Friday, November 18, 2016

TaxProf Blog: Pomona College May Have Violated 501(c)(3) Tax Status To Fund Anti-Trump Student Protesters

TaxProf Blog reports on this possibility at http://taxprof.typepad.com/taxprof_blog/2016/11/pomona-college-may-have-violated-501c3-tax-status-to-fund-anti-trump-student-protesters.html. 

For the University's response to this allegation, see http://taxprof.typepad.com/taxprof_blog/2016/11/pomona-president-denies-wrongdoing-as-irs-complaint-filed-against-college-for-funding-anti-trump-stu.html.

My initial take is since the rally in question happened after the election, the University has a good argument that at that point Mr. Trump was no longer a candidate but instead President elect and so the activities they funded were not political campaign intervention. I realize that Mr. Trump may not technically be President elect until the votes of the electors are officially counted by Congress, but despite some calls for the electors chosen by the voters to abandon him that is not a realistic possibility. So while one can certainly criticize the University for appearing to take sides with respect to the newly elected President, its reported activities almost certainly did not cross the legal line provided by Internal Revenue Code section 501(c)(3).

Lloyd Mayer

November 18, 2016 in In the News | 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)

Princeton Settles Property Tax Suit, But Tax Exemption in New Jersey Still Unsettled

Pu-logo-retinaLast month Princeton University announced that just days before trial was scheduled to begin it had settled the property tax exemption lawsuit brought by several local residents. As detailed in the announcement, Princeton committed to both pay millions of dollars to Princeton homeownersover six years through a tax credit and to also make over $1 million in contributions over three years to a local nonprofit to help economically disadvantaged residents obtain housing. The total cost to Princeton will be over $18 million.

While the settlement resolves Princeton's property tax exposure for recent years, it leaves open the possibility of suits challenging the university's property tax exemption at some point in the future. It also of course does not resolve the lawsuits currently pending against 35 nonprofit hospitals brought by local officials and challenging the hospitals' exemptions from property taxes, although at least two of those hospitals have already settled the claims against them. Legislation to try to resolve those suits has apparently stalled in the New Jresey Legislature.

Coverage of Princeton settlement: Bloomberg; Wall Street Journal.

Lloyd Mayer

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

Supreme Court Leaves in Place College Athletic Status Quo But Also Possible NCAA Vulnerability

NCAALast month the Supreme Court of the United States denied certiorari to either the NCAA or the plaintiffs in O'Bannon v. NCAA. That decision left in place the decision by the U.S. Court of Appeals for the Ninth Circuit that found an antitrust injury to the plaintiffs from the NCAA's rules but rejected the portion of the district court's remedy that would have allowed student-athletes to receive cash payments that went beyond their full cost of attendance. Since the NCAA had already dropped its prohibition on members schools giving scholarships to student-athletes up to the full cost of attendance, the effect of the now final Ninth Circuit decision is to leave the current situation unchanged. That said, some commentators believe that the finding of an antitrust injury leaves the NCAA vulnerable to future antitrust challenges (see this ESPN story about the decision).

Lloyd Mayer

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

Tuesday, November 15, 2016

AGs in Action: Hospital Ordered to Pay $2.1 Million for Charity Care; Veterans Charity Shut Down

As has been documented in this space many times, state attorneys general continue to play a pivotal role in ensuring that charitable nonprofit organizations continue to fulfill the promise of their charitable label.

Logo (2)For example, earlier this fall The Fresno Bee reported that the California Attorney General denied a request from Saint Agnes Medical Center to reduce the amount of charity care it provides and instead ordered the nonprofit hospital to pay $2.1 million to other community nonprofit organizations that provide direct health-care services. The request was an attempt by the hospital to reduce the $7 million in charity care it is required to provide annually pursuant to a three-year old agreement with the AG's office. The hospital only provided $4.9 million in charity care in 2015, however. To make up the deficit, the AG ordered the hospital to pay $2.1 million to other tax-exempt entities that provide direct health care services in the hospital's service area by no later than October 31, 2016. While the hospital reportedly was considering its options for challenging the AG order, there are no news stories or other public reports indicating that it did so before the October 31st deadline.

DownloadAnd just last week, the New York Attorney General  announced a settlement with the National Vietnam Veterans Foundation and two of its officers to end that purported charity's operations. The founder and president of the nonprofit, who is himself a veteran and an attorney with the U.S. Department of Vetranss Affairs, admitted that 90% of donations were paid to fundraisers, that contributors were deceived about the use of funds raised, and that he used nonprofit funds for personal expenses. In addition to the organization dissolving, he and another officer agreed to be permanently banned nationwide from handing charitable assets. CNN originally reported problems at the organization last May.

Lloyd Mayer

November 15, 2016 in In the News, State – Executive | 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)

Sunday, November 6, 2016

Charitable Solicitation Reporting and the Clinton & Trump Foundations

James_FishmanJames Fishman (Pace) has the written the following commentary (posted with his permission) on recent news stories relating to charitable solicitation reporting issues involving the Bill, Hillary & Chelsea Clinton Foundation and the Donald J. Trump Foundation:

In a pallid imitation of David Farenthold’s  work in the Washington Post on the Trump Foundation, a Scripps News investigation has reported that charity regulators in Mississippi cited the Clinton Foundation for three years beginning in 2001 for failure to register to solicit funds in that state, and the charity did not disclose those instances to some other states as required. 

 

While the Clinton Foundation justifiably can be criticized for inattention to possible conflicts of interest as well as a lack of concern with good nonprofit governance norms, a failure to register in one state for several years followed by the Foundation’s failure to mention it some years later in other states’ annual filing forms are minor infractions equivalent to reporting someone was issued a traffic ticket for parking fifteen inches from the curb, instead of twelve as required by an ordinance.

 

Almost all of the states require registration in order for a charity to solicit funds. This is accompanied by a requirement of filing a financial report at the end of the year. The registration process is simplified in that almost forty states accept a unified filing statement, which means the charity has to fill out one form and can submit it to all states in which it will try to raise funds. This task is usually done by firms that specialize in fundraising registration and compliance services. The financial reports are likely prepared by the charity’s accountants, who may have no knowledge of the registration process. The charity may not know that a mistake was made in one state, and neither would the accountant. And, as the story indicates, the charity officials who sign the forms may rely on others to prepare them and so not catch inconsistencies between them.

 

Professor Linda Sugin of Fordham inspected the Trump Foundation’s 990-PF and wrote in a New York Times op-ed piece that there were misstatements made in answering questions whether the foundation engaged in any self-dealing or political activities. That form was likely prepared and filed by Mr. Trump’s accountants, who had little knowledge, like everyone else, of what the Foundation’s activities really were. (The Trump Foundation is registered as a private foundation. Despite its name the Clinton Foundation is a public charity.) So, as was likely the case here with the Clinton Foundation and its charitable solicitation filings, those reporting failures probably reflect more a lack of communication than intentional errors.

 

Failures of registration by charities to solicit funds are common as many small and new charities are unaware of the requirement. Even larger and more sophisticated charities often make mistakes when completing the many state forms; while a growing number of states accept the unified filing statement, many require additional, state-specific information. When such failures occur, the state’s attorney general or other responsible official will contact the charity, give a period of time to correct the failure, perhaps impose a minor fine, and that’s the end of the situation. Repeated violations may lead to somewhat larger fines, but absent evidence of fraud on the public or other substantive legal violations that is as far it usually goes, although on occasion an attorney general will order a charity to stop soliciting in their state until the filing failures are corrected.

 

The Trump Foundation, which failed to register anywhere, including its home state of New York, was ordered by New York Attorney General Eric Schneiderman to halt fundraising in New York until it registered, which it later promised to do.  What was unique was that the failure to register was the subject of a press release, perhaps the first one ever issued for such an infraction. See Joseph Mead’s post in the Nonprofit Law Prof Blog. Whether the high profile nature of the Trump Foundation may have justified this step, unusual as it was, could certainly be debated.

 

Given the size and scope of the Clinton Foundation’s activities, not to speak of some legitimate issues for journalistic inquiry, are such inconsequential miscues worthy of the Scripps’ investigative reporters? One the many great things about the election finally taking place will be that the media can return to its normal stable of non-news stories. Kim Kardashian can’t wait.

 Lloyd Mayer

November 6, 2016 in In the News, State – Executive | Permalink | Comments (0)

Friday, October 28, 2016

Yale's Humor Mag has fun with 501(c)(3) rules, at expense of Yale's student newspaper

Yale Daily News, the oldest student newspaper at Yale--and a separately organized 501(c)(3) tax-exempt organization--found itself under criticism for violating tax law when it endorsed Hillary Clinton for President. The Paper issued an opinion piece entitled "NEWS' VIEWS: Hillary Clinton LAW '73 for President," arguing:Yale_Daily_News

We do not endorse Clinton solely because of the disqualifying flaws of her opponent, Donald Trump, whose campaign has disgusted and astonished our board. ... We endorse her because we, as young people, recognize this election is a turning point for our country. And the choice couldn’t be more clear. Voting for Clinton is our obligation to ourselves and to future generations.

The Yale Record--a student humor magazine--responded swiftly and hilariously:

The Yale Record believes both candidates to be equally un-endorsable, due to our faithful compliance with the tax code.

In particular, we do not endorse Hillary Clinton’s exemplary leadership during her 30 years in the public eye. We do not support her impressive commitment to serving and improving this country—a commitment to which she has dedicated her entire professional career. Because of unambiguous tax law, we do not encourage you to support the most qualified presidential candidate in modern American history, nor do we encourage all citizens to shatter the glass ceiling once and for all by electing Secretary Clinton on November 8.

The Yale Record has no opinion whatsoever on Dr. Jill Stein.

Well played.

@JosephWMead

October 28, 2016 in Current Affairs, In the News | Permalink | Comments (1)

Tuesday, October 11, 2016

When Does “Educating” Become “Lobbying?”

A recent article  by Martin Levine highlights the struggle to define the line between providing education about issues and lobbying for specific legislative outcomes. The center of the controversy revolves around a complaint filed in 2012, when the Center for Media and Democracy and the Common Cause complained to the IRS that the American Legislative Exchange Council (ALEC) was incorrectly classified as a 501(c)(3) organization.

The ALEC characterizes itself as an organization “dedicated to advancing and promoting the Jeffersonian principles of limited government, free markets and federalism at the state level. ALEC accomplishes this mission by educating elected officials on making sound policy and providing them with a platform for collaboration with other elected officials and business leaders.”

The ALEC’s opponents, however, paint a different picture of the organization, claiming “the primary purpose of the organization is to provide a conduit for its corporate members and sponsors to lobby state legislators.”

As evidence of this lobbying, opponents of the ALEC point to a string of tax deductible donations from EXXON to the ALEC totaling over $1.7 million. The ALEC’s official position on climate change only leads to increased suspicions. According to the ALEC, there is no threat to the public from climate change or increased greenhouse gasses. In fact, the ALEC has stated that global warming is beneficial, claiming that “during the warming of the past 100 years global GDP has increased 18-fold, average life span has doubled, and per capita food supplies increased.”

While this information is certainly not determinative of foul play, it does provoke one to question the line between information providing and lobbying.

 

David Brennen

October 11, 2016 in Current Affairs, Federal – Legislative, In the News, State – Legislative | 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)

Thursday, September 22, 2016

Clinton v. Trump Foundations Under the Tax Law (CNN Op Ed)

Clinton FoundationTrump FoundationI just wrote this CNN Op Ed comparing the two foundations. It begins:

Journalists and commentators across the political spectrum have subjected both the Bill, Hillary & Chelsea Clinton Foundation and the Donald J. Trump Foundation to a withering barrage of criticisms. Without a doubt, both foundations and their managers, including Ms. Clinton and Mr. Trump, have made mistakes. The critical question, however, is whether those mistakes are illegal.

Lloyd Mayer

September 22, 2016 in In the News | Permalink | Comments (0)

Monday, August 29, 2016

Add Morgantown, West Virginia to the PILOT list

Big news from Monongalia County, West Virginia  (and I don't mean its party school ranking of number 2... ), but add West Virginia University to the list of charitable institutions making PILOT (payment in lieu of taxes) payments.  WVU has done a significant amount of development in downtown Morgantown (yes, we have a downtown...) through private-public partnerships.   As a result, a good deal of private property has gone off the tax rolls in this standard issue university town. 

Of course, the issue of PILOTs has received a significant amount of discussion as of late (including on this website), as strapped state and local communities look for alternative sources of revenue.  For more information, I strongly recommend starting with the Urban Institute website, which has a number of studies on PILOT issues (many of which are authored or co-authored by Evelyn Brody.)  In that regard, this really shouldn't be much in the way of new ground... but...

Lets make a deal

(I am totally dating myself here...)


What I find interesting is that WVU is a public university.   I've been searching on the interwebz (to no avail) for more information on how many public institutions - presumably, universities and hospitals - have agreed to PILOTs.  (Anyone have any info?  I found this helpful article by Langley, Kenyon and Bailin from the Lincoln Institute of Land Policy, circa 2012, that has a number of appendices - a very quick review doesn't seem to show any public institutions.)   Part of the rationale for a private nonprofit to enter into a PILOT agreement and voluntarily pay not-taxes is that the alternative could be much, much worse.  If a government changes the applicable laws granting nonprofit property tax exemption, the nonprofit will have little control over what happens next, so the devil you know and negotiate is probably better than what is behind Door Number 2.  

I would think that with a public university, that calculus would be much, much different.   After all, a public university is branch of government, it seems as if it would be much more difficult to muck with the property tax exemption for the University itself - both legally and politically.  According to the press release from WVU, its 50 year payment agreement applies only to "private commercial establishments operating on University property for activities that are not a critical part of or integral to serving the academic needs of students."  Therefore, while there may be limits on the ability to change the University's tax exemption, query how much play actually exists with attacking the property tax exemption for the University's leased property?   (see section 10 versus sections 14 or 17, for example).

 

EWW

 

August 29, 2016 in Current Affairs, In the News, State – Executive | Permalink | Comments (0)

Thursday, August 18, 2016

OneOrlando Fund to Disburse $23M

Yesterday's NonProfitTimes reported that the OneOrlando Fund has begun accepting claims from victims and families of victims of the June 12 Pulse nightclub shooting that left 49 dead and dozens more injured. According to fund administrator, Kenneth Feinberg, the entirety of the fund -- estimated at $23 million -- will be disbursed. According to the OneOrlando website, to be eligible, claims must be postmarked by September 12. Claim forms can be found on the site.

 

Vaughn E. James

August 18, 2016 in Current Affairs, In the News | Permalink | Comments (0)

Wednesday, August 17, 2016

Restructuring Coming for Wounded Warrior Project

In 2003, four men came together to form Wounded Warrior Project, a nonprofit 501(c) organization that offers a variety of programs, services and events for wounded veterans of the military actions following September 11, 2001. The organization's website boasts that this charity and veteran service organization "provides free programs and services focused on the physical, mental, and long-term financial well-being of this generation of injured veterans, their families and caregivers." The charity urges its supporters to donate to its causes, assuring them that their tax deductible donations enable the organization to "help thousands of injured warriors returning home from the current conflicts and to provide assistance to their families." The website goes on to state that "[a]s the number of wounded [veterans] steadily increases, it is easy to see how the needs of these brave individuals also increase."

In March, CBS News reported that while Americans were donating hundreds of millions of dollars each year to the charity, Wounded Warrior Project was spending 40 to 50 percent of these donations on overhead, including extravagant parties. By comparison, CBS News reported, other veterans charities have overhead costs of only 10 to 15 percent.

Shortly afterwards, the organization's Board of Directors fired Chief Executive Officer, Steven Nardizzi, and Chief Operating Officer, Al Giordano.

Yesterday's NonProfitTimes reported on the next step for the organization: a restructuring plan, According to the Times, details of the restructuring plan are expected to be announced next month. But some details can already be gleaned from the organization's recently-released IRS Form 990 and consolidated financial statements  for the fiscal year ended September 30, 2015. In notes to the consolidated financial statements, the organization states: 

Negative media stories in January 2016 regarding the Organization prompted inquiries and requests for documents from Senator Grassley on behalf of the Committee on the Judiciary and from other parties. The Organization responded to these inquiries and requests, and management does not believe they will have a material adverse effect on the organization’s financial position, results of operations or cash flows.

The Organization is in the process of evaluating programs and services to ensure that they are delivered with even greater efficiency, as well as assessing its organizational structure to ensure that it maximizes all resources available. Management anticipates that certain roles will be eliminated as a result of this assessment and details of the restructuring will be announced in September 2016. Management does not believe the restructuring will have a material adverse impact on the accompanying consolidated financial statements.

The Times also reports that in recent weeks, new CEO Michael Linnington, has made reference during interviews to anticipated pay and staff cuts.

September will soon be here; we shall discover then just what Wounded Warriors Project will do to recover its image, stature and standing.

Vaughn E. James  

 

 

 

 

 

 

 

August 17, 2016 in Current Affairs, In the News | Permalink | Comments (0)

Tuesday, August 16, 2016

College Students Taking Credit for Volunteer Work

An op-ed in last Saturday's New York Times caught my eye and has me thinking deeply. In To Get to Harvard, Go to Haiti?, Frank Bruni discusses "the persistent vogue among secondary-school students for so-called service that's sometimes about little more than  a faraway adventure and a few lines or paragraphs on their applications to selective colleges."

Bruni is here discussing the growing trend among American college applicants to claim on their college applications for admission that they have done volunteer work or gone on mission trips to Central America and Africa when in reality all they have done is spent as little as a week -- if all that -- "helping to repair some village's crumbling school or library, [only] to return to their comfortable homes and quite possibly write a college-application essay about how transformed they are."  

Bruni argues that this troubling trend "turns developing-world hardship into a prose-ready opportunity for growth, empathy into an extracurricular activity." Moreover, Bruni contends that this trend

reflects a broader gaming of the admissions process that concerns [him] just as much, because of its potential to create strange habits and values in the students who go through it, telling them that success is a matter of superficial packaging and checking off the right boxes at the right time.

Like Bruni, I am appalled at this growing trend among students. I am equally appalled at the trend among church-going people who come to me asking for my help in funding their mission trips to Central and South America, Africa and the Caribbean. I question them closely about these trips. Thus far, in answer to my question, "Where will you live during your stay?", every budding missionary has responded, "In a hotel." My check book has remained closed to these wonderful missionaries.

Vaughn E. James 

August 16, 2016 in Current Affairs, 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)

Amateur Athletes and Professional Coaches & Executives

Rio 2016 OlympicsThis week would not be complete without an Olympics-related post. Just before the opening ceremonies, the Washington Post ran a story titled "Olympic executives cash in on a 'Movement" that keeps athletes poor." It draws a sharp contrast between the actual athletes, who absent a rare endorsement deal or a sport with a lucrative professional league are generally scrounging funds from family and friends to support their training, and the employees and "volunteer" board members of the numerous national and international sports federations and Olympic Committees who often make hundreds of thousands of dollars annually or enjoy generous perks such as first-class air travel. This not to say all athletes are uncompensated; the article details the complicated baseline pay and bonus systems in place for many US athletes, but the amounts available to athletes vary enormously depending on the sport and the potential for medalling. 

Such disparities are also not unique to the Olympics. Many have pointed to the college sports system, particularly FBS football and Division 1 basketball programs, as exhibiting the same disparities between the (student) athletes, few of whom make it to the lucrative professional level, and coaches & administrators. Such disparities also exist even in youth sports, where, for example, the President & CEO of Little League Baseball Incorporated received compensation of close to $500,000 from all related entities according to the group's 2014 Form 990, although that amount seems relatively reasonable once it is acknowledged that he is responsible for running an almost $30 million a year organization (including over $8 million in broadcasting rights payments) that has over 400 employees and involves millions of children. And, as John Colombo (Illinois) has discussed in this space, both the college programs and the U.S. Olympic Committee continue to enjoy favorable tax treatment despite the increasing commerciality of their activities because of "analytical inertia" that has let the law of charities stagnant while the world moved on.

Lloyd Mayer

August 12, 2016 in In the News, International | 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)

Charities & the Risk of Supporting Terrorism: One Step Forward, One Step Back

FATFSince 9/11 the relationships between charities and government anti-terrorism agencies have been strained, with government officials wary that the cross-border movements of money and people that many charities facilitate were vulnerable to being used as vehicles for the support of terrorist activity. Charities have responded with efforts to both tighten controls over such movements and to educate government officials regarding how charities can and do minimize the risk of such diversions. Earlier this summer those efforts bore fruit with the decision by the global Financial Action Task Force to change its guidance regarding charities (known as Recommendation Eight) to clarify that they are not inherently at risk of terrorist abuse, as reported by Third Sector (UK). The revised Recommendation Eight now reads:

Countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including:

    (a) by terrorist organisations posing as legitimate entities;

    (b) by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and

    (c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.

Unfortunately, just last week the news broke that Israel has charged the manager of World Vision's Gaza branch with infiltrating the charity on behalf of Hamas and diverting tens of millions of dollars to Hamas' military wing. (Coverage: NPRNY Times; Washington Post/AP.) While Israeli officials emphasized that there was no evidence that World Vision was aware of the diversion, and World Vision is still reviewing the charges and the evidence supporting them and has expressed skepticism about the alleged amount at issue, the situation casts a cloud over the international work of the well-known charity.

Lloyd Mayer

August 11, 2016 in In the News, International | Permalink | Comments (0)

Wednesday, August 10, 2016

Election 2016: Nonprofit Spending to Date; and Clinton, Trump, and the Perils of Personal Philanthropy for Politicians

Clinton FoundationTrump FoundationLost a bit in the continual "he/she said what?!?" news stories is the continued steady spending by nonprofits to influence this year's elections. The Center for Responsive Politics reports that spending by outside groups (groups other than candidates or party committees) reported to the Federal Election Commission is already approaching $600 million and so is on pace to more than double the level of such spending in the 2011-12 cycle. While the overall amounts are still relatively modest compared to aggregate candidate and party spending, at least for federal offices, that spending is more significant than the proportion of total spending suggests for several reasons.

One reason is that unlike candidates and to some degree political parties, nonprofits can concentrate their spending on a relatively few, close races, sometimes even allowing them to spend more in those races than the candidates and parties. Another reason is a small portion of those reported funds - about $50 million to date - are from groups that do not disclose their donors and so the public cannot learn the original sources of those funds (this is the so-called "dark money"). A third reason is that this figures reflect only spending that groups are required by law to report to the FEC; there are many expenditures that relate to federal elections but are not reached by federal election law, as well as of course much spending aimed at state and local races (see the National Institute on Money in State Politics for data on the latter). It is therefore clear that absent some significant legal changes political spending by nonprofits is not going away anytime soon, although some states are enhancing state-level required disclosure of political spending. See, for example, the recent Delawareonline report on a federal appellate court decision upholding Delaware's expansive Elections Disclosure Act against constitutional challenge, the expansive New York lobbying bill awaiting the governor's signature (see TimesUnion article), and the recent paper by Linda Sugin (Fordham) titled "Politics, Disclosure, and State Law Solutions for 501(c)(4) Organizations," 91 Chicago-Kent Law Review (forthcoming 2016).

But lest nonprofit legal practitioners and scholars become bored with this "just more of the same political spending," this year's election has also given us a host of allegations of wrongdoing relating to the philanthropic activities of both Hillary Clinton and Donald Trump. For those trying to keep score, here is a brief summary of where things stand (for previous recent coverage, see previous posts relating to charitable "gifts," possible private benefit, and possible support of the presidential campaign):

  • Clinton Foundation:  Alleged conflicts of interest while Clinton was Secretary of State (see this week's NY Times story for the latest); a (almost certainly routine) IRS referral of GOP lawmaker allegations of public corruption to an audit group (see this Politico story); and a possible FBI probe (according to The Hill). For a detailed consideration under federal tax law of the accusations raised by the GOP lawmaker, see the July and August blog posts by Philip Hackney (LSU) (spoiler alert: he concludes that even if the alleged facts are taken as true they simply do not rise to a level that could plausibly threaten the Foundation's tax-exempt status).

It remains to be seen how these various allegations shake out, but they underline the fact that politicians and potential politicians who engage in personal philanthropy risk having those philanthropic activities haunt them on the campaign trail.

And one last question: what will happen to their respective foundations if either candidate is elected President? To date, neither campaign has said, although Bill Clinton has publicly acknowledged the issue.

Lloyd Mayer

August 10, 2016 in In the News | Permalink | Comments (0)