Friday, September 5, 2008

Aprill on AIP Tax Issues

Ellen Aprill (Loyola-L.A.) has written a memo exploring the tax issues raised by the recent activities of the American Issues Project (AIP) which is available through the Election Law Blog.  For more information on those activities and their possible election law ramifications, see this earlier post on the Election Law Blog.

One of the most interesting issues raised by AIP and highlighted by Professor Aprill is that it originally obtained IRS recognition of its purported section 501(c)(4) tax-exempt status not in its current incarnation but under the name Citizens for the Republic and with an at least somewhat different leadership.  The extent to which AIP and Citizens for the Republic share common purposes, leaders, and possibly activities is unclear, as Professor Aprill discusses in her memo, but regardless of the degree of commonality in this specific case the situation highlights an interests issue.  Since IRS recognition of tax-exempt status, once granted to a particular legal entity, is permanent until such time as the IRS revokes that status, and if even significant changes to governing documents and activities appear only to have to be reported on an organization's annual information return as opposed to being resubmitted to the IRS' Exempt Organizations Determinations office for a decision on whether the entity is still tax-exempt, does this potentially create a way to avoid careful IRS scrutiny of that status?  Especially given the limited ability of the IRS to audit annual information returns, the determinations process for new organizations has come to serve an important gatekeeping function.  That function can be circumvented, however, to the extent an existing, perhaps dormant tax-exempt organization can easily modify its purposes and activities without being subject to significant IRS scrutiny.  It is true that if the IRS determines that such a change disqualified the organization from its claimed tax-exempt status the IRS can retroactively revoke that status since the new purposes and activities were not described in the original exemption application.  But until the IRS examines the new purposes and activities, the organization could function and represent itself to the public as tax-exempt.


September 5, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Senator Grassley and Congressman Welch to Hold University Endowment Roundtable

Senator Charles Grassley and Congressman Peter Welch have released the agenda and participant list for a September 8, 2008 Congressional roundtable on university endowments.  Here is the Agenda (scroll down to September 4; the agenda includes links to lots of interesting background reading material) and here is the participant list.  Amongst the law school academics who will be participating are Professors Iris Goodwin, Henry Hansmann, and Michael Klausner.


September 5, 2008 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

WSJ Analyzes the Success of Harvard's Endowment

With members of Congress planning a roundtable on university endowments early next week (see previous blog entry), the Wall Street Journal has a timely report looking at how Harvard University's endowment has been able to generate consistently strong returns, even in the fiscal year that ended on June 30th.  According to the report, the key has been diversification that stretches well beyond the traditional investment categories of domestic stocks and bonds.  This strategy includes significant investments in foreign equities, commodities, and real estate, as shown on the Harvard Management Company's website.  This diversification has allowed Harvard to realize an estimated 9 percent return for the first ten months of the last fiscal year, even though the S&P 500 fell about 15 percent during the same time period.  While the author acknowledges that the endowment's size ($38 billion as of April 2008) gives it access to both investment opportunities and investment terms that are not available to the ordinary investor, he argues that any investor can follow its overall diversification strategy, with the possible exception of investing in private equity and hedge funds.


September 5, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Football Canada Loses Charity Status Because of "Tax-Shelter"

The Globe and Mail reports that the Canada Revenue Agency has revoked the charitable status of the Canadian Amateur Football Association, better known as Football Canada, because of the organization's participation in a multi-million dollar "tax shelter."  According to the article, the shelter involved a for-profit company that solicited donations for Football Canada and other amateur sports groups and then invested the funds for twenty years.  The donors received a tax receipt that apparently permitted them to take an immediate tax deduction, while the sports groups received annual "royalty" payments plus, at the end of the twenty year period, 80 percent of the funds (donations plus earnings).  The for-profit company, ParkLane Financial Group, keeps the remaining 20 percent of the funds plus a management fee and a one percent fee on all donations raised.  The official reason given by the Canada Revenue Agency for the revocation of Football Canada's charitable status as a registered Canadian amateur athletic association is that Football Canada issued donation receipts that contained false information or were otherwise not in accordance with the applicable legal rules, according to a press release from the agency.


September 5, 2008 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Thursday, September 4, 2008

Senator Grassley Questions Two Tax-Exempt Hospitals About Patient Practices

Continuing his investigation into tax-exempt hospitals, Senator Chuck Grassley (R-Iowa) issued a press release stating that he has written letters to the M.D. Anderson Cancer Center in Houston and the University of Chicago Medical Center based on news reports raising concerns about some of their practices.  The story about the M.D. Anderson appeared in an April Wall Street Journal article (see previous blog entry) focusing on the adoption by some nonprofit hospitals, including Anderson, of up-front payment policies.  The University of Chicago story appeared in a Washington Post article last month (see previous blog entry) discussing the Medical Center's alleged policy of steering poor and uninsured patients to neightborhood clinics and the role of Michelle Obama in developing that policy.  In his letters, Senator Grassley has asked both institutions for detailed information about their organization and operations, including their billing practices, charity care policies, and compensation of senior employees.  The letters are available through links in the press release.


September 4, 2008 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Prosecutors Drop Most Charges Against Two Muslim Charity Leaders

The Associated Press reports that federal prosecutors have dropped nearly 30 non-conspiracy charges against two leaders of the now defunct Holy Land Foundation for Religion and Development in the run up to a new criminal trial scheduled for later this month.  Mufid Abdulqader and Abdulrahman Odeh still face trial for three conspiracy charges based on accusations that they used the charity to funnel millions of dollars to Hamas.  Three other leaders of the charity also face charges arising out of the same accusations, with Shukri Abu Baker, the Foundation's chief executive, and Ghassan Elashi, its chairman, facing conspiracy, foreign terrorist organization support, money laundering, and filing false tax returns counts.  The fifth individual defendant, Mohammed El-Mezain, faces a single conspiracy count.  The Foundation is also a defendant in the case.

As summarized in the AP article and in a previous blog entry, the first criminal trial resulted in a mistrial last year as the jury was unable to return a guilty verdict on any of the 197 charges filed.  It instead acquitted Mohammed El-Mezain of all but the single conspiracy charge he faces in the upcoming trial, and deadlocked on the remaining charge against him and on all of the charges against the other defendants. 


September 4, 2008 in Federal – Judicial, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 3, 2008

Pastors, Politics, and the Internet

The New York Times reports that the growing availability of sermons on the Internet, whether through church websites or YouTube, is increasing both IRS and watchdog scrutiny of pastors.  It cites examples ranging from attacks by Pastor James David Manning of Atlah World Ministries on Senator Barack Obama that quickly became fodder for Rush Limbaugh and others when they appeared on YouTube to Pastor Maury Davis of Cornerstone Church in Nashville, whose comments from the pulpit that he supported three parishioners running for school board were included in a video on the church's website that led to a local newspaper report.  The resulting publicity drew complaints to the IRS about both incidents from Americans United for Separation of Church and State.  While the IRS is not generally allowed to comment on specific investigations, it has been increasingly active both with respect to education about and enforcement of the ban on charities, including churches, supporting or opposing the election of candidates for public office.  Its efforts include a recent memo from the Director of Exempt Organizations Examinations to all Exempt Organizations Revenue Agents regarding how to address Internet activity and a 2007 Revenue Ruling. That ruling also specifically addresses Internet activity, stating flatly that "If an organization posts something on its web site that favors or opposes a candidate for public office, the organization will be treated the same as if it distributed printed material, oral statements or broadcasts that favored or opposed a candidate."


September 3, 2008 in Federal – Executive, In the News | Permalink | Comments (0) | TrackBack (0)

Charities Join Bids to Run Prisons

In a new twist on the privatization of prisons, the Times (London) reports that four UK charities have joined with for-profit companies making bids to run prisons in England.  Nacro, a charity that works to reduce crime by working with ex-offenders and disadvantaged communities, and The Rehabilitation for Addicted Prisoners Trust, a drug treatment charity, have joined with security firm G4S and construction company Galliford Try in a bid to run two prisons in London and Merseyside.  According to a Nacro press release, its role would be limited to managing resettlement services for the prisoners.  It already provides such services in approximately 40 prisons, but believes its efforts would be more effective if it was involved from the start with the prison regime planning.  In a separate bid for the same project, Rainer Crime Concern, a charity that provides services to young offenders, and Turning Point, a social care organization that provides drug treatment services, have joined with services firm Serco.

Additional coverage is available in The Birmingham Post and The Guardian


September 3, 2008 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Phelps Launches Foundation

Even with their legal limitations, private foundations appear to still be a popular choice for those who want to dedicate significant wealth to charity.  The Washington Post reports that Michael Phelps will use his $1 million bonus from Warmco, Speedo's U.S. parent company, to start a foundation promoting water safety and youth swimming.  Warmco had promised to pay Phelps the bonus if he tied or broke Mark Spitz's seven gold medal in a single Olympics record.  For anyone who was in a cave for the past month, Phelps won eight gold medals in Beijing.  According to the article, Speedo International and the Warmco Foundation will also donate an additional $200,000 to the newly created Michael Phelps Foundation.


September 3, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 2, 2008

Zimbabwe Finally Lifts its Ban on Charity Aid Groups

We previously blogged (here, here, here, and here) on Zimbabwe's now three-month old ban on the work of charity aid groups in that country.  Well, it appears that Zimbabwe has finally lifted the ban that has prevented literally millions of people from getting needed food and other basic necessities.  But the effects of the ban will linger for some time.  Here is an excerpt from the August 29, 2008, New York Times article about the lifting of the ban:

The groups have long said they provide aid based solely on need, not politics. But Zimbabwe’s minister of information, Sikhanyiso Ndlovu, on Friday reiterated the government’s charge that some of the international aid groups had backed the opposition against Mr. Mugabe, providing food only to opposition supporters and funneling aid money into the coffers of the opposition party, the Movement for Democratic Change.

“During the elections they were monsters,” he said. But now, he added, “since there are no elections, we hope they will now go back to their core business.”

“I hope some have now repented,” he said.

The aid groups have challenged the government to prove its case. Asked which nongovernmental organizations had used food for political purposes, Mr. Ndlovu declined Friday to name any. “They know themselves,” he said.

The United States, which last year provided $171 million in food aid to Zimbabwe, said that it was Mr. Mugabe’s government that used food for political ends. This week, the American ambassador to Zimbabwe, James D. McGee, wrote to the social welfare minister, Nicholas Goche, demanding that the United States government be reimbursed for the theft of 20 metric tons of American-donated food. The aid had been meant for schoolchildren, but was instead confiscated by the authorities and handed out at a ruling party political rally.

For the entire story, see "Zimbabwe Lifts Ban on Aid Groups, but Its Effects Linger" in the August 29, 2008, issue of the New York Times.


September 2, 2008 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Bay Area Muslim Charities Form Coordination and Accountability Group

The San Francisco Chronicle reports that four mosques and 16 other nonprofit groups have formed a new entity to speak on their behalf, improve accountability for social service programs, and provide a forum for resolving disputes.  The vision for the Northern California Islamic Council, a newly formed section 501(c)(3) organization, is that it will speak with one voice for Bay Area Muslims, as well as improving coordination and communications among its members.  Those members represent Sunnis and Shiites, as well as African Americans and immigrants.  The Council is modelled after the Islamic Shura Council of Southern California, and the leaders of both groups hope to eventually form a state entity.


September 2, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Portland Art Critic Calls for Independent Nonprofit to Create a Contemporary Art Center

D.K. Row, the art critic for the Oregonian, has written an article calling for a nonprofit contemporary art center in Portland.  He emphasizes the need for the center to be established by an independent nonprofit, as opposed to a college or university, because in his view the most cutting-edge contemporary art would be a poor fit with the presumably more traditional educational missions of such institutions.  He recognizes, however, that a limited affiliation with an existing academic entity could help support the new nonprofit, and that the new center would have to carefully consider whether the scope of its mission should extend beyond being a gallery to providing educational and other resources to area artists.  Consistent with much current thinking about nonprofit management, he also emphasizes that enthusiasm is not enough to make a good nonprofit - a clear vision (can you say vision and mission statements?), good administration, quality programming and financial discipline are needed to gain the public trust required for such an organization to succeed.


September 2, 2008 in In the News | Permalink | Comments (0) | TrackBack (0)

Additional Coverage of California's Prevailing Wage Law's Application to Nonprofits

Over the long weekend, I blogged about the looming expiration of a nonprofit volunteer exception to California's prevailing wage law.  That law requires any entity involved in a "public works" project to pay all workers the prevailing wage, including nonprofits that otherwise would use unpaid volunteer labor.  Today, the Los Angeles area Daily Breeze reports on one nonprofit that is concerned about the ramifications if the exception expires.  The Executive Director of the American River Parkway Foundation, which clears trash and debris from the public greenbelt in Sacramento, is worried that the broad definition of public works - essentially any project that receives public funding - would mean that their volunteer-based projects would have to end if the exception disappears.  A union official disputed this concern, arguing that the Governor has the authority to exempt volunteers from the reach of the prevailing wage law, but apparently the Governor's office disagrees. 

The latest news, according to the Foundation's website, is that the state legislature passed a three-year extension to the nonprofit volunteer exception, which now awaits the Governor's signature. 


September 2, 2008 in In the News, State – Legislative | Permalink | Comments (0) | TrackBack (0)

Monday, September 1, 2008

SEIU California Locals Struggling with Accusations of Financial Irregularites

The Los Angeles Times reports the top California officer of the Service Employees International Union (SEIU) has taken a leave of absence in wake of the union ordering her boyfriend and former union official to repay tens of thousands of dollars.  The officer, Annelle Grajeda, is president of both the Los Angeles local and the California state council and executive vice president of the national organization.  Her boyfriend, Alejandro Stephens, was the longtime president of the Los Angeles chapter before it merged into several other union entities.  The accusations relate both to claims that Stephens violated a severance agreement when he received money from the local and remained on the county payroll as an employee and that Stephens improperly managed a union-affiliated charity established to help members who are victims of disasters. 

These accusations are separate from previous allegations, also reported by the L.A. Times, involving Tyrone Freeman, the President of the SEIU United Long-Term Care Workers local in L.A. who has recently taken a leave of absence.  Those allegations assert various questionable payments by the union and by a charity he founded, including hundreds of thousands of dollars paid to businesses owned by his wife and mother-in-law.  The same local is apparently also under investigation by the U.S. Labor Department for possible voting irregulatories relating to the election of Freeman and his slate of officers.


September 1, 2008 in In the News | Permalink | Comments (1) | TrackBack (0)

Traveling for Charity

Appropriately for this holiday weekend, MSNBC has an article describing the growth of charity-affiliated donor trips, particularly to international locations, and listing 10 questions to ask before booking such a trip.  The primary attraction of such trips is to see what one's donations are actually doing, be it building health clinics, housing orphans, or protecting an ecosystem.  The article describes the payments for such trips both as "donations" and as "fees," but in the answer to the last question ("Is the trip tax-deductible?") clarifies that "You can't claim a deduction for travel expenses."  It also notes that only donations to charities "approved by" (it should be "recognized by") the IRS are deductible and then only if the appropriate statement is received in return.


September 1, 2008 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Sunday, August 31, 2008

Congressional Roundtable on Endowments

The Chronicle of Philanthropy reports that Senator Chuck Grassley (R-Iowa) and Representative Peter Welch (D-Vermont) announced last week that they will hold a roundtable with university officials and others to discuss endowments and college costs on Monday, September 8th.  Their press release is available in an announcement about the roundtable from the Council for Advancement and Support of Education (CASE).  The title of the roundtable will be "Maximizing the Use of Endowment Funds and Making Higher Education More Affordable."  Confirmed speakers include law professors Iris Goodwin (Tennessee) and Michael Klausner (Stanford), as well as representatives of the American Council on Education, the National Association of College and University Business Officers, and the Association of American Universities.


August 31, 2008 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Why Governments Decline Donations

The Boston Globe reports on the unusual but perhaps more common than expected situation of a local school board declining a donation because it would have given the appearance of allowing the donors to dictate school budgetary priorities.  In this case, the donors wanted to contribute a little over $4,500 to eliminate new annual fees for band and chorus members.  The Carlisle Public Schools' School Committee rejected the donation, however, because it would have required the Committee to rescind the fees in their entirety instead of simply indicating they had been paid for by the donation and so would have given, in the words of the Committee's chairman, "the semblance that a School Committee decision can be bought."  The donors were in fact unapologetic about their intention to force the rescission of the fees so that they would be not be automatically accepted as part of the budget baseline for the next academic year.  The Executive Director of the Massachusetts Association of School Committees recalled at least one other time in recent years that another School Committee had made a similar decision.  While private nonprofits certainly decline donations on occasion, as this story indicates government entities are probably more sensitive to the appearance that they are allowing their priorities to be directed by donors than are private organizations.


August 31, 2008 in In the News, State – Executive | Permalink | Comments (0) | TrackBack (0)