Friday, June 1, 2012
Benjamin M. Leff (American University Washington College of Law) has posted The Case Against For-Profit Charity on SSRN (Seton Hall Law Review, forthcoming). Here is the abstract:
This article argues that the so-called “Agency Theory” provides a coherent justification for limiting the federal income tax deduction to contributions to nonprofit providers of charity and withholding it from contributions to providers of charity whose owners or managers have a right to the profits from the firm. It does so by expanding the “Agency Theory” in a novel way — recognizing that when the government provides tax subsidies to the providers of charity, it ceases to be a neutral regulator of a market transaction, and becomes a participant in that transaction. As such, the government must examine its own agency costs to determine the most efficient structure of the transaction. In the case of the tax deduction for charitable contributions, the government’s agency-cost analysis counsels in favor of providing such subsidies only to nonprofit providers of charity.
This novel expansion of the Agency Theory has implications not only for whether the law should be changed to permit true for-profit firms to receive tax-deductible contributions (it should not), but also for shaping the law respecting various types of incentive-based compensation for managers of nonprofit organizations. This area of the law has been notoriously murky, with the IRS being especially hesitant to issue guidance on what kind of compensation structures are permitted and which are prohibited. The Agency Theory, as expanded in this article, provides some guidance as to how the government should proceed.
Martha M. Legg has written an interesting student note titled Excluding Parsonages from Taxation: Declaring a Victor in the Duel Between Caesar and the First Amendment, 10 Georgetown Journal of Law & Public Policy 269 (2012). Here is the introduction (footnotes omitted):
The Religion Clauses in the First Amendment famously state that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” The clauses are categorized as the Establishment Clause and the Free Exercise Clause, the former forbidding the government from establishing a state religion and the latter protecting the individual’s right to
freely practice her religion. In complying with these two clauses, the legislature is given “room for play in the joints” in structuring legitimate legislative policy. Rather than requiring absolute separation of church and state, the Religion Clauses “affirmatively mandate accommodation, not merely tolerance, of all religion, and forbid hostility toward any.” The Establishment Clause requires the government to act with a policy of benevolent neutrality toward religion, which has never been interpreted to mean “callous indifference to religious groups.”
This Note looks at the tax exclusions for parsonages, or church-provided housing for ministers. Until recently, the constitutionality of the parsonage exclusions remained off the courts’ radar. With a case on the matter recently dismissed for lack of standing and filed with new plaintiffs in a different district court, the continuing constitutionality of parsonage exclusions is one of the most significant concerns religious institutions face today and one which will likely be appealed to the Supreme Court in the coming terms. The parsonage exclusions fall squarely under Establishment Clause jurisprudence rather than under Free Exercise jurisprudence because they do not implicate a direct government burden on the personal exercise of religion. As such, reviewing courts will examine the parsonage exclusions’ constitutionality using the Supreme Court’s three-prong test laid out in Lemon v. Kurtzman. Ignoring questions of standing, equity, abuse, and the mortgage interest deduction, this Note focuses on the Establishment Clause implications for parsonage exclusions, ultimately concluding that the parsonage exclusions are constitutional when (necessarily) viewed as one element of a larger congressional plan to extend tax relief to recipients of employer-provided housing as a principal feature of their employment. Part I lays out the text of the parsonage exclusions. Part II examines the evolution of the parsonage exclusions, looking at both their origins and their history in America. Part III explores the qualifications and administrative requirements to receive the parsonage exclusions. Part IV unpacks the question of whether tax exclusions for religious institutions constitute subsidies of religion. Part V analyzes the constitutionality of the parsonage exclusions, ultimately concluding that they do not violate the Establishment Clause under the tests promulgated by the Supreme Court.
The NY Times has a less than glowing movie review of Pink Ribbons, Inc., the new documentary based on the book of the same name that focuses on the close relationship between the breast cancer movement and corporate America. Here is the synopsis of the film from the National Film Board of Canada:
Billions of dollars have been raised through the tireless efforts of women and men devoted to putting an end to breast cancer. Yet, breast cancer rates in North America have risen to 1 in 8. "What's going on?" asks Barbara Brenner in Pink Ribbons, Inc.
The Institute for Nonprofit Mangement at Portland State University and the Nonprofit Association of Oregon have published a detailed report on the nonprofit sector in Oregon. Here is a description of the report from the Institute's website:
The Oregon Nonprofit Sector Report (ONSR) is a comprehensive report that examines the sector as a whole—including a description of its size and scope, the current condition of nonprofits and clues about their economic and social relevance, and social impact of the nonprofit sector in Oregon.
The report aims to inform decision makers in the public, nonprofit, and private sectors, and will be an important tool for raising public awareness about the overall importance and contributions of Oregon’s nonprofits to the state.
The Nonprofit and Voluntary Sector Quarterly's June 2012 issue is now available online. Here is the table of contents:
- Femida Handy, Jeffrey L. Brudney,and Lucas C. P. M. Meijs, From the Editors’ Desk
Bernd Helmig,Katharina Spraul, and Karin Tremp, Replication Studies in Nonprofit Research: A Generalization and Extension of Findings Regarding the Media Publicity of Nonprofit Organizations
Anaïs Périlleux, Marek Hudon, and Eddy Bloy, Surplus Distribution in Microfinance: Differences Among Cooperative, Nonprofit, and Shareholder Forms of Ownership
Richard L. Gage III and Brijesh Thapa, Volunteer Motivations and Constraints Among College Students: Analysis of the Volunteer Function Inventory and Leisure Constraints Models
Stijn Van Puyvelde, Ralf Caers, Cind Du Bois, and Marc Jegers, The Governance of Nonprofit Organizations: Integrating Agency Theory With Stakeholder and Stewardship Theories
Thomas Rotolo and John Wilson, State-Level Differences in Volunteerism in the United States: Research Based on Demographic, Institutional, and Cultural Macrolevel Theories
Mark A. Hager and Mary Kopczynski Winkler, Motivational and Demographic Factors for Performing Arts Attendance Across Place and Form
Brenda K. Bushouse and Jessica E. Sowa, Producing Knowledge For Practice: Assessing NVSQ 2000-2010
Stuart C. Mendel, Book Review: The Politics of Partnerships: A Critical Examination of Nonprofit-Business Partnerships
Anna Kloeden, Book Review: NGOs in China and Europe: Comparisons and Contrasts
Susan M. Chambré, Book Review: Social Movements and the Transformation of American Health Care, and Moving Politics: Emotion and ACT UP’s Fight Against AIDS
Angela Bies, Book Review: Hybrid Organizations and the Third Sector, Edited by David Billis
Thursday, May 31, 2012
The Washington Post reports that the U.S. Chamber of Commerce will change it communication strategy to avoid "electioneering communications" - broadcast, cable, or satellite ads that clearly identify a candidate, reach a significant number of relevant electorate, and are run within a certain timeframe before the relevant election - while embracing express advocacy, that is ads that expressly support or oppose candidates. The shift for the U.S. Chamber's planned $50 million of spending during the 2012 election cycle is driven by the recent federal district court decision in Van Hollen v. FEC, and the decision by the U.S. Court of Appeals for the District of Columbia Circuit not to stay the lower court decision pending appeal.
The lower court decision rejected a Federal Election Commission promulgated regulation limiting the public disclosure of contributors to organizations making electionering communications to contributors who made their contributions for the purpose of furthering electioneering communications. Instead, the court concluded the language of the relevant statute requires the public disclosure of all contributors (above a certain dollar threshold) to organizations that make electioneering communications, unless such organizations establish a separate segregated fund for making such communications and then all contributors (again, above a certain dollar threshold) to such a fund must be disclosed. The decision does not, however, reach the rules for disclosing contributors to organizations that engage in express advocacy, which apparently is the basis for the U.S. Chamber's shift. Other section 501(c) organizations are likely to follow suit, although many will probably avoid both electioneering communications and express advocacy altogether. For more information, see the FEC summary of the case. Law firm alerts regarding the decision are publicly available from Caplin & Drysdale (my former firm), Covington & Burling, Harmon, Curran, Spielberg & Eisenberg, and King & Spalding.
In the rush of end-of-term exam writing and grading, a couple of prominent nonprofit stories did not get covered during the past month:
- NY Times Reports on Allegedly Lavish Spending by TBN: Brought to light by an intra-family dispute, the article reports that the founders of Trinity Broadcasting Network, Paul and Janice Crouch, and some of their close family members have lived allegedly lived lavish lifestyles for decades in large part on TBN's dime. Reported perks include multiple vacation homes, multi-million dollar corporate jets, thousand-dollar dinners, and lucrative deals with a company owned by family members. TBN, which is governed by a board of directors consisting only of the Crouches and one of their sons, denied through its lawyer any claims that the spending and other alleged activities were illegal or improper.
- Sandusky Charity to Close: The Associated Press reports that the beleagured Second Mile charity is seeking court approval to shut down and move its programs to another organization. The LA Times elaborates that the recipient group is Arrow Child & Family Ministries of Houston, which like Second Mile focuses on helping at-risk children and their families. The not unexpected announcement is driven by the anticipated lack of future financial and other support for Second Mile, according to an announcement by the charity. See previous blog coverage of Second Mile.
- Providence Announces Brown University to Pay $31.5 Million PILOT: After years of contention (see previous blog coverage of Providence's challenge to Brown and Brown's position), the Mayor of Providence announced earlier this month that Brown will pay an additional $31.5 million over 11 years to the city. The city in turn will abandon certain streets immediately adjacent to campus and provide 250 non-exclusive parking permits for certain other streets near campus.
Wednesday, May 30, 2012
Over 40 Catholic organizations (including my employer, the University of Notre Dame) have filed coordinated lawsuits against the federal government challenging a regulation that would require the group health insurance sponsored by most employers to cover birth control and other services that are contrary to Catholic teaching. See Notre Dame press release, the Washington Post blog entry. One among the many interesting aspects of this dispute is the definition of a "religious employer," which is critical because group health plans sponsored by religious employers are exempt from the requirement. As noted in the background section of a recently released Proposed Rule that the federal government is hoping will resolve this dispute,
a religious employer is one that (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Code.
Since the first three prongs of the definition are relatively vague (for example, what are the thresholds for "primarily employs" and "primarily serves"?), arguably the narrowest part of this definition is the fourth prong that refers to two of the mandatory exceptions from having to file the Form 990 annual return otherwise generally required for organizations exempt from tax under section 501(a). As the background section for the proposed rule elaborates, "[s]ection 6033(a)(3)(A)(i) and (iii) of the Code refers to churches, their integrated auxiliaries, and conventions or associations of churches, as well as to the exclusively religious activities of any religious order."
Churches, and conventions or associations of churches, are of course religious organizations under section 501(c)(3) but many clearly religious organizations do not qualify as churches (or conventions or associations of churches) for federal tax purposes because "church" for these purposes is limited to organizations that generally have in-person worship meetings and other characteristics common to the historical, Western understanding of a "church." See, e.g., the previous blog entry regarding the Foundation of Human Understanding case. The definition of intergrated auxillary is more complicated, but in general an intergregated auxillary must be both affiliated with a church or a convention or association of churches and, most critically, be "internally supported," which is not the case if an organization offers admissions, goods, services or facilities (e.g., educational or health care services) for sale to the general public and recevies more than 50 percent of its support from a combination of governmental sources, public soliciation of contributiosn, and receipts from such sales. See 26 C.F.R. 1.6033-2(h). It is this last point that places the University of Notre Dame and presumably the other plaintiffs in these lawsuits outside of this exception.
This dispute therefore highlights an increasingly important issue: assuming that for constitutional or policy reasons it is required or desirable to generally grant "religious" organizations exemptions from laws that would conflict with their religious beliefs, how broad should the definition of a "religious" organization be? Here the federal government has chosen a relatively narrow definition that was created for a different purpose (Form 990 filing exemptions), and at the end of the day it is the narrowness of this tax-based definition that has led to these lawsuits.
Tuesday, May 29, 2012
The Los Angeles times reports that the Center to Protect Patient Rights granted more than $55 million during the 2010 election cycle to a range of GOP leaning groups without having to reveal the sources of its funds. The article notes several ties between the center and the Charles and David H. Koch, including that the Center is run by a GOP consultant who is "a key operative in the Kochs' political activities." The Kochs, through a spokeswoman, declined to confirm or deny that they were involved with the Center, however.
According to its GuideStar description and its Forms 990 available through GuideStar, the Center is a section 501(c)(4) organization based in Phoenix, Arizona. The Center's 2009 and 2010 Forms 990 list the grant recipients. The groups receiving the most funds during this period were the American Future Fund, also a 501(c)(4), which received almost $13 million and the Sixty Plus Association, another 501(c)(4), which received over $11 million.
In a series of almost identical determination letters, the IRS revoked the section 501(c)(4) tax-exempt status of five organizations with the stated purpose of identifying of women interested in potential leadership roles with a particular political party and the development of a political leadership training program for such women. The IRS noted that each of the organizations is the affiliate of a national organization that shares the same purpose. The IRS had previously recognized their exemptions but upon further study of their applications has now determined that these previous recognitions were in error because the groups primarily benefit private interests, specifically the interests of a particular political party and its candidates. The IRS explicitly relied on American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), noting that while that case involved section 501(c)(3) "the standard for determining what constitutes private benefit described in American Campaign Academy applies to both [section 501(c)(3) and section 501(c)(4)]". The rulings are 201221025, 201221026, 201221027, 201221028, and 201221029.
While the affected groups are, of course, not identified in the redacted rulings, the denial by the IRS last year of exemption for several similar training groups (see previous blog post) suggests these organizations may be related entities. The NY Times identified those groups as state affiliates of Emerge America, which identifies, trains, and encourages (Democratic) women to run for office. Interestingly, however, the more recent letters are much less redacted than the ones issued last year.
If these five organizations are in fact additional state affiliates of Emerge America, that would probably explain why the IRS choose to take a closer look at their applications even after the IRS had approved those applications. Then again, this activity may simply reflect the decision by the IRS to look more closely at section 501(c)(4) organizations more generally (see previous coverage of the IRS v. Tea Party dispute).