Saturday, July 26, 2008

Shriners Look At - But Don't Deal With - Financial Improprieties

In Friday's New York Times, Stephanie Strom reported about the findings of an investigative committee created by the Shriners of North America and the Shriners Hospitals for Children.  Much of the report from the committee focused on allegations surrounding the refusal of an employee to hire a particular direct-mail fundraiser.  The committee found that the chairman of the board of trustees of the Shriners, Ralph Semb, tried to fire a Shriners fund-raising employee who refused to hire a direct-mail company Mr. Semb and Gene Bracewell, another board member, wanted the employee to hire.  The company appeared to have close ties to a company headed by the son of a close friend of Mr. Bracewell.  That company, Vantage, had done some fundraising work for the Shriners in the past and the results were unsatisfactory.  In a campaign that raised $46.2 million, the Shriners received only $2.5 million. 

The committee recommended that Mr. Semb and Mr. Bracewell be reprimanded for a breach of the Shriners' conflict of interest policy and ethics policy, but the Board declined to take any action penalyzing the two men.  The two men deny any wrongdoing.

The committee had intended to investigate financial improprieties alleged by a longtime financial executive, but the Board disbanded the committee before the committee completed its investigation.  At the Shriners' annual meeting, a discouraged member of the committee told Shriners that they should expect an investigation by an Attorney General or the IRS.

sng

July 26, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Niger Tells Doctors Without Borders to Get Out

According to this BBC Report, the Government of Niger has order the French charitable organization, Medecins Sans Frontieres to get out.

MSF says no reasons were given for the order to stop work but local media say it is suspected of having links with Tuareg rebels. The charity said it was continuing to offer a reduced level of help while talks continued with the government.  The group provides treatment and food aid for ten of thousands of children in Niger, where malnutrition is rife.  In 2005, it suffered a major food crisis which aid organisations said the government was trying to hide.  Niger's Radio Anfani said MSF was suspected of helping a group fighting a rebellion in the north of the country, the Niger Movement for Justice (MNJ).

This is the kind of stupid stuff that happens once government retreats to self-preservation mode and begins sniffing its nose at every group that happens to assist people even remotely connected to government's declared enemy.  The most ironic thing about this tactic is that ultimately it only provokes more revolution.  Hungry people fight the government.  People with jobs and food with which to feed their families don't participate in revolutions.  Charities ultimately contribute to peace and good order, even at the cost of preserving an inept government.  Good thing something like this will never happen in America.  Hey, I'm just sayin . . .

dkj

July 26, 2008 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Op-Ed Piece on Nonprofits and the War on Terror

William Fisher has authored an interesting op-ed piece on the effects the current war on terror is having on civil society.  Here is an exerpt:

"While the House Un-American Activities Committee once relied on the private sector to mete out punishment through the destruction of reputations and careers, today measures such as the Anti-Terrorist Financing Guidelines have turned funders into the new enforcers. In this light, [Professor David Cole, a constitutional law expert at the Georgetown University Law Center] said.  He said the nonprofit sector has an obligation to resist such a partnership with government," he says.  Other observers believe that the campaign against charities that conduct programs in Muslim areas is part of a larger suspicion of Arabs and other Muslims. Samer Shehata, professor of Arab Politics at Georgetown University, told me Islamophobia "produces an environment that is fundamentally at odds with what the U.S. is supposed to be about; our values for treating everyone fairly and not discriminating on the basis of skin color, race, religion, gender, etc."  He adds, "This is damaging certainly for all Americans and it is also damaging for the reputation of the U.S. overseas. One of the questions I hear the most whenever I am in Egypt and other parts of the Middle East is: how is it like now in the U.S. for Arabs? Have you been the victim of discrimination, bigotry, abuse?"

For a copy of the OMB Watch report, on which the op-ed is largely based, see our recent blog post on the topic.

dkj

July 26, 2008 | Permalink | Comments (0) | TrackBack (0)

Yelling "God Hates Fags" is not a nonprofit religous activity for property tax exemption purposes

Westboro Baptist Church, more popularly known as a family of damnable loonies who spew hate for lesbian and gay people (and after them, who else?), and demonstrate at funerals for soldiers, sailors, and marines killed in Iraq, recently lost a battle to have their 2002 Ford F-150 homophobe-mobile declared tax exempt under Kansas' exemption for property used for charitable or religious purposes.  In In the Matter of the Application of Westboro Baptist Church For Exemption From Ad Valorem Taxation (Kansas Court of Appeals, Case No. 98443, July 25, 2008) the church argued that its truck should not be subject to ad valorem taxation because it was used exclusively in support of the church's religious activities, charitably described by the court as follows: 

This activity consists of transporting handmade signs to various locations around the country, including churches, military funerals, government offices, political conventions, and other locations. The signs generally express in acrimonious language the WBC's religious message regarding "whether and who God loves or hates." WBC members believe that they are God's messengers on earth, and it is their duty to publish the message that God has punished and will continue to punish the United States because of the country's willingness to condone homosexuality. 

Fred Phelps' grandson Benjamin Phelps, informed his grandfather about the existence of the Internet and made the first "GodHatesFags" page. The cited Bible verse, Romans 9:13, does not mention homosexuality, but is a biblical example of God hating a certain person (in this case, Esau).   Personally, I wouldn't waste a warm pot of urine if any one of the church members were on fire.  I must say, though, that the Appellate Court is on shaky ground in its determination that the messages conveyed by the signs are, as a matter of law, not "religious messages."  The opinion comes dangerously close to establishing what seems to me an unconstitutional content-based test for what constitutes "religion," "religious speech" or "religious activity." 

Basically, the court defines "religious activity" as pretty much anything that fits the Judeo-Christian tradition of worship (of which I am a sinful participant, I might add).  The Court characterized as "circular" the evidence in support of the assertion that the signs transported in its trucks are religious and not political.  I don't mind at all admitting that religious beliefs are ultimately circular, insofar as human understanding is concerned.  Which is to say that Christians believe because the Bible says so, and the Bible is authoritative because we believe it to be so. Yep, that is circular.  See, there is a point beyond which human understanding cannot go; faith must provide the only evidence.   We can proceed only so far and then we must leap in faith (based on some undefined knowledge witin us that there is a God).  Faith, it should be admitted, is ultimately circular reasoning by human standards, though admitting that fact acknowledges only that we cannot fathom the mystery of God, not that God does not exist.  But I digress.  The Court stated that Westboro's beliefs were political and not religious because the church's evidence ultimately rested exclusively on their members own subject beliefs.  At the same time, the Court admits that religion is essentially a set of sincerely (i.e., subjectively) held beliefs.  I think the Court's reasoning is whats circular.  I think the Court is ultimately judging the sincerely held belief, even in a manner with which I agree.  But that certainly cannot be the basis for denying that the beliefs are religious beliefs.  Wrong, yes, but religious nonetheless.

dkj

July 26, 2008 in State – Judicial | Permalink | Comments (0) | TrackBack (0)

Friday, July 25, 2008

MSNBC Report on Implicit Campaign Intervention

A report on MSNBC's online magazine, Contribute, discusses the ways that 501(c)(3) organizations can engage in what might be referred to as "disguised" campaign intervention:

Truth is, there’s a fine line between what they can and cannot do legally when it comes to politics. That line distinguishes issues advocacy from partisan electioneering, but this election season, it’s a line that’s getting blurred quite a bit as more groups turn to the Internet to raise money and awareness for their favorite causes and candidates.  To be sure, federal law bars tax-exempt organizations from donating money to a politician’s campaign or endorsing a candidate, either verbally or in writing. But it’s OK to put on such events as a voter registration drive or voter forums — or a get-out-the-vote push, as long as all are nonpartisan. Clearly, some issues and causes are aligned more with one party than another — Al Gore and global warming, or George Bush and troop support in Iraq, for starters

dkj

July 25, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

An Excellent 501(c)(3) Campaign Intervention Visual Aid

What's wrong with the picture below?  Women Influencing the Nation is a 501(c)(3), apparently, -- not supposed to be intervening in a political campaign.  The picture shows a letter sent to voters, in rather obvious support of a candidate, under the organization's letterhead.  According to a report in the Witchita Eagle, Phil Kline calls the letter a "terrible mistake" to which his opponent in the race for Johnson County District Attorney election responded (essentially), "bovine defecation, this was no mistake!"  A nice teaching visual aid, I suppose, and an excellent opportunity for the IRS to make a conspicuous example out of this organization.  I swear, I don't know how I survived tax school without the internet, or how anybody can teach boring tax stuff without pictures these days!  Anyway, here is a link to the letter for those who want to download and save.  The 501(c)(3), by the way, prominently discusses the criminal charges against Planned Parenthood (referred to in the letter) on its website, and includes the following press release on its homepage (as of yesterday) -- released after the "mistaken" campaign letter:

WASHINGTON, D.C. -- Archbishop Joseph F. Naumann, whose Roman Catholic archdiocese covers northeast Kansas, on May 9 called on Kansas Gov. Kathleen Sebelius to stop taking Communion until she disowns her support for the "serious moral evil" of abortion. That put the church in conflict with a rising star of the Democratic Party, often described as a "moderate" and perhaps the leading prospect to become Barack Obama's vice presidential running mate.

Naumann also took Sebelius to task for her veto April 21 of a bill, passed two to one by both houses of the Kansas Legislature, which would strengthen the state's ban on late-term abortions by authorizing private lawsuits against providers. That followed by a year her veto of a bill requiring explicit medical reasons for a late abortion, which was preceded by vetoing other abortion legislation in 2006, 2005 and 2003.

Those positions are necessary for Democratic politicians to pass their party's pro-choice litmus test, but Sebelius' connection with abortion is more intimate. She is allied with the aggressive Kansas branch of Planned Parenthood in a bitter struggle with anti-abortion activist District Attorney Phill Kline.

Something evil (spelled "r-e-v-o-c-a-t-i-o-n") this way comes.

dkj

July 25, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Thursday, July 24, 2008

Mark Sidel: A Comparative Analysis of Counter-Terrorism and Civil Society

Mark Sidel recently authored Counter-Terrorism and The Enabling Legal and Political Environment for Civil Society:  A Comparative Analysis of "War on Terror" States in the International Journal of Not For Profit Law  Here is  the introduction:

This article focuses on the legal and political environment for civil society in an era in which counter-terrorism policy and law have challenged civil society and civil liberties in a number of countries. The ways in which counter-terrorism law and policy affect civil society can differ dramatically by country and region. So this article seeks to provide some comparative analysis of the impact of counter-terrorism policy and law on civil society in several countries in which the “war on terror” is being fought, emphasizing impacts on the enabling environment for civil society such as laws, regulations, policies, and practice influencing the existence, structure, activities, and vibrancy of civil society.  I address these impacts in the United States, the United Kingdom, and Australia, with some comparative and brief reference in the conclusions to Canada, Netherlands, and the European Union. Certainly other countries and regions could and should be discussed, but limited space forces a focus on some of the countries in which the “war on terror” has been waged most vigorously and where the impact of counter-terrorism law and policy on civil society has been most widely contested . . . The article begins from the premise that measures used to monitor, investigate, restrict, prosecute, or otherwise affect charities with the goal of restricting terrorist financing should also seek to maintain the autonomy and vibrancy that characterizes the charitable sector in democratic societies, and that serious efforts must be made to balance society’s interests in freedom from terrorism with society’s interests in a vibrant, autonomous, and powerful charitable sector.

This should be an interesting piece.

dkj

July 24, 2008 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

How Does the Private Benefit Doctrine Apply to Nonprofit Venture Capitalism?

Today's New York Times has an interesting story about nonprofits that invest in small for-profit start-ups as part of the nonprofits' efforts to spur urban renewal and economic revitalization  --nonprofit venture capitalists.  It is pretty much a settled fact that urban renewal and  economic revitalization are "charitable purposes" as stated in the 501(c)(3) regulations:

The term "charitable" is used in section 501(c)(3) in its generally accepted legal sense and is, therefore, not to be construed as limited by the separate enumeration in section 501(c)(3) of other tax-exempt purposes which may fall within the broad outlines of "charity" as developed by judicial decisions. Such term includes: relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of Government; and promotion of social welfare by organizations designed to accomplish any of the above purposes, or (i) to lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil rights secured by law; or (iv) to combat community deterioration and juvenile delinquency.

What caught my eye initially about this story was a link to one of the nonprofit urban renewal company websites, a website that has obviously been expertly approved or engineered by tax exempt counsel.  The Jumpstart Website explains its venture capital technique in terms both charitable and capitalistic, beautifully woven together:

JumpStart accelerates the growth of bright ideas into brilliant businesses in Northeast Ohio in three fundamental ways:

  1. Providing tools and organizing events to connect people with bright ideas throughout Northeast Ohio
  2. Providing experienced professional consultants to the most promising ideas and companies
  3. Providing critical early investment capital to entrepreneurs and businesses that have high growth potential and will likely grow to attract additional private-sector investments in the future

JumpStart's early efforts have yielded promising results. Whether reviewing newspaper articles throughout the region, looking at the number of JumpStart applicants, or attending any one of the many JumpStart Exchange events, you'll see that JumpStart has made great progress in revitalizing Northeast Ohio's entrepreneurial spirit.

And then later, the website returns to the requirements for tax exemption under IRC 501(c)(3):

The Corporation is organized and shall be operated exclusively for charitable and educational purposes, including for such purposes as combating community deterioration and lessening the burden of government in the Northeast Ohio area by developing and maintaining programs and activities directed at:

  • Encouraging the creation of new employment opportunities for unemployed residents of the City of Cleveland and other Northeast Ohio areas by providing managerial and technical assistance to aid the development and expansion of small businesses engaged in activities which have a high potential for providing employment opportunities and thereby contributing to the alleviation of economic distress in these areas;
  • Conducting activities to supplement City of Cleveland, Cuyahoga County and State of Ohio economic and job development programs directed at encouraging the initiation of expansion, growth, and maturation of small businesses with a potential for providing enhanced employment opportunities and thereby contributing to economic revitalization of the City of Cleveland and other communities in the Northeast Ohio area which have experienced economic decline and community deterioration;
  • Providing education and information to individuals concerning the development and operation of small businesses for the purpose of encouraging the initiation, expansion, growth, and maturation of both new and existing small business which can provide employment opportunities and thereby aid in alleviating unemployment, community deterioration, and economic distress in the City of Cleveland and other communities in the Northeast Ohio area.

It has been demonstrated that existing industries are no longer instrumental in providing growth within the region. The majority of growth nationally comes from small businesses. JumpStart's targeted assistance to early-stage high potential small businesses will ultimately create new employment opportunities for Northeast Ohio residents, which will alleviate economic distress and reduce the burden on government. The wealth created and jobs that result from our activities will help to revitalize the economy in Northeast Ohio.

There are obvious private benefit issues to be concerned with.  According to Guidestar, by the way, Jumpstart is a 501(c)(3) entity.  Should Jumpstart (and the other nonprofit venture capitalists discussed in the article) be tax subsidized when they exist to convey such an obvious benefit on peticular and  not so beneficial people (small business owners just trying to get rich).  The Service, I think, has not sufficiently evolved with regard to the area of private benefit most likely because its consideration of the extent to which tax exemption should co-exist with the  conveyance of  private wealth has occurred in  the context of health care, primarily hospital joint  ventures where everyone (except poor patients) are getting rich.  In most instances, that an organization must bestow riches on any particular noncharitable person in order to achieve a greater, indisputably charitable purpose, has been sufficient to cause denial or revocation of tax exemption.  One supposes that the sort of knee-jerk suspicion is justified in the  health care industry.

But I and a few others (most notably John Columbo) have made the point that the private benefit doctrine does not sufficiently allow for the fact that in our society a few people must normally benefit spectacularly in order to achieve a greater good for a lot more people.  Not quite "a rising tide lifts all boats" sort of feeling but close.  That is, the private benefit doctrine  should not prevent a nonprofit from conveying a conspicuous benefit on a noncharitable purpose if doing so is necessary (in a loose sense) to the accomplishment of a charitable purpose. 

So.  When the nonprofit venture capitalist invest in a future "Google," the owners of whom get filthy rich, people will and should question whether the nonprofit deserves tax exemption or exist merely to provide a private benefit.  In the past, the  existence of a  wealthy noncharitable  beneficiary has resulted in an irrebutable presumption of private benefit when investment is made in a non-corporate for-profit entity, even though the unrelated business income provisions clearly allow investment  in corporate ventures (whether the investment is related or not, neccessary or not, to the charitable purpose).  I  think instead we need to ask whether making that noncharitable beneficiary wealthy was necessary or perhaps just conducive (or maybe that is too easy a standard) to  the accomplishment  of the charitable purpose. 

dkj

July 24, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 23, 2008

Nina Crimm: Centralized "Terror-Free" Donor Advised Funds for Muslim-Americans

Nina Crimm has posted Muslim-Americans' Charitable Giving Dilemma: What About a Centralized Terror-Free Donor Advised Fund?" Here is the  abstract:

In the post-9/11 national security oriented environment, many Muslim-Americans face an inhospitable philanthropic environment and the dilemma of how to satisfy their religious charitable giving obligations and goals. The Article addresses the chilled philanthropic climate by suggesting that it might be moderated through the creation of a centralized terror-free donor advised fund aimed specifically at enabling Muslim-Americans discreetly to direct their diaspora philanthropy to needy Muslims in a few targeted regions and communities abroad. It presents the financial feasibility of, and the essential requirements for, creating such a terror-free donor advised fund. The Article suggests how the benefits of a terror-free donor advised fund would inure not only to Muslim-Americans and the neediest Muslims abroad, but also to the American public.

Sort of like the 21st century charitable giving analog to Japanese Internment camps, right?  I know this is a well-meaning proposal (and I admit I have not yet read the article) but lets not forget that it pertains to AMERICANS who are Muslims.  That we would ask one segment of American society to subject themselves to what, special security checks or application procedures(?) in order that they might engage in philanthropy and association merely because of their religion or ethnic heritage is troublesome on many many levels.  Better tread lightly here. 

dkj

July 23, 2008 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Teresa Harrison and Christopher Lainez: Entry and Exit in the Nonprofit Sector

Teresa D. Harrison and Christopher A. Lainez recently published Entry and Exit in the Nonprofit Sector in the B.E. Journal of Economic Analysis & Policy.  You can get a free one-time guest pass to download the article at the link above.  In the meantime, here is the abstract:

We study the entry and exit dynamics of nonprofit public charities using 1989-2003 tax return data. The observed patterns can be understood using a dynamic industry model based on Jovanovic (1982) that incorporates profit-deviation and a non-redistribution constraint. Both features generate a high exit threshold which implies high net entry rates and low exit rates. The data reveal that nonprofit gross entry rates are lower than those of for-profits in services, while extremely low exit rates (across both sectors and time) result in net entry rates nearly 3 times larger than that of for-profit firms. We find that the behavior of new public charities is remarkably similar to that found in studies of private firms (e.g. new firms begin smaller than the industry mean, but grow faster). However, exit patterns diverge sharply. Besides relatively low exit rates, the survival rate of new nonprofit firms greatly exceeds those found in studies on services and manufacturing. In addition we find that the hazard rate of exit declines with age and size, and with size conditional on age.

I think the economic jargon means that nonprofits enter the markets at much lower rates than for-profits, presumably comparing nonprofit and for-profits in identical industries, but nonprofits go out of business at much lower rates than for-profits.  I'm always baffled when empiricists spend a whole lotta time proving the axiomatic.  On the other hand, law review editors insist on innumerable citations, even for assertions about the obvious.  This paper should come in handy for most assertions to the effect that "do-gooders aren't in it for the money."

dkj

July 23, 2008 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 22, 2008

Downpayment Assistance Programs Appear Doomed

We have previously blogged on the efforts in Congress to shut down seller-funded down-payment assistance programs here and here.  It looks as though defenders of seller-funded down-payment assistance programs (including me) will soon lose the battle, if not the war.  Today's Washington Post reports that the House has agreed to a Senate provision that will effectively eliminate those charities -- at least for the time being:

Mortgage programs that helped nearly 79,000 people buy homes using government-insured loans last year would be eliminated as part of a broader housing package that Congress expects to pass this week, key lawmakers said. Under these programs, nonprofit groups provide buyers with money for down payments. Home sellers then reimburse the organizations and pay an administrative fee. More than half a million people -- including many first-time home buyers, minorities and single mothers -- have bought homes this way in the past decade using loans insured by the Federal Housing Administration.

I still say the Congress is "throwing the baby out with the bath water" as one reader put it.  Members of the Congressional Black Caucus and the Congressional Hispanic Caucus say they will try to revive seller funded down-payment assistance charities when the next president takes office, according to the article.

dkj

July 22, 2008 in Federal – Legislative, In the News | Permalink | Comments (0) | TrackBack (0)

More on Fractional and Retained Interests

We have recently blogged stories relating to Congress closing the loophole provided to wealthy donors of fractional interests in artwork here, here, and here.  Today's Wall Street Journal has another story (page D1) regarding the perceived need to loosen rules restricting art donations to museums passed in 2006.  The article notes that art donations have almost dried up since the 2006 law was passed:

Jon and Mary Shirley used to give artwork by the likes of Jackson Pollock, Mark Rothko and Alberto Giacometti to the Seattle Art Museum. No longer. A federal crackdown on deductions for so-called fractional gifts of art has made donating too onerous for them.   Before, the Shirleys could donate small stakes in their artwork to the museum over time and reap increasingly larger deductions as their collectibles appreciated. But Congress changed the rules nearly two years ago, capping those deductions.  "There's just no point in doing it," says the 70-year-old Mr. Shirley, a former Microsoft Corp. executive. He says the couple has made no art donations to the museum since the rule change.  Museum directors say these restrictions -- which limit tax breaks for givers -- have crimped donations of valuable collections. "Many of the significant gifts we've had in our history have come from fractional gifts," says Kaywin Feldman, the director of the Minneapolis Institute of Arts. "The new law has virtually stopped new fractional gifts from being started. It's a real problem for us and other museums."

The article notes that the Senate is likely to pass a law to revive fractional art donations while still preventing the abuse that led to the 2006 crackdown.  The WSJ article provides a pretty good example of the proposed changes:

The Schumer-Grassley plan would ease some of these restrictions, but would add others, according to the people briefed on the negotiations. Collectors would once again be allowed to take bigger deductions over time as their art appreciated. But higher art values, for tax purposes, would be restrained by any deductions taken previously, under one option being discussed. For example, say a donor gave 10% of a painting valued at $100,000. For that initial gift, the donor could deduct $10,000.  But when calculating the next deduction for a partial gift in a later year, the painting would be valued at only 90% of its fair-market value. If in the later year the market valued it at $200,000, the IRS would peg its taxable worth at $180,000.  A collector would also be required to submit appreciated artwork valuations to the IRS's long-established art advisory panel for approval, the people familiar with the negotiations said.

dkj

July 22, 2008 in Federal – Legislative, In the News | Permalink | Comments (1) | TrackBack (0)

Kenneth Copeland Ministries Responds to Grassley Memo: Through a Glass, Darkly

Last week, we reported that Senator Charles Grassley had issued a lengthy and detailed memorandum regarding the status of his investigation of certain Megachurches.  Kenneth Copeland Ministries recently responded to Grassley's memorandum with its own press release (scroll down one third):

The Church’s position continues to be that it has responded to the request of Senator Grassley in good faith and to the greatest extent possible without compromising the privacy, confidentiality, and freedom of association rights and protections afforded to the Church by the United States Constitution and the Internal Revenue Code (the “Code”).  As stated in the Church’s letters of December 6, 2007, and March 31, 2008, to Senators Grassley and Baucus, and in discussions with Committee staff members, the Church continues to believe that the most timely and efficient way for the Committee to obtain the requested confidential information — without compromising the universally recognized fundamental constitutional and statutorily based rights of this Church and all religious institutions — is for the IRS to request and obtain the information through a “church tax inquiry” under section 7611 of the Code.  At the completion of the 90-day inquiry period provided by section 7611 of the Code, the IRS would have in its possession and available for disclosure to Senator Grassley all of the confidential information, including financial data, Senator Grassley is seeking from the Church.

In his memorandum, Grassley accused some of the churches of hiring Washington DC law firms to assist them in "foot-dragging".  I'm a praying man, but I'm not quite sure at all what to make of the Kenneth Copeland response.  On the one hand, I gotta say that the Kenneth Copeland response seems to confirm that allegation.  The IRS is extremely loathe to initiate a church tax inquiry and Kenneth Copeland's lawyers probably understand that all too well.  And while Grassley sits on a committee that no doubt has the IRS' ear, he cannot simply mandate that the IRS initiate a church tax inquiry under IRC 7611. There is, indeed, a question as to whether the statute is yet applicable.  I suspect that if the Service did initiate a church tax inquiry, Kenneth Copeland ministries would argue that the Service does not meet the "reasonable belief" standard required of that statute.  The press release does not say that 7611 applies, exactly, but merely that the IRS should "request the information" under that statute.  I doubt that the press release will be construed as a waiver of the requirements under that statute, nor will Kenneth Copeland treat it as such. 

On the other hand, I agree with Kenneth Copeland when he asserts that houses of worship are a different sort of tax exempt entity and should not be subject to the regular sort of government oversight Grassley asserts:

However, the Church respectfully disagrees with Senator Grassley’s position that churches are no different from any other tax-exempt organization.  Any government inquiry into the affairs of a church raises serious constitutional issues that must be carefully balanced against the government’s need to evaluate the effectiveness of the laws of the land.  To ensure its constitutional rights are not unnecessarily infringed upon, the Church firmly believes that it must be given the protections from disclosure afforded by the federal tax laws and the benefit of the processes and procedures that apply to inquires of churches made by the IRS.  Without such confidentiality and due process of law, the potential exists for the information to be used in an effort to damage or attempt to embarrass the Church, its pastors, and its members.  Any such use of the information provided interferes with, and ultimately threatens, the religious liberties of this Church, the thousands of other Pentecostal and Charismatic Churches who preach the “Word of Faith” message, and all other churches — irrespective of their particular doctrine or faith.

Though the religious blogs (like this  one) seem on both sides of the issue, those in support of Kenneth Copeland generally assert that the government has no business prying into the finances of houses of worship (see the comments to the blog linked above).  They basically state that followers can make their own decisions regarding the extent to which they financially support their religious leaders.  Gotta point there. 

The Senate Finance Committee, and Grassley in particular, present an interesting context in which to study the effects of the "bully pulpit" on tax exemption jurisprudence.  It doesn't yet appear that Grassley will push this to the point of a Congressional subpoena -- IRC 7611 imposes limitations on the Secretary, by the way, not the Congress -- but as with colleges and  universities, he is seeking to bring public attention and pressure on houses of worship in an effort to influence their financial affairs.  While the effort seems to have resulted in symbolic gestures in the higher education community, I'm not quite sure they have had (or should have) any effect in the religious community.  We see through a glass, darkly.

dkj

July 22, 2008 in Federal – Legislative | Permalink | Comments (10) | TrackBack (0)

Monday, July 21, 2008

Charity Treasurer Sentenced to Prison for Failing to Disclose Encouragement of "Jihad" on Form 990

Last week, a federal district court sentenced the former treasurer of a defunct tax exempt charity to eleven months in prison for failing to disclose that it used some of its donations to publish a newsletter promoting "jihad" according to a report in the Boston Globe.  The prosecution was ill-conceived, according to the defendant's attorney:

Mubayyid's lawyer, Michael C. Andrews, said after the sentencing that the prosecutions of Mubayyid and two other leaders of the group were "ill-conceived and born, in part, out of fear of Muslim organizations" after the Sept. 11 attacks. He said Mubayyid was innocent and will appeal.  Reading a statement in court, Mubayyid, an Australian citizen of Lebanese descent, said his family raised him to help people less fortunate than himself. That is what Care International did when it solicited donations on behalf of Muslim widows and orphans and victims of strife around the world, he said. "It was not meant to increase the number of orphans and widows," he said, denying allegations by US Attorney Michael J. Sullivan's prosecutors that the solicitations also promoted terrorism.

The "strict scrutiny" of charities associated with Islam or the middle east is worrisome, it seems to me.  There has to be hundreds, if not thousands, of tax exempt organizations run by well-meaning but uninformed people who routinely fail to make all required disclosures on their 990's or 1023's.  The heightened scrutiny calls to mind the "collateral damage" described in the OMB Watch Report we blogged last week:

Vanessa Dick, Advocacy Coordinator at Grantmakers Without Borders, explained that the government is not targeting its counterterrorism efforts properly.  She noted, "The counterterrorism framework set in place after the attacks of Sept. 11, 2001, has unfortunately been abused by the executive branch and some in Congress.  Instead of focusing on reducing or eliminating poverty, inequality, oppression, strife, and other root causes of terrorism, the government has lobbed unfounded accusations at the nonprofit sector and has inaccurately claimed that charities are a significant source of terrorist funding."

One reason why this case is particularly worrisome is because, according to an NPR (and the U.S. government) report last week, (audio version) we in the United States don't even understand the benevolent aspects of "Jihad" -- the word has been bastardized to refer to violent attacks on civilians -- and  yet this case prosecuted a charitable representative for encouraging "Jihad.  Soon, we will make it a crime to engage in CWM (Charity While Muslim).

dkj

July 21, 2008 in Federal – Executive, In the News | Permalink | Comments (0) | TrackBack (0)

Evelyn Brody on Berea College, University Endowments, and Tax Exemption

Today's New York Times has an interesting, feel good story about tuition free Berea College, a higher education institution that accepts only low-income students, has a $1.1 billion endowment, and charges no tuition.  Much of the article summarizes and discusses the extent to which wealthy colleges that operate in the more traditional fashion (i.e., serving primarily the affluent and near-affluent) should retain tax exempt status.  The article relies heavily on Professor Evelyn Brody's expertise in tax exempt law:

In January, the Senate Finance Committee requested detailed endowment and spending data from 136 colleges and universities with endowments of at least $500 million, with a possible eye to forcing them to spend at least 5 percent of their assets each year, as foundations are required to do. Large, tax-free endowments “should mean affordable education for more students, not just a security blanket for colleges,” said Senator Charles E. Grassley, Republican of Iowa, who is reviewing the data. The commissioner of the Internal Revenue Service's tax-exempt section said this spring that he wanted his agency to be more aggressive in ensuring that universities made “appropriate use” of their endowments. And officials in Massachusetts are studying a proposal for a 2.5 percent tax on the part of university endowments greater than $1 billion — a threshold exceeded by nine of the state’s universities.  “The endowments have grown to such an astonishing extent that people are asking, if the wealth and the value of the tax exemption are increasing, is the public benefit increasing, as well?” said Evelyn Brody, a tax professor at Chicago-Kent College of Law.  This year, Ms. Brody said, the debate has entered new territory. Traditionally, discussion about endowments has focused on the balance between using the money for the current generation versus saving it for the benefit of future generations.  “Endowment spending has usually been a ‘when’ question, about when the money would be used for a charitable purpose,” she said. “But now, it’s also being viewed as a ‘what’ question. What is the money for? And I think that’s new.”

Nicely done.

dkj

July 21, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)