September 29, 2011
Inside the World of One Supporting Organization
If you follow the world of exempt organizations under 501(c)(3), you are aware of the changes made in the law in 2006 regarding the regulation of supporting organizations, particularly those that we call "Type III" supporting organizations. This article in the Washington Post about the George Kaiser Foundation and its investments in the failed solar firm Solyndra is a good insight into the kinds of problems created by supporting organizations in general and Type III supporting organizations in particular (note that the story does not say whether, in fact, the George Kaiser Foundation was a Type III organization).
I understand the general rationale for supporting organizations not being classified as private foundations. If an organization truly is accountable to a public charity (which by definition must be accountable to the "general public" as a result of the various tests in Section 509(a)), then there is reason to believe that the supporting organization will not suffer from the kinds of abuses that the private foundation regulatory scheme enacted in 1969 (and updated since then) was designed to address. But some "supporting organizations" (particularly the Type III's) historically have not had this level of accountability, and I tend to agree that they should simply be abolished; let's have "real" public charities with real public accountability, private foundations with the tighter regulatory scheme necessary to overcome the lack of accountability, and no "in-betweens."
Hat tip on story to Karly Simon
September 28, 2011
Wendy Gerzog on Expert Valuation Testimony
Wendy Gerzog (University of Baltimore) has posted an article on SSRN previously published in Tax Notes entitled "Excluding Expert Valuation Testimony." The article centers around Boltar LLC v. Commissioner, a case dealing with the valuation of a conservation easement for purposes of the charitable contribution deduction. Abstract and dowload link are here.
September 27, 2011
Sugar Bowl Reports Violations of Campaign Limitations
The picture isn't getting any prettier for scandals in college athletics. While reporters uncover ever-more dismaying information regarding the operation of athletic programs at major universities, operations of the college bowls have come under increasing scrutiny on the tax side. Last year it was the Fiesta Bowl (see post here). Now, Sports Illustrated reports that the Sugar Bowl made donations to then-governor Kathleen Blanco's (Louisiana) campaign in the mid-2000's, a clear violation of the prohibition in Section 501(c)(3) against campaign intervention by charities.
Are college football bowls REALLY charities? Nah. Just like the athletic programs that participate in them, the bowls have become simply part of the big business machine of major college athletics. And just like I argue that most nonprofit hospitals are just big businesses with little charitable about their operation, the bowls are even worse - there is hardly even a pretense of "educational" content. And like nonprofit hospitals, perhaps the time has come to strip the entire college bowl system of exempt status under 501(c)(3) status. Operating a minor league playoff system (and doing it poorly, at that) is hardly a charitable enterprise.
September 26, 2011
Are Children's Hospitals The Next Exemption Target?
Whenever I talk about tax-exemption for nonprofit hospitals, I generally take pains to note that while I am opposed to exemption for a number of such hospitals, some such hospitals "clearly" should continue to enjoy exempt status. Teaching hospitals (e.g., university-affiliated medical centers that have a primary mission of educating doctors as part of the university's MD degree program) and children's hospitals have always been my leading examples.
Now, I'm not so sure. This story in the Bellingham Herald summarizes a study done by Kaiser Health News on children's hospitals, and it appears that some of the same issues that currently are under discussion with general acute care nonprofit hospitals - lack of charity care coupled with significant net revenues and building programs gone wild - are surfacing in the children's hospital area.
I think I need to avoid generalities these days. SOME children's hospitals certainly should enjoy exemption, just as SOME general acute-care hospitals also should. But instead of starting with a presumption that nonprofit hospitals are charities, why don't we start with the presumption that they are all big businesses, and let them carry the burden of proving their "charitable-ness"???
Illinois Governor Puts Moratorium on Tax Exemption Rulings for Nonprofit Hospitals
In an earlier post I noted that the Illinois Department of Revenue had denied tax exemption to three other nonprofit hospitals in Illinois in the wake of the Provena Covenant litigation. The Chicago Tribune recently reported that Governor Quinn has imposed a moratorium on any further action by the Department on nonprofit hospital tax exemptions pending discussions with the Illinois Hospital Association regarding a legislative solution to this issue. The governor has targeted March 1, 2012, as a date for recommendations regarding legislation. It appears, however, that litigation proceeds in the meantime. The story noted that while each of the three denied hospitals welcomed the moratorium, "they would pursue appeals."