January 25, 2008
Gassley Probes University Riches
We previously blogged on the possible "real" reasons for Harvard's and Yale's recent proposals to increase financial aid to students from middle class households by mentioning an editorial claiming that wealthy schools are trying to avoid legislation that would require a 5% annual pay-out from endowments. On January 25, 2008, the New York Times announces that the Senate Finance Committee is asking for information from "the nation's wealthiest colleges and universities" about tuition increases, financial aid and endowments. Here is an excerpt from the article:
The committee, which has a central role in setting tax policy, has been pressuring universities to use more of their wealth for financial aid and threatening to require them to spend a minimum of 5 percent of their endowments each year, as foundations must. The committee pointed out that donations to universities and their endowment earnings were both tax-exempt.
Seeking to head off Congressional action, wealthy universities have been rushing in recent months to expand financial aid, in some cases using more of their endowments to increase assistance to low-income and upper-income students alike. Harvard recently said it would increase aid for families earning up to $180,000 a year, and Yale said it would help families with annual incomes of as much as $200,000.
For the entire article, go to "Senate Looking at Endowments as Tuition Rises" in the January 25, 2008, New York Times.
Bill Gates' "Creative Capitalism": What is it?
We previously blogged about the efficiency rationale in nonprofit organizations law and how we must jettison that rationale in nonprofit law if we are to ever fully realize the potential benefits of charitable organizations. Miscrosft Chairman and co-founder, Bill Gates, recently spoke at the annual meeting of the World Economic Forum about a concept called "creative capitalism." What is "creative capitalism"? According to a January 24, 2008, article in the New York Times, it means finding ''a way to make the aspects of capitalism that serve wealthier people serve poorer people as well." As an example, the article states:
To illustrate his push toward more social responsibility, he announced that Redmond, Wash.-based Microsoft teamed with Dell Inc., the Round Rock, Texas-based maker of personal computers, to sell a Red-branded PC.
The Red brand includes products sold by American Express Co., Apple Inc., Motorola Inc., and other companies that give a slice of the revenue to the Global Fund to Fight AIDS, Tuberculosis and Malaria. It was first announced at the forum's 2006 meeting by U2 singer Bono.
Gates said the Red-branded products have generated $50 million for the fund in the last year and a half.
''As a result, nearly 2 million people in Africa are receiving lifesaving drugs today,'' he said.
This idea of "creative capitalism" is simply one way of expressing the idea that nonprofit leaders and scholars should not hinge thinking about charity law on principles that were developed for the for-profit environment. Tax-exempt charities do not exist to make money for money's sake; instead, they exist to accomplish a value based mission. That mission may, at times, require diverse considerations that have nothing at all to do with the financial bottom line. This is a concept that I have previously referred to as "contextual diversity."
For the full article about Bill Gates' remarks at the World Economic Forum, see "Bill Gates Touts 'Creative Capitalism'" in the January 24, 2008, New York Times.
Brent Schaffer Publishes "Forming the Affordable Housing Nonprofit Developer"
This article discusses issues that should be considered in drafting the affordable housing entity's organizational documents, applying for tax-exempt status, and setting up its board and control structure. It assumes that the corporation is to be set up as a nonprofit corporation, with a true charitable purpose and not a profit motive, for the purpose of creating or enhancing affordable housing, either for sale or for rent. The corporation will need to qualify as tax-exempt under the Internal Revenue Code in order to attract the maximum amount of equity contributions. In the nonprofit context, corporations provide the advantages of liability protection to members, officers, and directors without the countervailing consideration that argues against using for-profit corporations in real estate projects: the taxation of both corporate-level income and personal income (on distributions to the members or shareholders) and capital gains at the corporate-level on appreciated real estate owned by the corporation.
For the entire article, see "Forming the Affordable Housing Nonprofit Developer," 22-FEB Prob. & Prop. 29in Probate and Property magazine (available at the American Bar Association website and on Westlaw).
The Real Story Behind Harvard's and Yale's New Approach to Student Financial Aid
Earlier this week, we blogged about the possible impact of Harvad's and Yale's recent decision to increase financial aid to students from middle income families could hurt poor college students everywhere. A reader of that blog post referred us to the following editorial from the Boston Globe which speculates that the real reason for the new approach to financial aid might be to avoid congressional action that would require colleges and universities to pay out at least 5% of their endowments each year. Here is an excerpt from the editorial:
Could Harvard's announcement be a preemptive move? The numbers tell the real story. Harvard estimates that it may spend an additional $22 million to assist families earning between $60,000 and $180,000 a year. Under the plan, families with incomes of $120,000 to $180,000 will be asked to kick in 10 percent of their income toward tuition. Given that the yearly cost of Harvard is $45,620, some families will still be paying almost $20,000 per year. Even if the initiative does total $22 million, compare this with the figure Harvard could be required to pay if Congress mandated that Harvard and other universities spend 5 percent of their endowment income.
Five percent of $35 billion is $1.75 billion. Harvard's Alumni Affairs and Development Office reported that the university spent 4.3 percent of the endowment in fiscal year 2006. The difference between 4.3 percent and 5 percent might not seem significant at first glance, but the savings to Harvard was $245 million in one year alone.
For the entire editorial, see "The real story on Harvard's generosity" on Boston.com, published December 31, 2007.
January 24, 2008
Editorial About Ex-Military Leaders Who Benefit from Veterans Charity
In the wake of the recent news reports about congressional hearings over concerns that with operators of veterans charities are giving less than an ideal amount of charitable donations to veterans (previously blogged here and here), the Atlanta Journal Constitution ran an editorial on January 24, 2008, about how some famous ex-generals also benefit from these groups. Here is an excerpt from the article:
After his retirement in 2003, [Gen. Tommy] Franks followed the career path trod by many generals before him, cashing in on his celebrity by accepting well-paid speaking gigs, writing a book and serving on corporate boards. Franks also agreed to lend his name to fund-raising efforts by an outfit called the Coalition to Salute America's Heroes, a charity created to assist wounded veterans.
"The whole purpose will be to help put our disabled veterans on the road to a productive and rewarding life by assisting them to better develop their own abilities to overcome their disabilities," Franks said in a mass mailing sent out over his signature.
. . .
To his credit, Franks later ended his relationship with the Coalition to Salute America's Heroes. However, he did so not because he thought it inappropriate to take money meant to help wounded veterans, but because so little of the money was actually reaching the vets.
For the entire editorial, see "Military 'charity' rewards celebrity generals first" in the AJC.
Executive Director of Foundation Files Sexual Harrassment Suit Against State Senate President Who Founded the Foundation
On January 24, 2008, the LA Times reported that the Kathleen Driscoll, executive director of the John Burton Foundation, filed a sexual harassment lawsuit against 75 year old John Burton, the founder of the foundation and former California State Senate President. here is an excerpt from the article:
Kathleen Driscoll, who is on stress leave from the John Burton Foundation for Children Without Homes, said in a 12-page Superior Court complaint that Burton began harassing her in September 2006, almost immediately after she was hired to the post with a six-figure salary. She said that he continued despite her complaints to him and other foundation board members.
"I had a dream of helping homeless children through a job I loved," she told a news conference at her attorney's office here. "John Burton turned that dream into a sexual harassment nightmare and quite frankly a living hell."
Reached by phone at his law office, Burton referred a reporter to his attorney, Susan Rubenstein, who said she had not been able to review the suit but that the longtime Democratic politician denies any sexual impropriety.
For the entire article, go to "Sexual harassment suit filed against John Burton" in the LA Times.
U.S. Patent Office Issues Patent on Increasing Charitable Donations
On January 22, 2008, the United States Patent and Trademark Office issued a patent to CollegeNet, Inc. for an invention by James H. Wolfston that supposedly increases charitable donation receipts. Here is the abstract from the U.S. Patent and Trademark Office website:
Charitable donations are increased by automatically providing immediate on-line recognition of on-line donors. A list of donors is maintained on a Web page acknowledging the on-line contributions. Donor names on the list can be links to additional information about the donation or the donor. Information about donor and donation is entered by the donor, who can specify what information is to be published on the Web and what information is to remain unpublished. The donor list can be arranged in order of donation size, and donors can compete for position on the list. The donor information can indicate membership in a group, and donations can also be totaled by group to encourage donation competition between groups.
For more information on this invention, go to the U.S. Patent and Trademark website - Patent #7,321,876.
January 23, 2008
Ohio Asks Private Nonprofit Hospitals to "Justify" Their Tax Exemption
We recently blogged about Great Britain asking private schools to "justify" their tax exemptions. It seems that Ohio is doing the same with its private hospitals. Ohio.com announced on January 22, 2008, that the attorney general in that state is asking nonprofit tax exempt hospitals to "justify" their exemption. Here is an excerpt from the story:
For the second time since 2006, Ohio's top law enforcer is seeking information on 174 Ohio hospitals that get tax breaks linked to their status as nonprofit, charitable organizations.
Attorney General Marc Dann, a Democrat elected in January, wants the institutions to justify their tax-exempt status and has launched an effort to collect detailed data on their operations, including how much they pay their executives, how they collect unpaid medical bills, how much charity care they provide, and what financial information they share with the public.
A similar effort by Dann's predecessor, Republican Jim Petro, was largely abandoned in 2006 amid criticism from leaders of hospitals and other nonprofit groups. The attorney general's office enforces laws governing nonprofit organizations.
For the entire story, go to "Ohio's top lawyer asks nonprofit hospitals to justify tax breaks" at Ohio.com
Recent 501(c)(3) Tax Exemption Revocations
For a list of 501(c)(3)'s that recently lost federal tax exemption status, go to this location on the IRS website. Although the IRS publishes in Publication 78 a list organizations exempt from tax under 501(c)(3), Publication 78 does not immediately revocations. Instead, the IRS publishes recent revocations in the Internal Revenue Bulletin. Here are just a few of the organizations noted on the IRS website that were recently revoked, including name of the organization, location and date of publication of the notice of revocation:
|American Assistance Corporation||Plano, TX||1/14/08|
|Brooklyn Community Counseling Center, Inc.||Brooklyn, NY||1/14/08|
|Community Fellowship for Battered Women of Silicon Valley, Inc.||San Jose, CA||1/14/08|
|Cytogenetics Foundation||Omaha, NE||1/14/08|
|Healing Center of Children with Disabilities, Inc., The||Macon, GA||1/14/08|
|Peace Parents and Elders of Africa for Common Efforts||Minneapolis, MN||1/14/08|
|Proyecto Esperanza||Los Angeles, CA||1/14/08|
|Stevens Foundation, The||New York, NY||1/14/08|
|Tri-State Community Development Resource Center, Inc.||Camden, NJ||1/14/08|
IRS Announces New Filing Requirement for Small Exempt Organizations
The IRS announces on its website that, for tax years beginning after December 31, 2006, small tax exempt organizations will have to file annual reporting information. here is an excerpt from the announcement about the new annual electronic notice, Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ:
Small tax-exempt organizations, whose gross receipts are normally $25,000 or less, are not required to file Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. With the enactment of the Pension Protection Act of 2006 (PPA), these small tax-exempt organizations will now be required to file electronically Form 990-N, also known as the e-Postcard, with the IRS annually. Exceptions to this requirement include organizations that are included in a group return, private foundations required to file Form 990-PF, and section 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ. In addition, this filing requirement does not apply to churches, their integrated auxiliaries, and conventions or associations of churches.
For the entire announcement, go to the IRS website at www.irs.gov.
California Assembly Speaker Fabian Nuñez Accused of Using Charity to Illegally Fund Political Activities
On January 23, 2008, the LA Times reported that an ethics complaint was recently filed with the Fair Political Practices Commission against state Assembly Speaker Fabian Nuñez for "using a charity to illegally funnel donations into political activities." Here is an excerpt from the story:
In a complaint filed with the Fair Political Practices Commission, the Foundation for Taxpayer and Consumer Rights accused Nuñez of dodging state restrictions on campaign donations by asking donors to give to the nonprofit, then using the money for his political benefit.
"The speaker and Collective Space claim it was only a 'conduit' for the speaker's funds," wrote foundation Executive Director Doug Heller in the complaint. "If this is the case, the contributions were never intended for the charity and should be considered direct donations to the speaker and his events."
. . .
Nuñez said the complaint misinterprets the law. He called the allegations "a huge stretch from where reality is of what law allows a member of the Legislature to do."
"People can file complaints every day of the week about whatever they want to file complaints about," said Nuñez, adding that there was nothing illegal or unethical about his work with Collective Space.
For the full story, go to "Complaint accuses Nuñez of misusing charity" in the LA Times.
Individual v. Organizational Candidate Endorsements in the UK
The ThirdSector reports that the Charity Commission for England and Wales has written a warning letter to more than a dozen Muslim charities whose members signed an open letter supporting the re-election of London Mayor Ken Livingstone. The letter cites Mayor Livingstone's support of the city's Muslim communities and states "We pledge to continue our support for the mayor on all levels possible in order to secure his staying in office for a third term." Almost all of the 63 individual signers' names is followed by the name of an organization, sixteen of which the Commission identified as charities according to the ThirdSector article. The letter does not state whether the signers are acting on behalf of the listed organizations, although at least one charity responded to the letter by stating that the individuals who signed the letter did so as individuals and not as representatives of the named organizations' views. According to the article, charities in the UK are not permitted to support political candidates.
January 22, 2008
Can We Really Separate Politics and Religion for Tax Law Purposes?
On January 22, 2008, the Atlanta Journal Constitution reported on the recent speeches by Atlanta Mayor Shirley Franklin and former President William Clinton from the perspective of nonprofit tax law. That is, the King Center, a nonprofit that recently organized a Martin Luther King celebration service at Ebenezer Baptist Church in Atlanta, decided "it was not wise to allow candidates for public office to address the . . . event, given [its] nonprofit tax status." Nevertheless, the article continues:
While Clinton said his goal Monday was not political, politics was thick for much of the service.
With Clinton sitting not 20 feet in front of her, Atlanta Mayor Shirley
Franklin used her remarks to take what appeared to many to be a political shot at the former president.
Franklin, who has endorsed Obama, said the country is on the "cusp of turning the impossible into reality. Yes, this is reality, not fantasy or fairy tales."
Clinton, in supporting his wife's campaign, recently took heat for using the term "fairy tale" to describe Obama's depiction of his stance on the war in Iraq.
For the entire story, go to "COUNTDOWN 2008: Politics apparently in pulpit at King event" in the AJC.
Will Harvard's and Yale's Well-intentioned Move Hurt College Prospects for the Poor?
In the January 22, 2008, New York Times, Roger Lehecka and Andrew Delbanco published an op-ed about Harvard's and Yale's recent decision to increase financial aid for students from middle income families. (Blogged here, here and here). The article suggests that Harvard's and Yale's move might actually hurt poor students who dream of going to college because money that could ordinarily be given to these poorer students will now likely be re-directed to others. Here is an excerpt:
The problem is that most colleges will feel compelled to follow Harvard and Yale’s lead in price-discounting. Yet few have enough money to give more aid to relatively wealthy students without taking it away from relatively poor ones.
Most colleges already tend to favor the affluent because their budgets require it. More than 90 percent of America’s private colleges have endowments less than 1 percent the size of Harvard’s. Giving an upper-middle-class applicant even a generous partial scholarship puts less strain on their budgets than giving a full scholarship to a student whose family can afford to pay nothing.
For the entire story, go to "Ivy-League Letdown" in the January 22, 2008, New York Times.
Why Do We Care About Mixing Religion and Politics?
Here is another interesting article about line-drawing when it comes to religion and politics. We previously blogged an article about Huckabee walking a fine line between religion and politics in his political campaign for President of the United States. The take in this January 21, 2008, Newsday article is different, though, because the writer looks beyond the current Presidential campaign and focuses on the broader concern of keeping religion and politics separate. The essence of the article is that the concern is not so much that religion could corrupt politics, but that politics has the potential to corrupt religion by diverting religion from its core religious mission. Here is an excerpt:
Politics and assorted kinds of social activism create the temptation of diverting Christianity from its central mission. That is, as noted in Matthew 28, Jesus told his disciples, "Go therefore and make disciples of all nations, baptizing them in the name of the Father and of the Son and of the Holy Spirit, teaching them to observe all that I have commanded you." This is the Great Commission.
Individual Christians obviously should engage fully in the political process. Just like everyone else, they can and should be guided by their values and consciences - formed and informed by their faith - as voters, candidates, activists and lawmakers. The presidential campaign by Mike Huckabee, who is a Baptist minister, provides one illustration. But the Rev. Martin Luther King Jr.'s fight for civil rights in the 1960s may be an even better one.
From the standpoint of teachers and scholars in the nonprofit and philanthropy law area, this could explain why religion and churches are given special treatment under federal tax exemption laws.
For the entire article, see "Trouble lurks when politics intrudes on faith" in the January 21, 2008, issue of Newsday.
January 21, 2008
United Arab Emirates Establishes New Center For Philanthropy
United Arab Emirates announced on January 20, 2008, that it will form the Arab Centre for Philanthropy in order to "mobilize strategic giving and promoting coordination among various Arab philanthropic programmes." Here is an excerpt:
The "Arab Centre for Philanthropy" is set to play a major role in leveraging the level of cooperation between Arab philanthropists in order to enhance their contribution while working to overcome regional challenges.
Announcing the launch of the initiative, Sheikh Mohammed stressed on the importance of collective giving, irrespective of whether it stemmed from individuals or organizations.
Charity to Benefit from Obama Predicament
Presidential candidate Barack Obama recently found himself in a prickly situation when his former Chicago friend and fund-raiser, Tony Rezko, pleaded not guilty to federal influence-peddling and bank fraud charges. Obama's campaign had accepted several thousand of dollars from Rezko, but pledged to divest itself of the money by donating much of it charity.
For the entire story, go to "Obama to return Rezko-linked donations: $40,000 more will be donated to charities" in the January 20, 2008, Chicago Tribune.
One Size Does Not Fit All - Some Charities Say They Have to Pay a Lot for Fund-raising
On the heels of the recent scandal involving Roger Chapin's (Help Hospitalized Veterans) alleged defrauding of a veterans charity by using its funds for non-charitable purposes (previously blogged), the AJC reported on January 20, 2008, about similar allegations against a professional charity fund-raiser. After noting that a professional fund-raiser received as much as 88% of funds it raised for a charity, the article notes how some small charities - despite state law assertions to the contrary - often need professional fund-raisers in order to get donations:
The head of the Committee for Missing Children, David Thelen, said the dollar figures do not give a whole picture and that small charities have no other way of raising money.
Hiring the fund-raisers saves Thelen the cost of in-house fund-raising, he said.
"I contract with them [to keep] 88 percent, and I keep 12," he said. "Ask Coca-Cola if they would like to have 12 percent at the end of the year, guaranteed."
Although this is not a universal view, this is a view of many small charities that have trouble attracting donations. This view counters the idea that charities should be "efficient" at accomplishing their mission. According to Daniel Borochoff of the American Institute for Philanthropy (quoting from the same AJC article) "We give [Thelen's group] an F grade for 11 percent of the money going to their programs.. . How many people would send them money if they knew only 11 cents of every dollar was going to programs that actually help children?"
The U.S. Supreme Court has yet to address this issue. But the Seventh Circuit, in United Cancer Council v. Commissioner, 165 F.3d 1173 (1999), considered the issue of when high fees for professional fund-raising crosses the line from helping charities that need the funds to violating the federal laws against private inurement. In that case, the Seventh Circuit held in favor of the charity because the facts did not show that the fund-raiser "seized control" of the charity. In United Cancer Council, 90% of the funds raised by the charity went to the professional fund-raiser.
For the entire Atlanta Journal Constitution article, see "Pros get bulk of gifts to charity: 88 percent of donations raised for the Committee for Missing Children in Lawrenceville goes to telemarketers" in the January 20, 2008, issue.
January 20, 2008
The Charitable Divide in Fund-raising
On January 10, 2008, the Chronicle of Philanthropy reported that there is a growing divide in fund-raising results for wealthy charities and poor charities. Here is an excerpt:
Signs of a growing fund-raising divide between wealthy organizations and other charities are growing starker. Even as many big organizations like arts groups and universities are reporting record increases, other charities, especially local groups that provide direct services to poor people, are struggling to get donations and keep up with rapidly escalating demands for aid, The Chronicle found in interviews with nearly 70 nonprofit organizations.
Some veteran leaders of organizations that serve needy people say they have not faced such a tough time in their entire nonprofit careers.
For the entire article, go to "A Charitable Divide," available on the Chronicle of Philanthropy website.
Wendy Gerzog Publishes "Dealing with Postdeath Events"
Professor Wendy C. Gerzog (Baltimore) recently published "Dealing with Post Death Events" in Tax Notes. Here is the introduction:
In the background section of the proposed regulations dealing with the effect of postdeath events on the estate tax deductions under section 2053, the government describes the disparate treatment accorded to postdeath events by different courts. One group of courts relies on an interpretation of Ithaca Trust that views date of death valuation as prohibiting consideration of postdate events; diametrically opposed is another group that, underlining that the deduction should reflect actual claims against the estate, allows a deduction only for amounts that are actually paid by the estate. Within that panoply of interpretations are those courts that, while adhering to the first view, allow some review of postdeath events to deny the deduction "when a claim is contested, contingent, unenforceable, becomes unenforceable after the decedent's death, or is not in fact presented for payment."
Those inconsistencies in interpretation have resulted in an inherently whimsical, uneven, and unjust application of the statute dependent on the executor's residence. Rejecting what it refers to as the date of death approach because it results in "an inefficient use of resources" for the parties and the courts, is expensive because of appraisal and litigation costs, and illogically produces a mismatch between the deduction amount and the actual expense, the government opts for the opposite interpretation: "An estate may deduct under section 2053(a)(3) only amounts actually paid in settlement of claims against the estate." For claims unresolved at the end of the limitations period, "the estate may file a protective claim for refund to preserve its right to claim a deduction under section 2053(a)."
For the entire article, go to Dealing with Post Death Events, 2007 TNT 176-57, available on Lexis.