November 4, 2011
Some Local Boards of Realtors' Property May Be Exempt in Texas
As reported in State Tax Today (subscription required), the Texas Attorney General has recently issued an opinion responding to a question from a Texas State Senator of whether local boards of realtors qualify for the property tax exemption for "nonprofit community business organizations" set forth in section 11.231 of the Texas Tax Code. While noting that the Office of the Attorney General “does not determine questions of fact, and we therefore cannot ultimately determine whether a tax exemption applies” to any specific property, the opinion nonetheless concludes that an entity that is engaged primarily in performing one of the economic development functions listed in the statute constitutes a "nonprofit community business organization" that qualifies for the property tax exemption. In reaching this conclusion, the opinion contains an interesting discussion of the effect of the legislative intent of the statutory exemption:
You indicate that your intent was to provide an exemption for local chambers of commerce. See Request Letter at 1. Although that statement may manifest your intent, the Texas Supreme Court has ruled that the statement of a single legislator does not determine legislative intent. See AT&T Commc'ns of Tex., L.P. v. Sw. Bell Tel. Co., 186 S.W.3d 517, 528-29 (Tex. 2006). The Texas Supreme Court has further stated that "[w]here [the] text is clear, text is determinative of [legislative] intent." Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009). Accordingly, we are required to rely on the plain text of the statute, which grants the exemption not to a "chamber of commerce" but to a "nonprofit community business organization." Tex. Tax Code Ann. § 11.231(a) (West Supp. 2010). There is no indication in the text of section 11.231 that the exemption was meant exclusively for a chamber of commerce.
Remember, readers, to whom the Texas Attorney General is writing when he remarks that "the statement of a single legislator does not determine legislative intent." United States Supreme Court Justice Scalia has little on Texas Attorney General Greg Abbott in this regard!
New Section 501(c)(4) Entity Formed in Part to Endorse Candidates Supporting Nonprofits
In New Group to Endorse Politicians Who Pledge to Strengthen Nonprofits, the Chronicle of Philanthropy reports that a Code section 501(c)(4) organization, called CForward, has been formed to educate political candidates about the contribution made by nonprofits to the economy through job creation and the resulting generation of payroll taxes. The entity reportedly will also endorse political candidates who have concrete plans to strengthen nonprofits. Says the story:
CForward—the brainchild of Robert Egger, president of D.C. Central Kitchen—seeks to turn the tens of millions of people who work or volunteer at nonprofits into a “powerful political force” that can reward politicians who include nonprofits in their economic strategies. “It will allow candidates to see there’s an army being activated” that gives priority to that issue, Mr. Egger says.
For now, CForward is focusing on local elections, not the presidential campaign. It is asking supporters to identify candidates for governor or mayor who agree to appoint a person to work directly with nonprofits—for example, conducting economic analyses, making it easier for them to work with government, and promoting loan programs that can help them or their constituents open businesses so they can develop reliable sources of income.
Is Charitable Giving by the Rich Really Responsive to the Income Tax?
David Joulfaian (U.S. Department of the Treasury) has posted Is Charitable Giving by the Rich Really Responsive to the Income Tax? on SSRN. Here is the abstract:
The income tax deduction for charitable contributions is limited to a fraction of reported income. Consequently, some of the contributions by large donors are not deductible in the year of the transfer, if deductible at all. Because this limit is often ignored in the empirical literature on charitable giving, the tax rate (the implicit subsidy rate) is often measured with error and this may bias estimates of the effects of the tax deduction. In addition to the errors in measuring the tax price, income and the size of gifts are also potentially measured with error; the deduction for contributions is often employed as the measure of transfers when using administrative records even though the amount contributed can be much larger, and income is often understated as the embedded accrued gains in gifts of appreciated assets are overlooked. This paper reviews the key features of the tax treatment of charitable gifts by individuals and employs panel data to explore the sensitivity of behavioral responses to taxes when measurement errors are corrected. The empirical findings suggest that giving by the rich may not be as responsive to the income tax as previously thought.
November 3, 2011
A Neuroeconomic Perspective on Charitable Giving
David V. Yokum and Filippo Rossi have posted A Neuroeconomic Perspective on Charitable Giving on SSRN. Here is the abstract:
Psychologists and economists, particularly those assuming that people are rational egoists, have struggled to understand the causes of voluntary donation for decades. Why would a person decide to sacrifice part of his or her material payoff in order to increase the well being of others? In the first part of this paper, we outline a core set of possible motivations, and then consider how those motivations can be used to construct behavioral models that can also be tested in terms of what we know about brain function. We emphasize the role of other‐regarding preferences and argue that there are moral judgments, independent of any consideration of payoffs, that partially determine when and to whom such preferences exist. In the second part of the paper, we argue that a neuroeconomic perspective can help understand charitable giving, and then discuss recent neuroimaging studies that demonstrate this potential.
2011 Transfers from an IRA to Charity
In The Upside of Gifts Made Directly From I.R.A.'s, the New York Times reminds us of some of the circumstances in which a taxpayer may want to benefit charity by effectuating a transfer of money directly from his or her individual retirement account to a charitable donee. Through the end of this year, a taxpayer may arrange for such a transfer to charity in lieu of receiving a required minimum distribution from the IRA. Such amounts transferred are not included in the taxpayer’s gross income. Although the taxpayer cannot claim a charitable contributions deduction for the transfer, in some circumstances, a transfer from an IRA may nonetheless be advisable. The article cites Robin Christian, a senior tax analyst for Thomson Reuters, who explains:
A required minimum distribution raises the recipient’s income, which in turn limits some itemized deductions. Medical expenses, for example, are deductible only to the extent they exceed 7.5 percent of adjusted gross income. A higher income may also put a taxpayer into a higher marginal bracket. The I.R.A. gifts … are particularly beneficial to people in two groups, Ms. Christian said — those who did not itemize deductions and those for whom a gift from regular accounts would exceed the single-year deduction limit of 50 percent of adjusted gross income.
The story includes a caveat offered by Chris Zander of Evercore Wealth Management. In the case of those who own outright highly appreciated shares of stock,
“It is better to contribute the highly appreciated stock to the charity in lieu of doing the charitable I.R.A. transfer.” That avoids capital gains tax on the stock and allows for an income tax deduction for the fair market value of the assets contributed.
Kentucky Law to Host Conference on Disaster Relief
The University of Kentucky College of Law will host Helping and Hindering Disaster Relief: Law, Policies, and Politics Impact Aid, the 2011 James and Mary Lassiter Distinguished Visiting Professor Conference, on Friday, November 4, 2011. Featured speakers include fellow nonprofits law professor Nina J. Crimm (James and Mary Lassiter Distinguished Visiting Professor at the University of Kentucky College of Law and Professor at St. John's University School of Law ), as well as William Canny (Director of Emergency Operations, Catholic Relief Services), James P. Cullen (Retired Brigadier General, United States Army Judge Advocate General’s Corps), and Greg Elder (Acting Regional Coordinator for Latin America and the Caribbean, United States Agency for International Development). The conference announcement offers the following overview:
Over many years, the United States government, its executive and independent agencies, and nonprofit humanitarian organizations have assumed vital roles in providing disaster relief to victims of innumerable natural and man-made disasters. Their ability to respond and operate diplomatically, quickly, efficiently, and effectively has been impacted not only by financial and human resource capacities, but also by domestic, international, and foreign laws and policies, politics, and infrastructures. This conference presents perspectives and insights as to problems that face several notable governmental and non-governmental actors – the United States military, the United States Agency for International Development, and nonprofit humanitarian relief organizations – and how laws, policies, politics, and infrastructures help and hinder disaster relief responses and interactions among responders, perhaps especially those with responsibilities for providing initial assistance.
November 2, 2011
Universities and Commercializing Research
In Universities Continue to Increase Start-Ups and Commercialization of Research, the Chronicle of Higher Education (subscription required) reports that universities continued to commercialize academic research in 2010. “Institutions completed more licensing deals with companies than in the previous year while also forming more start-up companies and filing for more patents, according to newly released data from the Association of University Technology Managers.” The increase in the number of companies formed around university-owned intellectual property (613, compared with 555 the previous year) was reportedly attributable to “increasing political pressure to contribute more to economic development and job growth.” The article indicates that nonprofit educational organizations made no small contribution to the uptick:
Three institutions accounted for more than a quarter of the total revenue reported: Northwestern University, which reported nearly $180-million in revenue, up nearly $20-million from the previous year; New York University, with $178-million, up $65-million from the previous year; and Columbia University, with $147.2-million, down slightly from its $154.3-million in 2009…. New York University, which saw the biggest one-year jump in revenue, said three factors drove that increase: a spinoff company that makes a touch-screen technology was sold, and NYU was paid for its ownership stake in the company; the arthritis drug Simponi, based on a university invention, came onto the market; and royalties from several other licenses rose. The university has been a leader in licensing revenue ever since another NYU-related arthritis drug called Remicade became a big seller, and for several more years at least, it faces no imminent threats to its big-producing patents. "There are no cliffs on the horizon," said Abram M. Goldfinger, executive director of industrial liaison.
Updated Colbert Report 501(c)(4) Link
A reader brought to my attention that our previous link to the Colbert Report segment on section 501(c)(4) organizations and politics is no longer working, but provided this active link to the segment.
Canada Mulls Tax Incentives for Charity
The Globe and Mail reports that Finance Minister Jim Flaherty has asked the Commons finance committee to study charitable donations incentives. One such proposal would provide individual taxpayers “an exemption from capital gains tax if they donate shares in privately held corporations or real estate.” According to the article, we should expect more proposals consistent with the theme of providing tax breaks for charity:
The Harper government has plans to overhaul the way it finances charities and non-profit organizations. While the first steps will be small, the government’s ultimate goal is a shift in public expectations as to the role of government in assisting social causes.
Policies being considered include new tax rules to allow charities and non-profits to raise money through side businesses, boosting personal tax credits for charitable giving, and other incentives. ...
IRS Seeking Applications to Fill ACT Vacancies
The Internal Revenue Service has announced that it is seeking applications to fill vacancies on the Advisory Committee on Tax Exempt and Government Entities (ACT). The ACT advises on administrative policy and procedures of the Tax Exempt and Government Entities Division (TE/GE). Among other vacancies, two exist in the segment of Exempt Organizations. Committee members are appointed by the Department of the Treasury and serve two-year terms. Applications, which will be accepted through December 1, 2011, should be sent to Bobby Zarin, TE/GE Communications and Liaison Director, Internal Revenue Service, 1111 Constitution Ave., NW-SE:T:CL Penn Bldg., Washington, DC 20224, or by facsimile to 202-283-9956.
November 1, 2011
More on Oversight of IRS in its Regulation of Charities
The New York Times is reporting concern with the IRS in its regulation of tax-exempt charities under federal tax law. One issue is the IRS’s delay in requiring tax-exempt hospitals to report on charity care. Referring to the Illinois Department of Revenue’s revocation of property tax exemptions for property owned by nonprofit hospitals failing to provide sufficient charity care, the Times article says:
Those hospitals, however, remain exempt from federal taxes — a far bigger benefit — because the Internal Revenue Service is not collecting information to assess the extent of the care for poor and uninsured patients that nonprofit hospitals nationwide are supposed to provide.
To be fair to the IRS, the Times article does not quite have it right, insofar as the article seems to imply (wrongly) that the Illinois hospitals in question would necessarily witness revocation of federal income tax exemption if only the IRS had required proper reporting of charity care. Moreover, as the article reports, Sarah Hall Ingram, Commissioner of the Tax Exempt and Government Entities Division of the I.R.S., attributed agency delay in finalizing the reporting requirements to “new federal health care legislation” (presumably a reference to the recently enacted section 501(r) of the Internal Revenue Code). In any event, as noted in the article, the question of how the IRS is overseeing nonprofit hospitals is one recently posed of the agency by Charles W. Boustany Jr., Republican of Louisiana and a member of the House Ways and Means Committee. (For previous blog coverage of Mr. Boustany’s letter to the IRS, see here.)
Other matters of concern reported in the Times article include the agency’s delay in issuing final regulations governing pay-out requirements for certain supporting organizations, and in further regulating donor-advised funds.
More on Canada’s New Nonprofit Organizations Law
In Non-profits Worried New Law Will Hurt Smaller Agencies, the Globe and Mail reports that new legislation (previously blogged here) expanding the voting rights of members of Canadian nonprofits and imposing new filing obligations will challenge many nonprofits operating in Canada, especially smaller organizations. According to the article,
The law requires all federally registered non-profits to file new governing bylaws and other legal documents to Industry Canada by Oct. 17, 2014. It also gives members of non-profits new rights that are akin to the rights of shareholders of private corporations, including the ability to force motions for a vote, demand certain documents or trigger legal proceedings.
Supporters of the legislation view heightened accountability to members as healthy. But others express concern that the law conveys disproportionate power and influence on members relative to that wielded by other stakeholders.
October 31, 2011
Kabbalah Centre Under IRS Scrutiny
The Los Angeles-based Kabbalah Centre, a school bringing Jewish mysticism to a celebrity-studded following – is now under criminal investigation by the Internal Revenue Service, reports the Los Angeles Times in Celebrities Gave Kabbalah Centre Cachet, and Spurred Its Growth (the second of a two-part article series). Founded by Philip and Karen Berg and originally conducted from the Berg’s living room in Jerusalem and later in Queens, “the Kabbalah Centre had become an empire with branches in major cities, a publishing arm and scores of passionate young volunteers,” says the story. An empire indeed, as the story continues:
The center's assets grew from $20 million in 1998, the year after Madonna went public with her ties to kabbalah, to more than $260 million by 2009, according to the resume of a former chief financial officer and tax returns the center and affiliated organizations filed before becoming exempt.
The center's revenue sources include fees for classes and sales of merchandise such as candles, red-string bracelets that the center says will ward off evil, and bottled water long touted as having healing powers.
Soliciting donations remained a focus of the Bergs and other ranking leaders. Major donors to the center or its affiliated nonprofits include Madonna, whose foundation has reported giving more than $10 million, and fashion designer Donna Karan, whose foundation has reported giving at least $2 million.
The Times states that the criminal division of the IRS is now investigating “whether the Bergs enriched themselves with members' donations,” and that “prosecutors subpoenaed financial records from the center and two affiliated charities with links to Madonna.” The Bergs declined an interview with the Times, but issued a statement that the center would respond to the subpoenas. Their statement concludes as follows:
The Centre is disappointed that the recent press regarding the Centre and this investigation is being fueled by rumors spread by a few disgruntled former students and former employees with personal agendas. The Centre is confident that the investigation will show that the Centre has and continues to serve its mission and act in furtherance of the wisdom and teaching of Kabbalah.
Independent Sector Annual Conference to Discuss Proposed Limits on Charitable Contributions
In Giving’s “Perfect Storm”; Proposed Limits on Tax Deductions Worry Leaders of Nonprofits, the Chicago Tribune reports that over 1,000 philanthropic leaders and nonprofit executives will meet at the Independent Sector Annual Conference in Chicago this week to discuss a number of pressing issues, including proposals to limit the federal income tax deduction for charitable donations. One such familiar proposal has come from President Obama’s administration, which wants to limit the benefit to a taxpayer from the income tax deduction for charitable contributions to 28% thereof. The story reports that Diana Aviv, president and CEO of Independent Sector, cites studies estimating that the proposal could cost nonprofits $ 7 billion. Charities are particularly concerned with the reduction in donations any such proposal could cause in view of their current financial circumstances. First, donations are harder to attract with the poor economy. Secondly, because state governments have decreased funding of social services, the need for nonprofits to fill the void is greater than ever.
Nonprofit Credit Unions Benefit from Financial Reform Legislation
The Detroit News reports that customers who are disenchanted with the track record of large national banks in the wake of the global financial crises have an additional reason to look with favor upon nonprofit credit unions as their financial institutions of choice: a favorable exemption that they enjoy under the financial reform legislation. Prior to the new law, banks customarily charged significant fees to merchants when bank customers paid for their goods and services with debit cards. Explains the story:
Banks charged those fees, called interchange charges or "swipe fees," to merchants each time a customer's debit card was used. The cost averaged 44 cents each time a debit card was used. The financial reform law limits swipe fees to something between 21 to 24 cents, which some experts say will trim bank revenues by 40 percent.
Some banks, such as Bank of America, intend to compensate for the loss in revenue from swipe fees by charging their account holders a monthly fee for holding debit cards. Many credit unions need not follow suit, however:
But community banks and most credit unions are exempt from the interchange cap, giving them a chance to keep their debit cards fee-free without seeing their income drop. That is, unless merchants start declining cards from financial institutions that are exempt from the swipe fee limit.
The Detroit News notes that this special exemption complements a more basic advantage of the nonprofit form enjoyed by nonprofit credit unions:
[C]redit unions still have plenty of advantages to encourage customers to switch. Fees are lower at credit unions, which are organized as nonprofit institutions. Profits are passed back to members in the form of annual dividends at some credit unions, but most institutions apply profits to keep loan rates lower and saving account interest higher than competing big commercial banks.