Saturday, January 9, 2016
The first issue of 2016 of the National Council of Nonprofits’ Nonprofit Advocacy Matters previews legal and policy issues expected to take center stage in 2016. Key topics include the expanding efforts to impose PILOTs by local governments, challenges to state charity property tax exemptions, pressures created by state fiscal weakness, regulations threatening the independence of the nonprofit sector in various ways, and reform of government-nonprofit contracting and grant-making.
Friday, January 8, 2016
Don’t Let the Headlines Mislead You on the Reported Endorsement of Hillary Clinton by “Planned Parenthood”
Across the country this morning, millions awoke to news source headlines proclaiming that presidential hopeful Hillary Clinton is receiving the endorsement of “Planned Parenthood.” The prime exhibit is the headline for the story appearing in today’s New York Times. The print edition reads, “Planned Parenthood Gives First Primary Endorsement in Its 100 Years to Clinton,” and the online version of the Times story reads, “Planned Parenthood, in Its First Primary Endorsement, Backs Hillary Clinton.“ The story in the latter version opens with these words: “Planned Parenthood, which has become an ideological minefield in the 2016 presidential election, said Thursday that it would endorse Hillary Clinton — its first endorsement in a presidential primary in the nonprofit’s 100-year existence.” Stories in some other major news sources lead with similar language. See, for example, the stories published by ABC News and CNN.
Although its headline is also misleading, the story appearing in the Washington Post actually begins with what appears to be the accurate factual account: “The political arm of Planned Parenthood will endorse Hillary Clinton in New Hampshire on Sunday, a Clinton campaign official confirmed.” And therein lies the critical distinction. As the New York Times piece eventually reports, the endorsement is being “technically made through the nonprofit’s advocacy arm, the Planned Parenthood Action Fund.”
“Technically made,” indeed. As exempt organization lawyers are well aware, the identity of the entity that supports or opposes a United States presidential candidate matters greatly. Planned Parenthood Federation of America, Inc. – the health care service-provider at the center of recent controversies over whether it should receive federal funds in the wake of allegations that it has profited from transactions in fetal tissue – is a tax-exempt charitable organization described in section 501(c)(3) of the Internal Revenue Code. As such, to comply with the requirements for federal income tax exemption, Planned Parenthood must “not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Planned Parenthood’s political affiliate is not bound by the section 501(c)(3) limitations.
The reporting of the Clinton endorsement highlights the degree to which, in the minds of many, including journalists, these rules are just “technical” distinctions. But the distinctions are of enormous importance. Consider the pastor of a local church who wants to express a political voice on politics. The pastor is free to do so in appropriate contexts, without having his viewpoint attributed to the legal entity which is the church. Cecile Richards may do the same, individually or on behalf of a political action organization, without having her statements attributed to the charity.
Of course, the reporting of the Clinton endorsement raises the issue that the Planned Parenthood brand is now being used to influence a presidential election, reportedly the first time it has ever been so employed during the primary election stage. The manner in which major media outlets are reporting the endorsement tends to magnify the impact of this brand on the endorsement itself. But a similar point may be made whenever a prominent personality associated with a tax-exempt charity endorses or opposes a candidate. Such a person is free under current law to identify herself by reference to her position with the charity, as long as she is not speaking on behalf of the charity. In each case, a charity’s reputational capital has to some extent been appropriated, either by referring to the charity’s name, or by using a similar-sounding name.
Thursday, December 17, 2015
Every year in my Nonprofits class, in lieu of a standard exam, I give my students a project: take a hypothetical charitable client through the organizational stages of state law creation and preparation of the Form 1023. Typically, I give my students a client based on superheroes, comic books, movies, etc. I do this for a number of reasons - it provides a rich back drop of characters and info for those who wish to use it (but they need not); it engages some students that are often unengaged; it makes reading 20 Forms 1023 that much more bearable; and most importantly, it teaches students to think about clients as they are and to apply general principles of law to even the most outlandish situations. So maybe Charles Xavier isn't coming into your office to form a mutants' rights organizations any time soon, but the issues of politics, lobbying and advocacy remain the same. Clients are clients, the law is the law, and you just never know what will come through the office door.
I really wanted to do a church this year. With all the news around the Satanic Temple and abortion, the Indiana pot church, and the renewed focus on what is a bona fide religious belief brought to you courtesy of Hobby Lobby, I thought the timing was perfect. Trying to find a church was rather difficult, however, as you want something robust enough to be engaging as a teaching tool but you also have to tread pretty lightly around the topic. I toyed with Apocalypse and the Four Horsemen of X-Men fame, but thought it might be too obscure. The pot church was taken.
So, in honor of The Force Awakens, this year my class formed the First Church of the Jedi Knights in America. Many kudos to my colleague Atiba Ellis (go check him out at the Race and the Law Prof Blog) who appeared in class in full Jedi robe as Mace Windu, Jr., the organizer of the First Church, available for student interrogation. As with every project, it had fits and starts. For example, the class soon discovered that the West Virginia Constitution prohibits churches from organizing in corporate form. Who knew? Most shockingly, I had students who hadn't yet seen Star Wars... oh, the humanity!
Life imitates art. Some of you may know that there are actual Jedi Churches in the U.K. especially, so this particular fact pattern wasn't quite as far from reality as say, dealing with the corporate governance issues that arise when members of your board morph into evil lizards (I'm looking at you, Doc Connors!) in that after the final project was done, one of my students emailed me the following article from The Telegraph:
So who knows? Maybe one of my student really will represent Mace Windu, Jr. one day....
Wednesday, December 16, 2015
In honor of Star Wars Day 2015, I'm linking to this article from the Tax Foundation, which clarifies that but for taxes, we wouldn't have the entire Star Wars series, thus proving what I tell my students... tax is, indeed, everywhere....
Linking two things I love, cosplay and charities (I'm a really big nerd) ... may I introduce you to one of my favorite things, the 501st Legion, helping a charity event near you (who said all Stormtroopers are on the Dark Side!)
Now, get in costume, get in line, and may the Force be with you!
(and for the love of all that is the Light Side of the Force, no spoilers!)
Monday, December 14, 2015
There's been an awful lot of pearl clutching going on out there in the media about the Chan-Zuckerberg Initiative, now famously known to be organized as a Delaware Limited Liability Company (LLC - not limited liability corporation, media folks! And yes, it makes a difference.) The December 11th Chronicle on Philanthropy update, which I get in my email, had not one but TWO opinion pieces on it. Personally, I don't quite get all the drama, but I have three working theories, none of which are mutually exclusive. ( I do have to put one caveat out there - my comments are based on the structure as I understand it from media reports, which may or may not be reliable.)
- Tax Deduction? We Don't Need No Stinkin' Tax Deduction. So the first line of attack appears to be that it's all a big tax scam - they get the deduction but they give nothing to charity. As far as I can tell, however (and sort of confirmed in a non-technical way by Zuckerberg himself) is that the LLC is, not surprisingly, not a tax-exempt entity. As a result, the C-Zs won't get an income deduction for funding the LLC; an income tax charitable deduction might pass through to them if and when the LLC actually makes a contribution to a recognized, qualified charity. Which makes it no different than any other for-profit business out there that makes contributions to charity - albeit with way more fanfare and more decimal places at stake.
So maybe all of it is just a fundamental misunderstanding of the tax implications of the LLC? If the notion is that the tax-paying public has a right to certain expectation of a charitable endeavor as a condition of tax exemption, then that notion is misplaced here - at least with respect to the federal charitable income tax deduction and/or tax-exemption from the income tax. I've seen some speculation that there may be some estate and gift planning going on here - but there is a great deal of speculation on that and even so, what makes that any different than any other wealthy person out there? I've also seen reference to evading California income taxes - not sure on that one, but it seems unlikely from my rudimentary knowledge of the California income tax. Would love to hear from anyone from CA with thoughts on that issue.
One set of taxes the Initiative is most certainly dodging is the private foundation excise taxes, which generally were designed to make sure that assets for which a charitable income tax deduction is granted are used for those charitable purposes. It hardly seems surprising that the private foundation excise taxes don't apply to a for-profit entity, for which no charitable income tax deduction has been granted.
2. Let The Eat Charitable Cake. My second theory is a concern over philanthropic oligarchy - in the US, a concern that goes back (at least) to the creation of the first large private foundations during the Industrial Revolution era. If you've read the legislative history to the private foundation excise taxes, one of the repeated themes is an anti-trust type concern (not surprising, I suppose) - the ultra wealthy concentrating and controlling wealth not only in the business sector, but in charitable vehicles as well. I couldn't help but hear the echos of the Patman hearings and reports (which formed much of the basis for the passage of chapter 42) in the criticisms of C-Z. Some also cite to Zuckerberg's recent and widely-criticized foray into donor controlled philanthropic experimentation in the form of the Newark school system. In the Jacobin article linked at the beginning of this paragraph, the author notes, "People like Zuckerberg and Gates are unelected and unaccountable to anyone and face few, if any, repercussions for the negative consequences of their social experiments." In my mind, these concerns undergird the suggestions of Pablo Eisenberg in his editorial in the Chronicle of Philanthropy, which suggests that the C-Z Initiative ought to make public reports, have an independent board, and champion issues of poverty. As Eisenberg states, "The overwhelming majority of superwealthy donors who have signed the giving pledge do not give much, if any, of their money to fight poverty or help marginalized citizens, the neediest nonprofits, or advocacy organizations. Despite what they often claim, tech billionaires are not giving money that disrupts the status quo."
I'm struggling with the question of why? If this is a private enterprise not subsidized by public funds through the charitable deduction, what standing do we have as a society to demand such things? If the entity is not itself charitable as a legal matter, then... so what? Which raises the final question...
3. Or Maybe, We Just Don't Know What Charity Is Any More...? Fundamentally, I really think this is about our fundamental notions of charity as a society. In the initial letter to his daughter announcing the pledge to the initiative, the C-Zs stated...
Friday, December 4, 2015
Just wanted to jump in today to link this post (Back Off the Chan Zuckerbergs and Their Limited Liability Company (NOT Corporation)) from my WVU colleague Josh Fershee, who blogs at our sister site, the Business Law Prof Blog. There is a lot of discussion (and misinformation) out there about the Chan Zuckerberg Charitable LLC structure, and I thought there were some interesting views over there from our business entity friends.
See you next week! Happy finals! EWW
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.