Thursday, November 20, 2014

Harvard Students Sue over University Investments

The Boston Globe reports that seven Harvard students (including some at the Harvard Law School) have filed a lawsuit in Suffolk County Superior Court against the president and fellows of Harvard College for its investment in stocks of companies that produce fossil fuels.  The complaint – said to contain 167 pages of exhibits – reportedly alleges “mismanagement of charitable funds” and asserts a tort, “intentional investment in abnormally dangerous activities.”  The story states that the 11-page complaint seeks a judicial order to compel divestment.     


Relatedly, the law students filing the complaint have taken the opportunity to publicize their effort through an op-ed, also appearing in the Boston Globe.  Among the more interesting remarks:


Our legal claims are simple. Harvard is a nonprofit educational institution, chartered in 1650, to promote “the advancement and education of youth.” By financially supporting the most dangerous industrial activities in the history of the planet, the Harvard Corporation is violating commitments under its charter as well as its charitable duty to operate in the public interest.


Our suit charges that the Harvard Corporation is breaching its duties under its charter by investing in fossil fuel companies. Our second count is a novel tort claim, intentional investment in abnormally dangerous activities, that is based in well-established legal principles regarding liability for promoting especially hazardous behavior.


I certainly appreciate that the filing of this lawsuit has given these students a springboard for publicizing their viewpoint.  While I would benefit from a review of the complaint (which I do not have), just by reading the press reports, I believe the suit clearly faces obstacles, both procedural and substantive. 


The most obvious procedural issue is whether the students have standing.  Although some have argued for student standing to bring lawsuits alleging mismanagement by university fiduciaries, see, e.g., Sara Kusiak, Comment, The Case for A.U. (Accountable Universities): Enforcing University Administrator Fiduciary Duties Through Student Derivative Suits, 56 Am. U. L. Rev. 129 (2006), I am skeptical that a court would grant standing to the students in this case.  For one thing, I doubt that they are harmed more particularly, in any material way, by Harvard’s investment policy than is the public at large – assuming that the public is harmed in the first place.


Even more important, it seems to me, is the difficulty of convincing a judge that the claims of the students have substantive merit.  One could plausibly argue that an environmental organization is violating its mission by investing in fossil fuel company stocks solely for the prospect of earning profits.   But Harvard?  It is far from clear that Harvard’s investment policies are anti-educational.  Of course, one could argue more broadly that all charities must operate in a manner consistent with the public interest by not violating public policy (remember Bob Jones in the tax-exemption qualification context?).  However, could we really expect a court to conclude that buying oil company stocks is contrary to established public policy?  Imagine the implications!  (I say that with a modest chuckle, for “imagining the implications” may be precisely what is driving the legal action.)


And as for that “novel tort claim, intentional investment in abnormally dangerous activities” – I do not know what sanctions apply for raising frivolous claims in Massachusetts state courts, but if I were one of the plaintiffs, I would be concerned enough to research the issue thoroughly (if I had not yet done so) and prepare myself to drop that one from the complaint.


One final point.  To doubt the legal merits of the students’ claims is not to deny the ability of charities, such as Harvard and its nonprofit affiliates, to engage in socially conscious investing.   There is a major difference between (1) maintaining that charity fiduciaries are free to engage in socially conscious investing without violating their duties to the nonprofit corporation/its charitable purposes, and (2) asserting that charity managers violate their fiduciary duties by making investments that some consider contrary to socially conscious investing.  The former respects the right of charity managers to exercise discretion on the matter.  The latter can easily take the form of supplanting fiduciaries’ judgment with the judgment of others.


Those interested may wish to consult additional coverage in the New York Times.




November 20, 2014 in State – Judicial | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 19, 2014

Former Controller of the Hereditary Disease Foundation Charged with Embezzlement

In Former Controller of Medical Nonprofit Is Charged With Embezzling $1.8 Million, the New York Times reports that Karen Alameddine, who served as the controller of the New York-based Hereditary Disease Foundation from September 2005 through January 2014, has been charged with embezzling more than $1.8 million of the nonprofit’s funds.  Further details appear in the story: 

Federal prosecutors in Manhattan said in a criminal complaint unsealed on Tuesday that Ms. Alameddine began diverting money by disguising entries in the foundation’s accounting software “to make what in reality were transfers to her personal bank account appear as if they were wire or bank transfers” to grant recipients.


The government said Ms. Alameddine, who also went by Karen Dean, worked for the organization in recent years from her residence in Perris, Calif. The funds she diverted went into accounts she controlled with names like Abacus Accounting, Chez Cheval Ranch, Dean & Co. and Karen Dean Exports, the complaint said.

The alleged scheme reportedly came to light after Alameddine’s departure, when the foundation investigated a complaint from a grant recipient that he had not yet received his check from the foundation.


November 19, 2014 in Current Affairs | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 18, 2014

Avoiding Mistakes in Nonprofit Personnel Matters

In You Hired Who? Top 10 Nonprofit Employment Mistakes, a brief article appearing a few weeks ago in The NonProfit Times, Siobhan Kelley discusses several mistakes to avoid in the process of hiring and managing personnel.  Because nonprofits must practice good governance, the article is worth a look.  The article identifies and discusses the following mistakes: 

  1. Rushing To Fill An Empty Seat With A Warm Body: Mistakes In Hiring
  2. Failing to Maintain Performance/Disciplinary Records
  3. Not Requiring Managers To Document Performance Problems
  4. Misclassifying Employees as Independent Contractors
  5. Making All Employees “Salaried”
  6. Letting Employees Work “Off The Clock” Or Volunteer
  7. Drafting “Overly Optimistic” Personnel Policies
  8. Not Appropriately Addressing Disability Issues
  9. Treating Employees As Clients
  10. Forgetting About The Employee On A Leave Of Absence


November 18, 2014 in Other | Permalink | Comments (0) | TrackBack (0)

Monday, November 17, 2014

D.C. Circuit Rejects Challenge to Accommodation under Affordable Care Act

In an Associated Press story, the Tulsa World reports that the United States Court of Appeals for the District of Columbia Circuit has rejected a challenge by religious groups, including Priests For Life and the Roman Catholic Archbishop of Washington, to an accommodation devised by the Obama administration to enable the groups to avoid paying for contraception under the Affordable Care Act.  The court concluded that the accommodation does not impose an unjustified substantial burden on religious exercise in violation of the Religious Freedom Restoration Act (“RFRA”). 

The facts are likely familiar to most readers, and are summarized in the story as follows:

The Affordable Care Act requires that women covered by group health plans be able to acquire Food and Drug Administration-approved contraceptive methods at no additional cost. In response to an outcry from religious groups, the government devised the accommodation, but the groups continued to oppose the regulations.   

To be eligible for the accommodation, a religious organization must certify to its insurance company that it opposes coverage for contraceptives and that it operates as a nonprofit religious organization.

The opinion succinctly captures the plaintiffs’ objection to the accommodation:

The contraceptive coverage opt-out mechanism substantially burdens Plaintiffs’ religious exercise, Plaintiffs contend, by failing to extricate them from providing, paying for, or facilitating access to contraception. In particular, they assert that the notice they submit in requesting accommodation is a “trigger” that activates substitute coverage, and that the government will “hijack” their health plans and use them as “conduits” for providing contraceptive coverage to their employees and students. Plaintiffs dispute that the government has any compelling interest in obliging them to give notice of their wish to take advantage of the accommodation. And they argue that the government has failed to show that the notice requirement is the least restrictive means of serving any such interest.

 The court rejected the plaintiffs’ RFRA claim.  Said the court:

We conclude that the challenged regulations do not impose a substantial burden on Plaintiffs’ religious exercise under RFRA.  All plaintiffs must do to opt out is express what they believe and seek what they want via a letter or two-page form.  That bit of paperwork is more straightforward and minimal than many that are staples of nonprofit organizations’ compliance with law in the modern administrative state. Religious nonprofits that opt out are excused from playing any role in the provision of contraceptive services, and they remain free to condemn contraception in the clearest terms. The ACA shifts to health insurers and administrators the obligation to pay for and provide contraceptive coverage for insured persons who would otherwise lose it as a result of the religious accommodation.

The court further concluded that, even if the law were deemed to substantially burden the plaintiffs’ exercise of religion, the regulation is supported by compelling governmental interests, and the accommodation “requires as little as it can from the objectors” while still serving those interests.

In the AP story, the Archdiocese of Washington is quoted as characterizing the decision as "very troubling and deeply flawed."

Here is the opinion.   Here is an entry on the opinion from the SCOTUSblog.


November 17, 2014 in Church and State, Federal – Judicial | Permalink | Comments (0) | TrackBack (0)

Philadelphia-Area Nonprofit Illustrates the Changing State of International Adoption

In Era Ending in International Adoption, The Philadelphia Inquirer reports that Pearl S. Buck International, a nonprofit that for years has worked to find homes for children unlikely to be placed in families through typical adoption agencies, has terminated its international adoption operations.  The change is portrayed as a sign of the times – a perfect storm of legal, economic, and cultural factors now stifling international adoptions.  According to the story,

A paradigm shift is taking place in countries across the globe, including the United States, that have enacted more restrictive adoption policies. As a result, the international adoption rate has plummeted by 70 percent since 2004 and squeezed out some long-established programs, such as the one founded by Buck.

"What we're seeing is the end of an era," said Adam Pertman, president of the Massachusetts-based National Center on Adoption and Permanency and author of the book Adoption Nation. "International adoption as we've come to know it is morphing into something new and something different and something that involves far fewer children."

Factors reportedly contributing to the legal restrictions that are reducing international adoptions include nationalism, economic improvement in some countries that historically have welcomed international adoptions, and concern over past illegal trafficking in babies and profit-motivated corruption.

Also mentioned is the United States’ ratification of the Hague Convention on Intercountry Adoption.  The story continues:

The new regulations, which advocates support, have added extra financial burdens in the way of more social workers as well as more costly insurance and fees. For Pearl S. Buck International, the confluence of higher costs and fewer children led to the program's demise, CEO Janet Mintzer said.

"You can't really support an adoption program when you have seven adoptions," she said. "It just doesn't make sense for us as an organization."

For Pearl S. Buck International, the new reality means that it “will continue its mission of serving children through child sponsorship and running cultural exchange programs” with foreign countries.


November 17, 2014 in Current Affairs | Permalink | Comments (0) | TrackBack (0)

Thursday, November 6, 2014

Privacy Debate Returns To Harvard


Last year a privacy debate erupted at Harvard when it was revealed that the university had searched the email accounts of 16 junior faculty members.  The debate prompted a major self-examination and promises by the administration to do better.

Today's New York Times is reporting that the prickly topic is back.  This time, the university has acknowledged that as part iof a study of attendance at lectures, it had used hidden cameras to photograph classes without telling the professors or the students.

While students and faculty members did not view the secret photography as serious as looking through people's email, it struck them as out of bounds -- or, at least, "a little creepy."  It also set off more argument about the limits of privacy expectations. 

The Times reports Jerry R. Green, a professoir of economics and former university provost, as saying, "I wouldn't call it spying, but I don't think it's a good thing."

The Times continues:    

Some students called the secret photography a violation of trust, while others shrugged it off because cameras are already ubiquitous, said Sietse Goffard, a junior who is vice president of the Harvard Undergraduate Council. “It’s a question I’m still really conflicted about,” he said.

The episode comes as the university is getting familiar with a new honor code that will go into effect next year. That code, Mr. Goffard said, “stresses the importance of transparency and community trust.”

Carolyn O’Connor, a first-year student, said she would be concerned if the pictures were made public. But “if it’s for academic reasons, I don’t have a problem with that,” she said.

Researchers at the Harvard Initiative for Learning and Teaching set up the cameras to investigate professors’ complaints that many students skipped lectures, and that attendance dropped as a semester wore on. (The photos confirmed both points.) The researchers were concerned that letting professors or students know could skew the results.

They received clearance from Peter K. Bol, a vice provost, and took still images in the spring in 10 classes, which have not been identified, with a total of about 2,000 students. Administrators said that students were not tracked, that professors were not judged on the results, and that after attendance figures had been compiled, the pictures were destroyed.

Harvard's respect for privacy is a touchy subject because of the email search of last year.  When word broke of those searches, many professors were furious, arguing that although the university owned the email system, the professors had an expectation of privacy.  In response, the administration adopted a policy on electronic privacy.

This time around, the photography has not drawn the same kind of reactions.  "This should have been done better," the Times quotes Wilfried Schmid, a mathematics professor, as saying.  "This is not in the same league as the email searches.  It's more like a lack of courtesy."

Vaughn E. James


November 6, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Prospects for Nonprofits Under GOP-Controlled Senate

With Republicans poised to take control of the Senate following Tuesday's elections, Alex Daniels writes in the Chronicle of Philanthropy that it is likely that lawmakers will dig deep into the Internal Revenue Code soon after a new Congress is sworn in next year.  Daniels continues:

While that means added scrutiny on the charitable deduction and the tax treatment of nonprofits, charity leaders are confident a solidly Republican Congress will keep their cherished provisions intact.

Before the current Congress wraps up its business, however, charity officials expect lawmakers to consider certain items in the tax code, including moving the deadline for claiming the charitable deduction from the end of the year until April 15 as well as a set of tax preferences that are usually renewed each year.

Also, Congress has yet to take action this year on the "tax extenders," expiring provisions of the tax code that include benefits for land conservation, donations to food banks, and contributions to charity made from certain retirement accounts.

Republicans strengthened their hold on the House of Representatives, and will hold at least 52 seats in the Senate. Michelle Nunn, a nonprofit executive who ran for the Senate in Georgia, was among the candidates Democrats were counting on to help them keep control of that chamber, but she was defeated handily by Republican David Perdue.

Next year, when Republicans control the Senate and operate with an even stronger hand in the House, they are likely to consider a much more comprehensive tax overhaul. While the chances of enacting the first major changes to the tax code since 1986 are slim, some say, any legislative action during the next session of Congress will set the stage for future tax debates during the 2016 presidential campaign.

Daniels lists five top issues he says nonprofit organizations are watching for legislation and executive action:

  • Internal Revenue Service rules governing 501c(4) social-welfare organizations. The IRS is considering what constitutes political activity by these groups and whether their donors can remain anonymous.
  • Foundation excise taxes. The House has passed a measure to simplify and lower this tax to 1 percent.
  • A proposal to require donor-advised funds to pay out at least 5 percent of their assets each year.
  • The provision of federal support for social-impact bonds that fund "pay for success" efforts at the state and local levels.
  • Pending rules that limit how to conduct federated campaigns. The United Way hopes a Republican Congress will remove recently added federal regulations.

Time will tell whether Alex Daniels is correct. 

Vaughn E. James


November 6, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 5, 2014

As Economy Improves, Large Corporations Increase Charitable Giving

Yesterday's NonProfitTimes had some pretty good news: as the economy continues to recover from what the Times labels "the Great Recession," the nation's largest corporations have increased their charitable giving.  Between 2010 and 2013, says the Times, nearly two-thirds of these corporations increased their giving.  This increase in giving is often driven by performance: "revenue increased a median of 11 percent among companies giving 10 percent or more between 2010 and 2013."     

The Times explains that

Those were some results from Giving In Numbers, an analysis of corporate giving by the Committee Encouraging Corporate Philanthropy (CECP) and The Conference Board, both based in New York City.  Data comes from 261 corporations representing more than $25 billion worth of giving in 2013.  Median total giving was $18.46 million per company.

Central to the study was a matched subset of 144 companies that provided giving data in all four years, 2010 through 2013.  More than half of the 64 percent of those companies in the matched set that increased giving increased by 10 percent or more.  In that matched set, aggregate giving went up 15 percent, from $15.22 billion in 2010 to $17.55 billion in 2013.  Non-cash contributions — product donations and pro bono services — accounted for 90 percent of that increase.

Pro-bono service is the fastest growing employee engagement program.  Companies offering pro-bono service jumped from 35 percent in 2010 to 50 percent in 2013. However, pro-bono was only 19 percent of all noncash giving.  Product donations were king in 2013, making up an average of 60 percent of noncash giving.  Other noncash contributions clocked in at 21 percent of noncash gifts.

Growth, however, slowed last year compared to prior years analyzed in the study.  Among companies that increased their giving, their change in median giving was 6 percent, down from 17 percent in 2012 and 21 percent in 2011.  Companies that decreased their giving did so by 6 percent in 2013, compared to 1 percent in 2012 and 5 percent in 2011.

For the 10 percent of organizations in the matched set that reported a slight decrease (less than 10 percent), many cited a one-time spike in giving in response to Hurricane Sandy in 2012 as the reason for a slowdown in 2013.  Those companies giving significantly less (10 percent or more) reported company-wide cost reductions, corporate divestitures and transitioning away from cause areas previously supported.

While respondents classed as Fortune 100 companies (of which there were 52) gave much higher than average, giving fell for those companies between 2012 and 2013, from a median $66.29 million in 2013 to $62.94 million in 2013.  “Several (Fortune 100) companies have begun better aligning their corporate giving focus with their business strategy, resulting in a transition away from unaligned partnerships.  Several survey respondents cited this as a reason for the decrease in giving,” wrote report author Michael Stroik, manager of research and analytics at CECP.

As giving climbed, the number of corporate grants dropped from a median of 1,000 in 2010 to 701 in 2013.  Grantmaking expenses also fell: median $2.2 million in 2010 to $1.8 million in 2013.  “Companies are clearly making fewer grants and contributions staff likely have greater bandwidth to monitor and evaluate grants on an ongoing basis.”  More than three-quarters of corporate giving departments measured the outcomes or impacts of the grants they made in 2013.

More than one in three survey respondents (38 percent) expect their giving levels to increase for 2014.  About half, or 48 percent, expect no change, and only 13 percent expect a decrease.  “Two cause areas, Higher Education and Health and Social Services, could have a strong year in 2014, based on the fact that these two areas were supported more in 2013 by companies that expect to increase their giving than by companies that expect to decrease their giving,” wrote Stroik.

Stroik sees the trends found in the Giving In Numbers report as a continuation of business practices established during the recession.  “Companies implemented more strategic and business-aligned community investment strategies during the recession, which continue today,” he said via a statement.  “They continue to see the win-win of their more strategic — and in many cases increased — community investments as their revenues rise with their societal engagement.”


Vaughn E. James


November 5, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Monday, November 3, 2014

Nonprofit CEOs Say Board Members Need to be Better Fundraisers


The Chronicle of Philanthropy is reporting that a recent "Living with Intent" survey conducted by the nonprofit watchdog group BoardSource found that nonprofit leaders gave their boards an average grade of B minus, and judged trustees to be better at technical tasks like financial oversight than at setting strategy or reaching out to the community.

As in years past, the CEOs cited fundraising as a significant concern: 60 percent of them said it was the area their boards most needed to improve.

BoardSource works to improve nonprofit governance.

According to the Chronicle:

In 1994, chief executives said that 60 percent of their board members gave money to the organization, a figure that grew to 85 percent in this year’s survey. But giving by 100 percent of all board members—the gold standard espoused by BoardSource and other nonprofit experts—was reported by only 60 percent of the respondents in this year’s survey.

Many nonprofit organizations set minimum donations expected by trustees and encourage them to contribute at least that amount and ask others to follow their example. But trustees remain challenged when it comes to asking family members, friends, and colleagues for donations; 43 percent of board members in this year’s survey, about the same as in previous years, said they are uncomfortable asking for money.

The survey also found some signs of improvement in boards’ racial and ethnic diversity, which was rated as more important for boards than including equal numbers of male and female trustees or making sure that organizations recruit trustees of different ages. Respondents reported that 20 percent of their board members, on average, are people of color, up from 16 percent in 2010, but a quarter of the respondents said their boards are all white and nearly 70 percent of respondents indicated they are dissatisfied with the racial and ethnic composition of their boards.

Gender representation among the executive ranks of nonprofit organizations in the survey has improved over the years, but women remain underrepresented as chief executives in large organizations. Women accounted for 65 percent of chief executives in groups with budgets under $1-million; 75 percent among nonprofits with budgets of $1-million to $9.9-million. But among groups with budgets of $10-million or more, only 37 percent of chief executives were women.

Nonprofits appear to be recruiting more board members under 40 years old, with 17 percent of respondents in this year’s survey reporting trustees in that age group, up from 14 percent in 2010.

Nonprofits also are recruiting smaller boards, the survey found. In 1994, the first year of the survey, respondents reported 19 trustees, on average. In this year’s survey, that number dropped to 15.

According to the Chronicle, 850 chief executives and 246 board chairs responded to questions posed by the survey.  A free coipy of the findings are available online.  BoardSource says it will publish a more complete report on its website in December. 


Vaughn E. James

November 3, 2014 in Current Affairs, In the News, Other | Permalink | Comments (0) | TrackBack (0)

Sunday, November 2, 2014

Donor Advised Funds – A Hornet’s Nest for the Charitable Sector.

What to do about donor advised funds is likely to be a perennial and growing feature of debate about charitable nonprofits. Are donor advised funds a vacuum for dollars that otherwise would be spent right away for charity? Or are DAFs an efficient giving vehicle, promoting more and better philanthropy? Or both? For a recent example of commentary on the issue, see Allen Cantor’s article in the Chronicle of Philanthropy. 

The key initial question is whether contributions to DAFs are substitutes for charitable contributions that would otherwise be made, but just not to a DAF. To the extent DAF contributions are not substitutes for other charitable giving, the policy concerns with DAFs are diminished. The DAF money then would represent new charitable dollars, and many of the claims about DAFs democratizing philanthropy would have merit. So long as DAFs on average pay out at a high rate, and there is active monitoring of dormant accounts and noncash contributions by sponsoring organizations, the DAF revolution could be embraced as a great way to raise new money for charity.

But if most DAF contributions are substitutes (as Allen Cantor argues), meaning that the DAF is a substitute for another charity, then DAFs potentially are more menacing. There are two preliminary questions here. If the DAF is a substitute for private foundation giving, as many DAF proponents claim, then the issue is whether DAFs or private foundations are better custodians of charitable dollars. The private foundation model is highly regulated and subject to a payout. The DAF has fairly light touch regulation and no payout requirement, but are less costly to run and many DAFs pay out at a higher rate than private foundations, which tend to stick to the statutory minimum. Private foundations on the other hand over time become established sources for charitable funds and have an independent mission. By contrast, many DAFs may add little to no value, but serve more as a way-station. These are just some of the issues in comparing DAFs to private foundations.

More worrying is the extent to which DAFs are a substitute for giving to other public charities. Because many DAFs (i.e., those with ties to large commercial investment firms like Fidelity or Vanguard) really are just conduits, the DAF then simply represents delayed charitable activity without a matching delay in tax benefits. Other public charities, and their beneficiaries, suffer the delay. Donors and DAF sponsoring organizations (and investment managers) benefit. This is a serious issue, which motivates Allan Cantor’s piece and other DAF critics.

How to resolve these issues? More study on the extent to which DAFs are substitutes or represent new giving would be useful. We also need to consider whether DAFs present sufficient issues of tax policy to warrant distinct tax treatment – i.e., different from private foundations or other public charities. The reforms in the Pension Protection Act of 2006 took a first step to segregating the DAF as a charitable activity, subject to a special set of hybrid rules. Should we go further, and have special payout rules, as proposed by the Camp tax reform draft (proposing a five-year spend down of contributions, sec. 5203, page 160)? Should the charitable deduction for DAFs be delayed until the money is spent?

Note that it is easy to suggest high DAF payouts as a solution, but query the outcome: would sponsoring organizations just default to private foundation status so as to secure the lower payout, notwithstanding the increased cost of business? And should all DAF sponsoring organizations be treated the same? DAFs at community foundations or other public charities do not necessarily raise the same issues as DAFs that are more akin to conduits.

In short, DAFs raise a hornet’s nest of issues for the charitable sector. It is a debate we should have, and we can expect that the issues will not subside anytime soon.

Roger Colinvaux

November 2, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, October 31, 2014

Ebola is a Qualified Disaster

The IRS has designated the outbreak of the Ebola virus as a qualified disaster under section 139 of the Internal Revenue Code. In the past, most qualified disaster designations have been for weather related events, or terrorism. Query whether this is the first time a qualified disaster has been declared for an infectious disease.

The principal consequence of the designation is to provide that victims who receive certain types of payments to relieve burdens suffered because of Ebola do not have income as a result of the payment (to the extent not compensated for by insurance). 

In addition, a qualified disaster designation has implications for spending by charitable organizations, particularly private foundations. For example, the IRS states that as a general matter corporate foundations “may choose” to provide assistance to employees of the corporate sponsor who are harmed by Ebola. This statement oversimplifies the issues involved, though IRS does note that “private foundations should exercise due diligence when providing disaster relief as set forth in Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations.” 

The concerns are that employers will funnel aid to select employees through the corporate foundation. This could be an act of self-dealing, the aid might not be based strictly on an objective determination of need, and further, the aid program might not be designed to serve a broad or charitable class of beneficiaries and so may really be for private not public purposes. Accordingly, the IRS details the due diligence required to prevent against such possible abuses (see pages 20-22 of the Publication). Foundations and other charities (including donor-advised funds) getting involved in disaster relief would do well to look at this guidance.

Interestingly, the sensible if elaborate due diligence regime outlined in Publication 3833 is not based on the text of the Internal Revenue Code (section 139), which makes no mention of charities or private foundations. Rather, the law here comes directly from 2001 legislative history under the heading “Rules applicable to charitable organizations making disaster relief payments.” It is a noteworthy example of law arising from the penumbra of legislation. In effect, the IRS was told in the aftermath of 9/11 to relax its attitude to foundation provision of disaster relief, but to provide for essential prophylactics. This now survives as part of section 139 qualified disaster relief.

The IRS has also provided guidance (Notice 2014-68) on leave-based donation programs in connection with Ebola. Under such a program, an employee may forego sick or annual leave in exchange for the employer making payments to a charitable organization for the relief of Ebola victims. The guidance explains that the employee does not have income as a result, nor may the employee take a charitable deduction. To qualify, the employer must make the payment to the charity before January 1, 2016.

Roger Colinvaux

October 31, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 29, 2014

Recent conferences of note

Last week, the National Center on Philanthropy and the Law at New York University held a conference titled “Regulation or Repression: Government Policing of Cross-Border Charity.” The agenda for the conference is available here and papers from the conference will be posted in due course. Papers from past conferences are available here. The NCPL website and annual conference papers are an excellent resource for scholars, practitioners, and policymakers.

In addition, the Urban Institute in Washington DC hosted a conference titled “Increasing Philanthropy through Policy and Practice.” The website describes the conference as follows:

"In the midst of recent attention to ways in which the charitable deduction might be pared, worries loom about how giving might decline. Join the Urban Institute’s Tax Policy and Charities project in examining the flip side of the issue, as we explore ways that existing incentives, along with new platforms and better practices, can be leveraged to encourage philanthropy. . . . Topics will include the proposal to extend the giving deadline for the charitable deduction to April 15 (as with individual retirement accounts), whether expanded use of donor-advised funds has encouraged greater giving, how new platforms for giving provide new opportunities, and nonprofit organizations’ efforts to improve their fundraising effectiveness." 

The webcast is accessible here.

Roger Colinvaux

October 29, 2014 | Permalink | Comments (0) | TrackBack (0)

Sunday, October 26, 2014

Study Shows Marked Increase in Charitable Giving; Number Projected To Rise

    The U.S. Trust, in conjunction with the University of Indiana Lilly Family School of Philanthropy published an interesting study this month. The study found a marked increase in charitable giving among high net worth donors for 2014. The study also concludes that the trend is projected to increase in the coming years. The biennial study found that 98.4% of high net worth households donated to charity—the highest it has been since the study began in 1996. The study also found that the amount each household pledged has increased by 28% from last year.

     The study also tracks the reasons why donors give. The top cited reason was the belief that the donor’s gift can make a difference while only one-third cited favorable tax treatment as a determinative factor in giving. The study also tracked why donors stop giving. Some of the reasons cited were too frequent solicitations asking for inappropriate amounts, ineffectiveness of the organization, and change in organizational leadership. Read more on the article HERE.

    How may this study help charities and nonprofits going forward?  


October 26, 2014 | Permalink | Comments (0) | TrackBack (0)

IRS Court Victory Over Teaparty Still Leave Open Questions of Enforcement

    The IRS secured a victory over the Tea Party in a ruling by the United States District Court for the District of Colombia in Linchpins of Liberty v. United States and True the Vote, Inc. v. IRS. The District Court found that the cases were now moot after the IRS ultimately approved the parties’ application for tax-exempt status.

    The case began after a highly controversial scandal after the IRS delayed a number of applications for tax-exempt status as a 50(c)(3) or 501(c)(4). The IRS delayed applications based on, among other things, the applicants’ name. For example, the IRS flagged applications containing words such as ‘patriot,’ ‘freedom,’ and ‘liberty’ and gave them further review. The IRS’ rationale was that an influx of applications for 501(c)(3) and 501(c)(4) status, along with the dubious nature of many of the applicants’ dealings, caused significant backlogs. The result was a significant delay in processing applications.

    Instead of litigating the case, the IRS ultimately granted tax-exempt status to most of the parties involved rendering the lawsuit moot. While this may be the end for now, this raises serious questions for the IRS going forward. What, if anything, may the IRS do to review the merits of 501(c)(3) and 501(c)(4) applications—especially those that appear suspect?     


October 26, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 23, 2014

Proposed State Constitutional Amendment To Benefit The Boy Scouts Of America

    This November, West Virginia voters will be deciding whether to amend to the state’s constitution. The proposed amendment is designed to benefit nonprofit organizations that are engaged in “adventure, educational or recreational activities for young people.” It’s no secret, however, that the sole purpose of the proposed amendment is to benefit the Boy Scouts of America.

    Every four years, the Boy Scouts of America hosts its Jamboree retreat at its Summit Bechtel Reserve—a large outdoor activity park situated beside the New River Gorge in West Virginia. During the interim years, the Boy Scouts would like to rent the park to for-profit businesses. The revenue generated from the rental fees would go toward maintaining and improving the park. However, if the Boy Scouts go forward with renting out the park without the amendment, it would almost certainly lose its state tax-exempt status. The proposed amendment would ultimately allow the Boy Scouts to operate as a tax-exempt nonprofit organization while renting the park to businesses for a profit.

    Is this sound tax policy? What about other nonprofits who would like to operate in a similar manner; what makes the Boy Scouts of America so special? Would allowing the Boy Scouts of America to operate in such a way be a boon on the state’s economy, or is the state forgoing a great deal of revenue that it would otherwise be entitled to? Read more HERE.



October 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Houston Churches At Odds With City Government Over Equal Rights Ordinance: What Might The IRS Have To Say About It?

    The City of Houston, Texas has found itself in the midst of a growing controversy. The controversy stems from the passage of a city ordinance aimed at protecting the rights of LGBT residents. In response to the ordinance, several Houston pastors spoke out against the ordnance and the city’s mayor—a member of the LGBT community herself. The pastors of these churches circulated petitions among their respective congregations in an effort to get a referendum of the ordinance on the ballot. The city attorney, however, held that the petition was invalid, and the pastors filed suit.

     In connection with the lawsuit, the city attorney issued subpoenas to obtain the text of sermons from the plaintiff church pastors. The purported purpose of the subpoenas was to determine how the church congregations were instructed regarding the petition. You can read more on the story HERE

     How might the IRS view the churches’ activism? As a 501(c)(3), churches are limited in the type and amount of lobbying they may engage in. What might the subpoenas reveal about churches dealings regarding the equal rights ordinance? Could the content of the pastors’ sermons be construed as endorsing or opposing a political candidate—an activity that is absolutely prohibited under 501(c)(3)?



October 23, 2014 | Permalink | Comments (2) | TrackBack (0)

Friday, October 17, 2014

Low-Income Housing Coop: Different Board, Different Result?

    A low-income housing cooperative that sought reconsideration of the IRS’s determination that it did not qualify as a 501(c)(3) received a final determination earlier this month that it indeed fail to meet the requirements of 501(c)(3). The IRS found that it did not operate exclusively for exempt purposes, did not meet the operational test, and possibly allowed its net earnings to inure to private individuals. The membership requirements of the housing cooperative appear to reflect the safe harbor provisions detailed in Revenue Procedure 96-32; however, the IRS’s ruling pointed out that the low income housing in question benefited the individuals who controlled the cooperative. This seems to have been the straw that broke the 501(c)(3) status’ back. One cannot help but ask whether the outcome would have been different if the housing cooperative simply had elected a board that was independent from those residing in the housing.

Download Low Income Housing Coop Educational Center Not Qualified as Nonprofit


Khrista Johnson

October 17, 2014 in Current Affairs | Permalink | Comments (0) | TrackBack (0)

Thursday, October 16, 2014

IRA Charitable Rollover Provision: Will Congress Extend or Not Extend?

        An insightful Wall Street Journal commentary addresses the likely outcome for the IRA Charitable Rollover Provision. This provision allows taxpayers aged 70.5 and older to make deductible charitable contributions (up to $100,000) from their IRAs without having to include such charitable contributions in their income. In addition, the charitable contributions count against minimum IRA distribution requirements. The Wall Street Journal concludes that while Congress is likely to extend the provision this year, it is unlikely to do so before the November election. At the same time, it is possible that Congress will restore this break retroactively. The commentary provides a good balance of the implications should Congress choose to extend or not to extend.


Khrista Johnson

October 16, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 15, 2014

On the March to Efficiency: Millennials & Charity: Water

        A concept that I have introduced through scholarly writing and blogged about here is the need for a more efficient charitable market. In August, I commented upon a Vanguard Charitable study that found millennials are more likely to see their charitable giving as a form of investment and thus promote a culture of giving that demands more transparency and accountability, two hallmarks of a more efficient charitable market. A recent NPR broadcast that examined the work of Scott Harrison’s nonprofit, Charity: Water, confirmed just that.

        In the segment, Harrison spoke about his dual purpose in forming Charity: Water. First, he wanted to provide clean water to the almost 800 million people globally who lack access to it by building wells. Second, he sought to make an example of how a nonprofit could do its work in a way that would resonate with the next generation of givers. He recounted his own experience of being hesitant to give to charities prior to starting Charity: Water, which stemmed from the absence of information on how a charity would use the funds. Today the nonprofit world is concerned with how approximately 80 millennials make their decisions about giving, and not surprisingly, it is different from the prior generation(s). As stated in my prior post, it is widely accepted that millennials want to view their “donation” as “investment,” and at least one commentator recommends that nonprofits refer to the latter. Another salient point is how technology intersects with millennial giving. Millennials value their time, and as a result, any form of technology that makes it easier for them to invest is preferable. Moreover, the Ice Bucket Challenge that swept through social networks over the summer shows that the desire of millennials to share the details of their lives extends to their giving. In response, Charity: Water is utilizing a birthday campaign where donors can ask their network to donate one dollar for each year celebrated, i.e., $25 dollars to celebrate a 25th birthday. Charity: Water is also placing sensors on its wells, so donors may interact with the impact of their investment in a novel manner. Charity: Water’s innovative approaches are proving successful. They have helped over 4 million more people in twenty-two countries gain access to clean water. Millennials and nonprofits like Charity: Water may just help move giving into the next century and towards a more efficient charitable market.


Khrista Johnson

October 15, 2014 in Current Affairs, In the News, International, Web/Tech | Permalink | Comments (1) | TrackBack (0)

Tuesday, October 14, 2014

Deductible Donations to Foreign Subs

        In PLR 201438032, the Service considered whether donations to a nonprofit public benefit corporation that engages in transactions of funds with its foreign subsidiary are tax deductible and whether such transactions would harm its 501(c)(3) status.   The PLR confirms aspects of how a transaction between a 501(c)(3) and a wholly-owned foreign subsidiary should be structured to secure a favorable tax result.  One question the IRS still has not resolved is whether a donation to a  wholly-owned foreign single-member LLC is deductible.  The nonprofit world will be waiting.

        In the ruling, the subsidiary in question is a foreign nonprofit foundation whose activities, namely seeking to aid foreign orphanages, are carried out internationally.  The governing board and governing officers are under the control of the public benefit corporation.  The stated purpose of the subsidiary is to carry out the purposes and objectives of the public benefit corporation.  In terms of board overlap, at least three of the five board members of the subsidiary are members of the public benefit corporation’s board.  In terms of governance, it is clear that the public benefit corporation is involved in each area and ensures that the subsidiary complies with U.S. tax rules and regulations regarding tax-exempt entities, e.g., restrictions regarding private inurement and lobbying expenditures.  The public benefit corporation also has the ability to expel members from the board of directors and to dissolve the subsidiary.  Under the “Proposed Transaction,” the public benefit corporation may vote to transfer funds to the subsidiary.  There are also mechanisms in place to ensure a type of expenditure responsibility-like accountability for the maintenance and use of funds.  Finally, the public benefit corporation disallows earmarking, and its board maintains the requisite discretion and control over funds, i.e., does not have an obligation to transfer funds to the subsidiary.

        Both of the public benefit corporation’s requested rulings were granted.  First, the Proposed Transaction was deemed not to jeopardize the public benefit corporation’s tax-exempt status.  Second, donations made to the public benefit corporation were deemed deductible under Code section 170(a).  In reaching this ruling,  Treasury stated that the Proposed Transaction is consistent with the anti-conduit rules of Rev. Ruling 63-252 and the discretion and control requirement of Rev. Ruling 66-79.  Moreover, it looked to Revenue Ruling 68-49 which states that a 501(c)(3) organization does not jeopardize its tax-exempt status by contributing funds to non-501(c)(3) organizations as long as it can show the funds were used for 501(c)(3) purposes.  Ultimately, Treasury found the public benefit corporation’s actions congruent with this ruling.  In terms of the second ruling, Treasury found that since the public benefit corporation is an organization described in Section 170(c), contributions to it are deductible under Section 170(a). 


Khrista Johnson

October 14, 2014 in Current Affairs, International | Permalink | Comments (0) | TrackBack (0)