Friday, April 12, 2013
IRS Advises Lawmakers that Payments Received by Members of Charitable Class from Charitable Organization May Be Excludible Gifts
Tax Notes Today reports that the Internal Revenue Service’s Office of Associate Chief Counsel (Branch 5), in letters addressed to Senator Mark Udall, Congressman Ed Perlmutter, and Senator Michael F. Bennet, has advised that payments received by individuals from a charitable fund “may constitute gifts that are excludible from the recipients' gross income.” According to the letters, a tax-exempt charitable foundation had created a fund to “provide a vehicle for donors to assist the victims and their families.” The letter does not disclose precisely what event rendered the payees victims, but I can speculate that they were victims of a natural disaster. The fund arose from donations from the public. Citing the “test” for a gift under Duberstein v. Commissioner, 363 U.S. 278 (1960) (i.e., whether a payment proceeds from "detached and disinterested generosity"), the IRS explained that payments from the fund had been made “in response to the victims' and their families' needs and not out of any moral or legal duty that the Foundation or any particular donor may have had.” Under such circumstances, noted the IRS, the payments “will be excludible from the recipients' gross income as gifts.”
I am intrigued that the letters focus not simply on the intent of the charitable foundation, but also on that of donors to the foundation. If the “gift” is deemed to have been made to the victims by the foundation – meaning that the foundation is not a mere conduit – why does the intent of individual donors to the foundation matter for purposes of determining the tax consequences of transfers to the individual victims from the foundation? If the foundation is not a mere conduit, the foundation is the "donor" of funds transferred to the victims. As such, only the foundation's intent should be scrutinized under Duberstein.
The letters are available at 2013 TNT 71-22.
Thursday, April 11, 2013
President Obama’s (Yet Again) Proposed Cap on the Tax Benefit of the Charitable Contributions Deduction
As in previous years, the proposed budget issued by the Obama administration would limit the full value of itemized deductions, including the charitable contributions deduction, to the 28% income tax bracket. For coverage, see articles in Forbes, The Chronicle of Higher Education, The NonProfit Times, and Accounting Today. A press release by The Alliance for Charitable Reform (ACR) features the following poignant criticism of the proposal as applied to charitable contributions:
“Each year – and sometimes more than once – the President has proposed cutting the charitable deduction, despite resounding opposition from the American public and Congress,” said Sandra Swirski, executive director of ACR. “This year, the cut is even deeper. With the January 1st tax hike, the gap between tax rates and the charitable deduction rate is wider than ever and that will translate into less giving. Not only is this harmful to giving, which will cost charities across the country billions of dollars, but it is a dangerous precedent for the federal government to set.”
On a more promising note for nonprofits, and in a story that places a more positive spin on the proposal as a whole, the Chronicle of Philanthropy observes that the proposed budget would also increase spending for nonprofit programs in education and health care.JRB
In Judge: Agencies have been ‘hiding’ federal properties that could be used to house services for homeless, the Washington Post reports that Judge Royce Lamberth of the United States District Court for the District of Columbia recently found that the federal government has been underreporting the number of unused federal properties potentially available to groups serving the homeless, in violation of a federal law. Says the Post,
The ruling orders the General Services Administration and the Department of Housing and Urban Development to take additional steps to ensure agencies are following the law, including creating new training programs. …
The law in question is Title V of the McKinney-Vento Act, which requires federal agencies to list unused, surplus or underutilized properties in the Federal Register, and reach out to homeless services providers — nonprofits and state and local governments — that can apply to lease the properties at no charge. Under the law, providers are to get a 60-day period where they get right of first refusal to those properties. This is important because one of the greatest costs to running homeless services is real estate, and the law is meant to allow nonprofits to gain access to buildings they may not be able to afford on the open market.
The story further explains that the litigation producing Judge Lamberth’s ruling began in 1988, when the National Law Center for Homelessness and Poverty and other nonprofits sued several federal agencies. A 1993 permanent injunction ordered the government to implement the relevant law and preserved the plaintiffs’ right “to bring the issue before a court again for enforcement if agencies were not complying with the law.”
For an overview of the Title V program, see here.
Wednesday, April 10, 2013
Sheldon Whitehouse (D-R.I.), chair of the Senate Judiciary Committee’s Crime and Terrorism Subcommittee, apparently wants the Justice Department to defer less to the IRS when deciding whether to investigate political campaign-related activity of social welfare organizations exempt from federal income tax under section 501(c)(4) of the Internal Revenue Code, according to a story in Tax Notes Today. Whitehouse’s comments were offered at yesterday’s subcommittee hearing, “Current Issues in Campaign Finance Law Enforcement.” Whitehouse reportedly expressed doubt that the question of whether an organization has falsely claimed to have made no expenditures for political campaign activity is characterized by tax law complexity. He also voiced concern that 501(c)(4)s are being used in a manner that obscures the identities of ultimate contributors of funds destined for political action committees.
The electronic citation to the story is 2013 TNT 69-6.
In Russia Takes Legal Action against Election Monitors, the New York Times reports that Russia’s Justice Ministry has charged Golos, “Russia’s only independent election monitoring organization,” and its executive director with violating Russia’s controversial law that requires a nonprofit group to register as a “foreign agent” if it receives financing from abroad. The law is described by the Times as “among the most provocative in a passel of Kremlin-supported legislation in recent months that was aimed at tightening restrictions and limiting foreign influence on nonprofit groups.” According to the story, Golos was formed in 2000 with American support to monitor and comment on elections in Russia and other countries, and it “had a prominent role in drawing attention to fraud, including blatant ballot-stuffing and other crude measures, in the Russian parliamentary elections of December 2011.” A conviction reportedly would cost Golos fines in excess of $15,000, and its executive director a fine of approximately $10,000. An official with Golos is quoted as stating that the nonprofit has received no grants “from the moment the law on agents went into effect.”
The story presents the investigation against the backdrop of recent raids by Russian authorities on “some of the most prominent international organizations working here, including Amnesty International and Human Rights Watch,” as well as on “two of Germany’s most respected political foundations.” The Times notes that Chancellor Angela Merkel of Germany recently has publicly criticized Russia’s treatment of nonprofits.
Tuesday, April 9, 2013
John L. Buckley, a professor in the graduate tax program at Georgetown University Law Center, and Dallas Woodrum, a Georgetown law student serving as executive articles editor for The Georgetown Law Journal, have published an article in Tax Notes discussing the use of tax-exempt organizations for political purposes following Supreme Court decisions on campaign finance. They propose legislative reforms, including (1) removing the benefit currently enjoyed by Code section 527 organizations of the income tax exclusion for dues and contributions from a single source that exceed a specified amount; (2) eliminating the exclusion for capital contributions (and consideration in exchange for issued stock) received by corporations when they have been utilized to expend such funds for political purposes without disclosing the ultimate source of funds; (3) deeming political contributions to result in dividend income to corporate insiders who authorize political contributions in the absence of ex ante disclosure to, and authorization by, shareholders; and (4) providing more objective standards for determining whether issue advertising constitutes political campaign activity. The electronic citation to the article is 2013 TNT 68-5.
Monday, April 8, 2013
Here is some news that should interest scholars desiring to conduct empirical analysis of the charitable sector. As reported by the Chronicle of Philanthropy, the IRS has begun to release data appearing on the information returns filed by charities in a format that will aid analysis. The story states that, although not everything disclosed on Forms 990 and related forms appears in the new format, it does include “figures on sources of financial support, total assets and revenue, spending on overhead and programs, and compensation paid to a group’s top-paid officials.” The measure has reportedly drawn praise from Tom Pollak, program director of the National Center for Charitable Statistics at the Urban Institute, which intends to post the data on its Web site soon.
Lindsey D. Blanchard (University of St. Thomas (Minnesota)) has posted Charitable Nonprofits' Use of Nonpcompetition Agreements: Having the Best of Both Worlds. Here is the abstract:
years, individuals have been challenging the noncompetition agreements
they entered into with their employers on the basis that the agreements
violate public policy. However, in a competitive marketplace, courts
and legislatures in many jurisdictions are reluctant to invalidate
otherwise reasonable noncompetition agreements. Perhaps they are right,
at least when it comes to the general class of nonprofits and to
nonprofits that are protecting their interests against for-profit
entities. As for charitable — or § 501(c)(3) — nonprofits that are
attempting to protect their interests against other charitable
nonprofits, however, the decision-making bodies should reconsider their
Unlike traditional for-profit entities, whose main goal is profit maximization, charitable nonprofits are organized and operated to benefit some greater good. As a result, charitable nonprofits receive donations from individuals and corporations, as well as tax breaks from the government, which are unavailable to for-profit entities. At the same time, charitable nonprofits use many of the same tools that for-profit firms utilize to maximize profits, including noncompetition agreements. Thus, charitable nonprofits are able to benefit from an anti-competition, profit-maximizing tool while also reaping the rewards of their tax-exempt status. In short, charitable nonprofits (wrongly) enjoy the best of both the for-profit and nonprofit worlds.
This article discusses the unique nature of the charitable nonprofit’s mission and the tax benefits conferred on charitable nonprofits by the federal and state governments. It then discusses noncompetition agreements and demonstrates that charitable nonprofits’ use of noncompetition agreements is contrary to their mission and tax-exempt status, as well as to the public interest. Finally, the article proposes an amendment to the federal tax code that would render unenforceable any language in a noncompetition agreement that prevents an individual from leaving the employment of one charitable nonprofit for employment at another.
Alicia Plerhoples (Georgetown) has posted Representing Social Enterprise, Teaching (Sustainable) Corporate Governance on SSRN. Here is the abstract:
Careful consideration and selection of clients facilitate the pedagogical objectives of a clinical law program or other experiential learning course. This article explores the selection of social enterprises - i.e., nonprofit and for-profit organizations whose managers strategically and purposefully work to create social, environmental, and economic value or achieve a social good through the use of business techniques - as clients of two experiential learning courses at Georgetown University Law Center. Representation of social enterprises helps create a dynamic curriculum through which law students learn to merge legal theory and practice. Through service to social enterprises, law students learn about corporate governance and corporate legal theory as well as business models and mechanisms that support social and environmental value creation at a time when the corporate sector is increasingly concerned with sustainability issues; and engage in solving novel and unstructured problems, advocacy work, knowledge creation, and information facilitation to assist the developing social enterprise sector. Legal issues unique to social enterprises compel students to learn corporate governance and corporate practice methods in a manner not typically available to the non-experiential classroom.
- Femida Handy, Jeffrey L. Brudney, and Lucas C.P.M. Meijs, From the Editors’ Desk
Symposium: National Campaigns for Charitable Causes (Guest Editors Marco H. D. van Leeuwen and Pamala Wiepking)
- Marco H. D. van Leeuwen and Pamala Wiepking, National Campaigns for Charitable Causes: A Literature Review
Christopher J. Einolf, Deborah M. Philbrick,and Kelly Slay, National Giving Campaigns in the United States: Entertainment, Empathy, and the National Peer Group
Pamala Wiepking and Marco H.D. van Leeuwen, Picturing Generosity: Explaining the Success of National Campaigns in the Netherlands
Johan Vamstad and Johan von Essen, Charitable Giving in a Universal Welfare State—Charity and Social Rights in Sweden
Marta Rey-García, Luis Ignacio Álvarez-González, and Ricard Valls-Riera, The Evolution of National Fundraising Campaigns in Spain: Nonprofit Organizations Between the State and Emerging Civil Society
- George E. Mitchell, The Construct of Organizational Effectiveness: Perspectives From Leaders of International Nonprofits in the United States
- Shannon Gleeson and Irene Bloemraad, Assessing the Scope of Immigrant Organizations: Official Undercounts and Actual Underrepresentation
- Melissa Torgerson and Mark Evan Edwards, Demographic Determinants of Perceived Barriers to Community Involvement: Examining Rural/Urban Differences
Grace L. Chikoto, Abdul-Akeem Sadiq, and Erin Fordyce, Disaster Mitigation and Preparedness: Comparison of Nonprofit, Public, and Private Organizations
Suzann Lupton, Book Review: Understanding the Roots of Voluntary Action: Historical Perspectives on Current Social Policy
A. Joseph Borrell, Book Review: Shift & Reset: Strategies for Addressing Serious Issues in a Connected Society and The Future of Nonprofits: Innovate and Thrive in the Digital Age
Putnam Barber, Book Review: The Neighborhood Project: Using Evolution to Improve My City, One Block at a Time
- Kirsten A. Gronbjerg, Book Review: Reinventing Civil Society: The Emerging Role of Faith-Based Organizations