Friday, October 19, 2018
This week, the Institute for Justice sued on behalf of an Akron, Ohio, nonprofit that has established an encampment for people experiencing homelessness. (See also this New York Times article about the suit.)
The Homeless Charity and Village has been providing shelter for people without anywhere else to go for more than a year. The organization's logic is that, while camping in a tent is not ideal, an encampment is much better/safer than the likely alternatives, which is either dispersed camping or sleeping "rough." The lawsuit contends that denying the nonprofit the right to use its property in this way, under the circumstances of the case, is an irrational restriction on property rights. (Disclosure: I authored and co-signed a letter in support of the nonprofit on behalf of other local nonprofits and faculty over the summer.) The City of Akron, in contrast, argues that a campground is not an appropriate land use under its zoning code.
In an unrelated case, also filed this week, a Cincinnati church is seeking a writ of mandamus to abrogate a injunction that prohibits people from seeking or offering shelter in a tent on public or private land. (Disclosure: I am counsel of record in this case). The injunction was entered in a nuisance lawsuit brought by Hamilton County against the City of Cincinnati at the City's request. The church, which offers its land as a refuge to people experiencing homelessness, argues that the injunction was not properly issued and cannot apply to non-parties who were not part of the underlying case.
Akron and Cincinnati are certainly not the first or only cities to clash with nonprofits over their land use. Many cities use zoning laws to restrict or exclude houses of worship (often triggering RLUIPA), group homes, schools for kids with disabilities, or other service providers. Some cities establish extensive business districts that expressly exclude nonprofit uses, either because they prioritize the value that businesses provide, or are concerned about the lack of revenue that a tax-exempt use would cause to the city. Although there hasn't yet been a lot of study of local control over nonprofit service delivery, that may change as city versus nonprofit disputes spill over into the courts.
Saturday, September 29, 2018
The long-planned Single Portal for state charity registration just went live for the first two pilot states, Connecticut and Georgia. A second cohort of at least five states is expected to join them by January 2019, according to the website's FAQs. The site is operated by the Multistate Registration and Filing Portal, Inc., which is described as a section 501(c)(3) organization that is also an instrumentality of government formed by state charity officials. I assume not coincidentally, the site went live just before this year's National Association of Attorneys General/National Associate of State Charity Officials conference in Baltimore, scheduled for October 1st thru 3rd. The agenda for Monday, which is open to the public, is available here.
Friday, September 28, 2018
According to the Center for Responsive Politics, one emerging issue for both the 2018 midterm elections and the Kavanaugh confirmation battle is the flow of funds from so-called "dark money" groups - generally tax-exempt nonprofits that are not required to publicly disclose their donors. This issue has also been in the news recently because of both recent action by the IRS and a couple of significant court decisions.
In July the IRS issued Revenue Procedure 2018-38, which dropped the requirement that section 501(c) organizations report the names and addresses of substantial contributors to the IRS. This reporting had been done on Schedule B to the annual Form 990, 990-EZ, or 990-PF, with the information only available to the IRS and not subject to public disclosure (unlike the rest of Form 990/990-EZ/990-PF). This change is effective for tax years ending on or after December 31, 2018. The reporting requirement still applies to section 501(c)(3) organizations, however, as for those organizations there is a statutory requirement (found in section 6033(b)(5)) of such reporting. The stated reason for the change was:
The IRS does not need personally identifiable information of donors to be reported on Schedule B of Form 990 or Form 990-EZ in order for it to carry out its responsibilities. The requirement to report such information increases compliance costs for some private parties, consumes IRS resources in connection with the redaction of such information, and poses a risk of inadvertent disclosure of information that is not open to public inspection.
Some commentators saw a political motive in the change, however, as it relieves politically active "dark money" nonprofits from having to disclose their substantial donors to the IRS. Coverage: NPR; Politico; ProPublica. And Montana Governor Steve Bullock sued to challenge the change, asserting that Treasury failed to follow required processes under the Administrative Procedure Act. Coverage: N.Y. Times.
Supporters of donor disclosure, particularly for politically active groups, were more successful in the courtroom recently. California Attorney General Xavier Becerra successfully appealed to the Ninth Circuit the granting of as applied challenges by the Thomas More Law Center and the Koch brothers-affiliated Americans for Prosperity Foundation that had exempted the Center and APF from the state requirement to provide an unredacted copy of its Schedule B to the Attorney General's office (but not for public disclosure). The Ninth Circuit in 2015 had rejected a facial challenge to this requirement. Of course with the above change by the IRS, only section 501(c)(3) organizations (such as the Center and APF) will have Schedule Bs to submit. Coverage: ABA Journal (collecting links to coverage by major news outlets).
Possibly of even greater consequence, the U.S. District Court in the District of Columbia in CREW v. FEC vacated a longstanding FEC regulation that had permitted organizations that are not political committee but make independent expenditures (defined as expenditures to pay for communications that expressly advocate the election or defeat of a federal candidate and which are not done in coordination with any federal candidate or political party) to avoid disclosure of their significant donors to the FEC as long as the donors had not earmarked their donation to support a particular, reported independent expenditure. The court reasoned that the relevant statute instead required such disclosure if the funds provided were for the purpose of supporting independent expenditures generally. The court stayed the vacator for 45 days from the date of the decision (August 3, 2018) to give the FEC time to issue an new, interim regulations, although it is far from clear the FEC can or will do so in that time period. Attempts to obtain a further stay of the District Court's order from the Supreme Court failed, however, leaving it somewhat uncertain what rules would apply to groups making such independent expenditure in the run-up to the 2018 general election. Coverage: The Atlantic; Politico. According to Election Law expert Rick Hasen, the ruling may not have as dramatic an effect as some seem to think, however.
Monday, July 16, 2018
ABA's Business Law Section Recognizes Ellen Aprill with the 2018 Outstanding Nonprofit Academic Award
I am very pleased to share the news that Ellen Aprill has been given the Outstanding Academic Award for 2018 for distinguished academic achievement in the nonprofit section by the Nonprofit Organizations Committee of the American Bar Association's Business Law Section - although we all know that her academic achievements should be recognized well beyond just the nonprofit sector. For anyone involved in nonprofit legal issues, especially in the area of political activity and advocacy, Ellen's work is required reading. I have had the privilege of knowing Ellen from our work at the ABA before I became an academic. Now that I am part of the academy, she has always been available for the random bit of advice or for expert scholarly opinion. I personally can't imagine anyone more deserving. From the ABA announcement:
Ellen Aprill is the John E. Anderson Chair in Tax Law at Loyola Law School in Los Angeles and is the
founding director of its Tax LLM program. She has been a member of the Loyola Law School faculty since
Professor Aprill is one of the founders of the Loyola Law School Western Conference on Tax Exempt
Organizations, considered by many to be the premier nonprofit law conference on the West coast. She
has co-hosted this conference for twenty years and has been instrumental in bringing together leaders in
government, academia and the nonprofit law bar each year for this conference.
Professor Aprill has written extensively on issues of nonprofit law and is a reliable source of knowledge
both for her students and the public. Her other accomplishments include serving as a fellow of the
American College of Tax Counsel and the American Law Institute, and serving as a member of the
Executive Committee of the USC Federal Tax Institute and the Academic Advisory Board of the
Tannenwald Foundation for Excellence in Tax Scholarship. She is a former Chair of the Los Angeles
County Bar Tax Section, which has honored her with the Dana Latham Award for outstanding contribution
to the community and to the legal profession in the field of taxation.
Congratulations to Ellen and to all of the other individuals recognized by the ABA (including Greg Colvin and Eve Borenstein (among others), who many of us in this community know as well) on their honors.
See also a similar write up on our sister Tax Prof Blog.
Tuesday, July 10, 2018
I am pleased to cross post this article by the very wonderful Joan Heminway (University of Tennessee) from our sister blog, the Business Law Prof Blog, entitled "A Lawyer Helping Wounded Warriors, One House at a Time"
As a legal advisor to both for-profit and not-for-profit ventures for more than 30 years, I have had to learn about the business operations of new clients many, many times. The facts are so important in these knowledge acquisition processes (which generally take time to complete). The more experienced one is as a business lawyer, the more adept one is at getting the right facts--and analyzing the legal risks, rights, and responsibilities they represent or signal.
As a law professor, I have had many opportunities to experience joy from the work of my students. They do such amazing things! As the careers of my former students lengthen and deepen, my pride in them often exponentially increases.
With all that in mind, I bring you today a podcast featuring one of my beloved former students. She doesn't work for a law firm or a major multinational corporation. She is not a general counsel. Instead, she works for a relatively small nonprofit organization in a broad-based planning and development role.
Jump on over to the Business Law Prof Blog for the rest of the article and the link to the Podcast for a great reminder of why it is we do nonprofit work.
Saturday, July 7, 2018
The much discussed attempts by high-tax states to find a way for their residents to continue to contribute to state and local coffers without running smack into the new $10,000 limit on deducting state and local taxes (SALT) raises an important issue relating to the charitable contribution deduction - when, if ever, is a SALT reduction a return benefit that reduces or eliminates the deduction for the "charitable" contribution that triggered the SALT reduction? While the Treasury Department has expressed its disapproval of such workarounds, its task is complicated by the fact that there were more than a 100 state charitable tax credit provisions in place across 33 states before the recent federal tax legislation.
For the arguments in favor of permitting the charitable contribution deduction under these circumstances (and a list of the previously existing state charitable tax credits), see Joseph Bankman et al., State Responses to Federal Tax Reform: Charitable Tax Credits, published in Tax Notes, April 30, 2018. Here is the abstract:
This paper summarizes the current federal income tax treatment of charitable contributions where the gift entitles the donor to a state tax credit. Such credits are very common and are used by the states to encourage private donations to a wide range of activities, including natural resource preservation through conservation easements, private school tuition scholarship programs, financial aid for college-bound children from low-income households, shelters for victims of domestic violence, and numerous other state-supported programs. Under these programs, taxpayers receive tax credits for donations to governments, government-created funds, and nonprofits.
A central federal income tax question raised by these donations is whether the donor must reduce the amount of the charitable contribution deduction claimed on her federal income tax return by the value of state tax benefits generated by the gift. Under current law, expressed through both court opinions and rulings from the Internal Revenue Service, the amount of the donor’s charitable contribution deduction is not reduced by the value of state tax benefits. The effect of this "Full Deduction Rule" is that a taxpayer can reduce her state tax liability by making a charitable contribution that is deductible on her federal income tax return.
In a tax system where both charitable contributions and state/local taxes are deductible, the ability to reduce state tax liabilities via charitable contributions confers no particular federal tax advantage. However, in a tax system where charitable contributions are deductible but state/local taxes are not, it may be possible for states to provide their residents a means of preserving the effects of a state/local tax deduction, at least in part, by granting a charitable tax credit for federally deductible gifts, including gifts to the state or one of its political subdivisions. In light of recent federal legislation further limiting the deductibility of state and local taxes, states may expand their use of charitable tax credits in this manner, focusing new attention on the legal underpinnings of the Full Deduction Rule.
The Full Deduction Rule has been applied to credits that completely offset the pre-tax cost of the contribution. In most cases, however, the state credits offset less than 100% of the cost. We believe that, at least in this latter and more typical set of cases, the Full Deduction Rule represents a correct and long-standing trans-substantive principle of federal tax law. According to judicial and administrative pronouncements issued over several decades, nonrefundable state tax credits are treated as a reduction or potential reduction of the credit recipient’s state tax liability rather than as a receipt of money, property, contribution to capital, or other item of gross income. The Full Deduction Rule is also supported by a host of policy considerations, including federal respect for state initiatives and allocation of tax liabilities, and near-insuperable administrative burdens posed by alternative rules.
It is possible to devise alternatives to the Full Deduction Rule that would require donors to reduce the amount of their charitable contribution deductions by some or all of the federal, state, or local tax benefits generated by making a gift. Whether those alternatives could be accomplished administratively or would require legislation depends on the details of any such proposal. We believe that Congress is best situated to balance the many competing interests that changes to current law would necessarily implicate. We also caution Congress that a legislative override of the Full Deduction Rule would raise significant administrability concerns and would implicate important federalism values. Congress should tread carefully if it seeks to alter the Full Deduction Rule by statute.
For a contrary view, see Roger Colinvaux, Failed Charity, Taking State Tax Benefits into Account for Purposes of the Charitable Deduction, Buffalo Law Review (forthcoming). Here is the abstract:
The Tax Cuts and Jobs Act (TCJA) substantially limited the ability of individuals to deduct state and local taxes (SALT) on their federal income tax returns. Some states are advancing schemes (CILOTs) to allow taxpayers a state tax credit for contributions to a 501(c)(3) organization controlled by the state. The issue is whether CILOTs are deductible as charitable contributions on federal returns. Under a general rule of prior law – the full deduction rule – state tax benefits were ignored for purposes of the charitable deduction. If the full deduction rule is applied to CILOTs, then the SALT limitation can successfully be avoided. This article explains that after the TCJA, state tax benefits are more valuable and it no longer makes sense to ignore them for purposes of determining whether a taxpayer has made a charitable contribution. To allow a charitable deduction for payments that make a taxpayer better off would undermine a fundamental purpose of the charitable deduction: that it is meant to encourage personal sacrifice, not tax avoidance. Thus, CILOTs likely fail as charitable contributions. Further, by changing the economics of state tax benefits, Congress inadvertently has called into question the deductibility of a variety of other payments that trigger state tax benefits and that previously have been deducted as charitable contributions.
The recently enacted federal excise tax on private college and university endowments may not be the last congressional word relating to such endowments. Research relating to such endowments, including a recent Congressional Research Service report and a recent report out of the Federal Reserve Bank of Cleveland therefore may have important policy implications.
The CRS report is titled College and University Endowments: Overview and Tax Policy Options. Here is the Summary:
Colleges and universities maintain endowments to directly support their activities as institutions of higher education. Endowments are typically investment funds, but may also consist of cash or property. Current tax law benefits endowments and the accumulation of endowment assets. Generally, endowment fund earnings are exempt from federal income tax. The 2017 tax revision (P.L. 115-97), however, imposes a new 1.4% excise tax on the net investment earnings of certain college and university endowments. Taxpayers making contributions to college and university endowment funds may be able to deduct the value of their contribution from income subject to tax. The purpose of this report is to provide background information on college and university endowments, and discuss various options for changing their tax treatment.
This report uses data from the U.S. Department of Education, the National Association of College and University Business Officers (NACUBO) and Commonfund Institute, and the Internal Revenue Service to provide background information on college and university endowments. Key statistics, as discussed further within, include the following:
In 2017, college and university endowment assets were $566.8 billion. Endowment assets have been growing, in real terms, since 2009. Endowment asset values fell during the 2007-2008 financial crisis, and took several years to fully recover.
Endowment assets are concentrated, with 12% of institutions holding 75% of all endowment assets in 2017. Institutions with the largest endowments (Yale, Princeton, Harvard, and Stanford) each hold more than 4% of total endowment assets.
The average spending (payout) rate from endowments in 2017 was 4.4%. Between 1998 and 2017, average payout rates have fluctuated between 4.2% and 5.1%. In recent years, institutions with larger endowments have tended to have higher payout rates.
In 2017, endowment assets earned a rate of return of 12.2%, on average. Larger institutions tended to earn higher returns. Larger institutions also tended to have a larger share of assets invested in alternative strategies, including hedge funds and private equity.
Changing the tax treatment of college and university endowments could be used to further various policy objectives. Current-law tax treatment could be modified to increase federal revenues. The tax treatment of college and university endowments could also be changed to encourage additional spending from endowments on specific purposes (tuition assistance, for example).
Policy options discussed in this report include (1) a payout requirement, possibly similar to that imposed on private foundations, requiring a certain percentage of funds be paid out annually in support of charitable activities; (2) modifying the excise tax on endowment investment earnings; (3) a limitation on the charitable deduction for certain gifts to endowments; and (4) a change to the tax treatment of certain debt-financed investments in strategies often employed by endowments.
The Federal Reserve Bank report is authored by one the Bank's Senior Research Economists and titled simply College Endowments. Here are the first three paragraphs (footnotes omitted):
The Tax Cuts and Jobs Act (Public Law 115-97) was signed into law by President Trump on December 22, 2017. Among the law’s numerous provisions is a new 1.4 percent tax on the investment income of private colleges and universities enrolling at least 500 students and with assets of at least $500,000 per student.
Opinions on this “endowment tax” vary. Some commentators argue that it makes it more difficult for colleges and universities to fulfill their educational missions, while others feel that it rightly incentivizes them to spend endowment funds on beneficial research and teaching rather than receiving tax advantages to invest their endowments in risky assets.
No matter what the case may be, now is an opportune time to take a deeper look at college endowments. What are endowments, and what is their purpose? How have the values of endowments at US colleges fluctuated over time, and what is their distribution currently? How many colleges will be affected by the new law? I consider these questions using data on college endowments from the National Center for Education Statistics’ Integrated Postsecondary Education Data System.
Two important recent reports provide information regarding trends in charitable giving, the annual Giving USA report and a report from the American Enterprise Institute on the likely effects of the recent federal tax legislation on charitable giving.
The Giving USA 2018 report shows continued growth in charitable giving, by 5.2 percent (3.0 percent adjusted for inflation) over 2016 to an estimated $410.02 billion in 2017. Individuals continue to provide most of the giving (70 percent), although foundation giving has increased by an annualized average of 7.6 percent over the past five years. Religious organizations continue to receive the largest proportion (31 percent) of giving among types of charities. These numbers mask at least two interesting trends, however. One is the well-known growth in donor-advised funds (see, e.g., this Atlantic article and this ThinkAdvisor article, both gathering data about such growth). The other is a decline in the number of donors, even as the total amount of donations has increased, as documented in data collected by the Indiana University's Lilly School of Philanthropy showing that from 2000 to 2014 the share of Americans donating dropped from 66.2 percent to 55.5 percent. See Chronicle of Philanthropy article.
The Giving USA report almost certainly does not reflect much impact from the recent federal tax legislation, given its passage in December 2017, but the AEI report fills that gap by trying to predict how the legislation as enacted will affect charitable giving. It concludes that the tax law changes will reduce charitable giving by 4.0 percent or $17.2 billion in 2018 under a static model and by $16.3 billion if the changes also provide a modest boost to growth. Four-fifths of this effect is driven by the increased number of taxpayers who will claim the enhanced standard deduction and so will no longer benefit from the itemized charitable contribution deduction.
Friday, July 6, 2018
The news cycle may have moved on from the New York Attorney General's lengthy Petition against the Donald J. Trump Foundation and Donald, Donald Jr., Invanka, and Eric Trump, but the legal cycle continues. It is therefore worth considering what is the most important question that Petition raises - did now President Trump break any criminal laws through his Foundation?
First, a mea culpa is owed. When I first, very quickly (and in the Newark airport on my smart phone, which is not a great way to review legal documents), read the Petition and related materials, I missed the not-so-subtle hints that the AG included suggesting that the answer to this question is yes. As way of explanation but not excuse, this was in part because I did not then know that she generally lacka authority to bring criminal charges herself. But more importantly, in my quick read I missed both the occasional "willful" or "willful and knowing" language - particularly with respect to the alleged use of the Foundation to benefit his campaign - and, most damning, the copying of officials at the U.S. Department of Justice Criminal Division's Public Integrity Section on the FEC referral letter. So I apologize for anyone I talked to in the hours after the petition became public for not catching those hints.
But of course the fact that New York AG thinks they may have been one or more violations of criminal law does not necessarily make it so, even assuming the accuracy of the facts she alleges. There has already been a debate among tax scholars regarding whether those facts justify referral for a criminal investigation by the IRS - see Phil Hackney in the NY Times (yes) and Brian Galle in Medium (maybe, but probably not). I lean more toward Brian's side of this debate, with the kicker being that all of the funds distributed by the Foundation went to charities even if those contributions actually benefitted Mr. Trump, his business interests, or his campaign (with the exception of one $25,000 political organization donation in 2013, which plausibly was an inadvertent error and the false reporting of which could not be pinned on Mr. Trump by the AG). People who have been prosecuted (successfully) for using charitable assets for their own benefit, including former Representatives Corrinne Brown, Chakah Fatah, and Steve Stockman, have usually actually spent charitable funds on personal expenses or given it to their businesses or campaigns. And criminal prosecutions for false statements on annual information returns (the Form 990, or here the Form 990-PF) have tended to focus on not reporting material support for terrorist organizations and similar matters.
As the AG's copying of the DOJ Criminal Division indicates, the alleged illegal in-kind donation by the Foundation to the Trump campaign in violation of federal election law is probably the more likely candidate for a criminal charge. But election law experts contacted by N.Y. Times reporter Kenneth Vogel could not agree on whether any federal investigators would pursue such a charge, even assuming impartial consideration by career DOJ attorneys. And as noted in that article, ignorance might be a good defense here, "willful and knowing" language notwithstanding.
Perhaps the most intriguing suggestion to date is the one by David Cay Johnston in the N.Y. Times two days ago. He suggested that either the bringing of criminal charges - state or federal - or even civil tax charges - again, state or federal - against Mr. Trump, including ones based on the NY AG's allegations, could force the public disclosure of Mr. Trump's personal income tax returns (remember those?). Given the range of government officials who could pursue some such charges, it will be interesting to see if any of them take up this suggestion.
Thursday, July 5, 2018
States Continue to Chip Away at Donor Anonymity for Politically Active Nonprofits (Missouri and Washington)
With the nonprofit created by now former Governor Eric Greitens very much in the news, the Missouri Ethics Commission (MEC) issued an advisory opinion clarifying that nonprofits are considered "committees" and so subject to registration and public reporting of donor requirements under Missouri law if they receive more than a nominal amount for the primary or incidental purpose of influencing or attempting to influence voters with respect to an election to public office or a ballot measure. Perhaps as importantly, the MEC's opinion also notes that the use of a nonprofit to attempt to conceal the actual source of a contribution to a candidate committee or other (political) committee is prohibited. See also St. Louis Post-Dispatch.
In Washington, the legislature passed and the governor signed the DISCLOSE Act of 2018. The legislation, which will not be effective until January 1, 2019, creates a new category of entities required to register and publicly report their significant donors known as "incidental committees." Such committees are any nonprofit organization that is not a political committee but that makes political contributions or expenditures above a $25,000 annual threshold directly or indirectly through a political committee. The donor disclosure provision only applies to the top ten donors in a calendar year who give, in the aggregate $10,000 or more.
For example, Nebraska's Attorney General just released a detailed report and filed a consent judgment against Goodwill Industries, Inc. and Goodwill Speciality Services, Inc. in Omaha. The report explains how the AG's investigation, triggered by a series of newspaper articles, found that the two organizations had shifted away from their nonprofit mission toward retail sales, paid excessive executive compensation, and had boards that failed to provide appropriate oversight (while also concluding that transactions with board member affiliated companies were fair to the nonprofits). The consent judgment commits the nonprofits, now under new leadership, to a variety of remedial actions including adopting new governance policies relating to conflicts of interest and nepotism, ending certain business relationships and practices, and making a variety of other governance changes. For additional information, see Press Release; Omaha World-Herald.
Taking a broader look at charity oversight, Seven Days in Vermont reports that while that state only has a single assistant attorney general to oversee the more than 6,000 tax-exempt nonprofits in that state, neighboring New Hampshire has a staff of eight to oversee its 10,000 nonprofits. The report also contrasts the differing filing and governance requirements of the two states, with New Hampshire requiring registration, annual financial reports, and the adoption of a conflict of interest policy, while Vermont does not impose any of these requirements. The report suggests that delays in investigating reported problems with certain charities in Vermont may be attributable to this lack of requirements and staff. Hat tip: Nonprofit Quarterly.
Finally and probably not surprisingly, New York has been particularly active in recent months. I will get to the Donald J. Trump Foundation in a separate post, but even setting aside that high-profile case there has been a lot of activity. This includes a settlement with a trustee of the Richenthal Foundation that included $550,000 in restitution and a permanent bar on serving in any fiduciary position with a nonprofit operating in New York, a settlement with the Wounded Warriors Foundation of Orange County relating to fake raffles that required the charity to immediately dissolve and pay $4,200 in restitution, and a lawsuit against the accounting firm that audited a sham cancer charity that was shut down a year ago.
Thursday, May 3, 2018
While much public and governmental attention has been paid to colleges and universities with growing endowments (and increasing tuition costs) and to for-profit schools, another important trend that has received less attention recently is the expansion into online education by nonprofit institutions. Perhaps surprisingly, the biggest player in this area is Liberty University, which has more online students than any other nonprofit at up to 95,000 students annually, second only to the for-profit University of Phoenix. Its online activities are the focus of a detailed N.Y. Times Magazine article. The article is too lengthy to summarize completely here, but suffice to say it raises questions about student recruiting methods, admissions standards, and the quality of the online education provided, among other issues. For the response of the University's President, Jerry Falwell Jr., to these and other points from the story, see this Townhall Opinion piece.
The Nathan Cummings Foundation recently announced that it will move 100 percent of its nearly half-billion dollar endowment into investments that align with its stated mission, which is:
The Nathan Cummings Foundation is rooted in the Jewish tradition and committed to democratic values and social justice, including fairness, diversity, and community. We seek to build a socially and economically just society that values nature and protects the ecological balance for future generations; promotes humane health care; and fosters arts and culture that enriches communities.
The Foundation's approach to grantmaking embodies some basic themes in all of its programs:
- concern for the poor, disadvantaged, and underserved;
- respect for diversity;
- promotion of understanding across cultures;
- and empowerment of communities in need.
This move expands upon the Foundation's previous, more limited impact investing, and shareholder activism. The Foundation plans to provide an update on this effort by the end of 2018.
George Mason University, a state university, is struggling to address a controversy that has erupted over the influence that sizeable donations to its affiliated foundation by the Charles Koch Foundation and others may have given over academic decisions. According to a Washington Post report, a student group, Transparent GMU, has sued in state court seeking access to agreements between the foundation and these donors, arguing that they are covered by Virginia's open records laws. While the group filed the lawsuit over a year ago, it appears to only have received limited coverage (see, e.g., Huffington Post, Fairfax Times) before a recent court hearing.
The Charles Koch Foundation donations at issue include $10 million gift relating to the renaming of the law school for deceased Supreme Court Justice Antonin Scalia and $5 million gift to the economics department to create three new faculty positions. According to a follow-up Washington Post story, the University's president has now stated that some gift agreements "fall short of the standards of academic independence." For example, some of the agreements included terms granting donors a right participate in faculty selection and evaluation for some economics department positions. While the lawsuit is proceeding, the University has already released some of the agreements at issue and, according to a N.Y. Times story, launched an internal inquiry. The University has also noted that those agreements, with one exception, have expired.
The University of Chicago, a private university, is facing a different but related situation. Thomas L. Pearson and twin brother Timothy R. Pearson pledged to give $100 million to the University through their family foundation to create a research institute to advance the cause of world peace. As reported by Bloomberg and student newspaper The Chicago Maroon, the foundation has now filed a lawsuit in federal court (U.S. District Court, Northern District of Oklahoma) alleging numerous breaches of the grant agreement by the University and demanding the return of the $22.9 million it has paid so far. The University is seeking to dismiss the suit, according to a Chicago Tribune report, asserting that the foundation cannot prove that it violated any of the grant agreement's terms. Additional coverage: The Chronicle of Philanthropy (subscription required); The Nonprofit Times.
While these two stories are the most prominent recent ones, there have been recent developments in two other major disputes with donors. The Legal Intelligencer (law.com) reports that last month a federal judge in Pennsylvania ruled that Foremost Industries had to fulfill its $4 million pledge to Appalachian Bible College. The College had sued to enforce its gift agreement with the company, and the court considered the College's motion for summary judgment unopposed after the company failed to file its opposition brief by the deadline set by the court. The company is now closed, which may indicate that it will be difficult for the College to collect on its judgment.
And the The Inquirer (Philadelphia) reports that the Abington School District board of directors has voted to accept a $25 million gift from billionaire Stephen Schwarzman, after rejecting an earlier gift agreement with the donor after gift stirred local controversy because of concerns about its terms and the structure of the nonprofit the board is creating to administer the donation. The controversy erupted when the board initially voted to accept the gift and its then terms, including renaming the high school for the donor, without almost no advance warning to the public and without making the gift agreement public.
The National Association of State Charity Officials (NASCO), the Multistate Registration and Filing Portal, Inc. (MRFP), GuideStar, and CityBase (a technology firm) have announced that they are moving ahead with a longstanding plan to develop a single, online portal for charities to use to satisfy the registration and reporting requirements they face in most states. The data collected will not only be available to state regulators, but also (with private information removed) to researchers, policy makers, and the public through GuideStar. CityBase and GuideStar plan to launch an initial prototype this summer, with registration for a few states, with a full launch planned for later in 2018. The hope is to eventually make the portal work for registrations in all 39 states that currently require charities and professional fundraisers to register before raising funds in those states.
Wednesday, May 2, 2018
California: AG Rejects Requests to Reduce Hospital Charity Care Obligations, Targets Overvaluation of Pharmaceutical Donations
California Attorney General Xavier Becerra's office recently addressed two different types of activities relating to charities: the charity care obligations of certain California hospitals, and the valuation of pharmaceutical donations to certain charities.
The charity care issue arose when three California hospitals asked for permission to reduce their existing obligations to provide charity care under agreements entered into with the AG's office when they were participants in a merger or acquisition. The requests were based on changes in the healthcare market, particularly in light of Obamacare. Two of the hospitals are former nonprofit entities that for-profits purchased and now own. Emanuel Medical Center's $3,312,360 charity care obligation (for fiscal year 2016) arose out of a 2014 agreement with the AG relating to its purchase by Doctors Medical Center of Modesto, Inc. See its denial letter. The Mission Community Hospital's $2,424,236 charity care obligation (for fiscal year 2016) arose out of a 2010 agreement with the AG relating to its purchase by Deanco Healthcare LLC. See its denial letter. More details regarding the requests and the AG's consideration of them can be found in reports prepared for the AG's office relating to each request. See EMC Report; MCH Report.
The third hospital is the nonprofit USC Verdugo Hills Hospital, which had a $2,073,564 charity care obligation (for fiscal year 2017) arising out of a 2013 agreement with the AG relating to its purchase by a limited liability company wholly owned by the University of Southern California. See its denial letter. Its situation underlines the fact that such agreements do not only apply to acquisitions by for-profit entities. For more details, see the report prepared for the AG's office.
To make up for missing their required charity care obligations in the fiscal year listed for each of them, the AG is requiring each hospital to make donations to local nonprofits that provide health care services.
The pharmaceutical valuation issue relates to cease and desist orders sent by the AG to three charities: Catholic Medical Mission; Food for the Poor; and MAP International. For each charity, the order alleges that the charity reported inaccurately high valuations for contributed pharmaceuticals, leading both to overstating program to administration/fundraising expense ratios in charitable solicitation materials and, for the latter two charities, inaccurate statements in their federal tax (Form 990) and California (Form RRF-1) filings. The orders direct all three charities to stop including such ratios in their solicitations to California donors, threaten revocation of their charity registration in California, and assess hundreds of thousands of dollars in penalties. A fourth charity, the National Cancer Coalition, dissolved after the AG sought a permanent injunction based on similar issues, according to a report from The Nonprofit Times. The same report notes that the first three charities have issued statements contesting the AG's allegations.
UPDATE: The St. Louis Post-Dispatch reports that a Missouri House committee issued a report on May 2nd relating to the donor list, including evidence that Governor Greitens had signed a confidentiality agreement with Mission Continues, that the Governor had obtained the donor list himself in May 2014, and that the settlement of an ethics complaint relating to the list contained falsehoods. And in a new development, the St. Louis Post-Dispatch also reports that Washington University in St. Louis is investigating whether Governor Greitens misused grant funds received from the University by using a portion of them to compensate a campaign aide.
The Kansas City Star reports that embattled Missouri Governor Eric Greitens has been charged with felony computer tampering, which the newspaper characterizes as "essentially electronic theft," in connection with his campaign obtaining a donor list that belonged to Mission Continues. Mission Continues is a charity founded by Greitens in 2007. Greitens initially denied reports that his campaign had used the donor list to solicit contributions, but later admitted in a consent decree that the list was given to his campaign in March 2015 by his campaign manager. Emails discovered by the St. Louis-Dispatch indicate that Greitens' former assistant had sent the list to the campaign manager and another campaign staff member two months earlier. Greitens released a statement refuting the charges.
Here is the text of the Probable Cause Statement:
DATE: April 20, 2018
I, Anthony Box, knowing that false statements on this form are punishable by law, state that the facts contained herein are true.
1. I have probable cause to believe that Eric Greitens, a WHITE MALE DOB: 4/XX/74 Age: 44, committed one or more criminal offense(s).
Count 1 Tampering With Computer Data To Defraud Or Obtain Property (value $500 Or More) (Class D Felony) RSMO 569.095 ON 4/22/2015 Time: PLACE: City of St. Louis, MO (SCC 569.095-001Y200229)
Or, in the alternative to Count I:
Count 2 Tampering With Computer Data To Defraud Or Obtain Property (value $500 Or More) (Class D Felony) RSMO 569.095 ON 4/22/2015 Time: PLACE: City of St. Louis, MO (SCC 569.095-001Y200229)
2. The facts supporting this belief are as follows:
I learned through an investigation that the defendant, acting with others, took and used data specifically owned by the Mission Continues for the purpose of soliciting funds for his political campaign.
At the direction of the defendant, on April 22, 2015, K.T. disclosed data, specifically a donor list owned by The Mission Continues, to a political fundraiser (the “Fundraiser”) working on behalf of Greitens for Missouri. The defendant directed this disclosure. The President of The Mission Continues explained neither the defendant nor K.T. had permission from The Mission Continues to disclose the donor list to the Fundraiser or to use the donor list for political purposes. The Mission Continues employee handbook and the non-disclosure agreements prohibited the disclosure of the donor list and the retenhat tion of it by anyone not employed by and working on behalf of The Mission Continues. The Mission Continues conflict of interest agreement signed by board members prohibited the personal use of The Mission Continues assets, including the donor list.
The defendant and K.T. knew that the donor list disclosed on April 22, 2015, was taken without the permission of The Mission Continues. The defendant was aware that K.T. retained or used the list without the permission or consent of The Mission Continues and the defendant directed K.T. to send the donor list in an April 22, 2015 email to the Fundraiser.
At the time of the April 22, 2015 disclosure of the donor list, the donor list resided and existed internal to a computer or computer system used by K.T. for the purpose of conducting business on behalf of The Greitens Group and/or Greitens for Missouri, as well as a computer or computer system belonging to the Mission Continues. The defendant and K.T. disclosed the donor list to the Fundraiser for the purpose of obtaining property of five hundred dollars or more.
New York Attorney General Eric T. Schneiderman's Charities Bureau has been busy. Two recent activities are of particular note:
- Charitable Solicitation: Following up on its 2016 closure of a sham veterans charity, the AG's office announced a settlement that closed the charity's telemarketing company, Menacola Marketing, Inc. In the settlement agreement, the company agreed its solicitations on behalf of the veterans charity contained "numerous material misrepresentations," that the company had ignored several "red flags" regarding the professional fundraiser who facilitated its work for the charity, and had "repeatedly made misrepresentations" in filings with the Charities Bureau.
- Fiduciary Duties: Completing its investigation of Yisroel Schulman, the former President and Attorney-in-Charge of the New York Legal Assistance Group, Inc. (NYLAG), the AG's office announced a settlement in which Mr. Schulman admitted violating his fiduciary duties of loyalty, care, and obedience, admitted breaching his duties under the New York version of the Uniform Prudent Management of Institutional Funds Act, agreed to a five-year ban on future service as a director or officer of a nonprofit operating in New York, and agreed to pay $150,000 to NYLAG. In the settlement agreement, Mr. Schulman admitted this his recommendation to NYLAG's Board that it transfer NYLAG's multi-million dollar reserve fund to a donor advised fund at charity FJC was "neither prudent nor consistent with [his] duty to ensure that NYLAG's assets were administered for its benefit," in large part because that transfer surrendered NYLAG's legal ownership and control over those funds. Mr. Schulman also admitted that he also violated his fiduciary duty to safeguard NYLAG's assets when he "lost track" of another account that had received NYLAG charitable funds totalling approximately $600,000. The agreement also provides extensive detail about the a variety of misrepresentations relating to these NYLAG's funds and misuse of NYLAG's funds, including for the personal benefit of Mr. Schulman.
Monday, February 26, 2018
Merryn Somerset Webb penned an op-ed in The Financial Times entitled The charitable giving model is an undemocratic use of funds. Focused on the UK, the piece proposes that "99 per cent of the organisations with charitable status in the UK should have it removed." Instead, tax subsidies would apply to a limited number of official charities that would be tightly regulated. Read the entire piece at: https://www.ft.com/content/1093fcec-187a-11e8-9376-4a6390addb44
Sunday, February 25, 2018
On Friday, the New York Times Editorial Board penned an opinion piece entitled, "When Charity Workers Turn Predatory." It concludes:
the Oxfam scandal has sounded an alarm across the entire nongovernmental aid profession that it must heed if it is to retain the public trust on which it depends. There must be zero tolerance for misuse of power by staff members in the field and swift and transparent action against any appearance of abuse.
Read the entire thing (paywall) at: https://www.nytimes.com/2018/02/23/opinion/when-charity-workers-turn-predatory.html