May 25, 2012
Mark Eustis Out at Fairview Following Accretive Scandal
Word out of Minneapolis is that Mark Eustis, the CEO of Fairview Health Services, has decided to step down following the revelations regarding the debt collection practices of Accretive Health that we blogged about a few weeks ago. I sincerely hope, however, that Eustis' departure does not dissuade the IRS from revoking Fairview's tax-exempt status for violations of I.R.C. Section 501(r)(6) (and the community benefit standard of exemption in general). Frankly, it's time to make an example of someone and send a clear message to the rest of the exempt health care industry that if they expect tax-exemption, they need to act like a charity, instead of just claiming to be one.
May 24, 2012
Congress Investigates Veterans Charity
With facts strikingly similar to those in the United Cancer Council case, the Disabled Veterans National Foundation is being investigated by the Senate Finance Committee to determine whether it should remain a tax-exempt charity under Section 501(c)(3) of the Internal Revenue Code. According to a CNN article, its own investigation of the charity as part of "AC360's" "Keeping Them Honest" series led to the Committee's action on Wednesday. According to CNN's review of the charity's records, only a small amount (reportedly as low as 2%-12%) of the approximately $56 million raised by the charity over the last 3 years has gone to directly assist veterans. In that same period according to Forms 990, the Foundation paid nearly $61 million to a large direct-mail firm, Quadriga Art and its subsidiaries, which caters to nonprofits and charitable organizations. CharityWatch, a large charity oversight organization, has awarded the Foundation an "F" grade since 2010 because of the small amount of fundraising dollars that actually reach veterans.
According to the CNN article, the Foundation joins more than 30 other charities tailored to veterans that have been given failing grades by CharityWatch due primarily to the small amount of expenditures actually spent on their veteran recipients.
May 23, 2012
PILOTs vs. Property Tax Reform
An interesting article/editorial in the New London, Connecticut newspaper, The Day, analyzing whether the region should consider comprehensive property tax reform and restructuring of local municipalities and services (i.e., going to a more regional structure on schools, fire and emergency services, etc.) rather than seeking payments in lieu of taxes (PILOTs). It is an interesting discussion that is likely applicable to other local governments and taxing jurisdictions across the country.
Hat tip: Nonprofit Quarterly
May 22, 2012
Nonprofits' Failure to Report Fundraising Costs is Widespread
As reported by the Nonprofit Quarterly, a Scripps Howard News Service new study (utilizing data reported to the IRS and available through Guidestar) revealed found that 15,389 nonprofit groups, or 41% of all domestic nonprofits with annual receipts of $1 million or more, report on their annual Forms 990 that they expended no dollars on fundraising. While this may be possible with respect to certain nonprofits, Scripps Howard did a further investigation, including interviews, which further revealed that a number of these zero-expense organizations actually do incur fundraising expenses but choose not to report them. The percentage of nonprofits with zero reported fundraising costs varies greatly by state, with 60% or more of the nonprofits in the following states reporting no fundraising expenses: Alaska, Arkansas, Idaho, Mississippi, and West Virginia (see a state ranking here). As the study states, some nonprofit executives that were interviewed admitted that fundraising costs are nonreported or underreported to lower their nonprofits' overhead rates, which donors and funders use to rate nonprofits' efficiencies and effectiveness in achieving their purposes.
[See also an article in the Chronicle of Philanthropy]
Ways & Means Oversight Hearing - Increased Focus on Exempt Organizations' Activities
As reported by Rick Cohen in the Nonprofit Quarterly, in addition to topics blogged herein by Elaine Waterhouse Wilson (see Comments to blog entry), an interesting exchange occured between California Congressman Xavier Becerra and Catholic University Law Professor Roger Colinvaux. In his testimony, Colinvaux commented that the focus of the law with respect to public charities is whether they are violating statutory and other prohibitions (what Cohen refers to as "negative requirements"), rather than the charities' actual activities in furtherance of their exempt puprose (i.e., "affirmatives"). Congressman Becerra, who is noted in the NQ article for focusing on public charities' outputs as the proper measure for tax exemption, subsequently suggested that the “nonprofit sector doesn’t do as much as it can to police itself.” As Cohen states in the article, the Congressman was not referring to potential illegalities but rather the actual activities of charities in furtherance of their tax-exempt purposes.
Professor Colinvaux's response was to propose a greater focus on charities' activities rather than merely their purposes. He further proposed taking a fresh look at Section 170 and what qualifies for deductibility thereunder, as well as thinking about “whether there are some charitable purposes that should be prioritized over others.” As Cohen notes in the NQ article, no other member of the panel supported or opposed the suggestion for refocusing and redefining priorities with respect to charities' activities and the support thereof from the charitable contributions deduction. The article is an interesting discussion of the competing policies and priorities of tax-exemption law as it currently stands and potential tax reform in this area due to deficit reduction efforts and shrinking federal budgets.
For a more detailed analysis with respect to refocusing on charities' activities, Professor Colinvaux's article entitled, "Charity in the 21st Century: Trending Toward Decay," is a must read (available here).
NYT's "Room for Debate" - Should Churches Remain Tax-Exempt?
With particular relevance during this election season, the New York Times hosted another online "Room for Debate" entitled, "Should Churches Get Tax Breaks?" This debate is composed of 5 pieces written by 6 persons (one is co-written) of differing backgrounds and viewpoints. For those of us in legal academia, this can serve as a great platform for an interesting class discussion on the policy behind the tax exemption. The five submissions are:
1. Mark L. Rienzi, "Good for Religion, Good for America"
2. Dan Barker, "Government Is Endorsing Religion"
3. Winnie Varghese, "Sustaining Progressive Faith"
4. Lawrence Sager & Christopher L. Eisgruber, "Don't Play Favorites"
5. Susan Jacoby, "Equal Protection vs. 'Religious Freedom'"
Hat tip: Nonprofit Quarterly