November 9, 2012
A Case Study in Private Inurement and Private Benefit?
Bloomberg New reported recently that public relations executive Rick Berman operates several tax-exempt nonprofit groups that appear to work primarily or exclusively on matters that benefit clients of his for-profit firm, Berman and Company. The story grew out of a Humane Society of the United States complaint filed with the IRS, and Berman's firm has responded to it and similar accusations with a fact sheet about the groups. According to the story, Berman serves as the Executive Director or President of five tax-exempt organizations that list his public relations firm's office as their address: the American Beverage Institute, the Center for Consumer Freedom, the Employment Policies Institute Foundation, the Center for Union Facts, and the Enterprise Freedom Action Committee. Three of the groups are section 501(c)(3)s, while the American Beverage institute is a section 501(c)(6) trade association and the Enterprise Freedom Action Committee is a section 501(c)(4) social welfare organization (the article appears to identify the last group as a 501(c)(6), but according the IRS Exempt Organiation master file it is a 501(c)(4)).
Speaking of the IRS EO master file, a quick search of that file for the District of Columbia actually reveals one more tax-exempt group associated with Richard Berman by name, the 501(c)(6) Firstjobs Institute, and another, the 501(c)(3) Human Society for Shelter Pets, with the same address as Berman's firm and the other tax-exempt groups.
Hat tip: EO Tax Journal.
November 8, 2012
Post-Election: Where Now for the Charitable Contribution Deduction?
With the 2012 election (mostly) behind us, and the fiscal cliff and growing federal government debt in front of us, it is an appropriate time to consider possible changes to the charitable contribution deduction.
Cap on Value of Itemized Deductions: As we have previously noted, the Obama administration has repeatedly called for a cap on itemized deductions, including the charitable contributiond deduction, by limiting the benefit from such deductions to 28%. This would mean that taxpayers with a higher marginal rate than 28% would not avoid completely the otherwise owed federal income tax on the income offset by the deduction. Not surprisingly, leading charitable organizations, including Independent Sector, have come out in opposition to this proposal. For an analysis of this proposal, see the 2010 Congressional Research Service report on it.
Replace Deduction with a Non-Refundable Tax Credit: The National Commission on Fiscal Responsiblity and Reform, more commonly known as the Simpson-Bowles Commission, proposed replacing the charitable contribution deduction with a 12 percent non-refundable tax credit for charitable contributions that exceed 2 percent of adjusted gross income in the Commission's final report (page 31). With Erskine Bowles being mentioned as a possible candidate for Secretary of the Treeasury if and when current Secretary Tim Geithner steps down, the Commission's recommendations may very well still be in play despite the lack of initial enthusiam for them from either the Obama Administration or Congress.
Other Revenue-Saving Modifications: As the agenda for the recent NYU National Center on Philanthropy and the Law Conference illustrates, there are numerous, less dramatic ways that the charitable contribution deduction could be modified, many of which could result in significant revenue savings for the federal government. The most recent Joint Committee on Taxation tax expenditures report states that cost of the deduction over the 2011 thru 2015 fiscal years is $242.6 billion (see pages 40 and 42), so even a relatively small change could potentially generate a not insubstantial amount of additional federal income tax. For additional resources regarding possible changes, see the Urban Institute's Tax Policy and Charities website, and especially the report titled Evaluating the Charitable Deduction and Proposed Reforms by Roger Colinvaux, Brian Galle, and C. Eugene Steuerle.
November 7, 2012
Post-Election: 501(c)s & Political Spending
While final figures will take a while to compile, an early Center for Responsive Politics report indicates that at least $300 million of the approxmately $6 billion spent this just competed election cycle came from tax-exempt, section 501(c) organizations that are generally not required to disclose the sources of their funds. I say "at least" because the report (and likely most if not all future reports) only captures political spending reported to the Federal Election Commission or comparable state agencies because it is for express advocacy, electioneering communications, or other activities explicitly covered by federal or state election law disclosure requirements. For a more detailed analysis of such spending in previous election cycles, including the limitations of the data available, see the Campaign Finance Institute.
Even though such spending may be a relatively small part of total election spending, it could have a disproportionate effect on election results because of the ability of such groups to target their spending on close races. A National Institute on Money in State Politics report documents the spending patterns of 501(c)s and other independent groups with respect to California state elections from 2005 through 2010 (California not having a prohibition on corporate and union independent election spending even before the Citizens United decision), including how such groups tend to concentrate their spending on specific races.
It is also important to note that while media reports have tended to focus on the conservative-leaning, newly created section 501(c)(4) social welfare organizations such as Crossroads GPS, the above report on this year's spending also shows significant spending by established entities ranging from the U.S. Chamber of Commerce to the NRA to Planned Parenthood (Action Fund, I assume). Even more strikenly, the above report on past spending in California shows the largest spenders to be almost all unions, which are presumably left-leaning generally. In other words, it is far from clear that the perceived conservative advantage in such spending will be maintained in the long run.
November 6, 2012
Why No Church Tax Inquiries? And Why No Politically Active Church Exemption Application?
With today's election, the perennial issue of church political involvement has once again gained prominence. What is new is the since-repudiated statement of an IRS official confirming what many have long suspected - that the still pending regulations on who exactly within the IRS can sign off on a church tax inquiry have left such inquiries in limbo. As reported by the AP and republished at the Huffington Post, and also previously reported by Christianity Today, a manager in the IRS Mid-Atlantic region said such inquiries had been suspended pending these regulations, but an IRS spokesman quickly said the manager "misspoke", although the spokesman refused to provide any more details about the status of such inquiries. Both an academic and a practitioner quoted in the AP story said they were not aware of any church tax inquiries over the past three years. This is apparently the case even with the increasingly popularity of Pulpit Freedom Sunday, as the press has noticed (see, for example, coverage by NBC News and The Nonprofit Quarterly).
There is also an interesting lack of activity on the side of those seeking to challenging the limits on church political activity, not with respect to such activity itself but instead with respect to forcing the IRS into court. While a church that allegedly violates the prohibition on political campaign intervention cannot force the IRS to launch a church tax inquiry, such a church that has not yet applied for tax-exempt status could file such an application, fully disclose its actual or planned political activity, and then wait to see what the IRS does. If the IRS grants the application that would give a green light for such activity. If the IRS denies the application or refuses to rule on it for 270 days, the church could file a declaratory judgment action seeking a declaration that it qualifies for exemption, thereby forcing the IRS to litigate the validity of the prohibition assuming the church otherwise qualifies for exemption under Internal Revenue Code section 501(c)(3). It is not clear why the the Alliance Defending Freedom (previously named the Alliance Defense Fund), which has brought us Pulpit Freedom Sunday, or other groups that assert they are seeking to challenging the prohibition have not pursued this route in order to bring this issue to a head.
November 5, 2012
Case Western Publishes Tribute Issue for Laura Brown Chisolm
In spring 2011, it was my sad duty to report that Professor Laura Brown Chisolm, a pioneer in nonprofit legal scholarship, had passed away. In honor of her memory and her work, the Case Western Reserve Law Review has now published a tribute issue including both reflections on her life and scholarship and substantive articles on one of her favorite topics - nonprofits and advocacy. Here are the tributes and articles that can be found in Volume 62, Issue 3 of the Law Review:
Tribute: A Tribute to Professor Chisolm by Daniel Van Grol
Tribute: Laura Chisolm: An Advocate and Ally by B. Jessie Hill
Tribute: An Ode in Memory of Dear Laura by John Simon
Tribute: Laura Chisolm: The Light in the Room by Harvey P. Dale
Tribute: Laura Chislom and the Mandel Center for Nonprofit Organizations by David C. Hammack
Tribute: Laura Brown Chisolm by Karen Nelson Moore
Tribute: Laura's Contributions by Wilbur C. Leatherberry
Tribute: Laura Chisolm: Colleague, Peer, Friend by Jonathan L. Entin
Article: Why the IRS Should Want to Develop Rules Regarding Charities and Politics by Ellen P. Aprill
Article: The Political Speech of Charities in the Face of Citizens United: A Defense of Prohibition by Roger Colinvaux
Article: Nonprofit Legislative Speech: Aligning Policy, Law, and Reality by Jill S. Manny
Article: Nonprofits, Politics, and Privacy by Lloyd Hitoshi Mayer