Friday, February 6, 2015
The most recent edition of Nonprofit Advocacy Matters, published by the National Council of Nonprofits, contains a number of entries that may interest readers. Headlines include the following:
Federal Budget 101 (discussing the significance of the President’s Budget, the Budget Resolution prepared by the House and Senate Budget Committees, the Appropriations process and the process of Budget Reconciliation)
Got Influence? (opining that “nonprofits from eleven states have the inside track on delivering the message on how tax exemptions, giving incentives, and regulations” affect the charitable sector because leadership assignments in the Senate Finance Committee “will affect the policy debates and legislation for the next two years”)
Maine Governor Proposes Taxes on Nonprofits (reporting that the budget plan of the Governor of Maine “would remove the full exemption from property taxation on properties owned by nonprofit organizations with an assessed value in excess of $500,000, and reduce the exemption to 50 percent on the portion of the value in excess of $500,000”)
Court Orders Massachusetts to Update Rates Paid to Nonprofits (reporting that a state judge has ordered the Massachusetts Secretary of the Executive Office of Health and Human Services to “update the rates paid to nonprofits for human services provided on behalf of the Commonwealth”)
Nonprofit Independence Challenged, Preserved in the Northeast (citing recent examples of how “public and government officials often misunderstand the relationship between governments and charitable nonprofits and mistakenly presume that rules and mandates by government ought to automatically apply to these independent organizations”)
Taxes, Fees, PILOTs (noting developments in Alaska and Pennsylvania)
New State Offices for Faith-Based Nonprofits (discussing the creation in New York of an Office “to assist and leverage community and faith-based organizations in the delivery of education, health, workforce training, food programs, and social services to communities, particularly those most in need” and proposed legislation in Pennsylvania to establish an Office “that would do much of the same work contemplated for the new New York Office”)
Thursday, February 5, 2015
As reported in The Buffalo News, New York Governor Andrew Cuomo is proposing that those who donate to organizations “that give scholarships to low- and middle-income families to attend private schools would get a tax break,” as would those who donate “to education foundations and other groups that help public schools.” The form of the proposed tax incentive is reported to be a state income tax credit that “would take up to 75 cents off the tax bill for every dollar donated, up to a $1 million.”
Enacting the proposal into law may require some political maneuvering. The story continues:
In Albany, debate over the tax credit has been framed as a fight between private school supporters and public school advocates. But Cuomo last month linked it to another education proposal, the DREAM Act, short for Development, Relief and Education for Alien Minors, which would let children of undocumented immigrants get college tuition assistance.
Cuomo told lawmakers last month that he would only approve the two together.
The article states that opponents fear the proposal will lead to less support for public schools, whereas others see benefits to public education in that donors to charities “that raise money for school improvements or academic programs at public schools would be eligible for the tax credit under Cuomo’s plans.”
Wednesday, February 4, 2015
The Chronicle of Philanthropy is running three stories discussing certain of the provisions affecting the charitable sector in President Obama’s proposed budget, one of which stories also notes efforts in the House of Representatives to make permanent several temporary charitable giving incentives.
One article observes the “mix of praise and criticism for a nearly $4-trillion budget package for fiscal year 2016 that was formally released by the White House on Monday.” The sense of the article is that the nonprofit sector is (unsurprisingly) embracing many of the President’s funding initiatives, while (also unsurprisingly) expressing some disappointment with his perennial proposal to limit the value of the charitable contributions deduction to higher income taxpayers. One of the fairest assessments comes from a YMCA leader:
Regardless of what is ultimately passed by Congress, the proposal is a good reflection of the President’s priorities, said Neal Denton, senior vice president and chief government affairs officer for the YMCA of the USA. “We’re especially happy to see his focus on ensuring opportunities for children and families to learn, grow, and thrive,” he said, noting line items that would increase access to child care and early education, among other things.
Key excerpts from another article, which focuses on tax matters:
Part of a massive $4-trillion proposal, President Obama’s plan would limit the value of all itemized deductions, including one for charitable gifts, to 28 percent for individuals who earn more than $200,000 and couples who earn more than $250,000. …
The budget plan follows a tax proposal President Obama made in January that would raise the capital-gains tax rate and close what the White House called the "trust-fund loophole," which limits heirs’ exposure to gains in the value of the assets they inherit. The president’s plan would subject appreciated value to the capital-gains tax but would provide an exemption if the assets are donated to charity.
Joanne Florino, senior vice president for public policy at the Philanthropy Roundtable, an organization that represents donors, said it was curious that President Obama exempted charitable gifts on those inheritances, yet is still pushing to limit the deduction over all. …
Meanwhile, House Republicans are pushing to make a set of temporary tax breaks for charitable giving permanent. The tax benefits, for gifts of land for conservation purposes, gifts of food to food banks and other charities, and gifts made by retirees straight from individual retirement accounts, are part of a slate of about 50 temporary tax provisions called "extenders" that are usually renewed each year.
And yet another piece explains why the President’s proposal to raise the estate tax rate – while simultaneously not subjecting appreciation on assets to federal income taxation when the assets are donated to charitable entities – is a significant tax incentive for charitable giving:
An estate-tax increase would provide a huge benefit to charities because donations to these groups would become the only easy way to legally avoid capital-gains taxes, according to Len Burman, director of the Tax Policy Center.
Rather than pass assets down to heirs and incur a higher tax levy, more wealthy tax filers will chose to bequeath their assets to charities upon their death, Mr. Burman said.
“The president has locked up the philanthropic sector vote,” he wrote in TaxVox, a blog maintained by the center. “Except, of course, he isn’t running again.”
For an opinion-free survey of the President’s tax-related proposals affecting charities, see this previous entry on the blog.
Tuesday, February 3, 2015
President Obama’s proposed Fiscal Year 2016 Budget (“Proposed Budget”) contains a few provisions affecting charities and charitably minded donors. The following proposals are of interest. Direct quotes are from either the Proposed Budget or the Department of the Treasury’s General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals (“Treasury Explanations”), as indicated.
Limit the Benefit of the Charitable Contributions Deduction
“The Budget would limit the value of most tax deductions and exclusions to 28 cents on the dollar, a limitation that would affect only couples with incomes over about $250,000 (singles with incomes over about $200,000). The limit would apply to all itemized deductions, as well as other tax benefits, such as tax-exempt interest and tax exclusions for retirement contributions and employer-sponsored health insurance.” Proposed Budget, 56.
Obviously, the charitable contributions deduction is, as in prior years’ budgets proposed by the President, subject to the limitation. According to Treasury Explanations, the provision “would apply to itemized deductions after they have been reduced by the statutory limitation on certain itemized deductions for higher-income taxpayers.” Treasury Explanations, 155.
Repeal the Non-Hospital Bond Limitation on Qualified Section 501(c)(3) Bonds
As discussed in Treasury Explanations, “[t]he Tax Reform Act of 1986 established a $150 million limit on the volume of outstanding, non-hospital, tax-exempt section 501(c)(3) bonds. The limit was repealed in 1997 with respect to bonds issued after August 5, 1997, if at least 95 percent of the net proceeds were used to finance capital expenditures incurred after that date. Thus, the limitation continues to apply to bonds more than five percent of the net proceeds of which finance or refinance (1) working capital expenditures, or (2) capital expenditures, incurred on or before August 5, 1997.” Treasury Explanations, 77. Treasury believes that the $150 million limitation “results in complexity and provides disparate treatment depending on the nature and timing of bond-financed expenditures,” and that repealing it “would enable nonprofit universities to utilize tax-exempt financing on a basis comparable to public universities.” Id. Under the administration’s proposal, “[t]he $150 million limit on the volume of outstanding, non-hospital, tax-exempt bonds for the benefit of any one section 501(c)(3) organization would be repealed in its entirety, effective for bonds issued after the date of enactment.” Id.
Disallow Deduction for Payments Entitling Payor the Right to Buy College Athletics Tickets
As Treasury Explanations notes, “donors to colleges and universities that receive in exchange for their contributions the right to purchase tickets for seating at an athletic event may deduct 80 percent of the contribution.” Treasury Explanations, 177. The administration’s proposal would disallow a deduction for any such transfer for the right to buy tickets to sporting events. See id.
Consolidate AGI-Based Limitations on Charitable Contributions Deduction
Current law limits the charitable contributions deduction to various percentages of a taxpayer’s “contribution base” (basically AGI), depending on the type of charitable donee and the type of donated property. “The proposal would simplify this complicated set of rules limiting deductions for charitable contributions. Under the proposal, the contribution base limit would remain at 50 percent for contributions of cash to public charities. For all other contributions, a single deduction limit of 30 percent of the taxpayer's contribution base would apply, irrespective of the type of property donated, the type of organization receiving the donation, and whether the contribution is to or for the use of the organization. In addition, the proposal would extend the carry-forward period for contributions in excess of these limitations from five to 15 years.” Treasury Explanations, 280.
Modify Deduction for Qualified Conservation Contributions
Code section 170 provides special rules for qualified conservation contributions. The administration proposes several modifications to the rules governing the deduction, and also proposes “to pilot a non-refundable credit for conservation easement contributions as an alternative to the conservation contribution deduction ….” Treasury Explanations, 191.
Additional details excerpted from Treasury Explanations:
This proposal would make permanent the temporary enhanced incentives for conservation easement contributions that expired on December 31, 2014. In addition, to address concerns regarding abusive uses of this deduction and to promote effective, high-value conservation efforts, the proposal includes a number of reforms:
First, the proposal would strengthen standards for organizations to qualify to receive deductible contributions of conservation easements by requiring such organizations to meet minimum requirements, specified in regulations, which would be based on the experiences and best practices developed in several States and by voluntary accreditation programs. For example, the regulations could, among other things, specify that a “qualified organization” must not be related to the donor or to any person that is or has been related to the donor for at least ten years; must have sufficient assets and expertise to be reasonably able to enforce the terms of all easements it holds; and must have an approved policy for selecting, reviewing, and approving conservations [sic] easements that fulfill a conservation purpose. An organization that accepts contributions that it knows (or should know) are substantially overvalued or do not further an appropriate conservation purpose would jeopardize their status as a “qualified organization.”
Second, the proposal would modify the definition of eligible “conservation purposes” for which deductible contributions may be made, requiring that all contributed easements further a clearly delineated Federal conservation policy (or an authorized State or tribal government policy) and yield significant public benefit.
Third, in order to take a deduction, a donor must provide a detailed description of the conservation purpose or purposes furthered by the contribution, including a description of the significant public benefits it will yield, and the donee organization must attest that the conservation purpose, public benefits, and fair market value of the easement reported to the IRS are accurate. Penalties would apply on [sic] organizations and organization managers that attest to values that they know (or should know) are substantially overstated or that receive contributions that do not serve an eligible conservation purpose.
Finally, the proposal would require additional reporting of information about contributed conservation easements and their fair market values. Section 6033 would be amended to require electronic reporting and public disclosure by donee organizations regarding deductible contributions of easements that is sufficient for transparency and accountability including: detailed descriptions of the subject property and the restrictions imposed on the property, the conservation purposes served by the easement, and any rights retained by the donor or related persons; the fair market value of both the easement and the full fee interest in the property at the time of the contribution; and a description of any easement modifications or actions taken to enforce the easement that were taken during the taxable year. As is the case under current law, personally identifying information regarding the donor would not be subject to public disclosure.
* * *
The proposal would amend the charitable contribution deduction provision to prohibit a deduction for any contribution of a partial interest in property that is, or is intended to be, used as a golf course.
* * *
The proposal would disallow a deduction for any value of an historic preservation easement associated with forgone upward development above an historic building. It would also require contributions of conservation easements for all historic buildings, including those listed in the National Register, to comply with a 2006 amendment that requires contributions of historic preservation easements on buildings in registered historic districts to comply with special rules relating to the preservation of the entire exterior of the building and the documentation of the easement contribution. Treasury Explanations, 190-192.
Reform Private Foundation Excise Tax on Net Investment Income
As discussed in Treasury Explanations, under Code section 4940, tax-exempt private foundations generally are subject to a two percent excise tax on their net investment income. However, the applicable rate is generally one percent in any year in which the foundation’s qualifying distributions exceed the average level of its qualifying distributions over the five preceding taxable years. Treasury Explanations, 267. The administration proposes to “replace the two rates of tax on private foundations that are exempt from Federal income tax with a single tax rate of 1.35 percent.” Id. No special reduction in excise tax would apply to tax-exempt private foundations that maintain their historic levels of charitable distributions. See id. Further, “[t]he tax on private foundations not exempt from Federal income tax would be equal to the excess (if any) of the sum of the 1.35-percent excise tax on net investment income and the amount of the unrelated business income tax that would have been imposed if the foundation were tax exempt, over the income tax imposed on the foundation.” Id.
In Lain v. Commissioner, T.C. Summary Opinion 2015-5 (Feb. 2, 2015), the United States Tax Court issued a summary opinion allowing partial deductions for medical and dental expenses, charitable contributions, and other expenses claimed by the taxpayers. As to their charitable contributions, the taxpayers claimed a deduction of $8,880, consisting of $5,730 by cash or check and $3,150 worth of clothing.
At trial, one of the taxpayer’s submitted a canceled check for $95 made payable to a local church, and he testified that he and his wife weekly donated $20 in cash to the church. The taxpayers, however, were unable to substantiate many of their expenses because their records were destroyed by water from a pipe that had burst.
Citing several cases, the Tax Court observed the principle that, when a taxpayer’s records suffer destruction on account of circumstances beyond the taxpayer’s control, she may substantiate her claimed expenses through reasonable reconstruction. Two paragraphs of the opinion set forth the Tax Court’s disposition of the claimed charitable contributions deduction:
Petitioners contend that they are entitled to a Schedule A charitable contribution deduction of $8,880. In general, section 170(a) allows a deduction for any charitable contribution by the taxpayer made within the taxable year. Charitable contribution deductions are subject to the recordkeeping requirements of section 1.170A-13(a), Income Tax Regs., for contributions of money, and section 1.170A-13(b), Income Tax Regs, for contributions of property other than money. Where the contribution is $250 or more, section 170(f)(8) requires the taxpayer to substantiate the claimed contribution with a written contemporaneous acknowledgment from the donee organization. If a taxpayer makes a charitable contribution of property other than money in excess of $500, the taxpayer must maintain written records showing the manner of acquisition of the property and the approximate date of acquisition. See sec. 1.170A-13(b)(3), Income Tax Regs.
At trial Mr. Lain submitted a canceled check for $95 payable to St. Timothy Catholic Church. In addition, he credibly testified that he placed $20 in cash “into the plate” when attending weekly church services. Mr. Lain also credibly testified that petitioners made some donations of property to qualified charitable organizations. On the basis of petitioners’ documentary evidence and Mr. Lain’s credible testimony, we find that petitioners contributed at least $1,095 in money (check and cash) to St. Timothy Catholic Church and at least $200 in property other than money to qualified charitable organizations. Consequently, we hold that petitioners are entitled to deduct $1,295 for charitable contributions for 2010. [footnote omitted]
I am perplexed by the allowance of a deduction for some of the cash placed in the offering plate. Although the opinion discusses section 170(f)(8) of the Internal Revenue Code (the “Code”), it does not mention Code section 170(f)(17), which provides as follows:
No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.
This provision was added by the Pension Protection Act of 2006, so it governs the taxpayers’ year in question, notwithstanding that the Treasury regulations cited by the court do not reflect the statutory change. It is possible that the cash donated by the taxpayers was placed in an envelope that identified the taxpayers and allowed the church to authenticate the donations, and that the church sent acknowledgments to the taxpayers that were destroyed by the water leak. But such facts are never stated in the opinion. The facts described in the opinion read as though the taxpayers just placed cash directly in the plate. No deduction is available in such a case.
Of course, under Code section 7463(b), this summary opinion cannot be cited as precedent.
Monday, February 2, 2015
The Internal Revenue Service recently issued a public warning about groups “masquerading as a charitable organization” to lure unsuspecting donors, a scam making the IRS’s 2015 “Dirty Dozen” list. Here are some of the highlights of the IRS’s admonition:
Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
Don’t give out personal financial information, such as Social Security numbers or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. People use credit card numbers to make legitimate donations but please be very careful when you are speaking with someone who called you.
Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.
According to Tax Notes Today (subscription required), at the Exempt Organizations session of the American Bar Association Section of Taxation meeting in Houston, Victoria Judson, IRS Associate Chief Counsel (Tax Exempt & Government Entities), stated that cuts to the agency’s budget – 5% this year alone – could adversely affect the issuance of private letter rulings on topics important to tax-exempt organizations. The IRS may attempt to fill the void through small guidance projects addressing issues commonly appearing in requests for letter rulings, and through model letter rulings issued under an automatic approval process if a letter ruling request follows a pattern.
Electronic Cite: 2015 TNT 21-21
The Boston Globe reports that Boston College’s Center on Wealth and Philanthropy, established in 1970, will cease operating when its leaders step down. The Center’s director, Paul Schervish, a former Jesuit priest, and associate director John Havens, reportedly plan to retire soon, perhaps by this summer (barring the Center’s receipt of an unforeseen grant that would prolong their interest in operating the Center). The Center’s work apparently has been tied closely to the unique, complementary backgrounds and personalities of its leaders:
[B]oth [leaders] say their distinctive blend of expertise — Schervish’s background is in literature, sociology, and theology, while Havens’s training is in economics, mathematics, and physics — has created an academic partnership that would be difficult to replicate.
“We have a special chemistry, and that’s led to a unique working relationship,” Havens said.
The story features an interesting discussion on misconceptions about the relationship between estate taxation and philanthropy:
In 2006, the center published a paper refuting the long-held belief that the main reason wealthy people leave money to charity is to avoid estate taxes, and that charitable bequests would plummet if estate taxes were eliminated.
On the contrary, Schervish and Havens found, the wealthiest Americans tend to give to charity for more altruistic reasons once they reach financial security.
“We always focused on spiritual context,” Schervish said, “and our statistical work was always the foundation for a moral question: How can you use your wealth for deeper purposes when you no longer need to achieve a higher standard of living?”
The Globe reports that Schervish was recently appointed a visiting research fellow at Duke University and intends to serve on the faculty of Boston College until the end of the year.
Friday, January 30, 2015
As reported in the Daily Tax Report and as released in a statement from his office, Senator Grassley is requesting that a Missouri non-profit hospital, Mosaic Life in Care in St. Joseph, Missouri, explain its large number of lawsuits against low-income patients over treatment bills rather than providing such patients reasonable payment plans for their medical care. In a letter to the hospital, the Senator affirmed Mosaic's requirement to confer community as a condition to its tax-exempt status as well as meet other requirements under the law, including a financial assistance policy and constraints on billing and collection practices. In his statement, the Senator explained:
Non-profit hospitals are obligated under law to have a financial assistance policy and alert those who can’t afford care of any assistance they qualify to receive. Occasionally, a hospital seems to go out of its way to avoid helping the poorest patients. When these cases come up, the hospitals should explain their practices and how they comply with the spirit and the letter of the law. It’s a matter of accountability for the tax breaks they receive.
According to The Times Herald in Harrisburg, Pennsylvania voters could may be voting on a state constitutional amendment to resolve a long-running dispute about who decides which charities should be exempt from taxes, a determination that has serious repercussions not only for the purported charity itself but also the cities and towns in which they are based. A constitutional amendment passed the Pa. Legislature during its last session that would confer upon the Legislature explicit authority to “establish uniform standards and qualifications” in determining what constitutes a "purely public charity" (and thus tax-exempt) under the Pennsylvania Institutions of Purely Public Charity Act (Act 55 of 1997). According to The Times Herald, "hospital and health-related organizations, religious groups and other nonprofits have urged lawmakers to advance the proposal, while municipal officials say it might add to their already disproportionate number of tax-exempt properties."
If Pennsylvania legislators approve the legislation again within the next two years, voters will vote on the measure as a referendum. According to the article, the May 19 primary is the earliest possible date it could reach voters.
(See a Senate Co-Sponsorship Memoranda for further information on the legislation).
Patrick Walker (Lindenwood University) has posted Whistleblower Protection for Missouri Nonprofit Organizations. Here is the abstract:
Nonprofit organizations exist primarily to further the interests of individuals, businesses, and communities who believe and trust in the organization’s mission. At the heart of every nonprofit’s mission is governance: creating systems, structure, and solutions to guide expectations and decision-making that promotes and protects good citizenship in business. Whistleblower policies represent “good governance” for public employees who report illegal or fraudulent activity by an employer, government, or organization, with a set of duties defined by law for employees and employers. While most states have whistleblower laws and policies protecting government and/or private sector employees, Missouri whistleblower protection only extends to public employees. This article will critique the notion of whistleblower protection in general and for Missouri nonprofit organizations, discuss implications of a recent Eighth Circuit Court of Appeals decision in
Chavez-Lavagnino v. Motivation Education Training, Inc., and outline a governance conceptual framework for developing whistleblower protection policies in nonprofit organizations.
Saturday, January 24, 2015
Elizabeth A.M. Searing (School of Policy Studies, Georgia State University) has published Charitable (Anti)Trust: The Role of Antitrust Regulation in the Nonprofit Sector, 5 Nonprofit Policy Forum 261 (2014). Here is the abstract:
The purpose of this study is to address the ambiguities in the application of anti-trust regulations to the nonprofit sector. We first survey policy tools and their diverse historical usage in nonprofit and mixed markets, specifically in professional associations, hospitals, and education. This analysis informs the development of a typology of anti-competitive nonprofit markets which is used to classify the three historical examples into eight traits. Finally, this typology is applied to three new markets – animal shelters, thrift stores, and soup kitchens – which have less in common with purely for-profit markets and have little or no discussion in antitrust literature. We find that the nonprofit form per se does not indicate an absence of anticompetitive practices or antitrust concerns; however, certain combinations of attributes – such as purely donative revenues and an absence of pricing ability – make the threat of anticompetitive practice less oppressive.
Kate Cooney (School of Management, Yale), Justin Koushyar (Business School, Emory), Matthew Lee (INSEAD (Singapore)), and Haskell Murray (Belmont) have posted the results of their research titled Benefit Corporation and L3C Adoption: A Survey at the Stanford Social Innovcation Review blog. Here is the introduction:
A major challenge for social enterprises pursuing both a social mission and financial profit has been the absence of clear legal guidance about their responsibilities to investors and other stakeholders. In the United States, a number of new legal forms specific to social enterprise have emerged over the last decade to fill this gap. The two most common, the low-profit limited liability company (L3C) and the benefit corporation, modify traditional business legal structures to clearly enable and mandate the pursuit of social and environmental as a for-profit business enterprise. This is no small matter—the last major legal form to be created in the United States was the LLP in 1991.
The success of a new regulatory infrastructure for social enterprise depends heavily on the extent to which state legislators, then companies, adopt these forms. To date, a lack of good data has made it difficult to evaluate progress. To address this, we worked over the last year with Secretary of State offices and Intersector Partners to develop systematic, nation-wide data on adoption of these forms.
Hemphill & Cullari: The Benefit Corporation: Corporate Governance and the For-profit Social Entrepreneur
Thomas A. Hemphill and Francine Cullari (both School of Management, Michigan-Flint) have published The Benefit Corporation: Corporate Governance and the For-profit Social Entrepreneur, 119 Business and Society Review 519 (2014). Here is the abstract:
The adoption by 19 states and the District of Columbia of a new variant of the business corporation form—known as the benefit corporation—presents several issues for legislatures, for entrepreneurs electing to organize as benefit corporations, for existing corporations that are converting to the new form, and for the stakeholders (other than shareholders) who are intended to be considered in benefit corporation governance. The article presents the history and structure of the new business form and a discussion of what has become its predecessor—the constituency statute. The model benefit corporation statute provisions are reviewed, which many states have adopted in toto. The authors address the obstacles that should be overcome by legislatures, businesses, and stakeholders before further legislative adoptions occur, as well as considerations for effective implementation by government, corporations, and stakeholders under existing and proposed variations of the statute.
Samuel D. Brunson (Loyola-Chicago) has posted Dear I.R.S., It Is Time to Enforce the Campaigning Prohibition, Even Against Churches. Here is the abstract:
In 1954, Congress prohibited tax-exempt public charities, including churches, from endorsing or opposing candidates for office. To the extent a tax-exempt public charity violated this prohibition, it would no longer qualify as tax-exempt, and the I.R.S. was to revoke its exemption.
While simple in theory, in practice, the I.R.S. rarely penalizes churches that violate the campaigning prohibition, and virtually never revokes a church’s tax exemption. And, because no taxpayer has standing to challenge the I.R.S.’s inaction, the I.R.S. has no external imperative to revoke the exemptions of churches that do campaign on behalf of or against candidates for office.
This argument makes the normative case that, notwithstanding the I.R.S.’s administrative discretion and the inability of taxpayers to challenge its nonenforcement in court, the time has come for the I.R.S. to begin enforcing the campaigning prohibition. Failing to do so harms the Rule of Law, the taxpaying public, and churches themselves. Moreover, the moment is correct for enforcement, as Pulpit Freedom Sunday has virtually eliminated the I.R.S.’s search costs, people are more aware than ever that churches are violating the prohibition, and, in the aftermath of the Supreme Court’s Citizens United decision, the campaigning prohibition may represent the final regulatory barrier between charities and politicking.
Even if enforcing the campaigning prohibition is the right thing to do, it would potentially be unpopular, and could provoke a backlash against the I.R.S. After making the normative case for enforcement, then, this Article provides a strategy for enforcement that will allow the I.R.S. to explain what it is doing and why to the general taxpaying public, and will further permit the I.R.S. to avoid the appearance of partisanship. Ultimately, enforcement will allow the I.R.S. to responsibly administer the tax law, will permit the question of the prohibition’s constitutionality to get in front of the judiciary, and will demonstrate dedication to the Rule of Law.
To this day, the law of charity is often thought of as a matter for the states. In fact, the crucial law relating to charity is now almost always federal. For certain purposes, state law still determines whether a given entity is “charitable.” It also determines the propriety of a charitable fiduciary’s conduct when someone who has standing sues. But federal law determines whether an entity qualifies for various tax incentives, such as exemption from the federal income tax and eligibility to receive tax-deductible gifts, and qualification for these incentives generally determines whether the entity comes into existence and, if so, whether it survives. Federal law also wields a bewildering array of draconian penalties against both charities and their fiduciaries for failure to comply with federally specified rules of behavior. This Article examines both of these and other ways in which federal law has essentially taken over the law of charity. The point is not whether federalization of the law of charity is good or bad. The point is simply this: During the last century, Congress and the federal courts federalized the law of charity.
Friday, January 23, 2015
In recent years, a conservative majority of the U.S. Supreme Court, over vigorous dissents, has developed circumventions to the Establishment Clause of the First Amendment that allow state legislatures unabashedly to use public tax dollars increasingly to aid private elementary and secondary education. This expansive and innovative legislation provides considerable governmental funds to support parochial schools and other religiously-affiliated education providers. That political response to the perceived declining quality of traditional public schools and the vigorous school choice movement for alternative educational opportunities provokes passionate constitutional controversy. Yet, the Court’s recent decision in Arizona Christian School Tuition Organization v. Winn inappropriately denies taxpayers recourse to challenge these proliferating tax funding schemes in federal courts. Professors Winer and Crimm clearly elucidate the complex and controversial policy, legal, and constitutional issues involved in using tax expenditures - mechanisms such as exclusions, deductions, and credits that economically function as government subsidies - to finance private, religious schooling. The authors argue that legislatures must take great care in structuring such programs and set forth various proposals to ameliorate the highly troubling dissention and divisiveness generated by state aid for religious education.
NPR and ProPublica report that Senator Chuck Grassley is not letting his departure from the Senate Finance Committee deter him from continuing to challenge the practices of tax-exempt nonprofits. Responding to earlier stories from these two outlets that some nonprofit hospitals have been seizing the wages of low-income patients, Senator Grassley is now demanding that those hospitals explain their actions and challenging them on whether those actions are consistent with their tax and nonprofit status. He is also invoking the provision included in the Affordable Care Act and codified in Internal Revenue Code section 501(r)(6) requiring section 501(c)(3) hospitals to make "reasonable efforts" to determine if an individual is eligible for financial assistance before engaging in extraordinary collection actions as a condition of maintaining their tax-exempt status.
The Center for Public Integrity reports that it has obtained new information detailing how rare it is for the IRS to audit a tax-exempt organization for alleged excessive political activity. CPI states that according to the IRS itself the Service has "only begun auditing 26 organizations specifically for political activity since 2010." CPI blames the lack of audits, even as hundreds of millions of dollars have been spent by such organizations for political activity, on a mix of factors, including a reduced Exempt Organizations Division staff, a lack of clarity in the rules governing such activity, and an understandable wariness to address such issues given the continuing aftershocks from the 501(c)(4) application controversy . CPI obtained this information through a Freedom of Information Act request filed late in 2013.