Wednesday, November 11, 2015
In honor of Veterans' Day, I am simply going to link to this CNBC post on its suggestions for the Top Ten Charities for Veterans. Of course, I have no doubt there are other worthy organizations out there - - feel free to mention yours in the comments. In any event, thank you to all of our vets for your service and sacrifice.
Wednesday, September 23, 2015
Good morning all! I just got an alert in my mailbox that Treasury has issued final regulations on equivalency determinations - you may all recall the proposed regulations that were issued in 2012.
I'm in the process of printing out the final regs and comparing them to the proposed regs, so I'll update the post later today. Bloomberg BNA's blurb on it says that the final regulations "incorporate the thrust of" the 2012 rules. I'll try to get some links up as soon as I can find them in a non-subscription database, although I know you can get them in both Bloomberg BNA and Tax Analyst already if you have access. Citation is T.D. 9740, RIN 1545-BL23.
Update at 6:30 p.m., 9/23/2015
I've not gotten all the way through the final regs to give you all a complete summary, but I wanted to mention a few highlights from the preamble:
- It appears that the Regulations expand the definition of "qualified tax practitioner" for purposes of who can make equivalency determinations that can be relied upon in good faith.
- The Regulations appear to scale back the ability of a charity to rely on a good faith affidavit as the sole means of making an equivalency determination. Briefly, it appears that you can rely on the information in good faith, but there needs to be an additional showing that the evaluation of the data and the equivalency determination based on that data occurred in a manner that demonstrates a knowledge of US tax law. In theory, anyway, there are more qualified tax practitioners (including folks that may be in house at the foundation) to help with such a determination, so it shouldn't (in theory again) be a significant bar to international grant making.
- Some clarification on how long you can rely on written advice, which looks like (a) so long as there is no change in the law or otherwise for most things, except (b) two years for public charity determinations based on financials.
- It looks like there may be limited opportunity to share equivalency determinations, but it can't be foundation to foundation - it may be that the first foundation has to authorize the release of that information to a second foundation from its qualified tax practitioner because only there would there be reasonable reliance. So not quite the equivalency determination banking that the sector wanted, but it may be a step in that direction.
- Looks like donor advised funds can use these rules, at least for now, for purposes of compliance with Section 4966(d)(4).
Friday, September 18, 2015
Today’s news cycle features developments in the dispute over the governance of Carnegie Hall. According to the New York Times, Ronald Perelman, who just this year accepted his position as Chairman of Carnegie’s Board, told his fellow trustees at a meeting yesterday that he would leave the Chair role next month, rather than seek re-election. His announced departure is tied to his concerns that Carnegie Hall’s governance practices are legally suspect, and that these concerns have not been adequately addressed. Says the Times:
The climax came on Thursday afternoon at a joint meeting of the board’s executive and audit committees, when Mr. Perelman told his fellow trustees that he believed some of the laws governing nonprofits were not being followed at Carnegie and expressed frustration that no investigation into his concerns had been initiated, according to someone familiar with the proceedings, who was granted anonymity to describe what happened at a confidential meeting.
Mr. Perelman criticized board members for placing “a premium on avoiding tension and disagreement,” the person said, and told them that while he would serve out his term, he would not run for re-election as chairman at the board meeting next month. The board then agreed to hire a lawyer to examine his concerns, which involved how Carnegie vetted what Mr. Perelman called “related-party transactions” in looking at deals that posed potential conflicts of interest.
The Times further reports that one member of Carnegie’s Board speculated that Mr. Perelman would not likely have been re-elected as Chair, and that “the trustees had felt blindsided this summer” when Mr. Perelman briefly suspended Carnegie’s executive and artistic director, Clive Gillinson. The same board member reportedly voiced that the board did not share Perelman’s view that Carnegie had governance or transparency problems, but that the board would investigate the matters raised.
Thursday, September 17, 2015
NPR reports that the “American Red Cross is facing new criticism today as government investigators and a congressman call for independent oversight over the long-venerated charity.” NPR explains that Representative Bennie Thompson has introduced a bill called the American Red Cross Sunshine Act on the heels of the release of a report by the United States Government Accountability Office (“GAO”) that examined the charity’s operations. The GAO report, says NPR, “finds oversight of the charity lacking and recommends that Congress find a way to fill the gap.”
The “Conclusions” section of the GAO report states as follows:
The nation’s disaster response system relies to a significant extent on the nonprofit sector, which harnesses the public’s generosity to provide funding for disaster response and recovery efforts. This approach can support the nation’s efforts to assist disaster victims, but it also has limited accountability for disaster assistance. The Red Cross, the organization most responsible for providing shelter and other mass care services to disaster victims, exemplifies this tension. It has been designated by law as an instrumentality of the United States and has a critical, formalized role in coordinating and providing disaster response services across the nation. At the same time it remains a nonprofit organization that generally makes its own decisions about what services to provide. This reliance on an independent organization can be effective if government and the donating public have confidence that [the] Red Cross is providing the services that are most needed in an effective and efficient manner. Further, in disasters in which the federal government is involved, the extent and effectiveness of the Red Cross’s activities could have a direct impact on the nature and scope of the federal government’s activities.
With regard to oversight, while the Red Cross has some internal evaluation processes in place, such as after action reviews and surveys of state emergency managers and other stakeholders, Red Cross officials told us that the results of their internal evaluations are typically not made available to the general public. The absence of regular, external evaluations of its disaster services that are publicly disseminated could affect the confidence of both the donating public and the federal agencies that rely on the Red Cross. This is especially true in light of questions raised by the federal government and others in recent years about the organization’s performance in disasters. Given the Red Cross’s status as an instrumentality of the United States and the critical responsibilities assigned to it by its federal charter and by federal policies, the federal government has a clear stake and role in ensuring that proper oversight takes place.
In a section entitled “Matters for Congressional Consideration,” the GAO report further recommends legislative action:
To maintain governmental and public confidence in the Red Cross, Congress should consider establishing a federal mechanism for conducting regular, external, independent, and publicly disseminated evaluations of the Red Cross’s disaster assistance services in domestic disasters in which the federal government provides leadership or support. This mechanism might involve annual evaluations of whether the services achieved their objectives or of their impact on disaster victims. This evaluation could be performed, for example, by a federal agency such as DHS, by an IG office such as the DHS IG, or by a private research firm under contract to a federal agency.
The American Red Cross Sunshine Act, according to its preface, would “enhance oversight of the American National Red Cross by the Government Accountability Office and Inspectors General at the Departments of Homeland Security, Treasury, and State,” and would require the Department of Homeland Security to conduct a pilot program with the charity to research and develop mechanisms to improve the charity’s preparedness and response capabilities through social media.
Additional Coverage: The Chronicle of Philanthropy
The New York Times reports that the Chairman of the Board governing Carnegie Hall, Ronald Perelman, is calling out the nonprofit’s executive and artistic director, Clive Gillinson, for operating without adequate transparency, and fellow board members for failing to exercise proper oversight of the iconic nonprofit. These details appear in the story:
Mr. Perelman wrote to the board that he had initially grown concerned over “an inability to obtain a full picture of Carnegie Hall’s financial operations, especially as it related to profits and losses involving performances,” according to a copy of the email obtained by The New York Times. He wrote that he had become “troubled by the manner in which related-party transactions” — essentially deals presenting potential conflicts of interest — “were being identified, vetted and approved.”
The story further reports that, according to Perelman, although “an agreement had been reached last month to hire an independent lawyer to investigate his concerns” about governance, no investigation has yet begun, and that Perelman “was calling a joint meeting of the board’s executive and audit committees” to handle the matter.
Wednesday, September 16, 2015
In the latest issue of Nonprofit Advocacy Matters, published electronically by the National Council of Nonprofits, two entries caught my eye. In one, it is reported that the United States Department of Labor has received nearly 250,000 comments to its proposed amendments to overtime regulations issued under the Fair Labor Standards Act (FLSA). The proposal would, in part, increase the minimum salary level that employers must annually pay their administrative/executive/professional employees in order to exempt the employers from paying overtime wages to those employees; the proposal would raise that minimum from $23,660 to $50,400. Readers interested in reviewing the full text of the proposal, as well as comments to it, may link to this website.
Another item of note in the recent Nonprofit Advocacy Matters is a description of how the State of Indiana “is experimenting with the creation of nonprofits to enable government to secure greater returns on investments and to fund key programs.” Under one new state law, cities can create and fund special foundations with the proceeds of government property sales. The charities can then invest in corporate stocks more liberally than can most governmental bodies. Secondly, the state has founded a nonprofit organization to raise money “from private investors to pay for public health initiatives.” Noting that Indiana is one of the states that devote the least resources to public health programs, the piece explains that lawmakers hope the newly minted nonprofit will help redress the situation.
Tuesday, September 15, 2015
The Washington Post reports that, after Catholic hospital Genesys Regional Medical Center denied a request from Jessica Mann to perform a tubal ligation following the future delivery of her baby by Caesarean section, Mann “sent a letter through the American Civil Liberties Union threatening legal action.” The hospital denied the request, reports the Post, because “Catholic mandates forbid procedures that cause sterilization … and officials said she did not qualify for an exception.”
Fellow law professor Robin Wilson of Illinois is quoted as saying that “[f]ederal law provides an ‘iron-clad’ exemption for medical providers who do not want to provide abortion or sterilization services.” Professor Wilson is further quoted as articulating a reason for the statutory accommodation:
Wilson said judges must tread especially carefully in situations such as Mann’s, which are not acute emergencies.
“If it’s not an emergency, why should you wash out the religious character of that hospital?” she said. “You want a diversity of providers so people who have different values can actually find providers who match those values.”
The post reports that ACLU officials “argue that the federal protections cited by Wilson do not apply in the Mann case.” The grounds for the ACLU’s argument are not entirely clear from the Post’s coverage.
Monday, September 14, 2015
The Tampa Bay Times is running a story that may interest those familiar with the legal battles involving the Church of Scientology. According to the story, certified public accountant and former church attorney James J. Jackson, still a Scientology adherent, is seeking to remove David Miscavige from his position as Chair of the governing board of the Religious Technology Center (“RTC”). The RTC reportedly owns the intellectual property rights in Scientology's practices. The article is interesting on multiple counts, including its discussion of Jackson’s representation of leading scientologists and its description of the reorganization that the church undertook in the 1980s and the institutional culture that developed after the death of founder L. Ron Hubbard. As to the attempted ouster of Miscavige, the Times states as follows:
Like many critics, Jackson sees the church's leader as a dictator steering Scientology toward ruin. Allegations over the years that Miscavige mentally and physically abused church staffers continue to yield public scorn, even though repeatedly denied by the church. While other detractors have tried to pressure Miscavige in civil court and on the Internet, Jackson is pursuing a novel, perhaps quixotic strategy: He believes Miscavige can be toppled by insiders.
After studying corporate bylaws the church presented to the IRS to gain tax exempt status and hiring three non-Scientology lawyers who specialize in matters regarding religious organizations, he argues Scientology's nearly three dozen trustees, directors and officers have the power — whether they know it or not — to exercise oversight over the lucrative corporate enterprise.
They have a legal right and responsibility to investigate, or even remove, Miscavige, Jackson says.
But can they do their job? Or is Miscavige running everything, as defectors have alleged?
"Fights over control of the board, failing to follow bylaws, all this is proper subject matter for a California court," said Mark Cohen of Fremont, Calif., one of Jackson's lawyers.
The Times further reports that Jackson has appeared in a video in which he calls upon the two trustees of RTC (besides Miscavige) to remove Miscavige from office. The piece also links to various items of correspondence relevant to the controversy.
Wednesday, September 9, 2015
In addition to our previous post on fellow blogger Lloyd Hitoshi Mayer's opinion piece regarding John Oliver's segment on the tax exemption of churches, Edward Zelinsky (Cardozo) posted to the Oxford University Press Blog, John Oliver, Televangelists, and the Internal Revenue Service:
John Oliver’s sardonic spoof of televangelists raises important issues that deserve more than comic treatment. Oliver’s satire was aimed both at the televangelists themselves and at the IRS. In Oliver’s narrative, the IRS acquiesces to televangelists’ abuse by granting their churches tax-exempt status and failing to audit these churches. The law defines the term “church” vaguely. The IRS’s allegedly lackadaisical approach, Oliver tells us, permits televangelical preachers to live luxurious lives replete with private planes and tax-free cash, financed by naive and exploited believers.
An initial problem with this critique is that the IRS does not write the Internal Revenue Code. Congress writes the Code, and the American people elect Congress. As Peter Reilly of Forbes observes, in section 7611 of the Internal Revenue Code, Congress constrained the IRS’s ability to audit churches. Oliver criticizes the resulting low audit rate of churches without explaining who is responsible for this low audit rate—namely, Congress.
There are competing interpretations of section 7611. This provision of the Internal Revenue Code might be viewed as a plausible effort to minimize church-state entanglement by constraining the IRS’s ability to audit churches. Alternatively, Code section 7611 might be understood as Congress bending to political pressures from churches. Both narratives might contain part of the truth.
In any event, the low audit rate of churches, which Oliver blames on the IRS, is the responsibility of Congress. For better or worse, Congress has made it more difficult for the IRS to audit churches than to audit other persons and institutions in Code section 7611.
Another bête noire of Oliver’s critique is the private planes used by some televangelists. However, a minister’s personal use of a church-owned plane is taxable income to him, just as a corporate executive’s personal use of a company plane is taxable income to him.
More generally, churches pay more taxes than many people believe (including, apparently, John Oliver). For example, ministers pay self-employment taxes while churches pay FICA taxes on the salaries of their nonclerical employees. In many states, churches are subject to the sales tax, either as buyers or sellers and sometimes in both capacities.
Churches do not pay federal and state income taxes on their basic operations. However, neither do other nonprofit organizations such as colleges, universities, hospitals, and private foundations. It would be interesting for Oliver to compare the lifestyles of the individuals who lead these tax-exempt institutions with the life-styles of the church leaders of whom Oliver is so critical.
Interestingly, one phenomenon which troubles Oliver—small donors sending cash contributions to televangelical churches—is not problematic from a tax perspective. Oliver obviously disapproves of these donors and their responsiveness to televangelists’ appeals. However, small donors’ contributions are typically not tax deductible. Contributions to churches and other charitable institutions are deductible by the taxpayer only if the taxpayer itemizes personal deductions on his Form 1040. This occurs only among more affluent donors whose deductible outlays exceed their standard deduction for income tax purposes.
For 2015, a single taxpayer’s standard deduction is $6,300, while the standard deduction for a married couple filing jointly is $12,600. Thus, the modest donations cited by Oliver, while large relative to the donors’ low incomes, are generally not tax deductible because donors with limited incomes typically do not contribute enough to itemize their deductions. The real beneficiaries of the Internal Revenue Code’s charitable deduction are upper-middle class and wealthy taxpayers. These affluent taxpayers typically do not contribute to churches, but to such secular entities as universities and museums.
Finally, the legal issue of defining a church involves serious trade-offs that Oliver does not explore. Again, Congress, not the IRS, writes the tax law. Congress could, through the Internal Revenue Code, define “church” more restrictively to crack down on the kind of arrangements Oliver satirizes. However, a narrower definition of a “church” could also be used against nonconformist and unconventional religions—which, at times in our country’s history, would have included abolitionist churches, the Catholic Church, the Church of Latter Day Saints, and other now mainstream organizations. For that reason, as a society, we generally seek to minimize church-state entanglement, even though the resulting zone of religious autonomy can be exploited by the kind of ministers Oliver skewers.
Since at least Sinclair Lewis’s Elmer Gantry, evangelical preachers have been subject to the kind of criticism Oliver advances. The IRS, particularly in its handling of exempt organizations, is in many ways a troubled and poorly-managed agency. If we categorize Oliver’s skit as mere entertainment, it was, well, entertaining. However, Oliver evidently seeks to place himself in another tradition of American life, the tradition of Mark Twain, Ambrose Bierce, Will Rogers, and Mort Sahl. These humorists participated in important political discussions through their comedic commentary.
By the demanding standards of this tradition, Oliver’s satire of televangelists falls short.
[Hat tip: TaxProf Blog]
Friday, September 4, 2015
Fellow blogger Lloyd Hitoshi Mayer, Professor of Law at the University of Notre Dame School of Law, has posted an interesting, brief opinion piece, What John Oliver Got Wrong (and Right) About Churches and Taxes, on America: The National Catholic Review. He begins with the following:
One of the reasons I like “Last Week Tonight with John Oliver” is that it usually gets its law right. I was therefore looking forward to its piece on churches, especially since I had talked on background with Oliver’s staff and so knew it was coming. The piece was as funny as I expected, but unfortunately it also struck a few false legal notes that are worth clarifying.
Mayer critiques various aspects of the popular HBO show’s segment on churches, including its failure “to mention the long history of tax benefits for churches of all faiths,” but focuses on Oliver’s never having answered the question of why tax laws treat certain televangelists (the apparent object of Oliver’s scrutiny) “the same as other churches.” Says Mayer:
The answer is simple and yet is never mentioned in his piece—the Constitution’s Establishment Clause.
The First Amendment states “Congress shall make no law respecting an establishment of religion . . . .” This means neither Congress nor the IRS can choose among theologies. That is why the IRS has no choice but to recognize as religious any group that sincerely holds its beliefs and does not engage in illegal activities. Oliver sharply criticizes this standard, but what is the alternative? Do we want Congress or, horrors, IRS agents picking and choosing which theologies are “correct” and which are not? ….
This sincerely held belief standard is also not meaningless. With all due respect to Oliver’s attorney, his newly founded “church”—Our Lady of Perpetual Exemption—almost certainly would not survive IRS scrutiny. No one watching the piece could believe that there is a sincere religious belief at its heart, much less at the heart of its purported congregation of audience members. The IRS will probably leave it alone because ultimately any donations it receives will go to a bona fide charity (Doctors Without Borders).
Mayer concludes with the following words:
None of this is to defend the “prosperity Gospel” or the excesses of the televangelists that Oliver criticizes. But the government cannot and should not choose among theologies or treat churches differently because their members sincerely hold beliefs that are out of the mainstream or even ridiculous in the eyes of many. It is instead up to you and me and, yes, John Oliver to his credit, to bring the beliefs and practices of these ministries into the light so the harm they cause can be clearly seen by those who otherwise might be lured into giving to them.
Thursday, September 3, 2015
The Boston Globe reports that “Beth Israel Deaconess Medical Center and Lahey Health are negotiating a possible merger that would create a large health system to compete with the dominant Partners HealthCare.” The article describes Beth Israel Deaconess as “a large academic medical center affiliated with Harvard Medical School that has built its network by acquiring hospitals in Milton, Needham, and Plymouth,” and Lahey Health as a hospital system including “Lahey Hospital and Medical Center in Burlington, a teaching hospital affiliated with Tufts University School of Medicine … and community hospitals in Beverly, Gloucester, and Winchester.”
Legal considerations bear upon both the impetus for hospital consolidations and their consummation. The article explains as follows:
Hospital mergers in Massachusetts are reviewed by the Health Policy Commission, a state agency, which cannot block deals but can refer them to the attorney general.
The rekindling of merger talks shows the urgency both sides feel to grow to compete with Partners, the state’s biggest and richest health system. And in today’s shifting health care industry, many executives say a larger network of hospitals, doctors, and services is needed to successfully compete.
Hospital consolidation has accelerated around the country in recent years, spurred in part by the federal Affordable Care Act.
The law encourages providers to adopt new payment systems that reward them for keeping patients healthy, rather than rewarding doctors and hospitals for every patient visit, service, and procedure.
The article notes that the merger talks are in the “early stages” and that on two previous occasions Lahey and Beth Israel Deaconess attempted but failed to negotiate a merger to completion.
Tuesday, September 1, 2015
In Anti-abortion Group Wins Case Against Obama, USA Today reports that United States District Court Judge Richard Leon of the District of Columbia has ruled that the “anti-abortion group March for Life does not have to offer insurance coverage for contraceptives under President Obama's health care law, marking the first time an exemption was granted for moral, rather than religious, reasons.” Although the Affordable Care Act generally requires employers to offer employees health insurance plans that include coverage for contraceptives, churches are exempted from the requirement, and other religiously oriented nonprofits have gradually obtained a similar accommodation (which some continue to litigate as insufficiently protective of their religious convictions).
The story reports why Judge Leon’s ruling is significant:
Leon ruled that the Obama administration, through the Department of Health and Human Services, already is going further than protecting religious beliefs through its exemptions. Rather, he said, it is "protecting a moral philosophy about the sanctity of human life" — a philosophy shared by many non-religious groups, particularly one "founded exclusively on pro-life principles."
"March for Life has been excised from the fold because it is not 'religious,'" Leon wrote. "This is nothing short of regulatory favoritism."
This decision is sure to spark a fire of commentary and additional analysis. Readers can expect more blog coverage of this fascinating legal development.
The Los Angeles Times reports that, according to an audit by the California Franchise Tax Board, Blue Shield of California, a large nonprofit insurer, increased executive compensation in 2012 by $24 million. The pay raise, says the story, is a 64% increase over the prior year’s level, and places Blue Shield’s compensation of approximately 60 senior company officers at $61 million for 2012 (compared to $37 million for 2011 and $39 million for 2010 and 2009).
The company did not report a number of details about precisely who received what and in what form, a decision that has led to speculation and criticism. The story explains as follows:
The health insurance giant won't say who got the money or why. But Blue Shield's former public policy director, Michael Johnson, who left this year and is now a company critic, said senior officials at the insurer told him that former Chief Executive Bruce Bodaken received about $20 million as part of his 2012 retirement package, on top of his annual pay.
Half a dozen other top executives also left the company near the end of 2012, which could have accounted for some of the spike in compensation. Some of this severance or retirement money may be paid out over time, extending beyond 2012.
The San Francisco insurer declined to confirm the total compensation for Bodaken, who was chairman and CEO from 2000 to 2012.
Why are the details of compensation still a mystery? According to the Times story, California law requires Blue Shield to file a report of compensation for its 10 most highly compensated employees. The company reportedly interprets the law to apply only to executives within the company’s employ at the time of filing the required report. Although the company insists that it has fully complied with the law, the state insurance commission appears to be concerned:
California Insurance Commissioner Dave Jones said the company's decision to exclude pay for Bodaken and other executives from its regulatory filing "raises very serious and troubling questions with regard to whether Blue Shield misled the Department of Insurance."
"We will be investigating this discovery by the L.A. Times and looking at all of our options," Jones said.
In Telemarketers Keep Dollars Raised for Charity, the Chicago Tribune examines the charitable fundraising operations of telemarketer Safety Publications Inc. (“Safety”). The main criticisms raised in the piece are summarized in the following excerpt:
Safety gave the nonprofits only about 15 cents of every dollar raised in those seven years [i.e., 2008-2014] and kept the rest for itself, a Tribune analysis of government records found. Many of those charities in turn spent their nickels on administrative overhead, leaving pennies for those in need, the records show.
Safety and a linked charity telemarketer also have employed at least 10 callers who served prison terms for bank robbery, forgery, child rape and other felonies since 2007, the Tribune found, despite Illinois' prohibition against using felons to raise charity money. The law is designed to ensure the trustworthiness of nonprofit solicitors.
For those interested in more details, the article delves into the history of the telemarketer and its founders, reports on their alleged hiring of convicted felons, and raises questions about whether Safety has properly reported its operations to the State of Illinois. More generally, the story offers a glimpse into the practices of professional telemarketers who contract with charities having trouble raising funds by themselves. One is left with a picture that is far from flattering.
Monday, August 31, 2015
As reported in the Pittsburgh Post-Gazette, Fox Chapel Presbyterian Church of Pittsburgh has a history of facilitating public policy initiatives centered on improving children’s health. It all reportedly began in the midst of the 1980s downturn in the steel industry:
When [a group of former steelworkers] … showed up at the Fox Chapel Presbyterian Church in the spring of 1984, the Rev. John Galloway stopped the service and invited them to address the congregation. Their stories that day were followed by emotional meetings with church and community leaders in which they described life without medical benefits for their children, according to church records.
Charlie LaVallee, longtime executive director of the Highmark Caring Foundation and former Highmark Blue Cross Blue Shield vice president, called Fox Chapel Presbyterian the “catalyst” for the program he helped develop into state law that later served as the model for the federal Children’s Health Insurance Program.
Today, reports the Post-Gazette, the church is donating space to the Pediatric Palliative Care Coalition, formed in 2012 to assist those caring for children with life-threatening illnesses, a group of patients typically underserved by existing entities, including hospices. Partnering with the coalition seems a natural fit for the church, which is reported to have raised $50,000 in the early 2000s, “much of it going to help palliative care at Children’s Hospital of Pittsburgh of UPMC.” The story explains that the coalition, which includes several regional hospitals, “is currently advocating for two bills in the General Assembly involving pediatric palliative care,” and focuses on “connecting families and medical providers” and “helping educate hospices about a provision in the Affordable Care Act that requires state Medicaid programs to cover both life-sustaining treatment and hospice for qualified children under 21.”
The activities of Fox Chapel Presbyterian Church serve as a helpful reminder of how nonprofits in general, and religious nonprofits in particular, serve a vital role in both the delivery of social services in this country and the shaping of the nation’s public policy. The story reports how the church listened to the voices of a segment of the population facing great needs that were not being met by either government or the nonprofit sector. The church has raised money to help meet these needs. The church has also donated physical space to aid the effort. And the church, by helping raise public awareness of a problem, has even contributed in some ways to the enactment of law and legislative proposals that have garnered broad support.
More broadly, Fox Chapel Presbyterian Church is yet another example in our country’s rich history of nonprofits, including churches, which take seriously their mission and their duty to advance their mission by exercising their rights to participate in the intersection of the private and public spheres. What this church is doing to help promote children’s health would likely garner the applause of most of us. Other efforts – such as promoting the health, and even the very lives, of children who have not yet made it out of their mothers’ bodies – would elicit a more varied response among the general population. But this is the nature of a pluralistic universe of actors in a civil society that includes nonprofit entities in all of their varied stripes. Let us not forget that, when we embrace, even support, the efforts of a nonprofit such as Fox Chapel Presbyterian Church, we are recognizing the right of every nonprofit to act similarly to advance its mission.
Wednesday, August 19, 2015
Professor Victor Fleischer from the University of San Diego has an opinion piece in today's New York Times advocating an 8% annual required payout for university endowments over $100 million. Such a payout is more than the 5% amount required for private foundations under Section 4941, and well more than the payouts for medical research organizations and private operating foundations. In fact, it is more than the amount set as a rebuttable presumption of unreasonableness for endowment spending under Section 4(d) of UPMIFA, which is 7%.
Fleischer's concern was prompted by his research into investment manager compensation, which indicated that that private equity fund managers received more in payouts than students at at least five universities: Harvard, Yale, Texas, Stanford and Princeton. Much of this compensation was in the form of the dreaded carried interest, which is under scrutiny in numerous arenas, not just the nonprofit world.
It is an interesting proposition. I am somewhat dubious of an 8% payout, wondering whether that might have an adverse impact on the risk profile of endowments, which by all accounts already have fairly aggressive asset allocations (Fleischer says that endowments this size are returning over 8% already so it won't matter). I also wonder what rationale there is for subjecting only university endowments to such a rule, as it seems to me that there may be other exempt organizations of a similar size that might have a similar investment compensation issues (large foundations, for example, only pay 5%) that are not subject to such a high payout requirement. Finally, isn't the issue really the investment manager compensation, so mandating a payout isn't really reaching the root of the problem? But I may be picking around the edges on this. Would love to hear others thoughts.
Monday, July 20, 2015
As reported by The New York Times, Representative Raúl R. Labrador, Republican of Idaho, and Senator Mike Lee, Republican of Utah, along with 130 sponsors, have proposed legislation, the First Amendment Defense Act, that would confer protections for tax-exempt organizations and individuals that object to the Supreme Court's recent gay-marriage ruling on religious or moral grounds. The Act specifically provides that the Federal government cannot take any "discriminatory action" against a person, "wholly or partially on the basis that such person believes in accordance with a religious belief or moral conviction that marriage is or should be recognized as the union of one man and one woman, or that sexual relations are properly reserved to such a marriage." The Act defines a "discriminatory action" to include (i) an action by the Federal government to "alter in any way the Federal tax treatment of, or cause any tax, penalty or payment to be assessed against, or deny, delay, or revoke an exemption from taxation under Section 501(a) of the Internal Revenue Code of 1986 of, any person" referred to above, or (ii) "disallow a deduction for Federal tax purposes of any charitable contribution to or by such person." The Act states that it should be broadly interpreted in favor of a 'broad protection of free exercise of religious beliefs and moral convictions, to the maximum extent permitted" by the Act and the U.S. Constitution.
The Times reports that a bill proposed by "moderates" would attached two pro-gay rights provisions: (i) the Employment Non-Discrimination Act, making illegal workplace discrimination based on sexual orientation, and (ii) an amendment to the Fair Housing Act to include protections on the basis of sexual orientation and gender identity.
The Act, if passed in its present form, would ostensibly address the concerns of churches and other religiously-affiliated organizations that their tax-exempt status could be revoked for discrimination in membership or employment or otherwise on the basis of sexual orientation, even if such organizations' actions are based on their core religious tenets. (See prior blog post here discussing these concerns).
Monday, July 6, 2015
In the wake of Obergefell, the Internet was a dangerous place to be as a tax lawyer. Oh, a nickel for all the posts that lamented the loss of tax-exempt status for churches that didn't perform same sex marriages forthwith! Of course, I was sure to correct them all right away, because you know, nothing on the internet can be wrong, right?
There's been a lot of coverage by the news media on this issue as we've had some more time to discuss the issues, as discussed previously here at the Nonprofit Tax Prof Blog. Here's the latest in the coverage from the Baltimore Sun, which discusses the tax exempt status of religiously-affiliated universities. The article hedges on the issue of tax-exempt status, but I think both sides of the tax argument can find some common ground in the discussion found there. Under a Bob Jones University analysis, I'm not sure that we are there yet - there being that discrimination on the basis of sexual orientation is so fundamentally against public policy as to cause loss of tax-exempt status. While Obergefell certain makes it a stronger case, I think we will need to see more from the other branches of government before we get to that level. That being said, I agree with the Sun article in the thought that even if we aren't there now, I think we may be within my lifetime.
I do think that it is important to point out that Bob Jones University specifically talked about racial discrimination in education as being the fundamental public policy at issue and that the case involved the tax-exempt status of a university, not a church. Note that this article only talks about colleges and universities - the question of the tax-exempt status of churches is much more complicated. I don't believe there there is a case that we know of that where a church lost its tax-exempt status on the basis of religious discrimination. Can any of my Tax Prof or Nonprofit Prof Blog colleagues think of any example?
Thursday, June 25, 2015
The New York Times has published a piece exploring how nonprofits could be affected by the pending Supreme Court decision in Obergefell v. Hodges, which raises the issue of whether the United States Constitution establishes a right to enter into a gay marriage. The gist of the article is that private religious schools across the nation impose codes of sexual conduct, including prohibitions of same-sex relationships, and these schools fear that their policies could risk the loss of their federal income tax exemption. Why? If the Court recognizes a constitutional right to enter into gay marriage, the Internal Revenue Service could find school policies on sexual conduct to violate fundamental public policy under Bob Jones University v. United States.
Although many legal scholars seem to doubt that schools would face this risk in the near term, the schools do have cause for concern. As I have written and illustrated previously in two law review articles, the public policy doctrine is poorly defined and easily manipulated. Further, the NYT article observes that, during oral argument in Obergefell, Justice Alito posed the question of how the decision would affect the tax exemption of private religious schools to Solicitor General Donald B. Verrilli Jr. In an exchange that we previously covered on this blog, Mr. Verrilli admitted at oral argument that the exemption question “is going to be an issue.”
Monday, June 22, 2015
The Affordable Care Act (“ACA”) is in the forefront of newspaper coverage these days, with the United States Supreme Court set to decide in King v. Burwell whether enrollees in federal exchanges in states that have not established their own exchanges have subsidized insurance under the ACA. The ACA directly and indirectly impacts a significant portion of the nonprofit sector, both its service providers (i.e., nonprofit hospitals and other health care providers) and its service recipients (i.e., health care consumers). Several articles may interest readers. One is an article published by the St. Louis Post-Dispatch, which discusses the consolidation of the health care industry (and its likely effect on pricing) wrought by the ACA. Another article, this one from the Los Angeles Times, maps out the various legal arguments (e.g., textualism, administrative agency deference, and protection of states’ rights) that could sway Supreme Court justices as they decide the Burwell case. Perhaps most interesting of all is a piece by Emily Bazelon, who, writing for the New York Times, takes a somewhat scholarly look at the role of empiricism and consequentialism in judicial decisions, and speculates how they might affect Burwell and other cases currently before the Supreme Court.