has never been taxed. The report is being touted for its finding that car donations have significantly decreased since the Congress tightened the rules:
For Tax Year 2005, tax law changes altered thededuction rules for some charitable contributions. The most significant change was made to the deduction amount allowable for vehicle donations. In previous years, taxpayers could deduct the fair market value of the automobile. Starting in 2005, the deductible amount for most donated vehicles was changed to the lesser of the fair market value or the gross proceeds from the sale of the vehicle by the donee.
But there is a wealth of other statistical data useful for those researching or studying the charitable contribution deduction.
More Evidence of Uncharitable Charitable Hospitals: Auctioning of Unpaid Debts
An interesting story in today's Wall Street Journal talks about hospitals' increasing practice of selling, via online auction, their accounts receivables (i.e., unpaid patient debt) to bill collectors. (By the way, you may have to subscribe to get to the online story -- this is my first try at linking to a WSJ article).
The auctions reflect hospitals' continuing search for ways to collect from the uninsured and underinsured. In 2006, nearly 5,000 community hospitals provided uncompensated care totaling $31.2 billion -- mostly unpaid patient bills or charity care -- representing nearly 6% of all costs, according to the American Hospital Association.
The potential inconsistency of billing onself as a charitable institution but then letting the debt collector hounds loose on an indigent patient has, as we all know, not gone unnoticed. In fact, even some nonprofit hospitals are having second thoughts about auctioning off their unpaid debts, according to the article.
"The hospital is an institution in the community, has a reputation, in many cases has a nonprofit mission to uphold," says Anthony Wright, executive director of the consumer-advocacy coalition Health Access California. "Once it goes to collections, that starts a process that can get a lot more antagonistic, a lot more aggressive, and a lot more damaging to a family's credit history and financial future."
One health system that has backed away from the online auctions is St. John Health. The Detroit system, which owns six hospitals, says it learned recently that, without its knowledge, some of its patient debt had been posted on ARxChange.com by Accretive Health, an outside company that manages collections for St. John. The hospital system says it "expressed our displeasure" to Accretive and told it not to continue because "we do not believe an environment such as a Web site is appropriate in dealing with patient accounts." No transaction was completed, St. John says. Accretive declined to make a statement about its business with St. John.
One issue not addresses is whether the auctioning of debt constitutes an unrelated business activity. I suppose, though, that the income would be zero or negative since the asset sold (the debt) will usually have a higher basis than the amount realized.
Yet Another Way in Which the Young Can Engage in Philanthropy in a Significant Way: Mosquito Netting
We have blogged a couple of times about ways in which young people can contribute to society in Philanthropic ways: piggy bank philanthropy and microloans. Here is yet another very interesting piece that describes how young people can contribute $10 to charity for the purchase of one mosquito net for a person in malaria-infested parts of Africa. Here is an excerpt from the article:
Exhausted from shopping, he said in a recent interview, he returned alone to their hotel. Idly channel-surfing, he stumbled onto a BBC documentary about malaria in Africa. Imitating a British accent, he said: “Up to 3,000 children die needlessly each day of malaria — and all they need is a net.”
“I thought, ‘That’s a column,’ ” he said. “Sports is nothing but nets — basketball nets, tennis nets, soccer nets, lacrosse nets, jumping the net, cutting down nets, the New Jersey Nets, girls in fishnets, whatever ... .”
Before asking his readers to donate $10 or $20, he searched for an agency to collect the money and buy the nets. He found the United Nations Foundation, which was started in 1998 by Ted Turner. Although it was already sponsoring another campaign, Malaria No More, it agreed to his request that a new group be started with the name Nothing But Nets. “That’s a real title,” Mr. Reilly said. “It’s so simple that even sports fans can get it.”
The foundation put a donation form on its Web site and promised to cover all administrative costs. Within a few days, $1.6 million had flowed in.
For the entire article, see "A $10 Mosquito Net Is Making Charity Cool" in the June 2, 2008, issue of the New York Times.
June 2, 2008
Aspen Institute: 10 Nonprofit Policy Proposal to Strengthen U.S. Communities
The Aspen Institute issued a report today containing 10 "Ideas" to strengthen the nonprofit community. Here is the introduction to the report entitled, Mobilizing Change: 10 Nonprofit Policy Proposals to Strengthen U.S. Communities :
Mobilizing Change: 10 Nonprofit Policy Proposals To Strengthen U.S. Communities, the latest NSPP publication, is a compilation of proposals of leading thinkers in the field who are working to address social problems and improve the lives of those in need through nonprofit-government policies. Some of the proposals include extending the deadline for charitable contributions to April 15, creating a Small Business Administration for nonprofits, and improving disaster relief coordination between FEMA and local nonprofits. The report summarizes each proposal and explains how it would work, who would be affected, and the action required to make it happen. In addition, for each proposal, there are links to related reports and articles including those written by the authors of the proposals.
The ten ideas are
(1) Generate Growth Capital for Promising Nonprofits by Creating a Social Investment Fund Network (2) Promote the Growth of Enterprises that Mix Business Practices with Social Missions by Creating a Special Tax Code Designation for Social-Benefit Enterprises, (3) Increase Donations by Extending the Deadline to April 15 for Making Tax-Deductible Charitable Contributions, (4) Increase the Funds Available to Nonprofits by Simplifying or Reducing the Excise Tax for Private Foundations, (5) Improve the Viability of Small Nonprofits by Creating a Small Business Administration for nonprofits, (6) Advance Knowledge and Improve the Performance of nonprofits and Philanthropy by creating a Stategic Nonprofit Research Collaborative to support Independent analysis of nonprofit data, issues, and challenges, (7)Improve Disaster Relief, especially for low income and vulnerable people, by integrating local nonprofits and faith-based groups into official response systems, (8) Ensure strong nonprofits by recruiting, training, and retaining the next generation of leaders for the nonprofit sector, (9), Encourage public service by making a "Summer of Service" a rite of passage for every young person during the transition from middle school to high school, (10) Encourage the Use of Music as a development tool by creating a Music National Service Initiative, strengthening and expanding Music based public service.
I like all of the ideas, particularly idea number 2 and 4. I'm wary, though, of top-down approaches to civil society. I think it was Harvey Dale at NYU who once remarked that the strength of the nonprofit sector is, in part, because it is so undefined and unorganized. If that is true, it is probably better that groups like the Aspen Institute advocate ideas for ad hoc adoption by nonprofits rather than attempt to organize . . . well . . . organizations.
Arizona Court of Appeals Upholds Property Tax Exemption for Botanical Garden in Face of UBIT Challenge
In Tuscon Botanical Gardens, Inc. v. Pima County, the Arizaon Court of Appeal ruled that an organization dedicated to horticultural and botanical education was entitled to property tax exemption even though it operates a gift shop, book store, and meeting area rented out for weddings and other social events. Here are the relevant facts as found by the court:
TBG is dedicated to horticultural and ecological education. It operates 16 different gardens representing a variety of gardening traditions and botanical themes on its 5.74 acre (249,840 square feet) site in central Tucson. Six buildings totaling 8,533 square feet are located on the site. A meeting hall known as "Porter Hall," a "sun porch," (collectively, unless otherwise specified, the "meeting areas") and a gift shop are located in Building 2. According to Defendant/Appellant Pima County ("County"), the gift shop and meeting areas encompass 2,101 square feet out of Building 2’s 3,887 square feet.
TBG designed the gift shop to enhance its educational mission and the books and other materials sold are primarily educational. In addition to educational items, however, TBG also sells non-educational items such as stationary, napkins, baskets, salsa seasonings, dishes, wall ornaments, hats, and t-shirts. TBG makes a profit from the gift shop in that its receipts from sales exceed the cost of goods sold. But it does not make a profit from the shop if staffing and utility costs, the value of unpaid rent for the space it occupies, and other operating expenses are considered. square feet out of Building 2’s 3,887 square feet.
Porter Hall is one of TBG’s main meeting rooms; it is used primarily by TBG for its staff and committee meetings. TBG does, however, exhibit art for sale in the meeting areas and it earns a commission on the occasional art sales. This commission income does not cover the true cost of TBG’s operation of the meeting areas. TBG also rents the meeting areas to third parties from time to time for various activities such as weddings, private parties, and meetings. TBG does not realize a profit from these rental activities.
The Court found that despite these activities, the organization operated exclusively for charitable purposes and thus deserved tax exemption. Perhaps the organization, also exempt under IRC 501(c)(3) will owe federal tax on unrelated business (or maybe not, depending on how often the activities occur). But apparently, there is no unrelated business income tax under Arizona law.
Bassett Posts "Private Religious Hospitals: Limitations Upon Autonomous Moral Choices in Reproductive Medicine"
Professor William Bassett (University of San Francisco - School of Law) posted an abstract of his forthcoming Journal of Contemporary Health Law and Policy Working article about the private religious hospitals and autonomous healthcare decisions on SSRN's Nonprofit and Philanthropy Law Abstracting Journal. The article is entitled "Private Religious Hospitals: Limitations Upon Autonomous Moral Choices in Reproductive Medicine." Here is the abstract:
Contemporary managed care imperatives have severely limited an individual's right to make free and informed choices regarding his or her own health care. The author posits that legislation allowing private, religiously affiliated hospitals to refuse patient requests for legitimate health care services - particularly reproductive medicine - must be reconsidered.
Ethical exemptions allowing religious hospitals to refuse sensitive and controversial medical services such as abortion, sterilization and prescription of contraceptive drugs, AIDS counseling, and fertilization are virtually unlimited. However, these institutional privileges cannot remain absolute. Private hospital exemptions should be re-written, with clear limitations conditioned upon newly evolving public policy imperatives for informed choice in comprehensive patient health care plans.
Rhine and Garrett Post "Government Growth and Private Contributions to Charity"
Professor Russell M. Rhine (St. Mary's College of Maryland - Department of Economics) and Thomas A. Garrett (Federal Reserve Bank of St. Louis - Research Division) posted an abstract of their Federal Reserve Bank of St. Louis Working Paper about the relationship between charitable contributions and government spending on SSRN's Nonprofit and Philanthropy Law Abstracting Journal. The article is entitled "Government Growth and Private Contributions to Charity." Here is the abstract:
We exploit the time series properties of charitable giving data to provide additional insights into the relationship between charitable contributions and government spending. Our sample period covers the last half of the 20th century, a period marked by increased growth in both government spending and charitable giving. Cointegration tests reveal a significant long-run relationship between several categories of charitable giving and government spending. Granger causality tests are designed to capture any short-run giving and spending relationship, and provide the opportunity to examine whether changes in fundraising efforts by charities influence government spending. Evidence suggests that charitable contributions to education responds quite differently to state and local government education expenditures versus federal government expenditures. We argue that the government spending and charitable giving relationship is dependent upon the source of government revenue, how this revenue is used by institutions of learning, and the rational ignorance of private donors.
Blair Posts "Praying for a Tax Break: Churches, Political Speech and the Loss of Section 501(C)(3) Tax Exempt Status"
Professor Keith Blair (Baltimore) posted an abstract of his draft Denver University Law Review article about the political campaign prohibition for churches on SSRN's Nonprofit and Philanthropy Law Abstracting Journal. The article is entitled "Praying for a Tax Break: Churches, Political Speech and the Loss of Section 501(C)(3) Tax Exempt Status." Here is the abstract: Churches in the United States, like individuals, are free to speak on any issue that they choose. However, if a church wishes to retain tax-exempt status, it must comply with the requirements of Section 501(c)(3) of the Internal Revenue Code. One of those requirements is that churches may not participate or intervene in political campaigns. Some churches, however, believe that their mission includes not just traditional religious teachings, but guidance on issue that affect the lives of their parishioners including politics. Those churches believe they are fulfilling their faith and mission when they offer this guidance. This has caused a tension between the Internal Revenue Service, which must enforce the tax laws, and churches that feel that it is part of their mission to speak out on social issues of the day, which may include political issues. With the 2008 U.S. Presidential election already in full swing, this issue has become more visible and more contentious. This paper examines the issues involved in churches, political speeches and tax-exempt status. It will propose that a limited exception created for churches so that they may speak freely on all issues to their congregants, including politics, during regularly scheduled religious services. DAB
Professor Keith Blair (Baltimore) posted an abstract of his draft Denver University Law Review article about the political campaign prohibition for churches on SSRN's Nonprofit and Philanthropy Law Abstracting Journal. The article is entitled "Praying for a Tax Break: Churches, Political Speech and the Loss of Section 501(C)(3) Tax Exempt Status." Here is the abstract:
Churches in the United States, like individuals, are free to speak on any issue that they choose. However, if a church wishes to retain tax-exempt status, it must comply with the requirements of Section 501(c)(3) of the Internal Revenue Code. One of those requirements is that churches may not participate or intervene in political campaigns. Some churches, however, believe that their mission includes not just traditional religious teachings, but guidance on issue that affect the lives of their parishioners including politics. Those churches believe they are fulfilling their faith and mission when they offer this guidance.
This has caused a tension between the Internal Revenue Service, which must enforce the tax laws, and churches that feel that it is part of their mission to speak out on social issues of the day, which may include political issues. With the 2008 U.S. Presidential election already in full swing, this issue has become more visible and more contentious.
This paper examines the issues involved in churches, political speeches and tax-exempt status. It will propose that a limited exception created for churches so that they may speak freely on all issues to their congregants, including politics, during regularly scheduled religious services.
June 1, 2008
IRS Advisory Committee on Tax Exempt and Government Entities Announces Public Meeting and New Members
The IRS has announced the date of a public meeting of the Advisory Committee on Tax Exempt and Government Entities (ACT) and the names of new members of the committee. The ACT will meet on June 11, 2008, at 11 a.m. at 1111 Constitution Ave. NW, Washington D.C., to present to the Internal Revenue Service recommendations on ways to improve operations regarding employee retirement plans, tax-exempt organizations, tax-exempt bonds and federal, state, local and Indian tribal governments. The new members of ACT are:
G. Daniel (Danny) Miller, Conner & Winter LLP, Washington.
Susan P. Serota, Pillsbury Winthrop Shaw Pittman LLP, New York
Karin Kunstler Goldman, New York State Department of Law, New York
Jack B. Siegel, Charity Governance Consulting LLC, Chicago (See Jack's blog here)
Government Entities: Indian Tribal Governments
Joe Lennihan, Sutin Thayer & Brown, Sante Fe, N.M.
Government Entities: Tax Exempt Bonds
Michael G. Bailey, Foley & Lardner LLP, Chicago
Government Entities: Federal, State and Local Governments
Ruth Duquette, State of Michigan, Lansing, Mich.
Maryann Motza, State of Colorado, Denver
Due to limited seating and security requirements, members of the public interested in attending the public meeting should call Cynthia PhillipsGrady to confirm their attendance. She can be reached at 202-283-9954 (not a toll-free call). Attendees must have photo identification and are encouraged to arrive at least 30 minutes before the session begins.