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.
Monday, June 6, 2016
According to this Chronicle of Philanthropy article (citing arts newsletter Hyperallergic), Senate Finance Committee Chair is continuing his scrutiny of private museums, now by requesting clarification from the IRS regarding its stance on private museums. You may recall that last fall, Senator Hatch sent a letter of inquiry to a number of private museums, requesting details regarding the museum's operation - fellow blogger Nickolas Mirkay detailed those letters here. Hyperallergic indicated that one of Hatch's primary concerns was the public availability of collections (including limited hours and advance reservations) and the continuing role of donor of the art collection in the management of the museums. Much of this scrutiny may stem from a series of New York Times articles regarding private museums, including here and here.
Inquiries of this type bother me somewhat. It seems to me that current law regarding private benefit is probably sufficient to handle many of the perceived abuses (maybe it's an enforcement issue - just throwin' it out there). The drumbeat of the articles and the Senate inquiry may lead to additional regulation - and I suspect they will use a mallet rather than a surgical instrument to deal with the issue, if history is any guide.
Thursday, May 26, 2016
A recent story describes the battle an Iowa casino faces in trying to keep its non-profit status as a 501(c) (4) social welfare organization. The IRS believes that the casino is too commercially successful to be considered a charitable organization, and calls into question how their revenue is truly being used after it is earned. Of course, non-profits may have a commercial enterprise as long as the organization is lessening the burden of the government.
According to the casino, they certainly have a large impact on the surrounding community, paying over $54 million in wages last year. Further, the casino gifted nearly $20 million to local charities, including school districts. According to the casino’s website, they have also given out over 500 scholarships for students to attend state colleges or universities in Iowa. The Casino also gives out “Legacy Grants” to help fund projects that benefit the community, these grants range from $100,000 to $1 million. Lastly, the casino has paid over $800 million in taxes so far.
No matter the ultimate outcome of the IRS ruling, it is clear that many will be impacted from the decision. It will be interesting to see if the IRS determines that all of this charitable giving lessens the burden of the government, or if other competing objectives drive them to take away the casino’s 501(c) (4) status.
Tuesday, May 24, 2016
A compelling article from the ABA’s Business Law Today on the risk of loss to client bank accounts from cyber-theft highlights the dangers faced by all bank account holders across the United States, including non-profits. In a technology driven economy, while efficiency is promoted through instantaneous transfers, a door has opened for a new type of cyber-crime.
This article explores some of the inconsistent and unpredictable case law that has developed over who should bear the risk of loss from a cyber-attack, the bank or the customer. Loose standards of “commercial reasonableness” lead to a wide range of possible interpretations. For example, the same banking practice was “reasonable” for one bank, but “unreasonable” for another.
This issue is particularly important for non-profits, who would likely be forced to close their doors if they were to bear the consequences of a large cyber-attack, leaving them without the necessary funds to continue operation.
The article concludes with some practical advice on how an organization should assess their banking needs and what type of protection is best for their own needs.
The new overtime regulations taking place on Dec. 1, 2016, will certainly effect labor decisions across the country. For the first time in twelve years, the threshold amount to determine if salaried workers are exempt from overtime pay will be raised from $23,660 per year, to $47,476 per year. Generally, an employer paid a salary under the new threshold will be required to be compensated for overtime worked, unless an exemption applies. In order to qualify for the new overtime payment rules, an employee must work for a covered enterprise, or be a particular worker who is covered.
If a non-profit meets the “enterprise coverage test,” all employees working for the organization are covered by the new regulations (unless an exemption applies). To be considered a covered enterprise, “an entity must have annual revenues, that is, volume of sales made or business done, of at least $500,000.” However, non-profits are not considered covered enterprises unless they engage in “ordinary commercial activities that result in sales made or business done” that exceeds $500,000. Ordinary commercial activities are those normally associated with operating a business, such as selling products or services. Charitable activities, however, such as providing food, shelter, or clothing, generally are not ordinary commercial activities.
To determine if a non-profit is a covered enterprise, only business purpose activities are considered. Income used to further the non-profit’s charitable activities is not factored into the $500,000 (e.g., membership fees and donations). Organizations can engage in both charitable acts, as well as business activities, and such organizations could potentially qualify as a covered enterprise.
Finally, the new regulations will automatically apply to some entities unless there is a specific exception. These entities include: “hospitals; institutions primarily engaged in the care of older adults and people with disabilities who reside on the premises; schools for children who are mentally or physically disabled or gifted; federal, state, and local governments; and preschools, elementary and secondary schools, and institutions of higher education.”
These regulations will certainly impact the way in which non-profits decide how to earn and spend revenue, attempting to have as much revenue as possible further its charitable activities to keep them below the $500,000 threshold. One thing is for sure, volunteers and donations will be crucial to a non-profits’ success.
For a detailed look at individual exemptions, please see the provided link.
Monday, May 23, 2016
A recent article on proposed Delaware legislation highlights the complexities and competing objectives lawmakers face when deciding if a nonprofit should be exempt from paying local property taxes. Here, the decision is whether or not to add the Milford Housing Development Corporation, EJB Inc., and Martha and Mary’s Place Inc., to the current list of 76 nonprofits in Delaware that currently enjoy being exempt from local property tax. These entities provide housing and/or drug treatment services to community members in need. While these organizations undoubtedly provide essential public services, granting these entities tax exempt status can have negative effects on other public services.
For example, the Milford Housing Development Corporation paid almost $30,000 in property taxes last year. To further add to the conundrum, almost all of those funds were appropriated to a local school district. In times of financial hardship, policy makers are faced with tough decisions and must balance different objectives in deciding where tax revenue should come from, and what that revenue should benefit. A thorough cost-benefit analysis must be undertaken to determine the full reach of granting an entity tax-exempt states, including both positive and negative effects. Granting an entity tax-exempt status, or deciding to appropriate tax funds to a particular area, almost inevitably means that another worthy entity will bear the cost.
Some municipalities try to alleviate this burden by requiring those entities that are designated tax-exempt to pay set fees to contribute back to the greater good. However, this can hinder the accomplishment of the entity’s purpose and cause due to a lack of funds.
Ultimately, it would take an army of professionals to make a “perfect” decision on who should be granted tax-exempt status, and who should bear the cost of that status. Even then, by the time a thorough analysis has been undertaken, the state or municipality will likely be facing different needs as a community. Policy makers must employ great foresight in making these tough appropriation decisions.