Thursday, December 31, 2009

Big Hospitals, Big Cash, Big Business

I just can't go through a week of blogging without at least one story about nonprofit hospitals, and this one from the Chicago Tribune once again underscores the point I've made before: many nonprofit hospitals (not all, I admit) these days operate simply as big businesses, and the notion they are charities is frankly absurd.  

There's really not much to say when Advocate Health Care salts away a $2 billion cash reserve and Rush Memorial spends $1 billion to renovate its west side campus.  Not much, that is, other than to wonder why we continue to grant these organizations property and income tax exemptions . . . 

JDC

December 31, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 30, 2009

Pittsburgh Mayor Reaches Deal with Nonprofits

Darryll Jones recently blogged about the efforts of Pittsburgh's mayor to impose a 1% "tuition tax" on students attending one of Pittsburgh's tax-exempt universities.  But according to this story in the NY Times, the mayor has reached an agreement for "voluntary" payments from the colleges and universities in question to contribute as much as $15 million annually to Pittsburgh's coffers.

Now I know Darryll isn't too fond of PILOTs (Payments in Lieu of Taxes) foisted on nonprofits by (usually) large metropolitan areas such as Boston and now Pittsburgh.  But there is another side to this debate. Universities (both public and private) have raised student tuition to the stratosphere arguing that they need the money to maintain a quality education, while at the same time salting away billions in endowment funds (which admittedly took a hit in the stock market crash, but which have now recovered pretty nicely).  The tuition and fees at Carnegie Mellon University (one of the universities that Pittsburgh put the squeeze on) runs over $53,000 per year.  No, that's not a typo: $53,000 (here's the link).  Meanwhile, major research universities across the country are entering into private research deals with corporations, building hotels and office parks with real estate developers, and generally beginning to act more like large corporate conglomerates than the ivory towers they are often accused of being.  So I ask you: is Carnegie Mellon a charity providing a public good?  Or is it akin to Rolls Royce or Gucci or Tiffany's, selling a premium product at a premium price to those than can pay for it (and yes, I'm aware that the top private universities provide a great deal of financial aid to less wealthy students; so perhaps we should subject them to the corporate income tax and local property tax and let them take a deduction for the "charity" that they actually provide).

Though I argued in a paper I delivered this past October at the National Center on Philanthropy and the Law that limiting tax exemption to organizations that provide relief to the poor is a bad idea (and I still believe that to be the case), I really don't have a great deal of sympathy for Carnegie Mellon and its siblings when they whine about being asked to contribute to the cost of city services.  I'm sure they provide many benefits to the city of Pittsburgh, but so does Microsoft to the Seattle metro area, and the last time I checked, Microsoft was paying local property taxes.  I'm also sure that the 2010 freshman class at Carnegie Mellon ultimately will absorb this blow - anyone want to bet that the tuition/fees number goes up to, say, $55,000 and that Carnegie Mellon blames it in part on the "forced" contributions to the city of Pittsburgh?  Seems like a sucker bet to me, and if you want to take the "no they won't" side, e-mail me.  I could use the money to put my own kid through college.

JDC

December 30, 2009 | Permalink | Comments (1) | TrackBack (0)

Tuesday, December 29, 2009

Philippines Legal Matrix Published

The Legal Matrix for the NGO sector in the Republic of the Philippines has been published in the ICCSL Documentation Center.  It was prepared in conjunction with the Study Tour ICCSL conducted to the Philippines for the Aga Khan Foundation in November, 2009.  The Study Tour involved taking delegations from Pakistan and Afghanistan to Manila to visit legal offices and government-NGO partnership sites; more information on the Study Tour is available on the website.

December 29, 2009 in International | Permalink | Comments (0) | TrackBack (0)

Another Take on College Athletics and Tax Exemption

I've read a lot of articles and blog postings by reporters and talking-heads on the issues of tax-exemption and the UBIT as they relate to college athletics (probably over 1000), but this article in the Austin Texas American-Statesman done by Eric Dexheimer is by far the best in terms of its depth and consideration of the issues (and I'm not saying that just because he quotes me at several points, though it probably doesn't hurt any).  Eric's thoughtful insight on this, which even I hadn't focused on before, is that big-time college football coaches aren't just coaches - they are among the highest paid nonprofit executives in the country.  An interesting viewpoint, though it ultimately seems to lead us back to the same place, which is whether big-time college athletics is in fact a charitable enterprise at all, and if not, then what (if anything) should we do about it?

My views on this are pretty clear - no, big-time college sports is not a charitable activity.  It's just a big commercial business.  Much like nonprofit hospitals have morphed from homeless shelters to multi-billion-dollar business enterprises, amateur college athletics, at least at the NCAA Division I/Football Bowl Subdivision (formerly Division I-A) level, has morphed from the Greek ideal of competition as part of a liberal education to well-oiled entertainment machines and minor leagues for the pros.

As for the what to do about it part, I've suggested that if Congress is really interested in doing something about the arms race in big-time college sports, the way to attack this is by focusing on the underlying tax exemption and donation deductibility of the university as a whole.  We can't get anywhere by subjecting athletic programs to the UBIT; that's a paper tiger that won't bother sponsoring universities in the least, nor get the kinds of financial and educational disclosure reformers want.  Instead, any serious regulatory efforts through the tax laws simply must focus on the exempt status and deductible contributions for the underlying entity as a whole.  Tell a university that if it doesn't shape up, its athletic programs will be subject to the UBIT, and all you're likely to get is a snigger.  Tell them that the university as a whole will lose its overall tax exempt status and/or its ability to get tax deductible donations unless it follows specific guidelines regarding athletic expenditures and disclosure, and you'll get someone's serious attention.

You can read a draft of my forthcoming article on this subject here (download from SSRN) or get a shorthand version from my comments to the Knight Commission on Intercollegiate Athletics here.


JDC

December 29, 2009 | Permalink | Comments (1) | TrackBack (0)

China Updates

After several tries to copy a document into this posting, I have given up.  There are two interesting updates on China featured in the IJCSL Newsletter for January and at the ICCSL site. The first concerns the development of a trade associations law.  The second gives to links to the translations of the two new income tax rulings (one regarding income tax exemption and the other regarding deductibility.  The documents are in the ICCSL Documentation Center.

December 29, 2009 in International | Permalink | Comments (0) | TrackBack (0)

Monday, December 28, 2009

Is Yoga Religion or Exercise?

This story from the National Post raises one of the most difficult questions of tax-exemption law (and a particularly timely one for the season): what is a religion?  In this case, the state of Missouri has decided that yoga is exercise or entertainment, not religion, and subject to sales tax in the state, although apparently the classification depends in part on where one practices yoga: if in a Hindu temple, then apparently yoga is a religion; if it is in a gym, it is recreation.

The definition of a religious organization in federal tax exemption law requires two elements: (1) a set of beliefs (2) that are sincerely held.  That's it.  If a group sincerely believes that concrete swimming pools have special properties that elevate one's spirituality, then you have a religious organization for federal exemption purposes (note, however, that it would be the organization that is tax-exempt, not the individual members).

The reason for this state of affairs is not hard to discern.  It is probably constitutionally prohibited for the federal government to attempt any serious definition of "religion" for tax purposes.  Such an attempt also would simply be impossible - a quick search of the web will reveal hundreds of religions that are taken very seriously by their participants, even if yours truly might find them a bit weird (try this page if you are looking for a sample, or go directly to the home page for the Church of Body Modification).  And let's be honest - I suspect Romans 2000 years ago would have found the notion of a Jewish guy rising from the dead to be equally bizarre.

Of course, this doesn't leave the IRS impotent when dealing with questions of exemption for religious organizations.  There are plenty of wrenches in the IRS's toolbox to attack religious organizations (and other charities) that may be more interested in individual members' comfort or financial well-being than prosyletizing: the private inurement doctrine, the private benefit doctrine, limits on political activity and lobbying, even the sincerity of the beliefs at issue are all fair game.  And the IRS has successfully used these tools to attack exemption for the "personal church" scams that have come and gone over the years.

So is yoga a religion or simply recreational exercise?  I'll let you decide.  But if Scientology and a witches' coven both qualify (which they do), then why not yoga?

JDC

December 28, 2009 | Permalink | Comments (1) | TrackBack (0)