Friday, August 23, 2013
Once I put away the blogging about the Van Hollen v. IRS case, I started to tackle the pile of journals and magazines that the College of Law's circulation department dutifully sends me daily. And what did I see on the cover of the Virginia Tax Review, Volume 32, No. 4 (Spring 2013):
- Chevron's Conflict with the Administrative Procedures Act by Patrick J. Smith, a partner with Ivins, Phillips & Barker in Washington D.C.
Given the apparent issue in the Van Hollen case, this seems very timely - it's in the "to read over the weekend pile." Which weekend, of course, remains to be seen, but that has nothing to do with the article!
Friday, August 2, 2013
This paper explores whether ownership matters in a fundamental sense by comparing the performance of stockholder-owned firms with the much less analyzed nonprofit firms. No stakeholder has residual cash flow rights in nonprofit firms, and the control rights are held by customers, employees, and community citizens. Accounting for differences in size and risk and comparing only firms in the same industry, we find that stockholder-owned firms do not outperform nonprofit firms. This result is consistent with the notion that the monitoring function of stockholders may be successfully replaced by other mechanisms. We find evidence that product market competition may play this role as a substitute monitoring mechanism.
Martha Reeves (no affiliation provided) has posted Brand Partnerships as Joint Ventures: A Comparison of Two Partnerships in the Small Non-Profit Arena to SSRN. Here is the abstract:
Through a case study approach, this article explores how non-profits can effectively participate in joint ventures with larger, for-profit institutions. In addition to offering a new product or service, these partnerships should build the brands of both organizations. The similarity between for-profit business joint ventures and non-profit joint ventures is examined. The author compares two non-profit joint ventures – one successful and one unsuccessful – to demonstrate the importance of several aspects of joint ventures. Just as in business ventures, non-profits must carefully select their partners, have a clear understanding of roles and responsibilities, engage in open communication, and have a written charter of each partner's roles and responsibilities. Most importantly, non-profits must ensure that they are treated as equal partners and that their brand is reinforced in any communication to their stakeholders.
Wednesday, July 31, 2013
Riley Lovendale (Boston College, J.D. 2014 expected) posted Tax Versus Penalty, Round Two, Fight! Intepreting the PPACA's Assessable Payment as a Tax for Federal Funding Costs Allowances to SSRN. Here is the abstract:
The Patient Protection and Affordable Care Act (PPACA), significant health care reform enacted in 2010, imposes an “assessable payment” on certain employers that fail to offer affordable health insurance to their employees. The ambiguity of the exaction’s title poses a planning problem for some nonprofits receiving federal grant funds with restrictions imposed by the Office of Management and Budget’s Circular A-122. Circular A-122 permits these restricted grant funds to be used for “taxes,” but not for “penalties.” On June 28, 2012, the U.S. Supreme Court, held in National Federation of Independent Business v. Sebelius that the PPACA’s individual mandate’s “shared responsibility payment” could, for constitutional purposes, be interpreted as a tax. This Note argues that the PPACA’s assessable payment should be interpreted as a tax by applying the Supreme Court’s recent tax versus penalty analysis and analyzing the exaction’s characteristics and effect on employer behavior. This interpretation will provide organizations with predictability in planning and ensure that Congress does not escape political accountability for imposing taxes by using the ambiguous term “assessable payment.”
Friday, July 19, 2013
George Dent (Case Western) has posted on SSRN Probing Corporate Governance Without Shareholders: A Cautionary Lesson From Non-Profit Organizations. Here is the abstract:
over 80 years, debate over corporate governance has centered on the
balance of authority between the board and shareholders. One side in
this debate advocates “shareholder primacy”, so that directors would
actually be chosen by and accountable to the stockholders. The other
side touts “director primacy” and keeping shareholders weak. This side
claims that directors who are free of shareholder control would strive
to maximize long-term firm value, and have the wisdom and independence
to pursue this goal intelligently and conscientiously.
The boards of non-profit organizations (“NPOs”) are self-perpetuating: They are not answerable to shareholders because they have no shareholders. If director primacists are right, NPO boards should function as director primacists wish corporate boards would. The reality is quite the contrary. Commentators agree that NPO boards are generally worse than corporate boards. This brief article describes the functioning of NPO boards, discusses why they are so dysfunctional, and what lessons their example holds for corporate governance.
From the Editors' Desk
- Femida Handy, Jeffrey L. Brudney, and Lucas C.P.M. Meijs, From the Editors' Desk
- Jo Anne Schneider, Introduction to the Symposium: Faith-Based Organizations in Context
- Wolfgang Bielefeld and William Suhs Cleveland, Defining Faith-Based Organizations and Understanding Them Through Research
- Wolfgang Bielefeld and William Suhs Cleveland, Faith-Based Organizations as Service Providers and Their Relationship to Government
- İpek Göçmen, The Role of Faith-Based Organizations in Social Welfare Systems: A comparison of France, Germany, Sweden, and the United Kingdom
- Jo Anne Schneider, Comparing Stewardship Across Faith-Based Organizations
- Patricia A. Wittberg, Faith-Based Umbrella Organizations: Implications for Religious Identity
- Jill Witmer Sinha, Unintended Consequence of the Faith-Based Initiative: Organizational Practices and Religious Identity Within Faith-Based Human Service Organizations
- Khaldoun AbouAssi, Hands in the Pockets of Mercurial Donors: NGO Response to Shifting Funding Priorities
- Joanne G. Carman and Rebecca Nesbit, Founding New Nonprofit Organizations: Syndrome or Symptom?
- David C. Hammack, Book Review: Civic Engagement in Postwar Japan: The Revival of a Defeated Society, by R. Kage
- Marne Bariso, Book Review: The Volunteer Management Handbook: Leadership Strategies for Success, by T.D. Connors
- Wesley E. Lindahl, Book Review: The Science of Giving: Experimental Approaches to the Study of Charity, by D.M. Oppenheimer and C.Y. Olivola
Alicia Plerhoples (Georgetown) has posted Is Chick-Fil-A a Social Enterprise?: The Place of Conservative Values within Social Enterprise Legislation on SSRN. Here is the abstract:
This article examines whether recent social enterprise legislation (i.e., the benefit corporation and its various iterations) accommodates companies that have ideologically conservative social missions in addition to internal governance structures and operations that embrace corporate sustainability principles. The article examines whether the benefit corporation and the social and environmental standards employed to measure “general and specific public benefits” are ideologically neutral, and explores what normative values are incorporated into social enterprise legislation. This examination will be conducted through inquiring into whether Chick-fil-A, the popular U.S. fast food restaurant that donates to conservative causes and nonprofit organizations, and also embraces environmentalism and fair employment standards in its internal governance structure, could re-incorporate as a benefit corporation. The author argues that while the corporate legal form might be ideologically neutral, measurements of social and environmental benefits play a critical role in determining what constitutes sustainability and the public benefit produced. These measurements often incorporate ideologically liberal values and exclude conservative values.
Yuan Ji (Wilson Sonsini) has posted Burning Man: A Case Study of Altruism Thriving in a For-profit Organizational Form and the Rationales for LLC-to-Nonprofit Conversion, 9 Hastings Business Law Journal 449 (2013). Here is the abstract:
Burning Man is a temporary city of over 50,000 citizens that exists for one week every year in Nevada’s Black Rock Desert. Burning Man is perhaps best known in popular culture for its celebration of interactive art, experimental community building, gift economy, and ritual burning of a large wooden structure in the shape of a man. The case study of Burning Man is used to illustrate that an altruistic organization, one that is ideologically committed to the provision of public goods and not driven by profit, can nevertheless thrive in a for-profit legal form while staying true to its mission. Depending on organization-specific conditions, the nonprofit form can be, but does not necessarily have to be, the best structure for the provision of altruism and public goods (or quasi-public goods). As an organization evolves and becomes more complex overtime, however, the organization form that best serves its mission can change as well. Still, the nonprofit form alone neither guarantees altruistic commitment nor is immune from abusive practices within the management or board of directors. This Article discusses the theories on nonprofit formation that make persuasive rationales for Burning Man’s conversion to a nonprofit structure; it also makes specific recommendations for better organizational accountability and transparency in the Project’s current and future operations.
Under the Internal Revenue Code, certain nonprofit organizations are granted exemption from federal income tax (“tax-exemption”). Most tax-exemption rationales assume tax-exemption is a subsidy for organizations such as charities that provide some underprovided good or service. These theories assume there should be a tax on the income of nonprofit organizations but provide no justification for this assumption. This article contributes to the literature by examining the corporate income tax rationales as a proxy for why we might tax nonprofit organizations. The primary two theories hold that the corporate tax is imposed to: (1) tax shareholders (“shareholder theory”), and (2) regulate corporate manager control over large sources of wealth (“regulatory theory”). The shareholder theory supports the basic tax-exemption organizational structure preventing the distribution of earnings to private shareholders. However, the shareholder theory does not support tax-exemption for mutual benefit organizations such as business leagues because their members are arguably the equivalent of shareholders. The regulatory theory highlights that exempting an organization from income tax removes a regulatory regime. As a result of tax-exemption, organizations become subject to another regulatory regime with some federal oversight of political activity and self-dealing transactions. This article makes some tentative steps towards determining when that substitution of a regulatory regime might be appropriate. The article concludes the regulatory regime imposed on charitable organizations is sufficient to substitute for the regulatory role of the corporate income tax, but concludes that the regulatory regime for mutual benefits is lacking. This article submits it is time to revamp our tax-exempt structure for mutual benefit tax-exempt organizations.
Lapo Filistrucchi and Jens Prufer (both Tiburg Unviersity School of Economics and Management) have posted on SSRN Nonprofits are Not Alike: The Role of Catholic and Protestant Affiliation. Here is the abstract:
There are no generally accepted results regarding the objectives, decisions, and economic outcomes of nonprofit organizations, as compared to forprodit or public firms. We posit that this inconclusiveness is due to a too broad definition of nonprofits and that different types of nonprofits exist. This conjecture is investigated by constructing a model in which nonprofits differ by religious affiliation and testing the resulting hypotheses on the observed behavior of German nonprofit hospitals. We find that Catholic and Protestant nonprofits adopt significantly different strategies in the market. This confirms our conjecture and the importance of religion for economic outcomes.
Mark Cowan (Boise State College of Business and Economics) has posted on SSRN Assignment of Income at the Ivory Tower: Relaxing the Tax Treatment of Services Donated to Charities by their Employees, Journal of College and University Law (forthcoming). Here is the abstract:
When a faculty member donates time to a college or university by, for example, teaching a summer course for no compensation, the federal income tax treatment of the donation can take one of two forms. One possibility is that the donation will have no tax consequences. The faculty member realizes no income from the donation and gets no charitable deduction. A second possibility is that the faculty member will be required to recognize taxable income equal to the value of the services provided and then may (subject to certain limits) be allowed a charitable contribution deduction. In many cases, the income and deduction do not fully offset, resulting in negative tax consequences for the faculty member. This second possibility occurs when the faculty member directs where the funds saved by the donation are used within the institution. Since faculty members normally would prefer to control the specific use of the saved funds, many donations would result in negative tax consequences sufficient to stifle the donation in the first place. This Article argues that the tax law should be clarified and relaxed to allow faculty members (and other employees of charitable organizations) to donate time to their employer institutions on a tax-free basis in more situations than is currently the case. Alternatively, the Article suggests ways for charities to encourage donations of time by employees, even in the absence of a favorable law change.
Thursday, July 18, 2013
Roger Colinvaux (Catholic University) has posted Charitable Contributions of Property: A Broken System Reimagined, 50 Harvard Journal on Legislation (forthcoming 2013). Here is the abstract:
On average, nearly $46 billion of property is given to charitable organizations each year, about twenty-five percent of the total charitable deduction. This makes the charitable contribution deduction for property a tax expenditure within a tax expenditure, yet it is rarely analyzed as such. It emerged as part of a noble effort to encourage contributions to worthy organizations. But the deduction for property has never worked well. The general rule allowing a deduction based on the fair market value of the property may have some intuitive appeal, but its implementation has yielded numerous exceptions and immense complexity. The Article argues that the extensive historical effort to allow a deduction for property contributions is a failure. Given the substantial direct and indirect costs involved, the uncertain benefit to the donee from property contributions, and the absence of any affirmative policy to favor property contributions as such, it is time to reverse the general rule and not allow a charitable deduction for property contributions. Reversing the general rule would provide many benefits — increased revenue, improved tax administration, fewer abusive transactions, a simpler and more equitable tax code, and a preference for cash. Exceptions to the general rule of disallowance may be warranted, but any exception should be analyzed and fashioned according to whether it provides a measurable benefit to the donee. By following a measurable benefit to the donee standard, emphasis will be placed on providing a tax benefit that is administrable and that is based on the goal — donee benefit. Any resulting complexity should be viewed as a cost of the incentive, and weighed accordingly in deciding whether it should be provided.
John Colombo (Illinois) has posted The Federal Tax Exemption Aspects of Law Schools Running Their Own Law Firms. Here is the abstract:
A current hot topic in legal education is the law-school-sponsored law firm. Bradley T. Borden and Robert J. Rhee introduced the idea in a short article published in the South Carolina Law Review and the concept was soon picked up by articles in the National Law Journal, the ABA Journal and others. The purpose of this essay is to explore the federal tax-exemption and UBIT questions raised by the law-school-sponsored law firm. I conclude that a law firm operated as a single-member LLC with the sponsoring law school as the single member offers the best protection for the law school's underlying exempt status, and also should avoid issues with the UBIT.
Wednesday, June 12, 2013
Miller Publishes "Fixing 501(c)(4): Recalibrating the Tax Subsidy for Lobbying and Political Activity"
David S. Miller (Cadwalader, Wickersham & Taft, New York) has published Fixing 501(c)(4): Recalibrating the Tax Subsidy for Lobbying and Political Activity. The abstract follows:
While the surge in 501(c)(4)s that led to the current IRS scandal is widely attributable to Citizens United, it was a very deliberate IRS action – the decision to exempt donations to 501(c)(4)s from gift tax – that was equally responsible for the unprecedented spending by 501(c)(4)s in the 2012 election.
This paper describes the history of the gift tax as applied to donations to 501(c)(4)s, discusses the policy implications, and then proposes a legislative solution.
First, under a "disclosure or tax" rule, donations to a tax-exempt organization that engages in any substantial amount of lobbying or campaigning would be exempt from gift tax only if the organization discloses the name of the donor in accordance with the rules in section 527.
Second, any organization that engages in any substantial amount of lobbying or campaigning would be taxable on all its investment income.
And finally, appreciated property donated to any organization that engages in a substantial amount of lobbying or campaigning would be treated as sold.
The effect of these provisions would be an extension of the section 527 rules to organizations that substantially lobby or campaign, except that (i) any organization that substantially lobbies or campaigns would be subject to tax on all of its investment income (and not only the lesser of investment income and the amount spent on campaigning, as is the case today under section 527(f)), and (ii) the organization could keep the name of a donor anonymous if the donor were willing to be subject to gift tax.
Sunday, June 2, 2013
Joseph Ganahl and I have posted Taxing Social Enterprise, 66 Stanford Law Review (forthcoming 2014). Here is the abstract:
fairly strict divide in the United States between for-profit and
nonprofit forms presents a quandary for many entrepreneurs who want to
combine doing good with doing well. On the one hand, for-profits offer
great flexibility and access to capital and so attract entrepreneurs who
would like to take advantage of the ability of for-profits to scale up
rapidly to meet growing demand. At the same time, however, for-profit
forms also limit entrepreneurs’ ability to engage in philanthropy, due
to the fiduciary duties managers owe to the equity holders. On the
other hand, nonprofits offer their founders the freedom to prioritize
public benefit but limit both their access to capital, in large part due
to the bar on equity financing for a nonprofit, and their flexibility
in addressing changing societal needs as a result of constraints in the
law designed to deter nonprofits from straying into activities unrelated
to their narrow primary mission. Hybrids — low-profit limited
liability companies, benefit corporations, and other related forms —
have been touted as the “both-and” solution to this problem by marrying
the capital and innovation that results from the ability to generate a
profit for investors with the public benefit goals that characterize
Since the first hybrid enabling law was passed in Vermont in 2008, the number of states offering hybrid forms has grown steadily, as has the number of entrepreneurs choosing statutory hybrids as a middle road between the for-profit and the nonprofit. Plaudits for and criticism of the hybrid form have also proliferated. Proponents have lauded their ability to facilitate socially conscious enterprise. Detractors have questioned the viability of the hybrid form and have suggested that they create more fiduciary conflicts than they resolve. To date, however, there has been no serious scholarly publication addressing the appropriate tax treatment of hybrid entities even though some supporters of hybrids have asserted that these forms deserve beneficial tax treatment. In this Article, we intend to close that gap by thoroughly examining the arguments for tax preference and the likely consequences that would flow from offering such preference.
We accept the fact that hybrid forms have gained a firm foothold in the legal landscape and expect that they will increase in prominence and influence. We contend, however, that offering nonprofit-like tax benefits to hybrid entities will likely have a deleterious effect, not only on the charitable sector and the public fisc, but possibly even on hybrids themselves. The Article concludes with some proposals for possible modifications to existing tax laws that would acknowledge hybrids’ virtues while not exacerbating their potential weaknesses.
Lilian V. Faulhaber (Boston University) has posted Charitable Giving, Tax Expenditures, and the Fiscal Future of the European Union. Here is the abstract:
paper focuses on several cases decided by the Court of Justice of the
European Union in recent years. In these cases, the CJEU struck down
geographic limitations on tax expenditures for charitable giving,
thereby leaving Member States with a choice. Member States that chose
not to eliminate their tax expenditures entirely would have to extend
them to beneficiaries across the European Union. Those that did not
want to extend these benefits to the rest of the European Union,
however, would have to eliminate their tax expenditures and perhaps
replace them with direct subsidies.
The Court has thus effectively forced Member States into either subsidizing each other’s charitable sectors or no longer using their tax systems to encourage charitable giving. This paper shows that most Member States have chosen the first option, meaning that they are engaged in a web of horizontal subsidization. In the absence of any supranational taxing authority in the European Union, this horizontal subsidization represents a new model of fiscal federalism, where taxing and spending decisions are spread between Member States, rather than assigned vertically to a centralized government. This new model could arguably allow the Member States to retain the benefits of both centralization and decentralization, with Member States now paying for benefit spillovers yet still retaining the competition and representation of political preferences generally associated with decentralized systems.
However, horizontal subsidization should raise significant concerns because of the way that the Court reached its decisions in cases considering tax expenditures. In order to arrive at horizontal subsidization, the Court ignored both the economic equivalence of tax expenditures and direct expenditures and the fundamental regulatory and cultural differences between Member State charitable sectors. By prioritizing formalism over functionalism and overlooking the remaining differences between Member States, the Court distorted Member State policy choices, favored certain types of charitable organizations, and created incentives for Member States to increase barriers to entry to their charitable sectors. This paper suggests that the CJEU’s tax expenditure jurisprudence is thus more likely to be a cautionary tale than a model for future integration.
Roger Colinvaux (Catholic) has posted Rationale and Changing the Charitable Deduction, 138 Tax Notes 1453 (2013). Here is the abstract:
There are two principal rationales for the charitable deduction. Depending upon choice of rationale, some tax reform changes are suggested and others are not. A base measurement rationale suggests eliminating the deduction for unrealized appreciation, keeping the benefit as a deduction and not a credit, not adopting caps or a nonitemizer deduction, and protecting the tax base by narrowing the class of organizations eligible to receive deductible contributions. A subsidy rationale, depending upon which strand is emphasized, might favor a more equitable tax benefit in the form of a credit or through caps or a nonitemizer deduction, and could lead to preferring some organizations over others. Both rationales are consistent with placing a floor under the deduction, and narrowing its scope. Present law presents a confusing mix of policies and priorities. Tax reform presents an opportunity to reconsider the role of the charitable deduction in the tax system and to act accordingly.
Monday, April 8, 2013
Lindsey D. Blanchard (University of St. Thomas (Minnesota)) has posted Charitable Nonprofits' Use of Nonpcompetition Agreements: Having the Best of Both Worlds. Here is the abstract:
years, individuals have been challenging the noncompetition agreements
they entered into with their employers on the basis that the agreements
violate public policy. However, in a competitive marketplace, courts
and legislatures in many jurisdictions are reluctant to invalidate
otherwise reasonable noncompetition agreements. Perhaps they are right,
at least when it comes to the general class of nonprofits and to
nonprofits that are protecting their interests against for-profit
entities. As for charitable — or § 501(c)(3) — nonprofits that are
attempting to protect their interests against other charitable
nonprofits, however, the decision-making bodies should reconsider their
Unlike traditional for-profit entities, whose main goal is profit maximization, charitable nonprofits are organized and operated to benefit some greater good. As a result, charitable nonprofits receive donations from individuals and corporations, as well as tax breaks from the government, which are unavailable to for-profit entities. At the same time, charitable nonprofits use many of the same tools that for-profit firms utilize to maximize profits, including noncompetition agreements. Thus, charitable nonprofits are able to benefit from an anti-competition, profit-maximizing tool while also reaping the rewards of their tax-exempt status. In short, charitable nonprofits (wrongly) enjoy the best of both the for-profit and nonprofit worlds.
This article discusses the unique nature of the charitable nonprofit’s mission and the tax benefits conferred on charitable nonprofits by the federal and state governments. It then discusses noncompetition agreements and demonstrates that charitable nonprofits’ use of noncompetition agreements is contrary to their mission and tax-exempt status, as well as to the public interest. Finally, the article proposes an amendment to the federal tax code that would render unenforceable any language in a noncompetition agreement that prevents an individual from leaving the employment of one charitable nonprofit for employment at another.
Alicia Plerhoples (Georgetown) has posted Representing Social Enterprise, Teaching (Sustainable) Corporate Governance on SSRN. Here is the abstract:
Careful consideration and selection of clients facilitate the pedagogical objectives of a clinical law program or other experiential learning course. This article explores the selection of social enterprises - i.e., nonprofit and for-profit organizations whose managers strategically and purposefully work to create social, environmental, and economic value or achieve a social good through the use of business techniques - as clients of two experiential learning courses at Georgetown University Law Center. Representation of social enterprises helps create a dynamic curriculum through which law students learn to merge legal theory and practice. Through service to social enterprises, law students learn about corporate governance and corporate legal theory as well as business models and mechanisms that support social and environmental value creation at a time when the corporate sector is increasingly concerned with sustainability issues; and engage in solving novel and unstructured problems, advocacy work, knowledge creation, and information facilitation to assist the developing social enterprise sector. Legal issues unique to social enterprises compel students to learn corporate governance and corporate practice methods in a manner not typically available to the non-experiential classroom.
- Femida Handy, Jeffrey L. Brudney, and Lucas C.P.M. Meijs, From the Editors’ Desk
Symposium: National Campaigns for Charitable Causes (Guest Editors Marco H. D. van Leeuwen and Pamala Wiepking)
- Marco H. D. van Leeuwen and Pamala Wiepking, National Campaigns for Charitable Causes: A Literature Review
Christopher J. Einolf, Deborah M. Philbrick,and Kelly Slay, National Giving Campaigns in the United States: Entertainment, Empathy, and the National Peer Group
Pamala Wiepking and Marco H.D. van Leeuwen, Picturing Generosity: Explaining the Success of National Campaigns in the Netherlands
Johan Vamstad and Johan von Essen, Charitable Giving in a Universal Welfare State—Charity and Social Rights in Sweden
Marta Rey-García, Luis Ignacio Álvarez-González, and Ricard Valls-Riera, The Evolution of National Fundraising Campaigns in Spain: Nonprofit Organizations Between the State and Emerging Civil Society
- George E. Mitchell, The Construct of Organizational Effectiveness: Perspectives From Leaders of International Nonprofits in the United States
- Shannon Gleeson and Irene Bloemraad, Assessing the Scope of Immigrant Organizations: Official Undercounts and Actual Underrepresentation
- Melissa Torgerson and Mark Evan Edwards, Demographic Determinants of Perceived Barriers to Community Involvement: Examining Rural/Urban Differences
Grace L. Chikoto, Abdul-Akeem Sadiq, and Erin Fordyce, Disaster Mitigation and Preparedness: Comparison of Nonprofit, Public, and Private Organizations
Suzann Lupton, Book Review: Understanding the Roots of Voluntary Action: Historical Perspectives on Current Social Policy
A. Joseph Borrell, Book Review: Shift & Reset: Strategies for Addressing Serious Issues in a Connected Society and The Future of Nonprofits: Innovate and Thrive in the Digital Age
Putnam Barber, Book Review: The Neighborhood Project: Using Evolution to Improve My City, One Block at a Time
- Kirsten A. Gronbjerg, Book Review: Reinventing Civil Society: The Emerging Role of Faith-Based Organizations