Friday, March 17, 2017

McLaughlin: Conservation Easements and the Valuation Conundrum

McLaughlinThe final version of Conservation Easements and the Valuation Conundrum, 19 Florida Tax Review 225 (2016), written by Nancy McLaughlin (Utah) is now available. Here is the abstract:

For more than fifty years, taxpayers have been able to claim a federal charitable income tax deduction under Internal Revenue Code § 170(h) for the donation of a conservation easement or a façade easement. For just as long, the deduction has been subject to abuse, including valuation abuse. Dismayed by the expenditure of significant judicial and administrative resources to combat abuse in the easement donation context, the Treasury Department recently proposed reforms, including reforms to address valuation abuse. The reforms were proposed in somewhat of an analytical vacuum, however, because there has been no comprehensive analysis of the easement valuation case law. This article fills that void. It examines the easement valuation case law and discusses the most common methods by which taxpayers or, more precisely, their appraisers overvalue easements. It also proposes alternative reforms informed by the lessons learned from the case law. Concise summaries of the relevant facts and holdings of the cases are included in appendices.

Lloyd Mayer

March 17, 2017 in Federal – Executive, Federal – Judicial, Publications – Articles | Permalink | Comments (0)

Form 1023-EZ Problems - How Will the IRS Respond?

Form 1023-ezLast month the IRS made publicly available information from approved Forms 1023-EZ (Streamlined Application for Recognition of Exemption). As Terri Helge noted in this space, one question those data raised was whether hundreds of churches had used the form to obtain IRS recognition of their tax-exempt status under Internal Revenue Code section 501(c)(3), as a review of the names of successful applicants suggested. Such use would be problematic because churches are ineligible to use the streamlined application.

Yesterday the Chronicle of Philanthropy reported (subscription required) that "Some Charities Misuse IRS Short Registration Form, Chronicle Data Suggests." The article focuses in particular on the fact that some applicants quickly grew into million-dollar-plus organizations even though the streamlined application is only supposed to be used by charities that expect to have relatively modest financial resources.

Both these observations raise serious concerns about whether the attempt by the IRS to limit the use of the form to relatively small charities that do not raise any complicated legal issues is failing, with hundreds if not thousands of ineligible organizations obtaining a favorable IRS determination letter by using the streamlined form. These observations also further bolster earlier concerns raised by the National Taxpayer Advocate, who drew on the IRS' own determination that the approval rate for Form 1023-EZ users drops from 95 percent to 77 percent when the IRS reviewed documents or basic information of applicants. The question we are left with is how will the cash-strapped and politically battered IRS respond to these apparent shortcomings. No word from the IRS on the answer to this question yet.

Lloyd Mayer

March 17, 2017 in Federal – Executive, In the News | Permalink | Comments (0)

Thursday, March 16, 2017

Richard Spencer's White Nationalist Nonprofit Loses Tax-Exempt Status - For Failing to File Required Annual Returns

National Policy InstituteThe L.A. Times reports that the IRS has revoked the tax-exempt status of the National Policy Institute, a white nationalist group headed by Richard Spencer, effective as of May 15, 2016. The revocation was not because of either a failure to satisfy the methodology test applied to "educational" organizations under Revenue Procedure 86-43 or for alleged political campaign intervention during the 2016 election. Instead, it was for failing to file the last three IRS annual information returns due from the organization, a failing that Spencer blamed on an IRS misclassification that led to the public listing for the group indicating it was not required to file such returns. Assuming that the Institute challenges this revocation, it will be interesting to see how the IRS responds to this argument.

Lloyd Mayer

March 16, 2017 in Federal – Executive, In the News | Permalink | Comments (0)

Wednesday, March 15, 2017

Most Litigated Issue #8: Charitable Contribution Deductions

Taxpayer Advocate ServiceIn her Annual Report to Congress, National Taxpayer Advocate Nina Olson listed charitable contribution deductions under Internal Revenue Code section 170 as number eight on her list of ten Most Litigated Issues. The topics that led to the most disputes in the 26 decisions from the June 1, 2015 to May 31, 2016 twelve-month period that she reviewed were substantiation (12 cases), easements (9 cases), and valuation (5 cases), with some cases involving multiple issues. For summaries of all 26 decisions, see Appendix 3, Table 8 in the Appendices to Volume One of the report.

Lloyd Mayer

March 15, 2017 in Federal – Executive, Federal – Judicial | Permalink | Comments (0)

501(c)(4) Application Controversy - Litigation Grinds On, No Impeachment or Firing in Sight

IRSIn case we needed any reminders that litigation takes a long time, the past several months have seen a few minor developments in the litigation that grew out of the section 501(c)(4) application controversy that exploded in May 2013 (!). In no particular order:

  • The Supreme Court denied certiorari in True the Vote, Inc. v. Lois Lerner, et al., No. 16-613, and a related case, rejecting the plaintiffs' attempt to get the Bivens claims against Ms. Lerner and other IRS officials reinstated. The underlying case of True the Vote, Inc. v. IRS, et al. continues in the U.S. District Court for the District of Columbia as Civil Action No. 13-734, without the Bivens claims and so limited to injunctive and declaratory relief, along with the related case of Linchpins of Liberty v. United States, et al., Civil Action No. 13-777, in the same court. UPDATE: I should have noted in my original post that a case raising similar claims is also proceeding in the U.S. District Court for the Northern District of Texas (Freedom Path, Inc. v. Lerner, Civil Action No. 3:14-CV-1537-D), although there have been no major developments in that case since a decision last May on the government's motion to dismiss.
  • A class action lawsuit continues in the U.S. District Court for the Southern District of Ohio, NorCal Tea Party Patriots, et al. v. IRS, et al., Civil Action No. 13-341, after the judge in the case ruled late last year that the IRS had to continue processing the application of one of the class members (the Texas Patriots Tea Party).
  • Judicial Watch announced the IRS has discovered an additional 6,924 responsive documents relating to Judicial Watch's pending FOIA lawsuit against the IRS (U.S. District Court for the District of Columbia, Civil Action No. 15-220); it is not clear if these documents contain any new information, and the timetable for public disclosure of the documents is uncertain.

At the same time, Republican leaders in Congress have shown no appetite for pursuing impeachment of current IRS Commissioner John Koskinen even as conservative members argue for it and the Trump administration has quietly avoided demanding Koskinen's resignation even in the face of calls to fire him. For recent coverage, see The Hill and the Washington Post. It is hard not to imagine that the Commissioner is silently counting the days until his term ends in November, however. It will also be interesting to see who will be willing to replace him in the current political environment.

Lloyd Mayer

March 15, 2017 in Federal – Executive, Federal – Judicial, Federal – Legislative, In the News | Permalink | Comments (0)

Wednesday, February 22, 2017

Hundreds of Churches Appear to Receive Exemption Determinations Using Form 1023-EZ

Today, the IRS released complete publicly available data on the over 105,000 organizations that were approved for tax-exemption using the streamlined application process, Form 1023-EZ from its inception in July 2014 through December 2016.  From the IRS news release:

The data on IRS.gov is available in spreadsheet format and includes information for approved applications beginning in mid-2014, when the 1023-EZ form was introduced, through 2016. The information will be updated quarterly, starting with the first quarter of calendar year 2017. The IRS’s Tax Exempt and Government Entities division approved more than 105,000 applications for exemption submitted on the Form 1023-EZ from 2014 through 2016.

In reviewing the data for these organizations, I noted something odd -- there was an organization approved using the streamlined process which by its name appeared to be a church.  According to the Form 1023-EZ instructions and Form 1023-EZ eligibility worksheet, churches are not eligible to use Form 1023-EZ and instead must use Form 1023 to apply for a determination letter from the IRS.  In particular, the eligibility worksheet states that if the applicant answers "yes" to any question on the worksheet, the applicant is not eligible to use Form 1023-EZ.  Question 12 on the worksheet asks, "Are you a church . . .?"  Applicants using Form 1023-EZ must attest on the form that the applicant has completed the eligibility worksheet and is eligible to use the form. 

The Form 1023-EZ is filed electronically and is composed of several self-certifying statements made by the applicant to the effect that the applicant qualifies for tax-exempt status as an organization described in Section 501(c)(3).  No supporting documentation is required to be submitted with the application so that the IRS can verify the applicant's qualification for tax-exemption.  With over 105,000 organizations approved and no way to verify the information, I was not surprised that perhaps a few organizations not eligible to file slipped through the cracks. 

However, I was curious to see just how many churches incorrectly used Form 1023-EZ to obtain an IRS determination letter.  I conducted a search of the names of all of the organizations approved for exemption using Form 1023-EZ for the word "church" using the new searchable data released by the IRS.  I found 623 of the approved organizations had "church" in the name.  Upon closer review, not all of these organizations appeared to be churches.  Some appeared to be a separately organized ministry of a church or a church foundation or an organization in a town named "Churchville." But in my cursory review of the names of these 623 organizations, I would estimate that over 90% appeared to be churches.  Some of these organizations provided website addresses, and a visit to these website addresses confirmed these organizations operated as churches.  Even though churches are not eligible to file Form 1023-EZ, all of these organizations attested that they had completed the eligibility worksheet and were eligible to use Form 1023-EZ.

Churches are not required to file an application for exemption to be exempt as a church described in Section 501(c)(3).  However, many churches opt to apply for exemption so that the church can receive an IRS determination letter stating that the church qualifies for exemption.  The IRS determination letter serves as evidence to donors that the church is recognized as being tax-exempt and contributions made to the church qualify for the charitable contribution deduction. 

The churches that received an IRS determination letter using the Form 1023-EZ process may very well meet the requirements for exemption as a church described in Section 501(c)(3).  But the IRS decided that it wanted to take a closer look at the applicants claiming to be churches, and thus requires them to use the normal Form 1023 process.  By inappropriately using the Form 1023-EZ process, these churches have gotten the benefit of voluntarily applying for tax exemption - the IRS determination letter - without having to go through the scrutiny of the normal Form 1023 application process as the IRS requires.

Additionally, this information is but one example of the problems with the streamlined Form 1023-EZ process.  A quick review of the organization's name (for example "** Baptist Church" or "** Church of Christ") should have given one pause about whether the organization was eligible to use Form 1023-EZ.  This should have resulted in an inquiry to the organization about whether it planned to operate as a church, or one could have visited the organization's website provided on the form to see that the organization had regularly scheduled church services and appeared to operate as a church.  The organization then should have been directed to apply using Form 1023. All of these organizations attested that they were eligible to use Form 1023-EZ, but a quick independent verification of this attestation likely would have shown the attestation to be false in a significant number of cases.  This is one small example of the need to independently verify the applicant's statements made on the Form 1023-EZ, or organizations which do not meet the requirements for exemption or the eligibility requirements to use Form 1023-EZ will inappropriately be approved for exemption. 

For additional examples of the need for independent verification of the information provided on Form 1023-EZ, see the Taxpayer Advocate Service 2015 Report to Congress and the Taxpayer Advocate Service 2016 Report to Congress.

 

TLH

 

 

February 22, 2017 in Current Affairs, Federal – Executive | Permalink | Comments (1)

Friday, February 3, 2017

That's me in the corner/ that's me in the spotlight/ losing my religion*

...but gaining a tax deduction!

At the recent National Prayer Breakfast, President Trump stated:

It was the great Thomas Jefferson** who said, the God who gave us life, gave us liberty. Jefferson asked, can the liberties of a nation be secure when we have removed a conviction that these liberties are the gift of God. Among those freedoms is the right to worship according to our own beliefs. That is why I will get rid of and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution. I will do that, remember.

Some may not know the term “the Johnson Amendment,” but I am guessing that most of the readers of this blog would be familiar with Code Section 501(c)(3)’s prohibition on election intervention (“and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”)   Famously, Lyndon Johnson was somewhat irritated by negative comments made by a tax-exempt organization (note: not a church… ) during his campaign for re-election to the Senate; thus the Johnson Amendment adding the prohibition on electioneering was born in 1954

Of course, “totally destroying” statutory provisions is traditionally the prerogative of Congress, so it remains to be seen whether this change will come to pass.   A bill repealing the Johnson Amendment is introduced regularly each legislative session and rarely makes any progress; query if the current political climate would give it more traction.   One wonders if the change takes the form of a repeal of the Section 501(c)(3) language (which would open electioneering to all c3s) or a special exception just for churches or religious organizations.   Finally, would such repeal include rules that mirror the income tax provisions that disallow deductions for membership dues allocable to lobbying?   If not, I suspect that a large number of political donors of all stripes will suddenly find religion right quick.

For further discussion of these issues, please see this piece by the most awesome Ellen Aprill in the Washington Post, who has probably forgotten more about the political and lobbying rules for nonprofits than I ever hope to know.

EWW

*With apologies to R.E.M.

**cough** This is me not commenting on the fact that Trump is quoting Thomas Jefferson, author of the First Amendment.  Of course, all political commentary (or non-commentary, as the case may be) is my own individually and should not be attributed to anyone else.  EWW

February 3, 2017 in Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (1)

Friday, November 18, 2016

FTC & NASCO Conference on Charitable Solicitations Announced for March 2017

The Federal Trade Commission & National Association of State Charities Officials announced earlier this week "Give & Take: Consumers, Contributions, and Charity", a conference exploring consumer protection issues and charitable solicitations will take place in Washington DC on March 21, 2017. Comments, research, original papers and participation are sought with submission deadline of February 17, 2017. Topics sought include: How Are Donor Solicitations Evolving in the Digital Age? What Do Donors Expect When They Contribute? What Information About Charities Do Donors Find Helpful? Discovering and Reporting Possible Deceptive Charitable Solicitations: When do Donors Act? How are Consumer Purchasing Choices Influenced by Promises of Charitable Support or Social Benefit? What are Best Practices in Terms of Charitable Solicitations, Information and Accuracy?

For more information, see https://www.ftc.gov/news-events/events-calendar/2017/03/give-take-consumers-contributions-charity?utm_source=govdelivery. 

Lloyd Mayer

November 18, 2016 in Conferences, Federal – Executive, State – Executive | Permalink | Comments (0)

Wednesday, November 16, 2016

Election 2016 and Federal Tax Exemption/Charitable Contribution Deduction Law

Election 2016Given the uncertainty regarding the plans of both President-elect Trump and the Republican-controlled Congress, I feel a bit like a sportswriter trying to rank college football teams before the season begins when I try to predict what the results of the 2016 election will be for the federal tax laws governing tax-exempt nonprofit organizations. With that caveat, here are my initial thoughts.

With respect to guidance from Treasury and the IRS, most of what appears in the most recent update of the 2016-2017 Priority Guidance Plan that is relevant to tax-exempt organizations (see especially pages 9-10 and, for section 170 guidance, page 14) appears non-controversial and so likely to eventually see the light of day. The one major exception is proposed regulations under section 501(c) relating to political campaign intervention, which project the Republican-controlled Congress has repeatedly suspended and likely will continue to block until the new administration gets around to killing it altogether. Another possible exception are the final regulations under section 7611 relating to church tax inquiries and examinations, although my guess is that Congress will instead simply focus on modifying or repealing the section 501(c)(3) prohibition on political campaign intervention, consistent with the campaign promises by then candidate Trump.

Speaking of Congress, university endowments likely will see continued congressional scrutiny especially in light of President-elect Trump's mentions of the issue during his campaign. Whether such scrutiny results in actual legislation remains to be seen, however. What should perhaps be of greater concern to all charitable nonprofit organizations is the possibility that the detailed tax reform plan developed by now-retired Ways and Means Committee Chairman Dave Camp may be looked to for inspiration, especially when seeking revenue-generating provisions that could help offset tax cuts elsewhere. For a detailed overview of the many proposed changes relevant to tax-exempt organizations, see the Joint Committee on Taxation Technical Explanation of those provisions. Also relevant of course are proposed changes to the charitable contribution deduction, which are concentrated in section 1403 of the draft legislation. And of course there will also likely be effects on charitable giving from any general reduction of marginal tax rates or other broad changes, such as modification or repeal of the estate & gift tax.

For consideration of likely ramifications of the election results for nonprofits beyond just changes to federal tax law provisions, here are some early predictions from others: Devin Thorpe, Forbes Contributor (collecting thoughts from various nonprofit leaders); National Council of Nonprofits; Mark Hrywna at The NonProfit Times.

Lloyd Mayer

 

November 16, 2016 in Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Thursday, November 10, 2016

Fidelity Jumps to Number 1 in the Philanthropy 400

The Philanthropy 400 is the Chronicle of Philanthropy's annual ranking of charities based on private fundraising.   This year, for the first time, the Fidelity Charitable Gift Fund was ranked first, bypassing the United Way, in private fundraising.   According to the Chronicle, it marks "the first time an organization that primarily raises money for donor-advised funds has held the top spot."    Author's aside:  Given the growing popularity of DAFs, wouldn't it be super if we had some regs?  Just sayin'...

I happened to teach DAFs this morning in my Nonprofits class, right after having done a fairly comprehensive unit on the private foundation excise taxes.   It is only after one understands the complexity and burden of Chapter 42 (even after the 2006 PPA changes) can one appreciate the simplicity of the DAFs.    We went through a sample DAF agreement from a well-known community foundation, reviewing the restrictions on distributions and the private cy pres power.   Even with these limitations, my class seemed pretty convinced that as compared to a private foundation, the DAF is the way to go.   Happily from a teaching perspective, they were able to identify the private benefit issue with the commercial providers pretty quickly, although I had few answers on why the IRS didn't originally see it as an issue and continue not to do so.

In any event, the Chronicle has a pro/con opinion section in front of its pay-only firewall, which can be found here (pro) by Howard Husock of the Manhattan Institute and here (con) by Ray Madoff of Boston College.    Husock's article teases a forthcoming report by the Manhattan Foundation on donor advised fund fees and spending, which the Chronicle article says will be released this month, so more to come on that.   While we wait, I think that Husock's answer to the private benefit issue is somewhat weak ("they have to be managed by someone, so why not Fidelity?' seems disingenous) but I do think that he does a better job addressing some of Prof. Madoff's DAF distribution issues.  

You know what else would address some of these issues?  Regulations.    Just sayin'.

EWW

 

 

November 10, 2016 in Current Affairs, Federal – Executive, In the News | Permalink | Comments (0)

Monday, October 10, 2016

Tax-Exemption and Political Candidate Support

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.

 

David Brennen

October 10, 2016 in Church and State, Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Friday, August 12, 2016

Political Conventions and Charitable Status

2016_democratic_national_convention_logo1One of the odd side stories of this crazy election season was the decision by the IRS to deny the application of the Democratic National Convention host committee for tax-exempt status under section 501(c)(3) even though it had earlier granted the application of the Republican National Convention host committee under the same section. (Coverage: Philadelphia Inquirer.) While according to the news stories the DNC quickly had a workaround available for those donors interested in a charitable contribution deduction, the disparity in treatment was notable, particularly since the denial was apparently based on some committee activities being too political under section 501(c)(3) even though the two host committees reportedly had very similar applications. Apparently the IRS forgot its statement 10 years ago to the Campaign Finance Institute that it would monitor future host committee applications for consistent treatment (see last sentence of last bullet point).

The IRS made that statement in the context of research by the Campaign Finance Institute into the financing of the political party conventions, which focused on the 2004 and 2008 conventions. That research led CFI in 2005 to call on the IRS to revisit the tax status of host committees under either section 501(c)(3) or section 501(c)(6) in light of the apparently pervasive political activity of those committees. Perhaps inadvertently, the IRS appears to have begun that reconsideration.

(Full disclosure: I am on the Board of Academic Advisors for the Campaign Finance Institute.)

Lloyd Mayer

August 12, 2016 in Federal – Executive, In the News | Permalink | Comments (0)

Thursday, August 11, 2016

The IRS Continues to Take a Beating Even as It Implements the New 501(c)(4) Notice Requirement

IRSThe "Tea Party" application controversy continues to take a toll on the IRS, even as the Service implements the congressionally enacted notice requirement for section 501(c)(4) social welfare organizations. First, the IRS suffered setbacks in two of the cases pending against it that grew out of the controversy:

  • In Freedom Path, Inc. v. Lerner, the U.S. District Court for the Northern District of Texas rejected the government's motion to dismiss a First Amendment claim against the IRS, finding that the plaintiff's concerns regarding future curtailment of speech was sufficient to establish injury and that the case still presented a live controversy despite changes in the Service's processing of applications. Coverage: Bloomberg BNA Daily Tax Report.
  • In True the Vote, Inc. v. IRS and Linchpins of Liberty v. United States, decided together although argued separately, the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court's dismissal of actions for injunctive and declaratory relief as against the government, concluding that those claims were not moot. (The appellate court did, however, affirm the lower court's dismissal of Bivens actions and statutory claims against individual government officials and the Service.) Coverage: Wall Street Journal. For blog posts discussing the opinion, see The Surly Subgroup (Philip Hackney) and The Volokh Conspiracy (Eugene Volokh).

Second, many Republicans in the House of Representatives continue to call for the impeachment of IRS Commissioner John Koskinen, not satisfied with his earlier censure by the House Oversight and Government Reform Committee on a party-line vote. (Coverage: The HillPoliticoRoll Call.) Third, new documents relating to the controversy continue to trickle out from various sources, at a minimum providing an excuse to reassert claims against the Service and its (mostly now gone) officials. For example, see this Judicial Watch press release in the wake of it gaining access to approximately 300 pages of FBI documents relating to the FBI's investigation of the controversy.

And yet life still goes on, which in this instance means implementation of the new section 506 notice requirement for section 501(c)(4) organizations. That implementation has taken the form of Revenue Procedure 2016-41 and related final and temporary regulations (T.D. 9775). These documents detail how the notice requirement applies both to new section 501(c)(4) organizations formed after December 18, 2015 (the date of enactment for section 506) and to previously existing section 501(c)(4) organizations that had not yet either filed an application for recognition of exemption or an annual return. The required form is Form 8976, which can be submitted electronically here.

Lloyd Mayer

August 11, 2016 in Federal – Executive, Federal – Judicial, Federal – Legislative, In the News | Permalink | Comments (0)

Wednesday, August 10, 2016

Think Tanks and Their Donors, or How to Get Unbiased Public Policy Research

Think TanksThe NY Times is running a series of articles on the influence donors, particularly large corporations, appear to have over research conducted by some prominent think tanks. As its front page articles on August 8th and August 9th detail, many researchers associated with think tanks are paid consultants or lobbyists for corporate clients, and many think tanks also receive contributions directly from corporations that have an interest in the research the think tank is conducting. Some of the think tanks identified have either admitted to lapses in oversight or adopted more stringent conflict of interest and disclosure policies, but it is not clear how widespread such admissions or changes are within the think tank community.

While in theory reaching research conclusions that are helpful to donors or clients could constitute providing prohibited private benefit on the part of the think tanks, which are generally tax-exempt under Internal Revenue Code section 501(c)(3), the connections detailed in the articles seem too tenuous to support such a claim. This is especially true given both that proving a solid link between a donation and research results is difficult and that the think tanks identified generally engage in a broad range of research projects, only a small portion of which may be tainted by donor influence. Similarly, while some think tanks then arrange for meetings or conferences centering on their research and attended by government policy makers that might constitute lobbying for federal tax purposes, most such events likely fall outside of the technical definition of lobbying and the few that may not are almost certainly within the limited amount of lobbying permitted for tax-exempt charitable organizations such as think tanks.

Nevertheless, the stories are troubling because they throw into question the ability of government policymakers to rely on such research, as noted by Senator Elizabeth Warren in a video the NY Times posted with these stories. In its regular Room for the Debate feature, the NY Times therefore invited a number of commentators to suggest possible ways to address the concerns raised in its stories. Suggestions ranged from greater transparency about possible conflicts (including a certification process), better internal procedures to ensure unbiased research results, greater skepticism regarding those results on the part of journalists and others who report or rely on those results, and a diversification of funding sources (including ensuring various governmental funding sources) to support such research. I frankly am skeptical of transparency, certification, and internal procedure improvement if only because it may be too difficult for busy lawmakers, much less journalists and other members of the public, to shift through various disclosures or to determine what certification schemes or particular think tanks are reliable. I believe the diversification of funding sources idea has more promise, particularly if there are (nonpartisan) ways for government agencies to provide such funding conditioned on accurate, unbiased results. Bottom line, this strikes me as not a narrow federal tax issue but a larger issue about how to incentivize truth telling in public policy research.

Lloyd Mayer

 

August 10, 2016 in Federal – Executive, Federal – Legislative, In the News, State – Executive, State – Legislative | Permalink | Comments (0)

Tuesday, August 9, 2016

IRS Issues Charitable Remainder Annuity Trust Guidance

IRSAs reported by Accounting Today and Bloomberg BNA Daily Tax Report (subscription required), the IRS yesterday issued Revenue Procedure 2016-42 (available through Bloomberg BNA) to provide some relief for donors desiring to create a charitable remainder annuity trust (CRAT) but frustrated because low interest rates make it difficulty to do so. The articles explain that CRATs are subject to a "probability of exhaustion" test (described in Revenue Rulings 70-452 and 77-374)  that requires there be no more than a 5 percent chance that there is no remainder to go to the designated charity or charities. When interest rates are low, as they are now, it can be difficult to satisfy this requirement and also the requirement under Internal Revenue Code section 664(d) that a CRAT pay out a minimum 5 percent annuity to the trust beneficiary. The Revenue Procedure permits CRATs to include an early termination provision that ends the CRAT and causes the distribution of the remainder to the designated charity or charities when the trust corpus minus the annual payment and multiplied by a discount factor falls below 10 percent of the initial trust corpus; if the sample provision is included in a CRAT, then the probability of exhaustion test will not apply.

The Revenue Procedure will be published in Internal Revenue Bulletin 2016-34, which will be dated August 22nd.

Lloyd Mayer

August 9, 2016 in Federal – Executive | Permalink | Comments (0)

Friday, June 10, 2016

Totally OT: Your Daily Funny Courtesy of the FEC and the Business Law Prof Blog

So this is off topic, I'll admit, but it gave me a laugh this morning so I thought I'd share.   There's some law in there, somewhere.   From fellow Law Prof Blog blogger Anne Tucker at the Business Law Prof Blog, her blog post entitled Your Daily Funny Courtesy of the FEC

 

Keep reading only if you have 3 minutes that you don't care about being productive or relating to business law, at least not directly.

The Federal Election Committee issued a proposed draft of an advisory opinion on a question brought by Huckabee for President,  Inc.--the committee responsible for the 2016 presidential campaign of  former Arkansas Governor Mike Huckabee.  The Committee wanted to know if it can use part of a legal defense fund to pay a settlement. The FEC says yes.  This isn't an election law blog, so I won't go into the details.  The litigation arose over the campaign's use of the song "Eye of the Tiger".  The FEC,  feeling quite cheeky writes the following: 

The complaint, seeking injunctive relief and monetary damages, alleged that 21 the Committee had violated federal copyright law by playing the song “Eye of the Tiger” at a campaign event on September 8, 2015. The Committee,rising up to the challenge of its rival, incurred attorneys’ fees and other expenses in defending itself in that litigation. After briefly relishing the thrill of the fight, the parties settled the lawsuit for an undisclosed amount.

Has the political circus of the 2016 election warped the sense of decorum at the FEC or should we all want to be friends with the lawyers there?  I can't decide.  But I do know that you should (a) click on the link to the song, and (b) jam away in your office for the next 4 minutes.  

You are welcome.

-Anne Tucker

 
Enjoy having that go through your head for the rest of the day.  And if that leaves you wanting more, try this!    EWW
 
 
(P.S. It's far happier that mourning Gordie Howe with strains of Brass Bonanza, which is what was stuck in my  head previously.  God's speed, Mr. Hockey.)  
 
 
 

June 10, 2016 in Federal – Executive, Other | Permalink | Comments (0)

Monday, June 6, 2016

Senate Finance Scrutiny of Private Museums Continues

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.

EWW

 

June 6, 2016 in Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Monday, May 2, 2016

IRS Finalizes New Examples of Program-Related Investments

IRSLast week the IRS published final regulations under IRC section 4944 that finalize several new examples of program-related investments by private foundations. The Service made few changes to the proposed regulations, so the most interesting part of the final regulations is actually the Summary of Comments and Explanation of Revisions, which summarizes the 15 comments received by the IRS and explains why Treasury did (or more commonly, did not) adopt the requested changes. For example, this section discusses the conflicting comments received regarding adding one or more examples relating to low-profit limited liability companies (L3Cs) or benefit corporations and explains that no such examples are included in the final regulations because "[t]he Treasury Department and the IRS see no need to amend the examples to refer more narrowly to an L3C or benefit corporation when such status is not determinative of the examples' conclusions."

Lloyd Mayer 

May 2, 2016 in Federal – Executive | Permalink | Comments (0)

Less Disclosure of Donors, More Disclosure of Applicants for Exemption?

Schedule BIn both Congress and the federal courts battles continue over disclosure of information relating to tax-exempt organizations. In California, a federal district judge ruled that California Attorney General Kamala Harris cannot force Koch brothers-related IRC section 501(c)(3) Americans for Prosperity Foundation (AFP) to provide a copy of the substantial donor list it files with the IRS (Schedule B to Form 990). While the decision was on an as-applied challenge and so only directly affects AFP, it was somewhat surprising given the earlier Ninth Circuit decision upholding the state disclosure requirement against a facial challenge. Whether the latest decision survives the almost certain appeal remains to be seen, however. Coverage: L.A. Times; Washington Post.

Not satisfied with the limited protected provided by this decision, Congress is now moving to eliminate the Schedule B entirely. H.R. 5053 cleared the House Ways and Means Committee late last week on a party-line vote, according to the Wall Street Journal (quoting LSU Professor Philip Hackney). The bill's fate is unclear, however, as it has already attracted public opposition from various outside groups, the N.Y. Times editorial board, and the Ranking (Democratic) Member of the Committee, according to the EO Tax Journal. It probably does not help its chances that the President for Government & Public Affairs at Koch Companies Public Sector, LLC publicly urged passage of the legislation.

UPDATE: Joint Committee on Taxation Description of H.R 5053; The Surly Subgroup Blog Post.

Finally, the Sixth Circuit recently moved the disclosure needle in the other direction with respect to applicants for recognition of exemption. In In re United States (United States v. NorCal Tea Party Patriots, et al.), the court resolved a discovery dispute by holding that the names, addresses, and taxpayer-identification numbers of applicants for tax-exempt status are not “return information” and so are not protected from discovery by IRC section 6103, even if their applications are pending, withdrawn, or denied. The only immediate effect of the decision is to allow the plaintiffs to identify possible class members in this class-action litigation arising out of the IRS Exempt Organizations Division selection of section 501(c)(4) applicants for additional scrutiny. But the larger ramification is that such information likely is now exposed to Freedom of Information Act requests that can be litigated in the Sixth Circuit, as section 6103 was the sole barrier to such requests. IRS Commissioner John Koskinen also suggested that some other types of IRS filings may also be exposed to public disclosure as a result of this decision. For those who may be interested in learning more about the ramifications of this case, I will be providing additional coverage in the "At Court" section of the ABA Tax Times' next issue. Additional coverage: Wall Street Journal.

Lloyd Mayer

May 2, 2016 in Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Monday, April 11, 2016

Happy National Volunteer Week! Here's the grim legal side of altruistic labor

Happy National Volunteer Week!  We know that volunteering can do lots of good, but what about when volunteering goes bad?  Volunteer law is one of my primary scholarly interests, and in honor of the millions of Americans who volunteer each year, below are just a few of the ways that law CI_boardwalk_Sandy_sweepers_jehdeals with volunteering disasters.  (But don’t be deterred!  Volunteers live longer, happier lives, and these problems probably won’t happen to you or your organization.)

Volunteer Liability:  Who gets sued when a volunteer commits a tort?  The Federal Volunteer Protection Act provides a low level of immunity—with lots of exceptions and caveats—to volunteers for simple negligence. (Ask yourself whether regulation of unpaid labor fits within Congress’s power under the commerce clause.)  Some states also offer immunity of different flavors.  Iowa immunizes volunteers for almost anything they do within the scope of their employment.  Vermont immunizes volunteer librarians. (?!)  Ohio just enacted a law immunizing volunteer architects. (Why architects?  No idea.  Underworked lobbyists, possibly.)

Fortunately, volunteers are rarely sued, and most suits involve intentional torts or accidents while driving (covered by insurance). (So, please don't sue me.)

Organizational liability: Organizations are liable for the acts of their agents under common law master-servant principles.  This applies to employees and volunteers alike.  But volunteers often interact with organizations in less formal ways than employees, and not always as simple to determine scope of “employment.” Notably, immunity for the volunteer does NOT immunize the organization, making charities the prime defendant when suit is brought.  Which, again, is fortunately pretty rare, especially for your small, community-based charity.

Volunteer Discrimination:  Employers can’t discriminate against employees on race, sex, religion, disability, and other protected characteristics.  Sometimes, but not often, these laws also protect volunteers.  (In fact, there is a circuit split about whether unpaid workers are covered under federal employee anti-discrimination laws.)  Still, even if anti-discrimination isn’t the law, be nice to your volunteers.  It’s the right thing to do.

Volunteers and Minimum Wage:  One of the least settled areas of law involves application of minimum wage laws to volunteers.  Cases are all over the place on this, and challenges involving unpaid interns and student-athletes add layers of confusion to the tests for charitable volunteers.  Department of Labor has issued various informal “guidance” (read: no Chevron deference) on the topic of unpaid workers, but their positions are rejected by courts as often as they are upheld.  Nevertheless, it would be pretty weird if your organization violated minimum wage laws by allowing someone to volunteer for your charity.  (Not legal advice: just common sense.)  One caveat is that a paid employee of your nonprofit can’t “volunteer” for your organization performing the same type of services as would normally be paid to perform. (Note that the linked regulation only applies to government, but Department of Labor applies same rationale to nonprofits).

Much, much more could be said, which is why this is a fun area in which to write (not to mention volunteering as a rewarding personal pastime). Happy National Volunteer Week everyone! 

@JosephWMead

April 11, 2016 in Current Affairs, Federal – Executive, Federal – Legislative | Permalink | Comments (0)