Tuesday, May 24, 2016

Cyber-Attacks and Risk Allocation

A compelling article from the ABA’s Business Law Today on the risk of loss to client bank accounts from cyber-theft highlights the dangers faced by all bank account holders across the United States, including non-profits. In a technology driven economy, while efficiency is promoted through instantaneous transfers, a door has opened for a new type of cyber-crime.

This article explores some of the inconsistent and unpredictable case law that has developed over who should bear the risk of loss from a cyber-attack, the bank or the customer. Loose standards of “commercial reasonableness” lead to a wide range of possible interpretations. For example, the same banking practice was “reasonable” for one bank, but “unreasonable” for another.

This issue is particularly important for non-profits, who would likely be forced to close their doors if they were to bear the consequences of a large cyber-attack, leaving them without the necessary funds to continue operation.  

The article concludes with some practical advice on how an organization should assess their banking needs and what type of protection is best for their own needs.

David Brennen

May 24, 2016 in Current Affairs, Publications – Articles, Web/Tech | Permalink | Comments (0)

Overtime Pay Regulations Impacting Non-Profits

The new overtime regulations taking place on Dec. 1, 2016, will certainly effect labor decisions across the country. For the first time in twelve years, the threshold amount to determine if salaried workers are exempt from overtime pay will be raised from $23,660 per year, to $47,476 per year. Generally, an employer paid a salary under the new threshold will be required to be compensated for overtime worked, unless an exemption applies. In order to qualify for the new overtime payment rules, an employee must work for a covered enterprise, or be a particular worker who is covered.

If a non-profit meets the “enterprise coverage test,” all employees working for the organization are covered by the new regulations (unless an exemption applies). To be considered a covered enterprise, “an entity must have annual revenues, that is, volume of sales made or business done, of at least $500,000.” However, non-profits are not considered covered enterprises unless they engage in “ordinary commercial activities that result in sales made or business done” that exceeds $500,000. Ordinary commercial activities are those normally associated with operating a business, such as selling products or services. Charitable activities, however, such as providing food, shelter, or clothing, generally are not ordinary commercial activities.

To determine if a non-profit is a covered enterprise, only business purpose activities are considered. Income used to further the non-profit’s charitable activities is not factored into the $500,000 (e.g., membership fees and donations). Organizations can engage in both charitable acts, as well as business activities, and such organizations could potentially qualify as a covered enterprise.

Finally, the new regulations will automatically apply to some entities unless there is a specific exception. These entities include: “hospitals; institutions primarily engaged in the care of older adults and people with disabilities who reside on the premises; schools for children who are mentally or physically disabled or gifted; federal, state, and local governments; and preschools, elementary and secondary schools, and institutions of higher education.”

These regulations will certainly impact the way in which non-profits decide how to earn and spend revenue, attempting to have as much revenue as possible further its charitable activities to keep them below the $500,000 threshold. One thing is for sure, volunteers and donations will be crucial to a non-profits’ success.

For a detailed look at individual exemptions, please see the provided link.

David Brennen

May 24, 2016 in Current Affairs, In the News | Permalink | Comments (0)

Monday, May 23, 2016

Balancing Competing Policy Interests in Determining Tax Status

A recent article on proposed Delaware legislation highlights the complexities and competing objectives lawmakers face when deciding if a nonprofit should be exempt from paying local property taxes. Here, the decision is whether or not to add the Milford Housing Development Corporation, EJB Inc., and Martha and Mary’s Place Inc., to the current list of 76 nonprofits in Delaware that currently enjoy being exempt from local property tax. These entities provide housing and/or drug treatment services to community members in need. While these organizations undoubtedly provide essential public services, granting these entities tax exempt status can have negative effects on other public services.

For example, the Milford Housing Development Corporation paid almost $30,000 in property taxes last year. To further add to the conundrum, almost all of those funds were appropriated to a local school district. In times of financial hardship, policy makers are faced with tough decisions and must balance different objectives in deciding where tax revenue should come from, and what that revenue should benefit. A thorough cost-benefit analysis must be undertaken to determine the full reach of granting an entity tax-exempt states, including both positive and negative effects. Granting an entity tax-exempt status, or deciding to appropriate tax funds to a particular area, almost inevitably means that another worthy entity will bear the cost.

Some municipalities try to alleviate this burden by requiring those entities that are designated tax-exempt to pay set fees to contribute back to the greater good. However, this can hinder the accomplishment of the entity’s purpose and cause due to a lack of funds.

Ultimately, it would take an army of professionals to make a “perfect” decision on who should be granted tax-exempt status, and who should bear the cost of that status. Even then, by the time a thorough analysis has been undertaken, the state or municipality will likely be facing different needs as a community. Policy makers must employ great foresight in making these tough appropriation decisions.


David Brennen

May 23, 2016 in Current Affairs, In the News, State – Legislative | Permalink | Comments (0)

Sunday, May 22, 2016

Exam Alternatives

The spring semester is over, but Facebook tells me that plenty of law professors are still grading exams. It's no secret that grading is not the most popular part of the job, at least in part because traditional issue-spotters can get ... a little tedious after reading 30 or more. Not to mention the less than stellar prose typically produced by law students rushing to cram as much of their outline as possible into a three-hour exam. But I'd like to share an alternative approach to the end of semester exam that I used this past semester in my Nonprofit Organizations class, as well as my other classes.

After teaching law for several years, I began to notice that many law students had remarkably few opportunities to practice formal legal writing. In fact, when I asked one class of about 35 2Ls and 3Ls how many had written a memo or brief since their 1L year, only a few raised their hands. Of course, the writing requirement for graduation means that they all have to produce some form of long-form legal writing before graduating. But for most, that means a research paper, a form of legal writing they are unlikely to produce in practice. Writing memos and briefs is an important skill, and a skill that students can only develop with practice, but most get very little.

So, rather than write a traditional 3-hour issue spotter exam, I wrote three questions based on real-world events - i.e. news stories, real organizations, or pending litigation - and asked the students to provide a 1000-word memo answering each one, from the perspective of a law clerk or junior associate. The exam was open-universe, and I encouraged them to do research, talk to the research librarians, talk to each other - anything a real law clerk or junior associate could do. The students had 3+ weeks to write their memos and were told that they would be graded on the basis of how helpful and useful their memos would be to a real partner or judge. 

I've found that this approach to the exam has several benefits. As noted above, it forces students to practice critical legal research and writing skills. In addition, it also provides them with an additional writing sample that they can use when applying for jobs, at least if they put a meaningful effort into writing it. During the semester, it (hopefully) encourages students to approach the class more holistically and focus on ideas, rather than trying to cram every doctrine point into their notes. And - in my experience anyway - it rewards creativity and critical thinking.

It also has a lot of benefits on my end. The exams are much more varied and interesting to read, because different students take different approaches to answering the questions. Because the questions are based on the real world, there isn't one right answer and one wrong answer, but more and less helpful ways of answering the question. In a pleasant surprise, students routinely turn up facts, cases, and ideas that I didn't know about or hadn't considered. And the varying levels of effort and skill make the (unfortunately) mandatory curve typically easy to maintain.

I suspect that this approach to exams wouldn't work for all classes or teaching styles. But I have found it very effective, and many students have mentioned - with some surprise - how much they enjoyed taking the exam.

Brian L. Frye

May 22, 2016 | Permalink | Comments (0)

Saturday, May 21, 2016

Arts Funding & "Private Benefit"

In a recent post to this blog, Lloyd Mayer reported on allegations that the Clinton Foundation improperly provided a "private benefit" to a for-profit company, and found them wanting. Among other things, Mayer noted that the Clinton Foundation did not provide a substantial benefit to the for-profit, and that its actions were consistent with its charitable purpose.

As a follow-up to Mayer's post, I'd like to direct your attention to a story that recently came to my attention, which raises similar concerns. On June 22, 2014, the Greensboro, NC News & Record reported that it had formed an agreement with ArtsGreensboro, a charity that supports the Greensboro art community, to publish at least 70 stories about local arts topics during the following year, in exchange for an unspecified sum. According to the News & Record, it would not have published any (!) stories about arts topics without the agreement. In addition, the News & Record specified that it would retain absolute editorial independence and would not receive any "taxpayer money" from ArtsGreensboro.

For its part, ArtsGreensboro described the agreement as "an innovative agreement similar to the underwriting model for public broadcasting." Which is true, except for the detail that public broadcasters are charities, but the News & Record is a business. While charities like ArtsGreensboro can make grants to other charities without implicating the "private benefit" prohibition, making a grant to a business is a much closer question.

Contemporary concerns about the agreement understandably were largely directed to the editorial independence of the newspaper. But I wonder about the "private benefit" prohibition as well. While neither the News & Record nor ArtsGreensboro reported the amount of money at stake, others have pegged the sum at $15,000. While not extravagant, it is certainly "substantial." Of course, ArtsGreensboro can legitimately argue that its grant was consistent with its charitable purpose of promoting local artists and arts organizations. Arts charities routinely make grants to individuals and businesses in order to enable them to produce artistic works. And promoting the distribution of art journalism and criticism could fairly be characterized as a legitimate purpose for a charitable organization (see the Warhol Foundation). Nevertheless, it seems odd for charitable organization to pay a business to do what it should do anyway.

Brian L. Frye

May 21, 2016 | Permalink | Comments (0)

Wednesday, May 18, 2016

Does it Violate Free Speech to Require Charities to Link to a Government Website?

Warning sign LuongThe California Legislature is currently considering a bill (AB 2855) that would mandate that all nonprofits who are soliciting donations in California to "include a prominent link [on their website] that immediately directs all consumers to the Attorney General’s Internet Web site, which contains information about consumer rights and protections and charity research resources."  The bill as initially proposed would have required soliciting charities to prominently disclose the amount of money that the organization spent on overhead and on the executive director's salary and benefits. 

The bill has been sharply criticized by many nonprofits, including the California Association of Nonprofits and the National Council on Nonprofits, who argue that the bill essentially attaches a "warning label" to all organizations that would scare off donors.  The Bill's sponsor, Assemblymemeber Jim Frazier, defended the bill as a needed tool to protect worthy organizations from the "shadow cast upon them by bad actors." (In something of a jab at critics, Assemblymember Frazier paused to highlight that the "president, executive director, and chief operating officer [of the California Association of Nonprofits] made over $600,000 combined in salary and benefits.").  Other critical commentary on the bill comes from Carol Luong (Great Positive) and Gene Takagi (NEO Law Group / Nonprofit Law Blog).

Some of the critics have argued that the bill would raise a First Amendment objection by compelling speech (i.e., including a link to the Attorney General's website on the organization's webpage and in solicitation materials).  In Riley v. National Federation of the Blind of North Carolina, Inc., 487 U.S. 781, 795 (1988), the Supreme Court struck down a state mandate that professional solicitors disclose, as part of their solicitation, the percentage of funds turned over to the nonprofit.  The Court reasoned that this disclosure would necessarily change the content of the message, and the disclosure would have the anticipated and intended effect of making solicitation on behalf of certain causes less effective.

Although the criticisms have some weight as a policy matter, the California bill is arguably distinguishable from the law struck down in Riley in several respects. Most significantly, the California bill would require only a link to a website, and not the direct disclosure of any particular substantive statement or content in the course of solicitation.  See Riley's footnote 11.  This makes the compelled speech more akin to a mandate to disclose the phone number of a regulatory body or to display a license. See Dayton Area Visually Impaired Persons, Inc. v. Fisher, 70 F.3d 1474, 1485 (6th Cir. 1995) (upholding limited point-of solicitation disclosures).  Such mandates are common in the commercial & professional speech realm, although their application to charitable solicitation is much less certain.  (There are lots of unsettled issues in the regulation of charitable solicitation. In fact, we recently filed a successful First Amendment challenge to a set of local restrictions on charitable solicitation, including a licensing requirement.)  

 Riley and its related cases recognize a distrust of government restrictions sprung from a history of government (typically with the support of established nonprofits) creating barriers to charitable speech in order to burden disfavored causes.  Yet the Supreme Court has also recognized the legitimate objective of providing accurate information to facilitate well-informed decisions by donors.  Striking this balance is no easy matter, as Assemblymember Frazier is learning the hard way.

(Hat-tip and image credit go to Carol Luong, Great Positive)


May 18, 2016 in Current Affairs, State – Legislative | Permalink | Comments (0)

Saturday, May 14, 2016

The Clinton Foundation Provided "Private Benefit" - Or Did It?

Clinton foundationThe Wall Street Journal reports that the Bill, Hillary & Chelsea Clinton Foundation may have violated federal tax law by facilitating investment in the for-profit company Energy Pioneer Solutions Inc. According to the article, the Clinton Foundation claimed in September 2010 that it helped arrange a $2 million commitment from a private individual to the then new business. It also notes that some of the owners of the business have either Democratic political ties or, in one case, is a close friend of former President Bill Clinton. What the article fails to do, however, is explain in any detail how this situation constitutes "private benefit" in legal sense. This failure creates a false impression regarding what that term actually means and how it applies to the Clinton Foundation in this situation.

It should be noted initially that the Clinton Foundation, despite its name, is not a "private foundation" for federal tax purposes and therefore is not subject to the more restrictive rules applicable to private foundations. It is not a private foundation for the simple reason that it receives financial support from a broad range of sources. It is therefore only subject, like other public charities, to the relatively vague prohibitions against private inurement and private benefit.

The Wall Street Journal article correctly does not invoke the private inurement prohibition. That prohibition only applies to benefits provided to insiders of a charity. Nothing in the story indicates that was the case here, as the only party that benefitted was Energy Pioneer Solutions and its owners, none of whom were insiders of the Clinton Foundation or even family members of insiders. The article instead invokes the more amorphous private benefit limitation, that bars a charity from unduly benefitting any private party.

This is where a careful legal analysis was needed but is lacking. Based on the facts reported in the article, the situation described does not run afoul of the private benefit limitation for at least two reasons. First, the amount of benefit allegedly provided by the Clinton Foundation, as opposed to the private investors, was minimal and so does not rise to a level that constitutes a prohibited private benefit. The article does not assert that the Clinton Foundation provided any funds to Energy Pioneer Solutions, nor does it even explain what resources the Clinton Foundation expended (if any) to facilitate the investment by private individuals of their own funds in the for-profit company. Cases where the IRS has asserted a private benefit violation have usually involved a charity devoting essentially all of its efforts to benefitting a private party. For example, one often-cited case involved a charity that essentially served as a marketing arm for intellectual property owned by (and licensed from) a for-profit company (Est of Hawaii v. Commissioner, 71 T.C. 1067 (1979)). Another prominent case involved a charity that trained political campaign professionals, but only ones who then went on to work for a single political party's candidates and affiliates (American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989)).

Second, most charitable activities unavoidably provide private benefit. For example, schools provide a private benefit to all of their students as a necessary part of furthering an educational purpose.  The key issue is therefore whether any private benefit here was in furtherance of, and therefore incidental to, the charitable purpose served. The facilitated investment was in a start-up company that focused on protecting the environment through its business activities. Even more restricted private foundations are permitted to invest, whether in the form of loans or equity stakes, in for-profit business that promote charitable purposes such as environmental protection if the primary purpose of the investment is to promote a charitable purpose and production of income or appreciation of property is not a significant purpose. And private foundations are even permitted to count such "program-related investments" as charitable spending that counts toward their annual minimum payout requirement. In this instance the Clinton Foundation only facilitated an investment by private parties in a company with a mission that matched the Clinton Foundation's charitable purposes and that likely needed the assistance to further its environmental protection goals given its start-up nature. Any private benefit to the company and its owners was therefore incidental to the furtherance of the Clinton Foundation's charitable purposes by arranging this investment and so permitted legally. The fact that Energy Pioneer Solutions has struggled financially, as detailed in the article, actually demonstrates the importance of the Clinton Foundation's efforts to help this (for-profit) environmental protection effort.

Finally, it should be noted that the article makes much of the fact that at least one advisor to former President Bill Clinton objected to the Clinton Foundation publicly touting its role in facilitating this investment, and that this role was eventually removed from a public database of such facilitations maintained by the foundation. There are at least two plausible explanations for these actions, neither of which indicates any violation of federal tax law. First, and as the article itself demonstrates, touting the investment risked vague allegations that something improper had occurred even though legally nothing had. Second, it actually is not clear from the article how much of a role the Clinton Foundation actually had in facilitating the investment; touting the foundation's publicly therefore might actually have been overstating the foundation's involvement. But neither a sensitivity to public perceptions nor perhaps a little undue boasting violates the law. The bottom line is that whatever public perception concerns the investment may raise, it does not raise any federal tax concerns for the Clinton Foundation based on the reported facts.

Lloyd Mayer

May 14, 2016 in In the News | Permalink | Comments (1)

Thursday, May 12, 2016

Government v. Philanthropy: The Case of Flint, Michigan

For months now we have been bombarded with stories of the water crisis in Flint, Michigan. The press, politicians, legislators, residents of Flint, even Tax Law professors, have been expressing their opinions on who is to blame for the crisis. Some people have called for the Governor's resignation. The government -- federal and state -- eventually sprang into action by allocating funds to address the problems caused by the water crisis. Meanwhile, the people of Flint are waiting for the money to show up.

Yesterday's Christian Science Monitor brought some good news to the people of Flint: ten charitable organizations have pooled their resources to donate $125 million toward recovery efforts in Flint. Highlighting the fact that philanthropy has bested the government, the Monitor states:

Funds are about to flood into Flint, Mich. -- but they are not coming from the government.

The aid will support ongoing testing of lead levels as well as community groups, economic development, and other efforts to revive the largely black and low-income city. "This is the new normal, in terms of how philanthropy can really increase its impact and can be nimble while we wait for the state and federal government" to act, says La June Montgomery Tabron, CEO of the W.K. Kellogg Foundation, one of the participating grant makers.

The responses by the foundations give credence to what some observers see as a trend for philanthropy to step in when bureaucracy and partisanship bog down government's response in times of crisis. "It's great that we have charitable organizations that are willing to step up and try to help," said Charles Ballard, a Michigan State University economics professor. "But the only reason we're talking about this in the first place is that governments, most notably the state of Michigan, just dropped the ball in a huge way."

That's one man's opinion; what's yours?



May 12, 2016 in Current Affairs, In the News | Permalink | Comments (0)

Tuesday, May 10, 2016

Report: U.S. High School Graduation Rate Hits 82.3 Percent

Today's Philanthropy Digest is reporting that while the U.S. high school graduation rate rose to a record high 82.3 percent in 2014, the nation is not on track to reach the goal of achieving a 90 percent rate by 2020. That's according to an annual study from Civic Enterprises and the Everyone Graduates Center at John Hopkins University's School of Education.

Conducted in partnership with America's Promise Alliance and the Alliance for Excellent Education, the report from GradNation, 2016 Building a GradNation: Progress and Challenge in Raising High School Graduation Rates, found that while Iowa has achieved a 90 percent graduation rate and twenty other states are on track to do so by 2020, for the first time in four years the nation as a whole is not on track to meet the goal. According to the study, 2, 397 low-graduation-rate high schools -- defined under the Every Student Succeeds Act as those with at least a hundred students enrolled and an Adjusted Cohort Graduation Rate of 67 percent or lower -- enrolled a total of 1.2 million students nationwide, even as the number of large low-graduation-rate schools with at least three hundred students was halved from 2,000 to 1,000 between 2002 and 2014. In forty-one states, low-income students accounted for more than 40 percent of those enrolled in low-performing schools -- including twelve states where they made up more than 75 percent of the student body. African Americans and Latinos made up more than 40 percent of enrollment in low-graduation rate schools in fifteen and nine states, respectively.

The Digest continues:

The study also found that low-graduation-rate schools account for 7 percent of all district schools (and 41 percent of all low-graduation-rate schools), 30 percent of charter schools (26 percent), 57 percent of alternative schools (28 percent), and 87 percent of virtual schools (7 percent). The report recommends that policy makers set clear definitions and give graduation rates the weight they deserve in ESSA; require all states to report extended-year graduation rates in addition to four-year grad rates; create evidence-based plans to improve low-graduation-rate high schools; and ensure that alternative and virtual schools are included in state accountability and improvement systems.

"As the report points out, raising the graduation rate to 90 percent would require graduating an additional 285,000 students," said America's Promise Alliance president and CEO John Gomperts. "Putting it that way makes the goal appear that much more attainable. But to graduate this additional number of students equitably, the nation will have to focus on getting significantly more low-income students, students of color, students with disabilities, English-language learners, and homeless youth on track to earning a diploma. Persistence is key."

Needless to say, the government -- federal, state and local -- will have to allocate more tax dollars to education, to ensuring that the facilities and personnel are available to guide these students towards earning their graduation diplomas. 



May 10, 2016 in Current Affairs, In the News, Studies and Reports | Permalink | Comments (0)

Friday, May 6, 2016

Property Tax Exemption Skirmishes Spread in New Jersey and Elsewhere

Img-location-morristown-detailAs has been covered in this space repeatedly (for example, with respect to Illinois and Maine), the combination of wealthy nonprofits, valuable real estate, and government budget pressures continues to lead to battles between those nonprofits and governments over property tax exemptions. New Jersey has become perhaps the most active battleground - NorthJersey.com reported last month that 26 of the state's 62 nonprofit hospitals are now embroiled in tax-court cases, building on a 2015 Tax Court of New Jersey ruling against Morristown Medical Center.  While earlier this year New Jersey Governor Chris Christie announced an agreement to freeze property tax assessments for nonprofit hospitals for two years in order to give a to-be-formed Property Tax Exemption Study Commission time to review the issue, the legislature has yet to act on the legislation needed to implement this proposal. Additional coverage: NJ.com. The hospital battles join the ongoing lawsuit by individual residents of Princeton, N.J. against Princeton University that a state trial judge has refused to dismiss (a decision now upheld earlier this year by a state appellate court). For recent coverage of that suit, see Bloomberg and Fortune

In related news, Gerard F. Anderson (John Hopkins) and Ge Bai (Washington & Lee) just published a study reporting that seven of the ten most profitable hospitals in the United States in 2013 were nonprofits. At the same time, they found more than half of the hospitals they studied (which included for-profit and public hospitals as well as nonprofits) incurred losses from patient care services and only 2.5 percent earned more than $2,475 per adjusted discharge. Here is the abstract for the study, which appears in HealthAffairs:

To identify the characteristics of the most profitable US hospitals, we examined the profitability of acute care hospitals in fiscal year 2013, measured as net income from patient care services per adjusted discharge. Based on Medicare Cost Reports and Final Rule Data, the median hospital lost $82 for each such discharge. Forty-five percent of hospitals were profitable, with 2.5 percent earning more than $2,475 per adjusted discharge. The ten most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics. These findings can inform policy reforms, while providing a baseline against which to measure the impact of any subsequent reforms.

Coverage: St. Louis Post-Dispatch/AP; Washington Post.

Lloyd Mayer

May 6, 2016 in In the News, Publications – Articles, State – Executive, State – Legislative | Permalink | Comments (0)

Thursday, May 5, 2016

Politicians and Nonprofits - A Recipe for Disaster?

City-HallElections predictably bring scrutiny to nonprofits associated with politicians, whether they are the politicians' own charities (see earlier post about the Clinton and Trump foundations), churches hosting candidates, or noncharitable nonprofits spending "dark money" (sources of funds not publicly disclosed) to influence elections. The ties between nonprofits and politicians are often much deeper and murkier, however, as Jack Siegel detailed almost 10 years ago and a USA Today article recently highlighted (hat tip: Election Law Blog). Here are further stories along these lines, the first two of which are mentioned in the USA Today article:

  • New York City Mayor Bill de Blasio is the subject of five separate law enforcement inquiries, some of which focus on an animal-rights group that spent heavily in the 2013 mayoral race against de Blasio's main rival, according to the NY Times. Earlier this year the mayor announced that he was shutting down a different nonprofit group that worked to advance his political agenda in the face of public criticism, according to the Associated Press. Additional coverage: Wall Street Journal.
  • Los Angeles Mayor Eric Garcetti created a nonprofit that has raised $14.6 million in its first full year of operation but has spent less than a third of that amount supporting programs in that city, according to the LA Times. In response to the story the nonprofit's president said the imbalance is the result of the need to ramp up and the mayor asserted he has no control over the fund.
  • U.S. Representative Chaka Fattah is facing a federal criminal trial relating to numerous nonprofits that he set up over the years that receives millions in government funds and his alleged use of them to repay an off-the-books $1 million loan to his earlier campaign for mayor of Philadelphia, according to philly.com. The indictment led to Rep. Fattah losing the Democratic primary for his congressional seat last month, according to the Washington Post

Lloyd Mayer

May 5, 2016 | Permalink | Comments (0)

Wednesday, May 4, 2016

China, Egypt, and Russia Continue Crackdowns on Nonprofits with Foreign Ties

WorldRecent months have brought even further restrictions by governments in China, Egypt, and Russia on domestic nonprofits with foreign ties in China. Developments include:

  • Late last month China adopted a new Law on the Management of Domestic Activities of Overseas Nongovernmental Organizations. According to a helpful summary prepared by Mark Sidel (Wisconsin) for Foreign Policy, the law shifts oversight of foreign NGOs to the Ministry of Public Security (MPS) by requiring such groups to register, be authorized by, and report to MPS and also to "find a Chinese partner organization [vetted in advance by MPS] to take responsibility for all of the foreign entity's work in China." This shift is significant because it places all such organizations under the direct jurisdiction of China's internal security apparatus. The Law also restricts the subject matter areas and, depending on the subject matter, geographic areas in which foreign NGOs can operate. The White House promptly raised concerns about the new law, even as foreign NGOs struggled to understand how it applies to them and their activities. Additional coverage: Boston Globe/APNY Times; The Guardian.

UPDATE: Economist coverage.

  • Egypt has launched criminal investigations of human rights activists and the organizations with which they are associated based on allegations that they took foreign funding to try to destabilize the country. An Egyptian court is currently considering whether to freeze the bank accounts and other assets of the targeted individuals, an action that could be followed by formal criminal charges that carry up to 25 years in prison, according to a recent NPR Morning Edition story. Additional coverage: LA Times; NY Times; The Guardian.
  • Russia recently outlawed the pro-democracy National Democratic Institute under a law that has been used against it and four other organizations with links to U.S. funders, according to the NY Times. The stated reason for the ban was that the group posed "a threat to the foundations of Russia's constitutional order and national security," a charge that both the group and the U.S. State Department rejected.

Lloyd Mayer

May 4, 2016 in In the News, International | Permalink | Comments (0)

Tuesday, May 3, 2016

Fagundes on Buying Happiness

David Fagundes (Univ. of Houston Law Center) recently posted Buying Happiness: Property, Acquisition, & Subjective Well-Being (William & Mary Law Review, Vol. 58, 2017, Forthcoming) to SSRN. Here is the abstract:

Acquiring property is a central part of the modern American vision of the good life. The assumption that accruing more land or chattels will make us better off is so central to the contemporary preoccupation with acquisition that it typically goes without saying. Yet an increasing body of evidence from psychologists and economists who study hedonics — the science of happiness — yields the surprising conclusion that getting and having property does not actually increase our subjective well-being. In fact, it might even decrease it. While scholars have integrated the insights of hedonics into other areas of law, no scholarship has yet done so with respect to property. This Article maps this novel territory in three steps. In Part I, it summarizes recent findings on the highly conflicted effect on subjective well-being of the acquisition of both land and chattels. In Part II, it explores the implications of these findings for four leading normative theories of property law, showing that in different ways, the evidence produced by happiness studies undermines the core empirical propositions on which these theories rest. Part II also explores the potential of subjective well-being as a framework for assessing the optimal regulation of ownership. Finally, Part III investigates how looking at property through the lens of happiness can help us see this ancient body of law in a new light. Evidence from happiness studies casts doubt on some policies (e.g., state promotion of homeownership), while suggesting the appeal of others (e.g., tax incentives and disincentives designed to nudge acquisition in the direction of greater subjective well-being). Happiness analysis also suggests promising new insights about related aspects of property, including law’s attempts to prevent dispossession, the proper allocation of public versus private land, and the nascent sharing economy. This Article concludes by showing why these findings actually tell an optimistic, if nonobvious, story about the nature and future of property.

I highly recommend this ambitious, creative, and provocative article. Fagundes provides a remarkably thoughtful and comprehensive review of the "happiness" literature, and identifies an unexpected, but quite productive application in property law. Essentially, he observes that happiness research shows that acquiring property does not necessarily increase happiness, and argues that welfarist policies should focus on increasing happiness, rather than increasing property ownership.

Admittedly, I am not entirely convinced by Fagundes's argument, for both substantive and normative reasons. According to Fagundes, happiness theory typically defines "happiness" as "experience well-being," or "a person's positive or negative affect during any moment of their life. To be happy, and have well-being, is to be in a mental state that you would choose to continue. By contrast to be unhappy, as to lack well-being is to be in a mental state that you would prefer not to continue." Happiness theory hopes to provide a "better measurement of welfare than preference satisfaction." As Fagundes points out, preference satisfaction does not necessarily increase "happiness" as defined by happiness theory. But I wonder whether happiness theory fails to account for the possibility that unhappiness is simply a luxury good. And from a normative perspective, I'm not sure I'm entirely comfortable with encouraging policies that decrease economic welfare with the intention of making people "happier." At the very least, public choice theory suggests that is a potentially risky move.

Nevertheless, I found Fagundes's article fascinating, and potentially quite useful to charity law scholarship. As Fagundes observes, happiness research shows that making charitable contributions increases "happiness," providing empirical evidence of the salience of "warm glow" associated with charitable giving. In addition, it suggests ways in which utilitarian analyses of policies intended to encourage charitable giving could consider hedonic benefits to donors, as well as benefits to recipients.

Brian L. Frye

May 3, 2016 | Permalink | Comments (0)

Targeting Religious Organization Tax Benefits, Religious Orgs Pushing Back, and the Scandal of the Month

City ChurchA flurry of litigation targets the tax benefits enjoyed by religious organizations and their ministers, including the parsonage allowance exclusion and property tax exemptions. At the same time, religious organizations are pushing back on government regulation by challenging the IRS enforcement of the political campaign intervention prohibition. And of course news outlets are continually searching for possible behavior by religious groups and sometimes finding it.

In the courts, the Freedom From Religion Foundation has refiled its complaint challenging on Establishment Clause and Due Process Clause grounds the parsonage allowance exclusion provided to ministers by Internal Revenue Code section 107. In an attempt to remedy the standing issue that doomed its earlier challenge, FFRF's new complaint asserts that it provides a housing allowance to its officers but solely because they are not ministers that allowance is subject to federal income tax. It remains to be seen whether these changed facts are sufficient to overcome the general prohibition on taxpayer standing, although the Seventh Circuit's earlier decision on this issue indicates they may be.

At the same time, the Massachusetts Supreme Court has taken up the question of what counts as sufficiently "religious" use of real property to qualify that property for tax exemption. Areas of the property at issue include a maintenance shed, a coffee shop, conference rooms, a religious bookstore, and part of a forest preserve. A recent Atlantic article (hat tip: Above the Law) details the possible significant ramifications of the case, both in Massachusetts and nationally, given the increasing financial pressure on local tax assessors to narrowly interpret property tax exemptions. Additional Coverage: WBUR.

Religious organizations are not solely on the defensive, however. The Alliance Defending Freedom, not satisfied with its increasingly popular Pulpit Freedom Sunday challenge to the Internal Revenue Code section 501(c)(3) prohibition's application to churches and other religious organizations, has now filed a Freedom of Information Act lawsuit to force the IRS to disclose its rules for investigating churches. ADF is basing its lawsuit on the disclosure by the IRS, in response to a FFRF lawsuit, that it was actively enforcing the prohibition as against churches. For a discussion of the bind ADF and FFRF are putting the IRS in, see this Surly Subgroup blogpost by Sam Brunson.

Finally, religious organizations continue to be fruitful sources for news outlets looking for scandals. Most recently, the City Church of New Orleans was the subject of a story by WWLTV detailing an ongoing state criminal investigation. The allegations against the church include both ones that are sadly familiar - financial mismanagement and use of church resources to benefit the private business interests of church leaders - and ones that are less common - lying to collect federal education grants and film tax credits. It remains to be seen, of course, whether these allegations are shown to be accurate or not.

Lloyd Mayer


May 3, 2016 in Federal – Judicial, In the News, Religion, State – Executive, State – Judicial | Permalink | Comments (0)

Monday, May 2, 2016

IRS Finalizes New Examples of Program-Related Investments

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

Lloyd Mayer 

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

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

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

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

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

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

Lloyd Mayer

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

Saturday, April 30, 2016

RP Golf, LLC v. Comm’r—Conservation Easement Deduction Denied Because Mortgages Not Subordinated at Time of Donation

1 RP GolfIn RP Golf, LLC v. Comm'r, T.C. Memo. 2016-80 (RP Golf II), the Tax Court sustained the IRS’s disallowance of a $16.4 million deduction for a 2003 donation of a conservation easement on two private golf courses in Kansas City, Missouri. Although the IRS challenged the claimed deduction on a number of grounds, including failure to satisfy the conservation purposes test and overvaluation, the Tax Court denied the deduction on the ground that the taxpayer failed to satisfy the mortgage subordination requirement.

In RP Golf, LLC, T.C. Memo. 2012-282 (RP Golf I), the taxpayer had been forced to concede that the donation did not satisfy the clearly delineated government policy prong of the open space conservation purposes test because the Missouri conservation policy that it referenced in the easement deed did not apply to the subject properties. The Tax Court granted the IRS’s motion for summary judgment on that issue, but material facts regarding whether the donation complied with other requirements for a deduction (including the habitat protection conservation purpose test) continued to be in dispute.


On December 29, 2003, RP Golf, through National Golf, a single member LLC of which it was the sole member, executed an agreement “purporting” to grant a conservation easement to the Platte County Land Trust (PLT), a Missouri charitable conservation organization. The Tax Court referred to the easement as the “PLT agreement.” The PLT agreement expressly reserved the right for National Golf and its successors or assigns to use the property as a golf course and National Golf continues to operate two private golf clubs on the property. The legal description of the property attached to the PLT agreement included multiple sections of land, including land identified as “part of the northwest quarter of section 26,” which National Golf never owned. PLT agreed to inspect and, if necessary, enforce the easement for an annual fee of approximately $15,000.

When National Golf executed the PLT agreement, the property was subject to senior deeds of trust held by two banks. Consents subordinating the interests of the two banks to the easement were not executed by officers of the banks until April 14, 2004, approximately 100 days after execution of the PLT agreement. The consents were recorded on April 15, 2004, and each states that the subordination was made effective as of December 31, 2003, even though National Golf executed the PLT agreement on December 29, 2003, and recorded it on December 30, 2003.


The Tax Court first explained that, while RP Golf claimed a deduction for the value of a conservation easement on approximately 277 acres, neither RP Golf nor National Golf owned an interest in “the northwest quarter of section 26.”  Accordingly, PLT had no power or authority to enforce the easement with regard to section 26, and the conveyance of the easement with regard to that property was not a valid conservation contribution.

The Tax Court then explained, citing Mitchell v. Comm’r, 775 F.3d 1243 (10th Cir. 2015) and Minnick v. Comm’r, 796 F.3d 1156 (9th Cir. 2015), that if there is an outstanding mortgage on the subject property at the time of a conservation easement’s donation, the donor must obtain a subordination agreement from the lender at the time of the gift. The Tax Court considered and rejected RP Golf’s argument that the two banks had orally agreed to subordinate their interests before the date of the gift, explaning “the evidence fails to establish that RP Golf and [the banks] entered into any agreements, oral or written, binding under Missouri law, regarding subordination ... on or before ... the date of the PLT agreement.

The Tax Court concluded:

The property described in the PLT agreement ... was subject to preexisting, unsubordinated mortgages on the date of the grant. Because the easement granted by National Golf could have been extinguished by foreclosure between December 29, 2003, and April 15, 2004, it was not protected in perpetuity and, therefore, was not a qualified conservation contribution.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law, Salt Lake City, Utah

April 30, 2016 | Permalink | Comments (0)

Friday, April 29, 2016

Carroll v. Comm’r—Conservation Easement Deduction Denied for Noncompliant “Proceeds” Clause

1 Lutherville copyIn Carroll v. Comm’r, 146 T.C. No. 13 (2016), the Tax Court sustained the IRS’s disallowance of approximately $650,000 of carryover deductions claimed with regard to a 2005 donation of a conservation easement to the Maryland Environmental Trust (MET) and the Land Preservation Trust (LPT), as joint holders. The subject 21-acre property is located in the Green Spring Valley National Register Historic District of Lutherville, Maryland. MET is a quasi-public entity that the Maryland legislature established in 1967 to conserve the environment; it is both a unit of the Maryland Department of Natural Resources and governed by a private board of trustees. LPT is a charitable conservation organization. 

While the Tax Court determined that the easement at issue was a "qualified real property interest" and satisfied the open space conservation purpose test, the formula included in the easement deed regarding the payment of proceeds to the holders in the event of a judicial extinguishment did not satisfy Treasury Regulation requirements.

Qualified Real Property Interest

The Tax Court determined that the conservation easement was a “qualified real property interest” as defined in IRC § 170(h)(2)(C) because the easement contained “legally enforceable restrictions that will prevent uses of the retained interest in the subject property that are inconsistent with the conservation purposes of the contribution.”

Conservation Purpose

The Tax Court also determined that the easement satisfied the open space conservation purposes test under IRC § 170(h)(4)(A)(iii)(II), which requires that preservation of the property be “pursuant to a clearly delineated Federal, State, or local governmental conservation policy” and “yield a significant public benefit.”

In interpreting the governmental conservation policy requirement, Treasury Regulation § 1.170A-14(d)(4)(iii)(B) provides that

Acceptance of an easement by an agency of the Federal Government or by an agency of a state or local government (or by a commission, authority, or similar body duly constituted by the state or local government and acting on behalf of the state or local government) tends to establish the requisite clearly delineated governmental policy, although such acceptance, without more, is not sufficient. The more rigorous the review process by the governmental agency, the more the acceptance of the easement tends to establish the requisite clearly delineated governmental policy. For example, in a state where the legislature has established an Environmental Trust to accept gifts to the state which meet certain conservation purposes and to submit the gifts to a review that requires the approval of the state’s highest officials, acceptance of a gift by the Trust tends to establish the requisite clearly delineated governmental policy. However, if the Trust merely accepts such gifts without a review process, the requisite clearly delineated governmental policy is not established.

In finding that the easement in Carroll satisfied the open space conservation purpose test, the Tax Court explained that the thoroughness of MET’s easement-review process, combined with the requisite approval of the easement from Maryland’s highest officials (the Governor, the Comptroller, and the Treasurer of Maryland), established that the easement preserves open space pursuant to a clearly delineated federal, state, or local governmental conservation policy. The Tax Court also determined that preservation of the 21-acre property yielded a significant public benefit because (i) the property is in a highly desirable area under development pressure, (ii) the property is subject to a restrictive type of zoning established to foster and protect agricultural lands in certain areas, (iii) the valley in which the property is located is specifically designated in the County’s Master Plan as an agricultural preservation area, and (iv) four properties adjacent to the property are encumbered by conservation easements held by MET or a state agency.

Noncompliant “Proceeds” Clause

To be eligible for a deduction under § 170(h), the conservation purpose of the easement must be “protected in perpetuity.” IRC § 170(h)(5)(A). The Treasury Regulations interpreting § 170(h) elaborate on this protected-in-perpetuity requirement by setting forth substantive rules to safeguard the conservation purpose of a contribution. Treas. Reg. § 1.170A-14(g)(1)-(6). Most pertinent to this case is Treasury Regulation § 1.170A-14(g)(6), the “extinguishment” regulation, which provides that a conservation easement may be extinguished only (i) in a judicial proceeding, (ii) upon a finding that continued use of the property for conservation purposes has become “impossible or impractical,” and (iii) with a payment (upon a subsequent sale, exchange, or involuntary conversion of the subject property) of at least a minimum proportionate share of proceeds to the holder to be used in a manner consistent with the conservation purposes of the original contribution.

The Tax Court explained that the minimum proportionate share of proceeds that must be payable to the holder following extinguishment is equal to the percentage determined by (i) the fair market value of the conservation easement on the date of the gift (the numerator) over (ii) the fair market value of the property as a whole on the date of the gift (the denominator). For example, if the fair market value of an easement on the date of the gift was $300,000, and the fair market value of the property as a whole on the date of the gift was $1,000,000, the easement represented 30% of the value of the property on the date of the gift, and the holder must be entitled to at least 30% of the proceeds following the easement’s extinguishment. The Tax Court noted that the requirements of the extinguishment regulation “are strictly construed; if a grantee is not absolutely entitled to a proportionate share of extinguishment proceeds, then the conservation purpose of the contribution is not protected in perpetuity.”

The extinguishment clause in the conservation easement deed at issue in Carroll did not comply with the proceeds requirement described above. The deed provided that, upon extinguishment, the holders would be entitled to a share of proceeds equal to the percentage determined by (i) "the deduction for federal income tax purposes allowable" by reason of the donation over (2) the fair market value of the property as a whole on the date of the gift. The court explained that, if the IRS were to disallow the deduction for reasons other than valuation and the easement were later extinguished in a judicial proceeding, the numerator in this formula would be zero and MET and LPT would not receive the minimum proportionate share of proceeds as is required. The court also noted that deductions are denied for many reasons unrelated to valuation, and, in fact, the IRS made many arguments for disallowance of the taxpayers’ claimed deductions in Carroll that were not based on valuation.        

The Tax Court also distinguished its holding in Carroll from the First Circuit’s holding in Kaufman. In Kaufman, the First Circuit held that donors of a facade easement had satisfied the proceeds requirement because the easement deed correctly stated the proceeds formula and the donee organization had an absolute right as against the donors for its share of proceeds upon extinguishment. In Carroll, in contrast, the donee organizations would not be entitled to any proceeds in certain circumstances based on the formula included in the easement deed. Consistent with the First Circuit’s reasoning in Kaufman, failing to guarantee that the donees would be entitled to at least the required minimum proportionate share of proceeds upon extinguishment, and providing a potential windfall to the donor or the donor’s successors as a result, was fatal to the deduction.

The Tax Court also found that the donors’ deductions were not saved by the last sentence in Treasury Regulation § 1.170A-14(g)(6)(ii), which provides an exception to the requirement that the holder must receive at least a minimum proportionate share of proceeds upon extinguishment if “state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the [easement].” Maryland has an unusual provision in its state code. Pursuant to this provision, if land subject to an easement held by MET or the Maryland Historical Trust is condemned, damages shall be awarded “to the fee owner ... and shall be the fair market value of the land or interest in it, computed as though the easement ... did not exist.” This presumably means the holder would receive nothing unless the parties agreed that the fee owner would give some of the proceeds to the holder. The Tax Court held that this state law provision did not save the deductions in Carroll because (i) the provision only applies to easements held by MET and, thus, the proceeds formula in the deed still violated the proceeds requirement with regard to LPT, and (ii) the provision applies only to condemnations and, thus, the proceeds formula in the deed still violated the proceeds requirement with regard to judicial extinguishments not based on condemnation (e.g., where changes in the neighborhood have made continuing to protect the property for conservation purposes impossible or impractical).

The Tax Court explained that requirements set forth in the extinguishment regulation “are designed to protect the conservation purpose of a conservation contribution and must be satisfied at the outset for a contribution to be deductible.” The Tax Court further explained that, although the extinguishment regulation “imposes a technical requirement, it is a requirement intended to preserve the conservation purpose, and [the taxpayers] could have avoided this adverse outcome by strictly following the proportionality formula set forth in the regulation.”

The Tax Court also dismissed the taxpayers’ argument that noncompliance with the proceeds requirement should be forgiven because the probability of extinguishment of the easement was “so remote as to be negligible.” Citing Kaufman v. Schulman, 687 F.3d 21 (1st Cir. 2012), the Tax Court explained that easement donors cannot satisfy the requirements of the extinguishment regulation by merely establishing that the possibility of a change in conditions triggering judicial extinguishment is unexpected. To accept such an argument, explained the Tax Court, would nullify the requirements because the extinguishment regulation, by its terms, applies only to “unexpected” conditions, which likely encompass events that are so remote as to be negligible.


The Tax Court found that the taxpayers in Carroll were liable for 20% accuracy-related penalties and did not qualify for the “reasonable cause” exception to those penalties. The Tax Court explained that one of the taxpayers is a highly educated medical school graduate who had previous experience with conservation easements; although the taxpayers had hired an attorney to draft a related gift deed for the subject property, that attorney was not a tax attorney and “d[id] not answer tax-related questions or give tax advice;” the taxpayers offered no evidence that would explain why the terms of the easement varied from the proceeds requirement in the Treasury Regulation; and the taxpayers did not explain why they failed to seek competent advice from a tax attorney or other adviser to ensure that the easement complied with the pertinent regulations. The Tax Court concluded that, in the light of the high level of sophistication of one of the taxpayer's and his experience with conservation easements, the taxpayers did not demonstrate that they acted with reasonable cause and in good faith in not seeking competent tax advice regarding the donation.

The Tax Court declined to impose substantial or gross valuation misstatement penalties on the taxpayers, however, because the IRS did not assert those penalties on a timely basis.


There are a number of takeaways from Carroll.

First, conservation easement donations generally involve high-dollar deductions and the requirements of § 170(h) and the regulations are numerous, complex, and often strictly construed. Accordingly, prospective easement donors should hire tax counsel with significant expertise in the easement donation context to assist them with their donations. If they do not, they run the risk of not only having their deductions denied, but also being subject to penalties for failure to seek tax advice.

Second, donors of conservation easements should not rely on a donee organization or its template or model easement to satisfy the requirements for the deduction. The risks of noncompliance (audit, litigation, denial of deductions, and interest and penalties) fall solely on the shoulders of the donor, and it is the responsibility of the donor and the donor’s legal counsel to ensure that all requirements are satisfied. Most donees are careful to instruct donors that they cannot and do not provide legal advice, and donors need to take that warning to heart.

Finally, the amount of litigation in this context could be significantly reduced if the IRS developed safe harbor or “sample” conservation easement provisions to satisfy the key perpetuity requirements of § 170(h). While many provisions of an easement must be tailored to the specific property and situation, most of the perpetuity requirements, including those addressing judicial extinguishment and proceeds, could be satisfied with provisions that generally should not vary from easement to easement. Safe harbor provisions would facilitate both donor compliance and IRS review, and would help to ensure that the public investment in easements is actually “protected in perpetuity” as Congress intended. Moreover, developing sample provisions would not be a novel approach to addressing noncompliance and abuse. The Treasury developed sample trust provisions with annotations in the charitable remainder trust and charitable lead trust contexts and those provisions, which are widely used, have greatly facilitated compliance and significantly reduced abuses. 

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law


April 29, 2016 | Permalink | Comments (0)

Thursday, April 28, 2016

Prince Will Live On In Trust and Estate Classes Everywhere...

Prince will no doubt have many legacies - musical and otherwise.   One can only hope that his philanthropic legacy will be one of them.

During his lifetime, Price quietly supported any number of charitable organizations, mostly in the areas of education, urban renewal and the environment. I, for one, did not know that he was once named one of PETA's sexiest vegetarians.    The general consensus appeared to be that he would have supported at death many of the charitable organizations and causes he supported during his lifetime.

Sadly, it appears that the tragedy of Prince's early death may now be compounded by the fact that he may have died intestate.   According to news reports, his sister filed a petition for administration without a will.     This is likely to cause difficulties because Prince had no direct heirs or ancestors, leaving a number of siblings and half-siblings.   In addition, his estate is likely made up a significant amount of difficult to manage and difficult to value intellectual property assets, including unpublished music.    Of course, this also means that to the extent Prince intended to benefit charitable causes through his estate, those charities may be out of luck  if bulk of his assets pass through intestate succession.   

I hope that Prince's estate does not devolve into another sad case study for estate and charitable planners everywhere.



April 28, 2016 in Current Affairs, In the News | Permalink | Comments (0)

Wednesday, April 27, 2016

An Empirical Study of Law Journal Copyright Practices

As the spring submission cycle limps to a close and Redyip prepares to go into hibernation, I'd like to take a moment to reflect on the editing process awaiting all of those articles that have been accepted for publication. Every legal scholar is familiar with both the relief of accepting a publication offer and the ensuing agony of the editing process. But I'd like to focus on two particular aspects of the editing process: publication agreements and permissions. Specifically, what rights do law journals expect authors to convey and when do law journals require authors to obtain permission to use elements of copyrighted works?

Legal scholars implicitly (and often explicitly, via creative commons licenses) expect open access to their articles, as shown by their near-universal use of open access repositories like SSRN. And law journals are (typically) published by charitable organizations, which ought to promote open access to legal scholarship. In addition, law journals (typically) publish scholarly works that often comment on and criticize other works. Using an element of a copyrighted work for the purpose of scholarly commentary or criticism is a core fair use, which does not require permission.

And yet, an empirical study that I conducted with the assistance of Christopher J. Ryan, Jr. (Vanderbilt University, Peabody College - Higher Education Law & Policy) and Franklin L. Runge (Faculty Services Librarian, University of Kentucky College of Law) shows that many law journals have adopted copyright policies that are inconsistent with open access publishing and fair use doctrine. Possibly even more unsettling, some law journals even appear not to understand their own copyright policies.

The article is (provisionally) titled An Empirical Study of Law Journal Copyright Practices. Here is the abstract:

This article presents an empirical study of the copyright practices of American law journals in relation to copyright ownership and fair use, based on a 24-question survey. It concludes that many American law journals have adopted copyright policies that are inconsistent with the expectations of legal scholars and the scope of copyright protection. Specifically, many law journals have adopted copyright policies that effectively preclude open-access publishing, and unnecessarily limit the fair use of copyrighted works. In addition, it appears that some law journals may not understand their own copyright policies. This article proposes the creation of a Code of Copyright Best Practices for Law Journals in order to encourage both open-access publishing and fair use.

Incidentally, this article is still in draft form and comments or suggestions are very welcome.

Brian L. Frye

April 27, 2016 | Permalink | Comments (0)