Wednesday, June 4, 2014
This article in Forbes has been getting a good deal of play in the media. The article describes a report issued by the Walmart 1 Percent, a project of Making Change at Walmart backed by The United Food & Commercial Workers International Union. The report states that second generation of the Walton family has not been at all generous in supporting the Walton Family Foundation. According to the article, the first generation of the Walton family, Sam and Helen, were the initial creators of The Walton Family Foundation and accounted for the vast majority of the funding of the Foundation. In addition, a number of charitable lead trusts (a.k.a. “tax- avoiding trusts”) set up by parents, as well as their deceased son John, pay their lead interests to the Foundation.
Trust me, I’m no fan of the Waltons or Wal-Mart. I threw up in my mouth a little writing this. That being said, there are a number of things that trouble me about this report that have larger implications for charitable giving, generally.
1. The limits of disclosure. The premise of the report is that “if giving to the Walton Family Foundation is their [i.e., the second generation of Waltons] primary way of practicing charity, then the Waltons are hardly philanthropists.” The report does note that it believes that “it is reasonable to assume that the Walton Family Foundation is the primary vehicle through which the Waltons contribute to charity. However, to the extent that the Waltons make charitable contributions to entities other than the Walton Family Foundation the ﬁndings in this report will under-estimate their total charitable giving.”
I’m not sure why the authors believe that it is reasonable to assume that the WFF is the primary vehicle through which the Waltons contribute to charity. In my personal experience (subject to the caveat that the plural of anecdote is not data), the second generation in a family often does NOT support the parents’ private foundation. Quite to the contrary – those second generation family members often wish to strike out and establish themselves as philanthropists in their own right (or not at all). They will either choose not to make contributions (with the view that they already gave up part of their inheritance to charity) or make contributions in their own names to their own foundations and in furtherance of their own unbridled giving priorities and control.
The fact of the matter is that we simply don’t know the extent of the personal charitable giving of each family member. They may be giving to their own foundations or donor advised funds or supporting organizations or program direct giving, that may or may not have “Walton” in the name. The authors of the report can search the public records all they want – and the report discloses its methodology at the end – but much of this information is simply private, and we won’t know unless the Waltons tell us.
If the 2G Waltons want to claim to be philanthropists and hang their hat solely on the parents’ foundation, well … that’s an entirely different question (a.k.a., what does it mean to be a philanthropist?) On that note, they can put up or shut up, and I agree with this report only to that extent.
2. Tax “avoidance” trusts don’t count as giving. Look, I’m not naïve. (Mostly.) I’ve set up my fair share of charitable lead trusts and I know how they work. I know that the actuarial value of the lead interest going to charity for gift tax purposes bears no relation to the amount *actually* passing to the Foundation. And I know that there is always a transfer tax motive for setting up such a vehicle.
But does that mean we write off such things (and their cousins, the CRT and the gift annuity) as not being charitable?
I think lots of institutions that benefit from such planned giving vehicles would beg to differ. The fact of the matter is that any individual setting up such a trust knows that at least part of the assets in that trust will be going to charity. We can argue about whether the tax benefits to the donors derived from such trusts are not proportional to the amounts passing to charity. We can also argue whether the tax code should incentivize charitable giving by allowing income, estate and gift tax charitable deductions for such gifts in trust.
But let’s be clear. The current Code does allow such trusts. Congress does incentivize charitable giving through these techniques. And I’d bet dollars to doughnuts that the nonprofit community would be very upset if Congress wanted to do away with them – because they do result in real money going to charity. Maybe not as much as we’d like, but they do.
And while I’m at it … these aren’t loopholes in my understanding of the term. A loophole is an unintended tax break found when various parts of the Code don’t work together correctly (read: intentionally defective grantor trusts). CRTs and CLTs are very much in the Code intentionally – they are tax expenditures, not tax loopholes. Don’t like them? Change the Code, but don’t condemn people for taking advantage of legitimate tax strategies that are in the Code very much on purpose.
3. What is philanthropy, anyway? The 2G Waltons clearly have a world view, if one looks at the charitable giving they have done of which we have knowledge. I share pretty much nothing of that world view, personally. Does that mean that what they’ve done or funded isn’t charitable? Of course not - the question of whether or not I personally agree with the 2G Waltons’ giving priorities is irrelevant to whether or not it is charitable giving.
The notion of “charity” isn’t static – one need only to look to questions of race, religious, gender, and like restrictions in charitable gifts to know that standards change over time. I’m not going to say that the definition of charity is entirely open-ended. But we shouldn’t argue that the things that the Waltons support aren’t charitable just because they support things we might not like. You may not like the fact that Alice Walton gave millions to the Crystal Bridges Museum of American Art, but it doesn’t mean that the support of the arts isn’t “charitable.” You may not like the fact that the Waltons support the charter school movement, but that doesn’t meant that furthering educational innovation isn’t “charitable.”
If the shoe were on the other ideological foot, would you want to go down this definitional road?
Fundamentally, the report comes down to this quote:
“if they wanted to, the Waltons could be the most generous philanthropists in America, and probably the world.”
(Italics emphasis in the original). If you’re reading this blog, then you probably think that philanthropy is a pretty good thing and that we’d like people to be more generous. But nothing in our system of donor-driven philanthropy requires it - not of you, not of me, not of the Waltons. Full stop.
EWW (warily donning her flame-retardant pajamas....)
Thursday, May 29, 2014
As reported in Sunday's The New York Times, a trend among hospitals around the country is to reduce financial assistance to uninsured patients with the intent of forcing such patients to obtain coverage under the Affordable Care Act. The criticism is obvious - uninsured lower- and middle-income citizens without coverage will not take advantage of the ACA due to perceived, and perhaps actual, unaffordability and therefore forgoe health care all together. The push-and-pull for hospitals centers on the ACA's reduction of federal payments to hospitals that treat large number of uninsured patients (again, hoping to force such patients to seek coverage in online marketplaces) and the actual need to provide free or reduced-cost health care to those most in need of it.
The Times article illustrates hospitals' various policies to address this real problem:
In St. Louis, Barnes-Jewish Hospital has started charging co-payments to uninsured patients, no matter how poor they are. The Southern New Hampshire Medical Center in Nashua no longer provides free care for most uninsured patients who are above the federal poverty line — $11,670 for an individual. And in Burlington, Vt., Fletcher Allen Health Care has reduced financial aid for uninsured patients who earn between twice and four times the poverty level.
Continuing charity care for the uninsured, argues some health care providers, defeats the very purpose of the ACA. However, uninsured advocates argue that many uninsureds forgoe coverage under the ACA inaugural enrollment because the plans are expensive, even with government subsidies. Some argue that it is still a matter of message - encouraging people who now have access to coverage under the ACA to take advantage of the opportunity.
The article further states:
Many hospitals appear focused on reducing aid only for patients who earn between 200 percent and 400 percent of the poverty level, or between $23,340 and $46,680 for an individual. Many of those people presumably have jobs and would qualify for subsidized coverage under the new law.
The Times further reported that financial challenges for uninsureds are "particularly daunting" in the states that have not yet expanded their Medicaid programs, which currently totals over 24 states.
An issue not addressed by the Times Article is how these emerging charity care policies, to best comply with and take advantage of the new ACA reimbursement rules, will affect these tax-exempt hospitals' Form 990 Schedule H reporting? Has Congress and the IRS contemplated the changes to charity care numbers in light of the above-referenced ACA rules?
Saturday, May 24, 2014
A regional Blue Cross and Blue Shield parent company is the defendant in a lawsuit alleging inappropriate retention of profits and excessive executive compensation, reports the Chicago Tribune. Here are some of the reported details:
Health Care Service Corp., a nonprofit mutual insurance company that operates Blue Cross and Blue Shield plans in Illinois, Texas, Oklahoma, New Mexico and Montana, is accused of breaching its contracts with members by accumulating excess profits of about $4.9 billion. Instead of disbursing that money to its health insurance members either through a paid dividend, reduced prescription drug costs or lower premiums, the company paid out nearly $100 million in bonuses to its top 10 executives from 2011 to 2013, according to the suit.
The complaint was filed Monday by Babbitt Municipalities Inc., a Chicago-based benefits administration company that conducts business as Group Benefits Associates and works primarily with labor unions. It seeks certification as a class action that would include all policyholders in HCSC’s fully insured business, which totaled about 8.5 million members as of Dec. 31.
Friday, May 23, 2014
The Detroit Free Press reports that the Michigan House of Representatives, in a bipartisan 103-7 vote, has approved legislation to help lift the City of Detroit from bankruptcy. The main bill is reported to specify conditions to the $194.8 million the State of Michigan could give Detroit to ameliorate reductions in pension benefits and to preserve holdings at the Detroit Institute of Arts. The role of nonprofits in the bailout is explained as follows:
The state’s contribution is part of a so-called grand bargain that will be combined with $366 million pledged from charitable foundations and $100 million from the Detroit Institute of Arts. The money is designed to ease the cuts for pensioners and retirees and protect the artwork at the Detroit Institute of Art[s] from sale.
Thursday, May 22, 2014
The Washington Post is running a story involving Arlington-based International Relief and Development (“IRD”), “the largest recipient of grants of any nonprofit organization funded by the U.S. Agency for International Development” (“USAID”). Eighty-two percent of IRD’s $2.4 billion in funds received since 2007 reportedly were devoted to USAID projects in Iraq and Afghanistan.
The Post reports that a federal inspector general is seeking the identities of employees who signed confidentiality agreements with IRD that prohibited them “from making disparaging remarks about the company to ‘funding agencies’ or ‘officials of any government.’” The existence of the agreements became an issue when the Post, in examining IRD’s operations, heard from former IRD employees that they had witnessed waste and potential fraud, but feared the prospect of coming forward because of the agreements. Additional details follow:
IRD Special Inspector General for Afghanistan Reconstruction John F. Sopko said in a letter delivered to IRD President Arthur B. Keys on Wednesday that the agreements could violate the False Claims Act and other statutes designed to protect taxpayers and whistleblowers.
In addition to the names, he asked IRD to disclose the federal contracts and grants that the employees worked on while they were with the Virginia nonprofit group, as well as any correspondence with the company. Forty-nine IRD employees signed the agreements at issue, seven on programs in Afghanistan, the nonprofit group said.
“We are actively seeking information concerning IRD’s compliance with whistleblower protection laws and regulations,” the inspector general wrote.
IRD has issued a statement pledging its cooperation with the inspector general. In addition, according to the Post, IRD General Counsel Jason Matechak has told the inspector general that employees have been notified that the agreements do not preclude them from participating in a governmental investigation, and that IRD “would not seek to enforce the separation agreement in a manner that would run afoul of the False Claims Act.”
The Los Angeles Times reports that California Attorney General Kamala Harris is examining the San Diego Opera, a tax-exempt section 501(c)(3) organization that has recently announced its intention to continue operating notwithstanding a prior decision to shut down. Thus far, the AG has directed the opera company to produce certain records and retain all existing documents. A spokesman for the opera is reported as saying that he could not elaborate on the nature of the AG’s request.
The story continues with an explanation of how the AG’s inquiry may have sprung to life:
Lorena Gonzalez, a state assemblywoman for District 80 in San Diego, said she'd reached out to the attorney general in mid-April with concerns about the way opera leaders handled the announcement that the opera would close.
She said there were questions about Ian Campbell, the opera's longtime general and artistic director, and whether he and other leaders had given an accurate portrait of the company's financial health when communicating with potential donors and government funding sources.
"There are questions about whether the company received taxpayer dollars based on false information," said Gonzalez.
However, a lawyer for Campbell disputed Gonzalez's concerns. "Ian was fairly consistent in representing accurate information to donors and especially internally within the company," said Gil Cabrera, a San Diego attorney.
According to the Times, Keith Fisher, the opera's COO, issued a statement that the opera welcomed "the opportunity to open our records to Kamala Harris' office, as doing so will assure the public of our promise of transparency and good governance."
Wednesday, May 21, 2014
The Christian Science Monitor is running a fairly interesting piece on the challenges facing a major charitable nonprofit – the National Collegiate Athletics Association. Without revisiting the various arguments on whether the NCAA should remain exempt from federal income tax, the story briefly addresses some of the legal matters of relevance to the NCAA – including a couple of antitrust suits working their way through the courts, as well as the NLRB ruling that Northwestern University football players can unionize. Perhaps of more interest is the story’s discussion of possible changes to NCAA rules. Key excerpts follow:
The lawsuits and mounting pressure from Congress point to a long period of reform in which the NCAA is likely to be reshaped more deeply ….
Perhaps colleges will be allowed to offer more than scholarships to lure top prospects. Or top players will be able to cash in on their fame though image rights. Or perhaps major college football will be broken off from universities as a semi-independent entity with new rules. The unprecedented nature of the challenges facing the NCAA means it's virtually impossible to predict what might come next. But many analysts believe college football and basketball will be different, and perhaps significantly so. …
At the core of the reform campaign is the conviction among players that they are becoming employees without adequate compensation.
The article then briefly describes in broad brush various proposed NCAA reforms, some more sweeping than others.
CNN reports that a woman who attempted to defraud One Fund Boston, the charitable nonprofit created to aid victims of the Boston Marathon bombings, pleaded guilty Tuesday to collecting a fraudulent $480,000 claim filed with the charity. Audrea Gause, a New Yorker, reportedly was sentenced to two and a half to three years in prison. The story states that Gause submitted forged medical records in June 2013 indicating that she had suffered injuries in the bombings, but an investigation found that she was not a patient at Boston Medical Center on the day of the bombings or at Albany Medical Center at the times that she had previously claimed. The money has been secured and will be returned to the charity.
According to the Massachusetts Attorney General's office, two brothers are also awaiting trial for attempting to defraud the One Fund in a separate scam.
Wednesday, May 14, 2014
The Bill and Melinda Gates Foundation is well known for its efforts to help eradicate diseases from the developing world. But achieving this goal has in the past encountered a significant problem: eradicating diseases often requires immunization, which relies on keeping vials of vaccine cold until they can be administered. The vials have to be kept at exactly the right temperature — too hot or too cold, and the vaccine could lose its effectiveness. That is a significant problem for places that do not have consistent access to electricity.
The foundation may have found a solution: the Sure Chill Company in Wales has announced receipt of a $1.4 million grant from the Gates Foundation to develop a vaccine cooler that will help advance efforts to eliminate preventable diseases worldwide.
The grant will enable the company to take the cooler from the proof-of-concept stage — which had been supported by a previous $100,000 grant from the foundation — to field trials over the next year in eastern and western Africa. The firm's technology harnesses a unique property of water to create a constantly chilled environment within the unit, enabling the cooler to operate for thirty-five days without power.
If the trials are successful, the development of these "super" coolers will represent a giant step in the eradication of diseases in the developing world.
Tuesday, May 13, 2014
The Luxembourg-based European Court of Justice today ruled that Internet companies can be made to remove irrelevant or excessive personal information from search engine results. In a case pitting privacy campaigners against Google, the European Union's highest court upheld the complaint of a Spanish man who objected to the fact that Google searches on his name threw up links to a 1998 newspaper article about the repossession of his home.
The case highlighted the struggle in cyberspace between free speech advocates and supporters of privacy rights who say people should have the "right to be forgotten" - meaning that they should be able to remove their digital traces from the Internet.
Here in the United States, today's NonProfit Times is pondering the ruling's impact on international nonprofits.
In its ruling, the court reasoned that "An [I]nternet search engine operator is responsible for the processing that it carries out of personal data which appear on web pages published by third parties. Thus," the court continued,
if, following a search made on the basis of a person's name, the list of results displays a link to a web page which contains information on the person in question, that data subject may approach the operator directly and, where the operator does not grant his request, bring the matter before the competent authorities in order to obtain, under certain conditions, the removal of that link from the list of results.
Moreover, the court ruled, the search engine operator is, "in certain circumstances, obliged to remove links to web pages that are published by third parties and contain information relating to a person from the list of results displayed following a search made on the basis of that person's name," even if "the publication in itself on those pages is lawful."
The Times notes that the impact of the decision on nonprofits is unclear. For example, it is unclaer whether the decision, which is based on a 1995 data protection directive, will affect requests for deletion of donor histories in nonprofits' databases. Fielding Yost, president and founder of database software producer Saturn Corporation in Cheverly, Maryland, stated: "Right now we don't know precisely what the law says. we just know that Google lost. We've never been faced [with a situation] where someone would say remove my donation history, unless they sent in a delete [request] from the charity. I don't think we're in the same application that Google is. Maybe it'll broaden and extend [to] that."
In the final analysis, Yost does not believe the law requires charities to scrub their donation history as Google must scrub links.
But Steven Shattuck, vice president for marketing at Bloomerang in Indianapolis, Indiana, believes the law will require nonprofits to scrub donor records. Said Shattuck: "Probably in Eurpoe, folks would have the right to be scrubbed. It is the electronic idenitification of a person's personal records. I think it sets a precedent, for sure."
The ruling's impact on international nonprofits will unfold as the days, weeks, and months go by.
Wednesday, April 2, 2014
Yesterday's episode of All Things Considered on NPR had an interesting discussion of Congress and the Service's hands-off approach to Churches in general and large television ministries in particular. The on-air report was generally negative towards the tax treatment of television mega-ministries. The on-line report, while also mostly negative, is chock full of links to interesting basic data, including financial reports and transcripts of deposition testimony concerning the finances of television ministries. If you are teaching, researching, or just interested, this is a source worth checking out.
Thursday, March 27, 2014
On Monday, Christian relief organization World Vision announced that its employee conduct manual would no longer define marriage as being between a man and a woman. According to a report from the Religious News Service, the organization's U.S. branch would henceforth recognize same-sex marriage as being within the norms of "abstinence before marriage and fidelity in marriage" discussed in World Vision's conduct code for its 1,100 employees.
In a letter to employees issued on Monday, World Vision President Rich Stearns stated that the organization was not endorsing same-sex marriage, but had "chosen to defer to the authority of local churches on this issue."
In an interview with Christianity Today, Stearns said that the organization's board was "overwhelmingly in favor" of the change. However, he stressed that the decision was not driven by theology. He added: "There is no lawsuit threatening us. There is no employee group lobbying us. This is simply a decision about whether or not you are eligible for employment at World Vision U.S., based on a single issue, and nothing more."
Today's NonProfitTimes is reporting that just two days after making its big announcement, World Vision reversed it. In a letter to supporters yesterday, Stearns and Chairman of the World Vision U.S. Board, Jim Bere, announced that the organization was reversing its recent decision to change its "national employment policy."
According to the "Dear friends" letter sent to the organization's "trusted partners,"
The board acknowledged they made a mistake and chose to revert our longstanding conduct policy requiring sexual abstinence for all single employees and faithfulness within the Biblical covenant of marriage between a man and a woman.
Speaking directly to the organization's "trustred partners," Stearns and Bere stated: "We have listened to you and want to say thank you and to humbly ask for your forgiveness."
The initial decision was greeted with both criticism and support. The reversal has drawn the same types of responses. One skeptic posted the following comment on World Vision's Facebook page: "I can see that your board has got its priorities right -- money talked, and you not only listened, you obeyed."
That may not be necessarily true. It is highly probable that upon prayerful reconsideration of its "new policy" and heated discusions concerning the change, the World Vision board reversed itself. Either decision would be popular with some, unpopular with others. In the final analysis, World Vision must do what it believes best helps the organization achieve its mission.
Tuesday, March 25, 2014
Today's Philanthropy News Digest is reporting that three Foundations have over the last three days issued new Requests for Proposals (RFPs):
The National Art Education Foundation, the philanthropic arm of the National Art Education Association (NAEA), is seeking applications for its 2014 Art Educator grants. Through the grant program, the Foundation will award grants of up to $10,000 to NAEA members for programs that support classroom-based art education. Only NAEA members are eligible to receive the awards. The deadline for submitting an application is October 1, 2014.
Meanwhile, the Chicago-based Harpo Foundation is inviting applications for its 2014 Emerging Artist Fellowship. Under this program, one emerging artist will receive a one-month residency at the Santa Fe Art Institute in Santa Fe, New Mexico. The application deadline is July 5, 2014.
Finally, the Vilcek Foundation is inviting applications for the 2015 Vilcek Prize for Creative Promise in Fashion. This program will actually award three prizes of $50,000 each to young, foreign born fashion professionals living and working in the United States who demonstrate outstanding early achievement. The foundation encourages designers, stylists, make-up/hair artists, image makers (including fashion photography, film, animation, and illustration), curators, and writers to apply. The application deadline is June 10, 2014.
Tuesday, March 18, 2014
Technology will marginalize the market economy, invigorate the sharing economy and nonprofits will become the norm.
In The Rise of Anti-Capitalism, Jeremy Rifkin posits a fascinating world in which the "Internet of Things" renders private ownership -- and the capitalist marketplace reliant on private ownership -- obsolete. The resulting void is instead occupied by the sharing economy, characterized by the social commons devoid of private ownership and moderated [regulated or maintained is not acccurate] by Civil Society. He does not advocate as much as predict. He seems to say that access to information will eventually and inevitably transform our world into a cost-free society where anything can be had for practically nothing. At first blush it would seem that nonprofits too would be obsolete in a cost-free world. Exactly the opposite, according to Rifkin. But before I get to that, I have always thought of Civil Society as the vehicle by which morality is injected into the amorality of capitalism. Which is to say that capitalism presumes winners and losers. Many must be poor so that a few can be rich. Some must have absolutely nothing so that fewer still can have absolutely everything. In a perfect system, what is fair about that is that everybody has exactly the same chance to have everything, or at least something more than nothing. Nonprofits help ameliorate our guilt at having set up an imperfect system by which we know somebody will have nothing so that somebody else can have everything and presumably more can have something. Nevermind for the moment that nothing and something are relative rather than absolute. To have nothing or something in America, for example, might mean having something or everything, respectively, someplace else. Anyway, in Rifikin's zero cost world Civil Society would be indispensable, not obsolete. It will be Civil Society, essentially, that facilitates the allocation of resources in the main; for profits will be the exception, allocating resources only to the very conspicuous or peculiar consumer:
THE unresolved question is, how will this economy of the future function when millions of people can make and share goods and services nearly free? The answer lies in the civil society, which consists of nonprofit organizations that attend to the things in life we make and share as a community. In dollar terms, the world of nonprofits is a powerful force. Nonprofit revenues grew at a robust rate of 41 percent — after adjusting for inflation — from 2000 to 2010, more than doubling the growth of gross domestic product, which increased by 16.4 percent during the same period. In 2012, the nonprofit sector in the United States accounted for 5.5 percent of G.D.P.
What makes the social commons more relevant today is that we are constructing an Internet of Things infrastructure that optimizes collaboration, universal access and inclusion, all of which are critical to the creation of social capital and the ushering in of a sharing economy. The Internet of Things is a game-changing platform that enables an emerging collaborative commons to flourish alongside the capitalist market.
This collaborative rather than capitalistic approach is about shared access rather than private ownership. For example, 1.7 million people globally are members of car-sharing services. A recent survey found that the number of vehicles owned by car-sharing participants decreased by half after joining the service, with members preferring access over ownership. Millions of people are using social media sites, redistribution networks, rentals and cooperatives to share not only cars but also homes, clothes, tools, toys and other items at low or near zero marginal cost. The sharing economy had projected revenues of $3.5 billion in 2013.
Nowhere is the zero marginal cost phenomenon having more impact than the labor market, where workerless factories and offices, virtual retailing and automated logistics and transport networks are becoming more prevalent. Not surprisingly, the new employment opportunities lie in the collaborative commons in fields that tend to be nonprofit and strengthen social infrastructure — education, health care, aiding the poor, environmental restoration, child care and care for the elderly, the promotion of the arts and recreation. In the United States, the number of nonprofit organizations grew by approximately 25 percent between 2001 and 2011, from 1.3 million to 1.6 million, compared with profit-making enterprises, which grew by a mere one-half of 1 percent. In the United States, Canadaand Britain, employment in the nonprofit sector currently exceeds 10 percent of the work force.
The implications are staggering, especially with regard to the laws we implement to moderate our individual relationships with Civil Society. Currently, those laws are are patterned after laws by which we regulate private enterprise. Those laws are altered, clumsily in most instances, to the extent public rather than private benefit is the intended goal. In the sharing economy, the laws will need to have their own identity; they will need to be written first; law as the enforcer of private ownership second and as the exception to the norm. I need to think about this a little longer to really understand the implications. And by the way, I am not hawking Rifkin's book on which the essay is based. He makes a compelling case that as things become "free" civil society will dominnate (think about the demise of print media and the copyrighted music industry). I just wonder what this will really mean for how we write our laws.
Monday, March 17, 2014
I agree with Professor Mittendorf who, writing in the Chronicle of Philanthropy this week, argues that tax reform might actually increase charitable giving even if reform limits the charitable contribution deduction, and nonprofit stakeholders should not reflexively oppose every attempt to change the deduction:
It has now become a yearly ritual that members of Congress and White House officials offer proposals to limit or even eliminate charitable tax deductions. And, as a part of the ritual, nonprofit leaders spring up as fast as they can to protest that the changes will stifle charitable giving. Vikki Spruill, head of the Council on Foundations, captured the reaction of many in response to the latest round of proposals: “This is an 'if it ain’t broke, don’t fix it’ situation” she told The Chronicle. Perhaps I am overly optimistic, but it’s possible that tax reform could offer the potential to expand charitable giving, or at least not cause the decline that many fear.
Mittendorf offers a couple of reasonable-sounding suggestions, at the same time acknowledging that the devil is in the details. One person commenting on the opinion piece complained that nonprofits automatically oppose any form of tax reform impacting on the charitable contribution deduction while decrying other ills of society for which the tax code is blamed, wholly or partially. This sort of blind turf protection, it seems to me, paints nonprofits as no different than any other interest group.
Tuesday, February 25, 2014
An article in the Nonprofit Quarterly notes that there is a bill in the Kansas legislature that would strip state property tax exemption from local YMCA's (the bill targets exemptions for any service provider that receives more than 40% of its revenues from "the sale of memberships or program services"). Meanwhile, at the same time Kansas is considering another bill to give tax breaks to for-profit gyms. Sigh . . .
The issues here are related to my post yesterday about charities that are essentially commercial businesses. As I noted in this post a couple of years ago, many Y's appear to be more like for-profit gyms than charities. I pointed out in that post that my local Y in Champaign, IL had recently moved into a brand new facility on the far west side of town from an older facility near the center of the city, and about as far as you can get from any minority or disadvantaged population and still be a part of the city of Champaign. The move was accompanied by an ad campaign touting the benefits of the move as "more value and flexibility for our members! For example, you can work out in the 9,000 square foot fitness center and then take your family to the indoor pool and water slide. Or, you can take advantage of some of our two facilities' specialized programs, like water aerobics or recreational gymnastics."
Now, just because charities compete in some way with for-profit enterprises doesn't make them a commercial business. The fact that the Salvation Army runs thrift stores doesn't make its primary mission one of selling used goods. But I noted yesterday that some organizations that might historically have had a charitable mission have essentially morphed into commercial businesses, because their real "primary" mission is no longer charitable. I think that many (not all) Y's have passed this rubicon just as surely as nonprofit hospitals, major college athletics, and the USOC.
The Nonprofit Quarterly article quotes the CEO of Topeka's Y saying that if they have to pay taxes, that will be the end of the Y. I wonder . . . I have a sneaking suspicion that if the Champaign Y lost tax exemption, it would soldier on with maybe a $50/mth membership, instead of $47/mth. Topeka, Kansas might have a different clientele . . . or maybe not.
Wednesday, January 29, 2014
Writing in today's Chronicle of Philanthropy, Alex Daniels reports that the nonprofit community is praising President Obama's pitch in last night's State of the Union address seeking to get foundations more involved in supporting education for young children and increased economic opportunities for young African-American men.
However, nonprofit leaders are maintaining that charities cannot be expected to solve those problems alone. Rather, they claim, Congress must follow through with increased spending in those areas.
Diana Aviv, president of Independent Sector (a national nonprofit asociation), stated: "The sector's capacity and resources are dwarfed by the might of the federal government. The best we can do is fill in the gaps."
According to Ms. Aviv, the president's push for an increased minimum wage, pay equality for women, and early-childhood education should be welcomed by nonprofit groups that work in those causes.
The Chronicle's report continues:
In the speech, Obama called for foundations’ assistance to work on a plan to “help more young men of color facing tough odds stay on track and reach their full potential.”
The W.K. Kellogg Foundation welcomed that focus and said it was working with 25 community foundations in Mississippi to promote help young black men complete their education and find jobs.
Mr. Obama also said he would convene a coalition of philanthropists, elected officials, and business leaders to develop strategies to improve early-childhood education.
The prospect of such a coalition was “pretty exciting,” according to Kris Perry, executive director at the First Five Years Fund, which supports pre-kindergarten education, but she said she needed to learn more about how it would work.
Ms. Perry noted that it was the second straight year Obama has pushed for a greater emphasis on the subject in his State of the Union address. Last year, his call for increased funding for programs like Head Start that provide schooling for young children fell victim to across-the-board budget cuts that reduced the program’s budget by 5.3 percent.
“Even though there was a commitment on [Obama’s] part, the government came to a grinding halt,” Ms. Perry said.
Ms. Perry is confident that President Obama’s emphasis on early-childhood education can result in additional funding, even in an era of tight budgets and political gridlock.
“Early-childhood education is on the top, top, top of everybody’s must-do policy list,” she said. “It’s a wonderful opportunity for the parties to come together and agree on something.”
I agree with the nonprofit leaders. While the nonprofits will play their part, Congress must step up to the plate and provide more funding for these initiatives.
Both the Detroit Free Press and the Detroit News are reporting that the W.K. Kellogg Foundation on Tuesday committed $40 million to a philanthropic fund to help resolve Detroit's bankruptcy. Kellogg thus joins nine other national and local foundations in the unprecedented municipal rescue effort.
Kellog's pledge is the third-largest to the now-$370 million fund aimed at shrinking Detroit's multibillion-dollar pension liability and shileding masterpieces at the Detroit Institute of Arts from possible sale to satisfy creditors. The Ford and Kresge foundations have promised $125 million and $100 million, respectively.
Tuesday, January 28, 2014
With tonight's State of the Union address just a few hours away, nonprofit organizations are wondering what news -- good or bad -- they will receive from President Obama. Writing in today's Nonprofit Quarterly, Rick Cohen reviews the already-delivered State of State speeches of 2014 and ponders whether "these state addresses presage anything that nonprofits might hear in President Obama's State of the Union."
Meanwhile, the Miami Herald is reporting that the nonprofit group, One Miami, is organizing a watch party for the president's address. The event will be attended by nonprofit groups in South Florida. The groups are hoping President Obama will address immigration reform and the minimum wage in his speech. They also hope to find out what the president will propose to deal with the nation's growing income gap.
Thursday, December 26, 2013
With a big red floppy hat tip to the TaxProf Blog, this Forbes article brings tax geekiness to admirable new heights, as a tax lawyer tries to distract her children on Christmas Eve with a discussion of St. Nick's Form 1040-NR. Do read the whole thing, but for our purposes here on the Nonprofit Prof Blog, here's the fun part:
The kids are pretty sure – and I agree – that Santa doesn’t intend to operate as a for profit business. But he likely doesn’t meet the criteria to be tax exempt under section 501(c)(3) of the Internal Revenue Code. By default, that would make his venture for profit for purposes of IRS (whether he wants to make money or not) and therefore, taxable.
Even if Santa’s toy distribution scheme were to be classed as a non-profit, there may be other unrelated trade or business income… As noted earlier, my house isn’t sure where Santa gets his money. Clearly, he isn’t paid for his services though my kids question the value of cookies and milk left out for him (that is, as my seven year old noted, a LOT of cookies). Since we’ve seen a lot of Santa merchandise in stores, we’ve worked out that we think he gets some licensing revenue for his own image and also for Rudolph – kind of like Pixar does for Lightning McQueen and Buzz Lightyear. That income would be taxable to the extent that it’s not offset with expenses. So, assuming all of this, what’s deductible?
So here's my question, would Santa's operations qualify for Section 501(c)(3) status? I mean, clearly he could structure his licensing revenue as a royalty exempt from UBIT and even drop it into a for profit sub if need be. I don't really see an inurement or a private benefit issue - surely, all good kids in the world constitute a charitable class. He's not been lobbying as far as I know, so barring a big political endorsement, I'm not seeing the issue. So does Santa just need good nonprofit counsel?
Merry Christmas (a day late) to all who celebrate, and a joyous New Year to all.