July 1, 2008
Further Coverage of IRS Investigation Into Colorado Conservation Easements
June 30, 2008
Sidel on Philanthopy in Asia
We previously blogged about Mark Sidel's (University of Iowa) article on The Promise and Limits for Collective Action for Nonprofit Self-Regulation: Evidence from Asia. He recently posted two other articles relating to philanthropy in Asia. Here is the abstract for Philanthropy and Law in South Asia: Recent Developments in Bangladesh, India, Nepal, Pakistan and Sri Lanka:
This report, edited by Mark Sidel and written by Sanjay Agarwal (India), Qadeer Baig (Pakistan), Noshir Dadrawala (India), Zafar Ismail (Pakistan), Thanuja Jayawardene (Sri Lanka), Sumaiya Khair (Bangladesh), Sapana Pradhan Malla (Nepal), Mark Sidel (US), Anil Kumar Sinha (Nepal), Priya Viswanath (India), Arittha Wikramanayake (Sri Lanka), and Iftekhar Zaman (Bangladesh), provides a comprehensive discussion and analysis of recent developments in state-nonprofit relations and the regulation of the nonprofit sector and philanthropy in five key countries of South Asia - Bangladesh, India, Nepal, Pakistan, and Sri Lanka.
The report covers the full range of government regulation of the nonprofit sector and philanthropy, including registration and incorporation, governance requirements, board, trustee and staff issues, tax treatment, regulation of foreign and domestic donations, regulation of special sectors and issues (such as microcredit organizations, foreign donations, and other topics), nonprofit self-regulation, and other areas. It serves as an update to Mark Sidel and Iftekhar Zaman (eds.), Philanthropy and Law in South Asia (Asia Pacific Philanthropy Consortium, 2004). Both the 2004 volume and this update report are also available at http://www.asiapacificphilanthropy.org/. This multi-year, multi-country research study has been generously supported by the Ford Foundation, Asia Foundation, Myer Foundation, Himalaya Foundation, and the University of Iowa, and sponsored by the Asia Pacific Philanthropy Consortium.
And here is the abstract for A Decade of Research and Practice of Diaspora Philanthropy in the Asia Pacific Region: The State of the Field:
This paper provides an overview of research on diaspora philanthropy to the Asia Pacific region over the past ten years (1997-2008), with a focus on diaspora giving to China, India, the Philippines, Vietnam, Bangladesh, Pakistan, Indonesia, and other countries in the Asia Pacific region. It identifies practices in social investment and social entrepreneurship through strategic philanthropy by migrants and discusses how these may have facilitated sustainable social change and development in the diasporas' communities of origin; analyzes the enabling environment for diaspora philanthropy in the key countries of the region with respect to its degree of conduciveness in allowing or encouraging diaspora giving; and focuses on identifing and analyzing the gaps in research on diaspora philanthropy in Asia. The paper was prepared for presentation to the international conference on diaspora philanthropy convened by the Asia Pacific Philanthropy Consortium in Hanoi, Vietnam in May 2008.
Is For Profit Micro-Finance Squeezing Out Nonprofits In Mexico
A op-ed piece in today's WSJ talks about the effect of for-profit microfinance companies in Mexico and whether they are getting in the way of Mexican nonprofit success. Micro-finance operates under the assumption that if the very poor had access to capital, they would be resourceful enough (given the hard times they've seen) to lift themselves out of poverty. Loans from microfinance companies are typically very small (in Mexico, the average loan is $450). The op-ed challenges the notion that nonprofit organizations, subject to the nondistribution constraint, do a better job than profit seeking microfinance companies in lifting people from poverty. In doing so, the article provokes us to think about the nondistribution constraint in general:
In his "reflections" on "microfinance interest rates and profits," Mr. Rosenberg writes that "overcharg[ing]" clients under a nonprofit model is OK because it is done for the sake of future borrowers. But when profits go to providers of capital through dividends, then there is a "conflict between the welfare of clients and the welfare of investors." It's not the commercialization of the lending, we're told, but the "size" of the profits that must be scrutinized.
What seems to elude Mr. Rosenberg is the fact that there is no way for him to know whether there is "overcharg[ing]" or by how much. That information can be delivered only by the market, when innovative new entrants see they can provide services at a better price. This has been happening since for-profit microfinance began to emerge, and the result has been greater competition. Rates have been coming down even as the demand for and availability of services have gone up.
Hmmmm. Does the argument suggest that there is a sort of negative nonprofit "antitrust" effect caused by the nondistribution constraint? If all social entities are subject to the nondistribution constraint does the lack of price competition thwart the better delivery of goods and services? These are interesting questions for those recently advocating L3C's and the repeal or the relaxation of the nondistribution constraint.
What is the value of the Charitable Deduction for the Human Body?
An interesting story on CNN's website talks about the growing practice of people donating their bodies for those gruesome but educational exhibits showing the entire human body.
Individual Americans have had the right to bequeath their bodies to science since 1965, when the Uniform Anatomical Gift Act established the human body as property. With that law, a donor's wishes superseded those of the next of kin. But academics in the field of gross anatomy attribute recent increases in body donations to relaxed social mores, according to an article published by the Association of American Medical Colleges. Traditionally, medical schools have been the most common recipients of willed specimens in America. Then, in 1993, controversial German anatomist Gunther von Hagens emerged with an alternative.
One of the leaders in the body exhibits is BodyWorlds, a commercial outfit that would not qualify for the charitable contribution deduction, but surely there must be some law (pro or con) on organ donation to colleges, universities and medical research organizations. I suspect that (1) there is no deduction for organs, because the donor has no basis -- but then the charitable contribution deduction is not limited to basis, or (2) the organ or body donation is useless as a source of a charitable donation because most people don't pay the estate tax anyway.
Still, the topic, complete with visuals, would be a good way to stimulate discussion of the charitable contribution deduction. At least long enough to get students to stop playing computer games during class.
Former Trustee Indicted for Alleged $6 Million Theft from Charity
The Chicago Tribune reports that the federal government has indicted Dr. Robert Weinstein for conspiring to steal millions from the Northshore Supporting Organization, a charity formed ostensibly to support the Rosalind Franklin University of Medicine and Science in North Chicago. Dr. Weinstein served as a trustee of both organizations and allegedly worked with Stuart Levine, the government's star witness in its case against Illinois political fundraiser and insider Antoin "Tony" Rezko, to divert $6 million from the Supporting Organization using a Scandinavian accomplice, fake contributions to the University, and sealed promissory notes.
According to the U.S. Attorney's press release and the indictment, Weinstein and Levine caused the Supporting Organization to transfer $3 million each to them in return for promissory notes that neither of them intended to repay. They managed to buyback the notes for only $1 million through a complicated scheme involving the University, an intermediary, and sealed envelopes holding the notes but which the University was not permitted to open. According to the indictment a third charity, identified only as IDDRS, was allegedly the original source of the $6 million ultimately diverted from the Supporting Organization, and Dr. Weinstein was the president and sole director of IDDRS.
Weinstein and Levine also allegedly used their positions as University trustees to try to require a developer working with the University to pay 20 percent of the developer's net profits their designee, who was then to transfer some or all of that amount to them. Finally, Weinstein is also charged with having lied to an FBI agent during the course of the Rezko investigation. The specific federal charges against Dr. Weinstein are wire fraud, mail fraud and making false statements.
The press release and the indictment are available through the U.S. Attorney's Chicago Press Room website.
Beer Company Works Through Nonprofit to Help Small Businesses
The Boston Globe reports that Boston Beer, the brewer of Samuel Adams beer, has teamed up with Accion USA, which is headquartered in Boston, to launch an initiative to assist small-business owners. The "Samuel Adams: Brewing the American Dream" initiative will provide loans from a Boston Beer $250,000 donation and business consulting services, all targeted at New England entrepreneurs working the food and beverage industry. It will also establish a mentoring program with executives from Boston Beer and other companies. The first company to receive a loan under the program will be Delectable Desires, a pastry company that rents kitchen space in the same complex as Boston Beer's headquarters. That complex houses approximately 50 small companies in total, a rental program that like the more recent initiative grew out of Boston Beer founder Jim Koch's desire to help small business entrepreneurs.
June 29, 2008
IRS Joins Colorado Conservation Easement Investigation
The Denver Rocky Mountain News reports that the Internal Revenue Service has accepted the invitation of the Colorado Division of Real Estate to join the Division's investigation of conservation easement transactions in Colorado. The state's investigation arose because of a generous income tax credit program - up to $375,000 per easement - for landowners who agree to permanently prohibit development on their lands. The credits can apparently be sold for cash. The criteria for receiving the credit closely follow the federal tax law requirements for receiving a charitable contribution deduction based on a conservation easement. The IRS is currently reviewing documents collected by the Division relating to the easements.
According to the article, the concerns arise because of possibly inflated appraisals of the value of the easements involved, as initially reported by the Rocky Mountain News in February. Colorado Attorney General John Suthers has also opened up a criminal grand jury investigation. Land trusts identified in the article as having received easements under review include Greenlands Reserve and Colorado Natural Land (formerly Noah Land Trust). A spokesperson for Greenlands Reserve denied any wrongdoing.
The Denver Post has also published an article providing further details regarding the IRS investigation, including that "[o]f the more than 400 tax returns involving conservation easements that the IRS is investigating nationwide, 290 are in Colorado."
UK Law Enforcement Investigating 25 Charities for Terrorist Ties
The Sunday Mirror reports that Scotland Yard and United Kingdom security services are investigating 25 charities that apparently raise funds in the UK and may support terrorist training camps and attacks. Eight of the charities have ties to the 7/7 (2005) London bombings that killed 52 people and another three to a failed plot to blow up several airplanes. The article does not identify any of the charities under investigation, but the New York Times in an August 14, 2006 article identified one of the latter charities as Jama'at-ud-Da'wah, a Pakistani-based charity active in the mosques of Britain's largest cities.
The UK government has taken significant steps to protect the charitable sector from being used to support terrorism, as detailed in "consultation" documents issued last year, and according to a recent news report the Charity Commission plans to issue counter-terrorism guidelines later this year. The Charity Commission already issued, in August 2007, "operational guidance" on how it will handle cases where it suspects a terrorist organization is involved.
Judge Orders Reorganization of Nonprofit's Board to End Split
The Orland Sentinel reports that Florida Circuit Judge Mark Nacke has ordered the restructuring of the governing board for the Community Development Corporation of Leesburg & Vicinity following an acrimonious split among the board's members. According to the article, the nonprofit organization grew out of the settlement ten years ago of a multi-million-dollar racial-discrimination suit against the city of Leesburg and the Leesburg Regional medical Center. The organization's mission is to help revitalize blighted neighborhoods and help the poor with housing and economic opportunities. It currently receives the bulk of its funding from the city government.
The rift apparently developed on the board of directors between seven directors on one side and two on the other side, with each faction claiming that one of its members was the board chairman. The rift also led to an attempt to suspend the organization's executive director, the closing of the organization's office, and the freezing of its bank accounts.
The judge melded both old and new board members into a reorganized, 15-member board, and chose one of the claimants as the board's chairman. He also found that while the organization had the authority to suspend its executive director, it owed her five weeks backpay because her suspension had not been approved by a properly seated board. The case docket provides further information about the lawsuit, although the judge's order is not yet available. A previous Orlando Sentinel story about the dispute concluded that it arose in large part because the board of directors failed to adhere to the organization's bylaws, such as by deciding issues or electing new directors at meetings that lacked a quorum.