Monday, July 24, 2017
The inheritance system is beset by formalism. Probate courts reject wills on technicalities and refuse to correct obvious drafting mistakes by testators. These doctrines lead to donative errors, or outcomes that are not in line with the decedent’s donative intent. While scholars and reformers have critiqued the intent-defeating effects of formalism in the past, none have examined the resulting distribution of donative errors and connected it to broader social and economic inequalities. Drawing on egalitarian theories of distributive justice, this Article develops a novel critique of formalism in the inheritance law context. The central normative claim is that formalistic wills doctrines should be reformed because they create unjustified inequalities in the distribution of donative errors. In other words, probate formalism harms those who attempt to engage in estate planning without specialized legal knowledge or the economic resources to hire an attorney. By highlighting these distributive concerns, this Article reorients inheritance law scholarship to the needs of the middle class and crystallizes distributive arguments for reformers of the probate system.
Friday, June 23, 2017
Mark Blumberg (Blumberg Segal LLP) has put together a list, with relevant links, of all 447 Canadian registered charities that have had their charity status revoked by the Charities Directorate of the Canada Revenue Service over the past 25 years. For anyone interested in seeing what types of activities get Canadian charities into trouble with the federal tax authorities, this list could be invaluable. I am not aware of a similar compilation with respect to the IRS in the United States, although Terri Lynn Helge (Texas A&M) has an article in the Pittsburgh Tax Review (Rejecting Charity: Why the IRS Denies Tax Exemption to 501(c)93) Applicants) that looks at IRS denials of applications for recognition of exemption as a charity under section 501(c)(3).
Hat tip: globalphilanthropy.ca.
Earlier this week I posted a link to the recently published Financing the Benefit Corporation article by Dana Brakman Reiser and Steven Dean, but there have been a number of other recent articles and book chapters relating to social enterprise that are worth mentioning, including several draft book chapters forthcoming in The Cambridge Handbook of Social Enterprise Law:
Seattle University Law Review: Benefit Corporations and the Firm Commitment Universe (sixteen articles, including the Reiser & Dean article )
Brian D. Galle (Georgetown), Self-Regulation of Social Enterprise, forthcoming in The Cambridge Handbook of Social Enterprise Law
Andrew S. Gold (DePaul) & Paul B. Miller (McGill), Fiduciary Duties in Social Enterprise, forthcoming in The Cambridge Handbook of Social Enterprise Law
Lloyd Hitoshi Mayer (Notre Dame), Creating a Tax Space for Social Enterprise, forthcoming in The Cambridge Handbook of Social Enterprise Law
Brett McDonnell (Minnesota), Three Legislative Paths to Social Enterprise: L3Cs, Benefit Corporations, and Second Generation Cooperatives, forthcoming in The Cambridge Handbook of Social Enterprise Law
Peter Molk (Willamette), Do We Need Specialized Business Forms for Social Enterprise?, forthcoming in The Cambridge Handbook of Social Enterprise Law
Emily Winston (NYU), Benefit Corporations and the Separation of Benefit and Control, forthcoming in Cardoza Law Review
The study of nonprofits goes well beyond the laws governing them, and there are a number of publications and organizations dedicated to that study. Here is a sampling of both recent articles and upcoming conferences from this broader academic space (the logo shown here is from the Indiana University-Purdue University Lilly Family School of Philanthropy, which is hosting the first conference listed):
RECENT ARTICLES (click through to see tables of contents for these publications)
Nonprofit Academic Centers Council Biennial Conference, Indianapolis, July 31-August 2
Science of Philanthropy Initiative, Chicago, September 6-7, 2017
Comparing Third Sector Expansions Workshop, New York, October 4-7, 2017
ARNOVA Annual Conference, Grand Rapids, November 16-18, 2017
International Society for Third-Sector Research Conference, Amsterdam, July 10-13, 2018
Tuesday, June 20, 2017
Cassady V. (Cass) Brewer (Georgia State), Lisa A. Runquist (Lisa A. Runquist, Attorney at Law), and Elizabeth Carrott Minnigh (Buchanan Ingersoll & Rooney) have published Nonprofit LLCs in the ABA's Business Law Today (March 2017). Here is the introduction:
LLCs increasingly intersect with the nonprofit sector. LLCs are used within the sector as tax-exempt subsidiaries (see, e.g., IRS Announcement 99-102 (requiring I.R.C. section 501(c)(3) organizations to report the activities of their single-member LLCs (SMLLCs) on the organization’s annual IRS Form 990)); as vehicles for charitable giving (see e.g., IRS Notice 2012-52 (allowing contributions to an SMLLC owned by a (c)(3) to qualify for a charitable contribution deduction under I.R.C. section 170); see also Priv. Ltr. Rul. 200150027 (Dec. 14, 2001) (disregarded SMLLC established by (c)(3) to receive contribution of real property subject to potential environmental liabilities)); as private foundation substitutes; and as stand-alone, tax-exempt entities in lieu of nonprofit corporations or unincorporated nonprofit associations (see Reg. § 301.7701-3(c)(1)(v)(A) (submission of application for (c)(3) status constitutes an election to be treated as a corporation for federal income tax purposes)). A few states even have a nonprofit form of the LLC (see Ky. Rev. Stat. Ann. §§ 275.520–540 (2017); Minn. Stat. § 322B.975 (2017); N.D. Cent. Code §§ 10-36-01 to -09 (2017); Tenn. Code Ann. § 48-101-809 (2017)).
Furthermore, because it is so flexible, the LLC has proven useful for hybrid for-profit/nonprofit endeavors (i.e., the benefit LLC and the L3C) (see generally Cassady V. Brewer, Elizabeth Carrott Minnigh & Robert A. Wexler, Social Enterprise by Non-Profits and Hybrid Organizations, 489 Tax. Mgmt. at A-33) and joint ventures between tax-exempt and nontax-exempt entities (see, e.g., Rev. Rul. 2004-51 (attributing “insubstantial” activities of an ancillary LLC joint venture to an exempt member); Rev. Rul. 98-15 (attributing “substantial” activities of a whole hospital LLC joint venture to an exempt member)).
Using a hypothetical to illustrate, this article summarily explores the use of LLCs within the nonprofit sector, including a few words about their use as hybrid for-profit/nonprofit enterprises.
Roger Colinvaux (Catholic) has posted Defending Placed-Based Philanthropy by Defining the Community Foundation, BYU Law Review (forthcoming). Here is the abstract:
The article is about the changing role of the community foundation in conducting philanthropy in the United States. The historic place-based mission of the community foundation is under threat, in part because of competition with national charities that, like community foundations, sponsor donor advised funds (DAFs). The mass-market success of national DAFs is putting pressure on community foundations to conform to a national, passive, individual-based model of advised giving. Community foundations also have become caught up in a legal and policy debate that is directed primarily at national, commercially affiliated DAF sponsors. As a result, community foundations risk becoming subject to rules and regulations devised for others. Part I of the article provides a historical overview of the tax-exempt status of community foundations. Part II shows how the settled wisdom on the tax status of community foundations has been upset by the rise of the nationally sponsored DAF, the extent to which community foundations are different from national DAF sponsors, and whether it would be beneficial to define the community foundation for tax purposes in order to make them more distinct. Part III then considers the possible content of a definition of the community foundation in terms of its purpose, governance, and operations, taking into account longstanding policy concerns about donor control of foundation assets and income accumulations. The article concludes that a strong affirmative Code-based definition of community foundation could help preserve place-based philanthropy.
James Fishman (Pace) has posted Rethinking Riley: Applying Commensurate and Intermediate Scrutiny Standards to Judicial Evaluation of Charitable Solicitation Regulation. Here is the abstract:
In Riley v. National Federation of the Blind, 487 U.S. 781 (1988), the Supreme Court struck down as unduly burdensome and unconstitutional a North Carolina statute requiring professional fundraisers to disclose to those solicited the average percentage of gross receipts actually turned over to the charity for all charitable solicitations conducted in the state within the previous twelve months. The Court applied a strict scrutiny standard of review of the regulated speech, rather than a more deferential intermediate or rational standard of scrutiny. The Court’s reasoning was that the commercial speech elements of the charity’s message were inextricably intertwined with the fully protected educational portions. It also held North Carolina’s regulations governing application of the statute were not narrowly tailored to achieve the state’s valid interests in protecting charities and informing donors how money contributed was spent.
This article disagrees with Riley’s rationale that the educational elements in charitable solicitations are always so interwoven with commercial speech that a governmental regulation that impinges on a charity’s message should always be subject to strict judicial scrutiny review, and as a matter of course protected by the First Amendment. (Fraudulent solicitations do not receive constitutional protection.) The reality is that the educational component of many charitable solicitations is formulaic or an afterthought unconnected to the solicitation message. The article contends that if a charity’s costs of fundraising over several years exceeds eighty-five percent of the amount raised, and the actual amount that is used for the charity’s philanthropic mission is miniscule, should create a rebuttable presumption that the charitable program is not commensurate with the resources contributed to the organization. Absent certain exceptions, such organizations should lose their tax exempt status.
Judicial review of such revocations should be subject to a lesser, intermediate standard of scrutiny of review by the courts. There are both common law and federal tax precedents for using a commensurate standard in evaluating whether a charity serves a public purpose relative to its resources and abilities. This approach should pass constitutional muster, and will protect the public from deception and manipulation.
The hybrid organizational forms designed with social enterprises in mind have proven to be hothouse flowers. Flourishing in state legislatures, even those with the most distinguished pedigrees—such as Delaware’s public benefit corporation—have so far failed to thrive in the marketplace. Fortunately, hybrid financial instruments offer a source of strength and stability that can help social enterprise to take root. This Article examines the valuable role that financial instruments can play in providing social enterprises with the capital they need to grow. Debt with equity features and equity with debt characteristics constitute the lion’s share of such financial tools. More exotic financial tools, including some tailor-made for social enterprise, can be deployed alongside hybrid debt and equity instruments that any venture might use. To set the stage, Part I provides a brief overview of the achievements of the benefit corporation to date. These include their incredible success in state legislatures and their consciousness-raising about the legitimacy and value of companies dedicated both to achieving profits and generating social good. Part II considers next steps. In particular, it lays out the challenges faced by benefit corporations and other social enterprises seeking capital to enable them to survive and scale. Part III, which makes up the bulk of the essay, considers a variety of financial tools that could be harnessed to meet these challenges. Although common stock and standard corporate bonds will often fail to align the interests of entrepreneurs and investors in double-bottom line ventures, a variety of less conventional financial instruments offer considerable promise.
This Article uncovers and names a phenomenon of pressing importance for healthcare policy and religious liberty law: the rise of zombie religious institutions without attachments to churches or associations of religious people. It argues that when religion and commerce combine, commercial transactions shape religious compliance and identity. Contract creates religion—sometimes in perpetuity—for facilities that are not, or never have been, religious and for providers who do not share the institution’s religious precepts. “Religious” institutions far-removed from the paradigm of the church populate the marketplace.
The Article details religion’s spread across healthcare through affiliations, mergers, and—most surprisingly—sales of hospitals that continue religious practice after their connection to a church ends. Secular and religious, public and private, for-profit and non-profit hospitals comply with religion by contract. Private law impedes public policy by expanding the universe of institutions eligible for religious exemption from otherwise applicable laws, including employment antidiscrimination law and the Employee Retirement Income Security Act. As the category of religious institution loses its specialness, theories of religious institutionalism founder. The presumption of autonomy of religious institutions from regulation cannot survive in the marketplace, where religious identity can be bought and sold.
Tuesday, May 9, 2017
Aprill: Section 501(C)(3) Organizations, Single Member Limited Liability Companies, and Fiduciary Duties
Ellen Aprill has posted her forthcoming article entitled "Section 501(C)(3) Organizations, Single Member Limited Liability Companies, and Fiduciary Duties" to SSRN. Here is the abstract:
Tax-exempt organizations, including section 501(c)(3) organizations and their philanthrocapitalists, use single member limited liability companies (SMLLCs) for a variety of purposes. Exempt section 501(c)(3) nonprofit organizations (which, for convenience, I will refer to as charities) that have a number of facilities, be they schools, hospitals, or real estate investments, may form a separate SMLLC for each of them, primarily to protect other assets from liability. Charities may wish to place activities with a high risk of tort liability, such as an overnight summer camp, in its own SMLCC. SMLLCs may be used to isolate unrelated business activities from related activities. They may be used to isolate risky investments from more conservative ones. Philanthrocapitalists may structure donations through SMLLCs. They may use them to control aspects of the tax exempt entity’s activities, as according to press reports, the Koch Brothers may do with some of their noncharitable tax-exempt entities.
A SMLLC leads a schizophrenic existence. An entity under state law, it is disregarded for most purposes under federal tax law. Furthermore, the leading theoretical approaches to LLCs and to nonprofit organizations stand in sharp contrast to each other regarding reliance on contract. These very different sets of applicable laws and theory allow for regulatory arbitrage, which involves takes advantage of inconsistencies between the applicable rules.
The potential for regulatory arbitrage is especially acute in connection with governance issues that arise when charities employ SMLLCs. On one hand, the extent to which an entity’s governing body has responsibility to manage an entity, including a SMLLC, and what fiduciary duties members of the governing body of the SMLCC owe to the entity, are assigned to state law, and some state laws permit LLCs to reduce or eliminate fiduciary duties of care and loyalty. In contrast, state law does not permit elimination of fiduciaries duties for charities. Moreover, charities are subject to federal tax as well as state entity law. Under federal tax rules, charities must serve a public purpose, and federal tax laws themselves apply requirements regarding self-dealing. In addition, the IRS has shown particular interest in the governance of tax-exempt organizations more generally.
This paper examines possible tensions between governance and fiduciary duties of the charity and of its SMLCC. It concludes that waiver of fiduciary duties is not appropriate for SMLLCs of charities, even if such waiver is permitted under state law. In the case of SMLLCs of charities, moreover, the issues related to fiduciary duties have important consequences for the tax law. The paper thus argues that, as it has in analogous situations, the IRS should issue guidance ensuring that the governing body of a section 501(c)(3) has control of all aspects of its activities, including those conducted by any SMLLC. This guidance should be explicit as to what control of a SMLCC entails. While the recommendation made is a specific one, it underscores the importance of adhering to the special rules to which nonprofit tax-exempt charities are subject in order for these entities to fulfill their particular role they have been assigned in our society.
Monday, May 8, 2017
Many white supremacist groups enjoy tax-exempt status. As such, these hate groups do not have to pay federal taxes and people who give money to support these groups may take deductions on their personal taxes. This recognition not only results in potential lost revenue for government programs, but it also serves as a public subsidy of racist propaganda and operates as the federal government’s imprimatur of white supremacist activities. This is all due to an unnecessarily broad definition of “educational” that somehow encompasses the activities of universities, symphonies, and white supremacists. This Essay suggests a change in the Treasury regulations to restrict the definition of educational organizations to refer only to traditional, degree-granting institutions, distance learning organizations, or certain other enumerated entities. With this change, we would no longer allow white supremacists to call themselves charities, remove the public subsidy of such reprehensible organizations, and eliminate the government’s implicit blessing of hate groups.
Through Twitter, Sam Brunson (@smbrnsn) and David Herzig (@professortax) briefly responded to this argument:
Here's a link to their forthcoming article, "A Diachronic Approach to Bob Jones: Religious Tax Exemptions after Obergefell." Last December, Eugene Volokh weighed in to conclude that it would be unconstitutional viewpoint discrimination for the IRS to deny tax exemption on the ground that a group engages in hate speech:
But the IRS can’t deny tax exemptions on the grounds that a group “hold[s] views that millions of Americans may find abhorrent” — or “espouse[s] values that are incompatible with most Americans” — whether those views are socialist, Islamist, pro-abortion, anti-abortion, pro-illegal-immigrant, anti-immigrant, pro-gay-rights, anti-gay-rights, white nationalist, black nationalist or anti-nationalist.
Friday, March 17, 2017
Samuel D. Brunson (Loyola-Chicago) and David Herzig (Valparaiso) have posted A Diachronic Approach to Bob Jones: Religious Tax Exemptions after Obergefell, Indiana Law Journal (forthcoming). Here is the abstract:
In Bob Jones v. U.S., the Supreme Court held that an entity may lose its tax exemption if it violates a fundamental public policy, even where religious beliefs demand that violation. In that case, the Court held that racial discrimination violated fundamental public policy. Could the determination to exclude same-sex individuals from marriage or attending a college also be considered a violation of fundamental public policy? There is uncertainty in the answer. In the recent Obergefell v. Hodges case that legalized same-sex marriage, the Court asserted that LGBT individuals are entitled to “equal dignity in the eyes of the law.” Constitutional law scholars, such as Lawrence Tribe, are advocating that faith groups might lose their status, citing that this decision is the dawning of a new era of constitutional doctrine in which fundamental public policy will have a more broad application.
Regardless of whether Obergefell marks a shift in fundamental public policy, that shift will happen at some point. The problem is, under the current diachronic fundamental public policy regime, tax-exempt organizations have no way to know, ex ante, what will violate a fundamental public policy. We believe that the purpose of the fundamental public policy requirement is to discourage bad behavior in advance, rather than merely punish it after it occurs. As a result, we believe that the government should clearly delineate a manner for determining what constitutes a fundamental public policy. We suggest recommended three safe harbor regimes that would allow religiously-affiliated tax-exempt organizations to know what kinds of discrimination are incompatible with tax exemption. Tying the definition of fundamental public policy to strict scrutiny, to the Civil Rights Act, or to equal protection allow a tax-exempt entity to ensure compliance, ex post. In the end, though, we believe that the flexibility attendant to equal protection, mixed with the nimbleness that the Treasury Department would enjoy in crafting a blacklist of prohibited discrimination, would provide the best and most effective safe harbor regime.
Roger Colinvaux (Catholic) has posted The Importance of a Participatory Charitable Giving Incentive, 154 Tax Notes No. 5 (2017). Here is the abstract:
Leading tax reform proposals contemplate a charitable deduction claimed by just five percent of taxpayers. Such a limited deduction would fatally undermine the foundations of a giving incentive that has fostered an altruistic and pluralistic society through its broad-based participation and would seriously harm the charitable sector. Section 501(c)(3) would recede in importance as setting the standard for a public benefit organization. More gifts would go to private benefit and political organizations. The article argues that a charitable deduction for the few should be rejected. Instead, Congress should consider expanding the charitable giving incentive by extending it to more taxpayers in the form of a credit. A credit would remove long-standing inequities, allow for smarter charitable giving policy in the future, and improve transparency. If a charitable deduction for the few does become part of tax reform, however, changes should be made to ensure that deductible contributions are not abused but go to active public charities.
Our Constitution enshrines two bedrock principles of Western liberal democracies: limited government and equal opportunity. This Chapter explores the extent to which the charitable tax subsidies reflect these principles, as expressed in the two theories of distributive justice respectively associated with them, libertarianism and resource egalitarianism. This analysis shows that the subsidies’ current structure is much broader than necessary to reflect libertarian ideals, even under the more permissive classical liberal theories. As a result, the subsidies undermine the principle of limited government by coercing taxpayers to subsidize activities that are not the legitimate purview of government. The subsidies’ relation to resource egalitarianism is more complex: They are broader than the most common interpretations of resource egalitarianism justify, and undermine basic equality of opportunity notions both by subsidizing activities that increase the head-start of the wealthy and by giving wealthy taxpayers more say over government resources than poorer taxpayers. That said, the subsidies do reflect less well-known and more controversial accounts of resource egalitarianism that address expensive tastes and talent-pooling.
Margaret H. Lemos (Duke) and Guy-Uriel E. Charles (Duke) have posted Patriotic Philanthropy? Financing the State with Gifts to Government. Here is the abstract:
Federal and state law prohibit government officials from accepting gifts or “emoluments” from outside sources. The purpose of gift bans, like restrictions on more explicit forms of bribery, is to protect the integrity of political processes and to ensure that decisions about public policy are made in the public interest — not to advance a private agenda. Similar considerations animate regulations on campaign funding and lobbying. Yet private entities remain free to offer gifts to government itself, to foot the bill for particular public projects they would like to see government pursue. Such gifts — dubbed “patriotic philanthropy” by one prominent donor — raise fundamental questions about the private role in public policymaking, questions that are central to debates over campaign finance, private philanthropy, and the privatization of government functions. Nevertheless, they have received virtually no attention in the legal literature. This Article offers a positive and normative account of gifts to government. Although we do not question the enormous good that patriotic philanthropy can do, we argue that gifts raise significant concerns about democratic process, equality, and state capacity.
I have posted Globalization Without a Safety Net: The Challenge of Protecting Cross-Border Funding of NGOs, 102 Minnesota Law Review (forthcoming). Here is the abstract:
More than 50 countries around the world have sharply increased legal restrictions on both domestic non-governmental organizations (“NGOs”) that receive funding from outside their home country and the foreign NGOs that provide such funding and other support. These restrictions include requiring advance government approval before a domestic NGO can accept cross-border funding, requiring such funding to be routed through government agencies, and prohibiting such funding for NGOs engaged in certain activities. Publicly justified by national security, accountability, and other concerns, these measures often go well beyond what is reasonably supported by such legitimate interests. These restrictions therefore violate international law, which provides that the right to receive such funding is an essential aspect of freedom of association. Yet affected NGOs cannot rely on the international human rights treaties that codify this right because those treaties have limited reach and lack effective avenues for remedying these violations.
There is, however, a growing web of international investment treaties designed to protect cross-border flows of funds, leading some supporters of cross-border funding for NGOs to argue that NGOs can instead use these investment treaties to protect such funding. In this Article, I provide the most thorough consideration of this proposal to date, including taking into account not only the legal hurdles to invoking investment treaty protections in this context but also the practical hurdles based on recently gathered information regarding the costs to parties who pursue claims under these treaties. I conclude that while it may be possible to overcome both sets of hurdles in some situations, these hurdles are higher than previous commentators have acknowledged. In particular, overcoming the high costs of bringing claims under these treaties would at a minimum require a concerted effort to fund or reduce such costs through either securing substantial third party financing or recruiting significant pro bono assistance.
Given these obstacles to invoking the protections of international investment treaties, I then explore the insights that the remarkable growth in such treaties provide regarding the conditions that would need to exist for countries to be convinced to enact a similar set of agreements to protect cross-border funding of NGOs. I conclude that such conditions are currently absent and that it will take many years to see if they could develop, even assuming that many countries continue to increasingly restrict or effectively prohibit such funding. In the meantime, both recipients and providers of cross-border funding for NGOs will need to consider alternate strategies that do not rely on international law to counter such restrictions.
The final version of Conservation Easements and the Valuation Conundrum, 19 Florida Tax Review 225 (2016), written by Nancy McLaughlin (Utah) is now available. Here is the abstract:
For more than fifty years, taxpayers have been able to claim a federal charitable income tax deduction under Internal Revenue Code § 170(h) for the donation of a conservation easement or a façade easement. For just as long, the deduction has been subject to abuse, including valuation abuse. Dismayed by the expenditure of significant judicial and administrative resources to combat abuse in the easement donation context, the Treasury Department recently proposed reforms, including reforms to address valuation abuse. The reforms were proposed in somewhat of an analytical vacuum, however, because there has been no comprehensive analysis of the easement valuation case law. This article fills that void. It examines the easement valuation case law and discusses the most common methods by which taxpayers or, more precisely, their appraisers overvalue easements. It also proposes alternative reforms informed by the lessons learned from the case law. Concise summaries of the relevant facts and holdings of the cases are included in appendices.
Wednesday, March 1, 2017
Schizer: Subsidies and Nonprofit Governance: Comparing the Charitable Deduction with the Exemption for Endowment Income
David Schizer has posted a new working paper, entitled "Subsidies and Nonprofit Governance: Comparing the Charitable Deduction with the Exemption for Endowment Income." From the abstract:
Charitable subsidies are supposed to encourage positive externalities from charity. In principle, the government can pursue this goal by evaluating specific charitable initiatives and deciding how much each should receive. But this Article focuses on two income tax rules that leave the government very little discretion about which charities to fund: the deduction for donations to charity (“the deduction”) and the exemption of a charity’s investment income (“the exemption”). Under each rule, as long as charities satisfy very general criteria, federal dollars flow automatically. While both of these sibling subsidies delegate key decisions to private individuals, they create very different incentives and effects. This Article breaks new ground by showing their different effects on the governance of nonprofits.
Specifically, the deduction has three advantages over the exemption. First, the deduction uses a more reliable test for determining whether a charity should receive government funding: a charity has to attract donations, which means donors believe in the charity. For the exemption, by contrast, a charity has to run a surplus, which is less dependable evidence of social value. Second, the deduction empowers donors to monitor nonprofit managers, while the exemption undercuts this monitoring. Since the exemption offers tax-free returns only to charities, and not to donors, it encourages donors to turn over assets to charities (“endowment gifts”), instead of keeping these assets and making annual gifts of the investment return (“spendable gifts”). But once a donor gives an endowment to an operating charity, she cannot redirect this money to another charity, even if she later develops doubts about the charity’s mission or management. Third, in favoring endowments, the exemption exacerbates another familiar governance problem: cumbersome or stale limits on endowments.
These governance issues are an important, but largely overlooked, reason to favor the deduction over the exemption. Yet although scaling back the exemption solves one set of problems, it creates another: charities would begin making tax-motivated saving and investment decisions. In deciding how much of the subsidy for charities should be delivered through the exemption, as opposed to the deduction, Congress needs to manage this tradeoff. This Article explores various ways to do so.
Wednesday, January 18, 2017
By Professor Alina S. Ball, UC Hastings - from the SSRN Abstract:
The social enterprise movement has ushered in a promising new wave of companies using market-based strategies to advance social and environmental change. The
longevity and growth of social enterprises will be determined by their ability to balance the complex and often competing interests within these unique business entities. The established corporate governance regime, which predominately addresses the characteristics of public companies, does not provide adequate oversight for promoting good corporate governance within the social enterprise sector. This Article argues that the benefit reporting requirements in hybrid-corporation statutes offer an innovative mechanism for encouraging and maintaining good social enterprise governance. Using the benefit reporting requirements within hybrid-corporation statutes as a model, this Article provides a normative framework and establishes the implementation principles for social enterprise governance across various legal entities. By counseling social enterprises on how to promote participatory democracy and increase the company’s capacity to detect and address problems, corporate lawyers serve a critical function in developing social enterprise governance. Using an approach guided by corporate lawyers and informed by social enterprise practitioners would build on the traditional corporate governance paradigm to develop narrowly tailored mechanisms that facilitate a more resilient social enterprise sector.
Suggested Citation: Ball, Alina S, Social Enterprise Governance (August 22, 2016). 18 U. PA. J. BUS. L. 919 (2016); UC Hastings Research Paper No. 179. Available at SSRN: https://ssrn.com/abstract=2827913.
Tuesday, January 17, 2017
Lecy, Van Lyke and Yoon: "What Do We Know About Nonprofit Entrepreneurs?: Results from a Large-Scale Survey"
Jesse Lecy, David Van Slyke, and Nara Yoon (all affiliated with Syracuse University) recently posted to SSRN an article detailing the results of a survey of the motivations behind the creation of new tax-exempt organizations. The SSRN abstract reads as follows:
While the academic fields of entrepreneurship and social entrepreneurship have grown rapidly, nonprofit entrepreneurship has remained a minor field of inquiry, even though 50,000 nonprofits are started each year. Using a survey of 7,000 nonprofit founders, we provide baseline data on key dimensions of nonprofit entrepreneurship. We find that typical nonprofit entrepreneurs are distinct from for-profit entrepreneurs in several ways; they have bigger founding teams, are wealthier, older, more educated, and are less driven by self-employment. These differences inform a research agenda for the field. This study represents the first large-scale empirical analysis of entrepreneurship in the nonprofit sector.
Suggested Citation: Lecy, Jesse D. and Van Slyke, David M. and Yoon, Nara, What Do We Know About Nonprofit Entrepreneurs?: Results from a Large-Scale Survey (December 01, 2016). Available at SSRN: https://ssrn.com/abstract=2890231
From a legal perspective, I found two items immediately interesting: (1) the high number of new organizations that were "spin-offs" of projects that were housed elsewhere or had been operating informally, and (2) the barriers to entry created by paperwork (and knowledge thereof). It reinforces my personal concerns about the "informal" charitable economy, which simultaneously accomplishes many great things off-the-grid, and yet raises issues for me of inefficiency and diversion in limited charitable resources. An interesting read!