Thursday, December 23, 2010
A Payment In Lieu of Taxes (PILOT) task force created by Boston Mayor Thomas M. Menino just issued a report making numerous recommendations regarding the city's existing PILOT program. According to the related press release, the task force's main recommendations are:
- The PILOT program should remain voluntary.
- The PILOT program should be applied to all nonprofit groups except for smaller nonprofits, suggesting a threshold of $15 million in property value.
- The PILOT contributions should be based on the value of real estate owned by a nonprofit, with a suggested amount of 25% of the tax otherwise owed (approximately equal to the portion of the city's budget that goes to police, fire, snow removal, and other essential services). This formula should be in phased in over a period of not less than 5 years.
- The credit for "Community Benefits" should be limited to 50% of the full PILOT payment. Such benefits include public health initiatives, scholarships for Boston public school students, and summer jobs.
The report now goes to the Mayor for his consideration and possible implementation.
The New York Times reports that the U.S. District Court Judge Vaughn Walker (yes, the same George H.W. Bush-appointee who struck down Proposition 8) has ordered the federal government to pay over $2.5 million to officials with the now closed Al-Haramain Islamic Foundation. Almost all of this amount represents legal fees, although it also includes $40,800 in damages. The damages arise from the wiretapping of the officials without court approval, under a surveillance program approved by President George W. Bush. The Court previously found that this wiretapping was illegal. We previously blogged about that decision, and about a decision by another federal district court judge that found the government's freezing of the Foundation's assets to be unconstitutional.
Additional Coverage: SF Appeal.
Wednesday, December 22, 2010
The Council on Foundations recently issue a press release announcing that a working group of more than 70 charities has ended its seven-year effort to convince the Treasury Department to modify its approach to global grantmaking. Sparked by Treasury's issuance of "voluntary" anti-terrorist guidelines for charities in the wake of 9/11, the working group strove to convince Treasury to modify the guidelines to better reflect the reality of international charitable activities. Those efforts led to a revision of the guidelines in 2006, but according to the press release those revisions were not sufficient to resolve concerns that the guidelines are "confusing and misleading." Lack of responsiveness from Treasury led the group to determine "it can no longer support or participate in Treasury's attempts to impose current or future versions of the guidelines on the charitable sector."
The Wall Street Journal reports that a growing number of wealthy families are opting to limit the lifespans of their private foundations. Based on conversations with financial advisers and a 2008 survey of small foundations, the article finds that such families are concerned not only about mission drift but also the "dead hand" problem and financial uncertainty. The survey found that 12% of family foundations planned to limit their life spans, and other 25% had not ruled out doing so.
Tuesday, December 21, 2010
Besides the widely reported aspects of the bill that may be of interest to nonprofits, including the estate tax reinstatement at a lower rate and higher exemption amount and the temporary 2 percent employee payroll tax cut, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 also extended numerous other expiring tax provisions through the end of 2011. Among those extended provisions are several incentives for charitable giving, including the incentive for contributions by certain corporate farmers and ranchers of capital gain real property for conservation purposes (section 723 of the legislation), the IRS charitable rollover (section 725), and the enhanced charitable deductions for contributions of food inventory, of book inventories to public schools, and of computer inventory for educational purposes (sections 740 to 742). Finally, the legislation also extended through 2011 the special rule that permits interest, rent, royalty, and annuity payments by controlled subsidies to their parent tax-exempt organizations to be excluded from unrelated business income if not in excess of fair market value (section 747).
Ellen Aprill and Richard Hasen (both Loyola - Los Angeles) have written Lobbypalooza for The American Interest Online, a must read for anyone interested in rules governing lobbying, including lobbying by tax-exempt nonprofits. The article describes the history of lobbying regulation at the federal level, both through the tax laws and recently enhanced disclosure requirements, as well as through anti-revolving door rules, limits on gifts to members of Congress, and the Obama Administration's limits on registered lobbyists. It also highlights the constitutional tensions created by rules that go beyond the existing tax and disclosure provisions, especially in the wake of Citizens United v. FEC. A great discussion of the lobbying rules and the issues they raise - not to be missed.
Monday, December 20, 2010
On Sunday the NY Times published a piece by Richard Thaler (University of Chicago Booth School of Business) titled "It's Time to Rethink the Charity Deduction." Assuming both that charitable giving is worthy of government support and that tax benefits for such giving constitute a subsidy, he identifies the major odd aspect of the current deduction, which is that it provides a greater benefit for giving by high-income taxpayers both because of the progressive income tax structure and the existence of the standard deduction. On the latter point, he notes that the current deduction tends to favor donations by taxpayers with large mortgages (or large state and local tax bills), because having a large mortgage - and so large mortgage interest deductions - makes it more likely the taxpayer will itemize their deductions. he ends by proposing that Congress change the current support for charitable contributions to a tax credit that would apply only to contributions that exceed a floor (say 2 percent of adjusted gross income) and that is relatively low (say 15 percent). Such ideas have been tossed around by legal scholars for many years, but the current budget crisis and related push for meaningful tax reform before the extended Bush tax cuts expire at the end of 2012 may provide real impetus for such a change in the near future.
Last week the IRS Exempt Organizations Division issued a report that included information about both past and future activities. Among the numerous items is information about consumer credit counseling, downpayment assistance, executive compensation loan project, and the 2008 political activities compliance initiative (PACI) audits. The 2008 PACI audits are of particular interest because a long-expected report on those audits has not been forthcoming. The report provides only a brief summary of that audit program, noting that there were investigations of 133 political activity allegations for the 2008 election year (more than in each of 2004 and 2006), including of 47 instances of church officials making a statement during normal services endorsing candidates (as compared to 19 and 14 such allegations in 2004 and 2006, respectively). The report provides no information, however on the results of those investigations.
The workplan also includes a plan to begin examining more section 501(c)(4) (social welfare organizations), 501(c)(5) (labor unions), and 501(c)(6) (chambers of commerce and trade associations) organizations, including for excessive political activity. Other information about past activities that may be of interest include examination figures (increased significantly from fiscal year 2004 but still relatively small given that multiple returns are often examined for the same organization) and 990-N filing figures (over 335,000 filed in 2010).
Wednesday, December 1, 2010
In a major decision, Australia's highest court has ruled a nonprofit organization that sought to promote the effectiveness of international aid qualified as a tax-exempt "charitable institution" even given the "political" nature of its goals and activities. In Aid/Watch Incorporated v. Commission of Taxation, the High Court of Australia reversed a lower court's decision upholding the revocation of tax exempt status for Aid/Watch. According to the opinion, Aid/Watch "is an organization concerned with promoting the effectiveness of Australian and multi national aid provided in foreign countries by means which include investment programs, projects and policies." After carefully considering both the meaning of the term "charitable institution" as used in the applicable tax statutes and whether a "political" purpose or activity of changing government policy through public education disqualified an organization from being classified as such an institution under Australian law, the Court concluded that "the generation by lawful means of public debate . . . concerning the efficiency of foreign aid directed to the relief of poverty, itself is a purpose beneficial to the community within the fourth head of [Commissioners for Special Purposes of Income Tax v.] Pemsel [1891 AC 531]." The Court further concluded that "in Australia there is no general doctrine which excludes from charitable purposes 'political objects' . . . ." The opinion is of particular interest not only because of its ramifications for nonprofit organizations in Australia but also for its consideration of the laws governing political activity by charities not only in that country but also in the UK, Canada, and the United States.
(Hat tip: Harvey Dale)