October 3, 2008
Senate Adds Charity Provisions to Bailout Bill
Just three days ago we blogged about the unlikehood that Congress would be able to agree upon and pass the charity tax bill before adjournment. Senators resolved the problem by adding the charitable provisions to the bailout bill, signed by Pres. Bush on Friday. The charitable provisions include an extension of the ability of a taxpayer older than 70 1/2 to contribute up to $100,000 to an IRA without income tax and extensions or renewals of breaks for businesses that contribute books or computers to schools. The bill creates tax incentives for donations to help victims of recent floods, tornados and storms in the Midwest, and volunteers who help with disaster relief in the Midwest can deduct mileage at the rate of 42 cents a mile, until the end of 2008. That amount is 70% of the business rate (58.5 cents) but significantly more than the rate for charitable activities (14 cents a mile). The Chronicle of Philanthropy reported on the charity provisions of the tax bill.
Palin Tax Returns Posted
Gov. Palin and her husband have posted their 2006 and 2007 tax returns on the McCain campaign website. In 2006 the Palins gave 3.3% of their adjusted gross income to charity ($4,250 in cash and $630 in non-cash contributions). In 2007 the Palins contributed 1.5% of AGI ($2,500 in cash and $825 in non-cash contributions).
IRS Releases Questionnaire Sent to Colleges
The IRS has posted the 33-page questionnaire and 9-page instruction letter it sent to approximately 400 colleges and universities. THe IRS has not released the names of the schools that have received the questionnaires but says they represent a cross-section of colleges and universities.
Newman's Philanthropic Planning
Another piece of information on Paul Newman's philanthropy surfaced in an article in the Philanthropy News Digest. Apparently Mr. Newman didn't like to plan ahead much and liked to control his company, Newman's Own. But two years ago, to make sure the company would continue to support his philanthropic interests, Mr. Newman established the Newman's Own Foundation to continue his charitable work. Mr. Newman also formulated the plan for his company's mission: quality food, fair labor practices, a mission focused on philanthropy rather than profit, and a welcoming work place. The company will carry out the mission - both the philanthropy and what one might call socially responsible work practices - without the benefit of 501(c)(3) status. Presumably the new foundation has qualified as a 501(c)(3) organization.
Cool Hand Luke and His Feeder Corporation
"What we have here . . . is a "failya" . . . to communicate! The guy was one of the coolest white boys I have ever seen. I must've watched Cool Hand Luke at least 50 times and I am not even 50 years old yet (though lately I feel lmuch older than that). So I was sad to hear the news of his death. Tom Cruise, I think is destined to be next. Have you ever noticed the way he can act just with his face, his eyes? That's what Newman had.
Anyway, I've been wondering why Newman's Own was not operated as a 501(c)(3). As I understand, Newman's Own, Inc. donates all of its after tax profits to Newman's Own Foundation. The question makes for a good case study. The Company's motto is "shameless exploitation in pursuit of the common good." Does IRC 502 prevent Newman's Own from attaining (c)(3) status? Section 502 is but a statutory codification of the "commerciality" doctrine. I don't suppose Newman's Own sells its products for less than market price and it probably engages in the same sort of advertising that Thousand Island salad dressing engages in. But why should it be that an entity that gives 100% of its profits to charity be precluded from tax exempt status? I don't buy the argument that nonprofit feeders will take over the market and thus 502 and the UBIT are necessary. There are just too many people who want to get rich for that to happen; IRC 501(c)(3) status means the fiduciaries must discard the desire to get rich (unless of course you are a CEO of a large nonprofit). And yet the marriage of profit principle and nonprofit ideal seems all but absolutely necessary these days, at least for those nonprofits who are playing in the big league. Newman's Own's business acumen, its adoption of profit making practices -- and not just Newman's good looks -- made for lots and lots of charitable dollars. The tax code, on the other hand, is so far behind the 21st Century that it sometimes is more the barrier to economic justice than the solution. Indeed, the implementation of business principles can raise lots of charitable dollars and serve lots of people, but it is just as likely to get your exempt status yanked from under you. Alas, the mere passage of time will require that tax exemption jurisprudence come to understand, harness and make peace with the power of the market if only for public good. The Lion will lie down with the lamb. Well, here is what one writer said about Newman in yesterday's Wall Street Journal:
Paul's passion for philanthropy was rooted in the strong belief that we had a great obligation as individuals and companies to give back some of the benefits that we were granted as free and prosperous citizens of the United States. He believed that corporations are granted a license to operate by their communities, and therefore have the responsibility to be good citizens in return. In 2000, Paul addressed a group of students at a U.C. Berkeley conference on philanthropy and articulated his motivation behind giving by saying "it seems so human to hold your hand out to people less fortunate than you are." This quote embodies the generous spirit of a man committed to not only giving back, but to inspiring the world to see the value of social responsibility. In today's economy Paul's ideals are even more salient. Business leaders should learn from his example and maintain or increase their corporate giving programs in these tough times.
October 2, 2008
1000 Colleges and Private Schools Face Hardship After Wachovia Corp Crash
More than a thousand colleges and private schools invested in the Commonfund are scrambling to make payroll after their rights to make withdrawals were suddenly frozen, according to the Wall Street Journal:
A fund that invests cash for about 1,000 colleges and private schools suddenly froze withdrawals this week, leaving school finance managers scrambling to make sure they have enough money for payroll and other bills. For 34 years, colleges and schools parked cash in the now $9.3 billion fund, which offered returns slightly above U.S. Treasury bills. That it now might take years for the institutions to get all of their money back shows how widely credit-market woes are reverberating beyond Wall Street. Monday, Wachovia Corp., the fund's trustee, said it was terminating the fund, liquidating its assets, distributing the proceeds and resigning as trustee, "to ensure that all investors would get equal treatment and that there would be orderly and equal distributions," says Laura Fay, a Wachovia spokeswoman. That stunned some of the colleges, which had believed they could get immediate access to the money if needed.
I was a guest on a local talk show yesterday where the prevailing sentiment was that both Donkeys and Elephants were just trying to scare us all into giving our money to a bunch of wealthy fat cats. "Look," I said. There are two reasons why people tell you something bad is about to happen. "First, they might just be trying to scare you. Second, something bad might be about to happen." I'm as indignant as the next guy about the $700 billion (I can't even type enough zeros for that), nobody helps me pay my bills. But I think the reason we are hearing scary stories is not because people are just trying to scare us. I think something bad is about to happen (unless we do something!).
Nonprofit Endowments Begin Taking Hits
A Washington Post Article today states that The Community Foundation for the National Capital Area lost $40 million from its endowment over the last quarter and that other foundations, schools (not to mention students) and hopitals are beginning to directly feel the effect of the credit crunch:
Universities and private schools nationwide were alarmed this week when Wachovia Bank effectively froze the short-term investment accounts they rely on as checking accounts to make payroll and other expenses. As part of its sale to Citigroup, Wachovia stopped managing the Commonfund, a nonprofit organization that runs short-term investment funds for about 1,000 colleges and independent schools. Commonfund officials announced an infusion of capital yesterday, even as they sought to replace Wachovia. ommonfund is liquidating about 32 percent of the schools' short-term investment accounts, spokesman John S. Griswold said, adding, "We would hope that 32 percent being made available would help most through the next months." The Wachovia sale will affect about 50 students at Marymount University in Arlington County who had loan packages with Wachovia. They will need to find a loan provider for the spring semester, said Chris Domes, a school vice president.
I understand the sentiment that unhindered borrowing is ultimately bad for the economy. Bigger houses, faster cars, fancier electronics ALL RIGHT NOW got us into this. Let's just be honest, blaming the proverbial Wall Street "fat cat" without coming to grips with our own instant gratifcation needs is a bit hypocritical. But borrowing for education is not in the same class. The educational assets purchased with borrowed money (i.e., student loans) never wear out --its good debt! The mind power only appreciates even after we die. So yes, maybe there is some merit that we should all suffer for what we've done (borrowed ourselves quite broke!) -- "forget the bailout" let them (and us) suffer! But educational borrowing is not part of the problem.
As Market Drops, Charities Worry
In recent weeks, articles about the problems in the financial markets have sometimes referred to the worries that charities will see significant drops in donations in the coming years. Pledges made this year may be met, but going forward things will get tighter and tighter. At a recent conference (see story in the Chronicle of Philanthropy) sponsored by Nonprofit HR Solutions, Lester Salomon, Director of the Center for Civil Society Studies at the John Hopkins Institute for Policy Studies says the government will have to step up. Others at the conference noted that the government may be looking increasingly to the nonprofit sector to provide needed services. Unfortunately, the problems on Wall St. will affect all of us, and neither the government nor charities will have as much to spend on solving the many problems that need attention.
October 1, 2008
IRS Sends Compliance Questionnaires to Colleges
The IRS announced today, IR-2008-112, that it will be sending compliance questionnaires to approximately 400 colleges and universities. The group surveyed includes public and private, small, mid-sized and large colleges and univeristies with four-year programs. The questionnaires will, not surprisingly, address issues of executive compensation, endowments, and unrelated business income. The IRS says the project will help it better understand this sector, and decide what areas need additional outreach, education - and scrutiny. The IRS expects to receive the responses in the next several months. It will then analyze the results and examine a sample of organizations before preparing a report sometime in 2009.
UPMIFA is a "high priority" in California
Governor Schwartenegger signed SB 1329, making California the 26th jurisdiction to adopt UPMIFA, the Uniform Prudent Management of Institutional Funds Act. As we blogged on Sept. 28., the Governor said he would only sign bills that were "high priority" so we're glad he concluded that UPMIFA made the cut.
The California version of UPMIFA includes a presumption that spending above 7% of the value of the fund in one year is imprudent, but excludes from that provision all private or public postsecondary educational institutions and foundations operated by those institutions. The California statute also includes in the statute itself a reminder that spending below 7% does not create a presumption of prudence. That reminder appears in the comments to UPMIFA and certainly is the intent of UPMIFA.
UPMIFA provides that a charity can use the concepts of cy pres to modify a small and old fund, with notice to the Attorney General but without a court proceeding. California changes the definition of "small" from the $25,000 used in the uniform act to $100,000. Several other states have made this change.
Nonprofit CEOs' Compensation Outpaces Inflation
According to various media reports, one of the demands for the $700 billion bailout is that the final product include limits on executive compensation. Frankly, we all got ourselves into this mess and we all need to pay our way out. Let's just bite the bullet and make it happen. Anyway, I wonder if enacting new provisions for the for profit world will affect the "reasonable" compensation paid to nonprofit CEO's. Meanwhile, a report described in the October 2, 2008 issue of the Chronicle of Philanthropy, nonprofit CEO's at the largest charitable organizations received pay raises greater than the inflation rate:
The median pay increase of leaders of the nation's largest nonprofit organizations outpaced inflation last year, according to The Chronicle's 16th annual survey of executive compensation and benefits. Chief executives at the nation's biggest charities and foundations received a median pay increase of 5 percent, while inflation rose by 4.1 percent. (A median increase means half of the raises were higher and half lower.) And yet that 5-percent increase marks the biggest one-year raise for nonprofit leaders since the 7.5-percent median increase reported in The Chronicle's 2002 survey.
Apparently, some of the best places to work are in the academic health centers and "amatuer" athletics" departments of some of the richest colleges and universities:
The five highest-paid people in The Chronicle's survey, based on total compensation, are doctors and coaches who work for universities. For the fourth straight year, David N. Silvers, a clinical professor of dermatology at Columbia University, earned the highest compensation among nonprofit employees who are not chief executives. Dr. Silvers earned $4,301,018 last year. He was followed by Peter Carroll, head football coach at the University of Southern California, with $3,953,648; Zev Rosenwaks, professor of medicine at Cornell University, with $3,101,231; James Grifo, a professor of obstetrics and gynecology at New York University, with $2,362,270; and Mike Krzyzewski, head men's basketball coach at Duke University, with $2,180,409.
I wish my university paid me like that. I would greedily take it without ever raising the issue of private inurement. Yep, ya dadgum skippy, I would. But since I am not gettin' that, I sure hope Grassley reads the report!
September 30, 2008
Nonprofit Nursing Homes Having Fewer Deficiciencies Than For Profit Firms, According to IG Report
According to an Office of Inspector General Report dated September 18, 2008, a greater percentage of for-profit nursing homes were cited for deficiencies than not for profit and government nursing homes in each of the past 3 years. Still the differences seemed too slight to draw any conclusions regarding the for-profit and nonprofit form:
In 2007, 94 percent of for-profit nursing homes surveyed were cited for deficiencies, compared to 88 percent of not-for-profit and 91 percent of government nursing homes. Since 2005, the percentages of for-profit nursing homes with deficiencies were between 3 and 6 points higher than the percentages of the other types of nursing homes with deficiencies. In each of the past 3 years, for-profit nursing homes made up 67 percent of the nursing homes surveyed, not-for-profit homes accounted for 27 percent, and government-owned homes accounted for the remaining 6 percent. For-profit nursing homes also had a higher average number of deficiencies per home than the other types of nursing homes. In 2007, for-profit nursing homes averaged 7.6 deficiencies per home, while not-for-profit and government homes averaged 5.7 and 6.3, respectively. As Table 2 below shows, the averages for all types of nursing homes increased since 2005. In addition, a greater percentage of multifacility nursing homes were cited for deficiencies, compared to single-facility nursing homes. In 2007, 93 percent of multifacility nursing homes surveyed were cited for deficiencies, as opposed to 91 percent of single-facility nursing homes. These numbers have not changed significantly since 2005. The average number of deficiencies was also higher for multifacility homes than for single-facility homes in each of the past 3 years.
For press coverage, see this New York Times article.
Charter Schools Aren't Subject to Charitable Trust Rules -Says Ohio Court
The Columbus Dispatch reports that a Montgomery County judge rejected the State's attempt to close a poorly-performing charter school using the state's charitable trust laws. The judge concluded, as a matter of law, that the school was a political subdivision of the state of Ohio and not a charitable trust. The Attorney General had argued that the school, as a nonprofit, could be sued for not carrying out its charitable purpose. The school is supported is tax funded and privately operated, and the legislature and the Department of Education oversee the school.
Charities Bill Unlikely to Pass
The Wall Street Journal reports that tax legislation has stalled in Congress and that Congress will likely adjourn before passing the legislation. As we blogged a few days ago, the Senate passed a bill extending a number of tax provisions related to charitable giving. Because the Senate bill differed from the earlier-passed House bill, though, enactment is now unlikely. The bill would have renewed the provision permitting people 70 1/2 years of age and older to contribute up to $100,000 from an IRA without paying income tax on the money. The bill also contained incentives for charitable contributions to help victims of recent storms, floods, and tornadoes.
Complaint about Policitical Activity - and It's Not about a Church
The Chronicle of Philanthropy reports that the Council on American-Islamic Relations has filed a complaint with the Federal Elections Commission, arguing that a DVD produced by the Clarion Fund constituted prohibited political activity. The Clarion Fund, a 501(c)(3) organization, produced a DVD titled "Obsession: Radical Islam's War Against the West" and distributed millions of copies of the DVD. CAIR thinks the DVD is intended to support John McCain's campaign, but the Chronicle article doesn't provide enough information about the DVD to give a reader a sense of the content of the DVD. The Clarion website contains information about the DVD, including a trailer. So far the Elections Commission has not contacted Clarion.
September 29, 2008
More on Faith and Politics
The Washington Post also reports on the church protest. The Post article focuses on Rev. Ron Johnson, Jr. of Crown Point, Indiana. During his Sunday service Rev. Johnson discussed the candidates' views on abortion and gay marriage, showing slides explaining the candidates' views on the issues. When asked why he felt it necessary to identify the candidates by name in describing their views, he explained that he was not sure that all members of his congregation could make the connections on their own. (And these people get to vote?)
The article notes that the Interfaith Alliance, a group dedicated to the separation of faith and politics, has gathered 180 pledges from members of the clergy who agree not to endorse a candidate on behalf of their houses of worship. To see the Sept. 18 press release announcing the pledge, go here.
Warroad Community Church in Minn. Joins the Protest
For a story on one of the churches named by Americans for Separation of Church and State, see an article in the Minneapolis-St. Paul Star Tribune. Rev. Gus Booth of the Warroad Community Church joined in the protest on Sunday, urging his congregants to vote for John McCain. Rev. Booth had been a delegate to the Republican National Convention. Rev. Booth says he realizes that the church may lose its tax-exempt status but says it's "not that big a deal." He also says that his congregants support him, but he doesn't say whether they realize that the church could lose its exempt status.
American United for Separation of Chuch and State Files Complaints Against Six Churches
Here is the text of a press releaase issued by Americans United for Separation of Church and State today. If available, we will post the actual letters to the IRS tomorrow (along with my own indignant opinion on the subject):
Americans United Urges IRS To Take Action Against Six Churches That Joined Pulpit-Politicking Scheme
Church-State Watchdog Group Criticizes Religious Right Lawyers For Luring Congregations Into Intentional Violation Of Federal Tax Law
Americans United for Separation of Church and State today filed complaints with the Internal Revenue Service about six churches whose pastors endorsed candidates from the pulpit during a mass defiance of federal tax law last Sunday.
The Alliance Defense Fund (ADF), a Religious Right legal group in Scottsdale, Ariz., urged pastors to defy federal tax law by endorsing or opposing candidates during a so-called “Pulpit Freedom Sunday” Sept. 28. Under the IRS Code, churches and other 501(c)(3) tax-exempt groups may not intervene in elections.
“These pastors flagrantly violated the law and now must deal with the consequences,” said the Rev. Barry W. Lynn, executive director of Americans United.
Continued Lynn, “This is one of the most appalling Religious Right gambits I’ve ever seen. Church leaders are supposed to tend to Americans’ spiritual needs, not behave like partisan political hacks. I urge the IRS to act swiftly in these cases.”
Lynn also scored the ministers who took part in the ADF gambit.
“A pastor who knowingly violates federal tax law is setting a poor example for his or her congregation,” Lynn said. “Every pastor who took part in this stunt ought to be ashamed.”
The ADF overture has been roundly criticized. Many pastors refused to take part, arguing that America’s pulpits should not be politicized. In addition, three former IRS officials have filed a complaint asserting that the ADF has violated ethics standards governing tax attorneys by urging clients to violate the law.
The six churches reported to the IRS by Americans United today are:
Bethlehem Baptist Church, Bethlehem, Ga.: According to press accounts, Pastor Jody Hice “urged his congregation to vote for Sen. John McCain and to not vote for Sen. Barack Obama.”
Fairview Baptist Church, Fairview, Okla.: The Associated Press reported that Pastor Paul Blair “says he told his congregation that as a Christian and as an American citizen, he would be voting for John McCain.”
Warroad Community Church, Warroad, Minn.: Pastor Gus Booth told his congregation, “We need to vote for the most righteous of candidates. And it doesn’t take a brain surgeon to figure that out. The most righteous is John McCain.”
Calvary Chapel, Philadelphia, Pa.: The Rev. Francis Pultro told the congregation, “As Christians it’s clear we should vote for John McCain. He is the only candidate I believe a Christian can vote for.”
First Southern Baptist Church, Buena Park, Calif.: The Rev. Wiley Drake said, “I am angry because the government and the IRS and some Christians have taken away the rights of pastors. I have a right to endorse anybody I doggone well please. And if they don’t like that, too bad….According to my Bible and in my opinion, there is no way in the world a Christian can vote for Barack Hussein Obama. Mr. Obama is not standing up for anything that is tradition in America.”
New Life Church, West Bend, Wisc.: Speaking from the pulpit, Pastor Luke Emrich said, “I’m telling you straight up I would choose life. I would cast a vote for John McCain and Sarah Palin.”
Said AU’s Lynn, “When five of the six pastors choose to endorse John McCain, it’s hard not to see the ADF scheme as partisan in character.”
In complaint letters filed with the IRS, Americans United urged swift investigations of the churches and appropriate penalties.
September 28, 2008
Preachers vs. the IRS
The Atlanta Journal-Constitution reports that Rev. Jody Hice, minister at the Bethlehem First Baptist Church outside Atlanta, was one of the ministers who this morning urged his congregation to vote for John McCain and not to vote for Barack Obama. The IRS has said that it is monitoring the actions being taken and will take appropriate actions in response. More to come, no doubt.
Tribute to Paul Newman
Paul Newman's death yesterday has been reported throughout the country (see the NY Times article). It seems fitting to post a tribute to a man who, in addition to his work as an actor and director, founded a company, Newman's Own, that contributess ALL of its profits to charity. The NY Times article reports that the company has contributed over $200 million so far. Some of that money has been used to created Hole in the Wall Gang Camps, set up as summer camps to provide free recreational opportunities for children with cancer and other serious illnesses. Mr. Newman's legacy as an actor will live on through the many movies he made, and his legacy as a caring man concerned about helping others will live on through the camps, his company, and the Scott Newman Center which he founded in memory of his son and which publicizes the dangers of drugs and alcohol.