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.
Friday, November 29, 2013
I'll admit it: I've been closely following the release of the proposed new Treasury regulations governing political advocacy of 501(c)(4) organizations. Today's Washington Post asserts that the new rules bring both clarity and confusion to a broken system. The Post's article begins by acknowleding that the rules governing the political activities of nonprofit advocacy groups is "an area of the tax code that has been crying out for greater clarity." According to the newspaper, while the "proposed regulation unvieled Tuesday by the Treasury Department draws the boundaries clearly," they "instantly kicked off intense debate about whether the lines are in the right place."
According to the Post,
One phrase in the official notice summed up the imperfect nature of the exercise. The new rules, the department said, "may be both more restrictive and more permissive than the current approach."
Notwithstanding the apparent confusion, the Post acknowledges what we all know: the system was broken and needed to be fixed.
Earlier this week, we blogged about the proposed new political activity rules for tax-exempt organizations proposed by the U.S. Department of the Treasury and the Internal Revenue Service. The NonProfitTimes is reporting that the proposed rules are drawing sharp criticism from some members of the nonprofit sector.
As an initial matter, we note that the rules specifically target 501(c)(4) organizations and political lobbying and activism. However, the Times notes that the proposed rules can also apply to 501(c)(3) groups. For example, under the proposed regulations, activities that will be counted as political activity include voter registration drives, nonpartisan voter guides and events such as debates at which candidates appear. Section 501(c)(3) groups sometimes organize these activities.
Organizations classified as 501(c)(4) social welfare organizations are permitted to undertake political activity, so long as it does not constitute the group’s primary purpose. Nonpartisan activities such as voter registration drives currently are not counted against that threshold. The IRS uses a “facts and circumstances” determination on a case-by-case basis to decide whether a given group’s political activity is its primary purpose.
The facts and circumstances test [is] “all very specific to an organization,” according to Viveca Novak, editorial and communications director at the Center for Responsive Politics in Washington, D.C. “It is subjective and can be ambiguous. What the IRS is trying to do is just have some bright line rules.”
This does not satisfy some members of the nonprofit sector. The NonProfitTimes reports that some sector members have labeled the proposed rules "an attack on First Amendment free speech rights."
The report notes opposition from other sources:
Marcus Owens, the former director of the IRS Tax Exemption Division and now a lawyer at the Washington, D.C. firm Caplin and Drysdale, said, the proposed rule “eliminates some of the tax rule ambiguities and replaces them with election law ambiguities. There’s still a lot of uncertainty. There’s just different words describing that uncertainty.”
Owens believes the regulations go too far in restricting activities that, because of their nonpartisan nature, did not count as political acts. “It means that for groups like the League of Women Voters, which publishes voters’ guides, that won’t happen in all likelihood,” he said. “What we’ll be left with is biased guides from political groups. Instead of more objective presentation, the public is going to get bombarded with partisan communications.”
Some groups agree with Owens that the proposed regulations go too far, saying that they infringe on free speech. “These proposed new regulations put the First Amendment rights of Americans at even greater risk,” Jay Sekulow, chief counsel of the American Center for Law and Justice in Washington, D.C. said via a statement. “With this move, the Obama Administration opens a new front in its war against political dissent.”
Owens points out that some of the activities that the regulations call political activity, such as get-out-the-vote drives and issue communications, are permitted for 501(c)(3) charities and foundations, which are restricted entirely from political activity. “The Treasury has created a harsher rule,” he said. “They could have mimicked the standards private foundations have to adhere to but instead went with a shotgun approach that does a disservice to the public.”
Gary Bass, executive director of the Bauman Foundation in Washington, D.C., called the proposal “extremely troubling for those who believe in democratic practices.” He worries about the implications for 501(c)(3) groups: “If nonpartisan voter registration, get-out-the-vote, etc., are political for (c)4’s, how can they not be for (c)3’s?” he asked rhetorically.
Bass, like Owens, is critical of the proposal’s ambiguity. “Once again, nonprofits don’t know what they can do,” he said. “The first principle for a rule should be to encourage democratic practice while stifling abuses. This NPRM (notice of proposed rulemaking) abandons such a principle.”
Further, he said the proposed rules will have a chilling effect on foundation funding for nonpartisan civic engagement like voter registration. “Even if there is a legal pathway, it will scare the hell out of foundation legal counsel—and encourage foundations to stay out of this area of funding.”
Not all sector members are critical. The Times reports that unlike Owens and Bass,
Other groups are more optimistic about the proposal. “The proposal is good for no other reason than it gets the ball rolling on a critical issue,” said Craig Holman, Ph.D., a government affairs lobbyist with the Washington, D.C. group Public Citizen. “It admirably attempts to offer some clarity in what nonprofit groups can and cannot do and reduces the discretion of the IRS in evaluating activities of nonprofits. Overall, it is a positive step by the Treasury Department.”
Fred Wertheimer, president of Democracy 21 in Washington, D.C., agreed. “Democracy 21 applauds the action taken today by the Treasury Department and the Internal Revenue Service to initiate a rulemaking to address the inadequate rules that have been used by the IRS to determine 501(c)4 tax-exempt status,” said Wertheimer in a statement.
Once the regulations are published in the Federal Register, the public will have at least 60 days to comment.