Thursday, May 14, 2015
In an apparent pro-active effort to engage with a charitable nonprofit before it collapses, the Wall Street Journal and the NY Times report that Attorney General Eric T. Schneiderman has sent inquiries to board members of the Cooper Union for the Advance of Science and Art, asking about management of the college's endowment and transactions relating to the Chrysler Building, the land under which the college owns. The attention comes at least in part because of the college's decision in 2014 to begin charging undergraduate tuition, allegedly in order to avoid insolvency. The ongoing investigation has threatened the tenure of the college's president, although his position may already been at risk given apparent tensions between him and the board chairman. According to these various news reports, the potential issues center around possible financial mismanagement, including a failure to sufficient diversity investment holdings and questionable loan terms related to a new building, and lack of transparency, including with respect to regulators. Stay tuned.
There has been a drumbeat of allegations in Canada that the Canada Revenue Agency is targeting left-leaning charities for special scrutiny with respect to their alleged political activity. The latest group to make this assertion is Sierra Club Canada Foundation, which according to a CBCNews report expected auditors to arrive at its offices this week to look for evidence of political activity exceeding the permitted 10 percent level for Canadian charities. Concerns about such audits began in 2012, when 60 political audits of charities began that allegedly disproportionately hit environmental and other left-leaning charities. In 2014 the National Post reported that more than 400 academics had demanded the end of a CRA audit focused on the left-leaning Canadian Centre for Policy Alternatives, and last month CBCNews reported on a Steelworkers charity protesting being subject to a similar audit (hat tip: David Herzig).
According to the various press reports, the National Revenue Minister has repeatedly denied any bias in audit selection, stating that CRA officials make such decisions independently of political appointees. As in the United States, CRA is not able to comment on specific audits because of tax law confidentiality rules. A left-leaning think tank has called for an independent probe, however, asserting that right-leaning charities with apparent political involvement appear to have escaped scrutiny (see also CBCNews report). There does not appear to be an investigative body, such as the Treasury Inspector General for Tax Administration in the U.S., that is well positioned to engage in such a probe, however (Canadian readers, please correct me if I am wrong on this point).
The Daily Beast reports that questions and outrage are swirling around the transfer of $863,000 from the New Orleans Public Library Foundation to the Peoples Health Jazz Market, a new $10 million home for the acclaimed New Orleans Jazz Orchestra. The transfer allegedly came about because of the efforts of the orchestra's CEO and the orchestra's musical leader. The CEO served on the Foundation's board and eventually became its board chair, while the musical leader also served on the board and then was given discretion in 2012 over the Foundation's spending by the board. Both the CEO and musical leader are paid salaries by the orchestra. Since the story broke the orchestra CEO has resigned from the Foundation's board, the orchestra has pledged to return the funds at issue to the Foundation, and New Orlean's Mayor Mitch Landrieu has met with the boards of both groups and demanded changes at the Foundation.
In August 2013, the NY Times reported that lawyers from Simpson Thacher & Bartlett had interviewed Clinton Foundation executives and former employees over a two-week period, interviews which "had led the lawyers to some unsettling conclusions." According to the article, concerns included the foundation's relationship with a consulting firm founded by a one-time personal assistant to Bill Clinton and for which Mr. Clinton had worked as a paid advisor, its aggressive fundraising and lack of financial stability, and tensions between old political hands and professional staff. It was also a time of transition for the Foundation, particularly with Chelsea Clinton emerging as a leader (and now a defender of it). And of course all of these developments occurred with an increasing anticipation of Mrs. Clinton's expected 2016 presidential bid.
Additional Coverage: Clinton Family Foundation Raises Big Money and Big Questions (Washington Post/AP); If Clinton Is Elected, Family Foundation Could Face Changes (Washington Post/AP); previous stories.
The Treasury Inspector General for Tax Administration issued a new "Final Report" on the IRS handling of exemption applications involving political campaign intervention. Here are excerpts from the conclusions:
The IRS has taken significant actions to eliminate the selection of potential political cases based on names and policy positions, expedite processing of Internal Revenue Code (I.R.C.) Section (§) 501(c)(4) social welfare organization applications, and eliminate unnecessary information requests.
First, the IRS eliminated the use of Be On the organizations, if it becomes a permanent Look Out (BOLO) listings, . . . .
Second, the Exempt Organizations function completed processing for 149 of the 160 applications for tax-exempt status that, as of December 2012, had been open for lengthy periods. . . . .
The report further provides that in the absence of BOLO listings the IRS has created an "Emerging Issues Committee" to screen, review, and monitor emerging issues based on actual or planned activities of applicants, as opposed to names or policy positions. The report also provides of 149 closed applications, the IRS approved 107 (72%) and disapproved 7 (5%), while applicants either withdrew (8 or 5%) or failed to respond to requests for information (27 or 18%) the remaining applications. Of the 11 applications still open, six are in litigation and five have either proposed adverse determinations or are in Appeals. Reading between the lines, a Bloomberg article notes that these figures suggest that the IRS has sent Crossroads GPS a denial letter, since the Crossroads application is still outstanding and is not in litigation. As the Center for Responsive Politics notes, however, the statute of limitations might now bar collection of any taxes from Crossroads even if its application is ultimately denied. Additional Coverage: Forbes (Peter Reilly).
Relatedly, the NorCal Tea Party Patriots have convinced the federal judge overseeing their lawsuit against the IRS to require the IRS to identify the 298 groups that had submitted applications identified as potential political cases as of May 31, 2012 (mentioned on page 4 of the TIGTA Final Report) in order to facilitate class certification in that litigation. The Judge's order explains why she concluded Internal Revenue Code section 6103 does not prevent this limited discovery. Additional coverage: Forbes (Peter Reilly).
In other news, TIGTA managed to recover 6,400 emails to or from Lois Lerner from between 2004 and 2013, although it is unclear how many might be duplicates of the tens of thousands of emails previously recovered by the IRS and turned over to Congress. No final word from the congressional committees reviewing the emails regarding whether they add anything to the ongoing investigations, although initial indications are that there is little new in them. Coverage: CNN; Forbes (Kelly Phillips Erb); The Hill.
Finally, the House has passed a package of bills relating to the 501(c)(4) application mess, although their fate in the Senate (and on the President's desk) is uncertain. The most prominent is H.R. 1104, which would extend a gift tax exemption to 501(c)(4) social welfare organizations, 501(c)(5) labor, agricultural, and horticultural organizations, and 501(c)(6) trade associations and chambers of commerce. Currently donors to 501(c)(3) charities generally enjoy such a deduction (under Internal Revenue Code section 2522), and transfers to 527 political organizations are exempt from the gift tax (under section 2501(a)(4)). The other bills are H.R. 709 (termination for political targetting), H.R. 1026 (taxpayer privacy), H.R. 1058 (Taxpayer Bill of Rights), H.R. 1152 (use of personal email accounts prohibition), H.R. 1295 (self declaration process and declaratory judgment actions for 501(c)(4)s), and H.R. 1314 (right to appeal). Coverage: Forbes (Robert W. Wood); Politico.
Wednesday, May 13, 2015
The oral argument before the Supreme Court in Obergefell v. Hodges (the same-sex marriage case) included the following exchange between Justice Alito and Solicitor General Verrilli (on page 38 of the transcript):
JUSTICE ALITO: Well, in the Bob Jones [University v. United States, 461 U.S. 574 (1983)] case, the Court held that a college was not entitled to tax-exempt status if it opposed interracial marriage or interracial dating. So would the same apply to a university or college if it opposed same-sex marriage?
GENERAL VERRILLI: You know, I -- I don't think I can answer that question without knowing more specifics, but it's certainly going to be an issue. I -- I don't deny that. I don't deny that, Justice Alito. It is -- it is going to be an issue.
The possibility that the contrary to fundamental public policy limitation found by the Court in Bob Jones to be included in Internal Revenue Code section 501(c)(3) might prohibit 501(c)(3) organizations from engaging in discrimination based on sexual orientation had been raised before this argument, including by fellow blogger Nicholas Mikay (Creighton) in a 2007 article (where he concluded a statutory amendment prohibiting discrimination would provide a stronger legal basis for such a prohibition). This exchange highlights the fact that how the Supreme Court decides the same-sex marriage case could have strong ripple effects for tax-exempt organizations, even though the IRS has for more than 30 years been reluctant to apply Bob Jones beyond the context of racial discrimination and even though any supporters of LGBT rights will have difficulty establishing their standing to force the IRS' hand in this area.
In another court in DC, the government found itself on the defensive as a three-judge panel expressed shock that the Justice Department would even assert that the IRS' treatment of applications for recognition of exemption under section 501(c)(3) during the 270 days before such applicants gained the right to go to court (assuming no substantive interaction with the IRS during that period) could somehow escape scrutiny under the Constitution. During oral argument (large MP3 file) before the U.S. Court of Appeals for the D.C. Circuit in case involving the application of Z Street, judges repeatedly expressed skepticism that somehow the application process was shielded from constitutional requirements, including First Amendment concerns. Additional coverage: Wall Street Journal (opinion); see also previous blog post.
Finally, the U.S. Court of Appeals for the Sixth Circuit recently upheld a preliminary injunction barring the enforcement of a local ordinance that banned outdoor, unattended donation bins. The court found that plaintiff Planet Aid (a 501(c)(3) organization) had demonstrated a strong likelihood of success on the merits of its constitutional claim under the First Amendment, finding that the ordinance was a content-based regulation of speech because it only applied to outdoor receptacles with an express message relating to charitable solicitation and giving. As such, it is subject to strict scrutiny, and the court concluded that the ordinance likely would not survive such scrutiny given the weak relationship between the ban and the city's interest in aesthetics and preventing blight and the availability of other, lesser content-neutral restrictions that could further the same interest.
Earlier this month the U.S. Court of Appeals for the Ninth Circuit upheld a lower court's denial of a preliminary injunction against the California Attorney General. The injunction would have prevented the AG from requiring the section 501(c)(3) Center for Competitive Politics (CCP) to provide an unredacted copy of its Schedule B to IRS Form 990, which schedule identifies significant donors to the group. The AG had required the filing of the schedule as a condition of the group maintaining its registration with the state as a charity eligible to solicit contributions in California.
The court, applying exacting scrutiny, rejected what it characterized as CCP's facial challenge to the disclosure requirement, concluding that CCP had failed to either allege or produce evidence that the disclosure of their identities to the AG would cause these significant donors to "experience threats, harassment, or other potentially chilling conduct." Slip. Op. at 16. While the court noted that the AG planned to keep the donors' identities confidential and so not release them to the public, it also concluded that CCP had failed to provide evidence that even public disclosure would chill the First Amendment activities of its donors, so the potential for the AG to change her policy in this regard did not salvage CCP's claim. Slip Op. at 18 n.9. Finally, the court concluded that the Internal Revenue Code section 6104, to the extent it governs the ability of the Treasury Department to make information regarding tax-exempt organizations available to state officials, did not preempt the AG's disclosure requirement.
The decision has ramifications for both the pending lawsuit by the Americans for Prosperity Foundation (APF) challenging the same requirement and for the authority of AGs more generally to demand unredacted copies of Schedule B and other donor information. APF was initially more successful than CCP in its lawsuit, obtaining a preliminary injunction blocking the application of the requirement to it, but that victory may now be in doubt given this decision relating to CCP. As for other states, the court noted in a footnote the several states that already have similar requirements, and more states may seek to gather this information if this appellate court decision stands.
Additional Coverage: LA Times.
Thursday, May 7, 2015
New York City seems to be in the news a lot this week. In a press release issued yesterday, the Carnegie Corporation of New York announced grants totaling $3.6 million in support of education and enrichment programs in the greater New York City region.
The awards form part of the foundation's 2015 Presidential Discretionary Grants program. Pursuant to that program, eighteen museums, libraries, and performing arts and science centers received grants of $200,000 each for existing programs aimed at K-12 students. Grant recipients include the American Museum of Natural History; the Asia Society; the Brooklyn Academy of Music; Carnegie Hall; Cooper Hewitt, Smithsonian Design Museum; Liberty Science Center; Lincoln Center for the Performing Arts; the Metropolitan Museum of Art; the Morgan Library & Museum; the Museum of Modern Art; the National September 11 Memorial & Museum; New Jersey Performing Arts Center; the New York Botanical Garden; the New York-Historical Society; the New York, Brooklyn, and Queens public libraries; and Studio in a School.
Commenting on the awards, Carnegie president, Vartan Gregorian, said:
New York City, one of the cultural capitals on the United States, has the largest public school system in the nation. Carnegie Corporation is proud to support the City's cultural institutions in order to enhance the curriculum of our public as well as private and parochial schools with the riches these museums, libraries, and centers possess. It speaks well of these organizations' leaders that they have developed education programs to help students overcome deficiencies in the arts and sciences that our schools can't provide due to financial factors.
Today's Philanthropy News Digest is reporting that as Africa "struggles to address the effects of climate change and an unprecedented youth bulge, the Rockefeller Foundation is working across multiple fronts to build the resilience of African economies."
Attributing the report to the Voice of America, the Digest reports that current efforts includes the $100 million Digital Jobs Africa initiative, which was launched in 2013 with the aim of boosting the information and communications technology (ICT) sector in six African countries -- Ghana, Kenya, South Africa, Nigeria, Morocco, and Egypt. Foundation president, Judith Rodin, told the VOA:
We are excited to see so much opportunity and such a growth market in the ICT sector more broadly across the continent. [There are] so many technology parks growing [and] so many companies really growing on technology-based platforms. We know that ... the continent has to focus on employing this extraordinary youth bulge that we are going to see. We think ... a critical part of shared prosperity as we go forward [means] developing growth in the ICT sector which often yields some of the better paying jobs.
Elsewhere on the continent, the foundation is working to help small farmers adapt to climate change by collaborating with local partners to capture run-off from flooding for use in irrigating fields. It is also working in partnership with the World Food Programme and has bankrolled a technology called risk metrics that can help predict an impending drought. As a final matter, the foundation is also -- again in conjunction with the World Food Programme -- creating a country-level insurance mechanism that enables countries to access resources in the immediate aftermath of a natural disaster rather than having to wait for international development assistance to arrive.
Wednesday, May 6, 2015
The Washington Post is reporting that just as business, political, and philanthropic leaders gathered in Marrakesh, Morocco, for the first Clinton Global Initiative meeting on Africa and the Middle East, Chelsea Clinton, the former President's daughter, said there is a "political dimension" to the controversy over multimillion-dollar gifts from foreign governments and corporations to her family's foundation.
Ms. Clinton, the Clinton Foundation's vice chair, said the scrutiny has intensified with the launch of her mother Hillary Clinton's White House run. She dismissed the idea, raised by some Republicans and campaign watchdog groups, that foundation donors seek to curry favor with her powerful parents.
I was wondering what all the traffic gridlock was about when I got out of LaGuardia airport early Monday afternoon and tried to make my way to Poughkeepsie. fearing the worst, I tuned in to 1010 WINS to catch the traffic report. That was when I heard it: President Obama had been at Lehman College where he had announced the creation of a nonprofit called the My Brother's Keeper Alliance. The new organization is a spinoff of a White House initiative of the same name aimed at uplifting African American and Hispanic boys from preschool through high school.
In launching the new Charity, President Obama stated that the My Brother’s Keeper Alliance will "continue the work of opening doors for young people -- all our young people -- long after I've left office."
Reporting on the launch, TheNonProfitTimes reports that the President
told the audience at Lehman that the new organization has secured $80 million from companies such as Deloitte, News Corp and American Express. The group's star-studded executive team and advisor board will include former Secretary of State Gen. Colin Powell, Sen. Cory Booker (D-N.J.), basketball stars Alonzo Mourning and Shaquille O'Neal, and former Attorney General Eric Holder, among others.
The new organization will be led by former Deloitte CEO Joe Echevarria and might serve as a vehicle through which the president can influence policy after his second term is up. Speaking to reporters, White House Press Secretary Josh Ernest stated:
While I'm not in a position to describe the specific, detailed relationship between the president and this alliance that will continue after his presidency, I can tell you that this is an issue that the president intends to continue to be focused on long after he has left the Oval Office.
Meanwhile, Broderick Johnson, chair of the White House initiative, linked the My Brother's Keeper with the unrest in Baltimore following the death of Freddie Gray. Writing on the My Brother's Keeper initiative's website, Johnson stated:
For so many of us, the My Brother's Keeper initiative is deeply personal. As a proud son of Baltimore, this week's announcement comes at a time of unique and special resonance for me. As the country reflects on our shared responsibility to ensure that opportunity reaches every young person, I urge everyone to look at their own capacity to make a difference.
The My Brother's Keeper initiative was designed to focus federal resources towards closing the opportunity gap experienced by African American and Latino males. To that end, Johnson identified almost $1 million in funds from a number of federal agencies: the departments of Education and Health and Human Services announced $750 million in Preschool Development Grants for 18 states this past December, and the Department of Labor and the National Guard have programs that will together expend $100 million to improve career prospects for minorities.
Tuesday, March 31, 2015
Earlier this month, the blog featured a piece on for-profit college conversions. Citing a recent New York Times article, the post noted that several for-profit colleges have decided to become nonprofits to escape certain governmental regulations and bad publicity. Interestingly, a third option is becoming apparent for colleges as reported in Inside Higher Education: becoming a benefit corporation. As you may know, a benefit corporation exists in the space between the for-profit and nonprofit sectors and focuses on achieving a double bottom line: profit and social impact. The first regionally accredited college to take the route of benefit corporation status is Alliant International University in California. Alliant was previously a California nonprofit accredited by the Western Association of Schools and Colleges (“WASC”). Last summer, WASC approved Alliant’s change of status. It is anticipated that other nonprofit institutions will follow suit due to the desire to participate in a new system of health sciences institutions known as Arist Education System. Arist Education System is headed up by University Ventures Fund and supported financially by Bertelsmann, the German media giant. Its purpose is to train health professionals who can work in collaborative teams, which is a new focus of a significant number of hospitals and health systems. It is envisioned that this goal will be accomplished through a focus on student outcomes, and Arist is convinced that such focus will be achieved if the social mission of universities is protected.
The benefit of the change to Alliant is that it may now solicit much needed private funding while still maintaining a public commitment to its mission and public purpose. As a California public benefit corporation, Alliant is required to remain accountable not only to board members and in terms of profit but also to the larger society and in terms of social good. In contrast to for-profit colleges that are changing to nonprofits, Alliance will actually face more regulation as a result of its change in status. As Alliant President Geoffrey Cox noted, by becoming a benefit corporation rather than a for-profit, colleges can preserve their unique missions and attract investors who are looking to leave their funds with them for the long-haul. Finally, I would add that benefit corporation status will keep accountability and transparency in the equation of measuring the performance of colleges in terms of both bottom lines.
Monday, March 30, 2015
As seen in a recent post here, the California Franchise Tax Board did not cite a reason for revoking Blue Shield’s state tax exemption. Many have speculated that its unusually large reserves and attendant issues were the main causes. Blue Shield has $4.2 billion in operating reserves, which is four times the amount Blue Cross and Blue Shield Association requires of its members. This raises two interesting questions (1) what should Blue Shield use the reserves for as a nonprofit and (2) should we penalize nonprofits for having large reserves?
According to the LA Times, public debate has centered on the call for Blue Shield to use its reserves to reduce premiums. Glenn Melnick, a healthcare economist and professor at USC, has noted that Blue Shield should aim to reduce its premiums to a level lower than that of for-profit companies. In thinking about the public purpose of nonprofits, one is perhaps disturbed if the cost of a nonprofit’s service is on par or more expensive than that of a for-profit. To reach this conclusion, one need only look to the recent actions of another big nonprofit in the same healthcare space in California. Kaiser Permanente dropped its rates this year while Blue Shield increased its rates. Albeit, as I posted in December, for-profits certainly would not mind nonprofits’ engaging in price gouging practices as they already feel threatened by the competitive or lower prices of nonprofits and are seeking legal redress. In the ideal world of consumers, Blue Shield would have lower premiums, and for-profit companies would feel increased pressure to lower the amount they charge as Melnick suggests. Instead, Blue Shield already has big plans for a large portion of its reserves, and those plans have nothing to do with passing along reduced rates to consumers. It is planning to use $1.2 billion of its reserves to acquire Care1st, a Medicaid managed-care plan.
At the same time, is it wrong for a nonprofit to have large reserves as a matter of course? A few years ago, The Chronicle of Philanthropy ran a series of posts on this topic. Rick Moyers argues against the stigmatism and penalties associated with nonprofits’ maintaining reserves. He explains that nonprofit directors and board members generally try to avoid having reserves because it makes their organization appear not to need additional funding. Given Blue Shield’s exemption loss, this issue is brought squarely into the legal arena. Historically, nonprofits have been cautioned informally against “accumulating funds that could be used for current program activities” under the US Better Business Bureau’s Wise Giving Alliance’ standards (which translates into not having reserves totaling more than three years of operating expenses). These standards are mentioned in my forthcoming article, which deals with how we can better measure the performance of charities with the end goal of establishing an efficient charitable market where donations are put to their most productive use. In terms of measuring the performance of for-profits, investors do not disfavor them if they decide against using all available funds to further their objectives. Perhaps what is underlying the uproar is that customers are not receiving a measurable benefit from Blue Shield’s decision.
Sunday, March 22, 2015
David J. Herzig (Valparaiso) and Samuel D. Brunson (Loyola Chicago) have written the Slate article Subsidized Injustice: Racist Fraternities and Sororities Should Have Their Tax-Exempt Status Revoked. Drawing on the Supreme Court's 1983 decision in Bob Jones University v. United States, they make the following suggestion:
How can the tax law operate, then, to effect structural change? It can dangle the carrot of their tax exemption in front of them while, at the same time, threatening them with its loss if they do not eliminate discriminatory behavior. We would propose that the IRS begin sending letters to all Greek organizations putting them on notice that if they discriminate, their tax-exempt status will be revoked. They can retain their tax exemption if they demonstrate that they do not discriminate based on race. This provides Greek organizations with a choice. If they are willing to comply with the norms of society, then they can enjoy the benefit of their tax exemption. If they do not wish to conform, they can explicitly signal that desire by forgoing the public subsidy implicit in being exempt from taxation.
Saturday, March 21, 2015
The Urban Institute's National Center for Charitable Statistics reported last month that its e-filing systems had been compromised by apparent hackers. The Center's website provides the following Security Alert:
Unauthorized parties have gained access to the Form 990 Online and e-Postcard Systems. If you are a user of either of these sites, we encourage you to reset your password immediately. Please click here for details and answers to Frequently Asked Questions.
e-Postcard users (if you file Form 990-N) please click here to reset your password.
Form 990 Online users click here to reset your password.
If you have not changed your password since the unauthorized access, the system will require you to change it when you log in.
According to a report in The Hill, improper access appears to have been limited to usernames, passwords, IP addresses, and other account data for nonprofits, with no evidence that the tax filings made through this system were compromised. The system does not have more sensitive data, such as Social Security numbers or credit card information, so no such data was at risk. The system is, however, used by between 600,000 and 700,000 organizations.
The Boston Globe reports that the almost 50-year old Center on Wealth and Philanthropy at Boston College will close with the retirement of its long-time director Paul Schervish and associate director John Havens. The exact closure date will depend on the pace of current research projects, but could come as early as this summer. According to the Center's website, the Center's research has focused on "the relation between economic wherewithal and philanthropy, the motivations for charitable involvement, and the underlying meaning and practice of care."
The Boston Globe reports that Gordon College's planned sale of a number of rare books in order to finance the preservation of the rest of the collection has run into a buzz saw of criticism, in part because it appears the original donor conditioned the gift on the collection remaining together. While the original gift bequest has apparently been lost, later documents indicate and the recollection of the donor's descendants confirm this condition on the gift. On its website, the College provides more details about the controversy and indicates it is still planning to go ahead with the sale. Given that the donor's heirs likely lack standing to challenge the planned sale, it remains to be seen whether the Non-Profit Organizations/Public Charities Division of the Massachusetts Attorney General's office chooses to get involved.
Thursday, March 19, 2015
The Los Angeles Times reports that a proposed plan for a for-profit company to buy six struggling nonprofit hospitals has collapsed. As detailed in the article, the buyer, Prime Healthcare Services, is blaming California Attorney General Kamala Harris for imposing "impossible" conditions on the purchase, while the AG claims the buyer previously indicated it was fine with the conditions. Those conditions on the proposed $843 million sale included requiring the buyer to keep five of the hospitals open for at least 10 years, maintaining the same level of charity care as before the purchase, and apparently numerous other requirements described in a 78-page document. Regardless of whom is to blame, the Daughters of Charity Health System that owns the hospitals is now saying "[e]very option is on the table, including bankruptcy" given that the System is losing $10 million per month. Before the deal collapsed the System filed a lawsuit against a major union and a private equity firm for allegedly interfering in the sale agreement, according to the San Francisco Business Times.
As often reported here, an increasing number of states and localities are challenging the property and other tax exemptions of nonprofits within their jurisdictions. Some of the most notable recent developments have been in Maine, where the governor's budget proposal includes a tax on "large" nonprofit organizations in the state, and Pennsylvania, where a state constitutional amendment that would shift control over the standard for exemption to the state legislature is working its way through the amendment process. Along these lines, the Stateline news project of the Pew Charitable Trusts recently published a article titled "Should Nonprofits Have to Pay Taxes?" that provides an overview of recent developments in this area. Besides discussing the the situations in Maine and Pennsylvania, it also discusses developments in Ohio, Vermont, and New York, as well as providing a chart showing the number of federally tax-exempt nonprofits in each state and their assets. Of course those assets include both assets on which the owning nonprofit does pay tax (because no available exemption applies) and also assets that are not subject to property or similar state and local taxes regardless of what type of entity owns them (e.g., investment assets).
The Los Angeles Times has just published two articles highlighting the State of California Franchise Tax Board's decision to revoke the state tax exemption previously enjoyed by Blue Shield of California seven months ago, but to only announce the fact by including the huge health insurer's legal name (California Physicians Service) in a thousand plus page document on its website listing hundreds of organizations that had also lost their exemption. Here are links to the articles:
The articles report that the revocation came after a lengthy audit, and that Blue Shield is protesting the decision. On the line are tens of millions in state taxes annually. The articles also summarize past criticisms of Blue Shield with respect to executive compensation, multi-billion dollar reserves, increasing premiums, and an alleged failure to serve the state's poorest residents. Blue Shield for its part points to capping its profits at 2% of annual revenues, hundreds of millions give to its charitable foundation over the past decade, and hundreds of millions give back to customers and consumer groups in recent years. It also has reiterated its intention to remain a California mutual benefit nonprofit corporation.