Tuesday, April 26, 2016
We received the following call for papers, which may be of interest to many of you. EWW
Nonprofit and Philanthropy Law
LLCS, NEW CHARITABLE FORMS, AND THE RISE OF PHILANTHROCAPITALISM
2017 AALS Annual Meeting
January 3-7, 2017
San Francisco, CA
In December 2015, Facebook founder Mark Zuckerberg and his wife, Dr. Priscilla Chan, pledged their personal fortune—then valued at $45 billion—to the Chan-Zuckerberg Initiative (CZI), a philanthropic effort aimed at “advancing human potential and promoting equality.” But instead of organizing CZI using a traditional charitable structure, the couple organized CZI as a for-profit Delaware LLC. CZI is perhaps the most notable example, but not the only example, of Silicon Valley billionaires exploiting the LLC form to advance philanthropic efforts. But are LLCs and other for-profit business structures compatible with philanthropy? What are the tax, governance, and other policy implications of this new tool of philanthrocapitalism? What happens when LLCs, rather than traditional charitable forms, are used for “philanthropic” purposes?
From the heart of Silicon Valley, the AALS Section on Agency, Partnerships LLCs, and Unincorporated Associations and Section on Nonprofit and Philanthropy Law will host a joint program tackling these timely issues. In addition to featuring invited speakers, we seek speakers (and papers) selected from this call.
Any full-time faculty of an AALS member or fee-paid school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper in this area is invited to submit a 1- or 2-page proposal by June 1, 2016. The Executive Committees of the Sections will review all submissions and select two papers by July 1, 2016. If selected, a very polished draft must be submitted by November 30, 2016. All submissions and inquiries should be directed to the Chairs of the Sections at the email addresses below:
University of Oregon School of Law
Garry W. Jenkins
Associate Dean for Academic Affairs
John C. Elam/Vorys Sater Professor of Law
Moritz College of Law, Ohio State University
Friday, April 22, 2016
A handful of professors have sued their professional society, claiming that the association’s boycott of Israel exceeds the organization’s mission under its charter. According to the Complaint, the American Studies Association’s constitution says:
The object of the association shall be the promotion of the study of American culture through the encouragement of research, teaching, publication, the strengthening of relations among persons and institutions in this country and abroad devoted to such studies, and the broadening of knowledge among the general public about American culture in all its diversity and complexity.
In 2013, the association adopted a resolution boycotting “Israeli academic institutions.” The plaintiffs are current or former association members who disagree with the boycott. In addition to a procedural complaint about the way the vote was held, the plaintiffs argue that the decision to boycott Israel exceeds the purposes of the organization under their charter since it does not further the scholarly objective of the association (breach of fiduciary duty and ultra vires action). (You may recall a similar dispute about this organization arose in 2014, when a professor challenged the organization's tax-exempt status--a challenge John Colombo predicted on this blog was going nowhere fast.)
h/t: Volokh Conspiracy via Jonathan Adler (@jadler1969)
From the perspective of nonprofit law, it will be interesting to see what level of judicial deference gets applied to the board’s decision: does Business Judgment Rule apply or is it a more searching review? And would plaintiffs' argument pass either of these standards?
My quick take is that this suit seems like a stretch. To begin, the boycott causes the association to NOT do something (i.e., decline to engage with one nation’s academics), and I don’t think I’ve ever seen a nonprofit successfully sued for not engaging in some programmatic activity or with some set of prospective clients, even if it is selective, arbitrary, or policy-driven. Also, food banks decline to buy from producers who don’t use environmentally-friendly methods; housing organizations decline to contract with organizations that don’t have certain personnel policies. It’s hard for me to imagine any of these purchasing decisions being successfully challenged in court on the grounds that they exceed the organization’s mission.
Second, judicial review without deference in this case would essentially ask a Court to override the judgment of a group of scholars on what types of activities further their scholarly mission, which I suspect most courts are ill-suited and reluctant to do. Moreover, judicial involvement here could set a precedent of second-guessing nonprofits when they wade into policy disputes or controversial areas, which would undercut the independence of the nonprofit sector. The mere fact that there is passionate disagreement on the issue suggests it is better to be hashed out by nonprofits within the confines of their organizations without courts getting involved. (I'm reminded of the Supreme Court's admonition in Boy Scouts v. Dale, when a lot of people (including me) couldn't understand how excluding gay scoutleaders furthered the organization's mission, yet the Supreme Court heavily deferred to the organization's judgment in the process of concluding that the organization had a constitutional exemption from state laws. If deference is warranted in a constitutional case, then surely it is warranted under usual corporation law principles.)
Finally, while there is often a compelling argument for keeping nonprofits close to their mission, the need for judicial involvement here is minimal. Exit is cheap and easy for association members who don’t like the direction of the organization. There’s no forced membership, as in a union or Home Owners Association. Nor are monitoring costs excessively high, as might be the case for a financial donor contributing to a social service charity. Nor is there a huge stockpile of donated money being held in trust for past donors and future beneficiaries. With the ample opportunities of voice (voting) and exit (quitting), the policy argument for courts treating this as a reviewable decision is relatively weak.
This case seems like a tough sell under the usual standards of nonprofit corporation law. I wouldn't have voted the way that the Association did, but a main reason we have the nonprofit sector is to let people freely associate themselves, without me or anyone else agreeing with their choices. I don't think the burden has been met that this association has departed enough from its charter to warrant judicial override.
Readers, what do you think? Does this case state a claim for ultra vires or breach of a fiduciary duty? Should courts review associations’ actions in cases like this?
Monday, April 11, 2016
Happy National Volunteer Week! We know that volunteering can do lots of good, but what about when volunteering goes bad? Volunteer law is one of my primary scholarly interests, and in honor of the millions of Americans who volunteer each year, below are just a few of the ways that law deals with volunteering disasters. (But don’t be deterred! Volunteers live longer, happier lives, and these problems probably won’t happen to you or your organization.)
Volunteer Liability: Who gets sued when a volunteer commits a tort? The Federal Volunteer Protection Act provides a low level of immunity—with lots of exceptions and caveats—to volunteers for simple negligence. (Ask yourself whether regulation of unpaid labor fits within Congress’s power under the commerce clause.) Some states also offer immunity of different flavors. Iowa immunizes volunteers for almost anything they do within the scope of their employment. Vermont immunizes volunteer librarians. (?!) Ohio just enacted a law immunizing volunteer architects. (Why architects? No idea. Underworked lobbyists, possibly.)
Fortunately, volunteers are rarely sued, and most suits involve intentional torts or accidents while driving (covered by insurance). (So, please don't sue me.)
Organizational liability: Organizations are liable for the acts of their agents under common law master-servant principles. This applies to employees and volunteers alike. But volunteers often interact with organizations in less formal ways than employees, and not always as simple to determine scope of “employment.” Notably, immunity for the volunteer does NOT immunize the organization, making charities the prime defendant when suit is brought. Which, again, is fortunately pretty rare, especially for your small, community-based charity.
Volunteer Discrimination: Employers can’t discriminate against employees on race, sex, religion, disability, and other protected characteristics. Sometimes, but not often, these laws also protect volunteers. (In fact, there is a circuit split about whether unpaid workers are covered under federal employee anti-discrimination laws.) Still, even if anti-discrimination isn’t the law, be nice to your volunteers. It’s the right thing to do.
Volunteers and Minimum Wage: One of the least settled areas of law involves application of minimum wage laws to volunteers. Cases are all over the place on this, and challenges involving unpaid interns and student-athletes add layers of confusion to the tests for charitable volunteers. Department of Labor has issued various informal “guidance” (read: no Chevron deference) on the topic of unpaid workers, but their positions are rejected by courts as often as they are upheld. Nevertheless, it would be pretty weird if your organization violated minimum wage laws by allowing someone to volunteer for your charity. (Not legal advice: just common sense.) One caveat is that a paid employee of your nonprofit can’t “volunteer” for your organization performing the same type of services as would normally be paid to perform. (Note that the linked regulation only applies to government, but Department of Labor applies same rationale to nonprofits).
Much, much more could be said, which is why this is a fun area in which to write (not to mention volunteering as a rewarding personal pastime). Happy National Volunteer Week everyone!
Monday, April 4, 2016
The 2015 IRS Data Book is now available:
The Internal Revenue Service (IRS) Data Book is published annually by the IRS and contains statistical tables and organizational information on a fiscal year basis. The report provides data on collecting the revenue, issuing refunds, enforcing the law, assisting the taxpayer, and the budget and workforce.
With a new online format, this year’s publication makes navigating data on taxpayer assistance, enforcement, and IRS operations easier, with graphic depictions of key areas and quick links to the underlying data. You can view selected summary graphs, key statistics, and descriptions of the tables and the IRS functions they cover. To download data tables on IRS and taxpayer statistics, visit the relevant section page listed on the left-side navigation column.
The IRS closed 101,962 applications for tax-exempt status. Of those, the IRS approved tax-exempt status for 95,372 organizations and denied tax-exempt status for 67 organizations (2015 IRS Data Book, Table 24). The vast majority of applicants (s92,653 applications closed) sought exemption as charitable organizations. Of these charitable applicants, 86,915 were approved and 57 were denied tax-exempt status (2015 IRS Data Book, Table 24). The total number of tax-exempt organizations registered with the IRS at the end of fiscal year 2015 was 1,702,267, with 1,184,547 of those being tax-exempt charitable organizations (2015 IRS Data Book, Table 25). However, the actual number of tax-exempt charitable organizations is likely greater because certain charitable organizations are not required to apply for recognition of tax-exempt status. These organizations include churches, interchurch organizations of local units of a church, integrated auxiliaries of a church, conventions or associations of churches, and organizations (other than private foundations) that do not normally receive more than $5,000 in gross receipts each year.
Robert G. Picard (University of Oxford-Reuters Institute for the Study of Journalism), Valerie Belair-Gagnon (Yale Law School-Information Society Project), Sofia Ranchordas (Yale Law School-Information Society Project; Tilburg Law School-Department of Public Law), Adam Aptowitzer (Drache Aptowitzer, LLP), Roderick Flynn (Dublin City University), Franco Papandrea (University of Canberra-Communications and Media Policy Institute), and Judith Townend (Institute of Advanced Legal Studies) recently posted their joint research study, "The Impact of Charity and Tax Law and Regulation on Not-for-Profit News Organizations" to SSRN. Below is an abstract of their report:
Since the advent of the Internet, numerous media organizations have been forced to adopt new business models and convert into not-for-profit start-ups or hybrid entities. However, not-for-profit news organizations have faced an important challenge: outdated legal frameworks that were not designed to facilitate the development of digital journalism. This report inquires whether the legal systems in which they operate provide a conducive environment for charitable media and whether it can help explain their development. The legal qualification of news organizations as charities and the conferral of tax-exempt status are necessary to gather the necessary public support for their activities. However, in a number of jurisdictions, not-for-profit media outlets are often confronted with long-established legal frameworks that do not include journalistic activities within the concept of ‘charitable status’. These news organizations thus face significant delays and uncertainties during the process of obtaining tax-exempt status.
This report contributes to the evolving debate on not-for-profit news start-ups by examining legal systems that determine whether charitable and tax exempt status and a variety of benefits associated with them can be granted. This report compares and contrasts legislative frameworks and policies, and assesses how they affect both the development of startups and existing news organizations that would like to become charities and gain tax-exempt status. It also provides an overview of best regulation practices in an attempt to tackle legal and societal challenges that need to be addressed.
The study draws on the regulatory systems in five countries: Australia, Canada, Ireland, the United Kingdom (England and Wales), and the United States.
Saturday, April 2, 2016
John R. Brooks (Georgetown University Law Center) recently published "The Missing Tax Benefit of Donor-Advised Funds," 150 Tax Notes 1013-1024 (2016). Below is an abstract of Professor Brooks' article:
Donor-advised funds are often billed, by both their critics and advocates, as providing a preferred from of charitable donation relative to typical giving. This is because the tax law allows for a full deduction of the money or property contributed to the fund in the year of the contribution, even if the money does not go to operating charities until a future year.
In this report, I show that this feature of donor-advised funds does not actually provide an additional benefit over typical gifts of property to charities, and in many cases creates a tax cost. Furthermore, in some situations that do provide a modest tax benefit, most or all of that benefit is soaked up in fees by the donor-advised fund sponsoring organizations, such as Fidelity, Schwab, and Vanguard. Thus, donors need to better understand the potential costs and benefits of donor-advised funds.
Briton Jacob Myer (JD Candidate, Southern University Law Center) recently posted "In Pursuit of Religious Freedom: The RFRA and How It Applies to Non-Profit Organizations and Their Objections to the Accommodation of the Affordable Care Act Contraception Mandate" to SSRN:
The Hobby Lobby case decided by the Supreme Court back in 2014 determined the rights of for-profit corporations to refuse to provide certain contraceptives guaranteed by the Affordable Care Act in their employee’s health insurance plans. Hobby Lobby had argued their case under the three-part test of the Religious Freedom Restoration Act, claiming that the government-mandated provision of certain contraceptives substantially burdened its free exercise of religion. The Supreme Court with a narrow majority agreed with Hobby Lobby, finding a substantial burden existed due to Hobby Lobby’s limited options. In dicta, the Court noted the accommodation to the contraceptive mandate as a viable option to relieve Hobby Lobby of its substantial burden. This dicta gave birth to a new wave of contraceptive-mandate cases.
The Supreme Court will soon decide the new contraceptive-mandate issue in Zubik V. Burwell. As a consolidation of several cases, plaintiffs in this round of contraceptive controversy are all non-profit organizations who object on religious grounds not just to the contraceptive mandate but also to the accommodation process created for religious non-profit organizations by the government. This process requires the objecting non-profit to either notify by form the department of Health and Human Services (HHS) or, by form, notify its health-insurance provider.
These non-profit plaintiffs have the same argument as Hobby Lobby with a twist. They argue that the notification requirements make them complicit in the provision of the contraceptives that they find to be religiously abhorrent. In turn, the non-profits claim that once they notify either HHS or their insurance provider, they have essentially become facilitators of the provision of these contraceptives. Because they can either provide the coverage they find objectionable, give notification they find objectionable, or drop coverage and be subject to fines, the plaintiffs claim the government has placed a substantial burden on their exercise of religion. Thus, the question for the Court is whether a substantial burden is being imposed on the plaintiffs and if so has the government employed the least restrictive means of achieving its compelling interest in protecting the health of women. To answer the first question, this Article examines the historical interpretation by the Supreme Court of what constitutes a substantial burden since the RFRA’s enactment in 1993. This is critical in determining whether the plaintiffs will pass the first prong of the RFRA action and place the burden on the government to show its compelling interest and that it employed the least restrictive means. In answering the second question, this Article looks to the Hobby Lobby case discussion of least-restrictive means to determine if the government’s accommodation scheme will pass the least-restrictive-means test. With the recent death of Justice Scalia, these questions could go either way. The author believes this article gives insight into how the Court should and will decide to usher in this new era of RFRA litigation.
Lloyd Hitoshi Mayer (Notre Dame Law School) recently posted "Fragmented Oversight of Nonprofits in the United States: Does it Work? Can it Work?," 91 Chicago-Kent Law Review (forthcoming 2016) to SSRN:
The United States is well known for its distinctive although not unique division of political authority between the federal government and the various states. This division is particularly evident when it comes to oversight of nonprofit organizations. The historical focus of federal government oversight has been limited primarily to qualification for tax exemption and other tax benefits, with more plenary power resting with state authorities. Over time, however, the federal government’s role has come to overlap significantly with that of the states, and many nonprofits have become subject to regulation by multiple states as their operations and donor bases expand across state lines.
This Article draws on the growing literature addressing fragmentation of oversight in other contexts to identify possible advantages and disadvantages of such fragmentation with respect to nonprofits. It concludes that the current allocation of responsibilities between the states and the federal government, including the limited areas of overlap, results in relatively effective oversight given the resource and other constraints under which these governments operate. It further concludes, however, that there are certain areas where improvement is possible. More specifically, it recommends federal consolidation of information gathering and financing of oversight, increased coordination between the federal government and the states with respect to enforcement actions, and increased coordination among states with respect to regulation of charitable solicitations. It also recommends that the federal government should both halt and consider rolling back its encroachment into the legal requirements for governance of nonprofits as they relate to the primarily state law fiduciary duty of care.
Leandra Lederman (Indiana University Maurer School of Law) recently posted "IRS Reform: Politics as Usual," 7 Columbia Tax Journal (forthcoming 2016) to SSRN. Below is an abstract of Professor Lederman's article:
The IRS is still reeling from accusations that it “targeted” Tea Party and other non-profit organizations for delays of their applications for tax-exempt status. Although multiple government investigations found no politically motivated behavior — only mismanagement — Congressional hearings were quite inflammatory. Congress recently followed up those hearings with a set of IRS reforms. Congress’s approach is reminiscent of the late 1990s, when highly publicized Congressional hearings regarding alleged abuses by the IRS resulted in a major IRS reform and restructuring, although the allegations subsequently were largely debunked. This Article argues that the recent allegations against the IRS also were overblown. It looks to the aftermath of the 1998 IRS reform, which included a major downturn in enforcement, for lessons for the present day. The Article concludes that Congress as a whole can do a better job of keeping politics from undermining tax administration.
Thursday, March 24, 2016
French v. Comm’r—Conservation Easement Deduction Denied for Lack of Contemporaneous Written Acknowledgment
In French v. Comm'r, T.C. Memo. 2016-53, the Tax court sustained the IRS’s disallowance of more than $133,000 of carry-over deductions relating to a 2005 donation of a conservation easement to the Montana Land Reliance (MLR). Although the IRS challenged the deductions on a number of grounds, the Tax Court sustained the disallowance because the taxpayers failed to obtain a contemporaneous written acknowledgment of the donation from MLR as required by IRC § 170(f)(8)(A).
Contemporaneous Written Acknowledgment Requirements
The Tax Court explained the contemporaneous written acknowledgment (CWA) requirements as follows:
- pursuant to § 170(f)(8)(A), no deduction is allowed for a charitable contribution of $250 or more unless the contribution is substantiated with a CWA obtained from the donee organization;
- a CWA “need not take any particular form,” but it must meet the requirements of § 170(f)(8)(B), which requires that a CWA include:
- the amount of cash and a description (but not value) of any property other than cash contributed,
- whether the donee organization provided any goods or services in consideration, in whole or in part, for the property contributed, and
- a description and good faith estimate of the value of any such goods or services;
- the doctrine of substantial compliance does not apply to excuse compliance with the strict substantiation requirements of § 170(f)(8)(B) and, if a taxpayer fails to meet those requirements, the entire deduction is disallowed; and
- to be “contemporaneous,” § 170(f)(8)(C) requires that the taxpayer obtain the written acknowledgment on or before the earlier of (i) the date the return was filed or (ii) the due date (including extensions) for filing the return for the year in which the charitable contribution was made.
Because the taxpayers in French donated the conservation easement in 2005, they were required to obtain a written acknowledgment from MLR that was “contemporaneous” with their 2005 return and satisfied the requirements of § 170(f)(8)(B). The taxpayers had two “written acknowledgments” from MLR that might have qualified as CWAs: (i) a letter from an MLR representative dated June 6, 2006, stating that “no goods or services were furnished in respect of your easement donation” and (ii) the conservation easement deed, which was signed by a representative of MLR and recorded on December 29, 2005.
Letter from MLR Was Not "Contemporaneous"
The letter from MLR did not satisfy the CWA requirements because it was not obtained by the taxpayers on or before the date they filed their amended 2005 return. The taxpayers filed their amended 2005 return on or before April 15, 2006, but they did not obtain MLR’s letter until June of 2006, approximately two months later. Accordingly, the letter was not “contemporaneous” with their return.
Conservation Easement Deed Was Insufficient to Prove Donee Provided No Goods or Services
The conservation easement deed, which was signed by a representative of MLR and recorded in December of 2005, was “contemporaneous” with taxpayers’ amended 2005 return because it was obtained by the taxpayers before the date on which they filed that return. However, to comply with the “strict substantiation requirements” of § 170(f)(8)(B)(ii), a CWA must “state whether the donee organization provided goods or services in exchange for the donor’s charitable contribution.” The Tax Court found that the conservation easement deed in French did not satisfy this requirement.
The Tax Court explained that a conservation easement deed can satisfy the substantiation requirements of § 170(f)(8)(B)(ii) in two ways: (i) the deed contains a statement as to whether the donee provided goods or services for the contribution or, (ii) if the deed does not contain such an explicit statement, the deed as a whole contains sufficient information to allow the IRS to determine whether taxpayers received consideration in exchange for the contribution. The Tax Court cited Averyt v. Comm’r, T.C. Memo. 2012-198, and RP Golf, LLC v. Comm’r, T.C. Memo. 2012-282, as examples of deeds complying with the latter approach.
In both Averyt and RP Golf, LLC, the taxpayers claimed deductions for conservation easement donations and were permitted to rely on the easement deeds as CWAs even though neither deed stated whether the donee organization provided any goods or services in exchange for the donation. In Averyt, the deed stated that the easement was granted for the purpose of conservation and that the deed was the entire agreement of the parties. In RP Golf, LLC, the deed stated that the easement was made “in consideration of the covenants and representations contained herein and for other good and valuable consideration”; but the deed did not include any consideration of any value other than the preservation of the property. The deed in RP Golf, LLC, also stated that it was the entire agreement of the parties. In both cases, the Tax Court held that the deeds, “taken as a whole,” proved compliance with § 170(f)(8)(B)(ii). Accordingly, when a conservation easement deed does not explicitly state whether the donee provided goods or services in exchange for the donation, the deed, taken as a whole, must prove compliance with § 170(f)(8)(B)(ii), and factors that support compliance are that (i) the deed recites no consideration received from the donee other than the preservation of the property and (ii) the deed contains a provision stating that the deed is the entire agreement of the parties. According to the Tax Court, that information allows the IRS to conclude that a taxpayer did not receive any consideration for the contribution and correctly reported his or her charitable contribution.
In French, the conservation easement deed did not state whether the donee provided goods or services in exchange for the charitable contribution. In addition, although the deed included provisions stating that the intent of the parties was to preserve the property, those provisions did not confirm that the preservation of the property was the only consideration provided by MLR in exchange for the donation because the deed did not include a provision stating that it was the entire agreement of the parties. “Without such a provision,” said the Tax Court, “the IRS could not have determined by reviewing the deed whether taxpayers received consideration in exchange for the contribution of the easement.” Accordingly, the deed, taken as a whole, was insufficient to satisfy § 170(f)(8)(B)(ii), and failure to comply with that section was fatal to the claimed deductions. To justify the seeming harshness of this rule, the Tax Court cited to Addis v. Commissioner, 374 F.3d 881, 887 (9th Cir. 2004), in which the 9th Circuit explained that “[t]he deterrence value of section 170(f)(8)’s total denial of a deduction comports with the effective administration of a self-assessment and self- reporting system.”
Although the IRS also argued that the taxpayers in French did not have an ownership interest in the underlying property (because the easement donation was made through trusts) and overvalued the easement, the Tax Court did not address those issues.
Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law
Friday, March 18, 2016
Mark Loewenstein (Colorado) offered thoughtful comments today on Colorado's adoption of a benefit corporation statute as part of The 29th Annual Corporate Law Center Symposium at The University of Cincinnati College of Law. He has memorialized some of his view on benefit corporations in an article that he recently posted on SSRN, which is entitled, Benefit Corporations: A Challenge in Corporate Governance. The article originally appeared in a 2013 issue of the The Business Lawyer and is well worth a read. The abstract states the following:
Benefit corporations are a new form of business entity that is rapidly being adopted around the country. Though the legislation varies from jurisdiction to jurisdiction, most statutes are based on a model proposed and promoted by B Lab, itself a nonprofit corporation. The essence of these statutes is that, in making business judgments, the directors of a benefit corporation must consider the impact of their decisions on the environment and society. The model legislation, though, may create serious governance issues for the directors of benefit corporations that operate under these laws. This article analyzes the model legislation and identifies its weaknesses, particularly with respect to governance issues.
-- Eric C. Chaffee
Wednesday, March 16, 2016
Indranil Goswami (Chicago School of Business) and Oleg Urminsky (Chicago School of Business) have posted When Should the Ask Be a Nudge? The Effect of Default Amounts on Charitable Donations on SSRN with the following abstract:
How does setting a donation option as the default in a charitable appeal affect people’s decisions? In eight studies, comprising 11,508 participants making 2,423 donation decisions in both experimental settings and a large-scale natural field experiment, we investigate the effect of “choice-option” defaults on the donation rate, average donation amount, and the resulting revenue. We find (1) a “lower-bar” effect, where defaulting a low amount increases donation rate, (2) a “scale-back” effect where low defaults reduce average donation amounts and (3) a “default-distraction” effect, where introducing any defaults reduces the effect of other cues, such as positive charity information. Contrary to the view that setting defaults will backfire, defaults increased revenue in our field study. However, our findings suggest that defaults can sometimes be a “self-cancelling” intervention, with countervailing effects of default option magnitude on decisions and resulting in no net effect on revenue. We discuss the implications of our findings for research on fundraising specifically, for choice architecture and behavioral interventions more generally, as well as for the use of “nudges” in policy decisions.
-- Eric C. Chaffee
Tuesday, March 15, 2016
One of the challenges of teaching about nonprofits is finding reliable and useful data regarding the sector. The National Council of Nonprofits has compiled a collection of Research, Reports, and Data on the Nonprofit Sector, which should be enough to make any quant's mouth water.
-- Eric C. Chaffee
Monday, March 14, 2016
Gao Liu (Florida Atlantic University) posted Government Decentralization and the Size of the Nonprofit Sector: Revisiting the Government Failure Theory on SSRN with the following abstract:
This article revisits government failure theory by examining the relationship between government decentralization and the size of the nonprofit sector (NPS). Government failure theory posits that nonprofits are most active in regions where the largest gap exists between the homogeneous supply of public service and heterogeneous citizen demands. Following this theory, government decentralization should decrease the size of the NPS, as it increases the efficiency and heterogeneity of government services. This article tests this hypothesis using a sample of U.S. counties. Decentralization is measured in two dimensions: vertical decentralization and horizontal fragmentation. After using instrumental regressions to eliminate the endogeneity bias, we find that counties with a more horizontally fragmented governmental system are associated with a larger NPS. Vertical centralization leads to a denser NPS but has no impact on the NPS revenue or assets. The impacts of resident heterogeneity are also mixed. As such, government failure theory is only partially supported, at best. Contrarily, interdependence theory is supported by this study.
-- Eric C. Chaffee
Sunday, March 13, 2016
The most recent challenge to the free exercise of religion is here. And while it stems from the same legislation that prompted the action in Burwell v. Hobby Lobby Stores, Inc. — the contraception mandate under the Patient Protection and Affordable Care Act (the “ACA”) — it raises unique and equally important issues: what constitutes a substantial burden on the exercise of religion and who gets to decide (the religious adherents or the courts). In Hobby Lobby, the government contended that for-profit corporations could not exercise religion and, consequently, could not avail themselves of the broad protection afforded free exercise under the Religious Freedom Restoration Act. In the seven religious nonprofit cases pending before the United States Supreme Court, the government acknowledges that RFRA applies to religious nonprofits but now alleges that the ACA does not substantially burden the free exercise of these religious organizations. In particular, the government argues that the accommodation to the contraception mandate (which permits religious nonprofits to avoid directly providing coverage for all FDA-approved contraceptives and sterilization procedures by giving notice to their insurance issuers or third party administrators that the religious organizations object to providing such coverage) does not burden, let alone substantially burden, the religious nonprofits’ exercise of religion.
To date, eight circuit courts of appeals have sided with the government, instructing the religious nonprofits that their sincerely held belief — that the accommodation makes them complicit in a grave moral wrong (i.e., the provision of contraceptives and abortifacients) — is incorrect because the ACA, not any actions by the religious nonprofits, is the legal cause of the insurance issuers’ and TPAs’ obligation to provide such coverage. Under the majority’s “Pontius Pilate” defense, the accommodation “washes the hands” of religious nonprofits, cleansing them of any legal or moral responsibility for providing the objectionable coverage. As a result, the religious nonprofits cannot meet their burden under RFRA because the accommodation does not substantially burden their exercise of religion. Only the Eighth Circuit has ruled for the religious nonprofits. The Supreme Court’s resolution of the circuit conflict, therefore, will impact the scope of free exercise protection far beyond the ACA context by deciding whether courts or religious practitioners have the right to determine when government-mandated actions actually contravene sincerely held religious beliefs.
This article contends that the circuit court majority is wrong. Contrary to the majority’s claim, Hobby Lobby and Holt v. Hobbs preclude courts from deciding whether the ACA (or any other statute) actually burdens a religious adherent’s sincerely held beliefs. Although, as Chief Justice Marshall famously declared, “it is emphatically the province and duty of the judicial department to declare what the law is,” courts lack the authority and competence to declare what the religious commitments of a faith are and when those commitments are violated. Under the Court’s free exercise precedents, courts can determine only whether the government puts a religious practitioner to the choice of engaging in conduct that violates her beliefs or of disobeying the government’s policy and facing “serious” consequences. Religious and philosophical questions regarding moral complicity are left to religious adherents, not the courts. As the Founders recognized, religious and moral questions transcend the legal, imposing a different — and higher — obligation on religious believers. For religious adherents, only God (through a religious authority determined in accordance with their sincere religious beliefs) can determine whether an action makes them complicit in sin. Consequently, as the Court explained in Hobby Lobby, “question[s]” about moral complicity are ones “that the federal courts have no business addressing.”
-- Eric C. Chaffee
Wednesday, March 9, 2016
When does an alleged zoning violation justify automatic removal of a property's tax-exempt status? New York State Supreme Court --Appellate Division, Second Department, recently had the opportunity to review the issue.
In Community Assn., Inc. v. Town of Ramapo, 2016 NY Slip Op 01458, 2nd Dept 3-2-16, the Second Department, reversing the trial court, determined that an alleged violation, for which the property owner had never been cited, did not justify the automatic removal of the property's tax-exempt status. The property had been tax-exempt for years as low-income property. The court found that the alleged zoning violation -- that the property owner had more than two residential apartments -- was not incompatible with the tax-exempt use. Therefore, the court held, the alleged zoning violation could not justify automatic removal of the tax-exempt status. Said the court:
[E]ven assuming that a zoning violation had been sufficiently established, the defendants have failed to articulate why such a violation, under the particular circumstances presented, should result in loss of the plaintiff's tax exemption. Not all violations of law automatically result in the loss of a tax exemption ... . 'The concern of the taxing authority is not with the observance or non-observance by plaintiff of regulatory provisions relating to a specific building, but to the use to which the real property as an entity is or is intended to be devoted' ... . This is not a case in which the applicable zoning regulation is incompatible with the occupant's tax-exempt use ... . In such cases, the rationale for denying the tax exemption is simple and clear, as compliance with both the tax-exempt use and the zoning regulation is impossible. Here, by contrast, the tax-exempt use of providing residential housing to low-income tenants is consonant with the property's permitted use as a two-family dwelling. Under these circumstances, the defendants have failed to establish, prima facie, that the nature of the alleged violation (i.e., that the plaintiff had more than two residential apartments) can serve as a valid legal basis for denying the property tax exemption ...".
So to answer the question with which we started, When does a zoning violation justify automatic removal of a property's tax-exempt status? New York's Second Department is clear: When the applicable zoning regulation is incompatible with the property occupant's tax-exempt use.
Tuesday, March 8, 2016
The NonProfit Times is reporting that under a tax proposal put forth by Democratic presidential hopeful Hillary Clinton, the charitable deduction would be exempt from a 28-percent deduction cap and the estate tax exclusion would return to 2009 levels.
According to the Times:
The tax benefit from specified deductions and exclusions would be limited to 28 percent. The cap would apply to all itemized deductions except charitable contributions but would reduce the value of deductions and exclusions for taxpayers in the 33 percent and higher tax brackets.
The proposals also would permanently reduce the tax threshold for estate taxes to $3.5 million ($7 million for married couples) with no adjustment for inflation, increase the top tax rate to 45 percent, and set the lifetime gift tax exemption at $1 million. In 2015, the basic exclusion for the estate tax is $5.45 million and Clinton’s plan would return it back to 2009 levels.
Friday, March 4, 2016
Jonathan Backer (Michigan '15) has published Thou Shalt Not Electioneer: Religious Nonprofit Political Activity and the Threat "God PACs" Pose to Democracy and Religion, 114 Mich. L. Rev. 619 (2016). Here is the abstract:
The Supreme Court’s 2010 decision in Citizens United v. FEC invalidated a longstanding restriction on corporate and union campaign spending in federal elections, freeing entities with diverse political goals to spend unlimited amounts supporting candidates for federal office. Houses of worship and other religious nonprofits, however, remain strictly prohibited from engaging in partisan political activity as a condition of tax-exempt status under Internal Revenue Code § 501(c)(3). Absent this “electioneering prohibition,” religious nonprofits would be very attractive vehicles for political activity. These 501(c)(3) organizations can attract donors with the incentive of tax deductions for contributions. Moreover, houses of worship need not file with a government agency to begin operating and deriving tax benefits, and the IRS has shown reluctance to aggressively audit their activities. Two circuits have previously upheld the electioneering prohibition against legal challenges, but recent jurisprudential shifts expose the tax code provision to challenge under the Religious Freedom Restoration Act (RFRA), which directs courts to apply strict scrutiny to facially neutral laws that substantially burden the free exercise of religion. First, Burwell v. Hobby Lobby Stores, Inc. greatly reduced the barriers to successful RFRA claims. Second, by lifting restrictions on political speech for many other types of organizations, Citizens United magnified the burden the electioneering prohibition imposes on religious organizations. The decision also rejected compelling state interests that might have previously shielded the law from invalidation. This Note is the first analysis of the electioneering prohibition’s vulnerability in this new legal climate. Despite these significant developments, this Note ultimately concludes that the electioneering prohibition can survive RFRA challenges because the prospect for widespread use of religious organizations as conduits for political activity undermines the values reflected in Establishment Clause jurisprudence.
Ellen Aprill (Loyola L.A.) has published The Section 527 Obstacle to Meaningful Section 501(c)(4) Regulation, 13 Pitt. Tax Rev. 43 (2015). Here is the abstract:
Antonio Fici (European Research Institute on Cooperative & Social Enterprise) has posted on SSRN Recognition and Legal Forms of Social Enterprise in Europe: A Critical Analysis from a Comparative Law Perspective. Here is the abstract:
Social enterprise lawmaking is a growth industry. In the United States alone, over the last few years, there has been a proliferation of state laws establishing specific legal forms for social enterprises. The situation is not different in Europe, where the process began much earlier than in the United States and today at least fifteen European Union member states have specific laws for social enterprise. This article will describe the current state of the legislation on social enterprise in Europe, inquiring into its fundamental role in the development of the social economy and its particular logics as distinct from those of the for-profit capitalistic economy. It will explore the models of social enterprise regulation that seem more consistent with the economic growth inspired by the paradigms of the social economy. It will finally explain why, in regulating and shaping social enterprise, the model of the social enterprise in the cooperative form is to be preferred to that of the social enterprise in the company form.