Monday, August 31, 2015
As reported in the Pittsburgh Post-Gazette, Fox Chapel Presbyterian Church of Pittsburgh has a history of facilitating public policy initiatives centered on improving children’s health. It all reportedly began in the midst of the 1980s downturn in the steel industry:
When [a group of former steelworkers] … showed up at the Fox Chapel Presbyterian Church in the spring of 1984, the Rev. John Galloway stopped the service and invited them to address the congregation. Their stories that day were followed by emotional meetings with church and community leaders in which they described life without medical benefits for their children, according to church records.
Charlie LaVallee, longtime executive director of the Highmark Caring Foundation and former Highmark Blue Cross Blue Shield vice president, called Fox Chapel Presbyterian the “catalyst” for the program he helped develop into state law that later served as the model for the federal Children’s Health Insurance Program.
Today, reports the Post-Gazette, the church is donating space to the Pediatric Palliative Care Coalition, formed in 2012 to assist those caring for children with life-threatening illnesses, a group of patients typically underserved by existing entities, including hospices. Partnering with the coalition seems a natural fit for the church, which is reported to have raised $50,000 in the early 2000s, “much of it going to help palliative care at Children’s Hospital of Pittsburgh of UPMC.” The story explains that the coalition, which includes several regional hospitals, “is currently advocating for two bills in the General Assembly involving pediatric palliative care,” and focuses on “connecting families and medical providers” and “helping educate hospices about a provision in the Affordable Care Act that requires state Medicaid programs to cover both life-sustaining treatment and hospice for qualified children under 21.”
The activities of Fox Chapel Presbyterian Church serve as a helpful reminder of how nonprofits in general, and religious nonprofits in particular, serve a vital role in both the delivery of social services in this country and the shaping of the nation’s public policy. The story reports how the church listened to the voices of a segment of the population facing great needs that were not being met by either government or the nonprofit sector. The church has raised money to help meet these needs. The church has also donated physical space to aid the effort. And the church, by helping raise public awareness of a problem, has even contributed in some ways to the enactment of law and legislative proposals that have garnered broad support.
More broadly, Fox Chapel Presbyterian Church is yet another example in our country’s rich history of nonprofits, including churches, which take seriously their mission and their duty to advance their mission by exercising their rights to participate in the intersection of the private and public spheres. What this church is doing to help promote children’s health would likely garner the applause of most of us. Other efforts – such as promoting the health, and even the very lives, of children who have not yet made it out of their mothers’ bodies – would elicit a more varied response among the general population. But this is the nature of a pluralistic universe of actors in a civil society that includes nonprofit entities in all of their varied stripes. Let us not forget that, when we embrace, even support, the efforts of a nonprofit such as Fox Chapel Presbyterian Church, we are recognizing the right of every nonprofit to act similarly to advance its mission.
Wednesday, August 19, 2015
Professor Victor Fleischer from the University of San Diego has an opinion piece in today's New York Times advocating an 8% annual required payout for university endowments over $100 million. Such a payout is more than the 5% amount required for private foundations under Section 4941, and well more than the payouts for medical research organizations and private operating foundations. In fact, it is more than the amount set as a rebuttable presumption of unreasonableness for endowment spending under Section 4(d) of UPMIFA, which is 7%.
Fleischer's concern was prompted by his research into investment manager compensation, which indicated that that private equity fund managers received more in payouts than students at at least five universities: Harvard, Yale, Texas, Stanford and Princeton. Much of this compensation was in the form of the dreaded carried interest, which is under scrutiny in numerous arenas, not just the nonprofit world.
It is an interesting proposition. I am somewhat dubious of an 8% payout, wondering whether that might have an adverse impact on the risk profile of endowments, which by all accounts already have fairly aggressive asset allocations (Fleischer says that endowments this size are returning over 8% already so it won't matter). I also wonder what rationale there is for subjecting only university endowments to such a rule, as it seems to me that there may be other exempt organizations of a similar size that might have a similar investment compensation issues (large foundations, for example, only pay 5%) that are not subject to such a high payout requirement. Finally, isn't the issue really the investment manager compensation, so mandating a payout isn't really reaching the root of the problem? But I may be picking around the edges on this. Would love to hear others thoughts.
Monday, July 20, 2015
As reported by The New York Times, Representative Raúl R. Labrador, Republican of Idaho, and Senator Mike Lee, Republican of Utah, along with 130 sponsors, have proposed legislation, the First Amendment Defense Act, that would confer protections for tax-exempt organizations and individuals that object to the Supreme Court's recent gay-marriage ruling on religious or moral grounds. The Act specifically provides that the Federal government cannot take any "discriminatory action" against a person, "wholly or partially on the basis that such person believes in accordance with a religious belief or moral conviction that marriage is or should be recognized as the union of one man and one woman, or that sexual relations are properly reserved to such a marriage." The Act defines a "discriminatory action" to include (i) an action by the Federal government to "alter in any way the Federal tax treatment of, or cause any tax, penalty or payment to be assessed against, or deny, delay, or revoke an exemption from taxation under Section 501(a) of the Internal Revenue Code of 1986 of, any person" referred to above, or (ii) "disallow a deduction for Federal tax purposes of any charitable contribution to or by such person." The Act states that it should be broadly interpreted in favor of a 'broad protection of free exercise of religious beliefs and moral convictions, to the maximum extent permitted" by the Act and the U.S. Constitution.
The Times reports that a bill proposed by "moderates" would attached two pro-gay rights provisions: (i) the Employment Non-Discrimination Act, making illegal workplace discrimination based on sexual orientation, and (ii) an amendment to the Fair Housing Act to include protections on the basis of sexual orientation and gender identity.
The Act, if passed in its present form, would ostensibly address the concerns of churches and other religiously-affiliated organizations that their tax-exempt status could be revoked for discrimination in membership or employment or otherwise on the basis of sexual orientation, even if such organizations' actions are based on their core religious tenets. (See prior blog post here discussing these concerns).
Monday, July 6, 2015
In the wake of Obergefell, the Internet was a dangerous place to be as a tax lawyer. Oh, a nickel for all the posts that lamented the loss of tax-exempt status for churches that didn't perform same sex marriages forthwith! Of course, I was sure to correct them all right away, because you know, nothing on the internet can be wrong, right?
There's been a lot of coverage by the news media on this issue as we've had some more time to discuss the issues, as discussed previously here at the Nonprofit Tax Prof Blog. Here's the latest in the coverage from the Baltimore Sun, which discusses the tax exempt status of religiously-affiliated universities. The article hedges on the issue of tax-exempt status, but I think both sides of the tax argument can find some common ground in the discussion found there. Under a Bob Jones University analysis, I'm not sure that we are there yet - there being that discrimination on the basis of sexual orientation is so fundamentally against public policy as to cause loss of tax-exempt status. While Obergefell certain makes it a stronger case, I think we will need to see more from the other branches of government before we get to that level. That being said, I agree with the Sun article in the thought that even if we aren't there now, I think we may be within my lifetime.
I do think that it is important to point out that Bob Jones University specifically talked about racial discrimination in education as being the fundamental public policy at issue and that the case involved the tax-exempt status of a university, not a church. Note that this article only talks about colleges and universities - the question of the tax-exempt status of churches is much more complicated. I don't believe there there is a case that we know of that where a church lost its tax-exempt status on the basis of religious discrimination. Can any of my Tax Prof or Nonprofit Prof Blog colleagues think of any example?
Thursday, June 25, 2015
The New York Times has published a piece exploring how nonprofits could be affected by the pending Supreme Court decision in Obergefell v. Hodges, which raises the issue of whether the United States Constitution establishes a right to enter into a gay marriage. The gist of the article is that private religious schools across the nation impose codes of sexual conduct, including prohibitions of same-sex relationships, and these schools fear that their policies could risk the loss of their federal income tax exemption. Why? If the Court recognizes a constitutional right to enter into gay marriage, the Internal Revenue Service could find school policies on sexual conduct to violate fundamental public policy under Bob Jones University v. United States.
Although many legal scholars seem to doubt that schools would face this risk in the near term, the schools do have cause for concern. As I have written and illustrated previously in two law review articles, the public policy doctrine is poorly defined and easily manipulated. Further, the NYT article observes that, during oral argument in Obergefell, Justice Alito posed the question of how the decision would affect the tax exemption of private religious schools to Solicitor General Donald B. Verrilli Jr. In an exchange that we previously covered on this blog, Mr. Verrilli admitted at oral argument that the exemption question “is going to be an issue.”
Monday, June 22, 2015
The Affordable Care Act (“ACA”) is in the forefront of newspaper coverage these days, with the United States Supreme Court set to decide in King v. Burwell whether enrollees in federal exchanges in states that have not established their own exchanges have subsidized insurance under the ACA. The ACA directly and indirectly impacts a significant portion of the nonprofit sector, both its service providers (i.e., nonprofit hospitals and other health care providers) and its service recipients (i.e., health care consumers). Several articles may interest readers. One is an article published by the St. Louis Post-Dispatch, which discusses the consolidation of the health care industry (and its likely effect on pricing) wrought by the ACA. Another article, this one from the Los Angeles Times, maps out the various legal arguments (e.g., textualism, administrative agency deference, and protection of states’ rights) that could sway Supreme Court justices as they decide the Burwell case. Perhaps most interesting of all is a piece by Emily Bazelon, who, writing for the New York Times, takes a somewhat scholarly look at the role of empiricism and consequentialism in judicial decisions, and speculates how they might affect Burwell and other cases currently before the Supreme Court.
Wednesday, June 10, 2015
One of my least favorite days in Nonprofits class is the day that we discuss the difference between trust and corporate fiduciary duties (Sibley Hospital, anyone?). Lest one think that the distinction is purely academic, along comes the sad case of Sweet Briar College to reaffirm that this area of law remains completely and utterly confusing.
If you’ve not been following the story, Sweet Briar College’s operating entity is a “non-profit corporation” (Complaint, Para. 6) which was created by the Virginia General Assembly “to administer the trust created by the will” of its primary funder, Indiana Fletcher Williams. The Complaint also asserts that SBC is a charitable organization under the Virginia Charitable Solicitation laws and is a “trustee” under Virginia’s version of the Uniform Trust Code. (So I’m confused already….)
According to the Complaint, the provisions of Mr. Williams’ will place his residuary estate in a trust. The trustees of that trust were instructed to create a corporation to run a women’s college in perpetuity. It would appear that in 1901 in Virginia, a nonprofit corporate charter could only be obtained by act of the General Assembly, and so it was. (Complaint, p. 17). The corporate charter incorporated the terms and conditions of Mr. Williams’ will, which required the assets to be held in perpetuity for the women’s college and directed that the assets not be sold.
Fast forward to March, 2015, when the current Board of Directors of the college announced that it would close the doors of the college, and liquidate its assets, including its endowment (Complaint, p. 26) due to the college’s poor financial condition. Litigation, of course, ensued.
The Complaint alleges violations of the Uniform Trust Code, which it asserts is applicable not only the original funding of the College occurred through the trust under Mr. Williams’ will, but also because “the Act of the Assembly creating the College requires that the College be administered in the manner of an express or charitable trust” (Complaint, p. 55). It then states, “Because the College is a charitable corporation, the assets held by Defendants are deemed to be held in trust for the public.” (Complaint, p. 56). Among other things, the original Complaint requested a temporary restraining order and a preliminary injunction restraining actions in furtherance of closing the school.
So the question then becomes, Sweet Briar College a trust? Is it a corporation? Does it matter? Should it?
More on this Nonprofit Law Prof Blog Cliffhanger next time….
Tuesday, May 26, 2015
I have blogged often about the rise of a donor base that demands results from the nonprofits. My theory is that an efficient charitable market, where investment ends up in the hands of those charities that will put it to its most productive use, is crucial. Of course that necessitates reform to our US cross-border giving laws so that donors truly may have the ability to weigh the social impact (or return) associated with US versus non-US charities before deciding where to give. This was the subject of two parts of a three part series I have written. An efficient charitable market also requires the charitable sector to learn from the impact investing sector in terms of measuring and reporting social impact, which is the topic of my forthcoming final article in the series.
CNBC dealt with the donor dilemma of where to give effectively earlier this month. It announced that well-known think tank in the nonprofit arena, Milken Institute, has developed the Center for Strategic Philanthropy (CSP), which is designed to help donors make better giving choices. The main arm of the CSP is the Philanthropy Advisory Service. As Executive Director of the CSP, Melissa Stevens, commented, donors "are spending so much more time on their philanthropy because they want to do it well." The need for providing donors with concrete information about return on their investments is no secret to other competitors in the space such as Rockefeller Philanthropy Advisors, Pembroke and the Giving Pledge. With over $250 billion being given annually in the US, there is plenty of room for advising according to area of expertise. The CSP has already laid claim to the medical research area. According to Stevens, donors are focusing on “maximizing the social return on their philanthropic portfolios,” a phrase which necessitates the development of an efficient charitable market.
Monday, May 25, 2015
Earlier this month, we covered the 9th Circuit decision that denied the Center for Competitive Politics (CCP) an injunction that would have restricted California Attorney General Kamala Harris from requiring a list of donors who had contributed more than $5,000 in a year. See Lloyd Mayer's post.
Under current California law, nonprofit groups seeking donations from California are required to disclose donor names to the AG and to the IRS. The CCP and America for Prosperity have refused to surrender these lists asserting that their donors would be harassed. Harris has indicated that the lists would be kept confidential and used only for investigatory purposes.
As an update, the Supreme Court has denied an emergency appeal from the CCP. The CCP filed the appeal with Justice Kennedy, who denied it without prejudice. David Keating, President of the CCP, has stated that the center will continue injunction efforts in the event Harris attempts to collect donor information. Interesting, Justice Kennedy is a proponent of free speech and free spending in terms of politics, two aims the CCP promotes; however, he is also in favor of disclosure laws. This case raises important First Amendment questions for the sector. See LA Times.
Thursday, May 7, 2015
New York City seems to be in the news a lot this week. In a press release issued yesterday, the Carnegie Corporation of New York announced grants totaling $3.6 million in support of education and enrichment programs in the greater New York City region.
The awards form part of the foundation's 2015 Presidential Discretionary Grants program. Pursuant to that program, eighteen museums, libraries, and performing arts and science centers received grants of $200,000 each for existing programs aimed at K-12 students. Grant recipients include the American Museum of Natural History; the Asia Society; the Brooklyn Academy of Music; Carnegie Hall; Cooper Hewitt, Smithsonian Design Museum; Liberty Science Center; Lincoln Center for the Performing Arts; the Metropolitan Museum of Art; the Morgan Library & Museum; the Museum of Modern Art; the National September 11 Memorial & Museum; New Jersey Performing Arts Center; the New York Botanical Garden; the New York-Historical Society; the New York, Brooklyn, and Queens public libraries; and Studio in a School.
Commenting on the awards, Carnegie president, Vartan Gregorian, said:
New York City, one of the cultural capitals on the United States, has the largest public school system in the nation. Carnegie Corporation is proud to support the City's cultural institutions in order to enhance the curriculum of our public as well as private and parochial schools with the riches these museums, libraries, and centers possess. It speaks well of these organizations' leaders that they have developed education programs to help students overcome deficiencies in the arts and sciences that our schools can't provide due to financial factors.
Today's Philanthropy News Digest is reporting that as Africa "struggles to address the effects of climate change and an unprecedented youth bulge, the Rockefeller Foundation is working across multiple fronts to build the resilience of African economies."
Attributing the report to the Voice of America, the Digest reports that current efforts includes the $100 million Digital Jobs Africa initiative, which was launched in 2013 with the aim of boosting the information and communications technology (ICT) sector in six African countries -- Ghana, Kenya, South Africa, Nigeria, Morocco, and Egypt. Foundation president, Judith Rodin, told the VOA:
We are excited to see so much opportunity and such a growth market in the ICT sector more broadly across the continent. [There are] so many technology parks growing [and] so many companies really growing on technology-based platforms. We know that ... the continent has to focus on employing this extraordinary youth bulge that we are going to see. We think ... a critical part of shared prosperity as we go forward [means] developing growth in the ICT sector which often yields some of the better paying jobs.
Elsewhere on the continent, the foundation is working to help small farmers adapt to climate change by collaborating with local partners to capture run-off from flooding for use in irrigating fields. It is also working in partnership with the World Food Programme and has bankrolled a technology called risk metrics that can help predict an impending drought. As a final matter, the foundation is also -- again in conjunction with the World Food Programme -- creating a country-level insurance mechanism that enables countries to access resources in the immediate aftermath of a natural disaster rather than having to wait for international development assistance to arrive.
Wednesday, May 6, 2015
The Washington Post is reporting that just as business, political, and philanthropic leaders gathered in Marrakesh, Morocco, for the first Clinton Global Initiative meeting on Africa and the Middle East, Chelsea Clinton, the former President's daughter, said there is a "political dimension" to the controversy over multimillion-dollar gifts from foreign governments and corporations to her family's foundation.
Ms. Clinton, the Clinton Foundation's vice chair, said the scrutiny has intensified with the launch of her mother Hillary Clinton's White House run. She dismissed the idea, raised by some Republicans and campaign watchdog groups, that foundation donors seek to curry favor with her powerful parents.
I was wondering what all the traffic gridlock was about when I got out of LaGuardia airport early Monday afternoon and tried to make my way to Poughkeepsie. fearing the worst, I tuned in to 1010 WINS to catch the traffic report. That was when I heard it: President Obama had been at Lehman College where he had announced the creation of a nonprofit called the My Brother's Keeper Alliance. The new organization is a spinoff of a White House initiative of the same name aimed at uplifting African American and Hispanic boys from preschool through high school.
In launching the new Charity, President Obama stated that the My Brother’s Keeper Alliance will "continue the work of opening doors for young people -- all our young people -- long after I've left office."
Reporting on the launch, TheNonProfitTimes reports that the President
told the audience at Lehman that the new organization has secured $80 million from companies such as Deloitte, News Corp and American Express. The group's star-studded executive team and advisor board will include former Secretary of State Gen. Colin Powell, Sen. Cory Booker (D-N.J.), basketball stars Alonzo Mourning and Shaquille O'Neal, and former Attorney General Eric Holder, among others.
The new organization will be led by former Deloitte CEO Joe Echevarria and might serve as a vehicle through which the president can influence policy after his second term is up. Speaking to reporters, White House Press Secretary Josh Ernest stated:
While I'm not in a position to describe the specific, detailed relationship between the president and this alliance that will continue after his presidency, I can tell you that this is an issue that the president intends to continue to be focused on long after he has left the Oval Office.
Meanwhile, Broderick Johnson, chair of the White House initiative, linked the My Brother's Keeper with the unrest in Baltimore following the death of Freddie Gray. Writing on the My Brother's Keeper initiative's website, Johnson stated:
For so many of us, the My Brother's Keeper initiative is deeply personal. As a proud son of Baltimore, this week's announcement comes at a time of unique and special resonance for me. As the country reflects on our shared responsibility to ensure that opportunity reaches every young person, I urge everyone to look at their own capacity to make a difference.
The My Brother's Keeper initiative was designed to focus federal resources towards closing the opportunity gap experienced by African American and Latino males. To that end, Johnson identified almost $1 million in funds from a number of federal agencies: the departments of Education and Health and Human Services announced $750 million in Preschool Development Grants for 18 states this past December, and the Department of Labor and the National Guard have programs that will together expend $100 million to improve career prospects for minorities.
Wednesday, April 29, 2015
The Los Angeles Times reports that the City of Los Angeles has sued Gardens Regional Hospital & Medical Center for “repeatedly dumping patients … without appropriate treatment or discharge plans.” According to the Times, L.A. City Attorney Mike Feuer has sued several hospitals over the past two years on similar grounds, and he is currently investigating other facilities. One example cited by the story is Glendale Adventist Medical Center, which is reported to have “paid $700,000 last year to settle dumping allegations without admitting wrongdoing.”
As to the predicament facing hospitals, the story explains as follows:
Some hospitals maintain they are hamstrung by laws that stop them from confining all but the most severely psychotic homeless people. State law requires discharge planning, but hospitals say there is nowhere for homeless patients to go — especially those with mental conditions.
But Feuer maintains that several hospitals have agreed to proper protocols. The Times cites him as saying, “In each of the cases we've resolved with a medical care facility we've not had a single problem," and that "it is possible for a healthcare facility to adopt humane and decent treatment."
The National Football League has announced that it will no longer file as a tax-exempt entity, notwithstanding its long-standing status as an organization described in section 501(c)(6) of the Internal Revenue Code. As reported in Bloomberg, NFL Commissioner Roger Goodell characterized the decision as eliminating a “distraction.” The Bloomberg piece also opines on the calculus behind the tax-exemption audible:
The league’s decision pre-empts a move to revoke the tax break that had been led by former Senator Tom Coburn of Oklahoma. That effort has gained some momentum in recent years, but not enough to pass either the House or the Senate. The NFL’s action removes a point of leverage for Congress in its continuing inquiries into the league’s handling of concussions and domestic violence.
For the NFL, the costs of losing the tax break are minimal, an estimated $109 million over the next decade. There are benefits for the league, too, including the end of federal disclosure requirements that put Goodell’s salary and some other league information in the public domain.
The tax cost of the league’s foregoing federal income tax exemption is not precisely known. According to the Wall Street Journal,
The size of the NFL’s tax bill is unclear. In 2013, a report by Sen. Tom Coburn (R., Okla.) calling for the NFL and National Hockey League to give up their tax-exempt status estimated that such a move would generate $91 million annually for the federal government. But Congress’s Joint Committee on Taxation pegged the amount at just $109 million over the next 10 years.
As to the benefit of not disclosing salaries to Monday morning quarterbacks, the Washington Post makes an interesting observation:
[T]he NFL’s executives will gain cover from criticism over their paychecks. The league’s 2013 tax filing revealed that, besides Goodell’s $44 million, six other executives drew seven-figure salaries and 298 employees made $100,000 or more.
Tuesday, April 28, 2015
Charity Navigator has published a list of charitable nonprofits that are working to aid the victims of the tragic, enormous earthquake that struck Nepal about 50 miles from Kathmandu three days ago. According to Charity Navigator’s website, “the charities on our list have indicated that they plan to assist in the relief efforts in some way,” and they “have a 3 or 4 star Charity Navigator rating.” Donations to these charities also may be designated specifically for the relief of victims of the Nepal earthquake.
Monday, April 27, 2015
Accounting Today reports that the Financial Accounting Standards Board has issued a proposed accounting standards update that would modify how nonprofits must report information in their financial statements and notes thereto. Proposed changes address the reporting of restricted assets, results of operations, expenses by both nature and function, investment returns net of expenses, operating cash flows, and quantitative and qualitative information about liquidity.
The Clinton Foundation is obviously making headlines these days. I hardly know anything at this point begging for this nonprofit law professor’s comment. But for those who would like a sampling of stories from the past week’s news cycle, here is coverage from the Chicago Tribune, USA Today, the New York Times, and the Washington Post.
Wednesday, April 15, 2015
Happy Tax Day all - and a special happy statute of limitations day to all of those involved in the preparation of tax returns!
Thursday, April 2, 2015
The Supreme Court of Pennsylvania has decided to consider an issue that could have far-reaching consequences for the way attorneys and charities interact. The issue before the court is whether an attorney who has reason to believe that charitable assets are being diverted to private individuals may inform the Attorney General. This issue deals with Rule 1.6 of the Rules of Professional Conduct, which permits breaching attorney-client confidentiality in very limited cases, e.g., to prevent death or serious bodily harm. Not surprisingly, a cloud of secrecy has surrounded the case since late last year, and the order permitting consideration of this issue was only made public in March. A recent article explores this case and its possible implications.
Interestingly, the petitioner’s argument is not based upon Rule 1.6 but rather on the idea that counsel has a fiduciary duty to report unlawful diversions of charitable assets to the Attorney General since the general public is affected. In addition, the petitioner claims that since the charity is a tax-exempt entity supported by the public, it has waived its rights under Rule 1.6. As pointed out in the article, Rule 1.13 is also relevant. Rule 1.13 details the steps an attorney may take within an organization before going outside of it. For example, an attorney may choose to report the matter to higher-ups within the organization. As noted, attorney-client confidentiality serves an important purpose in our society. Overall, we want to promote the seeking out of legal counsel when there is a problem, and this will not happen if potential clients are afraid their confidences will be shared. As noted above, limited, dire circumstances must exist for an attorney to breach attorney-client confidentiality.
At the same time, one must ask whether the attorney-charity relationship calls for a different rule, particularly in the case of public charities. After all, these charities are accountable to the public. Also, given the recent problems associated with IRS oversight and the growing number of charities, attorneys may provide a more helpful, rather than hurting, hand in the quest to monitor an ever-increasingly large number of organizations.