Tuesday, December 13, 2016
A recent Bloomberg article by Colleen Murphy outlines some major potential changes impacting charitable giving that could come soon after President Elect Trump takes office.
The author believes alterations of charitable giving deductions could take place in the near future. Although there is no concrete plan or proposal, the House Ways and Means Committee “will develop options to ensure the tax code continues to encourage donations, while simplifying compliance and record-keeping and making the tax benefit effective and efficient.” Clearly, altering the amount one can claim as a tax deduction can significantly impact overall giving to 501(c)(3) organizations.
Another potential change is a cap of itemized deductions individuals may claim. President Elect Trump has proposed a ceiling of $100,000 for individuals and $200,000 for couples looking to subtract itemized deductions from their total tax bill. An expert claims that such a rule could diminish large-scale donations, some of which are vital to the existence of many tax-exempt organizations.
A third plausible change coming in the near-term is the overall lowered tax rates promised by President Elect Trump. Mr. Trump aims to reduce the current seven-bracket system to a three-bracket system, leading to a reduced tax burden for working and middle-class Americans. Experts are split on how this may impact charitable donations. Some believe that the reduced rate will lessen the impact of itemized deductions, disincentivizing individuals from making contributions. Another school of thought believe the reduced rates could increase donations, incentivizing individuals to “load up on deductions and decrease their tax burden.”
Finally, the author believes that some existing rules could be revamped over the next few years. Hadar Susskind, senior vice president of government relations at the Council on Foundations in Washington, stated that potential changes could include “Creating charitable giving accounts, simplifying the excise tax on private foundations and allowing the rollover of individual retirement accounts to donor-advised funds.”
Time will tell what the new year, and new administration, have in store for the nonprofit tax world.
David A. Brennen
Sunday, December 11, 2016
Legislation has been pre-filed in South Carolina by State Senator Tom Davis in an attempt to double a tax credit program that helps fund disabled students’ private education. The Legislation also plans to offer an additional $25 million in tax credits for the donors whose money would allow poor children to go to private school.
Senator Davis introduced the legislation in response to a South Carolina Supreme Court case where it was declared the state was not doing enough for poor, rural students and their schools. Davis believes making private schools a realistic option for many students is a step in the right direction.
The proposal would offer more tax credits to those who donate to a nonprofit that “makes private school tuition grants to students with disabilities or those who live in poverty.” These credits would allow the donor to reduce their state taxes by up to 60 percent.
South Carolina currently offers up to $10 million in tax credits for donations helping disabled students. The expansion would expand that offering to $25 million, and grant another $25 million specifically for impoverished students.
Whatever program the state ultimately adopts, hopefully it provides students with the quality education they both require and deserve.
David A. Brennen
Thursday, November 10, 2016
The Philanthropy 400 is the Chronicle of Philanthropy's annual ranking of charities based on private fundraising. This year, for the first time, the Fidelity Charitable Gift Fund was ranked first, bypassing the United Way, in private fundraising. According to the Chronicle, it marks "the first time an organization that primarily raises money for donor-advised funds has held the top spot." Author's aside: Given the growing popularity of DAFs, wouldn't it be super if we had some regs? Just sayin'...
I happened to teach DAFs this morning in my Nonprofits class, right after having done a fairly comprehensive unit on the private foundation excise taxes. It is only after one understands the complexity and burden of Chapter 42 (even after the 2006 PPA changes) can one appreciate the simplicity of the DAFs. We went through a sample DAF agreement from a well-known community foundation, reviewing the restrictions on distributions and the private cy pres power. Even with these limitations, my class seemed pretty convinced that as compared to a private foundation, the DAF is the way to go. Happily from a teaching perspective, they were able to identify the private benefit issue with the commercial providers pretty quickly, although I had few answers on why the IRS didn't originally see it as an issue and continue not to do so.
In any event, the Chronicle has a pro/con opinion section in front of its pay-only firewall, which can be found here (pro) by Howard Husock of the Manhattan Institute and here (con) by Ray Madoff of Boston College. Husock's article teases a forthcoming report by the Manhattan Foundation on donor advised fund fees and spending, which the Chronicle article says will be released this month, so more to come on that. While we wait, I think that Husock's answer to the private benefit issue is somewhat weak ("they have to be managed by someone, so why not Fidelity?' seems disingenous) but I do think that he does a better job addressing some of Prof. Madoff's DAF distribution issues.
You know what else would address some of these issues? Regulations. Just sayin'.
Friday, October 28, 2016
Yale Daily News, the oldest student newspaper at Yale--and a separately organized 501(c)(3) tax-exempt organization--found itself under criticism for violating tax law when it endorsed Hillary Clinton for President. The Paper issued an opinion piece entitled "NEWS' VIEWS: Hillary Clinton LAW '73 for President," arguing:
We do not endorse Clinton solely because of the disqualifying flaws of her opponent, Donald Trump, whose campaign has disgusted and astonished our board. ... We endorse her because we, as young people, recognize this election is a turning point for our country. And the choice couldn’t be more clear. Voting for Clinton is our obligation to ourselves and to future generations.
The Yale Record--a student humor magazine--responded swiftly and hilariously:
The Yale Record believes both candidates to be equally un-endorsable, due to our faithful compliance with the tax code.
In particular, we do not endorse Hillary Clinton’s exemplary leadership during her 30 years in the public eye. We do not support her impressive commitment to serving and improving this country—a commitment to which she has dedicated her entire professional career. Because of unambiguous tax law, we do not encourage you to support the most qualified presidential candidate in modern American history, nor do we encourage all citizens to shatter the glass ceiling once and for all by electing Secretary Clinton on November 8.
The Yale Record has no opinion whatsoever on Dr. Jill Stein.
Tuesday, October 11, 2016
A recent article by Martin Levine highlights the struggle to define the line between providing education about issues and lobbying for specific legislative outcomes. The center of the controversy revolves around a complaint filed in 2012, when the Center for Media and Democracy and the Common Cause complained to the IRS that the American Legislative Exchange Council (ALEC) was incorrectly classified as a 501(c)(3) organization.
The ALEC characterizes itself as an organization “dedicated to advancing and promoting the Jeffersonian principles of limited government, free markets and federalism at the state level. ALEC accomplishes this mission by educating elected officials on making sound policy and providing them with a platform for collaboration with other elected officials and business leaders.”
The ALEC’s opponents, however, paint a different picture of the organization, claiming “the primary purpose of the organization is to provide a conduit for its corporate members and sponsors to lobby state legislators.”
As evidence of this lobbying, opponents of the ALEC point to a string of tax deductible donations from EXXON to the ALEC totaling over $1.7 million. The ALEC’s official position on climate change only leads to increased suspicions. According to the ALEC, there is no threat to the public from climate change or increased greenhouse gasses. In fact, the ALEC has stated that global warming is beneficial, claiming that “during the warming of the past 100 years global GDP has increased 18-fold, average life span has doubled, and per capita food supplies increased.”
While this information is certainly not determinative of foul play, it does provoke one to question the line between information providing and lobbying.
Monday, October 10, 2016
With the Election approaching, many are voicing their opinion on the Johnson Amendment, which denies 501(c)(3) organizations the ability to actively campaign or lobby for a political candidate. Currently, in addition to being unable to support a candidate for political office, nonprofit organizations are also unable to oppose political candidates.
Proponents of the rule fear that allowing nonprofits to advocate for candidates could create unhealthy political factions within their organizations and communities at large. A larger concern is that donations from these organizations would be tax deductible and could exacerbate the level of spending and the political power of large scale donors, heavily influencing electoral outcomes. A statement from the Americans United for Separation of Church and State exclaimed “If individual organizations came to be regarded as Democratic charities or Republican charities instead of the nonpartisan problem solvers that they are, it would diminish the public’s overall trust in the sector and thus limit the effectiveness of the nonprofit community.”
Opponents of the rule, like Republican Party Nominee Donald Trump, believe that organizations have a right to voice their opinion for leaders they believe would best represent them. In a speech to Christian leaders Trump stated “if you like somebody or want somebody to represent you, you should have the right to do it.” Opponents also believe freeing 501(c)(3) organizations from these regulations would increase voter participation and elevate levels of political debate.
It is unlikely that this debate will be solved in the near-term, and certainly not in time to impact the nearing election. However, a fundamental change to the Johnson Amendment could drastically change the way campaigns are ran and financed.
Tuesday, October 4, 2016
New York AG issues Notice of Violation to Trump Foundation for Failing to Register before Soliciting Donations
Late last week (and widely reported yesterday), New York Attorney General Eric Schneiderman issued an order (with a press release) to the Trump Foundation directing it to cease soliciting donations until it complies with state registration requirements. New York is one of all but a handful of states require that charities planning to ask for donations in their state (under various circumstances) register with the state. Under these laws, charities are typically required to disclose some basic information about the charity, such as the percentage of raised funds that go to fundraising expenses, and the expenses charged by any professional fundraisers hired. For charities that raise funds from multiple states, registration can be an onerous burden, and there has long been a push to streamline multi-state registration to make compliance easier for nonprofits. Yet this is an unusual case, as I'll explain below the break.
Sunday, September 11, 2016
The Boston Globe reports the story of a longtime librarian at the University of New Hampshire who lived a frugal lifestyle and left his $4 million estate to the university:
Robert Morin worked nearly 50 years at the University of New Hampshire library and never seemed to spend any money.
He lived alone, rarely bought clothes, had Fritos and soda for breakfast, drove a 1992 Plymouth, and spent spare time reading almost every book — in chronological order — that had been published in the United States from 1930 to 1938.
Now, more than a year after his death at age 77, a lifetime of frugality has become UNH’s unexpected gift: Morin left his alma mater his entire estate of $4 million — a gold-plated nest egg that few people knew he had.
While a gift of this size may have allowed Morin to require that a building or other area on campus bear his name, Morin's restrictions imposed on the use of the gift by the university were as modest as his lifestyle.
The university will use $2.5 million from the estate on an expanded career center and $1 million for a new video scoreboard at the football stadium. An additional $100,000 will go to the university’s Dimond Library, the only gift specified by the will.
[Morin's financial advisor,] Mullen said he spoke with Morin about using some of the money to fund a scholarship related to library science but said his client wanted UNH to spend almost all of the gift in any way it chose.
Monday, August 29, 2016
Big news from Monongalia County, West Virginia (and I don't mean its party school ranking of number 2... ), but add West Virginia University to the list of charitable institutions making PILOT (payment in lieu of taxes) payments. WVU has done a significant amount of development in downtown Morgantown (yes, we have a downtown...) through private-public partnerships. As a result, a good deal of private property has gone off the tax rolls in this standard issue university town.
Of course, the issue of PILOTs has received a significant amount of discussion as of late (including on this website), as strapped state and local communities look for alternative sources of revenue. For more information, I strongly recommend starting with the Urban Institute website, which has a number of studies on PILOT issues (many of which are authored or co-authored by Evelyn Brody.) In that regard, this really shouldn't be much in the way of new ground... but...
(I am totally dating myself here...)
What I find interesting is that WVU is a public university. I've been searching on the interwebz (to no avail) for more information on how many public institutions - presumably, universities and hospitals - have agreed to PILOTs. (Anyone have any info? I found this helpful article by Langley, Kenyon and Bailin from the Lincoln Institute of Land Policy, circa 2012, that has a number of appendices - a very quick review doesn't seem to show any public institutions.) Part of the rationale for a private nonprofit to enter into a PILOT agreement and voluntarily pay not-taxes is that the alternative could be much, much worse. If a government changes the applicable laws granting nonprofit property tax exemption, the nonprofit will have little control over what happens next, so the devil you know and negotiate is probably better than what is behind Door Number 2.
I would think that with a public university, that calculus would be much, much different. After all, a public university is branch of government, it seems as if it would be much more difficult to muck with the property tax exemption for the University itself - both legally and politically. According to the press release from WVU, its 50 year payment agreement applies only to "private commercial establishments operating on University property for activities that are not a critical part of or integral to serving the academic needs of students." Therefore, while there may be limits on the ability to change the University's tax exemption, query how much play actually exists with attacking the property tax exemption for the University's leased property? (see section 10 versus sections 14 or 17, for example).
Thursday, August 18, 2016
Yesterday's NonProfitTimes reported that the OneOrlando Fund has begun accepting claims from victims and families of victims of the June 12 Pulse nightclub shooting that left 49 dead and dozens more injured. According to fund administrator, Kenneth Feinberg, the entirety of the fund -- estimated at $23 million -- will be disbursed. According to the OneOrlando website, to be eligible, claims must be postmarked by September 12. Claim forms can be found on the site.
Vaughn E. James
Wednesday, August 17, 2016
In 2003, four men came together to form Wounded Warrior Project, a nonprofit 501(c) organization that offers a variety of programs, services and events for wounded veterans of the military actions following September 11, 2001. The organization's website boasts that this charity and veteran service organization "provides free programs and services focused on the physical, mental, and long-term financial well-being of this generation of injured veterans, their families and caregivers." The charity urges its supporters to donate to its causes, assuring them that their tax deductible donations enable the organization to "help thousands of injured warriors returning home from the current conflicts and to provide assistance to their families." The website goes on to state that "[a]s the number of wounded [veterans] steadily increases, it is easy to see how the needs of these brave individuals also increase."
In March, CBS News reported that while Americans were donating hundreds of millions of dollars each year to the charity, Wounded Warrior Project was spending 40 to 50 percent of these donations on overhead, including extravagant parties. By comparison, CBS News reported, other veterans charities have overhead costs of only 10 to 15 percent.
Shortly afterwards, the organization's Board of Directors fired Chief Executive Officer, Steven Nardizzi, and Chief Operating Officer, Al Giordano.
Yesterday's NonProfitTimes reported on the next step for the organization: a restructuring plan, According to the Times, details of the restructuring plan are expected to be announced next month. But some details can already be gleaned from the organization's recently-released IRS Form 990 and consolidated financial statements for the fiscal year ended September 30, 2015. In notes to the consolidated financial statements, the organization states:
Negative media stories in January 2016 regarding the Organization prompted inquiries and requests for documents from Senator Grassley on behalf of the Committee on the Judiciary and from other parties. The Organization responded to these inquiries and requests, and management does not believe they will have a material adverse effect on the organization’s financial position, results of operations or cash flows.
The Organization is in the process of evaluating programs and services to ensure that they are delivered with even greater efficiency, as well as assessing its organizational structure to ensure that it maximizes all resources available. Management anticipates that certain roles will be eliminated as a result of this assessment and details of the restructuring will be announced in September 2016. Management does not believe the restructuring will have a material adverse impact on the accompanying consolidated financial statements.
The Times also reports that in recent weeks, new CEO Michael Linnington, has made reference during interviews to anticipated pay and staff cuts.
September will soon be here; we shall discover then just what Wounded Warriors Project will do to recover its image, stature and standing.
Vaughn E. James
Tuesday, August 16, 2016
An op-ed in last Saturday's New York Times caught my eye and has me thinking deeply. In To Get to Harvard, Go to Haiti?, Frank Bruni discusses "the persistent vogue among secondary-school students for so-called service that's sometimes about little more than a faraway adventure and a few lines or paragraphs on their applications to selective colleges."
Bruni is here discussing the growing trend among American college applicants to claim on their college applications for admission that they have done volunteer work or gone on mission trips to Central America and Africa when in reality all they have done is spent as little as a week -- if all that -- "helping to repair some village's crumbling school or library, [only] to return to their comfortable homes and quite possibly write a college-application essay about how transformed they are."
Bruni argues that this troubling trend "turns developing-world hardship into a prose-ready opportunity for growth, empathy into an extracurricular activity." Moreover, Bruni contends that this trend
reflects a broader gaming of the admissions process that concerns [him] just as much, because of its potential to create strange habits and values in the students who go through it, telling them that success is a matter of superficial packaging and checking off the right boxes at the right time.
Like Bruni, I am appalled at this growing trend among students. I am equally appalled at the trend among church-going people who come to me asking for my help in funding their mission trips to Central and South America, Africa and the Caribbean. I question them closely about these trips. Thus far, in answer to my question, "Where will you live during your stay?", every budding missionary has responded, "In a hotel." My check book has remained closed to these wonderful missionaries.
Vaughn E. James
Friday, August 5, 2016
Twin Cities Pioneer Press reports that two private colleges alone in Minnesota have combined endowments of over $1.5 billion. This seems wonderful in a time where education budgets are on the chopping block. However, critics of the colleges and universities contend the institutions need to be less scrooge-like and spread the wealth to meet the financial needs of their students. “Private foundations with nonprofit status must spend five percent of their fund’s value each year under federal law.” But, this requirement does not apply to colleges and universities.
As of 2013, there were 138 educational institutions with over $500 million in endowment. A study of 67 private schools revealed that just over half of those schools did not meet the 5 percent mark required by other nonprofits. With an estimated 40 percent of college students receiving Pell grants, it is clear that there remains unmet financial needs for students.
An official from one of the colleges studied said “it’s unfair to expect colleges to spend their endowments at the same rate as charitable nonprofits. If a college’s endowment earns 7 percent but they spend 5 percent, it won’t grow fast enough to keep up with inflation.”
Time will tell if the Legislature will require colleges and universities to meet the five percent mark as their nonprofit peers must. With the rising cost of education, one can assume debate will arise sooner than later.
Thursday, August 4, 2016
A recent post on Non Profit Quarterly by Ruth McCambridge explains tensions between nonprofits in big cities (Such as D.C. in this article) and the legislature. In Washington D.C., nonprofits occupy over $10 billion worth of real estate, which could generate over $111 million per year in tax revenue. Instead, the district collects nothing from them.
Two universities in the district alone account for $48 million in uncollectable property tax revenue. The District is considering the idea of making a change requiring payments in PILOT form, but has been pondering this idea for nearly fifty years.
Undoubtedly, these institutions bring an immense amount of revenue to the District, through research, attracted talent, and general expenditures by students and faculty. However, it is not clear if these benefits outweigh the costs of not receiving property taxes.
It is estimated that currently 28 different states have municipalities that collect PILOT payments; however these payments amount to far less than what the property taxes would have been worth.
It will be interesting to see if the legislature changes the current set up. Between the federally owned tax-exempt buildings, and those occupied by nonprofits, the district is missing out on over one billion dollars of tax revenue.
Tuesday, August 2, 2016
A recent development in California leaves the status of a local non-profit blood bank in question. However, Hemopet is not your typical blood bank, it is a blood bank for animals. Founded in 1986, Hemopet was the nation’s first 501(c)(3) non-profit blood bank and quickly grew to national scale. Currently, Hemopet supplies 40% of the nation’s emergency canine blood, and saves the lives of thousands of dogs each year.
In 1965, a law was enacted that exempted blood banks from taxation. Unfortunately, animal blood banks were not around at the time. A recent audit by state officials led to the conclusion that Hemopet should not be considered tax exempt, and that they owed over $80,000 in unpaid taxes. A bill is set to be presented to the California Assembly Committee on Appropriations on August 3rd that will clear up the status of the non-profit. Dr. Jean Dodds, president and founder of Hemopet, believes that if the bill passes requiring Hemopet to pay the $80,000 they will be forced to shut down. In addition to the potential shortage on emergency canine blood, closing Hemopet would leave over 200 Greyhounds homeless and 45 people would lose their jobs.
Hemopet officials are encouraging Californians to contact the Assembly Committee on Appropriations to voice their support for the organization.
Monday, August 1, 2016
Community Basics, a Lancaster, PA non-profit, is challenging the legality of a local zoning ordinance that effectively limits the ability of the Salisbury Township’s residents to obtain affordable multifamily housing. The proposed law would require the re-zoning of a 16.6-acre plot of land that is currently zoned for industrial use. The site would contain six buildings and 138 apartment units.
Currently, less than one percent of the township’s total land is zoned to allow multifamily housing. Township officials deny any wrongdoing and contend the zoning is necessary for critical industrial development. The Supreme Court has invalidated a zoning restriction before that only allotted 1.14 percent of a town’s land for multifamily housing. The Salisbury Township ordinance allows for .74 percent of the town’s land to be used for multifamily housing. To further limit the access to multifamily housing, the township requires four parking spaces per housing unit, an expensive barrier to building new housing units.
The challenge aims to curb the shortage of rental housing available to the Salisbury Township residents. Rent for the new units would be based on income, and would range from $315 to $945 monthly. The hearing for the ordinance is set for Aug. 24.
Sunday, July 31, 2016
Proposed legislation in Massachusetts would potentially shake-up the current state of their local non-profits. The proposal would make it necessary for current non-profits to begin paying property taxes, and continue to do so for the next four years (churches and houses of worship remain exempt). Currently, non-profit organizations are exempted from paying property tax, but occupy more than 13 percent of taxable property within the state. The proposal is a small part of an overall economic stimulus plan that seeks to provide over $700 million in assistance throughout the state.
Proponents of the legislation argue that aggressive land purchases by larger non-profits make it more difficult for smaller entities to find land. They also believe exempting the non-profits ultimately raises property taxes for others in the community. Opponents believe that taxing non-profits will make it necessary for them to cut back on their services provided, and could lead to employees being laid off. This could have a wide impact, as non-profit jobs are an estimated 17 percent of the state’s workforce (approximately 500,000 jobs), and pay more than $30 billion in wages.
Although both sides present compelling arguments, it is imperative for policy makers to thoroughly analyze the true impacts of their decisions. It will be interesting to see what how the good people of Massachusetts respond to this proposal.
Thursday, July 28, 2016
A recent post by Benjamin Leff on The Surly Subgroup highlights the 50+ year ban on 501(c)(3) organizations (here, specifically churches) “intervening” in a campaign for public office. Arguments for and against the ban range from an infringement of free speech, to churches using their power to distort the electoral process. However, the main issue discussed is that although churches want to get in to court to challenge the ban, they believe the IRS won’t let them. For a compelling read on how these organizations may be granted their “day in court” and some possible reform suggestions, read the above linked post.
Monday, June 20, 2016
- Evaluate charities using information from AG offices, IRS filings, and other resources such as Charity Navigator* (UPDATE: see below) or Guidestar
- Beware of sham charities & look-alike sites: some appeals will use similar names to well-established nonprofits
- Be cautious of newly-formed charities: may lack the experience to properly or effectively handle donations
- Investigate how your donation will be used: look for destination of funds and what percentage will benefit specific charitable purpose
- Stay away from crowdfunding or peer-to-peer fundraising: state law typically prohibits soliciting donations on behalf of a charity without charity's prior consent
It is good to be prudent, but do these consumer alerts discourage charitable giving? Are there any tips that you would add or eliminate to the list? (Note that these "tips" go beyond law and offer the Attorney Generals' views on best practices for charity, without distinguishing between law and opinion, the latter of which might not be shared by everyone.)
Editor’s note: A national organization with broad knowledge about local operations of charitable organizations privately shared that Charity Navigator only rates a small number of nonprofits but many people don’t realize this and assume that if a nonprofit is not listed, it is not recommended. Additionally, Charity Navigator has itself acknowledged the downsides of analyzing overhead ratios as a method of rating a charity’s effectiveness, but continues to use a methodology that places emphasis on administrative costs. Consequently, the national organization recommends that donors ideally should get to know the nonprofit first-hand, and learn more by reading about the nonprofit on GuideStar.org.