Sunday, April 27, 2014

Eldar: "The Role of Social Enterprise and Hybrid Organizations"

Jsd_EldarOfer Eldar (J.S.D. candidate & Ph.D. candidate, Yale) has posted The Role of Social Enterprise and Hybrid Organizations.  Here is the abstract:

Recent years have brought remarkable growth in hybrid organizations that combine profit-seeking and social missions. Despite popular enthusiasm for such organizations, legal reforms to facilitate their formation and growth – including, in particular, special enabling statutes for hybrid firms – have largely been ineffective. This failure stems in large part from the lack of a theory that identifies the structural and functional elements that make some types of hybrid organizations more effective than others. In pursuit of such a theory, this article focuses on a large class of hybrid organizations that has been effective in addressing development problems, such as increasing access to capital and improving employment opportunities. These organizations, which are commonly referred to as “social enterprises,” include microfinance institutions, firms that sell fair trade products, work integration firms, and low-cost sellers of essential goods and services such as eyeglasses, bed-nets and healthcare. The common characteristic of social enterprises is that they have a transactional relationship with their beneficiaries, who are either purchasers of the firms’ goods or services or suppliers of input (including labor) to the firm. The essence of the theory is that through these transactions, social enterprises gather information on their patron-beneficiaries’ ability to transact with commercial firms (e.g., workers’ skills, borrowers’ creditworthiness and consumers’ ability to pay). That information permits social enterprises to tailor the form and amount of subsidies to the specific needs of individual beneficiaries. This “measurement” function makes social enterprises relatively efficient vehicles for allocating subsidies as compared with more traditional donative organizations and with other forms of hybrid organization, in particular firms that pursue corporate social responsibility policies. The measurement function can serve as the basis for designing a new social enterprise legal form and subsidy policy to promote development.

Lloyd Mayer

April 27, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Foohey: "Perspectives on Religious Organizations' Reorganizations"

PamelaFooheyPamela Foohey (Illinois) has posted Perspectives on Religious Organizations' Reorganizations, to be published in the American Bankruptcy Law Journal.  Here is the abstract:

This Article, written in conjunction with the Empirical Studies in Bankruptcy panel hosted by the Section on Creditors’ and Debtors’ Rights at the AALS’ 2014 Annual Meeting, combines an analysis of documents submitted in connection with Chapter 11 cases filed by religious organizations with the results of in-depth interviews with these organizations’ leaders and their bankruptcy attorneys to assess whether reorganization has the potential to offer an effective solution to these debtors’ financial distress. The data indicate that Chapter 11 oftentimes can be beneficial for religious organizations. For instance, over 60% of the Chapter 11 cases discussed by attorneys ended productively in that the debtor confirmed a reorganization plan or entered into an agreement with its creditors that allowed the congregation to continue operating post-bankruptcy. Based on attorneys’ experiences, in the future, focusing on organizational structure, cash collateral, and sources of revenue may enhance the efficiency and effectiveness of these reorganizations.

The interviews also call attention to two aspects of these bankruptcies that were less obvious from an examination of court records alone. First, a subset of religious organizations may more likely to file under Chapter 11: smaller congregationalist and nondenominational Christian churches with a predominately minority membership base. Second, these churches’ secured creditors may negotiate in ways that lead these churches to turn to bankruptcy. Further research regarding the denominational and demographic skew of religious organization debtors and the role of secured creditors in funding religious organizations will help to refine our understanding of these institutions’ financial distress.

Lloyd Mayer

April 27, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Kearns: "For Treasury Charity Starts at Home"

Kearns_deborahDeborah Kearns (Albany) has posted For Treasury Charity Starts at Home: Treasury's New Interpretation of the Fiduciary Income Tax Charitable Deduction, which the Virginia Tax Review just published.  Here is the abstract:

This Article challenges Treasury’s recent regulations narrowly interpreting the fiduciary income tax charitable deduction under IRC § 642(c). Treasury’s new interpretation highlights a fundamental tension in the federal tax system, which involves identifying transactions that are abusive versus transactions that take advantage of congressionally sanctioned tax incentives that were designed to further important public policies like charitable giving. For almost forty years, IRC § 642(c) had been liberally construed by Treasury, which was consistent with the legislative history and principles of statutory construction traditionally applicable to charitable deductions. Treasury’s new restriction on income ordering rules in charitable trusts overrides the legal norms historically applicable to charitable deductions and is contrary to the legislative history, case law interpreting charitable deductions and Subchapter J of the Internal Revenue Code. If left unchallenged, this new interpretation has the potential to erode congressionally sanctioned tax incentives, charitable and otherwise, which is cause for great concern. This Article examines the history of charitable deductions in the United States and the case law that has liberally construed the deductions for almost a century. The Article also examines the statutory framework of Subchapter J of the Internal Revenue Code and concludes that Treasury’s justification for its new interpretation of the deduction is without merit and that the regulations should be invalidated if challenged.

Lloyd Mayer

April 27, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Nonprofit and Voluntary Sector Quarterly April 2014 Issue

2.coverHere is the table of contents for the just published April 2014 issue of the Nonprofit and Voluntary Sector Quarterly:

  • Femida Handy, Jeffrey L. Brudney, and Lucas C. P. M. Meijs, From the Editors’ Desk
    Articles
  • Kevin F. Forbes and Ernest M. Zampelli, Volunteerism: The Influences of Social, Religious, and Human Capital
  • Nevbahar Ertas, Public Service Motivation Theory and Voluntary Organizations: Do Government Employees Volunteer More?
  • Kelly LeRoux and Kelly Krawczyk, Can Nonprofit Organizations Increase Voter Turnout? Findings From an Agency-Based Voter Mobilization Experiment
  • Bram Verschuere and Joris De Corte, The Impact of Public Resource Dependence on the Autonomy of NPOs in Their Strategic Decision Making
  • Hyo Jung Kim, Hyun Jee Oh, and Esther Thorson, Embedding a Social Cause in News Features: The Effects of Corporate Sponsorship and Localization on Audience’s Attitudes Toward Nonprofit Coverage
  • Thomas Longoria, Jr., Predicting Use and Solicitation of Payments in Lieu of Taxes
  • Russell N. James III and Michael W. O’Boyle, Charitable Estate Planning as Visualized Autobiography: An fMRI Study of Its Neural Correlates
  • Walter J. Mayer, Hui-chen Wang, Jared F. Egginton, and Hannah S. Flint, The Impact of Revenue Diversification on Expected Revenue and Volatility for Nonprofit Organizations
  • Sangmi Choi, Learning Orientation and Market Orientation as Catalysts for Innovation in Nonprofit Organizations
     Book Reviews
  • Jennifer Amanda Jones, Book Review: Measuring the Networked Nonprofit, by B. Kanter & K. Paine
  • Howard Lune, Book Review: Charity Case: How the Nonprofit Community Can Stand Up for Itself and Really Change the World, by D. Pallotta
  • Michael Hammer and Chao Guo, Book Review: The State of the Nonprofit Sector, 2nd ed, by L. Salamon
  • Wolfgang Bielefeld, Book Review: Players in the Public Policy Process: Nonprofits as Social Capital and Agents (2nd ed), by H. J. Bryce

Lloyd Mayer

April 27, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Yockey: "Does Social Enterprise Law Matter?"

Joe_yockeyJoseph Yockey (Iowa) has posted Does Social Enterprise Law Matter?, which will be published in the Alabama Law Review.  Here is the abstract:

Social enterprise laws are sweeping through the nation. Entrepreneurs can now organize under one of several new legal forms, including the “benefit corporation” form. In theory, these options will make it easier for socially minded firms to pursue a double bottom line of profit and public benefit — that is, to do well while doing good.

This Article tests that theory. In asking whether social enterprise laws matter, I find that the answer is “yes,” but not for the reasons most people think. The standard rationale for social enterprise laws is that they free managers from the “duty” to put profits ahead of social objectives. But that idea misses the point; existing corporate law is already flexible enough to permit most social/economic tradeoffs. Instead, I argue that social enterprise laws add value by creating a new institutional structure that will motivate the development of self-regulatory standards and provide a helpful coordinating mechanism for legal advisors and pro-social investors. The Article thus offers a unique way of thinking about social enterprise laws. Rather than simply provide new off-the-rack legal forms, these laws encourage a process of norm creation and private engagement that ought to drive the social enterprise movement forward. I conclude by offering firms and lawmakers several strategies to reinforce this dynamic.

Lloyd Mayer

April 27, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Saturday, April 26, 2014

The Rise of NGOs in China

20140412_CND001_0The Economist earlier this month commented on the growth of non-governmental organizations (NGOs) in China ("Enter the Chinese NGO").  It estimates that there are approximately 2 million NGOs currently operating in China, about three-quarters of which are not officially registered, with many more likely to form in the near future.  The communist party's plan appears to be to try to keep them small and local, and therefore presumably not a challenge to the party's authority or power.  In a relatd, more detailed article ("Beneath the Glacier"), the Economist explores the reasons for the growth in Chinese NGOs and the wary response of the government to them (UPDATE: and quotes our blog's own Karla Simon).

Lloyd Mayer

April 26, 2014 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Questions Raised About the Bernie Mac Foundation

Purple_awareness_ribbonAnother day, another apparently badly run celebrity foundation.  The Chicago Tribune reported earlier this month that the Bernie Mac Foundation, established by the comedy star before his death to help fellow sufferers of sarcoidosis, has directed only 13 percent of its spending to charitable programs from 2007 through 2012.  A large portion of the funds appears to have gone to firms associated with the lawyer who is the Foundation's Treasurer, as well as for salaries paid to the two sisters of Bernie Mac's widow, who serves as the volunteer President of the Foundation.  While the Foundation's board originally had a number of unrelated members, specifically four doctors, they left the board shortly after Bernie Mac's death in 2008.

Lloyd Mayer

April 26, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

Friday, April 25, 2014

Treasury Issues Updated Priority Guidance Plan

TreasuryEarlier this week the Treasury Department released its Third Quarter Update for the 2013-2014 Priority Guidance Plan.  Here are the items listed in the Exempt Organizations section:

  1. Revenue Procedures updating grantor and contributor reliance criteria under §§170 and 509.
  2. Revenue Procedure to update Revenue Procedure 2011-33 for EO Select Check.
  3. Guidance under §501(c)(4) relating to measurement of an organization's primary activity and whether it is operated primarily for the promotion of social welfare, including guidance relating to political campaign intervention.  PUBLISHED 11/29/13 in FR as REG-134417-13 (NPRM).
  4. Final regulations under §§501(r) and 6033 on additional requirements for charitable hospitals as added by §9007 of the ACA. Proposed regulations were published on June 26, 2012 and April 5, 2013.
  5. Additional guidance on §509(a)(3) supporting organizations (SOs).  PUBLISHED 01/06/14 in IRB 2014-2 as NOT. 2014-4 (RELEASED 12/23/13).
  6. Guidance under §4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners.
  7. Final regulations under §4944 on program-related investments. Proposed regulations were published on April 19, 2012.
  8. Guidance regarding the new excise taxes on donor advised funds and fund management as added by §1231 of the Pension Protection Act of 2006.
  9. Regulations under §§6011 and 6071 regarding the return and filing requirements for the §4959 excise tax for community health needs assessments failures by charitable hospitals as added by §9007 of the ACA.  PUBLISHED 08/15/13 in FR as TD 9629 (FINAL and TEMP).
  10. Guidance under §6033 on returns of exempt organizations.  PUBLISHED 01/13/14 in IRB 2014-3 as REV. PROC. 2014-11 (RELEASED 01/02/14).
  11. Final regulations under §6104(c). Proposed regulations were published on March 15, 2011.
  12. Final regulations under §7611 relating to church tax inquiries and examinations. Proposed regulations were published on August 5, 2009.
  13. Notice under §501(r) containing a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of §501(r) will be excused for purposes of §501(r)(1) and 501(r)(2)(B).  PUBLISHED 01/13/14 in IRB 2014-3 as NOT. 2014-2 (RELEASED 12/30/13).
  14. Notice under §501(r) confirming that tax-exempt hospital organizations can rely on proposed regulations under § 501(r) published on June 26, 2012, and April 5, 2013, pending the publication of final regulations or other applicable guidance.  PUBLISHED 01/13/14 in IRB 2014-3 as NOT. 2014-3 (RELEASED 12/30/13).
  15. Revenue Procedure revoking Revenue Procedure 79–6 (which provided for the use of certain United States Department of Labor forms in place of certain portions of the Form 990) because it is no longer consistent with Form 990 filing requirements.  PUBLISHED 03/10/14 in IRB 2014-11 as REV. PROC. 2014-22.

Items 13 to 15 are identified as "additional projects" that did not appear in the initial plan issued last August, and item 15 is new to this update.

Lloyd Mayer

April 25, 2014 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

New York Appeals Court Rejection of Salary Cap for Nonprofit Contractors

NY AGAccording to an Associated Press report, the New York Attorney General's Office intends to appeal a decision by a New York trial court that the $199,000 salary cap imposed by executives at nonprofit contractors with the Health Department by executive order exceeded the Governor's authority.  Further coverage of the court decision in Agencies for Children's Therapy Services v. New York Dept. of Health can be found at the New York Nonoprofit Press.  That article notes that another trial court ruled in favor of New York and upheld the salary cap, so the matter will ultimately need to be resolved by a higher court.  It also notes that the salary cap also applies to nonprofits that contract with 12 other agencies.

Lloyd Mayer

April 25, 2014 in State – Executive, State – Judicial | Permalink | Comments (0) | TrackBack (0)

American Academy of Arts and Sciences Self-Reports Excess Benefit Transaction after Internal Investigation

Those of you in the Boston area are probably aware of the simmering controversy regarding the allegation of unreasonable compensation paid to, and the allegedly embellished academic credentialsl of Leslie Berlowitz, former President of the American Academy of Arts and Sciences.  This Boston Globe story triggered an avalanche of consequences, including separate investigations by the Academy (the Report of which blames the President, but not the Board), the Massachusettes AG, the National Endowment for the Arts Humanities, the National Science Foundation, and ultlimately the President's resignation.  After the President's resignation, the Academy amended its 990's to report excess benefit transactions primarily because of the finding that the President exerted improper influence on the Academy's compensation committee and that the President caused the Board not to follow the 4958 safe harbor procedures that would have protected the organization from an allegation that it engaged in an excess benefit transaction.  The Report presents a nice case study for the nonprofit governance, determining reasonable compensation under IRC 4958, and the application of IRC 4958 as it relates to an insider's -- or a disqualified person's -- compensation.  You can read many of the source documents, including the Board's mea culpa to its Fellows, and the former President's response to the report, via this Boston Globe link.  The Boston Globe limits visitors to ten free articles so you can also access the full report here.

The other thing that seems apparent from the report is that you are more likely to be found to have engaged in an excess benefit transaction, or some other conduct frowned upon in the Code if you are just a plain old meanie!  

dkj

April 25, 2014 in Studies and Reports | Permalink | Comments (1) | TrackBack (0)

Thursday, April 24, 2014

Haim Sandberg: From JNF to Viva Palestina -- UK Policy Towards Zionist and Palestinian Charities

From SSRN . . .

The classification of a charity's object as "political" and the legal attitude towards political activities of charities and NGOs may be tinged with political bias. The article aims to show how such a bias had and still have an influence on the legal attitude towards the objects of Zionist NGOs, on the one hand, and Pro-Palestinian NGOs, on the other. The article indicates that there is an historical link between legal positions adopted by UK regulatory authorities and judges towards the political nature of Zionist or Palestinian NGOs' objects and the respective degree of political support or reservation regarding Zionist or Palestinian national ambitions. It emphasizes the rather unknown but yet significant Zionist-Palestinian perspective of the traditional antipathy towards NGOs' political objects.

dkj

April 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Arjya Majumdar: Zakat, Dana and Corporate Social Responsibility

From SSRN . . .

 

The tradition of giving finds itself in every religious text across the world. There seem to be few other principles which are so globally accepted. Whether it is the Zakat, the Islamic practice of giving and consequent self-purification, or the Dāna, the practice of giving in both Hinduism and Buddhism, the concept of gratuitous transfer of wealth to the less privileged strikes a common chord between the three most popular religions in Asia.

This paper seeks to first identify the traditions relating to charity within religious texts such as the Hadith, the Manusmriti and the Tipataka. In the absence of institutions, including the concept of the corporation, during the time when such religious texts were envisaged, the directions mandating charity are by default, applicable to individuals. This paper goes on to examine the creation of the modern-day corporation through the lens of independent corporate personality as well as a nexus of contracts.

Arguing further that -- in the absence of a large number of shareholders, Asian corporations tend to be family and individual driven -- such families and individuals may have a propensity to inculcate their individual traditions into inanimate and juristic bodies such as the corporations they run and control. As a result, this paper finally considers whether the tradition of giving, as mandated by religion may be a significant factor to boost Corporate Social Responsibility. While most Asian countries have some form of voluntary guidelines on corporate social responsibility, mandatory laws relating to CSR have been passed in Indonesia and India. A recent report even suggests that Asian consumers would be willing to spend more on products manufactured by socially responsible companies. This paper posits that a tradition of giving, spurred by religious mandate, does make CSR far more relevant in Asia.

dkj

April 24, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 23, 2014

Crowdfunding for Nonprofits: Solicitation or Matchmaking?

“Crowdfunding” appears to be all the rage.  Investopedia defines crowdfunding on the most basic level as the “use of small amounts of capital from a large number of individuals to finance a new business venture.”    In the earliest days, crowdfunding was basically a plea for money – see the artistic ventures funded primarily through Kickstarter.    The problem with that model, of course, is that one could not get equity in return for your contribution – after all, that starts to look an awful lot like a securities offering, and the SEC has issues with that.    The Jumpstart Our Business Startups (or, pithily, JOBS) Act of 2012 was designed in part to loosen the securities regulations on small business, so that there will be greater flexibility in the ability to offer equity in return for contributions through crowdfunding (or at least there will be when the SEC gets around to issuing regulations on the matter.)  

So what about nonprofits?  A recent article in TechCrunch, cited by the Chronicle of Philanthropy, notes the website Crowdrise recently received $24.0 million in financing.

Crowdrise.com (note: it’s a for-profit site) allows you to “create a fundraiser” for your event.  It appears that it isn’t limited to charities, although the site links to Guidestar.org in order to filter the bona fide Section 501(c)(3)s from the merely well-intentioned.   There seems to be a lot of fundraising teams for fun runs and the like, as well as fundraisers for sick individuals and medical expenses.  Some of these might qualify for a Section 170 deduction if given directly to the organization; other, such as the fundraisers for medical expenses, wouldn’t qualify for a deduction, no matter how well intentioned.    Crowdrise does state:

Your donation to a US-Based 501(c)3 charitable organization through CrowdRise is 100% tax deductible to the extent allowed by law. We will email you a receipt that meets all IRS requirements for a record of your donation.  If you are asked to provide a paper receipt for IRS purposes, please print out a copy of your email receipt. If you lose your receipt, email quintas@crowdrise.com and we'll send you a duplicate. Be sure to include your first and last name and the email address you used to make the donation. Donations to indviduals [sic] are not tax-deductible.

Crowdrise receives a transaction fee for each contribution made, which varies depending on the manner in which the transaction is consummated.

From a regulatory stand point, should we worry about this?  In the for-profit world, we have the SEC and its state law counterparts.  The IRS won’t (and shouldn’t) get involved, it seems to me, unless we are worried about charitable deduction issues.   That being said, is this high tech direct mail, and should it be regulated as such?  Take, for example, the Illinois Solicitation for Charity Act, which defines a professional fund raiser as one who receives “compensation or other consideration… on behalf of a charitable organization residing within this State for the purposes of soliciting, receiving or collecting contributions…”

Or is Crowdrise just an intermediary – it makes no legal representations that what is does is charitable or tax-deductible, necessarily.  I’d be curious to know how state regulators are approaching sites like Crowdrise from a solicitation regulation stand point, and how the Charleston principles would apply to such a website?

EWW

 

April 23, 2014 in In the News, State – Executive, Web/Tech | Permalink | Comments (1) | TrackBack (0)

Massachusettes AG Sues Former Nonprofit President for Excessive Compensation; President and Board Should Expect Deficiency Notice Soon

In a complaint that should serve (unfortunately) as an excellent teaching prop for those of you teaching the tax law of exempt organizations, the Massachusettes Attorney General accused the former president of Falmouth College of engaging in acts that at the federal level can only be described as violative of the prohibitions against private inurement and excess benefits.  Acording to the Boston Globe:

Attorney General Martha Coakley sued the former president of a tiny Falmouth college on Tuesday, seeking to force him to repay the school millions that he allegedly squandered on excessive compensation, Mercedes automobiles, and a quarter-million-dollar timeshare in the Caribbean.In the lawsuit, filed in Suffolk Superior Court, Coakley also charged that President Robert J. Gee gave himself a $152,175 bonus in 2009, and then created false documents to make it appear that the school’s board members held a meeting to award Gee the money for his “superior job performance.’’ No such meeting ever occurred, according to the lawsuit.  During Gee’s tenure, the college he headed, the National Graduate School of Quality Management, bought an ocean-view compound with four houses that included a presidential home for Gee. Last year, the school sold those properties at a loss of at least $1.5 million.

As with campaign intervention, private inurement and excess benefit at this level is so obvious as to lack instructional value.  The complaint is useful to demonstrate the role of local AG's in regulating nonprofits.  And their is also a useful practical lesson.  In my experience, one of the enduring truisms of nonprofit governance is that the founder can never, ever, ever be trusted years down the road when his or her zeal for whatever mission provoked the nonprofit's founding has worn off but the nonprofit is still bringing in serious revenue.  It is a recipe for disaster and almost always leads to the founder treating the organization as his own private sugar daddy.  And the board members, probably all the President's golfing buddies, better get set for the notices that derive from IRC 4958. 

dkj

 

April 23, 2014 in State – Judicial | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 22, 2014

Campaign Intervention Results in Revocation

The Patrick Henry Center, a (c)(3) with no apparent raison d'etre other than campaign intervention,  has lost its tax exempt status because of, well . . . campaign intervention.  The USA Today reported the story last Friday.  The heavily redacted Final Determination is available here.  You have to step pretty far beyond the line for the Service to take the trouble to revoke exempt status.  This case is no exception to that rule.

dkj

April 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Draft Form 1023-EZ (streamlined 501(c)(3) application)

OmbAn observant attorney noticed that Treasury and the IRS have submitted a short version of IRS Form 1023, the Application for Recognition of Exemption Under IRC § 501(c)(3), for review by the Office of Management and Budget under the Paperwork Reduction Act.  The Form 1023-EZ would be a streamlined, two-page form that the IRS estimates approximately 17 percent of applicants could use instead of the current, much longer Form 1023 (see the supporting statement filed with OMB).  The draft instructions for the new form state that the form would only be available to organizations that expect to be relatively small financially (no more than $200,000 in annual gross receipts and no more than $500,000 in total assets) and are not churches, schools, hospitals, supporting organizations, or a number of other rarer types of 501(c)(3) groups.  This would appear to make the form available only for small organizations that do not qualify by virtue of their activities as public charities, that is small organizations that are either private foundations or publicly supported.

Interestingly, the National Taxpayer Advocate in her 2007 Annual Report to Congress (see item 6 on page II-3 of the Executive Summary) recommended a separate Form 1023-EZ for use by smaller organizations.  The recommendation, however, would have only made the shorter form available to non-private foundations with annual gross receipts not normally more than $25,000.  (See Volume I, Section Two, page 535 of the full report.)

Hat Tip:  Charles ("Chip") Watkins

Lloyd Mayer

April 22, 2014 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

Nonprofits Challenge Donor Disclosures Required by California AG, IRS, and FEC

CcplogoA tax-exempt nonprofit that solicit contributions in California is challenging a demand from the California Attorney General's office that they provide unredacted copies of their IRS Form 990 Schedule B, which lists major donors.  As most readers of this blog likely know, while Schedule B is submitted to the IRS the IRS is required to keep the names and other identifying information of the donors listed confidential.  Similarly, while tax-exempt organizations are generally required to provide copies of their Forms 990 upon request, they can redact this donor identifying information before they do so.  The organization that is challenging the demand is the section 501(c)(3) Center for Competitive Politics, which has filed a lawsuit in federal district court as detailed at the link above. 

In a separate challenge to compelled disclosure of donors, according to a Washington Examiner article the section 501(c)(4) Campaign for Liberty, which is associated with Ron Paul, is challenging the ability of the IRS to require disclosure of donor information on Schedule B even if that information is not (supposed to be) disclosed publicly.  While not completely clear from the article, it appears that the group is refusing to provide the required information and refusing to pay any fines imposed by the IRS as a result, presumably for filing an incomplete Form 990.  These two challenges join an earlier challenge by the Tea Party Leadership Fund, a PAC and therefore presumably a section 527 tax-exempt organization, to donor disclosure required by the Federal Election Commission, as reported by NPR.

Lloyd Mayer

April 22, 2014 in Federal – Judicial, State – Executive | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 16, 2014

Political Activity Regulations Will Be Re-Written Again . . . and Again (from scratch!)

Let's face it, any attempt at regulating political activity by grass roots organizations, charitable or otherwise, is bound to fail.  Why?  Because nobody has ever explained why engaging in political speech is not a public good, less deserving of subsidization than education, poverty relief, or any of the many other activities considered charitable or advantageous to the social welfare.  What's wrong with political participation through grass roots organizations?  Don't we want more political participation?  Of course we do, but somewhere along the way somebody decided, without ever explaining why, that political engagement was neither charitable nor beneficial to the social welfare.  And by the way, if the evil to be avoided is "capture" of the political process by those wealthy enough to pay to broadcast their speech to wider audiences, wouldn't subsidizing political speech through deductions, exemptions, credits, (maybe with a dramatic cliff so that those who don't need subsidization don't get it) reduce the advantage of money (even if only slightly)?  Why in the world do we assume that one taxpayer should not subsidize another's participation in the political process, when we -- "we" are the government, the government is not "them" -- subsidize all sorts of activities about which there can be no unanimity of opinion.  Remember, too, that we would not be subsidizing a particular viewpoint, just the act of participation.  Just participation.  Seems to me we are wasting an awful lot of time and money trying to stamp out something we don't even think is a bad thing.  And that really is why the effort to regulate political speech subsidized by tax exempt dollars will inevitably fail.  We don't even know why we think political activity is a bad thing.  Something about Lyndon Johnson trying to put a political opponent out of business, right?  I doubt anybody even thinks engaging in the political process is a bad thing.  I'll even go one step further.  Engaging in the political process, even as a staunch lunatic partisan, is probably consistent with most people's conception of "civic duty."  So we should do away with the various prohibitions of and limitations on political activity via collectives.  Then people can support whatever political cause they want through whatever non-governmental organization they want.  I don't necessarily support your position just because I am willing to subsidize (if failing to tax really is a subsidy) your participation in the process.  Look, the rich can talk to more people more often whether we limit nonprofits from engaging the political process or not.  Limiting grassroots participation by denying tax exempt organizations for groups that do only exacerbates that advamtage.  

But I digress.  Every [law school] administrator knows that when everybody complains about something you have done, you either have it perfectly right or all wrong.  Well, everybody is complaining about the proposed "candidate related activity" regulations.  The Service apparently believes the complaints indicate it has the proposed regulations all wrong and apparently is going to start all over again with the effort to stamp out (that is really what we are trying to do, isn't it?) political speech by social welfare organizations.  The Washington Post Blog reports:

The head of the Internal Revenue Service this week signaled that his agency will re-write proposed new limits on the political activities of nonprofit advocacy groups, quelling concerns from the left about overreach but failing to win over conservatives. Lawmakers and policy analysts on both sides of the political spectrum have voiced opposition to the draft guidelines, which would prohibit tax-exempt organizations from engaging in certain election-related activities including voter-registration and get-out-the-vote drives. Conservatives have argued that the proposals are part of an Obama administration plot to silence criticism from the right. Liberals have said the plans go too far and need reworking.

"Re-write" as in start all over again.  Just one big waste of time and effort unless and until we agree on a fundamental theory explaining the motivations for the exercise in the first place.

dkj

 

April 16, 2014 in Federal – Legislative | Permalink | Comments (3) | TrackBack (0)

Tuesday, April 15, 2014

Interesting Source Documents re: 501(c)(4) application for exemption

One of the few beneficial effects of the faux scandal regarding the IRS' treatment of 501(c)(4) entities is likely to be public access to lots of stuff that would otherwise not be accessible.  Stuff that might be useful for someone teaching or writing about charities, social welfare organizations and political activity.  For instance, you can find almost the entire case file pertaining to Americans for Responsible Leadership's application for tax exemption here.  For those of us who are not in the trenches often enough (or maybe don't have a life!), this actually makes for interesting reading.

dkj

April 15, 2014 in Federal – Executive | Permalink | Comments (1) | TrackBack (0)

Nonprofit Finance Fund: State of the Nonprofit Sector Survey

New York – April 7, 2014– The economic recovery is not offering signs of relief for the nonprofit sector, and many organizations are now looking to new models of funding, according to the results of the Nonprofit Finance Fund’s 2014 State of the Nonprofit Sector Survey. Leaders from more than 5,000 nonprofits nationwide participated in this sixth annual survey. Many reported daunting financial situations, and said they are looking at new ways to secure the future of their organizations for the benefit of the people they serve.  The survey was supported by longtime partner the Bank of America Charitable Foundation as well as the Ford Foundation.

The economic recovery is leaving behind many nonprofits and communities in need:

  • 80% of respondents reported an increase in demand for services, the 6th straight year of increased demand.   
  • 56% were unable to meet demand in 2013—the highest reported in the survey’s history.  
  • Only 11% expect 2014 to be easier than 2013 for the people they serve.

“Americans rely on nonprofits for food shelter, education, healthcare and other necessities, and everyone has a stake in strengthening this social infrastructure,” said Antony Bugg-Levine, CEO of Nonprofit Finance Fund. “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”

For many nonprofits, the funding landscape is changing. Of respondents who receive government funding, nearly half have seen support decline over the past five years.

 Nonprofits are working to bring in new money; in the next 12 months:

  • 31% will change the main ways in which they raise and spend money.
  • 26% will pursue an earned income venture.
  • 20% will seek funding other than grants & contracts, such as loans or other investments.

“Today’s environment requires creative problem-solving and good communication with funders and partners,” said Robert Chávez, Chief Executive Officer of Urban Corps of San Diego County, which provides a high school education and green job training to young adults. “As a conservation corps, we have always relied on a fee-for-service program model to fund job training projects. Now, we are diversifying our services and exploring new income-generating partnerships in order to supplement at-risk funding, become fully self-sufficient, and ultimately better serve youth.”

41% of nonprofits named “achieving long-term financial stability” as a top challenge, yet:

  • More than half of nonprofits (55%) have 3 months or less cash-on-hand. 
  • 28% ended their 2013 fiscal year with a deficit.  
  • Only 9% can have an open dialogue with funders about developing reserves for operating needs, and only 6% about developing reserves for long-term facility needs.  

“The closer a system gets to failure, the harder it becomes to devote scarce resources toward building a better future,” said Bugg-Levine. “The nonprofit sector’s greatest asset is tenacious, creative, smart leaders who, despite significant challenges and with the right support, have the capacity to lead the United States into a new era of civic and social greatness.”

Nonprofits are taking wide-ranging steps to survive and succeed.
In the past 12 months:

  • 49% collaborated with another organization to improve or increase services.
  • 48% invested money or time in professional development.
  • 40% upgraded hardware or software to improve organizational efficiency.
  • 39% conducted long-term strategic or financial planning.

“Today, it’s clear that government funding and traditional philanthropy alone can’t cover the critical work of nonprofits addressing pressing challenges in our communities,” said Kerry Sullivan, president of the Bank of America Charitable Foundation. “Tools like the Nonprofit Finance Fund survey can help fuel discussion among nonprofits and the private sector about how new funding models and strategies can better support shared goals of stronger organizations and communities.”

For the first time, the annual survey delved into impact measurement, a core component of some emerging funding models such as pay-for-success:

  • Respondents said that more than 70% of their funders requested impact or program metrics.
  • 77% agreed that the metrics funders ask for are helpful in assessing impact.
  • Only 1% reported that funders always cover the costs of impact measurement; 71% said costs were rarely or never covered.

“The NFF survey results illustrate the ongoing risks of a frayed social safety net dealing with increasing demand,” said Hilary Pennington, vice president of the Ford Foundation’s program for Education, Creativity and Free Expression. “If we continue to expect nonprofits and their dedicated staff to meet society’s most critical needs at the most crucial times– we need to recommit as a society to strengthen the necessary supports to do just that.”

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April 15, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)