Friday, March 4, 2011
One of the more famous rulings to come from the IRS in the tax-exemption world was a General Counsel's Memorandum issued in 1977 (GCM 36993) that held that a coven of witches constituted both a "religious organization" and a "church" for purposes of tax exemption under Code Section 501(c)(3) (the two terms, by the way, are not synonymous in tax law; "churches" are a subset of "religious organizations" for purposes of tax exemption; status as a "church" is harder to establish than status as a religious organization, and "churches" have greater benefits under the tax laws - for example, they do not have to file a form 990, but a non-church "religious organization" does have to file a 990).
So you can imagine my delight when I discovered that the witches of Catskill, NY, are closing in on a victory in a property tax dispute with Greene County. It seems that Catskill denied tax exemption to the Maetreum of Cybele, a coven of witches, for property that the Maetreum owns and uses for worship services and as housing for priestesses. The Maetreum sued, and in an initial decision denying the town's motion to dismiss, the presiding judge basically slammed the town for discriminatory behavior in denying exemption. Though the witches of Catskill haven't actually won exemption yet (this was a motion to dismiss, not a final judgment on the merits) they seem to have justice on their side.
And well it should be. I am not all all sure religious organizations should get tax exemption at all (I have opined before that churches are often little more than private clubs for believers); but if we are going to give it to some religions, we are bound to give it to all. Pagan worship, after all, is a far older form of religion than Christianity.
Thursday, March 3, 2011
Following on the heels of Darryll's post yesterday about the Westboro Baptist Church and the public policy limitation on exempt status, I offer this tidbit.
The Former Majority Association for Equality says the following in its mission statement:
Our short term aspiration is simple: Award a $500 scholarship to five individuals that meet or exceed our qualifications on July 4, 2011. Upon achieving this we look forward to giving at least five scholarships for each Spring and Fall semester. Awardees remain eligible for future semesters as long as one's overall GPA exceeds 3.0. Scholarship applicants should be caucasian, male, demonstrate a commitment to education, and substantiate financial need.
The scholarship application form states that applicants must be "Male - no less than 25% caucasian." And the web site proclaims that a donation "Is tax deductible as a donation to a nonprofit public charity."
So is providing scholarship for deserving male students "no less than 25% caucasian" a charitable purpose? Well, that's a very good question.
Bob Jones University v. United States, 461 U.S. 574 (1983) tells us that an organization will not be exempt from tax under I.R.C. Section 501(c)(3) if it violates a clearly established public policy. The case goes on to declare that such a policy exists with respect to discrimination on the basis of race in education, at least as long as the discrimination is against the minority class (it is much less clear whether Bob Jones applies to discrimination in favor of the minority class). It is pretty clear (I think) that a school that barred admission to anyone but male students "not less than 25% caucasian" would violate Bob Jones.
When it comes to organizations that offer scholarships, however, the IRS has been all over the place in applying the public policy doctrine. In one 1978 General Counsel's Memorandum, the IRS took the position that a scholarship fund that limited its benefits to students of the Caucasian race violated the public policy limitation and would not be eligible for tax exemption. GCM 37462 (March 17, 1978). That GCM, however, was revoked in GCM 39082 (Nov. 30, 1983), where the IRS seemed to adopt a fact-based balancing approach, requiring a case-by-case determination whether the scholarship in question actually fostered racial discrimination, and that the "well-established policy of promoting private educational trusts should, on balance, prevail even where the benefits of the trust are limited to members of a particular race." The 1995 Examination Guidelines for Colleges and Universities indicated that scholarships limited to Caucasian students might be valid under certain circumstances, such as scholarships for Caucasian students to attend a predominantly minority institution. Another factor identified in the Guidelines was whether the scholarships "account for a comparatively large share of the total financial assistance avilable to students . . ."
So is FMAE really an exempt organization under 501(c)(3)? I have not been able to find it listed in the IRS's Master List of organizations qualified to receive deductible contributions (Publication 78), nor did the organization show up in a search of Guidestar. But that may simply be because of lag time in the listings. All I can say is, I'd conclude not, but the law is unclear.
For those of you interested in the broader issue of the scope of Bob Jones, I can recommend several articles by the editors/contributing editors of this blog. See, e.g., David A. Brennan, The Power of the Treasury: Racial Discrimination, Public Policy, and "Charity" in Contemporary Society, 33 U.C. Davis L. Rev. 389 (2000); David A. Brennan, Charities and the Constitution: Evaluating the Role of Constituional Principles in Determining the Scope of the Tax Law's Public Policy Limitation for Charities, 5 Fla. Tax Rev. 779 (2002); Johnny Rex Buckles, Do Law Schools Forfeit Federal Income Tax Exemption WHen THey Deny Military Recruiters Full Access to Career Services Programs?: The Hypothetical Case of Yale University v. Commissioner, 41 Ariz. St. L.J. 1 (2009); Nicholas A Mirkay, Is it "Charitable" to Discriminate? The Necessary Transformation of Section 501(c)(3) into the Gold Standard fo Charities, 2007 Wisc. L. Rev. 45 (2007).
Wednesday, March 2, 2011
The Westboro Baptist Church has the right to protest and picket at funerals of military servicemembers who died on the battlefield, according to an 8-1 opinion released by the United States Supreme Court today. They are a despicable bunch, these people, but its hard to argue against the determination that the First Amendment protects their right to protest and otherwise voice their opinions on public property. This case reminds me, though, of Bob Jones University in which the Supreme Court ruled that tax exemption may be denied to a religious university based on its racially discriminatory policies. I haven't read the Westboro opinion yet but a quick word search reveals that Bob Jones was not cited and I guess it should not have been since the case did not deal with tax exemption. Still, it seems there are subtle implications relating to tax exemption. I wonder if the First Amendment would prevent the IRS from revoking the Church's tax exemption based on the murky public policy rationale. I'm pretty sure the answer would be "yes," but then why doesn't the First Amendment prevent the revocation of tax exemption for a religious institution that enforces a ban on interracial dating? Maybe the two cases are apples and oranges but I am still bothered by my inability to articulate an easy answer.
Concord, Massachusetts recently tried a new tack with respect to property taxes and nonprofits: asking nonprofits in their town to voluntarily pay some amount to the town in lieu of taxes. The result? No takers so far, according to this article in the Boston Globe.
The nonprofits, predictably, claim that they make in-kind donations that essentially pay for their exempt status. But echoing my post from yesterday about the Montana tax exemption bill, the Concord selectmen note that donations in kind don't pay for town services enjoyed by the nonprofits or help balance the budget.
In any event, the charities in Concord don't appear to be all that interested in volunteering for voluntary payments.
Tuesday, March 1, 2011
In my post yesterday on Dialysis Clinic, Inc. v. Levin, I concluded that the state budget mess probably meant that we had not seen the end of debate over property tax exemptions for nonprofit hospitals. A recent article in the Flathead Beacon appears to back me up. The article discusses a bill in the Montana legislature would end property tax exemption for most nonprofit health care providers. The sponsor, Rep. Keith Regier, argues that hospitals use services provided by taxpayers (roads, sewers, fire departments, police, etc.) and hence should pay their share. More interesting, however, is Regiers' view that hospitals are “building large medical empires” and purchasing properties – including offices and apartments – that are in turn taken off the tax rolls. The bill would allow counties to vote on the tax-exempt status of critical access hospitals, which are smaller, more rural facilities.
Though the bill appears dead for now, it highlights the continuing debate in states regarding property tax exemptions, particularly for large nonprofit hospitals.
Speaking of nonprofit hospitals, the IRS recently announced a delay for hospitals to file their form 990.
In order to complete implementation of changes to IRS forms and systems that are required to reflect additional requirements for charitable hospital hospitals, the IRS is delaying the start of the 2010 filing season for certain tax-exempt organizations that operate one or more hospitals (hospital organizations) required to file Form 990, Schedule H (Hospitals). Hospital organizations may not file 2010 Forms 990 with Schedules H attached before July 1, 2011.
Pursuant to Announcement 2011-20, the IRS has granted an automatic 3-month extension of time to file the Form 990 to hospital organizations with filing due dates before August 15, 2011.
For more information, go here.
Monday, February 28, 2011
Unlike the Illinois Supreme Court and its decision in the Provena Covenant tax exemption case (see prior posts here and here), the Ohio Supreme Court last June rejected a strict charity care test for property tax exemption for health care providers in an opinion that seems to have mostly flown under the radar. In Dialysis Clinic, Inc. v. Levin, 125 Ohio St.3d 1455 (2010), the Ohio Supreme Court faced a case involving an entity that provided dialysis services for patients who suffer from end-stage renal disease. The taxpayer Dialysis Clinic had been denied a tax exemption by the Ohio Tax Commissioner, a decision upheld by the Board of Tax Appeals.
The facts showed that Dialysis Clinic admitted both Medicare and Medicaid patients, and often “wrote-off” the co-pay required of Medicare or Medicaid in the case of indigent patients. The Clinic also claimed that it provided “charity care” for persons ineligible for either Medicare or Medicaid, but apparently did not offer any proof regarding the dollar value of such care. Both the Tax Commissioner and Board of Tax Appeals held that the write-offs of the co-pays or other bad debts were not charity care, that there was no other evidence of charity care in the record, and that some such evidence was required to support exemption under Ohio law.
On appeal to the Ohio Supreme Court, the Clinic argued that it should be treated as exempt from Ohio property taxes. The Clinic argued first that Ohio should take into account the fact that the Clinic was recognized as an exempt charity under Internal Revenue Code Section 501(c)(3) as a factor supporting exemption in Ohio. Like Illinois and other state courts, however, the Ohio Supreme Court rejected any link between federal tax exemption and state property tax exemption. Instead, the Ohio Supreme Court noted that the Ohio test for exemption was narrower than the “community benefit” test of federal law: in Ohio, exemption would be granted if services were provided “on a nonprofit basis to those in need, without regard to race, creed, or ability to pay.”
The clinic, however, failed this latter test, primarily because the Clinic’s own indigency policy stated that treatment was “not a charity or gift to patients” and that “DCI retains all rights to refuse to admit and treat a patenit who has no ability to pay.” This statement, according to the court, expressly contradicted the requirement of Ohio state law that a charity offer services to all-comers, without regard to ability to pay.
Unlike the Illinois Supreme Court plurality in Provena, however, the Ohio Supreme Court explicitly rejected the notion that some minimum level of charity care was necessary for a health-care provider to secure state property tax exemption. “A threshold amount of unreimbursed care is not required, and the commissioner’s contrary assertion is unfounded.” In short, Ohio law requires only that an institution have an “open-door” policy – that is, that it treat any indigent patients that show up, and if no indigent patients show up, that would not bar exemption. Ohio, therefore, appears to adopt the same approach as the majority of states in not requiring any specific amount of charity care for exemption, as long as the institution in question in fact serves all indigents seeking services.
With state budgets still a mess, I doubt that we have seen the end of state litigation over tax exemption for hospitals. But in Ohio, at least, it appears that nonprofit hospitals will have a much easier time holding on to property tax exemption than those in its nearby neighbor, Illinois.