Friday, June 12, 2009
NPR reported this morning that a network of regional nonprofit health insurance cooperatives, modeled on rural agricultural cooperatives (discussed at 2:30 mark on), might prove to be the needed compromise between the Obama Administration's public insurer proposal and the concerns of both Republicans and moderate Democrats in Congress that a public insurer would force private insurers out of the health insurance market. As previously posted, Senator Ken Conrad (D., N.D.) put forward this idea in a closed Senate Finance Committee last week. For more details regarding the competing concerns, see this related NPR report (the cooperatives idea is mentioned specifically at the 3:50 mark).
Tax Analysts (paid subscription required) reports that the Internal Revenue Service's Appeals office has affirmed the denial of a Freedom of Information Act request from Paul Streckfus of the EO Tax Journal for all IRS documents on "subversive organizations" as that term is used in the Internal Revenue Manual. The story notes that Marcus Owens of the Caplin & Drysdale law firm has filed a similar request, but it is silent regarding whether the status of that request (full disclosure: I am Of Counsel with Caplin & Drysdale).
The Japan Times reports that the Kantoshinetsu Regional Tax Bureau in Japan has fined the Cosmic Truth Society ¥300 million (US$3 million) for wrongly treating ¥1.4 billion in taxable revenues as tax-exempt offerings. The article states that while the group reported about 60 percent of the revenues from its 23 love hotels in Japan, it failed to declare the remaining 40 percent of revenues over the seven-year period through February 2008. The group has objected to the decision.
Kevin Zakreski (member of the National Conference of Commissioners on Uniform State Laws unincorporated nonprofit committee) has posted Reform of the Law Relating to Unincorporated Nonprofit Associations, 41 University of British Columbia Law Review 115 (a peer-reviewed journal) on SSRN. For U.S. readers, the last sentence of the abstract may be of most interest (emphasis added):
There are three primary modes of collective nonprofit activity: the nonprofit corporation; the charitable trust; and the unincorporated nonprofit association. The residual or default mode is the unincorporated nonprofit association. Whenever people band together and agree to pursue common nonprofit purposes and they do not take the steps required to incorporate or to create a charitable trust, they form an unincorporated nonprofit association. Unlike the coherent bodies of law that govern nonprofit corporations and charitable trusts, the law applicable to unincorporated nonprofit associations in common-law Canada is a hodgepodge of rules that are not well known and not well adapted to contemporary social needs. It is a body of law that is ripe for reform.
This comment reviews both the law of unincorporated nonprofit associations and the recent efforts to reform this area of the law. It begins by setting out some background information on the types of unincorporated nonprofit associations, the number active in Canada, and their typical activities. Then, it briefly explores the development of the law applicable to unincorporated nonprofit associations in the nineteenth century and examines how this body of law has led to a number of problems in connection with selected legal issues. The comment concludes by noting several law reform projects in Canada and elsewhere, with a special emphasis on the ongoing project to create a harmonized legal framework for unincorporated nonprofit associations in North America, which is being carried out jointly by the Uniform Law Conference of Canada, the National Conference of Commissioners on Uniform State Laws, and the Mexican Conference of Commissioners on Uniform State Laws.
The NonProfit Times reports that "Patrick M. Rooney, Ph.D., is the new executive director of the Center on Philanthropy at Indiana University in Indianapolis. He has been interim executive director since this past September when Eugene R. Tempel left the position to become president of the Indiana University Foundation." Here is Dr. Rooney's bio from the Center's press release on the appointment:
"Rooney has served on boards and committees for several nonprofit organizations, as well as on national advisory committees for the U.S. Corporation for National and Community Service, the U.S. Bureau of the Census’ Current Population Survey, the Association of Fundraising Professionals and Independent Sector. He earned his B.A., M.A., and Ph.D. in Economics at the University of Notre Dame and a Certificate of Management Development at Harvard University. He also earned a Certificate in Fund Raising Management from The Fund Raising School at the Center on Philanthropy."
Thursday, June 11, 2009
John Tyler (Ewing Marion Kauffman Foundation) will be presenting a forthcoming report he prepared with Evelyn Brody (Chicago-Kent/IIT) entitled How Public is Private Philanthropy: Separating Myth from Realityon June 19th at the Hudson Institute's conference center in Washington DC. Panel members who will discuss the report include Glenn Lammi (Washington Legal Foundation), Ray Madoff (Boston College), and Ralph Smith (Annie E. Casey Foundation). The report will be published by the Philanthropy Roundtable.
The Advisory Committee on Tax Exempt and Government Entities (ACT) issued its latest Report of Recommendations to the Internal Revenue Service yesterday. Of most interest to nonprofits will be the set of recommendations relating to clarifying and facilitating cross-border philanthropy by private foundations. Those recommendations are:
1. Creating a depository of equivalency determinations - i.e., determinations that a foreign entity is the equivalent of a U.S. charity.
2. Publishing guidance clarifying that certain foreign sources of income count as public support for purposes of classifying a foreign entity as a public charity (as opposed to as a private foundation).
3. Simplifying and enhancing the private foundation expenditure responsibility rules by providing various safe harbors.
4. Providing additional examples of program-related investments.
The seven earlier ACT reports are also available. To the best of my knowledge, no one has analyzed these reports to see to what extent the IRS followed ACT's recommendations.
The Los Angeles Times reports that $45 million-a-year Tarzana Treatment Center is paying its senior executives hundreds of thousands of dollars each. The Center receives 85 percent of its revenues in the form of public funds. Specific 2007 salaries include $428,057 for the Chief Operating Officer, $330,732 for the 32-hour-per-week Chief Executive Officer and $280,422 for the Chief Financial Officer. Deferred compensation for these three executives in 2006 and 2007 totaled an additional $993,821. The CEO also provides legal services to the Center at a cost of $237,956 in 2007, and the CEO and COO along with two board members own properties that the Center leased for $2.27 million in 2007. The Center defends all of these payments, saying they complied with all applicable laws and following conflict of interest procedures. All three executives have been with the Center for decades, with the CEO serving in that role since the mid-1980s.
The San Francisco Chronicle reports that the nonprofit Bay Institute expected to complete the purchase of San Francisco's Aquarium of the Bay yesterday for $9.5 million. While the article is silent regarding who currently owns the aquarium, Bay Institute fundraising literature states that the 13-year old aquarium is currently owned by commercial investors. The article also notes that the facility had been appraised at $18.4 million as recently as last year.
Wednesday, June 10, 2009
The Alliance Defense Fund, which brought you Pulpit Freedom Sunday 2008, and the Federalist Society recently teamed up to host a panel discussion at the National Press Club on the constitutionality and wisdom of the Internal Revenue Code section 501(c)(3) prohibition as applied to pastors speaking from their pulpits. The speakers included Professors Doug Laycock (Michigan) and Donald Tobin (The Ohio State University), as well as Rev. Barry Lynn from Americans United for Separation of Church and State and Benjamin Bull of ADF. I finally had a chance to listen to the debate, and regardless of your views on this issue it is very informative about the various positions.
One interesting additional note. The Alliance Defense Fund is apparently already gearing up for Pulpit Freedom Sunday 2009, for which it will recruit churches both to comment on current government officials and to comment on candidates for office.
The saga continues. Late yesterday I receive an email from Patrick Dorton of the public relations firm Rational 360, identifying himself as a spokesperson for Starr International Company, Inc. and asking that I post the following reply to AIG's response. For those of you who missed this exchange last week, it began with a posting about a newspaper article reporting that AIG was trying to claw back 290 million AIG shares that are a Swiss foundation had received from Starr International Company, a company established, according to the article, to provide AIG retiring executives with bonuses that would not be reflected on AIG's books. Within hours the posting generated a strong response from AIG's Media Relations department asserting that there were numerous inaccuracies in the newspaper article. Now the other side has weighed in with the following comments, which I reproduce here with permission.
I am writing in response to the recent email from AIG posted on your blog regarding AIG’s lawsuit against Starr International.
By its own admission, AIG is prosecuting these claims for only one purpose: To add hundreds of millions of dollars to a bonus pool available to AIG’s top 700 executives. Earlier this year, Starr International prevailed on all of its claims against AIG and, last year, a federal judge dismissed AIG’s claims to control Starr International's board of directors. With that claim dismissed, AIG now implausibly asserts that in 1970 it established a “trust” worth over $100 million at the time (and later worth in excess of $20 billion), even though it admits that this “trust” was never put in writing, never disclosed to AIG shareholders or the SEC, and never included on AIG's balance sheet or financial statements. AIG also asserts that it never asked Starr International for any confirmation of the “trust," and that it first made a claim against Starr relating to this "trust" only after Starr had sued AIG for refusing to return artwork owned by Starr.
Mr. Greenberg is not a party to this action and AIG’s focus on Mr. Greenberg is apparently designed to obscure the lack of evidentiary support for its claims and to distract attention from its wasteful use of shareholder and taxpayer funds to enrich and protect its management and advisors.
The issue presented is very simple: if AIG prevails, it has said that it will use this money to reward its most senior executives. If Starr International prevails, the money will be preserved and used for charitable purposes, as Starr International’s shareholders intended.
The Boston Globe, New York Times, and Washington Post all report that the Giving USA Foundation's annual report on charitable contributions finds that gifts and pledges in 2008 declined 5.7 percent in real dollars (i.e., inflation adjusted) from 2007 levels. The Giving USA 2009 report states that the 2008 giving total was $307.65 billion, which was still the highest recorded level for any year other than 2007. During the 53 years that the Giving USA Foundation has tracked giving, the only other year-to-year drop in donations was in 1987, when there was a major stock market crash.
Some of the hardest hit organizations were those that help meet basic needs such as food and shelter, which saw a 15.9 percent inflation-adjusted decline, health organizations (10 percent decline), arts, culture and humanities organizations (9.9 percent decline) and educational institutions (9 percent decline). The only major types of charity that saw even slight giving increases on an inflation-adjusted basis were religious entities and public-society benefit organizations. For those charities that saw a decline, it generally occurred in the fall of 2008, and leaders from various charities cited in the articles indicated that the decline appeared to extend into 2009 based on their giving figures to date.
Tuesday, June 9, 2009
Americans United for Separation of Church and State announced that it has sent a letter with the IRS regarding the appearance of Virginia Democratic gubernatorial candidate Brian Moran at the Fifth Street Baptist Church in Richmond. AU based its letter on a Washington Post story about the appearance. In that story, the church's pastor, Rev. F. Todd Gray, is reported as having stated ""Brian is right on guns, he's right on affirmative action, he's right on taxes, he's right on jobs. I'm not telling you who to vote for, I'm just telling you who I'm voting for. I'm voting for Brian Moran." As those familiar with the Code section 501(c)(3) ban on charities supporting or opposing candidates know, simply stating "I'm not telling you who to vote for" is not enough to prevent a violation of that ban if other facts and circumstances clearly indicate support of a candidate. The timing of the appearance, only two days before the Democratic primary in which Moran is a candidate, is also highlighted in the AU letter. What the IRS will do with the complaint is and may always be unknown, however, unless either the church chooses to publicize any IRS actions (as happened with the All Saints Episcopal Church in Pasadena) or the IRS ultimately chooses to revoke the church's tax-exempt status.
Interestingly, the same Washington Post article also reports that rival Democratic candidate Terry McAuliffe spent Sunday in church as well. While the posting about McAuliffe's visit to the Gethsemane Community Fellowship Baptist Church in Norfolk did not include any quotes from that church's pastor, a postingon the Washington Post's Virginia Politics blog notes that McAuliffe's reported statements including telling the congregation he had been endorsed by every African-American newspaper in the state that makes endorsements, thereby highlighting his candidacy in the election being held two days later. It is not clear form the post whether the other Democratic candidates, including Moran, had been given a similar opportunity to speak to the congregation, which might render McAuliffe's appearance less of a legal concern.
In a letter obtained by Tax Analysts (paid subscription required), scholars from Duke University and other institutions urge the IRS to include in its 2009-2010 Guidance Priority List a project devoted to clarifying "whether and under what circumstances nonprofit charitable organization can publish, or support the publication of newspapers." The authors argue that such publishing and support can further charitable and educational purposes within the meaning of Code section 501(c)(3) and so should be permitted for a charity. The letter also directs the IRS to the website for a conference hosted by Duke last month relating to nonprofit media.
Previous blog coverage of this topic related to proposed federal legislation on this issue, commentary on that legislation, and the shift of some regional newspapers and local newspapers to this model. Richard Schmalbeck (Duke) also presented a paper on this topic at the recent Law and Society Association Conference.
New Philanthropy Capital, a UK think tank that researches topics relating to charities, has issued on interesting report titled "What Place for Mergers Between Charities?" While focusing on UK charities, it raises points that are also relevant to charities in other countries. Here is the summary from the NPC's website:
- Evidence suggests that mergers between charities are not very common, particularly among larger organisations. ‘Merger’ is a dirty word in the charitable sector as it seen as implying aggressive and predatory behaviour.
- Most mergers between charities seem to occur in response to crisis—usually financial problems or the loss of key management—rather than an explicit desire to further charitable purposes. This is because the culture, structure of control, and personal passion invested in charities by their staff tends to favour the status quo.
- The lack of information available on charities and the sectors in which they work is an important obstacle to the occurrence of mergers, as it makes it hard to spot opportunities for collaboration. Better information and analysis would help trustees and managers to make better decisions.
- It should be part of a trustee’s role to consider whether a merger is a way to fulfill its charitable purpose more effectively, even if this means the eventual winding down of the charity. This requires trustees and managers to think beyond the limits of their organisation: the question is not what works best for the charity, it is what works best for the community in need.
Monday, June 8, 2009
David Joulfaian, an economist at the Treasury Department's Office of Tax Analysis, has published in Tax Notes (subscription required) an articlethat expresses his views (not necessarily those of the Treasury Department) regarding whether estate tax repeal would reduce the up to $20 billion in annual charitable bequests reported to the IRS on estate tax returns and, if so, to what extent. He ultimately concludes that it is difficult to make this determination for a variety of reasons. These reasons include the fact that existing studies indicate that such giving is sensitive to both tax prices (i.e., higher tax rates stimulate giving) and to wealth (i.e., reduced bequeathable or disposable wealth reduces giving), and the fact that we do not have reliable data about charitable bequests in the United States before the enactment of the estate tax. His report also highlights a variety of other analytical difficulties, including the difficulty of controlling for differences among donors that may explain why the percentage of estate wealth given varies significantly even when estate tax rates remain unchanged. His bottom line is that attempting to answer the question he poses is "a humbling experience and one that requires constant review of our models and methods." This result is particularly interesting given that in a 2000 article he concluded that "[t]he overall effects of the estate tax . . . are likely to be modest as charitable bequests are wealth elastic."
The Wall Street Journal reports that in a closed Senate Finance Committee last week, Senator Ken Conrad (D., N.D.) proposed creating a nonprofit health-insurance plan as an alternative to a public insurance plan in an attempt to win over Republicans. The brief article does not provide much details, but the perceived appeal of the proposal is that the nonprofit would not be controlled by the government. The nonprofit would also operate through multiple co-operatives. The article does not appear to be available for free online but it appeared last Friday, June 5th, on page A4, and is also available in abstract form through Westlaw.
The Wall Street Journal published a weekend interview of Yale President Richard Levin, whose 16-year tenure has seen both the much celebrated "Yale model" for endowment investing and a 25 percent drop in endowment value over the past year. While still defending the investment model, he acknowledges that liquidity is the unanticipated problem created by the recent sharp downturn. As mentioned in the interview and recently reported by Bloomberg, this has led many schools that depend on endowment income to tap the bond markets for billions of dollars. Mr. Levin also noted at least one silver lining to the recent drop in endowment values - it has provided a strong rejoinder to calls from Congress for schools with large endowments to increase payout rates.
(Hat tip: Tax Prof Blog)
ThirdSector reports that at charity regulators from the U.S., Canada, New Zealand, England, Scotland, and Northern Ireland pledged to share information to prevent forum shopping by terrorists seeking to exploit charities. The regulators met at what at their third annual conference, which the Charity Commission hosted this year. It is not clear to what extent information will (and can, legally) be shared by these various regulators, or how the regulators will view that information in light of the fact that the standards for charities in their various countries vary significantly. What is clear, however, is that the regulators are well aware of each others activities, with, for example, the head of the Charity Commission expressing interest in a new U.S. study of public benefit provided by hospitals and a new Canadian policy regarding charities operating abroad, which may refer to proposed guidance regarding when an organization established to protect human rights can register as a charity in Canada.
I had the pleasure of attending the 4th Annual Junior Tax Scholars' Workshop, hosted by Brooklyn Law School, this past weekend. Among the work-in-progress papers presented were three relating directly to nonprofits:
- Benjamin Leff (Harvard VAP; joining American University faculty next year): Donor Advised Funds and Third-Party Oversight
- Shannon McCormack (U.C. Davis): An Analysis of the Charitable Deduction for Religious Giving
Lloyd Mayer (Notre Dame): The "Independent Sector": Fee-for-Service Charity and the Limits of Autonomy