Nonprofit Law Prof Blog

Follow Up: Section 501(c)(4) criminal issues

Just to follow up on my post from earlier this week, at this point there seem to be two leading contenders for the criminal issues involved in the Section 501(c)(4) investigation:

1.  Unauthorized disclosure and use of taxpayer information, specifically including the release of some information to ProPublica; and

2.  If today's hearing was any indication, some members seemed to be interested in pursuing whether IRS officials made full disclosures to Congress in prior hearings. 

EWW

 

The 501(c)(4) TIGTA Report: My Random Thoughts

I have now had the opportunity to go through the TIGTA report as well as listen to this morning’s Ways & Means hearing. Here are some random thoughts and questions on the matter:

1. The report refers to a “BOLO” list (“be on the look out”) of terms that would trigger an additional look. I note this from the report: “[b]ased on our review of other BOLO listing criteria, the use of organization names on the BOLO listing is not unique to potential political cases.” (TIGTA Report, page 6 (my references refer to the .pdf version on the website)). When I read that, the first thing that came to my mind was credit counseling organizations – and in fact, Steve Miller mentioned credit counseling organizations in this respect today. From what I can tell, I think we know that these were not the only terms on the BOLO list, but I don’t think we know what else is on there. Footnote 16 specifically states, “[w]e did not review the use of other named organizations on the BOLO listing to determine if their use was appropriate.”

2. The report’s primary problem with the use of these terms was that “the criteria [in the BOLO listing] focused narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury Regulations. Criteria for selecting applications for the team of specialists should focus on the activities of the organizations and whether they fulfill the requirements of law. Using the names or policy positions of organizations is not an appropriate basis for identifying applications for review by the team of specialists.” (TIGTA Report, p. 7). The TIGTA report does NOT appear to say that the actual scrutiny given was inappropriate – in fact, if the same organizations had been selected for scrutiny using different criteria, that appears to have been appropriate in most cases. Of the 298 applications that were selected for special scrutiny, the Inspector General thought that there were no indicia of additional political activity for 91 (or 31%) of the cases (note that the IRS disagreed with this finding, by the way.) As far as I can tell, we don’t know how many of these 91 cases were “Tea Party”, “912,” or “Patriot” organizations.

3. I am amused and dismayed that suddenly people are worried about Form 1023/1024 processing delays at the IRS. Where have they been? This is new and unique to advocacy 501(c)(4)s, right? Of course it’s not – all of this who work in the nonprofit sector (including the IRS) have complained about Form 1023/1024 processing times for years. Steve Miller was pretty clear today – they simply don’t have the people. Not that I think the IRS hasn’t been entirely clear about this point that in the past. That being said, the TIGTA report does make the point that the cases selected for special scrutiny sat for significantly longer than average for “regular” cases, at least in part due to the fact that it took the Determinations Unit “more than 20 months (February, 2010 to November, 2011) to receive draft written guidance from the Technical Unit for processing potential political cases.” (TIGTA Report, p. 12). To me, this is one of the most troubling aspects of this issue - I am truly concerned about why it took so long to provide that type of guidance. (Side note: the IRS letter indicating that it would cease using resources to look at gift tax return issues with regard to contributions to Section 501(c)(4) organizations was issued on July 7, 2011).

4. The TIGTA report also is concerned that IRS agents have asked for inappropriate information, such as donor lists. I agree – this was probably not appropriate to request donor lists. But, again, this isn’t a new issue. One need only revisit the nonprofit sector’s concerns regarding the governance questions on the redesigned Form 990 to see that we’ve struggled with this problem for some time. In my view, it is yet another side effect of the long standing personnel and budget issues at the IRS. Along these lines, another disturbing (but unfortunately, not surprising) part of the report for me is the finding that the Determinations Unit was sufficiently confused about what constituted appropriate Section 501(c)(4) activity that the IRS had to provide employees with a two-day workshop on the topic – in May, 2012. (TIGTA, p. 14).

5. As I indicated below as I watched the hearings, I am troubled by the notion that follow up questions from the IRS are now burdensome and inappropriate. The organization is asking to be exempt from federal taxation – presumably, we want that status to go only to those organizations that are so qualified. Unnecessary does not equal burdensome. When necessary, a tax-exempt organization should have to shoulder some burden for the privilege of not paying taxes.

From the tenor of today’s hearing, I’m sure there will be more to follow on this issue. EWW

Happening Now: Ways & Means Hearing on CSPAN

Here's the link... it's still going.   I'll try to post the transcript when done. EWW

Update 1 - Just a quick thought as Rep. Earl Blumenauer of Oregon talks about staffing and Congress' role in this issue.   The real lesson to me in all of this is there is a consequence to the long term budget cuts and the attrition in personnel (hiring freeze/retirements, etc.) at the IRS.  I'll say it... it is infuriating to hear some of these folks be shocked ... *shocked I tell you*... that after what's happened with staffing at the IRS over the last 10-15 years that there would overworked staffers and issues with management at the IRS.   The IRS and the bar have been telling you this for years, Congress...

Update 2 - I'm really sort of shocked that Congress people are surprised that asking about a nonprofit's relationship with various individuals is somehow per se inappropriate.   And asking for board member resumes and copies of websites.  I'm not going to say that all of these requests were appropriate, however, the IRS does have to ask follow up questions, folks - follow up questions are not in and of themselves in burdensome.  

Update 3 - Again, my opinion only... this has turned into an anti-IRS free-for-all that, as a tax professional, is hard to watch.  I'm not going to say that the IRS is without fault but this is really troubling.

Update 4 - Apparently, CSPAN will replay the hearing in full tonight at 8 p.m. EST.

EWW

 

 

 

Your 501(c)(4)-gate daily update

First, thanks to Darryll for his insights last night - for the record, I whole heartedly agree.  Lost in this whole discussion is that there is a serious tax compliance issue that needs to be addressed.  As I read all of the news, I can only think of the Ways & Means hearings that were held a few months ago.  I distinctly remember how many pointed questions on Section 501(c)(4)s the committee asked the panel, even though it was really off topic.  I fear that the IRS has been simultaneously told to give guidance and yet do nothing (see also, gift taxes and Section 501(c)(4) contributions) that will mess up the status quo.  I do not envy the position of the folks at the IRS, may of whom I've had the pleasure of working with personally and know to be dedicated civil servants.

The two biggest updates from yesterday in 501(c)(4) gate:

• Yesterday, the Treasury Inspector General for Tax Administration released its report, entitled "Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review."   The link is here, but I will try to update my post below so it's one-stop shopping.   My hope is to provide a more comprehensive review of the IG's report tomorrow for you all.
• To some degree more shocking to me, AG Holder has indicated that a criminal investigation into the issue.   I know many of us are thinking - criminal, really?  On what basis?  The primary speculation at this point is release/misuse of confidential taxpayer information, but there may be other causes of action floating around.  I will try to collect those and do an additional update on that point as well.  

That's all for now... more to follow tomorrow (now that grading is over!) EWW 

501(c)(4)-Gate (We need a better name...)

With apologies for the latness of this post (I plead grading)... I wanted to at least give everyone a summary of where we are with 501(c)(4)-Gate.

As I am sure most of you know by now, the IRS has admitted to using the terms "Tea Party" and "Patriot" in trying to prioritize which Section 501(c)(4) applications to scrutinze.  We have a House Ways and Means hearing on Friday; I don't think a Senate Finance hearing has been set yet but Senator Hatch wants one; a IG report is in the works (a draft portion of which is linked below); and the late word on the street is that AG Holder may be involved soon enough.

For now, I'm just going to highlight some resources in one place and try to keep a master list of relevant documents:

• Lois Lerner's Remarks at the EO Tax Meeting (h/t Election Law Blog with imbedded h/t to EO Tax Journal)
• Baucus Comments, Senate Finance
• Ways and Means Hearing Announcement for this Friday (May 17, 2013)
• May 10 Press Briefing by Jay Carney
• Draft IG Report Appendix Per ABC News
• Treasury Inspector General for Tax Administration Report
• Statement of Secretary Lew on Resignation of IRS Acting Commissioner
• The NYTimes via TaxProf Blog: Should 501(c)(4)'s be eliminated

Paul Streckfus' EO Tax Journal has good coverage if you have a subscription.

If there is something else you'd like to see added to the list of resources, please let me know in the comments or via email.  I am trying to stay with primary sources and not with news articles, for now.

More to follow, no doubt.  EWW

Updated 5/17 to include more links.

10,000 Fewer Nonprofits in 2012

Yesterday, the Internal Revenue Service (IRS) released its Data Book for 2012.  According to the publication, there were 10,000 fewer registered tax-exempt organizations in 2012 than in 2011.  The Book revealed that there were 1,484,818 501(c) organizations for the fiscal year ending in September 2012, compared with 1,494,882 in 2011 – a decrease of 10,064, or about 0.68 percent.

The Book contained some interesting statistics:

• In 2012, the IRS approved 52,615 organizations for tax-exempt status, out of 60,793 applications – an approval rate of 86.5 percent.  The overwhelming majority of applications came from 501(c)3 organizations -- classified as religious and charitable -- which numbered more than 1.081 million last year.  By comparison, there were 909,574 501(c)3’s in the 2002 Data Book – a difference of 170,546, or 18.75 percent.

• The number of tax-exempt organizations and nonexempt charitable trusts dropped by more than 13,000 (or 0.8 percent), from 1,629,149 in 2011 to 1,616,053 in 2012.  Nonexempt charitable trusts were down by 3,000, or 2.26 percent, to just less than 131,000.

• The number of 501(c)3 organizations climbed by 0.163 percent, or 1,761, from 1,080,130 in 2011 to 1,081,891 in 2012.  Among the 17 subsections within section 501(c), only two others saw an increase in their aggregate totals from 2011 to 2012:

•  
  • 501c(1) Corporations organized under an act of Congress, up from 216 to 449 – up 107 percent;
  • 501(c)19, War veterans’ organizations, up from 33,654 to 33,737 – up less than 0.25 percent.

• Almost three-quarters, or 74 percent, of the 60,793 tax-exempt applications filed last year were for 501(c)3 organizations. There were 148 applications disapproved among 501(c), and of those 123 (or 0.237 percent) were 501(c)3 applications. About 8,000 applications classified as “other” include applications that were withdrawn by the organization, were incomplete, or did not provide the required information.

• Of the 51,748 applications for 501(c)3 organizations, about 87 percent, or 45,029, were approved.

• Applications for the largest subsections, with a least 1,000 applications, were approved at a rate of 80 percent or better last year, including:

•  
  • 88.9 percent, 501(c)6, Business leagues, 1,886 applications
  • 83.7 percent, 501(c)4, Social welfare organizations, 2,774 applications
  • 81.7 percent, 501(c)7, Social and recreation clubs, 1,402 applications

• The largest subsections within 501(c) – those with at least 50,000 registered organizations – all saw a decrease in their numbers:

•  
  • - 4.66 percent, 501(c)8, Fraternal beneficiary societies (50,763)
  • - 4.35 percent, 501(c)4, Social welfare organizations (93,142)
  • -2.99 percent, 501(c)5, Labor and agricultural organizations (50,046)
  • - 1.61 percent, 501(c)6, Business leagues (69,198)
  • -1.58 percent, 501(c)7, Social and recreation clubs (56,880)

Last year, the IRS reported a decrease of 18 percent in the number of tax-exempt organizations, and a decline of 7 percent in the number of applications. Those declines were a result of the IRS revoking tax-exempt status of an estimated 385,000 organizations after they failed to file tax returns for three consecutive years, beginning in 2007.

VEJ

 

Asking the wrong questions about the Hurricane Sandy Fund

As some of you may have heard, the charity set up by NJ first lady Mary Pat Christie to provide Hurricane Sandy relief  is under fire from watchdog groups.  It has raised around $32.0 million so far, but hasn't made any distributions in the four months from the date of the storm (as of the March 11 article).  This article in the Asbury Park Press raises a number of questions about the fund:

- Why is it taking so long?

- Why are you running it when you have no charity background?

- Why did you hire your protocol assistant as ED?

- Why is she getting paid $160,000 a year?

- Why aren't you giving funds to individuals?

- Is this all just a political stunt for your husband?

The article compares the fund to other organizations that have moved more quickly to provide Sandy relief, such as the Robin Hood Foundation.  In response to all of these questions, Mrs. Christie answers that, unlike the Robin Hood Foundation, her organization is new.  They have a small administrative budget and small staff.  In discussing the delay in distributing funds, she cites the learning curve in getting a charity up and functioning and the lessons learned from other disaster relief organizations.  She also indicates that she plans to be around for at least two or three years while the clean up continues.  

I will take it as a given that she is trying to doing something good for her state with only the best of intentions.  I also think that many of these questions have legitimate answers - four months from start up isn't a long time at all in the grand scheme of the life cycle of a charity.  Fair enough.  But given these answers, why didn't the reporter ask the question that first jumped out to me:

- Why was it necessary to set up a new organization in the first place?

If the problem is that you have new people setting up a new charity and that's why you are slow - you had an option.  That option would have been to utilize an existing charity with established procedures and experienced people?  Were there really no existing charities in the state of New Jersey that would have been willing to work with the Governor and the First Lady to set up a structure to address the needs of the population after a disaster of epic proportions?  Maybe someone who has more experience with the New Jersey charitable community can tell me otherwise, but a quick Google search brought me here, for example.

In practice, I lamented the proliferation of charities - in the best of circumstances, these new charities were the products of good intent, unbridled optimism, and poor planning.   I often tried to talk clients out of setting up new charities by encouraging them to find a partner with whom to work (what lawyer tries to talk herself out of work!), but I was rarely successful.   Now that I can think about the sector more holistically, it has caused me to wonder whether we should be making it more difficult to set up a new charity.  In looking at the recent efforts of the IRS, it seems to me there has been a trend to making it less difficult - the Form 1023 online project, the removal of the advance ruling period, the increase in the filing limits for the various flavors of the Form 990, to think of a few items off the top of my head.  

Of course, the benefit of a lower barrier to exemption access is that it encourages innovation and experimentation in the sector - a potentially inefficient but worthy outcome.  The cost of raising the barrier of access would be the "conglomeration" of charities.  Is that an acceptable price to pay to address the issue of duplicative administrative costs and the need efficient and timely operations - especially in a time when private charity plays an increasing role in the delivery of social services?  Would it really be any better?

I don't know.  Just throwing it out there.  EWW

 

 

 

Are There Exemption Issues with Law Schools Running Their Own Law Firms?

A hot topic in legal education recently has been the concept of law schools opening affiliated law firms as a way to "bridge the gap" from law school to practice.  For several links about the concept, visit Paul Caron's Tax Prof Blog and Johnny Buckles' prior post (along with the perceptive comment) here.

Would law schools opening law firms for students create tax exemption problems?  My view is "almost certainly not" though the issues depend in part on the exact structure involved. While I could probably write a book-length post about this, I'll try to simply highlight what I see as the key issues and a few thoughts.

First, I'll address a situation in which a law school operates a law firm as a part of the law school (e.g., the firm is not a separate legal entity).

The main question raised by this structure (a law school operating law firm as an "operating division" of the school itself) is whether the "commerciality" limitation somehow imperils the law school's tax exemption (this is probably only an issue if the law school is a private institution; state university law schools generally do not have to rely on Section 501(c)(3) for tax exemption; state universities are exempt either under Section 115 of the code as an "instrumentality" of state government or by simple constitutional principles of federalism; Ellen Aprill at Loyola Los Angeles has written the bible about this issue).

While the commerciality limitation is very complex, I have little doubt that it poses no trouble for law schools running law firms. Commercial activity raises essentially two issues for charities.  The first is whether the activity endangers their tax exemption.  The second is whether, if the activity is OK from an exemption standpoint, the activity will nevertheless be subject to tax under the Unrelated Business Income Tax (UBIT).  These issues are related, but not the same.

Let's concentrate on the exemption issue.  The regulations make clear that charities can engage in some activity that is not itself charitable.  The way the regulations put it is that a charity must engage "primarily" in activities that further its charitable purpose and cannot engage in more than an "insubstantial" amount of activities that are not "in furtherance of" a charitable purpose. See Treasury Regulations 1.501(c)(3)-1(c)(1).  

While there is some disagreement regarding what the phrase "in furtherance of" means in this regulation, the way I analyze these problems is by first classifying commercial activity as "related" or "unrelated" activity per the unrelated business income tax.  If a commercial activity is "related" under the UBIT, then it is no problem whatsoever for the charity, because the test for relatedness under the UBIT requires "functional" relatedness - that is, the commercial activity has to be closely connected to the charity carrying out its exempt purpose.  This test is not met simply because an activity provides an income source for the charity to spend on charitable works; the regulations state that to be related, there must be a "causal connection" between the activity and the charitable purpose.  Regs. 1.513-1(d)(2).  A commercial activity that meets this test for UBIT purposes is virtually certain to be an activity that is "in furtherance of" a charity's charitable purpose for purposes of Regs. 1.501(c)(3)-1(c)(1), and hence is not a problem.  In fact, Example 1 in the regulations, dealing with a performing arts school that charges admission for student performances, isn't far-removed from the law school law firm.

If an activity is unrelated, then in theory that activity can create exemption problems for the charity. This is where those of us that work in the area disagree; some people believe that an unrelated activity must be "insubstantial" (whatever that may mean) in order to avoid exemption problems.  I take a different view: I think that an unrelated activity can be "unlimited" in size as long as revenues from that activity are being used by the charity to expand charitable outputs.  See, e.g., John D. Colombo, Reforming Internal Revenue Code Provisions on Commercial Activity by Charities, 76 Fordham L. Rev. 667, 671-74 (2007).

But I don't think we get to that latter question here.  If law schools operate a law firm as part of the educational enterprise to bridge the gap between law school and practice, I have little doubt that the law firm would be viewed as "related" activity under the UBIT, and hence simply not a problem.  The law-school-operated-firm is pretty clearly advancing the educational mission of the law school; if an art museum can sell art reproductions in its museum store as a means of furthering its educational mission (see Rev. Rul. Rev. Rul. 73-104, 1973-1 C.B. 263), there really isn't much to argue about with the law-school law firm.  (Another relevant precedent is the "medical practice plan" used by some medical schools for their faculty to practice medicine as a means of both supplementing their salary and sharpening their practice skills; while the IRS at one time challenged exemption for these practice plans, the agency lost a series of cases and eventually gave up.  See, e.g., University of Massachusetts Medical School Group Practice Plan v. Comm'r, 74 T.C. 1299 (1980).  If a medical school can open a for-profit medical clinic for its faculty, I don't see a law school opening a law firm for its students/recent graduates as much of an issue).

So my conclusion is that a law-school operated law firm is a "related" activity under the UBIT, and therefore poses no commerciality problems to the law school's underlying exemption.  That conclusion also means that the revenues from the firm would not be taxed under the UBIT.

A more interesting question arises if the law firm is a separately-incorporated entity.  In this case, the issue would be whether this separate entity would qualify for a charitable tax exemption at all.  I personally find this a closer case.  The IRS's position is that separate corporate entities must "stand on their own" for exemption purposes - the law firm in this case would have to have its own charitable purpose.  One possibility, of course, is that the law firm would be exempt as an educational organization - after all, the purpose here is still an educational one: to give third-year students or recent graduates specific skills training as a bridge to private practice.  But the IRS takes a dim view of organizations claiming exemption when all they do is operate a for-profit business.  While a law firm whose primary purpose was to represent the poor would have an easy claim to exemption, the IRS's general view is that providing services to people who can pay for them, like the middle class, isn't a charitable purpose.  See Rev. Rul. 70-585, 1970-2 C.B. 115, Situation 4, where the IRS held that an organization whose purpose was to build affordable middle-class housing in an otherwise wealthy neighborhood was NOT a charitable purpose.  Even nonprofit hospitals must provide "something extra" beyond simply providing health services to paying patients to qualify for exemption.  See IHC Health Plans v. Comm'r, 325 F.3d 1188 (10th Cir. 2003).  So I'm not entirely sure that a separately-incorporated "bridge" law firm would get exemption.  It would be very interesting to see how the IRS would rule on such a creature.

But if the law school operates the firm as part of the law school legal entity, I just don't see much of a problem from an exemption perspective.  Perhaps some others would like to chime in via the comments section with their own analysis (the comments are moderated, so it might take a day or so for them to show up).

JDC

 

Nonprofit Hospitals: "Community Benefit" Not Excessive Compensation is the Problem

In a provocative post on Economix today, Uwe Reinhardt casts nonprofit hospitals in the role of the true villians behind soaring healthcare costs and vicious billing practices riping apart the middle class:

Americans are shocked, just shocked. But what they should have known for years is that in most states, hospitals are free to squeeze uninsured middle- and upper-middle-class patients for every penny of savings or assets they and their families may have. That’s despite the fact that the economic turf of these hospitals – for the most part so-called nonprofit hospitals – is often protected by state Certificate of Need laws that bestow on them monopolistic power by keeping new potential competitors at bay . . . As George Bernard Shaw, whose works include “The Doctor’s Dilemma,” might have put it, that any lawmaker would grant hospitals monopolistic powers plus the freedom to price as they see fit is enough to make one despair of political humanity. . . . All manner of amazing behavior can hide under the pious label of “nonprofit.” A giant, inscrutable economic sector, in command of trillions of dollars in resources, nonprofits are governed by nonelected, self-perpetuating boards and virtually no effective accountability to any “owners” or the general public. By comparison, for-profit institutions are paragons of good corporate governance, transparency and accountability; I shall comment more on that in a future post. 

The posts goes on, painfully describing how the focus on "community benefit" and the sensationalism of hospital executive compensation has done nothing but obscure the real problem and thus the real solution. 

It should be possible to compensate hospital executives well without treating middle-class uninsured people like lemons to be squeezed fiscally. After all, as Mr. Brill shows, these so-called nonprofit hospitals typically have ample profits that would permit humane comportment in billing the uninsured while paying executives enough to retain them.

Read the post for Reinhardt's solution to the mess he lays at the feet of nonprofit hospitals.  All I can say is that economist may be no better at predicting economic outcomes than siesmologists are at predicting earthquakes, but the best of them sure are good at calling the rest of us stupid.

 

dkj

IRS Expands Voluntary Worker Classification Settlement Program

Here's something else about the IRS...

Earlier this week, the Internal Revenue Service announced that it has expanded its Voluntary Classification Settlement Program (VCSP), paving the way for more taxpayers to take advantage of this low-cost option for achieving certainty under the law by reclassifying their workers as employees for future tax periods.

According to the IRS, the agency is modifying several eligibility requirements, thus making it possible for many more interested employers, especially larger ones, to apply for this program.  Thus far, nearly 1,000 employers have applied for the VCSP, which provides partial relief from federal payroll taxes for eligible employers who are treating their workers or a class or group of workers as independent contractors or other nonemployees and now want to treat them as employees. Businesses, tax-exempt organizations and government entities may qualify.

Under the revamped program, employers under IRS audit, other than an employment tax audit, can qualify for the VCSP.  Furthermore, employers accepted into the program will no longer be subject to a special six-year statute of limitations rather than the usual three years that normally applies to payroll taxes.

VEJ

IRS to Post Updated List of Organizations That Lost Tax-Exempt Status

Today's Chronicle of Philanthropy is reporting that beginning in March, the Internal Revenue Service plans to start posting a more up-to-date list of organizations that have had their tax-exempt status automatically revoked for not filing proper paperwork.

In the past, the IRS has waited for six months after taking action to release the names of nonprofits that no longer hold charity status because they failed to file legally required documents for three consecutive years.  Going forward, however, the tax agency will release names a month after a group has lost its exemption.

In announcing the change, the IRS said: “Because of this change, the number of organizations added to the list in March 2013 will appear higher than in other months because it includes a catch-up period of about seven months.”

The Chronicle reports tax experts as saying that the change is good for potential donors who need to know if a group remains tax-exempt.  Donors cannot claim a charitable deduction for any gifts made to an organization after the date the IRS announces the revocation of its tax-exempt status.

VEJ

Target to Offer Education Grants

National retailer, Target, has announced a charitable initiative designed to bring arts and cultural experiences directly to K-12 children.  The company will be awarding grants of $2,000 for programs that enhance the classroom curricula by bringing the arts and cultural experiences to schools via in-school performances, artist-in-residency programs and workshops, among others. Programs must take place between September 2013 and August 2014.

Grants will be restricted to K-12 educational institutions and organizations with tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.

Applications are accepted between March 1 and April 30 each year, with grant awards announced in September.

VEJ

$15 Million in Grants Aimed at Improving School Performance

Americorps has announced the availability of $15 million in grants for the nation’s most underperforming schools, this through a new program called Turnaround AmeriCorps.

According to Samantha Jo Warfield, acting press secretary of the Corporation for National and Community Service (CNCS), the $15 million -- from both CNCS and the U.S. Department of Education -- will fund nonprofits, civic organizations and local government entities working directly in the schools and utilizing AmeriCorps members.  Grant applications are due on April 23; funding announcements are expected in July.

The NonProfitTimes reports Warfield as saying: “What’s really great about this program is AmeriCorps members will be providing direct services within schools.  It’s an innovative way of tackling some of the pressing challenges facing our communities.”

The Times continues:

Warfield said the number and dollar amount of the grants depend on the number of applicants. There are no target start dates for programs yet. Likely programs include helping students with reading and math, helping them navigate college entry and financial aid applications, raising the graduation rate of the schools and working to improve non-academic success factors such as discipline, attendance rates and school safety.

“The list (of projects) runs the gamut of services and a lot of that will speak to the organizations that seek to apply,” said Warfield.

School Turnaround AmeriCorps will be a new program to which AmeriCorps members can apply, much like FEMA Corps, formed last year. Warfield said her CNCS’s focus at the moment is on ensuring a robust pool of AmeriCorps applicants. “A successful AmeriCorps member is going to be someone really passionate about education at any end of the spectrum, whether ensuring our youngest students are prepared with solid reading skills or helping to build pathways to college for first generation college goers,” said Warfield. “Because it’s a broader scope, there’s going to be something for everyone.”

The program is set up for 650 AmeriCorps members per year for three years. The project’s goal will depend upon the grant applications, but will fit “in line with some of the larger education goals,” said Warfield. “It will seek to increase educational achievement and high school graduation rates and increase college readiness,” she said. “We’ll be looking at all of those factors. Impact and success is demonstrated through grantee-specific performance outcomes.”

VEJ

Charities Still Leery After Fiscal Cliff Deal

In an article entitled "Charitable groups fear tax victory in 'fiscal cliff' deal will prove hollow," The Hill reports that, despite the preservation of the charitable contribution deduction in the recent American Taxpayer Relief Act of 2012, charitable organizations are still concerned about their future due to debt ceiling negotiations and other automatic spending cuts still to be addressed by Congress.  The article discusses that charities should take heart in recent Tax Policy Center estimates that charitable giving will increase approximatley 1 percent in 2013 and the reenacted "Pease" limitation on itemized deductions should have "negligible effects on the tax incentive for charitable giving."  Nevertheless, charities are concerned that the Obama Administration will continue to push for limits on deductions for wealthy taxpayers, thereby resulting in decreased charitable donations overall.  

[See also, "Catholic Charities and Others Fretting over Tax Plight of the Wealthy" in Nonprofit Quarterly]

NAM

Florida Nonprofit Under Fire for Top Executive Pay

Today's Chronicle of Philanthropy is reporting that Florida's Department of Juvenile Justice is calling on a largely taxpayer-funded nonprofit agency that serves young offenders to rein in pay for its top executive, who earned more than $1.2-million in 2010.

Department head, Wansley Walters, detailed the state’s complaints in a letter last month to William Schossler, president of the Tallahassee-based Henry & Rilla White Foundation, after a routine audit showed the organization paid Mr. Schossler $397,940 in salary and $862,837 in other compensation.

The foundation, which provides residential treatment, counseling, and other services for troubled juveniles, has 23 state contracts worth $10.2-million. The controversy comes amid calls by Florida lawmakers for closer scrutiny of contracts with private providers.

For his part, Mr. Schossler said his pay reflected a boost to his retirement package approved by the foundation’s board. “You work your butt off for 25 years, and then you get ready to retire, and somebody decides to pay you some retirement money and somebody doesn’t like that,” he said.

VEJ

Doug Donovan: Fiscal Cliff Deal Could Hurt Charitable Giving

With Congress having passed legislation to avert the fiscal cliff, Doug Donovan writes in today's Chronicle of Philanthropy that the deal could hurt charitable giving.  According to Donovan, the legislation Congress passed yesterday "limits how much wealthy people can claim in deductions for charitable contributions and other spending when they itemize their tax returns."  He also reveals that "throughout December nonprofits have been lobbying Congress and President Obama not to impose limits on tax savings really wealthy donors get when they make charitable contributions." 

Donovan continues:

The Senate-crafted plan enacts limits that charities have opposed. It reinstates a provision eliminated in 2010 that reduces itemized deductions by 3 percent of the amount that household income exceeds $300,000. Write-offs grow more limited the more taxable income a person has and could reduce the value of deductions by up to 80 percent for the highest-income taxpayers, according to the Tax Policy Center.

The 2010 limits have long been opposed by charities. Independent Sector noted that the limit could reduce giving in its February analysis of the idea, which was included in President Obama’s 2013 budget proposal.

The organization, which represents about 600 nonprofits, also signed a letter this summer from the Charitable Giving Coalition to Sen. Harry Reid, the Senate majority leader, stating its opposition to the deduction limits.

The letter, signed by nearly 30 of the nation’s largest nonprofit organizations, said the limits would “result in fewer contributions flowing to America’s charities, which are now being asked to provide even more services to the most vulnerable among us.”

I am unsympatheitc to the cries of the Charitable Giving Coalition.  I cannot understand why the organization's members believe that the only reason people give to nonprofits is to get a tax deduction!  Also, whoever said that wealthy individuals give more per capita than their poorer fellow citizens? 

VEJ 

 

New York Times Report: Trouble in New Jersey Halfway-House System

New Jersey law mandates that only nonprofit groups can obtain contracts to run the Correction Department's halfway houses. Private companies are barred from the system. Experts praise the halfway-house model as a potentially important tool to help inmates make the return to society. The system in New Jersey once included many mom-and-pop outfits that ran neighborhood-based facilities. In recent years, however, the state has winnowed the number of operators, and two nonprofit groups -- The Kintock Group and Education and Health Centers of America -- now receive about 85 percent of the halfway-house budget.

However, the system in New Jersey is troubled. Earlier this year, The New York Times ran a series of articles in which it described escapes, violence, gang activity, drug use and other problems at New Jersey halfway houses.  Today's Times is alleging that all is not well with the system.  According to The Times, federal disclosure records reveal that Kintockpaid its founder, David D. Fawkner, about $7 million in salary and benefits over the past decade.  The agency also paid Mr. Fawkner's daughter, brother-in-law and son-in-law more than $2.5 million during that period.  The Times also alleges that:  

The nonprofit agency hired the brother-in-law as a consultant even though he has no corrections experience and lives in California. And it employed the son-in-law to run a subsidiary unrelated to its mission: duplicating DVDs and other electronic media.

Meanwhile, the other nonprofit operator, Education and Health Centers of America, is reportedly a nonprofit arm of a for-profit entity, Community Education Centers, to which it funnels money.

The nonprofits are denying any wrong doing.  The report is well-worth reading.  After you have read it, come to your own conclusion on the state of the halfway-house system in the Garden State.

VEJ    

 

Charitable Giving - a Casualty of the Fiscal Cliff?

The Fiscal Cliff is topping the headlines these days.  A part of that discussion involves potentially severe reductions in certain deductions, like the charitable contributions deduction, in order to eliminate or minimize rate increases.  At the front of the debate is the White House, two Presidential advisors of which recently posted a blog entry entitled "Why Taking Tax Rates Off the Table Threatens Non-Profits and Charitable Giving."  Here is a small abstract from that blog entry:

But what is clear is that proposals that take tax rates off the table would threaten donations to universities, non-profit hospitals, social services providers, arts and cultural institutions and other nonprofit organizations.  This is because – to make the math work – these proposals rely on hundreds of billions of dollars of revenue that would result from drastically cutting or eliminating the charitable deduction as we now know it.

Currently, the tax code encourages gifts to charity by allowing taxpayers to claim itemized deductions for charitable giving. But – as a new report by the National Economic Council (NEC) shows, the most prominent dollar cap proposals would effectively eliminate the charitable deduction for up to 13 million households and for as much as 60 percent of currently deductible giving.

Using Congressional Budget Office assumptions, the NEC estimates that a $50,000 cap would reduce charitable giving by about $150 billion over 10 years, while a $25,000 cap would reduce giving by about $200 billion. Even a $25,000 cap that applied only to high-income households would reduce giving by at least $10 billion per year. As the report discusses, a cap could impact nonprofit organizations in every sector and in every state.

In a recent article in the Tulsa World, the newspaper reported that last week approximately 225 nonprofit representatives travelled to Washington "warning elected officials that tampering with the charitable tax deduction would limit or even eliminate their ability to serve those in need."  A similar article was published by The Oregonian, titled "Oregon charities give good reasons for dodging fiscal cliff."

As reported by the Chronicle of Philanthropy, the Independent Sector published a 2-page advertisement in Politico, directed to President Obama and Congress and President Obama, entitled “Don’t push charities over the fiscal cliff.”  Another large nonprofit association, the American Hospital Association, sent a letter to Senate Majority Leader Harry Reid urging him to preserve the charitable contributions deduction.  

The Wall Street Journal reported that the lingering uncertainty around the negotiations between President Obama and Congress is resulting in donors making contributions to "charitable-gift funds" (i.e., donor-advised funds) prior to the end of the year, allowing them to take a deduction in 2012 but delay giving decisions until a later time.  Specifically, fear surrounding Congress's potential cuts or caps on charitable contributions for 2013 is leading to urgency to take advantage of deductions under current law.

[See also articles in Chronicle of Philanthropy, USA Today, New York Times (on role of charity in society)]

NAM

Religious Leaders v. Senator Grassley

The tireless nonprofit watchdog, Senator Grassley from Iowa, has turned his attention in recent years to what he perceives as irresponsible financial activity carried on by certain religious figures and organizations, television evangelists in particular.  After some back and forth, religious leaders agreed to established a commission, the Evangelical Council for Financial Accountability, to examine Sen. Grassley's concerns and to comment on some of his proposed solutions.  The Council recently released its findings in a 94-page report soothingly titled "Enhancing Accountability For the Religious and Broader Nonprofit Sector."  With that title, who could object?

It appears that Senator Grassley objects, primarily because the bottom line of the report is that nothing should change.  In the Senator's words, "[t]he report gives less attention to resolving some of the thornier questions, such as how to build accountability from entities that exploit vagueness in current laws and regulations for individual benefit rather than the greater good."  He added, ominously, that if Congress follows through with plans to overhaul the tax code, many of the issues that he has raised "will be ripe for review."

A story in The Chronicle of Philanthropy summarizes events and provides links to the report and Sen. Grassley's statement about it.

TAK

Fiscal Cliff Chatter

The papers have been abuzz about fiscal cliff negotiations and several threads of the discussion involve charities and other nonprofit organizations.  

One recent item in the New York Times reports that "some analysts doubt dire predictions on tax increase fallout."  They argue that "much of the investing world has overestimated how hard the markets and investors would be hit if tax rates on dividends and capital gains rise . . .."  The reason is that ever fewer investors are subject to taxes on their investment gains.  Many hold those investments in retirement accounts that are exempt from taxation.  More relevant for purposes of this blog, many investors avoid taxation because they are "institutional investors like insurance companies and pension funds that are exempt from taxes."

Another recent NYT article reports that a group of "Democratic luminaries," including two former Treasury secretaries and two former White House chiefs of staff, have proposed compromise plan to raise revenue, cut deficits, and avoid the fiscal cliff.  Among other suggestions, the group calls for "replacing popular itemized deductions . . .."  The scope of the home mortgage interest deduction would be significantly reduced.  The deduction for charitable giving, however, would receive more generous treatment and "would be as high as 28 percent."

TAK