April 30, 2010
Legislation Responding to Citizens United Introduced
Major newspapers (including the Chicago Tribune and the Los Angeles Times) are reporting that United States Senator Charles Schumer (Dem., New York) has now introduced his bill intended to curb the effect of the United States Supreme Court’s decision in Citizens United v. Federal Election Commission, previously blogged here. A summary of the bill appears in this press release.
Senator Grassley Seeks Disclosure of Drug Company Donations to Mental Illness Groups
The Chronicle of Philanthropy reports that Senator Charles Grassley (Rep., Iowa), as part of a probe into corporate donations to health care charities, has requested the National Alliance on Mental Illness (“NAMI”) to report its efforts to encourage its state chapters to disclose contributions from pharmaceutical companies. In a recent letter to the organization, Grassley is reported to laud NAMI for disclosing its own pharmaceutical contributions, but also to ask how NAMI is helping state chapters "make their sources of funding transparent" and ensure that they spend money properly, and to inquire whether NAMI would require state chapters to file conflict-of-interest forms. “NAMI chapters are surely accepting funds from pharmaceutical companies, and some of them have accepted substantial sums over the period of our inquiry," Grassley reportedly asserts in the letter. The Chronicle reports that the Grassley letter includes a chart depicting NAMI chapters receiving the most drug company contributions from January 2005 to October 2009 – chapters in California ($632,000), Ohio ($623,000), and New York ($448,000). The largest donors among pharmaceutical companies named in the letter, says the Chronicle, were Eli Lilly ($2.2-million), AstraZeneca ($1.6-million), and Bristol-Myers Squibb ($1.3-million). The Grassley letter reportedly follows a December letter in which he asked 33 medical organizations – including NAMI, the American Cancer Society, the American Diabetes Association, and the American Heart Association -- for details about their financial support from pharmaceutical, medical device, and insurance industries.
Treasury Official Acknowledges Need for Guidance for Nonprofit Hospitals in Wake of New LawTax Notes Today reports that Helen Morrison, deputy benefits counsel in Treasury's Office of Tax Policy, stated on April 28 that guidance is needed "sooner rather than later" on charity hospital requirements imposed by section 9007 of the Patient Protection and Affordable Care Act (Public Law 111-148). The legislation requires tax-exempt charitable hospitals to conduct assessments of community health needs at least once every three years, to develop a financial assistance policy, and to limit amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the financial assistance policy. The act also prohibits a charitable hospital from engaging in extraordinary collection actions before reasonably attempting to determine whether the patient is eligible for assistance under its financial assistance policy. For the full story, see “Guidance Needed on New Charitable Hospital Provisions, Treasury Official Says,” 2010 TNT 82-5.
April 29, 2010
Abstracts in Response to Call for Papers Due Friday
The Association of American Law Schools Section on Nonprofit and Philanthropy Law has issued a call for papers in connection with the AALS 2011 Annual Meeting in San Francisco, California on “The Federalization of Nonprofit and Charity Law.” Abstracts are due tomorrow, Friday, April 30, 2010. Select submission details from the AALS website follow:
The abstract should be accompanied by a cover letter with the author’s name and contact information. The abstract itself must not contain any references that identify the author or the author’s school, but should note if the submitter is a junior faculty member who has been teaching for seven years or less. The submitting author is responsible for taking any steps necessary to redact ALL other self-identifying information.
Form and Length:
Initial submissions should be in the form of abstracts of 1,000 words or less and should note if the submitter is a junior faculty member, but not any other identifying information. Presenters will be chosen based on evaluation of the submitted abstracts.
Contact for submission and inquiries:
Nancy A. McLaughlin
Robert W. Swenson Professor of Law
Associate Dean for Faculty Research and Development
University of Utah SJ Quinney College of Law
332 South 1400 East, Room 101
Salt Lake City, Utah 84112
Audit by NYC Comptroller Finds Fault with “Powerhouse” Nonprofit
The New York Times reports that the Economic Development Corporation, a nonprofit organization with a president appointed by the mayor of New York City, has been written up following an audit of the organization by the NYC Comptroller. The nonprofit, which reportedly “has swelled in the size of its budget and in its importance as the primary vehicle for an aggressive development agenda,” was found to have collected inadequate rent, overpaid a contractor and approved unsubstantiated payroll records. It was also criticized for its lack of transparency and internal controls. According to Comptroller John C. Liu, the nonprofit “has become a powerhouse agency, but we have very little understanding of what comes in and out of it. … 'You cannot see anything that is going on.'' The New York Times reported the following specifics:
The audit found that the Economic Development Corporation did not hand over $98 million in lease payments from developers in a Times Square project, whose tenants include Conde Nast and Reuters; $16 million in proceeds from the sale of city-owned property in the Bronx, Brooklyn and Queens; and $10.6 million from the dormant fund. The comptroller found smaller examples of what he said were waste and mismanagement. The corporation improperly accounted for more than $861,000 in loans intended to help small businesses. In one case, the agency gave $338,928 in excess energy credits to businesses as part of a cost savings program it operated with Consolidated Edison.
In a detailed two-page rebuttal, the development agency defended its actions, including its practice of retaining a portion of its money, a practice it says was supported in an opinion from the city's Law Department.
A Hospital Conversion Does Not Necessarily Imply a Religious Conversion
Conversions of nonprofit hospitals into for-profit firms raise a host of legal issues familiar to exempt organization lawyers. The Boston Globe reports that such conversions of legal form do not always lead to the abandonment of the historically religious mission of the “converted” hospital, however. Currently, Cerberus Capital Management, a private equity firm, is in the process of acquiring Boston's Catholic hospital network, Caritas Christi Health Care. The parties are seeking to ensure that any resulting for-profit hospital will continue to operate in accordance with the traditional Catholic values of Caritas. How will this be accomplished? Caritas and Cerberus are drafting a “stewardship agreement” with the Roman Catholic Archdiocese of Boston. The Globe states the following with respect to this agreement:
At its heart, the stewardship agreement will commit Caritas to strictly adhere to the Ethical and Religious Directives for Catholic Health Care Services agreed to by the US Conference of Catholic Bishops. The directives lay out the principles of Catholic health care - respect for human life from conception until natural death; care for the poor; contribution to the common good - and explain how health care institutions should put them into practice. The directives prohibit medical procedures that the church considers morally wrong, including abortions, sterilizations, certain fertility treatments, and euthanasia.
In addition to complying with the church's ethical guidelines, Caritas will promise to maintain its current level of spending on charitable services …. In 2009 the six Caritas hospitals spent $66 million: $37 million on charitable care for the uninsured and underinsured, $26 million on community benefits such as support groups and skin cancer screenings, and $3 million on ``mission'' spending such as pastoral care.
Opinions differ as to whether such a stewardship agreement can, in practice, live up to its terms when the hospital is owned and managed by those motivated by profits. For more on the acquisition, see Charity’s Call Ingrained at Catholic Hospitals, Hope, Hesitation over Caritas Deal, and Equity Firm Set to Buy Caritas.
April 28, 2010
Restrictions on Endowments Removed for Metropolitan Opera
The Wall Street Journal reports that The Metropolitan Opera “took the unusual step of unleashing $22 million from its restricted endowment in early 2009 by asking donors to lift regulations on how their contributions could be spent.” Approximately one third of this sum was reportedly used for current operations. The perceived need to free endowment assets was hardly mysterious, for the Met’s $282 million of expenses towered over its $133 million in revenue. Its financial position improving with the general economic recovery, the Met has given no indication that it will seek the release of other donor restrictions
Note: New York’s version of the relevant provision of the Uniform Management of Institutional Funds Act provides as follows:
With the consent of the donor in a writing acknowledged by him, the governing board may release, in whole or in part, a restriction imposed by the applicable gift instrument on the use or investment of an institutional fund.
Legislation Sought to Pave Way for Florida Neighborhoods for those with Special Needs
The St. Petersburg Times reports that Florida State Representative Kelli Stargel (Rep.) has introduced legislation that would allow local governments to permit the construction of group homes for the disabled within 1000 feet of each other. Current state statutory law prohibiting these facilities within close proximity reportedly was prompted by the concern that “homes catering to addicts and the developmentally delayed would drive down property values.” But some parents of developmentally disabled children are lobbying Florida lawmakers for “a cluster of communities catering to those with autism, Down syndrome, cerebral palsy and other disabilities.”
Tax Court: No Deduction for Façade Easement where Bank Has Prior Claim
Tax Notes Today reports that the United States Tax Court, in an opinion granting summary judgment to the IRS, has denied a taxpayer-couple's charitable contribution deduction for a façade easement that they granted to a charity. In Kaufman v. Commissioner, the Tax Court found the taxpayers’ easement failed to satisfy the requirements of section 170(h) of the Internal Revenue Code and the regulations thereunder. Under section 1.170A-14(g)(6)(ii) of the regulations, the donor must agree that the donation of the perpetual conservation restriction confers a property right, immediately vested in the donee, with a fair market value that, at the time of the gift, is at least equal to the proportionate value that the perpetual conservation restriction bears to the value of the property as a whole. Moreover, section 1.170A-14(g)(6)(ii) of the regulations states that, when changed conditions extinguish a perpetual conservation restriction and there is a subsequent sale, exchange, or involuntary conversion of the property, the donee generally must be entitled to a portion of the proceeds at least equal to that same proportionate value. The Tax Court then reasoned as follows:
Petitioners concede that the property had a mortgage and that the bank retained a "prior claim" to all proceeds of condemnation and to all insurance proceeds as a result of any casualty, hazard, or accident occurring to or about the property. Moreover, petitioners do not dispute that the bank was entitled to those proceeds "in preference" to [the donee] until the mortgage was satisfied and discharged. The right of [the donee] to its proportionate share of future proceeds was thus not guaranteed.
The case is available electronically at 2010 TNT 80-12.
April 27, 2010
Federal Information Returns of Georgia Nonprofit Adoption Agencies Examined
The Atlanta Journal-Constitution reports that it has examined the information returns filed by most of the 336 private, nonprofit foster care and adoption agencies licensed in Georgia as part of a four-part series of articles on the regulation of these entities. According to the story, although some institutions paid modest salaries to nonprofit executives, journalists “found numerous examples where top executives' compensation accounted for one-fourth to one-third of agencies' budgets.” The story also cites “many instances” in which “administrative costs exceeded expenses on direct services for children.”
IRS Denies Exemption to Trust Formed Primarily to Support Foreign Institution
Tax Notes Today reports that the IRS has determined that a domestic trust ostensibly formed to further charitable, religious and educational purposes does not qualify for exemption from federal income tax as an organization described in Internal Revenue Code section 501(c)(3). The adverse determination is available at 2010 TNT 79-40. Here is a copy of the abstract:
The IRS has denied exempt status to an organization that supports a foreign institute for Jewish studies, finding that private rather than public interests are being served and that the group -- as a foreign conduit -- would not be eligible to receive deductible donations if, on appeal, the IRS were to find it qualifies for exempt status.
Council on Foundations Holds Annual Conference
The 2010 annual conference of the Council on Foundations concludes today in Denver. Plenary speakers at the conference include former Vice President Al Gore and Commissioner of Internal Revenue Douglas Shulman. Commissioner Shulman’s prepared remarks have been published. Read more about the conference by visiting the Chronicle of Philanthropy’s Conference Notebook.
April 26, 2010
Executives’ Salaries Paid by Cultural Organizations Examined
The New York Times reports that it has “surveyed dozens of arts organizations in New York City and elsewhere in the country, reviewed their federal income tax returns, and interviewed many of their managers and several leading compensation experts to evaluate how executive salaries have fared in the tumult of the recent recession.” The general finding is that growth in executives’ salaries has waned, not just because of the recession, but also because of enhanced appreciation for good governance and expanded information reporting to the IRS required under the new Form 990.
Is New Legislation on Campaign-Related Advertising Almost Here?
The Boston Globe has reported that congressional Democrats are ready to introduce legislation that would "require sweeping disclosures by corporations, unions, and nonprofit groups that pay for political advertising." The contemplated bill is a response to the recent Supreme Court opinion of Citizens United v. Federal Elections Commission, 558 U.S. ___, 175 L. Ed. 2d 753, 2010 U.S. LEXIS 766 (2010), and (as previously blogged here) has been widely anticipated. The proposed legislation is reported to require chief executive officers to attach their approval of political advertisements, and to require organizations to disclose major donors whose donations are used for campaign-related activity. For more details, see the description of the proposed legislation on Politico.
Petrovits, Shakespeare and Shih post paper on SSRN
Christine Petrovits (New York University, Leonard N. Stern School of Business), Catherine Shakespeare (University of Michigan, Stephen M. Ross School of Business) and Aimee Shih (Ph.D. candidate, New York University, Leonard N. Stern School of Business) have posted The Causes and Consequences of Internal Control Problems in Nonprofit Organizations on SSRN. Here is the abstract:
This study examines the causes and consequences of internal control deficiencies in the nonprofit sector using a sample of 27,495 public charities from 1999 to 2007. We first document that the likelihood of reporting an internal control problem increases for nonprofit organizations which are in poor financial health, growing, more complex, and/or smaller. We then present evidence that the disclosure of weak internal controls over financial reporting is negatively associated with subsequent donor support received after controlling for the current level of donor support and other factors influencing donations. We likewise report a negative association between internal control problems and subsequent government grants. Our results suggest that donors and government agencies, important sources of capital for nonprofit organizations, react either directly or indirectly to internal control information.
Tax Court Denies Charitable Contributions Deduction for Gifts to Nonqualifying Donees
A recent summary opinion of the United States Tax Court, Wilkes v. Comm’r, T.C. Summ. Op. 2010-53, reminds taxpayers and their advisors of the importance of donating directly to a charitable entity qualifying under section 170(c) of the Internal Revenue Code before claiming a charitable contributions deduction. In Wilkes, the taxpayers made two kinds of gifts. One type consisted of transfers directly to needy individuals identified by church leaders as deserving of support. The other type consisted of gifts to several missionaries planting churches elsewhere in the United States and in South Africa. Deductions for gifts to the needy individuals and to the church planter in South Africa were denied because they were not made to a qualified charitable donee (i.e., an entity organized in the United States and operated for educational, religious, or other qualifying exempt purposes). Deductions were upheld for gifts to the domestic church planters, for they were acting as agents of local churches when the individuals solicited and expended donated funds. This decision, released on April 22 and reported by Tax Notes Today, is available at 2010 TNT 78-16.
Caveat: Taxpayers also generally cannot claim a charitable contributions deduction when they make their checks payable to charitable donees and then require that their donations be used to benefit individuals designated by the taxpayers. For a complete discussion and analysis of these and similar cases of “earmarking” purportedly charitable gifts for individuals, see Johnny Rex Buckles, The Case for the Taxpaying Good Samaritan: Deducting Earmarked Transfers to Charity under Federal Income Tax Law, Theory & Policy, 70 Fordham L. Rev. 1243 (2002), available on SSRN.