November 5, 2010
Tax Court Rejects Deduction for House Donated to Fire Department for Training
In Rolfs v. Commissioner, the Tax Court upheld the IRS's position that no charitable contribution deduction would be permitted for the donation of a house to a local volunteer fire department for use in training exercises and eventual demolition. The court found that the taxpayers had decided to demolish the house and construct a new house on the site by the time they contacted the volunteer fire department about the donation. The court therefore compared the value of the benefit the taxpayers had received - the demolition - with the value of the house. Based on expert testimony, the court discounted the house's value to account for the fact that the donation did not include the underlying land and that the use of the house was limited to training for emergency services personnel. The court then concluded that given these limitations, the value of the house did not exceed the value of the quid pro quo demolition and so the taxpayers were not entitled to any charitable contribution deduction. The court rejected, however, the Service's attempt to impose an accuracy related penalty. Interestingly, neither the IRS nor the court relied on the theory that the donation failed to qualify for a deduction because it was only a partial interest in the property at issue.
Other taxpayers have tried this same technique and run into similar opposition. For example, the Columbus Dispatch reported last month that a couple had unsuccessfully fought the IRS on this issue in federal district court, although that defeat stemmed from a failure to properly document the donation and its value. The same article reported that ESPN analyst Kirk Herbstreit and his wife had tried to take a similar deduction but run into IRS opposition (see TaxProf Blog post), and losing Oregon gubernatorial candidate Chris Dudley had also taken a similar deduction, which the IRS apparently did not challenge but which did come up during his close election last week (see this memo from his campaign, citing an AICPA article).
NYT: "Donor Groups Find Success in Elections"
The NY Times reports, based on FEC records, that the American Future Fund (a section 501(c)(4) organization) was the most successful of groups that filed FEC reports, spending $8 million on 25 House and Senate races and having the candidate it supported winning in 76 percent or them. Other successful groups were the Americans for Job Security (a section 501(c)(6) organization), at about two-thirds, the U.S. Chamber of Commerce (also a 501(c)(6)), at about 60 percent, and American Crossroads (a section 527 organization) and Crossroads GPS (a 501(c)(4)), together at over 58 percent. Not surprisingly, groups that tended to support Democratic candidates had much less success. For more comprehensive information about nonprofit group spending in federal elections, see the Campaign Finance Institute's website.
November 4, 2010
Supreme Court Hears Arguments in Tax Credits & Religious Schools Case
Yesterday the Supreme Court heard oral argument in Arizona Christian School Tuition Organization v. Winn, an establishment clause challenge to an Arizona law permitting taxpayers to receive a state tax credit for donations to educational scholarship organizations. A majority of the resulting scholarships went to students who attended religious schools. The case raises at least two major issues for religious schools and other religious organizations.
The obvious issue is whether the government can provide such tax credits, when they ultimately are shown to benefit religious schools in large part. The less obvious but more important issue is the extent to which taxpayers have standing to challenge tax provisions that they allege violate the establishment clause. How the Supreme Court decides whether such standing exists, as an exception to the general rule that taxpayers do not have standing to challenge tax provisions that benefit other taxpayers, could have enormous ramifications given the large number of both state and federal tax provisions that benefit churches, other religious organizations, and ministers. For example, how the Supreme Court resolves this standing issue will determine whether the current lawsuit challenging the ministerial housing allowance as unconstitutional will be able to proceed. The lower courts in both that lawsuit and Winn found such standing to exist under the Supreme Court's earlier decision in Flast v. Cohen, 392 U.S. 83 (1968).
Urban institute: Human Service Nonprofits and Goverment Collaboration
Last month the Urban Institute's Center on Nonprofits and Philanthropy issued the 2010 National Survey of Nonprofit Government Contracting and Grants, written by Elizabeth T. Boris, Erwin de Leon, Katie L. Roeger, and Milena Nikolova. The survey "aims to provide a comprehensive look at the scope of governments’ contracts and grants with human service organizations in the United States and document the problems that arise." It found that government agencies have approximately 200,000 formal agreements with about 33,000 human service nonprofit organizations, accounting for over 65 percent of the revenue for such organizations. It also discovered widespread instances of late and less-than-full payments, as well problems with administrative complexity and government changes to agreements, but with significant variation between states with respect to the incidence of such issues.
November 3, 2010
"Election Will Bring Changes to Congressional Oversight of Nonprofits"
The Chronicle of Philanthropy reports on the likely changes among key congressional figures with oversight responsibility for nonprofits, including the likely replacement by Senator Chuck Grassley by Senator Orrin Hatch as the ranking minority member of the Senate Finance Committee. Senator Grassley is expected to remain on the Finance Committee, but with less budget and staff as a result of Republican limits on tenure in senior positions. On the House side, Representative David Camp from Michigan is expected to assume chairmanship of the Ways and Means Committee, and Representative Charles Boustany Jr. of Louisiana is expected to become chairman of the Ways and Means subcommittee on oversight.
Nonprofits Help Oust Judges in Iowa
The NY Times reports that several nonprofit organizations led the campaign to remove three Iowa Supreme Court justices who participated in a unanimous ruling that permitted same-sex marriage in that state. The named groups were the National Organization for Marriage, a section 501(c)(4) organization, and the American Family Association, a section 501(c)(3) organization, but the specific extent of the two groups's involvement and whether the AFA might have worked through a non-501(c)(3) affiliate is not clear from the article. The article also notes the involvement of religious leaders in the campaign, but again the article is not clear regarding whether that involvement was solely by those leaders in their individual capacities or also involved the churches and ministries that they lead. An earlier USA Today article reported, however, that at least one pastor intended to urge his congregation not to retain the three justices, apparently with full knowledge that by doing so he would be violating federal tax law.
Nonprofit & Voluntary Sector Quarterly New Issue
- Thomas Packard, Staff Perceptions of Variables Affecting Performance in Human Service Organizations
- Sheilah Watson Bishop, Building Programmatic Capacity at the Grassroots Level: The Reactions of Local Nonprofit Organizations to Public Participation Geographic Information Systems
- Marci B. Littlefield, Social Services, Faith-Based Organizations, and the Poor
- Mary Kay Gugerty,Mark Sidel, and Angela L. Bies, Introduction to Minisymposium: Nonprofit Self-Regulation in Comparative Perspective-Themes and Debates
- Mark Sidel, The Promise and Limits of Collective Action for Nonprofit Self-Regulation: Evidence From Asia
- Angela L. Bies, Evolution of Nonprofit Self-Regulation in Europe
- Mary Kay Gugerty, The Emergence of Nonprofit Self-Regulation in Africa
- Jarosław Domański, Strategic Group Analysis of Poland’s Nonprofit Organizations
- Rosemarie Emanuele, Book Review: David L. Weimer and Aidan R. Vining (Eds.) Investing in the Disadvantaged: Assessing the Benefits and Costs of Social Policies
- L. David Brown, Book Review: David Lewis and Nazneen Kanji Non-Governmental Organizations and Development
- Susan Ostrander, Book Review: David C. Hammack and Steven Heydemann (Eds.) Globalization, Philanthropy, and Civil Society: Projecting Institutional Logics Abroad
- Jerry Park, Book Review: D. Michael Lindsay Faith in the Halls of Power: How Evangelicals Joined the American Elite
November 2, 2010
Supreme Court Denies Cert in Nonprofit Disclosure of Political Activity Case
Last March the U.S. Court of Appeals for the District of Columbia ruled in SpeechNow.org v. FEC that a section 527 organization could be subject to the organizational and disclosure requirements imposed on political committees or PACs under federal election law, even in the wake of the Supreme Court's Citizens United v. FEC decision. Yesterday the Supreme Court denied certiorari in this case (under the name Keating, et al. v. FEC, No. 10-145), even though the petitioners had argued that the D.C. Circuit's holding conflicted with Citizens United. Combined with the 8-1 vote in Citizens United upholding the disclosure requirements imposed on the section 501(c)(4) organizations involved in that case, this cert denial indicates that at least for the moment the Supreme Court is going to pass on reviewing existed disclosure requirements imposed on politically involved nonprofit organizations.
NYT: Nonprofits Rush to Solicit Donations via Text, but the System Is Flawed
The New York Times reports that attempts by nonprofits to capitalize on American Red Cross's successful texting campaign to raise funds for Haiti relief efforts have run into a host of technological, marketing, and related problems. These problems include dollar and number of donation limits imposed by mobile phone companies and a lack of awareness by the public absent the combination of a high profile charity, a heavily publicized need, and free promotion from heavy hitters such as the State Department or the NFL. Perhaps not surprisingly, the article does not mention whether such solicitations also could run into issues with state charitable solicitation laws.
Pressure Continues on Hersey Trust Board of Directors
Nick Mirkay previously blogged about the growing controversy surrounding the Milton Hersey School Trust and its sole beneficiary, the Milton Hershey School located in Hershey, Pennsylvania. Protect the Hersheys Children, a self-declared watchdog group for the School, made the initial accusations of excessive compensation and poor governance in early September when it sent a complaint to the IRS and other federal and state officials. Now the Philadelphia Inquirer reports that the Trust engaged in at least two multi-million dollar property acquisitions at well above fair market values, including the purchase of the neighboring Pumpkin World USA roadside attraction for $8.6 million and of the struggling Wren Dale Golf Club for $12 million, both in 2006. The article also reports that Pennsylvania Attorney General Tom Corbett's office has confirmed it is investigating the trust regarding an unidentified acquisition, but that office has not provided any further information.
The situation has gained a large enough profile in Pennsylvania that Democratic gubernatorial candidate Dan Onarato has pledged to push for reform of the Hershey Trust if elected. The section 501(c)(4) Protect the Hershey's Children has applauded this commitment and urged its supporters to take Onarato's position into account when they vote today.
November 1, 2010
Nonprofits, Elections, Disclosure, the Gift Tax, the IRS, and More!
Here is a pre-election wrap-up of the many issues raised by the prominent involvement of nonprofits in the pending election:
Nonprofit Political Spending, Often with Donor Anonymity: As numerous media outlets and other sources have reported, nonprofit groups - specifically section 501(c)(4) social welfare organizations, section 501(c)(5) labor unions, and section 501(c)(6) chambers of commerce and trade associations - have become the vehicle of choice for election-related communications when funders want to maintain they anonymity. See, e.g., Big Money: Outside Groups Spending for Republicans (Wash. Post), Return of the Secret Donors (NY Times), and Election-Related Spending by Political Committees and Non-Profits Up 40% in 2010 (Campaign Finance Institute).
State Laws and Disclosure: Tom Kelley previously blogged about the possibility that state laws may go where federal laws do not by requiring disclosure of donors to groups that fit within broad state law definitions of "political committees." The pro-disclosure bent of the Supreme Court, evidenced by its 8-1 vote in Citizens United upholding certain existing federal disclosure requirements, suggests that such broad disclosure laws may survive constitutional challenge, although such a result is far from certain. What is certain, however, is that challenges to those laws will be occupying the courts for years to come.
Gift Tax: Ellen Aprill (Loyola-L.A.) has written this memo for the Election Law Blog explaining how donations to section 501(c)(4) organizations to fund express advocacy or electioneering communications generally may avoid both the gift tax under federal tax law and public disclosure under federal election law. Initial public attention to this issue arose in large part because of this Forbes blog posting.
Complaints Filed with IRS: A flurry of complaints have been sent to the IRS regarding alleged violations of federal tax laws relating to election-related activity by nonprofits. These include not only complaints filed by Americans United for Separation of Church and State focusing on churches and other section 501(c)(3) religious organizations prohibited from supporting or opposing candidates (just look for press releases marked by the IRS logo), and Citizens for Responsibility and Ethics in Washington (CREW) against a section 501(c)(3) ministry that allegedly distributed a partisan voter guide (press release), but also by Demoracry 21 and the Campaign Legal Center against Crossroads GPS, a recently formed section 501(c)(4) organization associated with Karl Rove (press release).
Post-Election Plans: The New York Times reports that high-profile conservative nonprofits are already looking forward to keeping up the pressure on surviving Democratic members of Congress with an eye to the 2012 elections, and Democrats are considering how they can respond. Of interest to even nonprofits not directly involved with the current election, the Hudson Institute is hosting a forum on The 2010 Elections: What Do They Mean for Foundations and Nonprofits?" on November 9th in Washington, DC; participants include Garry Bass (OMB Watch), Patricia Read (Independent Sector), Sandra Swirski (Alliance for Charitable Reform), and Dean Zerbe (alliantgroup).