Nonprofit Law Prof Blog

The House Passes Bill To Retain 2009 Estate Tax Levels Permanently

On December 3, 2009, The Chronicle of Philanthropy reported that the U.S. House of Representatives passed a bill to retain 2009 estate tax levels permanently.

The House of Representatives has passed a bill that would permanently keep the estate tax at levels that are in effect this year.

The approach is one that many charities have been seeking because they say it will help them appeal to donors.

The Senate has not yet voted on estate-tax legislation.

Under the current estate-tax law, heirs in 2009 can exempt $3.5-million from taxes ($7-million for couples), with amounts above that taxed at 45 percent.

For the full story, please click the link above.

AMT

 

ACORN Suit Challenges Congress's Denial of Funding

Late last week, besieged ACORN launched a legal counter-attack by filing a lawsuit in the federal district court for the Eastern District of New York.  Represented by the Center for Constitutional Rights, ACORN argues that Congress's decision to deny ACORN and related entities federal funding is an unconstitutional bill of attainder, citing among other sources a Congressional Research Service report that addressed this issue.

Additional Coverage:  Associate Press, New York Times, Volokh Conspiracy.

LHM

Charities Line Up to Support Incentives for Charitable Giving and Oppose Limit on the Charitable Contribution Deduction

Yesterday the Subcommittee on Oversight of the House Ways and Means Committee held a hearing on "Food Banks and Front-Line Charities: Unprecedented Demand and Unmet Need."  The one common theme of both the statements from the Subcommittee members and the testimony of charity leaders, including from Catholic Charities USA and United Way, was the need to preserve the existing federal tax law incentives for charitable giving.  For many of the speakers, this included opposing the Obama Administration's proposal to limit the tax rate applicable to the charitable contribution deduction (along with all other itemized deductions) to 28 percent.  For previous coverage of this proposal, see John Colombo's comments, Harvey Dale's response, and Martin Feldstein's views.

LHM

Nonprofit Health Care Developments: Senate Bill and an Updated CRS Report

Late yesterday the Senate leadership released its version of the health care bill.  While I cannot claim to have read all 2,074 pages, quick searches revealed two provisions of particular relevance to nonprofits:

• Nonprofit Health Insurance Coops:  Section 1322 of the bill provides a number of provisions to support the creation of a "Consumer Operated and Oriented Plan" (CO-OP) program, with the stated purpose "to foster the creation of qualified nonprofit health insurance issuers to offer qualified health plans to the individual and small group markets in the States in which the issuers are licensed to offer such plans."  The federal government would provide grants and loans to support such nonprofit entities, and such entities would be tax exempt under new Internal Revenue Code section 501(c)(29) if they met various requirements.

• Nonprofit Hospitals:  Section 9007 of the bill incorporates the additional requirements for Code section 501(c)(3) hospitals that were also in the Senate Finance Committee approved version of the bill.  These requirements include (1) conducting a community health needs assessment at least once every three years and adopting an implementation strategy to meet those needs, (2) establishing and publicizing a financial assistance policy relating to free or discounted care, and (3) satisfying certain limitations on charges and billing and collection requirements.  The Treasury Department would be required to review at least once every three years the community benefit activities of such hospitals and to report annually to Congress regarding the levels of charity care and related items for all hospitals (not only tax-exempt ones).

Probably not coincidentally, the Congressional Research Service last week released an updated report on 501(c)(3) Hospitals and the Community Benefit Standard (Tax Analysts; subscription required).  The report is an update of a July 2008 report on the same subject. 

(Side Note:  For anyone else who is annoyed by the fact that CRS reports are not readily available to the public, see this helpful summary of the so far unsuccessful battle to force CRS to release such reports directly to the public and where such reports can usually be found.  Hattip: Sarah Lawsky.)

LHM

CRS Report: "An Overview of the Nonprofit and Charitable Sector"

The Congressional Research Service (CRS) has recently issued An Overview of the Nonprofit and Charitable Sector (BNA, subscription required) (CRS Report R40919), written by Molly F. Sherlock and Jane G. Gravelle.  The report provides updated figures regarding the size of the nonprofit sector's economic footprint in the United States, the sources of charity revenues, and the relationship of the charitable sector with the government.  The report concludes by discussing various policy options, including "(1) increasing government grants and subsidies to charitable organizations; (2) creating an oversight agency within the federal government to gather data, conduct research, and advocate for the charitable sector; (3) implementing policies designed to help charities and foundations in economic downturns; (4) changing the itemized deduction for charitable contributions by limiting, converting to a credit, or making the deduction more widely available; and (5) a variety of other tax issues."

CRS does not make its reports publicly availables o copies of the reports are only currently available from paid sources such as BNA.  Hopefully, however, the report will shortly be available on one of the many sites that provide free access to CRS reports as they obtain copies of them.

UPDATE:  A commentator notes the report is now available for free on the Partnership for Philanthropic Planning website.

LHM

Tax Credit for Small Nonprofits Included in Health Care Reform

On September 23, 2009, the Chronicle of Philanthropy reported that Senator Max Baucus, Senate Finance Committee chair, amended his health-care bill to provide a tax credit for small charities that provide insurance to their employees.   As proposed health-care reforms unfolded on Capitol Hill, nonprofits decried the absence of specific legislative components that address nonprofit needs to provide affordable health insurance.  Nonprofits employ almost 10% of the workforce, private and public, in the United States.  To ignore the special needs of nonprofits would be to ignore a large segment of Americans in need of insurance.  Below is an excerpt of the story:

Sen. Max Baucus, chairman of the Senate Finance Committee, has agreed to amend his health-care bill to provide a tax credit to help small charities provide health insurance to their employees.

His original language, unveiled last week, would have allowed the credit only for small businesses that pay income taxes, excluding most nonprofit organizations. Several senators proposed amending the text to make nonprofit groups eligible for the credit.

. . . 

The credit would be available to employers with no more than 25 full-time-equivalent employees with annual wages averaging no more than $40,000. The bill sets out a complicated formula for determining the amount of the credit, using factors like the percentage of the insurance premiums paid by the employer and the average cost of premiums for small businesses in the employer’s state.

For the full story, please click here.

AMT

Healthcare Reform Resurrects the Debate Over Charitable Deduction Limits

The Chronicle of Philanthropy reported Wednesday, September 23, 2009, that Senator Max Baucus, the Senate Finance Committee chairman, joined by other senators, included a 35 percent cap on charitable deductions made by wealthy taxpayers (individuals reporting $200,000 or more and families reporting $250,000 or more) as part of his health-care bill.  While less than President Obama's cap of 28 percent, the cap is of concern to nonprofit leaders.  They are concerned that, when tax rates on wealthy taxpayers rise in 2011 from 33/35 percent to 36/39.6 percent, donations will decline in an already tough economic climate.  For the full story, please see the story excerpt below and follow the link.

Some Senate Finance Committee members have resurrected the idea of limiting tax breaks for charitable donations as a way to raise money to overhaul the health-care system.

In amendments proposed to the health-care bill unveiled last week by Sen. Max Baucus, the committee chairman, a handful of senators have proposed limiting to 35 percent the tax break that wealthy people can get for their itemized deductions, including gifts to charity.

That is less drastic than the 28-percent limit proposed by President Obama. But a coalition of nonprofit leaders this week sent a letter to Mr. Baucus opposing the amendments, saying they would create a disincentive for charity’s biggest donors during a “tough charitable giving environment.”

“Charitable organizations are dealing with enormous financial challenges stemming from the economic downturn,” says the September 21 letter, which was signed by representatives of 14 groups including the American Association of Museums, the Association of Fundraising Professionals, the Council on Foundations, Operation Smile, and United Jewish Communities.

For the full story, please click here.

AMT

ACORN EO Shoe Drops: Accusations Fly About Tax Exemption Issues

The controversy surrounding the Association for Community Organizations for Reform Now (ACORN) involves numerous legal issues, but none of which were unique to nonprofit organizations - until now.  First, the staff of Senator Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee, has released a critical report relating to tax exemption issues.  The report asserts that while ACORN itself appears to be a taxable entity, there are numerous tax-exempt organizations - primarily section 501(c)(3) charities - affiliated with ACORN and that funds flow among these various entities in a manner that the report characterizes as "a big shell came [sic]."  Additional information compiled by the staff is available on Senator Grassley's press release page, including letters from Senator Grassley to the IRS and to OPM requesting information about ACORN and its related entities.

Second, in response to a request from Representative Darrell Issa (R-Cal.), ranking member of the House Committee on Oversight and Government Reform, and Senator Susan Collins (R-Maine), ranking member of the Senate Committee on Homeland Security and Government Affairs, the Treasury Inspector General for Tax Administrations (TIGTA) wrotestating it "is initiating a review of the IRS' oversight of tax-exempt Section 501(c)(3) organizations and Section 527 organizations and will review internal IRS referral processes with regard to nonprofit fraud investigations."  This new initiative is occurring even though less than three months ago TIGTA issued a report focusing on the Tax Exempt and Government Entities Division's Fraud Program.

ACORN's response to the number allegations against it can be found on its home page.  See also this piece by Pablo Eisenberg, Senior Fellow at Georgetown's Center for Public & Nonprofit Leadership, published in The Chronicle of Philanthropy.

LHM

Senator Grassley Proposes Revoking Rebuttable Presumption, Clarifying IRS Authority to Ask About Governance

Last week, Senate Finance Committee Chair Max Baucus (D-Mont.) introduced a detailed description of his proposed America's Healthy Future Act of 2009.  Among its many health care reform provisions was a requirement that all charitable hospitals both adopt a financial assistance policy meeting certain requirements and conduct a community health needs assessment at least once every three years (pages 211-13 of the proposal).  Each hospital would have to widely publicize its financial assistance policy and publicly disclose that its community needs assessment to the IRS through the annual Form 990 filing requirement.  Finally, the IRS would have to report annually to Congress regarding community benefits reported by charity hospitals (page 213).  The proposal would also create tax-exempt health care cooperatives (pages 36-38).

Now the members of the Committee have responded with a lengthy list of amendments.  At the bottom of the financing amendments proposed by Senator Chuck Grassley (R-Iowa), ranking member of the Committee, are two that impact ALL tax-exempt organizations.  Designated Grassley Amendment #F-7 and #F-8, the first amendment would explicitly authorize the IRS to require such organizations to report about governance practices so as to head off any challenges to the IRS' existing attempts to gather such information through the annual Form 990.  The second amendment would eliminate any protection from intermediate sanctions provided by following the "rebuttable presumption of reasonableness" procedures when considering transactions with senior executives, directors, and other insiders, while still requiring due diligence with respect to such transactions.  This amendment would also require organizations to report to the IRS the comparable information used to set executive compensation.

LHM

Baucus Health Care Proposal Includes New Nonprofit Hospital Requirements

In the "Revenue Provisions" at the end of a leaked copy of Senator Max Baucus' (D-Mont.) proposed health care reform package made available by Fox News, there are two sentences relating specifically to nonprofit hospitals:

Non-profit Hospitals Requirements. This proposal would establish new requirements applicable to nonprofit hospitals. The requirements would include a periodic community needs assessment.

While relatively uninformative, it is reasonable to assume that this placeholder provision is a reference to the list of possible new requirements included  in a Senate Finance Committee report issued last May on "Financing Comprehensive Health Care Reform: Proposed Health System Savings and Revenue Options."  The revenue raisers section of that report included modifying the requirements for tax-exempt hospitals along these lines:

The Committee could consider a policy option that would codify organizational and operational requirements for determining whether a hospital is a charitable organization for purposes of section 501(c)(3) tax-exempt status.  Such requirements include, among other things, that section 501(c)(3) hospitals regularly conduct a community needs analysis, provide a minimum annual level of charitable patient care, not refuse service based on a patient's inability to pay, and follow certain procedures before instituting collection actions against patients.  Certain hospitals that are critical to the communities they serve or which have an independent basis for tax exemption (e.g., as an educational or scientific research organization) are excluded f

rom the minimum charity care requirement. The proposal includes provisions designed to ensure proper reporting and transparency of operations. In addition, the proposal provides for excise taxes, or “intermediate sanctions,” designed to encourage compliance with the operational requirements. These intermediate sanctions could be imposed, for example, in situations where revocation of tax-exempt status is viewed as inappropriate.

LHM

Non-Profit Coop Option for Health Care Reform Gaining Traction?

The Associated Press reports that Senator Charles Grassley (R-Iowa), ranking minority member of the Senate Finance Committee and part of the "Group of Six" senators that have been trying to fashion a bi-partisan health care reform proposal, stated this morning on CNN that non-profit cooperatives may be how to resolve the lack of insurance coverage for millions of Americans.  Senator Max Baucus (D-Mont.), chair of the Senate Finance Committee and also a member of the Group of Six, has proposed such a solution to the group.  This continued interest in this proposal, which we previously blogged about, raises two questions in my mind.

First, how well do the rural agricultural cooperatives, touted as the model for health care cooperatives, really work and is that experience transferable to the health care context?

Second, will the President embrace this option when he speaks to Congress and the nation tomorrow?

LHM

Tighter Controls Urged on Non-profit Student Loan Agencies

In response to a bill that was proposed last Tuesday in the House Education and Labor Committee to eliminate the Federal Family Education Loan (FFEL) program and use the savings in part to significantly boost spending on Pell Grants, some are calling for tighter controls on non-profit lender set-asides.  Higher Ed Watch, having already expressed opposition to the provision that would provide a set-aside for all existing non-profit student loan agencies to service the loans of up to 100,000 borrowers in their home states, has called on Congress to at least bar the participation of lenders found to have overcharged the government or acted against the best interests of students.  The article pointed to The South Carolina Student Loan Corporation to make the point:

Should the bill become law, it would give the agency, known as SCSLC, a guaranteed direct loan servicing contract in the state. But according to a recent Higher Ed Watch investigation, SCSLC appears to have used its ties to the state student loan guaranty agency to obtain excessive taxpayer subsidies from the federal government. The loan agency has allegedly done this by helping the state guaranty agency exploit an emergency program the government has in place to ensure that all eligible students are able to obtain federal student loans. The U.S. Department of Education is carrying out its own investigation of these allegations and is expected to issue a report soon.

The legislation would essentially give each and every one of the Education Finance Council’s (EFC) members a no-bid contract to service the loans in question.  Higher Ed Watch, unhappy that the final provision is nearly identical to that proposed by the EFC, points out that the trade association has been quietly shopping amongst a select group of Congressional offices in recent weeks.  It is calling for the federal government to start holding lenders accountable for their actions.  To start, it has suggested that the committee reconsider awarding no-bid contracts to non-profit student loan agencies such as the Iowa Student Loan Liquidity Corporation, which the state’s attorney general found deliberately steered students to its most expensive loan products.

SS

Stimulus Legislation Opens More Capital to Non-Profits

Media Health Leaders reports on new opportunities emerging for non-profit hospitals to fund projects they’d been holding off on due to the inability to access capital.  The Tax Reform Act of 1986, which limited the sale by non-profit hospitals of bank-qualified bonds to $10 million a year, was changed in February when President Barack Obama signed the American Recovery and Reinvestment Act of 2009 into law.  The temporary provision makes it possible for non-profit hospitals and other 501c(3) organizations to sell up to $30 million in tax-exempt bank-qualified bonds in a single calendar year.

The stimulus package not only increased the amount available to non-profits, it decreased the obstacles and provided incentives for organizations to get involved in the bond program.  There is no application fee and the financing can be done in as few as 60 days, compared to regular tax-exempt bond financing, which takes 90 days or more. 

Additionally, under the Build America Bonds program, there is an option to have the federal government pay 35% of the interest on the bonds each year as a tax credit through the life of the bonds. 

Currently, the program is only open to new issue capital expenditure bonds issued before January 1, 2011. 

SS

Tax Exemption Proposal For Struggling Newspapers

In response to the quickly shrinking newsroom staffs and the alarming rate of papers going out of business, the idea of major newspapers turning into non-profits is not so far fetched.  According to an article in Media Shift, it was among the options discussed at a hearing before the Senate Subcommittee on Communications, Technology and the Internet.  One advocate, Arianna Huffington, co-founder and editor-in-chief of the Huffington Post, suggested a new revenue model to combat the industry’s economic problems and opposed trying to increase revenue by restricting access to online content.

"The great upheaval the news industry is going through is the result of a perfect storm of transformative technology, the advent of Craigslist, generational shifts in the way people find and consume news, and the dire impact the economic crisis has had on advertising," she testified. "And there is no question that, as the industry moves forward and we figure out the new rules of the road, there will be -- and needs to be -- a great deal of experimentation with new revenue models."

Another backer of broadening the options for the struggling papers was Senator Ben Cardin.  The committee discussed his proposal for legislation that would allow newspapers to transition to non-profit entities, thereby qualifying for exemption from certain taxes.  The catch is that, as non-profits, newspapers would have to refrain from endorsing political candidates.  His proposal is pending as S. 673 (111th Cong., 1st Sess. 2009).   Although the bill has been referred to a committee, no further action has been taken on it since its introduction in March.

SS

Sunset Provision Suggested for Non-Profits

The Philanthropy Journal draws attention to the interesting suggestion made by Tom Belford on his blog, The Agitator, that the IRS introduce a sunset provision on the designation of “charitable status.” Recent news reports that urged Massachusetts’ 36,000 nonprofits to consider merging and highlighted the inefficiency and potential harm the myriad of “unregulated” aid groups operating in the health field can create, led Belford to the conclusion that the nonprofits should meet some sort of performance measure or close their doors. 

Belford’s suggestion for a sunset provision of some kind on the IRS charitable status is meant to support a “perform or die” methodology, in which the non-profits “ … figure out a way . . . to establish that [their] nonprofit actually is performing… performing in the sense of achieving substantial goals, not just processing stuff.”

Though he admits his approach may be found crude by some readers, his theory that Massachusetts or Africa would not be worse off if half as many non-profits were expending the same level of resources in each region, has merit.

 SS

Tribal Charities Fairness Act Makes Good Sense and Would Help Clarify Tribal Sovereignty Issues

A bill pending in Congress, The Tribal Charities Fairness Act, would take a small but significant step towards clarifying the tax relationship between the federal government and tribal governing authorities.  The longstanding myopia is well described in a recent article posted by Professor Ellen Aprill:

In tax law, as elsewhere, the federal government has treated native Americans and their tribal governments ineffectively and inconsistently. Examining the treatment of Indian tribal government under the Internal Revenue Code through the early 1990's demonstrates again their unique position in our federal system. The saga of how these tax laws affected tribal governments, however, also illustrates in dramatic microcosm the relationship between ambiguous statutory language, administrative discretion, and legislative oversight.

One of the ways the ineffective and inconsistent treatment Aprill talks about is manifested is in the way tribal charities are classified as either public charities or private foundations.  Here is a summary of the problem from one of the chief legislative sponsors of the Tribal Charities Fairness Act:

Native American households are among the most disadvantaged in the United States, with more than 25 percent living in poverty. Tribal charities play an essential role in providing assistance to impoverished communities across Indian country. Yet, the tax code currently treats tribes like corporations rather than like state and local governments when they fund charities that serve tribal members. That is why, joined by my colleague Devin Nunes (CA-21), l recently introduced H.R. 3085, the “Tribal Charities Fairness Act” in the House of Representatives. Charitable organizations under section 501(c)(3) of the tax code are classified as either public charities or private foundations.  Organizations are deemed “public charities” when they receive “public support” from local, state, or federal governments. When an organization does not receive public support, it is deemed a “private foundation” and is subject to more stringent tax rules and regulations. The Tribal Charities Fairness Act would allow Indian tribes to be treated the same as state and local governments when they provide support to tax-exempt charitable organizations – thus allowing tribal-funded charities that serve their communities to be deemed public charities. Passage of this legislation would free numerous nonprofit charities funded by Indian tribes – from health clinics and wellness centers to tribal museums and cultural centers – from additional tax rules aimed at regulating private foundations, not public charities. It’s a question of equity, and tribes deserve to be treated the same as any state or local government.

The Tribal Charities Fairness Act would correct this disparity by allowing support from Tribal governing authorities to be taken into account in determing the amount of "public support" a charity receives, just as state support is taken into account in determining the public (rather than private) status of charities.  Professor Aprill has done excellent work in highlighting this issue, as demonstrated by the article linked to above as well as this informative powerpoint presentation. 

dkj

Senate Considers Use of Nonprofit Health Care System, Rather than Government, to Provide Universal Health Care: Random Thoughts

According to the New York Time's political blog, The Caucus, senators considering the massive 615 page "Affordable Health Choices Act", are debating whether to use nonprofit health care providers, rather than a government run system, to serve the uninsured:

Senator Kent Conrad, Democrat of North Dakota, said that negotiators continued to discuss some of the most controversial issues including a compromise on the government-run insurance plan that would instead use nonprofit health cooperatives to provide the desired competition with for-profit insurers.

I suppose in theory using the nonprofit health care system, rather than government, to provide health care for the uninsured suits the American tendency to disparage anything public or "government" run.  My wife and I, for example, are currently trying to figure out whether to put our kids in private rather than public schools.  Some people cringe at the very mention of "public school" without ever having even visited a public school.  I am a product of public schools so I tend towards defense and indignation at the popular notion that private schools are somehow better.  Anyway, the idea that nonprofits might be better suited or even sufficient to provide universal health care seems dubious at best.  First, the standards for nonprofit health care are so unclear that it can hardly be assured that the nonprofit health care community will actually fill the market gaps that leave millions uninsured.  Safe to say that there is no absolute requirement to "feed the poor" to achieve nonprofit, tax exempt health car status.  Indeed, there are millions to be made by tax exempt health care providers who have no inclination to serve the poor.  To substitute the nonprofit community as a reliable source of health care for the poor therefore first requires a revamping of the requirements for tax exempt status for those institutions.  Second, nonprofit health care is sometimes (but not always) as beholding to the same market forces that motivate for-profit health care providers.  Note too, what the quoted language above actually says.  It says that senators are considering using nonprofit health cooperatives "to provide the desired competition with for-profit insurers."  Right now there are all sorts of rules in the tax code that are designed to prevent nonprofit health care providers from competing with for-profit insurers.  Nothing is written in stone, of course, but it seems to me a lot of changes will need to be made to the tax code if we are going to now encourage nonprofits to compete with for-profit insurers. There is a whole body of law designed precisely to keep tax exempt organizationsn from competing with for-profit insurers.  All of that will need to be revised and then eventually for-profit insurers will cry fowl, particularly if the proposal has the intended outcome of forcing for-profit insurers, and all health care providers, to reduce their fees.  For those interested, the bill (linked to above) has many provisions for grants and other payments to nonprofit health care providers.  Like many senators, I suspect, I have not yet had time to read 615 pages of legislative language.  But including several provisions for government spending on nonprofit health care provides all the more reason to better define what we mean by "nonprofit" (or tax exempt) health care.

dkj

"Cash For Clunkers" Hurts Charities Devoted to Providing Transportation for the Poor

A few years ago, there was a big brouhaha about vehicle donations.  People were donating old jalopies to charities and taking full blue book value charitable contribution deductions even though the cars were worth far less, usually as evidenced by the price the charity subsequently sold the car for.  In 2003 and again in 2008, the Government Accounting Office conducted several studies calling into question the legitimacy of the charitable contribution deduction claimed by taxpayers who made such donations. One study said the following:

An estimated 4,300 charities have vehicle donation programs, based on a GAO survey of 157,500 charities with revenue of $100,000 or more. Taxpayers claimed deductions for donated vehicles on about 733,000 of the 4.4 million tax year 2000 returns filed with noncash deductions over $500, lowering taxpayer liability by an estimated $654 million. For the charities surveyed, proceeds from vehicle donations ranged from $1,000 for one charity, to $8.8 million for another. However, proceeds generally constituted a small share of total charity revenue for the majority of charities GAO reviewed. In addition, for two-thirds of the 54 specific vehicle donations GAO examined, charities received 5 percent or less of the value donors claimed as deductions on their tax return. Differences in proceeds received by the charity and value claimed by a taxpayer were due in part, to vehicles being sold at auctions at wholesale prices, and proceeds being reduced by vehicle processing and fundraising costs. Due to a lack of available data on the condition of donated vehicles, GAO could not determine whether taxpayers appropriately valued their vehicles when claiming associated tax deductions. The IRS has some activities designed to detect noncompliant claims for noncash deductions, including vehicle donations. However, the IRS has not pursued potential leads from these activities because tax revenue yields are less than other potential noncompliance cases, such as abusive tax shelters. IRS's ongoing National Research Program study may provide information on how to deal with donated vehicle compliance issues. Also, an IRS task force drafted recommendations for improving IRS's oversight of charities' donated property programs. State officials have filed legal actions in a number of cases involving problems with vehicle donation programs, such as an individual soliciting vehicle donations for fictitious charities.

The Congress responded with legislation in the American Jobs Creation Act of 2004 that attempted to limit the extent to which taxpayers could claim inflated deductions based on vehicle donations.  The Act added IRC 170(f)(12), which generally limits the amount of the deduction to the price the charity later sells the car for.  The Service also issued Notices 2005-44 and  2006-1 both of which provide background details on 170(f)(12). 

The "Cash for Clunkers" Act is a stimulus bill of sorts for the auto industry and, at the same time, designed to get less fuel efficient cars off the road for good.  Its official name is the "Consumer Assistance to Recycle and Save Program.  The gist of it is this:

Under the program, consumers may trade in their older vehicles and receive vouchers worth up to $4,500 toward the purchase or qualified lease of a new, more fuel-efficient car or truck.  The program will be authorized from 7-1-09 to 11-1-09 and will provide for approximately 250,000 new car or truck purchases. 

According to the Drive America Forward Bill the below summarizes the terms of the program:

• Be in drivable condition
• Be continuously insured and registered to the same owner for at least one year
• Have a combined fuel economy value of 18 mpg or less (Work trucks must be pre-2002 regardless of mpg)
• Not be more than 25 years old with historic or aesthetic value. These vehicles are valued by hobbyists or are a valuable source of restoration parts.

The replacement vehicle must cost less than $45,000 and get at least 22 mpg, among other requirements.   According to this NPR report, though, (audio version) the program has had the unintended effect of hurting charities that actually rehabilitate old cars and give them to poor people who cannot afford to buy a car with which to drive to work.  Apparently, not all charities that buy old cars were knowingly, if not passively participating in a scheme to inflate taxpayer's charitable contribution deduction.  Some charities were actually putting old cars to good use -- getting transportation for poor people who just want a way to get to work!  Other charities are complaining because even with the tighter new rules enacted in 2004, people were still donating old cars to charities and those charities were selling the cars for needed cash. 

Some charities complain that the program will put a financial strain on them when donations have dropped because of the recession. Most donated cars aren't given away; they're sold. And the proceeds go to charities. "There's a whole industry that helps support the charities, including the auctions, tow truck drivers, telephone answering personnel; and all of those people are going to be hurt," says Pete Palmer, a co-founder of the Vehicle Donation Processing Center, which handles the sales of donated cars for 400 charities. Donors can take tax deductions for the small amount charities usually get for those sales. Somebody has to be pretty darn altruistic to do a car donation over the cash for clunkers program if they want the new car," Palmer says. Palmer and some charities are lobbying against an effort to extend the cash for clunkers program, which is scheduled to expire Nov. 1.

I guess it only goes to show that legislating completely good outcomes is a complicated endeavor.  The Cash for Clunkers program seems very limited in scope -- not many cars, for example, get less than 18 mpg these days -- but even so it is apparently hurting the ability of charities to help poor people get transportation and other needed goods and services.  I am sure nobody thought that would be the case -- automobile workers get rehired while other workers lose jobs for lack of transportation. 

dkj

Does The Valley Club Incident Raise The Bob Jones Issue?

I could not find the Valley Swim Club listed in IRS Publication 78 nor on Guidestar so it may not be federally tax exempt.  Still, yesterday's local and national media reports were disturbing on both a personal and professional level.  According to one local report in the Philadelphia Inquirer, "The club includes more than 10 acres of land and a 110,000-gallon pool, according to its Web site, and is a private nonprofit organization chartered in 1954. A single membership is $395 per year."  The club's website has a "dot com" (rather than "dot org") suffix and is apparently no longer operational, except for a bold face (literally) denial of the allegations made in local and national media.  It seems that a summer day camp populated by 65 mostly African American and a few Hispanic kids paid a nearly $2000 fee to use the club's swimming pool.  When regular club members -- or more accurately -- parents of white kid members saw a pool full of black and brown kids, some parents expressed concern that "these dangerous black kids might hurt our kids."  According to the Inquirer, one kid remarked:

"I heard this lady, she was like, 'Uh, what are all these black kids doing here?' She's like, 'I'm scared they might do something to my child,'" said camper Dymire Baylor. The Creative Steps Day Camp paid more than $1900 to The Valley Swim Club. The Valley Swim Club is a private club that advertises open membership. But the campers' first visit to the pool suggested otherwise.  "When the minority children got in the pool all of the Caucasian children immediately exited the pool," Horace Gibson parent of a day camp child, wrote in an email. "The pool attendants came and told the black children that they did not allow minorities in the club and needed the children to leave immediately."  The next day the club told the camp director that the camp's membership was being suspended and their money would be refunded.

In a remarkably stupid demonstration of Freudian slips, the President of the Club explained, "There was concern that a lot of kids would change the complexion … and the atmosphere of the club,"  Ironically, as noted above, the Club was "chartered in 1954, the same year the Supreme Court decided . . . well, you know this already.  There is a Black man swimming in the White House pool for Christ's sake!  By the way, that's the new millenia's answer to "we can put a man on the moon, for Christ's sake!.  It is a way of asking with exasperation, "why can't we fix this already!"  Even if he was expressing a widely held sentiment amongst club members, the board seems to have rightly taken the President's ass to the woodshed for sharing it so openly (see the club's website via the link above).  One supposes the larger question is, does the meaning of charity differ from state to state.  Is there a state's right component to "charity."  On the federal level we don't know precisely what charity means but we know for sure it does not include racial discrimination.   Should the club lose its presumed state property tax exemption for its apparently discriminatory policies.  I should mention, by the way, that the regular club members say "its not about race, its about space."  Another Freudian slip.  The civil rights movement was always about "space."  "Space" to live one's life as a  dignified human being,  Idiot! 

A club member told a newspaper that she understood the problem was the size of the group, not race. But Wright rejected that explanation, saying the club covers 10 acres with a "nice-sized" pool and a separate pool for younger children. The board, she said, knew that her group included 65 children, and none of them had misbehaved.

So let me see if I got this right:  Had the pool had been overcrowded by 65 fee paying white kids none of this would have happened.  Management would have just picked 65 fee paying white kids at random, given them a refund and told them to get out, right?  Spare me.  My complexion may be dense in one sense of the word but I ain't stupid.  Miles to go before we sleep.

dkj   

Momentum Appears to Be Growing for a Nonprofit Insurer Compromise for Health Care Reform

  NPR reported this morning that a network of regional nonprofit health insurance cooperatives, modeled on rural agricultural cooperatives (discussed at 2:30 mark on), might prove to be the needed compromise between the Obama Administration's public insurer proposal and the concerns of both Republicans and moderate Democrats in Congress that a public insurer would force private insurers out of the health insurance market.  As previously posted, Senator Ken Conrad (D., N.D.) put forward this idea in a closed Senate Finance Committee last week.  For more details regarding the competing concerns, see this related NPR report (the cooperatives idea is mentioned specifically at the 3:50 mark).

LHM