Sunday, June 11, 2017
Ruth McCambridge from The Nonprofit Quarterly reports that Attorney General Jeff Sessions has put an end to the practice of nonprofit payments being part of settlement agreements agreed upon by corporations and the U.S. Department of Justice.
This practice was made popular during the Obama administration, and would often include corporations making payments to nonprofits that operated in their general field. Some examples include JPMorgan Chase paying $7.5 million to the American Bankruptcy Institute, and Volkswagen paying $2 billion to “fund zero-emission technology and infrastructure and to promote zero-emission vehicles.
Now, The U.S. treasury will receive all settlement funds (minus a few exceptions) instead of said monies flowing to nonprofits in the field of the rule violator. For the time being, it appears “the use of settlement money to remediate a situation through a nonprofit . . . is prohibited.”
David A. Brennen
Friday, May 26, 2017
Maja Adena, Jeyhun Alizade, Frauke Bohner, Julian Harke and Fabio Mesters have posted Quality Certifications for Nonprofits, Charitable Giving, and Donor's Trust: Experimental Evidence on SSRN with the following abstract:
In an experiment, we test the impact of quality certificates on donations to a charity. When presented with a quality certificate, participants chose higher donations by approximately 10%. This effect is significant for donations out of prize money and actual own money donations, and not significant but positive for own money intended donations. Moreover, this effect persists over time. We also find a negative but not significant effect of information about certificate fees. We find that the certificate increases trust in the nonprofit organization. There is some evidence pointing to the causal role of trust for donation probability.
-- Eric C. Chaffee
Wednesday, May 24, 2017
Qian Wei has posted CEO Power and Nonprofit Performance: Evidence from Chinese Philanthropic Foundations on SSRN with the following abstract:
CEO power and its implications have been largely neglected in research on nonprofit governance. This lack of attention is surprising considering the crucial role of CEOs and the importance of power analysis in understanding governance. This paper is an initial attempt to address this gap by developing a two-dimensional framework for conceptualizing CEOs structural power and strategic power in nonprofits and proposing several indicators to operationalize these two kinds of power. Drawing data from an original survey on 163 CEOs of Chinese foundations, this study is among the first to specifically assess how much power a CEO has and the relationship between a CEO’s power and nonprofit effectiveness. My findings suggest that CEOs structural power is positively associated with private donations while strategic power has a negative impact on nonprofits’ social performance.
-- Eric C. Chaffee
Tuesday, May 23, 2017
Anthony Victor Alfieri has posted Inner-City Anti-Poverty Campaigns on SSRN with the following abstract:
This Article offers a defense of outsider, legal-political intervention and community triage in inner-city anti-poverty campaigns under circumstances of widespread urban social disorganization, public and private sector neglect, and nonprofit resource scarcity. In mounting this defense, the Article revisits the roles of lawyers, nonprofit legal services organizations, and university-housed law school clinics in contemporary anti-poverty, civil rights, and social justice movements, in part by chronicling the emergence of a faith-based municipal equity movement in Miami, Florida. The Article proceeds in four parts. Part I introduces the notion of community triage as a means of addressing the impoverished and segregated aftermath of urban development in a cluster of postindustrial inner cities. Part II examines the First Wave of antipoverty campaigns launched by pioneering legal services and public interest lawyers and their evolving community triage models. Part III surveys the Second Wave of anti-poverty campaigns pressed by more client- and community-centered legal services and public interest lawyers and their alternative community triage paradigms. Part IV appraises the Third Wave of anti-poverty campaigns kindled by a new generation of legal services and public interest lawyers and their site-specific community triage approaches in the fields of community economic development, environmental justice, low-wage labor, immigration, and municipal equity in order to discern legal-political lessons of inner-city advocacy and organizing. Taken together, the four parts forge a larger legal-political vision imagined and reimagined daily by a new generation of social movement activists and scholars — a renewed vision of theory-driven, clinical practice tied to empirical research and experiential reflection about law and lawyers in action.
-- Eric C. Chaffee
Tuesday, May 9, 2017
Aprill: Section 501(C)(3) Organizations, Single Member Limited Liability Companies, and Fiduciary Duties
Ellen Aprill has posted her forthcoming article entitled "Section 501(C)(3) Organizations, Single Member Limited Liability Companies, and Fiduciary Duties" to SSRN. Here is the abstract:
Tax-exempt organizations, including section 501(c)(3) organizations and their philanthrocapitalists, use single member limited liability companies (SMLLCs) for a variety of purposes. Exempt section 501(c)(3) nonprofit organizations (which, for convenience, I will refer to as charities) that have a number of facilities, be they schools, hospitals, or real estate investments, may form a separate SMLLC for each of them, primarily to protect other assets from liability. Charities may wish to place activities with a high risk of tort liability, such as an overnight summer camp, in its own SMLCC. SMLLCs may be used to isolate unrelated business activities from related activities. They may be used to isolate risky investments from more conservative ones. Philanthrocapitalists may structure donations through SMLLCs. They may use them to control aspects of the tax exempt entity’s activities, as according to press reports, the Koch Brothers may do with some of their noncharitable tax-exempt entities.
A SMLLC leads a schizophrenic existence. An entity under state law, it is disregarded for most purposes under federal tax law. Furthermore, the leading theoretical approaches to LLCs and to nonprofit organizations stand in sharp contrast to each other regarding reliance on contract. These very different sets of applicable laws and theory allow for regulatory arbitrage, which involves takes advantage of inconsistencies between the applicable rules.
The potential for regulatory arbitrage is especially acute in connection with governance issues that arise when charities employ SMLLCs. On one hand, the extent to which an entity’s governing body has responsibility to manage an entity, including a SMLLC, and what fiduciary duties members of the governing body of the SMLCC owe to the entity, are assigned to state law, and some state laws permit LLCs to reduce or eliminate fiduciary duties of care and loyalty. In contrast, state law does not permit elimination of fiduciaries duties for charities. Moreover, charities are subject to federal tax as well as state entity law. Under federal tax rules, charities must serve a public purpose, and federal tax laws themselves apply requirements regarding self-dealing. In addition, the IRS has shown particular interest in the governance of tax-exempt organizations more generally.
This paper examines possible tensions between governance and fiduciary duties of the charity and of its SMLCC. It concludes that waiver of fiduciary duties is not appropriate for SMLLCs of charities, even if such waiver is permitted under state law. In the case of SMLLCs of charities, moreover, the issues related to fiduciary duties have important consequences for the tax law. The paper thus argues that, as it has in analogous situations, the IRS should issue guidance ensuring that the governing body of a section 501(c)(3) has control of all aspects of its activities, including those conducted by any SMLLC. This guidance should be explicit as to what control of a SMLCC entails. While the recommendation made is a specific one, it underscores the importance of adhering to the special rules to which nonprofit tax-exempt charities are subject in order for these entities to fulfill their particular role they have been assigned in our society.
On May 1, the Michigan Supreme Court ruled for-profit college Sanford-Brown College Grand Rapids was not required to pay property taxes on its personal property. Two Michigan statutes exempt property owned by charitable and educational institutions from taxation. Section 211.7n exempts real property owned by "nonprofit theater, library, educational, or scientific institutions," while section 211.9(1)(a) exempts personal property owned by "charitable, educational, and scientific institutions." Note that the word nonprofit is missing from the latter section. (It is unclear whether this omission was intentional or not.)
The Michigan Supreme Court unanimously ruled that the language in section 211.9(1)(a) was "unambiguous. This statute allows the exemption of personal property from taxes imposed on institutions that are educational in nature. Conspicuously absent from the statute is any language indicating that the tax exemption applies only to nonprofit entities." The College's obligations to pay real property taxes were unaffected by the ruling, but now the College shares the same personal property tax exemptions as any charitable or nonprofit educational institution in the State.
Monday, May 8, 2017
Many white supremacist groups enjoy tax-exempt status. As such, these hate groups do not have to pay federal taxes and people who give money to support these groups may take deductions on their personal taxes. This recognition not only results in potential lost revenue for government programs, but it also serves as a public subsidy of racist propaganda and operates as the federal government’s imprimatur of white supremacist activities. This is all due to an unnecessarily broad definition of “educational” that somehow encompasses the activities of universities, symphonies, and white supremacists. This Essay suggests a change in the Treasury regulations to restrict the definition of educational organizations to refer only to traditional, degree-granting institutions, distance learning organizations, or certain other enumerated entities. With this change, we would no longer allow white supremacists to call themselves charities, remove the public subsidy of such reprehensible organizations, and eliminate the government’s implicit blessing of hate groups.
Through Twitter, Sam Brunson (@smbrnsn) and David Herzig (@professortax) briefly responded to this argument:
Here's a link to their forthcoming article, "A Diachronic Approach to Bob Jones: Religious Tax Exemptions after Obergefell." Last December, Eugene Volokh weighed in to conclude that it would be unconstitutional viewpoint discrimination for the IRS to deny tax exemption on the ground that a group engages in hate speech:
But the IRS can’t deny tax exemptions on the grounds that a group “hold[s] views that millions of Americans may find abhorrent” — or “espouse[s] values that are incompatible with most Americans” — whether those views are socialist, Islamist, pro-abortion, anti-abortion, pro-illegal-immigrant, anti-immigrant, pro-gay-rights, anti-gay-rights, white nationalist, black nationalist or anti-nationalist.
It is rare to for nonprofit law to be in the federal spotlight as vividly as it was last week when President Trump signed an Executive Order on "Free Speech and Religious Liberty." Section 2 of the EO addresses the Johnson Amendment (which prohibits partisan political activity by 501c3 nonprofits):
Sec. 2. Respecting Religious and Political Speech. All executive departments and agencies (agencies) shall, to the greatest extent practicable and to the extent permitted by law, respect and protect the freedom of persons and organizations to engage in religious and political speech. In particular, the Secretary of the Treasury shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury. As used in this section, the term "adverse action" means the imposition of any tax or tax penalty; the delay or denial of tax-exempt status; the disallowance of tax deductions for contributions made to entities exempted from taxation under section 501(c)(3) of title 26, United States Code; or any other action that makes unavailable or denies any tax deduction, exemption, credit, or benefit.
During the signing ceremony, President Trump explained:
“Under this rule, if a pastor, priest or imam speaks about an issue of political or public importance, they are threatened with the loss of their tax-exempt status, a crippling financial punishment. Very, very unfair. But no longer... This financial threat against the faith community is over... So you’re now in a position where you can say what you want to say. And I know you’ll only say good and what’s in your heart. And that’s what we want."
Before the final text of the order was released, commentators raised numerous objections to the order that was anticipated: a broad commitment not to enforce the Johnson Amendment against religious groups. However, the text of the signed order says nothing concrete in terms of legal or policy. Indeed, the ACLU initially promised a lawsuit, but ultimately backtracked, concluding that the order "signing was an elaborate photo-op with no discernible policy outcome." Undeterred, the Freedom from Religion Foundation is going ahead with its planned lawsuit, reading between the lines of the EO to perceive a clear "stop enforcement" signal to the IRS.
Friday, April 7, 2017
South Carolina State Representative Bill Herbkersman has introduced legislation that will require some nonprofits to make more frequent and more detailed disclosures about their financials. The bill covers entities organized under the South Carolina Nonprofit Corporation Act (Chapter 31, Title 33). The proposed bill reads:
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 11-1-130 SO AS TO REQUIRE CERTAIN NONPROFIT CORPORATIONS THAT RECEIVE MORE THAN ONE HUNDRED DOLLARS IN PUBLIC FUNDS TO SUBMIT A QUARTERLY EXPENDITURE REPORT TO THE AWARDING JURISDICTION, AND TO PROVIDE THAT THE AWARDING JURISDICTION MUST MAKE THE REPORTS AVAILABLE TO THE PUBLIC.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 1, Title 11 of the 1976 Code is amended by adding:
"Section 11-1-130. (A) Any entity organized pursuant to Chapter 31, Title 33 that received more than one hundred dollars in public funds from a state agency or political subdivision in the previous calendar year or the current calendar year, must submit a quarterly expenditure report to the jurisdiction awarding the funds.
(B) The expenditure report must include:
(1) the amount of funds expended;
(2) the general purposes for which the funds were expended; and
(3) any other information required by the jurisdiction so as to increase the public's knowledge of the manner in which the funds are expended.
(C) The expenditure reports must be made available by the awarding state agency or political subdivision in accordance with the requirements of Chapter 4, Title 30; however, the entity receiving the funds is not subject to such disclosure provisions."
SECTION 2. This act takes effect upon approval by the Governor and applies to any public funds received thereafter and within three calendar years thereof.
Proponents claim that because South Carolina nonprofits employ ten percent of the state workforce and are the recipient of over 130 million volunteer hours, South Carolina citizens deserve a more accurate accounting of what these organizations do with their money. It is further claimed that because of inconsistent reporting requirements, it is difficult to compare and assess different organizations, thus making hold them accountable a daunting task.
David A. Brennen
Wednesday, April 5, 2017
Nonprofit Quarterly reports on the trial of Jonathan Dunning, former CEO of Birmingham Health Care and Central Alabama Comprehensive Health. Mr. Dunning was indicted on 122 counts alleging that he shifted approximately $14 million of federal funds to outside businesses that he controlled.
The case has been postponed due to complexity, undoubtedly due to another nonprofit being added into the case. A credit union, that government officials claim was central to the scheme, had many Birmingham Health Care upper executives on its board of directors. The National Credit Union Administration claims that the credit union in question became “insolvent due to management operating the credit union in an unsafe and unsound manner including a serious conflict of interest with the credit union’s sponsor, a continuous lack of action by management to address issues, persistent non-compliance with established timelines for submitting reports, and problems with the credit union’s books and records.”
At issue, among other things, is whether Mr. Dunning committed conspiracy, bank fraud, and/or money laundering in his dual role of nonprofit CEO, and controller of private firms. Also, whether and to what extent the former CEO can be held liable for controlling his replacement to perpetuate the fraud. Allegedly, once the fraud was first being discovered, Mr. Dunning stepped down, but handpicked his successor and exercised complete control over him.
The original story covering this nonprofit mismanagement and conflicts of interest scheme can be read here.
David A. Brennen
Tuesday, April 4, 2017
Missouri joins the company of Illinois, Georgia, Massachusetts, Michigan, and New York on a list of states whose Governors have set up nonprofit groups to help raise money for their campaigns. These nonprofits, organized as 501(c)(4) entities, allow said organizations to avoid disclosing who their donors are, and how they spend their money. However, these organizations may not spend more than half of their money on political activities, a rule monitored by the IRS.
Some commentators believe these 501(c)(4) organizations are being formed to circumvent campaign finance laws. In an attempt to close this loop-hole, Missouri state Senator Rob Schaaf has sponsored a bill to require such groups to identify their donors. Senator Schaaf believes increased transparency in funding will be a step in the right direction, stating “I think it’s a problem that [political candidates have] this desire to keep the sources of [their] money hidden.”
Those with opposing views, such as Republican consultant Greg Keller, believe that donors have the right to have their identity kept private. Keller stated “I think [501(c)(4)s] are becoming more common, that’s what I believe happens with campaign finance law. I think that every single time you try to micromanage how people are funding political organizations, you end up with more politics, not less.”
Campaign finance is a delicate issue unlikely to be resolved in the near-term. Former Missouri GOP chairman John Hancock believes that “as long as the law allows you not to disclose who your donors are, I think you’re going to see this replicated all across the country.” Time will tell if the trend continues to spread into other states.
David A. Brennen
Monday, April 3, 2017
A recent article explains the decision of the Illinois Supreme Court to overrule the appellate court that determined a 2012 state law that exempted nonprofit hospitals from paying property taxes was unconstitutional. The law in question allows nonprofit hospitals to avoid paying property taxes if the value of their charitable service exceeds the value of the property taxes that would have been collected but-for the statute.
Although the Illinois Supreme Court remanded the case, they did not explicitly rule on the constitutionality of the law. Therefore, Illinois nonprofits should be reluctant to rejoice just yet. At issue is what is considered “charity” for a nonprofit hospital. Ultimately, the Illinois Supreme Court ruled the appellate court overstepped its authority when it ruled the constitutionality issue was separate from the rest of the case.
For the time being, nonprofit Illinois hospitals may still enjoy their tax exemption. However, the long-term ramifications of this litigation are far from certain.
David A. Brennen
Friday, March 24, 2017
Bankruptcy scholar Matthew A. Bruckner, Assistant Professor of Law, Howard University School of Law, has a couple of very interesting new papers exploring the peculiar intersection of bankruptcy law and higher education. In the first, Bankrupting Higher Education, he explains why it is a problem that colleges and universities cannot file for Chapter 11 bankruptcy. Here is the abstract:
Many colleges and universities are in financial distress but lack an essential tool for responding to financial distress used by for-profit businesses: bankruptcy reorganization. This Article makes two primary contributions to the nascent literature on college bankruptcies by, first, unpacking the differences among the three primary governance structures of institutions of higher education, and, second, by considering the implications of those differences for determining whether and under what circumstances institutions of higher education should be allowed to reorganize in bankruptcy. This Article concludes that bankruptcy reorganization is the most necessary for for-profit colleges and least necessary for public colleges, but ultimately concludes that all colleges be allowed to reorganize in chapter 11.
In the second, Higher Ed ‘Do Not Resuscitate’ Orders, he explains why Congress chose to prevent colleges and universities from filing for Chapter 11 bankruptcies, and why it was a bad idea. Here is the abstract:
Concerned about exploitative profiteers opening fly-by-night colleges to defraud students and then seeking respite in bankruptcy court, Congress chose to effectively preclude all institutions of higher education from reorganizing in bankruptcy court. This Article contributes to the literature on higher education bankruptcies by explaining why Congress’ solution could never achieve its fraud-prevention goal. It also compares the bankruptcy treatment of healthcare enterprises to that of higher education enterprises to support this claim.
In addition, Bruckner recently recorded a podcast on these two papers with the American Bankruptcy Institute. You can listen to it here.
Bruckner recently presented these two papers at the University of Kentucky College of Law, to the great interest of the faculty. Highly recommended!
Friday, March 17, 2017
Samuel D. Brunson (Loyola-Chicago) and David Herzig (Valparaiso) have posted A Diachronic Approach to Bob Jones: Religious Tax Exemptions after Obergefell, Indiana Law Journal (forthcoming). Here is the abstract:
In Bob Jones v. U.S., the Supreme Court held that an entity may lose its tax exemption if it violates a fundamental public policy, even where religious beliefs demand that violation. In that case, the Court held that racial discrimination violated fundamental public policy. Could the determination to exclude same-sex individuals from marriage or attending a college also be considered a violation of fundamental public policy? There is uncertainty in the answer. In the recent Obergefell v. Hodges case that legalized same-sex marriage, the Court asserted that LGBT individuals are entitled to “equal dignity in the eyes of the law.” Constitutional law scholars, such as Lawrence Tribe, are advocating that faith groups might lose their status, citing that this decision is the dawning of a new era of constitutional doctrine in which fundamental public policy will have a more broad application.
Regardless of whether Obergefell marks a shift in fundamental public policy, that shift will happen at some point. The problem is, under the current diachronic fundamental public policy regime, tax-exempt organizations have no way to know, ex ante, what will violate a fundamental public policy. We believe that the purpose of the fundamental public policy requirement is to discourage bad behavior in advance, rather than merely punish it after it occurs. As a result, we believe that the government should clearly delineate a manner for determining what constitutes a fundamental public policy. We suggest recommended three safe harbor regimes that would allow religiously-affiliated tax-exempt organizations to know what kinds of discrimination are incompatible with tax exemption. Tying the definition of fundamental public policy to strict scrutiny, to the Civil Rights Act, or to equal protection allow a tax-exempt entity to ensure compliance, ex post. In the end, though, we believe that the flexibility attendant to equal protection, mixed with the nimbleness that the Treasury Department would enjoy in crafting a blacklist of prohibited discrimination, would provide the best and most effective safe harbor regime.
Roger Colinvaux (Catholic) has posted The Importance of a Participatory Charitable Giving Incentive, 154 Tax Notes No. 5 (2017). Here is the abstract:
Leading tax reform proposals contemplate a charitable deduction claimed by just five percent of taxpayers. Such a limited deduction would fatally undermine the foundations of a giving incentive that has fostered an altruistic and pluralistic society through its broad-based participation and would seriously harm the charitable sector. Section 501(c)(3) would recede in importance as setting the standard for a public benefit organization. More gifts would go to private benefit and political organizations. The article argues that a charitable deduction for the few should be rejected. Instead, Congress should consider expanding the charitable giving incentive by extending it to more taxpayers in the form of a credit. A credit would remove long-standing inequities, allow for smarter charitable giving policy in the future, and improve transparency. If a charitable deduction for the few does become part of tax reform, however, changes should be made to ensure that deductible contributions are not abused but go to active public charities.
Our Constitution enshrines two bedrock principles of Western liberal democracies: limited government and equal opportunity. This Chapter explores the extent to which the charitable tax subsidies reflect these principles, as expressed in the two theories of distributive justice respectively associated with them, libertarianism and resource egalitarianism. This analysis shows that the subsidies’ current structure is much broader than necessary to reflect libertarian ideals, even under the more permissive classical liberal theories. As a result, the subsidies undermine the principle of limited government by coercing taxpayers to subsidize activities that are not the legitimate purview of government. The subsidies’ relation to resource egalitarianism is more complex: They are broader than the most common interpretations of resource egalitarianism justify, and undermine basic equality of opportunity notions both by subsidizing activities that increase the head-start of the wealthy and by giving wealthy taxpayers more say over government resources than poorer taxpayers. That said, the subsidies do reflect less well-known and more controversial accounts of resource egalitarianism that address expensive tastes and talent-pooling.
Margaret H. Lemos (Duke) and Guy-Uriel E. Charles (Duke) have posted Patriotic Philanthropy? Financing the State with Gifts to Government. Here is the abstract:
Federal and state law prohibit government officials from accepting gifts or “emoluments” from outside sources. The purpose of gift bans, like restrictions on more explicit forms of bribery, is to protect the integrity of political processes and to ensure that decisions about public policy are made in the public interest — not to advance a private agenda. Similar considerations animate regulations on campaign funding and lobbying. Yet private entities remain free to offer gifts to government itself, to foot the bill for particular public projects they would like to see government pursue. Such gifts — dubbed “patriotic philanthropy” by one prominent donor — raise fundamental questions about the private role in public policymaking, questions that are central to debates over campaign finance, private philanthropy, and the privatization of government functions. Nevertheless, they have received virtually no attention in the legal literature. This Article offers a positive and normative account of gifts to government. Although we do not question the enormous good that patriotic philanthropy can do, we argue that gifts raise significant concerns about democratic process, equality, and state capacity.
I have posted Globalization Without a Safety Net: The Challenge of Protecting Cross-Border Funding of NGOs, 102 Minnesota Law Review (forthcoming). Here is the abstract:
More than 50 countries around the world have sharply increased legal restrictions on both domestic non-governmental organizations (“NGOs”) that receive funding from outside their home country and the foreign NGOs that provide such funding and other support. These restrictions include requiring advance government approval before a domestic NGO can accept cross-border funding, requiring such funding to be routed through government agencies, and prohibiting such funding for NGOs engaged in certain activities. Publicly justified by national security, accountability, and other concerns, these measures often go well beyond what is reasonably supported by such legitimate interests. These restrictions therefore violate international law, which provides that the right to receive such funding is an essential aspect of freedom of association. Yet affected NGOs cannot rely on the international human rights treaties that codify this right because those treaties have limited reach and lack effective avenues for remedying these violations.
There is, however, a growing web of international investment treaties designed to protect cross-border flows of funds, leading some supporters of cross-border funding for NGOs to argue that NGOs can instead use these investment treaties to protect such funding. In this Article, I provide the most thorough consideration of this proposal to date, including taking into account not only the legal hurdles to invoking investment treaty protections in this context but also the practical hurdles based on recently gathered information regarding the costs to parties who pursue claims under these treaties. I conclude that while it may be possible to overcome both sets of hurdles in some situations, these hurdles are higher than previous commentators have acknowledged. In particular, overcoming the high costs of bringing claims under these treaties would at a minimum require a concerted effort to fund or reduce such costs through either securing substantial third party financing or recruiting significant pro bono assistance.
Given these obstacles to invoking the protections of international investment treaties, I then explore the insights that the remarkable growth in such treaties provide regarding the conditions that would need to exist for countries to be convinced to enact a similar set of agreements to protect cross-border funding of NGOs. I conclude that such conditions are currently absent and that it will take many years to see if they could develop, even assuming that many countries continue to increasingly restrict or effectively prohibit such funding. In the meantime, both recipients and providers of cross-border funding for NGOs will need to consider alternate strategies that do not rely on international law to counter such restrictions.
The final version of Conservation Easements and the Valuation Conundrum, 19 Florida Tax Review 225 (2016), written by Nancy McLaughlin (Utah) is now available. Here is the abstract:
For more than fifty years, taxpayers have been able to claim a federal charitable income tax deduction under Internal Revenue Code § 170(h) for the donation of a conservation easement or a façade easement. For just as long, the deduction has been subject to abuse, including valuation abuse. Dismayed by the expenditure of significant judicial and administrative resources to combat abuse in the easement donation context, the Treasury Department recently proposed reforms, including reforms to address valuation abuse. The reforms were proposed in somewhat of an analytical vacuum, however, because there has been no comprehensive analysis of the easement valuation case law. This article fills that void. It examines the easement valuation case law and discusses the most common methods by which taxpayers or, more precisely, their appraisers overvalue easements. It also proposes alternative reforms informed by the lessons learned from the case law. Concise summaries of the relevant facts and holdings of the cases are included in appendices.
Last month the IRS made publicly available information from approved Forms 1023-EZ (Streamlined Application for Recognition of Exemption). As Terri Helge noted in this space, one question those data raised was whether hundreds of churches had used the form to obtain IRS recognition of their tax-exempt status under Internal Revenue Code section 501(c)(3), as a review of the names of successful applicants suggested. Such use would be problematic because churches are ineligible to use the streamlined application.
Yesterday the Chronicle of Philanthropy reported (subscription required) that "Some Charities Misuse IRS Short Registration Form, Chronicle Data Suggests." The article focuses in particular on the fact that some applicants quickly grew into million-dollar-plus organizations even though the streamlined application is only supposed to be used by charities that expect to have relatively modest financial resources.
Both these observations raise serious concerns about whether the attempt by the IRS to limit the use of the form to relatively small charities that do not raise any complicated legal issues is failing, with hundreds if not thousands of ineligible organizations obtaining a favorable IRS determination letter by using the streamlined form. These observations also further bolster earlier concerns raised by the National Taxpayer Advocate, who drew on the IRS' own determination that the approval rate for Form 1023-EZ users drops from 95 percent to 77 percent when the IRS reviewed documents or basic information of applicants. The question we are left with is how will the cash-strapped and politically battered IRS respond to these apparent shortcomings. No word from the IRS on the answer to this question yet.