Friday, March 26, 2010
Every year the IRS posts its "Dirty Dozen" list of tax scams, both as a warning to taxpayers of scams to avoid and as a reminder of the investigations the IRS makes. This year's list includes an item called "Abuse of Charitable Organizations and Deductions" and it sounds like the IRS continues to see some familiar problems. The IRS says it sees "arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property." The IRS also continues to investigate valuation issues that arise with donations of non-cash assets. The IRS includes a reminder that the PPA imposed increased penalties for inaccurate appraisals.
Announcement 2010-19 provides procedures a charitable trust may follow to terminate its private foundation status by showing that it continuously operated as a Type III supporting organization after Aug. 16, 2007, even though it erroneously filed a Form 990-PF for its first taxable year after 2007. The charitable trust can obtain a refund of the 4940 tax paid for 2008. The announcement also describes procedures for charitable trusts that became private foundations after Aug. 16, 2007 and wish to terminate their private foundation status by operating as Type III supporting organizations.
Caritas Christi Health Care System has announced that it will be acquired by Cerberus Capital Management, a New York venture capital firm. The conversion from a nonprofit to a for-profit will depend on approval from state regulators, and that process could take until the fall. The Cardinal of the Archdiocese of Boston must also approve the deal.
Cerberus will provide $830 million to the health care system, to be used for repairs and improvements. Cerberus has agreed to keep the six hospitals in the system open, to follow the tenets of the Catholic Church and carry out its mission of charity care, and to continue employment for current Caritas employees. Cerberus has agreed not to sell the hospitals or take them public for at least three years.
Responses to the announcement have been mixed. The hospitals needed the money and had searched for a partner for two years. The conversion to for-profit status will result in $7 million in property taxes, which will help other economic projects. But some nurses and others have expressed concern about whether a for-profit company will care about patients and provide the charity care that has been part of the Caritas mission. As one nurse said, "How can you call a charity a for-profit?"
Cerberus has promised to continue to set aside $66 million a year for charity care and pastoral care, and the continuation of the charity care that Caritas has provided seems likely to be a condition for approval by the Attorney General, Martha Coakley. This will be General Coakley's first conversation, and as she was quoted as saying, "It's fairly complicated." She must determine whether the conversation is "in the best interest of the public," and then will make a recommendation for or against the conversion to the Supreme Judicial Court of Massachusetts.
The Boston Globe has the story, as well as a number of related posts.
Wednesday, March 24, 2010
The eighth Foundations on the Hill gathering brought more than 200 philanthropic leaders to DC last week. Sponsored by the Council on Foundations and the Forum of Regional Associations of Grantmakers, the two-day event featured policy forums and meetings with members of Congress to discuss ways the foundations and government can work collaboratively to address the major challenges facing the nation. This story in PNN Online describes some highlights of the meetings, as discussed by attendees.
Tuesday, March 23, 2010
The London Times provides a detailed look atf an embezzlement scheme so audacious it is hard to imagine - and hard for the London Philharmonic's chief executive, Tim Walker, to accept. The Philharmonic's general manager and financial director, Cameron Poole, managed to take 666,000 pounds before the theft was discovered. The situation is a classic one for embezzlement: Poole had access, Poole was trusted by others at the organization, and the embezzlement started small but grew as it went undiscovered. What is less usual is that the Philharmonic had put procedures in place, recommended by the auditors, that required four steps to approve any expenditure. The problem was that Poole simply did all four steps, using false invoices that he created. He was the person preparing reports for the auditors, so he could cover his tracks there as well.
When Judith Rothschild died in 1993 she established the Judith Rothschild Foundation and named her friend, Harvey S. Shipley Miller, as its sole trustee. The foundation held her extensive art collection, valued at $34 million when she died. The foundation worked "to promote public awareness of recently deceased American artists' achievements" (from the foundation's website) and has benefited cultural organizations around the country through gifts of money and art. Now the New York Times reports the New York Attorney General is investigating the foundation. There have been no allegations of financial wrongdoing, but the New York Times article raises questions of whether Mr. Miller has benefitted inappropriately from his role. Mr. Miller has paid himself a nice salary of $200,000 in some years (although in one year he took no salary), lived in Ms. Rothschild's house rent-free until it was sold (to provide security for the artwork), and had a fellowship at the University of California law school named after himself. Some art critics have noted, however, that he has worked hard to serve Ms. Rothschild's interests and to honor his friend, and that he has "done an extremely good job of enhancing and sustaining Rothschild's position."
The LA Times reports that Virginia Thomas, wife of Clarence Thomas, recently formed Liberty Central, a nonprofit non-tax deductible (read political) organization. The mission statement of the organization says:
Liberty Central is activating informed American patriots who are seeking knowledge of the core founding principles and passionate about preserving freedom and liberty. By providing tailored information, encouraging civil discourse, and inspiring activism, Liberty Central brings people together to protect the core founding principles.
Monday, March 22, 2010
Where have I been? Until reading the Globe and Mail's story about the Marc and Craig Kielburger, I confess not to have heard of this dynamic duo. They founded Free the Children 15 years ago when they were mere tykes (they're now 27 and 33 - you do the math), and the organization has, in Marc's words, "scaled" quickly. Free the Children has programs in 4,000 schools in North America, has built 500 schools in 16 countries, and employs 120 people in the Toronto office alone. Marc and Craig have appeared on Oprah, met the Dalai Lama, and "have the ear" of Bill Clinton (whatever that means).
Stephanie Strom of the New York Times reports on this year's survey from the Nonprofit Finance Fund. Eighty-eight percent of the nonprofits surveyed expect 2010 to be financially as difficult (or more difficult) as 2009 for their nonprofits (one wonders about the other 12%), 80% predict that need for their services will increase and only 49% expect to able to meet this increased demand, and only 18% expect to end 2010 above break-even (compared with 35% who ended 2009 with an operating surplus).
Sunday, March 21, 2010
The New York Times recently discussed the growth of prizes for work in various nonprofit areas. The article reports that philanthropists have been drawn to the establishment of prizes to encourage work in particular fields or to reward good work, thereby encouraging others. The article focuses on the Kravis prize, established five years ago by Henry and Marie-Josee Kravis to recognize leadership among nonprofit groups and share their best practices. The Kravis Prize awards the recipient $250,000.
ACORN, which describes itself as the "Nation's Largest Grassroots Community Organization," may decide this weekend whether to file for bankruptcy, the New York Times reports. The organization came under attack after two conservative activists purportedly asked for and received advice about hiding prostitution from the police. A four-month investigation by the Brooklyn D.A. concluded that no ACORN employees had committed criminal acts. The investigation revealed that the video shot by the activists had been edited significantly, changing the dialog between the activist and the ACORN employees and even changing the clothes the activist wore when talking with ACORN employees. He apparently had been wearing normal street clothes when he went to the ACORN offices but changed the video to show him in rather outrageous "pimp clothes."
Friday, March 19, 2010
Now that I've had a day to cogitate (love that word!) on the Provena case, here are a few final thoughts about things.
Thursday, March 18, 2010
Well, I now have the opinion (you can find it here), I have read it, and it is . . . complicated. Here’s why. The Illinois Supreme Court consists of 7 justices; two of the 7 justices recused themselves in this case, meaning that only 5 participated in the final opinion. All 5 agreed that Provena should not get the tax exemption; however, two of the justices agreed only on a technical procedural basis: these two felt that Provena had failed to prove its case because the property that was exempt was owned by Provena Hospitals (Provena Covenant’s parent), but the evidence on charitable use all related to Provena Covenant (the subsidiary). Accordingly, two of the justices concurred only because they believed the record contained no information regarding the charitable activities of the actual owner of the property. Or put another way, they believed that the record all contained evidence of charitable use by the wrong party.
So, I can say definitively that Provena lost. But that's all I can say. Because only three of the five justices considering the case agreed on the substantive analysis of what constitutes “charitable use” (e.g., is charity care required, and if so, how much), the case does not actually resolve this issue for the future – as one of the concurring/dissenting justices pointed out (page 37 of the slip opinion), the plurality’s views on the substantive tests for charitable use are not entitled to stare decisis (e.g., are not entitled to be viewed as controlling precedent for future cases), because a majority of the court (e.g., four justices) did not agree on the substantive test. [I should note that all 5 justices agreed that Provena could not claim exemption as a religious organization, an argument I’m not going to discuss here].
Provena Hospitals asserts that assessment of its charitable endeavors should also take into account subsidies it provides for ambulance service, its support of the crisis nursery, donations made to other not-for-profit entities, volunteer initiatives it undertakes, and support it provides for graduate medical education, behavioral health services, and emergency services training. This contention is problematic for several reasons. First, while all of these activities unquestionably benefit the community, community benefit is not the test. Under Illinois law, the issue is whether the property at issue is used exclusively for a charitable purpose. (Slip opinion at 26, emphasis added).
Conditioning charitable status on whether an activity helps relieve the burdens on government is appropriate. After all, each tax dollar lost to a charitable exemption is one less dollar affected governmental bodies will have to meet their obligations directly. If a charitable institution wishes to avail itself of funds which would otherwise flow into a public treasury, it is only fitting that the institution provide some compensatory benefit in exchange. While Illinois law has never required that there be a direct, dollar-for-dollar correlation between the value of the tax exemption and the value of the goods or services provided by the charity, it is a sine qua non of charitable status that those seeking a charitable exemption be able to demonstrate that their activities will help alleviate some financial burden incurred by the affected taxing bodies in performing their governmental functions. (Slip opinion at 20).
Similarly, in Medical Center Hospital of Vermont, Inc. v. City of Burlington, 152 Vt. 611, 566 A.2d 1352 (1989), the Vermont Supreme Court, in rejecting the taxing authority’s argument that the amount of free care dispensed must exceed revenues, concluded there was nothing in any Vermont case that required an institution to dispense any free care to qualify as charitable for purposes of the charitable property tax exemption. (Slip opinion at 35)
“[I]t does not follow that an institution must present evidence of a particular level of charitable care because there is no such threshold level contained in the statute. And we refuse to create one.” Wexford, 474 Mich. at 220, 713 S.W.2d at 748. (Slip opinion at 34).
I don't yet have a copy of the opinion, but the Chicago Tribune just posted this story, which states that Provena lost, and more importantly, that it lost on the substantive issue: the court apparently ruled that Provena failed to provide sufficient charity care to be tax-exempt.
Again, stay tuned. I'll post my own summary and views on the opinion after I get a chance to review it, either later today or early tomorrow.
Reports are that the Illinois Supreme Court's decision in the Provena Covenant Hospital tax exemption case will be released later this morning. Stay tuned - I'll post a summary of the decision as soon as I get my hands on it and have a chance to read it.
Wednesday, March 17, 2010
The Washington Post reports that four senators (Sens. Charles E. Grassley (Iowa), Tom Coburn (Okla.), Jon Kyl (Ariz.) and John Cornyn (Tex.)) have sent a letter to the Boys and Girls Clubs of America asking about the organizations' expenses for salaries and travel. The organization, which reported a $13 million loss on its 2008 Form 990, paid chief executive officer, Roxanne Spillett, nearly $1 million in current and deferred compensation. According to The Nonprofit Quarterly, the Senators may hold up a bill that would give the organization $425 million in federal funding unless they get more information about the expenses.
An interesting article in the Christian Science Monitor questions whether the US Olympic Committee should enjoy tax-exempt status under 501(c)(3). What struck me about this commentary is how similar the points made here are to those made by reformers for college athletics: that the programs are no longer "amateur" athletics at all, but rather big time entertainment fueled in large part by TV revenues. I also was particularly interested in the authors' comment that USOC gets little in the way of individual donations, since I have long championed a test for tax exemption that would require an organization to show that it was "substantially" funded by donations (Mark Hall, now at Wake Forest, and I proposed one-third of annual revenues from donations) in order to be tax-exempt.
Tuesday, March 16, 2010
Europe-- Countries Amending Laws to Comply with European Court of Justice Decision on Cross-Border Donations
European counries have been amending their tax laws in order to comply with the ECJ decisions in cross-border giving cases. For an analysis of the decision, see http://www.iccsl.org/search/show.cfm?id=3179. Changes in the laws of various countries are being tracked by the European Foundation Centre.