Monday, January 12, 2015
As reported here on your faithful Nonprofit Law Prof Blog by Roger Colinvaux, the IRS issued final regulations under Section 501(r) on the requirements for nonprofit hospitals at the very end of last year.
Over the weekend, The New York Times did a report on these regulations, focusing on efforts to stop "aggressive tactics to collect payments from low-income patients." To me, the most interesting part of the article isn't the summary of the regs with regard to collections - it's the quote (and accompanying picture) from Senator Grassley: "Nonprofit hospitals and for-profit hospitals have often been indistinguishable... The rules make clear that tax-exempt hospitals have to earn their tax exemption."
It seems to me that Senator Grassley has been some what low key on charitable issues in the past few years - I'm guessing we will be hearing more from him with the resurgence of Republicans in Congress.
For other coverage of the final regulations:
-briefly, at Independent Sector
I'm happy to add any other links that people have found useful.
Tuesday, January 6, 2015
With the New Year just six days old, The Nonprofit Times has published its top five fundraising trends for 2015: conversion optimization, or improving donation flow to raise more money; the ability to engage with Millennials; donor retention and treating all donors as if they are major donors; online fundraising and mobile; and the ability to share stories in a very visual way.
The Times quotes Rich Dietz, senior product manager for digital fundraising for Abila Software in Austin, Texas, as saying that “2015 will be a big year and a transitional year for the nonprofit sector as business-minded tactics slowly gain ground and organizations think about increased growth versus simply being sustainable. Engagement strategies will reach new levels as Millennials continue to emerge in importance and nonprofits think about the best way to interact with their supporters.”
Dietz's predictions for 2015 fundraising include:
- Conversion Optimization: Organizations will begin to think about how to better convert existing website visitors versus simply attracting new visitors. This is a business practice that many small businesses have adopted recently and will work well for nonprofits. Conversion optimization revolves around measuring, testing and optimizing the donation flow to raise more money.
- Millennial Engagement: According to The Brookings Institute, Millennials will make up 75 percent of the workforce by 2025. As Millennials enter the workforce and have money to spend, organizations will need to put strategies in place to best engage this demographic. Many follow a different path to becoming a donor than is traditionally done and nonprofits will need to adapt to these differences.
- Donor Loyalty and Lifetime Value: Tracking donor engagement will be crucial. Organizations will spend more time analyzing characteristics and behaviors of all of their constituents — not just major donors — to better understand what drives their giving behavior. By tracking donor engagement, organizations will be able to further segment their appeals, personalize their outreach to donors, significantly increase donor loyalty, improve lifetime value, and treat all donors like major donors.
- Online and Mobile: Online and mobile have played an increasingly key role for organizations the past few years, and that will continue in 2015. Social will play a key role in the “attention economy,” and responsive design will be necessary to allow supporters to access an organization’s website at any time from any device. 2014 was the tipping point for more web traffic coming from mobile devices than desktop computers. According to Pew Research Center, more than 90 percent of all Americans own a cell phone.
- Storytelling Becomes Visual: Creating a narrative and sharing a story has always been important for nonprofits to successfully engage donors, but doing so in a visual way is becoming essential. Organizations will have to find creative and innovative ways to engage supporters in a world full of distractions, and visual components are key. Web posts with visuals drive up to 180 percent more engagement and research indicates people process visuals 60,000 times faster than text.
Vaughn E. James
Friday, December 19, 2014
Nonprofits today are turning to creative collaboration to accomplish their goals. For-profits have long utilized various forms of collaboration to capture market share. With a foray into collaboration, nonprofits now must determine the extent to which collaboration will be legal versus non-legal. The Stanford Social Innovation Review recently featured an article entitled “Collaboration-palooza” that shows the four main types of collaboration nonprofits are using and where they fall along the spectrum of legal forms. The article also deals with the impediments to collaboration. Specifically, the article details the following three:
“Along with strong momentum across the collaboration spectrum, we found three inconsistencies between funders and nonprofit leaders that are creating barriers to collaboration done right.
1. Struggling to find philanthropic support A significant barrier is nonprofit leaders’ perceptions of low philanthropic support across the collaboration spectrum. Fewer than 20 percent of nonprofit leaders said they received support from their funders during the process, and more than 50 percent reported no support whatsoever for any form of collaboration. Leaders pointed to especially low levels of funder backing for sharing support functions, which are usually intended to lower operating costs and free up funds to expand programs. This foots with survey data from Grantmakers for Effective Organizations 2014 report Is Grantmaking Getting Smarter, which found that 53 percent of funders never or rarely funded collaborations and only two percent did so consistently. Yet, strikingly, the reason funders most frequently cited for failing to support collaborations was that their grantees didn’t ask. Further, they told us in follow-up interviews that they worried they would inject bias if they initiated the conversation. A program officer in Pennsylvania said, “We have to be careful. Whenever I speak up at a meeting, I get a proposal about the idea!” But the same funder told us that when grantees came forward with a plan to collaborate, he was eager to support it.
2. Difficult match-making A second barrier to collaboration lies in finding the right partners and negotiating respective roles. Nonprofits and foundations both cite defining relationships and roles as a top challenge to collaboration. But nonprofits rated finding the right partner as the biggest barrier, while foundations rated it the smallest one. In our study, helping nonprofits find partners was the most common way that funders supported collaboration, but they said they needed to tread cautiously: “I don’t feel comfortable recommending partners,” said a Chicago grantmaker. “In part I worry that nonprofits might take my word as dictate, but also I feel that they need to be committed enough to do their own homework.”
3. Unsuccessful joint programs A third challenge is the disparity between funder and CEO perceptions about which forms of collaboration fail more often. Funders see joint programming as the most successful form of collaboration. Nonprofit CEOs, on the other hand, found that the more integrated forms (shared support functions and mergers) were most likely to succeed and cited joint programs as having the highest failure rate (20 percent).”
If collaboration nonprofits are able to show overall better returns, i.e., social impact, the first barrier will be largely resolved. Donors could play a role in the second barrier if they have enough information about the social impact various charities are having. A push in the sector toward using legal forms, such as mergers, would assist with the overall success rate.
The full article is available here.
Wednesday, December 17, 2014
As nonprofits and for-profits increasingly compete in the same fields, several legal issues are emerging. Two of the main issues are the following: (1) UBIT and (2) for-profit attempts to limit the market nonprofits can attract. Nonprofit Quaterly featured an article highlighing this tension, which explored Alabama Dental Association's (ALDA's) opposition to the expansion of Sarrell Center, a nonprofit that provides dental treatment to poor children. ALDA has considered advancing state legislation to "control" the nonprofit, and Sarrell brought a suit against the University of Alabama at Birmingham when it announced its students were no longer available to volunteer at Sarrell clinics. Even the YMCA has been under attack from for-profit exercise clubs in Idaho. Ultimately the Board of Equalization decided to impose a 19% tax on YMCA profits. The issue has arisen in numerous areas, including day care centers, theaters, etc. The line between nonprofits and for-profits has been overlapping tremendously, and unfair competition appears to be an issue that will persist. Read more about this issue here.
Tuesday, December 16, 2014
Although charitable contributions traditionally have been perceived as a contract between the donor and the charity, donors who are displeased with how their funds have been used are asking for refunds according to a recent WSJ article. In fact, some courts are starting to recognize donors’ rights over gifts after they have been given. This highlights the need for greater transparency and accountability in terms of charitable giving. The tools used in impact investing could prevent such drastic donor disappointment. It is really the result of the larger problem of uninformed giving. In an upcoming article, I examine how the tools used in impact investing can solve it. First, we must provide donors with a way to measure “return” on their investment, i.e., social impact. An impact investing tool that provides a standardized set of metrics for measuring social impact is the solution. However, not all charities merit review under this tool, and we must limit the group of charities that will undergo this review by conducting an initial qualitative analysis. Second, we must enable donors to select charities based upon a comparison of their level of social impact. The current rating system used in impact investing will achieve this end in the charitable sector as well. The article proposes a system for evaluating and rating charities by applying the tools of impact investing in order to establish what I have termed an efficient charitable market. It shows the end result will enable U.S. charitable investors to make even smarter decisions that dramatically better our world. In terms of a side note, it will also help prevent donors from seeking refunds.
Monday, December 15, 2014
A few days ago, the Aspen Institute issued a report entitled The Bottom Line: Investing for Impact on Economic Mobility in the US. The report shows how impact investing is increasing economic mobility for low-income families. The report is another example of how the nonprofit sector may have serious lessons to learn from the impact investing sector.
The report is available here.
Friday, November 21, 2014
The most recent issue of Nonprofit Advocacy Matters, published by the National Council of Nonprofits, is out. Stories include discussions of what is on the table in the lame duck session of Congress, the spending reduction pressures facing several state and local governments, statewide ballot measures and constitutional amendments that were passed by voters earlier this month and that affect nonprofits, and tax & fee proposals in Oregon and Hawaii of relevance to nonprofits.
In addition, in its “Worth Quoting” section, the issue highlights an interesting observation of Ann Goggins Gregory, COO of the Greater San Francisco Habitat for Humanity:
Overhead in the for-profit world—sales, general and administrative costs as a percentage of total sales—is 25% across all industries and 34% for service industries. The cruel irony of holding nonprofits to a much tougher standard is that donors often say that they do this because nonprofits ought to ‘run more efficiently, like a business.’ Most people don’t know the overhead of businesses because profitability matters more.
The point is rather thought-provoking, and prompts some questions. The following come quickly to mind: At what point does too much emphasis on reducing overhead lead to work environments that hinder the productivity of nonprofits’ employees? How much of for-profit firms’ overhead is better viewed as a form of disguised compensation to employees? Can we devise better metrics of social value produced by nonprofits and examine correlations between social output and overhead? Who receives the primary, direct benefit of various types of overhead? Is there a way to analyze whether nonprofits in certain fields should have higher overhead than others by studying differences in overhead incurred by for-profit firms in different industries?
Wednesday, November 19, 2014
In Former Controller of Medical Nonprofit Is Charged With Embezzling $1.8 Million, the New York Times reports that Karen Alameddine, who served as the controller of the New York-based Hereditary Disease Foundation from September 2005 through January 2014, has been charged with embezzling more than $1.8 million of the nonprofit’s funds. Further details appear in the story:
Federal prosecutors in Manhattan said in a criminal complaint unsealed on Tuesday that Ms. Alameddine began diverting money by disguising entries in the foundation’s accounting software “to make what in reality were transfers to her personal bank account appear as if they were wire or bank transfers” to grant recipients.
The government said Ms. Alameddine, who also went by Karen Dean, worked for the organization in recent years from her residence in Perris, Calif. The funds she diverted went into accounts she controlled with names like Abacus Accounting, Chez Cheval Ranch, Dean & Co. and Karen Dean Exports, the complaint said.
The alleged scheme reportedly came to light after Alameddine’s departure, when the foundation investigated a complaint from a grant recipient that he had not yet received his check from the foundation.
Monday, November 17, 2014
In Era Ending in International Adoption, The Philadelphia Inquirer reports that Pearl S. Buck International, a nonprofit that for years has worked to find homes for children unlikely to be placed in families through typical adoption agencies, has terminated its international adoption operations. The change is portrayed as a sign of the times – a perfect storm of legal, economic, and cultural factors now stifling international adoptions. According to the story,
A paradigm shift is taking place in countries across the globe, including the United States, that have enacted more restrictive adoption policies. As a result, the international adoption rate has plummeted by 70 percent since 2004 and squeezed out some long-established programs, such as the one founded by Buck.
"What we're seeing is the end of an era," said Adam Pertman, president of the Massachusetts-based National Center on Adoption and Permanency and author of the book Adoption Nation. "International adoption as we've come to know it is morphing into something new and something different and something that involves far fewer children."
Factors reportedly contributing to the legal restrictions that are reducing international adoptions include nationalism, economic improvement in some countries that historically have welcomed international adoptions, and concern over past illegal trafficking in babies and profit-motivated corruption.
Also mentioned is the United States’ ratification of the Hague Convention on Intercountry Adoption. The story continues:
The new regulations, which advocates support, have added extra financial burdens in the way of more social workers as well as more costly insurance and fees. For Pearl S. Buck International, the confluence of higher costs and fewer children led to the program's demise, CEO Janet Mintzer said.
"You can't really support an adoption program when you have seven adoptions," she said. "It just doesn't make sense for us as an organization."
For Pearl S. Buck International, the new reality means that it “will continue its mission of serving children through child sponsorship and running cultural exchange programs” with foreign countries.
Thursday, November 6, 2014
Last year a privacy debate erupted at Harvard when it was revealed that the university had searched the email accounts of 16 junior faculty members. The debate prompted a major self-examination and promises by the administration to do better.
Today's New York Times is reporting that the prickly topic is back. This time, the university has acknowledged that as part iof a study of attendance at lectures, it had used hidden cameras to photograph classes without telling the professors or the students.
While students and faculty members did not view the secret photography as serious as looking through people's email, it struck them as out of bounds -- or, at least, "a little creepy." It also set off more argument about the limits of privacy expectations.
The Times reports Jerry R. Green, a professoir of economics and former university provost, as saying, "I wouldn't call it spying, but I don't think it's a good thing."
The Times continues:
Some students called the secret photography a violation of trust, while others shrugged it off because cameras are already ubiquitous, said Sietse Goffard, a junior who is vice president of the Harvard Undergraduate Council. “It’s a question I’m still really conflicted about,” he said.
The episode comes as the university is getting familiar with a new honor code that will go into effect next year. That code, Mr. Goffard said, “stresses the importance of transparency and community trust.”
Carolyn O’Connor, a first-year student, said she would be concerned if the pictures were made public. But “if it’s for academic reasons, I don’t have a problem with that,” she said.
Researchers at the Harvard Initiative for Learning and Teaching set up the cameras to investigate professors’ complaints that many students skipped lectures, and that attendance dropped as a semester wore on. (The photos confirmed both points.) The researchers were concerned that letting professors or students know could skew the results.
They received clearance from Peter K. Bol, a vice provost, and took still images in the spring in 10 classes, which have not been identified, with a total of about 2,000 students. Administrators said that students were not tracked, that professors were not judged on the results, and that after attendance figures had been compiled, the pictures were destroyed.
Harvard's respect for privacy is a touchy subject because of the email search of last year. When word broke of those searches, many professors were furious, arguing that although the university owned the email system, the professors had an expectation of privacy. In response, the administration adopted a policy on electronic privacy.
This time around, the photography has not drawn the same kind of reactions. "This should have been done better," the Times quotes Wilfried Schmid, a mathematics professor, as saying. "This is not in the same league as the email searches. It's more like a lack of courtesy."
Vaughn E. James
With Republicans poised to take control of the Senate following Tuesday's elections, Alex Daniels writes in the Chronicle of Philanthropy that it is likely that lawmakers will dig deep into the Internal Revenue Code soon after a new Congress is sworn in next year. Daniels continues:
While that means added scrutiny on the charitable deduction and the tax treatment of nonprofits, charity leaders are confident a solidly Republican Congress will keep their cherished provisions intact.
Before the current Congress wraps up its business, however, charity officials expect lawmakers to consider certain items in the tax code, including moving the deadline for claiming the charitable deduction from the end of the year until April 15 as well as a set of tax preferences that are usually renewed each year.
Also, Congress has yet to take action this year on the "tax extenders," expiring provisions of the tax code that include benefits for land conservation, donations to food banks, and contributions to charity made from certain retirement accounts.
Republicans strengthened their hold on the House of Representatives, and will hold at least 52 seats in the Senate. Michelle Nunn, a nonprofit executive who ran for the Senate in Georgia, was among the candidates Democrats were counting on to help them keep control of that chamber, but she was defeated handily by Republican David Perdue.
Next year, when Republicans control the Senate and operate with an even stronger hand in the House, they are likely to consider a much more comprehensive tax overhaul. While the chances of enacting the first major changes to the tax code since 1986 are slim, some say, any legislative action during the next session of Congress will set the stage for future tax debates during the 2016 presidential campaign.
Daniels lists five top issues he says nonprofit organizations are watching for legislation and executive action:
- Internal Revenue Service rules governing 501c(4) social-welfare organizations. The IRS is considering what constitutes political activity by these groups and whether their donors can remain anonymous.
- Foundation excise taxes. The House has passed a measure to simplify and lower this tax to 1 percent.
- A proposal to require donor-advised funds to pay out at least 5 percent of their assets each year.
- The provision of federal support for social-impact bonds that fund "pay for success" efforts at the state and local levels.
- Pending rules that limit how to conduct federated campaigns. The United Way hopes a Republican Congress will remove recently added federal regulations.
Time will tell whether Alex Daniels is correct.
Vaughn E. James
Wednesday, November 5, 2014
Yesterday's NonProfitTimes had some pretty good news: as the economy continues to recover from what the Times labels "the Great Recession," the nation's largest corporations have increased their charitable giving. Between 2010 and 2013, says the Times, nearly two-thirds of these corporations increased their giving. This increase in giving is often driven by performance: "revenue increased a median of 11 percent among companies giving 10 percent or more between 2010 and 2013."
The Times explains that
Those were some results from Giving In Numbers, an analysis of corporate giving by the Committee Encouraging Corporate Philanthropy (CECP) and The Conference Board, both based in New York City. Data comes from 261 corporations representing more than $25 billion worth of giving in 2013. Median total giving was $18.46 million per company.
Central to the study was a matched subset of 144 companies that provided giving data in all four years, 2010 through 2013. More than half of the 64 percent of those companies in the matched set that increased giving increased by 10 percent or more. In that matched set, aggregate giving went up 15 percent, from $15.22 billion in 2010 to $17.55 billion in 2013. Non-cash contributions — product donations and pro bono services — accounted for 90 percent of that increase.
Pro-bono service is the fastest growing employee engagement program. Companies offering pro-bono service jumped from 35 percent in 2010 to 50 percent in 2013. However, pro-bono was only 19 percent of all noncash giving. Product donations were king in 2013, making up an average of 60 percent of noncash giving. Other noncash contributions clocked in at 21 percent of noncash gifts.
Growth, however, slowed last year compared to prior years analyzed in the study. Among companies that increased their giving, their change in median giving was 6 percent, down from 17 percent in 2012 and 21 percent in 2011. Companies that decreased their giving did so by 6 percent in 2013, compared to 1 percent in 2012 and 5 percent in 2011.
For the 10 percent of organizations in the matched set that reported a slight decrease (less than 10 percent), many cited a one-time spike in giving in response to Hurricane Sandy in 2012 as the reason for a slowdown in 2013. Those companies giving significantly less (10 percent or more) reported company-wide cost reductions, corporate divestitures and transitioning away from cause areas previously supported.
While respondents classed as Fortune 100 companies (of which there were 52) gave much higher than average, giving fell for those companies between 2012 and 2013, from a median $66.29 million in 2013 to $62.94 million in 2013. “Several (Fortune 100) companies have begun better aligning their corporate giving focus with their business strategy, resulting in a transition away from unaligned partnerships. Several survey respondents cited this as a reason for the decrease in giving,” wrote report author Michael Stroik, manager of research and analytics at CECP.
As giving climbed, the number of corporate grants dropped from a median of 1,000 in 2010 to 701 in 2013. Grantmaking expenses also fell: median $2.2 million in 2010 to $1.8 million in 2013. “Companies are clearly making fewer grants and contributions staff likely have greater bandwidth to monitor and evaluate grants on an ongoing basis.” More than three-quarters of corporate giving departments measured the outcomes or impacts of the grants they made in 2013.
More than one in three survey respondents (38 percent) expect their giving levels to increase for 2014. About half, or 48 percent, expect no change, and only 13 percent expect a decrease. “Two cause areas, Higher Education and Health and Social Services, could have a strong year in 2014, based on the fact that these two areas were supported more in 2013 by companies that expect to increase their giving than by companies that expect to decrease their giving,” wrote Stroik.
Stroik sees the trends found in the Giving In Numbers report as a continuation of business practices established during the recession. “Companies implemented more strategic and business-aligned community investment strategies during the recession, which continue today,” he said via a statement. “They continue to see the win-win of their more strategic — and in many cases increased — community investments as their revenues rise with their societal engagement.”
Vaughn E. James
Monday, November 3, 2014
The Chronicle of Philanthropy is reporting that a recent "Living with Intent" survey conducted by the nonprofit watchdog group BoardSource found that nonprofit leaders gave their boards an average grade of B minus, and judged trustees to be better at technical tasks like financial oversight than at setting strategy or reaching out to the community.
As in years past, the CEOs cited fundraising as a significant concern: 60 percent of them said it was the area their boards most needed to improve.
BoardSource works to improve nonprofit governance.
According to the Chronicle:
In 1994, chief executives said that 60 percent of their board members gave money to the organization, a figure that grew to 85 percent in this year’s survey. But giving by 100 percent of all board members—the gold standard espoused by BoardSource and other nonprofit experts—was reported by only 60 percent of the respondents in this year’s survey.
Many nonprofit organizations set minimum donations expected by trustees and encourage them to contribute at least that amount and ask others to follow their example. But trustees remain challenged when it comes to asking family members, friends, and colleagues for donations; 43 percent of board members in this year’s survey, about the same as in previous years, said they are uncomfortable asking for money.
The survey also found some signs of improvement in boards’ racial and ethnic diversity, which was rated as more important for boards than including equal numbers of male and female trustees or making sure that organizations recruit trustees of different ages. Respondents reported that 20 percent of their board members, on average, are people of color, up from 16 percent in 2010, but a quarter of the respondents said their boards are all white and nearly 70 percent of respondents indicated they are dissatisfied with the racial and ethnic composition of their boards.
Gender representation among the executive ranks of nonprofit organizations in the survey has improved over the years, but women remain underrepresented as chief executives in large organizations. Women accounted for 65 percent of chief executives in groups with budgets under $1-million; 75 percent among nonprofits with budgets of $1-million to $9.9-million. But among groups with budgets of $10-million or more, only 37 percent of chief executives were women.
Nonprofits appear to be recruiting more board members under 40 years old, with 17 percent of respondents in this year’s survey reporting trustees in that age group, up from 14 percent in 2010.
Nonprofits also are recruiting smaller boards, the survey found. In 1994, the first year of the survey, respondents reported 19 trustees, on average. In this year’s survey, that number dropped to 15.
According to the Chronicle, 850 chief executives and 246 board chairs responded to questions posed by the survey. A free coipy of the findings are available online. BoardSource says it will publish a more complete report on its website in December.
Vaughn E. James
Friday, October 17, 2014
A low-income housing cooperative that sought reconsideration of the IRS’s determination that it did not qualify as a 501(c)(3) received a final determination earlier this month that it indeed fail to meet the requirements of 501(c)(3). The IRS found that it did not operate exclusively for exempt purposes, did not meet the operational test, and possibly allowed its net earnings to inure to private individuals. The membership requirements of the housing cooperative appear to reflect the safe harbor provisions detailed in Revenue Procedure 96-32; however, the IRS’s ruling pointed out that the low income housing in question benefited the individuals who controlled the cooperative. This seems to have been the straw that broke the 501(c)(3) status’ back. One cannot help but ask whether the outcome would have been different if the housing cooperative simply had elected a board that was independent from those residing in the housing.
Thursday, October 16, 2014
An insightful Wall Street Journal commentary addresses the likely outcome for the IRA Charitable Rollover Provision. This provision allows taxpayers aged 70.5 and older to make deductible charitable contributions (up to $100,000) from their IRAs without having to include such charitable contributions in their income. In addition, the charitable contributions count against minimum IRA distribution requirements. The Wall Street Journal concludes that while Congress is likely to extend the provision this year, it is unlikely to do so before the November election. At the same time, it is possible that Congress will restore this break retroactively. The commentary provides a good balance of the implications should Congress choose to extend or not to extend.
Wednesday, October 15, 2014
A concept that I have introduced through scholarly writing and blogged about here is the need for a more efficient charitable market. In August, I commented upon a Vanguard Charitable study that found millennials are more likely to see their charitable giving as a form of investment and thus promote a culture of giving that demands more transparency and accountability, two hallmarks of a more efficient charitable market. A recent NPR broadcast that examined the work of Scott Harrison’s nonprofit, Charity: Water, confirmed just that.
In the segment, Harrison spoke about his dual purpose in forming Charity: Water. First, he wanted to provide clean water to the almost 800 million people globally who lack access to it by building wells. Second, he sought to make an example of how a nonprofit could do its work in a way that would resonate with the next generation of givers. He recounted his own experience of being hesitant to give to charities prior to starting Charity: Water, which stemmed from the absence of information on how a charity would use the funds. Today the nonprofit world is concerned with how approximately 80 millennials make their decisions about giving, and not surprisingly, it is different from the prior generation(s). As stated in my prior post, it is widely accepted that millennials want to view their “donation” as “investment,” and at least one commentator recommends that nonprofits refer to the latter. Another salient point is how technology intersects with millennial giving. Millennials value their time, and as a result, any form of technology that makes it easier for them to invest is preferable. Moreover, the Ice Bucket Challenge that swept through social networks over the summer shows that the desire of millennials to share the details of their lives extends to their giving. In response, Charity: Water is utilizing a birthday campaign where donors can ask their network to donate one dollar for each year celebrated, i.e., $25 dollars to celebrate a 25th birthday. Charity: Water is also placing sensors on its wells, so donors may interact with the impact of their investment in a novel manner. Charity: Water’s innovative approaches are proving successful. They have helped over 4 million more people in twenty-two countries gain access to clean water. Millennials and nonprofits like Charity: Water may just help move giving into the next century and towards a more efficient charitable market.
Tuesday, October 14, 2014
In PLR 201438032, the Service considered whether donations to a nonprofit public benefit corporation that engages in transactions of funds with its foreign subsidiary are tax deductible and whether such transactions would harm its 501(c)(3) status. The PLR confirms aspects of how a transaction between a 501(c)(3) and a wholly-owned foreign subsidiary should be structured to secure a favorable tax result. One question the IRS still has not resolved is whether a donation to a wholly-owned foreign single-member LLC is deductible. The nonprofit world will be waiting.
In the ruling, the subsidiary in question is a foreign nonprofit foundation whose activities, namely seeking to aid foreign orphanages, are carried out internationally. The governing board and governing officers are under the control of the public benefit corporation. The stated purpose of the subsidiary is to carry out the purposes and objectives of the public benefit corporation. In terms of board overlap, at least three of the five board members of the subsidiary are members of the public benefit corporation’s board. In terms of governance, it is clear that the public benefit corporation is involved in each area and ensures that the subsidiary complies with U.S. tax rules and regulations regarding tax-exempt entities, e.g., restrictions regarding private inurement and lobbying expenditures. The public benefit corporation also has the ability to expel members from the board of directors and to dissolve the subsidiary. Under the “Proposed Transaction,” the public benefit corporation may vote to transfer funds to the subsidiary. There are also mechanisms in place to ensure a type of expenditure responsibility-like accountability for the maintenance and use of funds. Finally, the public benefit corporation disallows earmarking, and its board maintains the requisite discretion and control over funds, i.e., does not have an obligation to transfer funds to the subsidiary.
Both of the public benefit corporation’s requested rulings were granted. First, the Proposed Transaction was deemed not to jeopardize the public benefit corporation’s tax-exempt status. Second, donations made to the public benefit corporation were deemed deductible under Code section 170(a). In reaching this ruling, Treasury stated that the Proposed Transaction is consistent with the anti-conduit rules of Rev. Ruling 63-252 and the discretion and control requirement of Rev. Ruling 66-79. Moreover, it looked to Revenue Ruling 68-49 which states that a 501(c)(3) organization does not jeopardize its tax-exempt status by contributing funds to non-501(c)(3) organizations as long as it can show the funds were used for 501(c)(3) purposes. Ultimately, Treasury found the public benefit corporation’s actions congruent with this ruling. In terms of the second ruling, Treasury found that since the public benefit corporation is an organization described in Section 170(c), contributions to it are deductible under Section 170(a).
Monday, October 13, 2014
As the Ebola threat looms, many observers are considering whether the responses of the U.S. government, the CDC, and the World Health Organization, inter alia, are appropriate. Similarly, nonprofit commentators are considering whether private donations of funds and resources from the U.S. are adequate. As one commentator reports, there have been several U.S. private foundations that have made large-scale contributions to the fight against Ebola; in addition, the experience of two U.S. Christian organizations operating in West Africa evinces that publicity helps generate more donations. The U.N. has estimated that $1 billion is necessary to effectively combat the Ebola virus.
A recent article in The Chronicle of Philanthropy has predicted that the first confirmed case of Ebola in the United States will lead to greater charitable donations to stop a further outbreak of Ebola abroad. Several U.S. private foundations have already made multi-million dollar gifts to combat a spread of the virus. The Bill & Melinda Gates Foundation has decided to contribute $50 million to U.N. agencies and other organizations. The Paul G. Allen Family Foundation donated $9 million to the CDC, $2.8 million to the American Red Cross, and $100,000 in the form of matching funds to Global Giving. The William and Flora Hewlett Foundation contributed $5 million to various international health organizations. Moreover, the U.S. government has provided numerous resources, including, inter alia, individuals to build treatment units and training for health-care providers. The USAID has expended over $100 million in an effort to quell the outbreak and is on record for the contribution of an additional $75 million.
At the same time, commentators have denounced U.S. donors as not donating enough. The Director of International Communications at the Red Cross has stated that the Ebola outbreak is not “top of mind as a place to donate” precisely because of the involvement of the U.S. government, the CDC, and the World Health Organization. Nevertheless, SIM USA, a Christian mission organization who had two health-care workers infected with Ebola in Liberia late in the summer, has received sizable donations to support its work in West Africa. SIM USA has seen an increase in volunteers, and although these actions are later than anticipated, they show promise for a mobilization of donors and volunteers to fight the deadly virus. Additionally, Samaritan’s Purse, also a Christian organization working in West Africa, experienced a 13% increase in cash contributions (when compared to last year’s donations) after one of its doctors was infected with Ebola and successfully treated at Emory University Hospital. (For more on Samaritan’s Purse, see JRB’s insightful post). Thus far, $4.4 million of its donations has been designated for fighting the Ebola outbreak. As the speculation about a U.S. outbreak grows, the public’s attention has become more focused on donating to assist with the global efforts already underway, e.g., see the following article on UK donations. For a complete list of non-governmental organizations responding to the Ebola outbreak, see here).
Tuesday, September 30, 2014
Preliminary planning is underway for a group of donors to form a nonprofit organization that would own the U-T San Diego, according to the U-T itself. It looks like the newspaper would stay as a for-profit organizaton, and the nonprofit would own the equity of the for profit. Random thoughts:
- I'm not sure that such a structure would insulate the for profit from political and lobbying concerns. It's an interesting question, however - one they recognize as they state that the editorial policy would be "as inclusive and community-focused as possible. 'Almost by definition, if not be law, a nonprofit has to be nonpartisan.'" Hmmm.
- Could they make the media company an L3C? That would automatically read in the prohibition on lobbying and political activity.
- It looks like a handful of donors would fund the nonprofit. Query whether that means that they would be a private foundation or whether they tried to form as a supporting organization). Either way, they would have to deal with the excess business holdings rules - I would presume they would try to say that it is a functionally related business under Section 4943(d)(3)(A), and therefore, not a "business enterprise" covered by the rules.
- If a private foundation - presumably operating foundation status would be necessary to avoid mandatory distributions under Section 4942.
- Looks like they went ahead and started the Form 1023 process to get approval for the nonprofit, even though the actual transaction to purchase the media company hasn't been consummated.
Anyone have any details?
Monday, September 29, 2014
An article last week in the Washington Post (h/t Chronicle of Philanthropy) discussed a report by the Department of Health and Human Services that indicated that hospitals are experiencing significant declines in charity care and bad debt, thanks to expansions in Medicaid and a drop in the number of otherwise uninsured individuals due to the Affordable Care Act. The report projects $5.7 billion (that’s billion, with a “b”) in savings in uncompensated care costs in 2014.
The first thing that I thought was, “Wow, that’s a big number! Great news!” The second thing I thought was, “Gee, I wonder if that will change how we evaluate nonprofit hospitals.” What that might say about my mental state aside, it will be interesting to see how this structural change to the way we pay for health care works its way through the standards for tax exemption.
I note that the HHS report tracks “uncompensated care,” which it treats as the sum of bad debt and charity care. While the HHS report does indicate that there is a difference between “self-pay” patients and “charity care”, the report is quick to note that not all hospitals break down their reporting this way. (See HHS Report, FN 6). Of course, part of the raging debate is whether bad debt is charity care – the Catholic Hospital Association says it isn’t but not all hospitals agree.
Either way, under traditional formulations of the community benefit standard, charity care is not the be-all and end-all of for exempt status – it might not even be necessary. The recent trend, first evident in the Revised 990 Form’s Schedule H and then in the community assessment report requirements of the ACA, appears to lean toward wanting more discussion and disclosure of charity care as component of tax-exemption, even if that doesn’t appear anywhere formally quite yet. It will be interesting to see if a structural reduction in the need for charity care (however defined) changes that conversation.
Then, of course, there are the states. Having practiced in Illinois at the time of the Provena decision (good summary here), I’m particularly curious to see how that might play out. For those of you who weren’t following Provena, Illinois revoked the property tax exemption for a number of nonprofit hospitals, stating that the Illinois property tax charitable exemption provisions (some of which are in the state constitution) require actual charitable use (as in relieving- poverty-charitable-use) of the property. While denying that charitable use is a numbers game (that is, you need to show that there are enough charitable dollars spent to offset the property tax uncollected) – the court then engages in exactly that mathematical exercise.
I’ve moved from Illinois since Provena came down, but I understand there was a legislative fix (SB 2194 and SB 3261, passed in 2012), that partially codifies this math-based analysis. What happens if a hospital doesn’t meet its charity care dollars spent requirement because they are simply not necessary anymore due to ACA?
I might be going out on a limb here, but I’m guessing that Prof. Colombo might have a thought or two on this…