Friday, August 10, 2012
We previously blogged that the drama at Susan G. Komen for the Cure was like watching a train wreck in slow motion. Now the Associated Press reports that both Nancy G. Brinker, the founder and CEO of the organization, and Liz Thompson, its president have stepped down, along with two board members. Ms. Brinker will continue in a fundraising and strategic planning role. The departures follows Komen's decisions more than six months ago first to end donations to Planned Parenthood and then to restore that funding. After the political firestorm that erupted from those decisions at least half-dozen other high-ranking executives stepped down and participation in Komen events declined according to the AP report.
The Nonprofit and Voluntary Sector Quarterly has published its August 2012 issue. Here is the table of contents:
- Femida Handy, Jeffrey L. Brudney, and Lucas C. P. M. Meijs, From the Editors’ Desk
- Woods Bowman, Howard P. Tuckman, and Dennis R. Young, Issues in Nonprofit Finance Research: Surplus, Endowment, and Endowment Portfolios
- Gordon Liu and Wai-Wai Ko, Organizational Learning and Marketing Capability Development: A Study of the Charity Retailing Operations of British Social Enterprise
- Hyung-Woo Lee, Peter J. Robertson, LaVonna Lewis, David Sloane, Lark Galloway-Gilliam, and Jonathan Nomachi, Trust in a Cross-Sectoral Interorganizational Network: An Empirical Investigation of Antecedents
- Kyu-Nahm Jun and Ellen Shiau, How Are We Doing? A Multiple Constituency Approach to Civic Association Effectiveness
- Stephanie Moulton and Adam Eckerd, Preserving the Publicness of the Nonprofit Sector: Resources, Roles, and Public Values
Douglas Houston and Paul M. Ong, Determinants of Voter Participation in Neighborhood Council Elections
- Russell N. James III, Book Review: Donor-Centered Planned Gift Marketing
- Book Review: Voices From the Voluntary Sector: Perspectives on Leadership Challenges
- Lindsey M. McDougle, Book Review: Leadership in Nonprofit Organizations: A Reference Handbook
- Kelly LeRoux, Book Review: Politics and Partnerships: The Role of Voluntary Associations in America’s Political Past and Present
Thursday, August 9, 2012
Earlier this year, the IRS issued denial letter 201224036 rejecting an application filed by a medical marijuana dispensary for exemption under section 501(c)(3). The interesting but ultimately not surprising aspect of the denial letter is that the IRS flatly held federal not state law controlled in determining the legality of the organization's activities for purposes of section 501(c)(3): "The fact that State legalized distribution of cannabis to a limited extent is not determinative because under federal law, distribution of cannabis is illegal." The IRS therefore concluded the organization furthered a substantial nonexempt purpose (the IRS also found prohibited private benefit because the group was organized as a cooperative with only members having access to the medical marijuana). This IRS position, combined with the fact that the IRS and, more recently, the Tax Court deny business expense deductions for taxable medical marijuana organizations under Internal Revenue Code section 280E, may spell the tax death of medical marijuana dispensaries.
According to a document posted by the Medical Cannabis Resource Center in Oregon, it is the subject of this denial letter. The letter suggests the group may try to limit its activities in ways that push right up against the legality envelope but do not cross into (IRS) forbidden territory.
Stefano Lombardo (European Corporate Governance Institute and Free University of Bolzano) has posted Some Reflections on Freedom of Establishment of Non-Profit Entities in the EU. Here is the abstract:
This article deals with the exclusion of non-profit-making entities from the right of freedom of establishment of Articles 49 and 54 TFEU. The article analyses the historical reasons for this exclusion. It is argued that the exclusion from freedom of establishment is no longer justified on the basis of two elements. Firstly, the development of the jurisprudence of the European Court of Justice in the fields of competition law, free movement of capital and tax law makes such exclusion systematically no longer tenable. Secondly, a law and economics treatment of non-profit firms as organisations that efficiently provide goods and services in alternative to for-profit firms weakens the reasons for the exclusion. The article proposes a uniform, European notion of non-profit entity based on a law and economics analysis of this type of firm for the purposes of Article 54 TFUE as opposed to possible different national notions. The article then analyses briefly the hypothesis of regulatory competition among jurisdictions for the provision of the law regulating the corporate governance of non-profit entities.
Wednesday, August 8, 2012
In Patel v. Commissioner, 138 T.C. No. 23, the full Tax Court rejected taxpayers' attempt to claim a charitable contribution deduction for the donation of their house for fire department training exercises. As is common in these cases, the taxpayers wanted the house destroyed so they could build a new one on the same piece of land. While the Seventh Circuit previously rejected a similar deduction, the Tax Court's reasoning for the denial was different. While the Seventh Circuit concluded that the net value of the "gift" was actually zero given that the training exercise saved the taxpayers $10,000 in demolition costs, the Tax Court in Patel concluded that the deduction failed because under the applicable state law a house is regarded a part of the land, and even if the house is considered separately from the land the taxpayers retained significant ownership interests in the house and only granted the fire department a "mere revocable license that does not vest any property interest in the fire department." As a result, the taxpayers only donated a partial interest in the property, which does not qualify for a deduction under Internal Revenue Code section 170(f)(3).
Mark W.H. Hsiao (Chinese University of Hong Kong) has published The Beginning and the End of an Era of Charitable Public Benefit in Hong Kong, 3 Conveyancer and Property Lawyer 228 (2012). Here is the abstract:
As with the UK Charities Act 2006 ('CA 2006'), the presumption of charitable public benefit will likely cease when the Charities Ordinance (“CO”) comes into force in Hong Kong. The reference to the United Kingdom is important in the formulation of the organizing principles of public benefit; this is because the common law cases previously applied in Hong Kong continued to sustain in Hong Kong after the 1997 handover. However, common law cases after 1997 may reflect a different direction. This paper illustrates two things relevant to charitable public benefit. First, it argues against the presumption test in Hong Kong from a comparative perspective, and the present Hong Kong tax policy is compatible with previous English common law cases. Against this comparative background, the author asks how public benefit should be modified in accordance with Hong Kong's tax policy. Secondly, it consolidates the principles of relation, deference, and against capriciousness into the organizing principle of the public benefit test. This organizing principle is subject to the paramount principle of tax distribution.
With the new CO in Hong Kong, the four headings of charitable purpose under Lord MacNaughten's formulation in the Special Commissioners of Income Tax v Pemsel case will become obsolete. The public benefit test will thereafter reverse the presumption of charitable purpose and create a new regulatory regime. The public benefit test will become a paramount means of assessment for market entry. No entity will be regarded as a legal charity unless it satisfies the public benefit test. This controls the market entry on charitable trust that financial institutions enjoyed in the past.
Tuesday, August 7, 2012
Led by Senator Orrin Hatch (R-Utah), ten GOP senators sent a letter to the IRS yesterday urging it not to revisit its regulations governing section 501(c)(4) organizations in response to outside political pressure without careful (and time-consuming) deliberation. More specifically, they stated "public confidence in the non-partisan integrity of the agency demands that you issue no sub-regulatory guidance nor engage in any similar efforts that would effectuate immediate changes without a lengthy period of review, separated in time from the current heated political environment." The Senators were writing in response to a letter the IRS sent last month to two groups supporting campaign finance reform stating:
I am responding to your letter dated March 22, 2012, which supplemented you [sic] letter dated July 27, 2011, urging the IRS to institute a rulemaking proceeding to address the rules related to political activity by organizations exempt under section 501(c)(4) of the Internal Revenue Code.
The IRS is aware of the current public interest in this issue. These regulations have been in place since 1959. We will consider proposed changes in this area as we work with the IRS Office of Chief Counsel and the Treasury Department's Office of Tax Policy to identify tax issues that should be addressed through regulations and other published guidance.
This letter underlines the political tightrope that the IRS is walking in this area, especially with countervailing pressure coming from the Democratic side of the congressional aisle. Whether the Service can successfully walk this tightrope - and where it leads - remains to be seen.
Philip Thompson has posted an interesting paper titled Occupy Wall Street and Tax Exemption, addressing the tax issues raised by the Occupy Wall Street movement. Here is the abstract:
The Occupy movement, which has been responsible for several million dollars of property damage and thousands of arrests related to civil disobedience, has been able to accept tax deductible gifts under the aegis of a fiscal sponsor. This draft paper examines fiscal sponsorship and the relationship between Occupy Wall Street and its 501(c)(3) fiscal sponsor.
Monday, August 6, 2012
For years the IRS has refused to rule on whether contributions to a single-member limited liability company (SMLLC) that is wholly owned and controlled by a U.S. charity and otherwise disregarded for federal income tax purposes are deductible as charitable contributions. The long wait is now over, at least in part. In Notice 2012-52 the Service provides the following:
If all other requirements of § 170 are met, the Internal Revenue Service will treat a contribution to a disregarded SMLLC that was created or organized in or under the law of the United States, a United States possession, a state, or the District of Columbia, and is wholly owned and controlled by a U.S. charity, as a charitable contribution to a branch or division of the U.S. charity.
This is welcome news, as charities often prefer to use SMLLCs for a variety of purposes. For example, if a potential contribution of real property may come with unexpected liabilities, one strategy a charity can use to protect its other assets from that liability is to create a SMLLC solely for the purpose of receiving that contribution and owning that property. Left still uncertain, however, is what happens if the SMLLC is a foreign entity, which could easily be the case for charities that operate internationally. The IRS views regarding that situation are still unknown.
Samuel Brunson (Loyola-Chicago) has published Repatriating Tax-Exempt Investments: Tax Havens, Blocker Corporations, and Unrelated Debt-Financed Income, 106 Northwestern Law Review 225 (2012). Here is the abstract:
When a tax-exempt entity is both able and willing to lend its exemption to other taxpayers, tax-averse parties line up to take advantage of its largesse (and, in the process, reduce their own tax bill). Congress, eager to prevent such abuse of the exemption, decided that, in some circumstances, it would tax entities that would otherwise be exempt from taxation. In this Article, I show that Congress’s response to such “lending” has failed to solve the problem and, in fact, is harmful to the tax system and to tax-exempt entities. To address this problem, this Article proposes a new way to prevent such lending—one that builds upon existing law—in order to combat the abuses perpetrated through tax-exempt entities. Congress should repeal the unrelated debt-financed income rules, which experience has shown are ineffective and harmful. This repeal would end the distortions that tax-exempt entities currently face. At the same time, in order to prevent tax-exempt entities from lending their exemptions to taxpayers, Congress should expand the tax shelter rules to capture these abusive transactions.