Monday, July 16, 2018
ABA's Business Law Section Recognizes Ellen Aprill with the 2018 Outstanding Nonprofit Academic Award
I am very pleased to share the news that Ellen Aprill has been given the Outstanding Academic Award for 2018 for distinguished academic achievement in the nonprofit section by the Nonprofit Organizations Committee of the American Bar Association's Business Law Section - although we all know that her academic achievements should be recognized well beyond just the nonprofit sector. For anyone involved in nonprofit legal issues, especially in the area of political activity and advocacy, Ellen's work is required reading. I have had the privilege of knowing Ellen from our work at the ABA before I became an academic. Now that I am part of the academy, she has always been available for the random bit of advice or for expert scholarly opinion. I personally can't imagine anyone more deserving. From the ABA announcement:
Ellen Aprill is the John E. Anderson Chair in Tax Law at Loyola Law School in Los Angeles and is the
founding director of its Tax LLM program. She has been a member of the Loyola Law School faculty since
Professor Aprill is one of the founders of the Loyola Law School Western Conference on Tax Exempt
Organizations, considered by many to be the premier nonprofit law conference on the West coast. She
has co-hosted this conference for twenty years and has been instrumental in bringing together leaders in
government, academia and the nonprofit law bar each year for this conference.
Professor Aprill has written extensively on issues of nonprofit law and is a reliable source of knowledge
both for her students and the public. Her other accomplishments include serving as a fellow of the
American College of Tax Counsel and the American Law Institute, and serving as a member of the
Executive Committee of the USC Federal Tax Institute and the Academic Advisory Board of the
Tannenwald Foundation for Excellence in Tax Scholarship. She is a former Chair of the Los Angeles
County Bar Tax Section, which has honored her with the Dana Latham Award for outstanding contribution
to the community and to the legal profession in the field of taxation.
Congratulations to Ellen and to all of the other individuals recognized by the ABA (including Greg Colvin and Eve Borenstein (among others), who many of us in this community know as well) on their honors.
See also a similar write up on our sister Tax Prof Blog.
Thursday, May 10, 2018
Slate has started a new series -- Slate 90 -- that "examines the multibillion-dollar nonprofit sector" by scrutinizing the behavior of the largest nonprofits. As the introductory article explains:
The Slate 90 represents the top 10 American nonprofits by revenue in nine categories: arts, culture, and humanities; education; environment and animals; health; human services; international, foreign affairs; mutual/membership benefit; public, societal benefit; and religion-related...
Some of these organizations are good and worthy; others aren’t. But they’re all equally tax-exempt under the law, answerable in practice to almost no one except overstretched state attorneys general. Every single organization on this list represents a significant tax expenditure; collectively, they represent a massive pot of uncollected taxes that, ultimately, need to be made up by the rest of us. Is that a bargain worth making? Take a look ..., and decide for yourself.
Scroll through available stories here.
Tuesday, May 8, 2018
New Zealand Denies Greenpeace Charitable Status because its Views on Environment Wouldn't Benefit the Public
Earlier this year, New Zealand denied charity status to Greenpeace because it found its policy positions to be contrary to the public interest. Under New Zealand law, charitable activities may involve seeking policy changes, but the purpose must be in furtherance of the public benefit. (For thorough coverage of New Zealand charity law, see this book by Poirier.) The registration board rejected Greenpeace's application on two grounds:
- Greenpeace promotes its points of view on the environment and other issues in ways that cannot be found to be for the benefit of the public.
- Greenpeace and its members’ involvement in illegal activities amounts to an illegal purpose which disqualifies it from registration.
On the first point, the Charities Registration Board reasoned:
Although the Supreme Court in Greenpeace held that advocacy can be charitable, it indicated that promoting a cause or advocating a particular viewpoint will not often be charitable. This is because it is not possible to say whether the views promoted are for the public benefit in the way the law recognises as charitable.
The Board considers that Greenpeace’s focus is on advocating its point of view on environmental issues such fossil fuel exploration and the expansion of intensive dairy farming. Most of Greenpeace’s environmental advocacy cannot be determined to be in the public benefit when all the potential consequences of adopting its views are taken into account.
The Board noted that advocacy for protection of the environment could be considered charitable, but Greenpeace's positions were simply too extreme to be considered in the public benefit. For example, the Board acknowledged that "in general" advocacy for sustainability is charitable, Greenpeace's concern about climate change and advocacy for specific policies such as the role of fossil fuels "is a complex issue that requires in-depth consideration of the potential consequences of New Zealand's international obligations and interests, environmental risks, the importance of fossil fuels in New Zealand's economy, the competing interests of industries, economic costs, and New Zealand's dealings with other nations." Finding Greenpeace's position on policy to not consider the other criteria, the Board couldn't find that "the views promoted by Greenpeace on climate change are of a benefit in the way that the law recognises as charitable."
The rejection of Greenpeace's application on the first ground may seem surprising to those in the US. Although there was once a time when governments in the US weighed whether an organization's policy viewpoints were in the public interest (and while some who dislike the NRA, the ACLU, or other advocacy grounds have urged a return to the discretionary denial of yesteryear), those days have largely passed, in no small part to Constitutional/First Amendment concerns.
Back to New Zealand, Greenpeace appealed an earlier board decision against it, so it will be interesting to see if this is heading up the courts again.
Monday, February 26, 2018
Merryn Somerset Webb penned an op-ed in The Financial Times entitled The charitable giving model is an undemocratic use of funds. Focused on the UK, the piece proposes that "99 per cent of the organisations with charitable status in the UK should have it removed." Instead, tax subsidies would apply to a limited number of official charities that would be tightly regulated. Read the entire piece at: https://www.ft.com/content/1093fcec-187a-11e8-9376-4a6390addb44
Sunday, February 25, 2018
On Friday, the New York Times Editorial Board penned an opinion piece entitled, "When Charity Workers Turn Predatory." It concludes:
the Oxfam scandal has sounded an alarm across the entire nongovernmental aid profession that it must heed if it is to retain the public trust on which it depends. There must be zero tolerance for misuse of power by staff members in the field and swift and transparent action against any appearance of abuse.
Read the entire thing (paywall) at: https://www.nytimes.com/2018/02/23/opinion/when-charity-workers-turn-predatory.html
Tuesday, February 13, 2018
I’m scrolling through the Bipartisan Budget Act of 2018 (the “BBA”)(P.L. No. 15-123 signed on February 9, 2018 – enrolled bill from Thomas.gov here) in my leisure time. It appears that there are two provisions that directly impact exempt organizations, as follows:
- Section 41109 of the BBA clarifies the application of the investment income excise tax for private colleges and universities. As you may recall, Section 13701 of the legislation formerly known as the Tax Cuts and Jobs Act (TCJA) added new Section 4968, which imposes an excise tax on the investment income of certain private colleges and universities. This new excise tax only applies to private colleges and universities that have at least 500 students, more than 50% of which are located in the U.S. The BBA clarifies that this refers to “tuition paying” students only – but of course, it didn't actually give us a statutory definition of “tuition paying.” Full tuition? External scholarship? Internal scholarship? Tuition waiver? Work study? Have fun with the counting, university admin types.
- Section 41110 of the BBA contains the Newman’s Own provisions by adding Code Section 4943(g) (h/t to Evelyn Brody for the CT Mirror article). These provisions were originally in the TCJA but were struck by the Senate Parliamentarian for having insufficient budget impact. I will have more to say about Section 4943(g) in another post.
Unless I missed it (let me know if I did!), absent from the BBA are the following: (1) the Johnson Amendment provisions that were also struck from the TCJA by the Senate Parliamentarian, and (2) the technical fix to the exempt organization excess compensation excise tax found in new Code Section 4960 that would actually make it applicable public universities - as apparently was originally intended but, as discussed by Professor Ellen Aprill, there was a significant drafting fail. (I heard a rumor that someone from the IRS agreed at the ABA Tax meeting that the technical fix was, in fact, necessary - can anyone confirm?) If only there were a process by which Congress could talk to experts like Ellen before it finalized draft legislation…
Saturday, December 30, 2017
The end of 2017 brought significant new tax legislation. Although the Johnson Amendment remained intact, the increase in the standard deduction means that fewer people will itemize deductions, which, in turn, effectively eliminates the value of the charitable deduction for many US taxpayers. The Washington Post article "Charities fear tax bill could turn philanthropy into a pursuit only for the rich" catalogs worries by major nonprofits' leaders that donations will drop and the shift will be towards wealthier donors. On his blog, Alan Cantor warns that "An earthquake just hit the nation," and the tax changes will reduce the funds to the sector and increase the power of the wealthiest at the very time when nonprofits will face greater demands. The Wall Street Journal editorial board, however, was unimpressed, publishing a sharp critique entitled "Uncharitable Charities:"
These nonprofits want to keep millions of Americans filing more complicated tax forms and paying higher tax rates. They also sell Americans short by assuming that most donate mainly because of the tax break, rather than because they believe in a cause or want to share their blessings with others. How little they respect their donors.
How will the nonprofit sector fare in 2018?
Saturday, December 23, 2017
Ellen P. Aprill (Loyola Law School - Los Angeles) has written Amending the Johnson Amendment in the Age of Cheap Speech, University of Illinois Law Review On-Line (Forthcoming). Below is Professor Aprill's abstract:
On November 2, 2017, the House Ways and Means Committee released its proposed tax reform legislation. It includes a provision amending the provision of the Internal Revenue Code, sometimes called the Johnson Amendment, that prohibits charities, including churches, from intervening in campaigns for elected office, at risk of loss of their exemption under section 501(c)(3). Under the Ways and Means proposal, as later revised and passed by the House, organizations exempt as charities under section 501(c)(3) would be permitted to engage in campaign intervention if “the preparation and presentation of such content . . . is in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose and . . . results in the organization incurring not more than de minimis incremental expenses.”
If such legislation becomes law, the IRS and the Department will be faced with the difficult task of giving guidance as to the meaning of “regular and customary,” “de minimis,” and “incidental.” It would likely have to address whether donations could be earmarked for campaign intervention so long as they were within the organization’s de minimis limit and involved regular and customary activities. Whatever rules are announced are sure to be controversial and complicate enforcement of the prohibition for campaign intervention that is more than de minimis. Given the lack of IRS resources and controversy regarding its attempts to regulate political activities of exempt organizations, the IRS may well hesitate to take action against possible violations.
However these terms are defined and enforced, a de minimis exception raises significant issues that demand attention in an era of what Professors Eugene Volokh and Richard Hasen have called “cheap speech.” These are issues that require consideration whether or not a de minimis exception is adopted in the current tax reform legislation.
After giving background on the Johnson Amendment, this essay discusses the impact of any de minimis exception regarding campaign intervention in the age of cheap speech. It concludes that the availability of cheap speech may have undermined the most common constitutional justification for the prohibition – that the government has no duty to subsidize speech – such that a new approach to limiting the political speech of charities is needed.
Sunday, November 19, 2017
LDF trusts raise questions as to tax treatment of the trust, whether the trust can take advantage of special rules applicable to political organizations, whether contributions to the LFD trusts can be deemed gifts excluded from the official’s income, whether donors to LDF trusts are subject to gift tax liability, whether the government official must report amounts distributed from the fund for legal expenses as income, and the extent to which deductions are available to the government officials for amounts expended from the trust on his or her behalf.
Thursday, November 2, 2017
House Republicans' Tax Bill Preserves Charitable Contribution Deduction, But Will It Be Less Utilized?
According to The New York Times (here and here), Republicans in the House of Representatives release proposed legislation today that would institute some significant changes to the Internal Revenue Code. Although the tax bill preserves the charitable contribution deduction, significant changes to the standard deduction may result in even less taxpayers itemizing their deductions. The proposed tax bill nearly doubles the amount of the standard deduction and eliminates the personal exemption. Presently, approximately 30% of filing taxpayers elect to itemize their deductions. According to the Tax Policy Center, 84% of taxpayers who currently elect to itemize would take the standard deduction as proposed under this bill.
According to The Washington Post, the National Council of Nonprofits warned that charitable deductions will decrease under this legislation as many middle- and upper-middle-class taxpayers would likely not elect to itemize, thus losing any tax benefit of making charitable contributions. Republicans counter that assertion by concluding that such taxpayers should give more to charities due to decreased tax bills. Stay tuned for more response from the charitable sector as well as calculated effect of the proposed change on the charitable contribution deduction.
Tuesday, October 10, 2017
Sean Hepburn Ferrer, who once chaired the Audrey Hepburn Children’s Fund, accused the charity of infringing trademark and other rights belonging to him and Luca Dotti, his half-brother....
In Thursday’s lawsuit, Ferrer said he resigned as chairman in 2012 amid disagreements over spending, but let the charity use his mother’s name, persona and legacy case-by-case.
He said he has granted no such rights since 2015 and that the charity’s subsequent infringements falsely suggest that he, Dotti or their mother endorsed them.
Friday, September 15, 2017
As the use of donor advised funds grows, so does the legal attention to donor advised funds. All of this attention started in (what seems like forever ago…) 2006, with the passage of the Pension Protection Act. Since that time, we have seen the PPA-mandated Treasury study released in 2011, as well as a Congressional Research Service study on DAFs in 2012. In addition, the National Philanthropic Trust releases an annual DAF report, the 2016 version of which can be found here. Information and opinions abound, and yet, we still wait patiently for regulations under the donor advised fund excise taxes passed in 2006. I’m quite certain those regulations will be arriving Soon.™
In the latest installment in the DAF oversight drama, Congress may now be considering mandatory payouts from DAFs as part of a larger tax reform effort. Earlier this summer, Professors Ray Madoff of Boston College and Roger Colinvaux of Catholic University wrote to the Senate Finance committee to suggest a number of DAF reforms, including a mandatory payout proposal for DAFS (the Madoff/Colinvaux letter can be found here).
This week, the DAFs responded. In their own letter to Senate Finance, a number of DAF sponsors set out the arguments in opposition to a mandatory DAF payout. WealthMangement.com has a good summary of the DAF executive letter here, although I admit I can’t yet find a copy of the letter itself (if anyone has it ... please share if you can!)
Personally, I think that the term “DAF” covers such a wide variety of accounts that a mandatory proposal might be harmful for some and yet not enough regulation for others. But that’s another blog post, or maybe an article ….
Thursday, September 14, 2017
- Nonprofit compensation has gone up over the last year, returning to pre-recession levels; and
- A gender gap persists in nonprofit compensation (not that that is particularly shocking to anyone in the sector, but it is nice to have some evidence to that effect)
Thursday, June 22, 2017
Journalists have a constant interest in charity private benefit stories, particularly ones with a political angle. And unfortunately they seem to be able to find them. Recent reports raising questions about plain vanilla (non-political) private benefit have focused on a variety of donors and charities, including New England Patriots' quarterback Tom Brady, the James G. Martin Memorial Trust in New Hampshire, and billionaire Patrick Soon-Shiong. But not surprisingly reporters have paid even greater attention to situations relating to politics and politicians, including ones involving the Eric Trump Foundation, Boston mayoral hopeful Tito Jackson, President Trump's chief strategist Stephen Bannon, and the Daily Caller News Foundation. These stories are distinct from ones relating to the use (and possible misuse) of charities for political purposes more generally, such as the recent article regarding the David Horwitz Freedom Center.
I should emphasize that none of these situations have resulted so far in any apparent civil or criminal penalties, and in some instances the facts described may not cross any legal lines. Indeed, the only one of these situations that appears to have drawn government scrutiny so far is the one involving the Eric Trump Foundation, which New York Attorney General Eric Schneiderman has said his office is looking into.
The same cannot be said of three other situations that involve the possible misuse of charitable assets. One, relatively minor situation relates to the admitted access of the Missouri Governor's political campaign to a charity's donor list without apparently the charity's knowledge or permission. Two other situations are more serious in that they each involve hundreds of thousands of dollars. In March, a federal grand jury indicted former U.S. Representative Stephen Stockman and an aide on charges relating to the alleged theft of hundreds of thousands of dollars from conservative foundations to fund campaigns and pay for personal expenses. (More coverage: DOJ Press Release.) And last month a federal jury convicted former U.S. Representative Corrine Brown of raising hundreds of thousands of dollars for a scholarship charity, funds that she then used for her own personal and professional purposes. (More coverage: N.Y. Times.)
Tuesday, June 13, 2017
Jonathan Rockoff from the Wall Street Journal brought to light the decline in prostate-cancer drug sales after a federal investigation revealed that drug companies were making huge donations to nonprofits who helped patients cover the expense of these drugs.
According to the article, a mere $1,000,000 donation can lead to upwards of $21,000,000 in additional sales for the drug companies. The article is short, but a very interesting read. Follow the above link to see for yourself.
David A. Brennen
Sunday, June 11, 2017
Ruth McCambridge from The Nonprofit Quarterly reports that Attorney General Jeff Sessions has put an end to the practice of nonprofit payments being part of settlement agreements agreed upon by corporations and the U.S. Department of Justice.
This practice was made popular during the Obama administration, and would often include corporations making payments to nonprofits that operated in their general field. Some examples include JPMorgan Chase paying $7.5 million to the American Bankruptcy Institute, and Volkswagen paying $2 billion to “fund zero-emission technology and infrastructure and to promote zero-emission vehicles.
Now, The U.S. treasury will receive all settlement funds (minus a few exceptions) instead of said monies flowing to nonprofits in the field of the rule violator. For the time being, it appears “the use of settlement money to remediate a situation through a nonprofit . . . is prohibited.”
David A. Brennen
Monday, May 8, 2017
It is rare to for nonprofit law to be in the federal spotlight as vividly as it was last week when President Trump signed an Executive Order on "Free Speech and Religious Liberty." Section 2 of the EO addresses the Johnson Amendment (which prohibits partisan political activity by 501c3 nonprofits):
Sec. 2. Respecting Religious and Political Speech. All executive departments and agencies (agencies) shall, to the greatest extent practicable and to the extent permitted by law, respect and protect the freedom of persons and organizations to engage in religious and political speech. In particular, the Secretary of the Treasury shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury. As used in this section, the term "adverse action" means the imposition of any tax or tax penalty; the delay or denial of tax-exempt status; the disallowance of tax deductions for contributions made to entities exempted from taxation under section 501(c)(3) of title 26, United States Code; or any other action that makes unavailable or denies any tax deduction, exemption, credit, or benefit.
During the signing ceremony, President Trump explained:
“Under this rule, if a pastor, priest or imam speaks about an issue of political or public importance, they are threatened with the loss of their tax-exempt status, a crippling financial punishment. Very, very unfair. But no longer... This financial threat against the faith community is over... So you’re now in a position where you can say what you want to say. And I know you’ll only say good and what’s in your heart. And that’s what we want."
Before the final text of the order was released, commentators raised numerous objections to the order that was anticipated: a broad commitment not to enforce the Johnson Amendment against religious groups. However, the text of the signed order says nothing concrete in terms of legal or policy. Indeed, the ACLU initially promised a lawsuit, but ultimately backtracked, concluding that the order "signing was an elaborate photo-op with no discernible policy outcome." Undeterred, the Freedom from Religion Foundation is going ahead with its planned lawsuit, reading between the lines of the EO to perceive a clear "stop enforcement" signal to the IRS.
Friday, April 7, 2017
South Carolina State Representative Bill Herbkersman has introduced legislation that will require some nonprofits to make more frequent and more detailed disclosures about their financials. The bill covers entities organized under the South Carolina Nonprofit Corporation Act (Chapter 31, Title 33). The proposed bill reads:
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 11-1-130 SO AS TO REQUIRE CERTAIN NONPROFIT CORPORATIONS THAT RECEIVE MORE THAN ONE HUNDRED DOLLARS IN PUBLIC FUNDS TO SUBMIT A QUARTERLY EXPENDITURE REPORT TO THE AWARDING JURISDICTION, AND TO PROVIDE THAT THE AWARDING JURISDICTION MUST MAKE THE REPORTS AVAILABLE TO THE PUBLIC.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 1, Title 11 of the 1976 Code is amended by adding:
"Section 11-1-130. (A) Any entity organized pursuant to Chapter 31, Title 33 that received more than one hundred dollars in public funds from a state agency or political subdivision in the previous calendar year or the current calendar year, must submit a quarterly expenditure report to the jurisdiction awarding the funds.
(B) The expenditure report must include:
(1) the amount of funds expended;
(2) the general purposes for which the funds were expended; and
(3) any other information required by the jurisdiction so as to increase the public's knowledge of the manner in which the funds are expended.
(C) The expenditure reports must be made available by the awarding state agency or political subdivision in accordance with the requirements of Chapter 4, Title 30; however, the entity receiving the funds is not subject to such disclosure provisions."
SECTION 2. This act takes effect upon approval by the Governor and applies to any public funds received thereafter and within three calendar years thereof.
Proponents claim that because South Carolina nonprofits employ ten percent of the state workforce and are the recipient of over 130 million volunteer hours, South Carolina citizens deserve a more accurate accounting of what these organizations do with their money. It is further claimed that because of inconsistent reporting requirements, it is difficult to compare and assess different organizations, thus making hold them accountable a daunting task.
David A. Brennen
Wednesday, April 5, 2017
Nonprofit Quarterly reports on the trial of Jonathan Dunning, former CEO of Birmingham Health Care and Central Alabama Comprehensive Health. Mr. Dunning was indicted on 122 counts alleging that he shifted approximately $14 million of federal funds to outside businesses that he controlled.
The case has been postponed due to complexity, undoubtedly due to another nonprofit being added into the case. A credit union, that government officials claim was central to the scheme, had many Birmingham Health Care upper executives on its board of directors. The National Credit Union Administration claims that the credit union in question became “insolvent due to management operating the credit union in an unsafe and unsound manner including a serious conflict of interest with the credit union’s sponsor, a continuous lack of action by management to address issues, persistent non-compliance with established timelines for submitting reports, and problems with the credit union’s books and records.”
At issue, among other things, is whether Mr. Dunning committed conspiracy, bank fraud, and/or money laundering in his dual role of nonprofit CEO, and controller of private firms. Also, whether and to what extent the former CEO can be held liable for controlling his replacement to perpetuate the fraud. Allegedly, once the fraud was first being discovered, Mr. Dunning stepped down, but handpicked his successor and exercised complete control over him.
The original story covering this nonprofit mismanagement and conflicts of interest scheme can be read here.
David A. Brennen
Tuesday, April 4, 2017
Missouri joins the company of Illinois, Georgia, Massachusetts, Michigan, and New York on a list of states whose Governors have set up nonprofit groups to help raise money for their campaigns. These nonprofits, organized as 501(c)(4) entities, allow said organizations to avoid disclosing who their donors are, and how they spend their money. However, these organizations may not spend more than half of their money on political activities, a rule monitored by the IRS.
Some commentators believe these 501(c)(4) organizations are being formed to circumvent campaign finance laws. In an attempt to close this loop-hole, Missouri state Senator Rob Schaaf has sponsored a bill to require such groups to identify their donors. Senator Schaaf believes increased transparency in funding will be a step in the right direction, stating “I think it’s a problem that [political candidates have] this desire to keep the sources of [their] money hidden.”
Those with opposing views, such as Republican consultant Greg Keller, believe that donors have the right to have their identity kept private. Keller stated “I think [501(c)(4)s] are becoming more common, that’s what I believe happens with campaign finance law. I think that every single time you try to micromanage how people are funding political organizations, you end up with more politics, not less.”
Campaign finance is a delicate issue unlikely to be resolved in the near-term. Former Missouri GOP chairman John Hancock believes that “as long as the law allows you not to disclose who your donors are, I think you’re going to see this replicated all across the country.” Time will tell if the trend continues to spread into other states.
David A. Brennen