Tuesday, August 4, 2009
Back in 2003, I was asked to present a paper on nonprofit organizations in China. Eager to visit Beijing, I eagerly set out to find out all I could about China's laws pertaining to charities. After all, China was in the midst of transitioning from the "iron rice bowl" to a market based economy where profits rule, social causes are subordinated to profit making and inequality is inevitable. Market economies are amoral and profit implies winners and losers. I am not prepared to disagree with Adam Smith's notion that the greedy search for individual profit is the best way to ensure the best lives for the most people. Something about each individual's selish hunt for profit generating innovation and increasing the size of the pie. But one thing is certain, in order for some to get rich, others must be poor. Charities and other nonprofit organizations are moral actors in amoral capitalist societies. They operate under the assumption that people, whatever their skill, luck, inheritance, moral qualities, etc., have a right to basic necessities of life even if they cannot afford those necessities. Charities, in short, ameliorate the ravages of capitalism. Sound socialist, I know, but ours is not and never has been an exclusively capitalist society. We have intentionally tempered our amoral (and some say immoral) focus on profit via charities that seek social justice ahead of profit.
So in my 2004 article, "The Neglected Role of International Altruistic Investment in the Chinese Transition Economy" I predicted that Chinese NGO's would not fill that admittedly westernized view of NGO's, particularly because Chinese law requires each exempt organization have a government sponsor answerable to the central government. This, in turn, implies (if it does not say so explicitly) that Chinese NGO's must operate consistently with governent policy. Recent press reports out of China confirm that logical extension. The Christian Science Monitor, for example, reports today that Chinese officials are increasingly bringing financial and criminal pressure on Chinese NGO's that take a critical view of the central government:
It began with a tax notice for $200,000. Three days later, on July 17, officials raided the group's Beijing office and seized its computers. Then, just before dawn on July 29, police detained its founder, Xu Zhiyong at his home On the same day, government officials went to the office of Yi Ren Ping, another nongovernmental organization, and confiscated copies of its newsletter on the grounds that it didn't have a publishing license. Taken together, the raids appear part of a tightening of controls on critical voices in the run-up to Oct. 1, the 60th anniversary of the founding of the People's Republic of China. The two NGOs are among a growing number here using the law to hold authorities to account on issues such as food safety, patient rights, and illegal detention. But they share another common thread: Both received grants from American and other foreign donors. The tax fine for Open Constitution Initiative, the group headed by Mr. Xu, was assessed largely on a donation from Yale Law School. Xu, a lawyer and elected legislator, is being detained on suspicion of tax evasion, according to an OCI official. The harassment of these and other foreign-funded NGOs in Beijing has raised fears of a Russian-style squeeze on civil society. Since 2006, Russia has stripped the tax-free status of many foreign foundations and forced NGOs to report their activities in exhaustive detail, while accusing foreign-funded human rights groups of being Trojan horses for Western powers. It recently amended its NGO law, easing some of these controls. An alternate view in Beijing is that the groups targeted had pushed too aggressively into forbidden political zones, setting off a reaction. NGO workers and experts on civil society say the investigations into taxes and licenses are a smokescreen for a clampdown on legal activism, including the recent disbarring of 20 civil rights lawyers in Beijing.
A recent Wall Street Journal opinion piece reports similar government efforts to shut down Chinese NGO's:
Gongmeng’s work was a rarity in a country where authorities brook little public dissent. Its lawyers represented victims of the Sanlu toxic milk powder scandal—which made nearly 300,000 babies ill—and investigated institutions like “black prisons,” which are illegal detention centers. Gongmeng researchers studied the Tibet riots last year and concluded the Tibetans were protesting because of failed government policies that threatened their way of life. Gongmeng bravely published its findings in Chinese. Like other nongovernmental organizations, Gongmeng always operated in a legal grey zone of China’s own making. It’s impossible to register an NGO without government sponsorship. So most NGOs—including Gongmeng—register as a business instead. That gives Beijing wide latitude to shutter NGOs when they start to expose real problems. Government officials removed computers and files containing sensitive client data from Gongmeng’s offices Friday. Last week the firm was slapped with a hefty $200,000 fine for tardy payment of taxes.
In my article, I even predicted that public interest lawyers would be the first to be shut down under Chinese laws regulating Chinese charities. In the westernized version, the N and the G mean "nongovernmental;" In China, charities are expected to be PGO's, "pro-gvoernmental organizations" and when they are not, they are squashed. I never did get to go to Beijing because the conference was scheduled to commence a week after the 9/11 attacks and was cancelled for fear of more terrorist attacks.
About a month ago, we reported that the White House would begin a search for the "most promising" [i.e., effective] nonprofits in America and dole out portions of a $50 million fund to those nonprofits meeting the standards. In a recent blog post, White House Dirctor of Domestic Policy Council, Melody Barnes, shared some of her ideas what those fortunate recipients might look like:
EverybodyWins! is exactly the type of community solution that President Obama asked me to identify when he called on his Domestic Policy Council to scour the country for the very best, most innovative, most successful programs in our communities. I also discussed great programs in places from San Francisco to Milwaukee, along with our intention to visit every region of the country to see what is working for them. President Obama has asked Congress for $50 million for a new community innovation fund - to be housed at the Corporation for National and Community Service - to identify these promising programs through a competitive grant process and to provide them with the support they need to grow and expand. And he has challenged foundations, philanthropists, and the private sector to partner in these efforts by providing resources, advice, and matching funds so that community solutions can be replicated all across our nation. I recently visited the EverybodyWins! Iowa chapter at the Carver Community School in Des Moines. I spent time reading out loud with Sandy and Diane. And I sat down with staff and volunteers to discuss how the Des Moines chapter has gained strength since its inception in 2003. EverybodyWins! found an Iowa champion in home state Senator Tom Harkin, an EverybodyWins! volunteer in Washington, DC who understood the value of the program from his personal experience.. Senator Harkin helped bring together local schools, non-profits, and businesses to successfully fund and launch the program in 2003, creating a strong foundation on which the program has thrived. Tyler Weig, the Executive Director of EverybodyWins! Iowa, cites support from two AmeriCorps volunteers as pivotal to expanding the creativity and reach of the program, doubling the number of students served since 2006. Adam Fanning, one of their AmeriCorps members, has engaged local businesses in innovative ways, including a partnership with a Des Moines taxi company that provides free rides for volunteers. The Carver Community School’s unique relationship with the Boys and Girls Club chapter that is housed within the same facility adds further capacity for serving students during the school year and throughout the summertime and holidays.
New Mexico Federal District Court Holds State Law Violates Nonprofits's First Amendment Rights: Nonprofits Appear Engaged in Campaign Intervention
A federal judge in New Mexico ruled yesterday (full text) that New Mexico violated the free speech rights of two nonprofit organizations, New Mexico Youth Organized and Southwest Organizing Project, when it required the two organizations to register as political committees under the New Mexico Campaign Report Act.. The requirement was imposed after the two organizations sent letters to constituents that were critical of certain state lawmakers, according to a story in The New Mexico Independent.
In the closely watched federal case, Judge Judith Herrera overwhelmingly sided with the two nonprofits — New Mexico Youth Organized and SouthWest Organizing Project — ruling that requiring such action was infringing on the two organizations’ free speech rights. Specifically, Secretary of State Mary Herrera and Attorney General Gary King contended last year that several mailings the two nonprofits sent out in 2008 triggered a state law requiring them to register as “political committees” engaged in electioneering.
While the two nonprofits seem to have won the free speech issue, one has to wonder if the victory has opened them up to a campaign intervention charge. According to the opinion, the two groups letters criticized
"several incumbent state legislators for the stances they took on certain initiatives in the legislative session that had just concluded, pointing out the primary sources of the individual legislators' campaign funding, and urging recipients to contact the legislators to express their concerns about the legislators' votes and funding sources. The mailings suggested that the legislators were beholden to corporate interests rather than actually working for the public good. The mailings were targeted to the individual legislators' constitutents, and each mailing mentioned an upcoming special legislative session focused on healthcare that wa to take place in the summer of 2008."
The opinion also notes that one of the nonprofits website was owned by a 501(c)(4) that seems clearly operated for political campaign purposes. indeed, much of the opinion is written in the language realting to the rights of individuals to participate in campaign activities rather than legislative activities. Me thinks the two organizations better be careful what they complain about.
Monday, August 3, 2009
In proposed regulations to appear in the August 5, 2009 issue of the Federal Register, the Internal Revenue Service proposes that the term "appropriate high-level Treasury official" as used in IRC 7611(h)(7) is the Director, Exempt Organizations. The proposal, if adopted should satisfy the reasoning behind the ruling in United States v. Living Word Christian Center. In short, the Minnesota District Court ruled that the Director, Exempt Organizations, Examinations was too many steps (four) removed from the Commissioner's Office to be a "high level treasury Official." The Director is only two levels removed, though other parts of the opinion might still be used to challenge her designation as sufficiently high level. In any event, here is a summary of all the proposed changes.
Explanation of Provisions
These proposed regulations eliminate references to the positions of Regional Commissioner and Regional Counsel under the existing regulations and give responsibilities formerly assigned to these now defunct positions to the Director, Exempt Organizations and the Division Counsel / Associate Chief Counsel, Tax Exempt and Government Entities, respectively. In addition, these proposed regulations eliminate references to the position of Assistant Commissioner (Employee Plans and Exempt Organizations) under the existing regulations and give responsibilities formerly assigned to that position to the Commissioner, Tax Exempt and Government Entities or the Deputy Commissioner, Tax Exempt and Government Entities.
Reasonable Belief and Inquiry Notice Requirement
With respect to the initiation of the church tax inquiry process, Treas. Reg. §301.7611-1 Q1-A1 provides that a "Regional Commissioner (or higher Treasury official)" is the appropriate high-level Treasury official for purposes of this reasonable belief requirement. Similarly, Treas. Reg. §301.7611-1 Q7-A7 states, "Repeated (two or more) failures by a church or its agents to reply to routine requests ... will be considered by the appropriate Internal Revenue Service Regional Commissioner to be a reasonable basis for commencement of a church tax inquiry under the church tax inquiry and examination procedures of section 7611." In addition, Treas. Reg. §301.7611 Q9-A9 requires a Regional Commissioner to provide written notice to the church of the beginning of an inquiry.
These proposed regulations eliminate references to the Regional Commissioner and instead provide that the Director, Exempt Organizations is the "appropriate high-level Treasury official" for purposes of the reasonable belief and inquiry notice requirements of Treas. Reg. §301.7611-1 Q1-A1, Q7-A7, and Q9-A9. The Director, Exempt Organizations is a senior executive who reports to the Commissioner / Deputy Commissioner, Tax Exempt and Government Entities Division, and who is responsible for planning, managing, directing and executing nationwide activities for Exempt Organizations. See IRM §18.104.22.168 for a comprehensive description of these activities.
Examination Notice Requirement
Under section 7611(b)(2) and Treas. Reg. §301.7611-1 Q10-A10, a church tax examination cannot be commenced without first providing written notice of such examination to the church and to the "appropriate Regional Counsel" at least 15 days before the IRS begins the church tax examination. The regulation allows the Regional Counsel to file an advisory objection to the examination within this same 15-day period.
These proposed regulations amend Treas. Reg. §301.7611-1 Q10-A10 by substituting Division Counsel / Associate Chief Counsel, Tax Exempt and Government Entities, for each occurrence of Regional Counsel. These proposed regulations further specify that before the notice of examination is provided to the church, a copy of the notice must be provided to the Division Counsel / Associate Chief Counsel, Tax Exempt and Government Entities.
Revocation of Exemption or of Church Status
Section 7611(d)(1) and Treas. Reg. §301.7611-1 Q11-A11 require the Regional Counsel to approve, in writing, certain final determinations that are within the scope of section 7611 and adversely affect the tax-exempt status or increase any tax liability of a church. Further, prior to such adverse action, section 7611(d) requires Regional Counsel to determine, in writing, that there has been substantial compliance with the requirements of section 7611, when applicable.
These proposed regulations amend Treas. Reg. §301.7611-1 Q11-A11 by providing that the Division Counsel / Associate Chief Counsel, Tax Exempt and Government Entities, is the official responsible for complying with the written determination and approval requirements of section 7611(d)(1).
Limitations on Period of Assessment
Section 7611(d)(2) and Treas. Reg. §301.7611-1 Q15-A15 provide special limitation periods for church tax liabilities. These special rules are not to be construed to increase an otherwise applicable limitation period. Treas. Reg. §301.7611-1 Q15-A15 states that, for purposes of section 7611(d)(2)(A), that is, the statute of limitations applicable to liabilities arising from church tax examinations, a church is determined not to be a church exempt from tax when the appropriate Regional Commissioner approves, in writing, the completed findings of the examining agent that the organization is not a church exempt from tax for one or more of the three most recently completed taxable years ending before the examination notice date. The regulation also states that the Regional Commissioner cannot delegate this approval to a subordinate official. Further, the completed findings of the examining agent, which are approved by the appropriate Regional Commissioner, are not considered a final revenue agent's report (defined in section 7611(g)).
These proposed regulations substitute the Director, Exempt Organizations for the appropriate Regional Commissioner for purposes of Treas. Reg. §301.7611-1 Q15-A15.
Consistent with the language of section 7611(f)(1) prior to enactment of RRA 1998, Treas. Reg. §301-7611-1 Q16-A16 provides that the Assistant Commissioner (Employee Plans and Exempt Organizations) is responsible for providing the written approval necessary to begin a second inquiry or examination of a church. These proposed regulations provide that the Commissioner, Tax Exempt and Government Entities or the Deputy Commissioner, Tax Exempt and Government Entities is responsible for approving second inquiries and examinations under section 7611(f).
Remedies for Violation of Section 7611
Section 7611(e) and Treas. Reg. §301.7611-1 Q17-A17 provide that, if there has not been substantial compliance with certain requirements in section 7611, including the notice requirements of section 7611(a) and (b), the exclusive remedy for such noncompliance is a stay in an enforcement proceeding to compel compliance with a summons with respect to the inquiry or examination. The stay continues until the court finds that all practicable steps to correct the noncompliance have been taken. Treas. Reg. §301.7611-1 Q17-A17 further states that failure of the Regional Commissioner to approve an inquiry may not be raised as a defense or as an affirmative ground for relief in a summons proceeding or any other judicial proceeding other than as specifically set forth in the regulation.
These proposed regulations amend Treas. Reg. §301.7611-1 Q17-A17 to replace each reference to Regional Commissioner with Director, Exempt Organizations.
Orlando, Fla. – The American Bar Association Council of the Section of Legal Education and Admissions to the Bar granted full approval to Florida A&M University College of Law during its meeting in Chicago on July 30, 2009, according to FAMU President James H. Ammons.
“I applaud Dean Pernell, his administration, faculty, and students for reaching this milestone,” said FAMU President James H. Ammons. “This achievement speaks volumes about their hard work, dedication and commitment.”
Ammons announced the Council’s decision regarding accreditation during a press conference held in the ceremonial moot courtroom of the FAMU College of Law in downtown Orlando. He was joined by FAMU Board of Trustees Chairman C. William Jennings, Law School Dean LeRoy Pernell, Former FAMU President Frederick Humphries, dozens of university administrations, law school alumni, friends and supporters.
“Critics of our school once said that the mountain was too steep to climb,” said Dean Pernell. “When faced with a mountain you have to cross, the slope is irrelevant. The Council’s decision is a reflection of the resilience, perseverance and commitment of the university, our students, faculty and staff to the mission of the FAMU College of Law.”
Under the rules of the ABA, the Council’s decision is final and effective immediately, subject to review by the ABA House of Delegates. While the House of Delegates may request reconsideration of the Council’s decision, the group has never done so in the history of the ABA.
“Full accreditation by the ABA ensures that the 500-plus FAMU College of Law graduates can continue to sit for the Bar exam in any state in the nation and it reaffirms what we have always known: that we have and will continue to provide our students with a great legal education,” Pernell said.
The FAMU College of Law becomes one of only 189 law schools fully approved by the ABA. To remain in compliance with ABA standards, the FAMU College of Law will undergo its next full site evaluation in three years then reviews every seven years thereafter.
The FAMU College of Law was reestablished in 2000 and opened its doors to 89 students in 2002. The ABA granted the law school provisional accreditation in August 2004. Since that time, the FAMU College of Law continued to grow and pursue its mission.
With the arrival of Ammons from North Carolina Central University in July 2007, and Pernell from Northern Illinois University's College of Law in January 2008, sweeping changes and improvements followed at the law school. The changes included the addition of 16 nationally-recognized faculty members and a new Center for International Law and Justice (CILJ) at the start of the Fall 2008 semester. Law faculty publication and scholarship output increased; the law school was recognized as the most diverse law school in the nation by U.S. News and World Report; and was ranked seventh nationally for providing clinical opportunities by National Jurist magazine. The campus was enhanced also with the opening of the FAMU Café in December 2008 and the FAMU Bookstore in January 2009.
“This is a significant milestone for FAMU,” Ammons said. “But it’s just the beginning of a long journey to make the College of Law a premiere institution of legal education, committed to its history of making an indelible mark on the community and the world.”
The law school was created with a specific mission — to “meet the educational needs of African Americans and other ethnic minorities, while maintaining its leadership in racial diversity.”
Last week's Wall Street Journal had an interesting op-ed piece reviewing Steven Goldberg's new book, "Billions in Drops in Millions of Buckets." The book makes the assertion, essentially, that the nonprofit sector is just as inefficient as government (if not more) in solving social problems precisely because of the lack of sector "government:"
But what about America’s nonprofit sector—organizations that concentrate their efforts on exactly such problems, with money from charities, trusts and personal philanthropies? They too spend enormous sums. Is their record any better? Not really, says Steven H. Goldberg in “Billions of Drops in Millions of Buckets.” We should not, he cautions, blame the American character for this failure: There is plenty of compassion and generosity to go around. Nor is bad thinking at fault: There are plenty of bright ideas and innovative programs. No, it is the whole structure of giving that condemns even the best efforts: We collect and spend our charitable dollars in a haphazard and fragmented way, he argues, diluting whatever problem-solving force they may have.
The reviewer, William A. Schambra, takes issue with the book's essential points. My reaction was based more on the irony of the assertion, to wit: "government is inefficient because it is too regimented and nonprofit is inefficient because it is insufficiently regimented.
Here is the full text of the opinion in Georgia O'Keefe Foundation v. Fisk University. We previously reported that Fisk recently won the right to request cy pres relief in order to sell parts of the Stieglitz Art Collection in order "to save the University."