Monday, October 9, 2017

Hackney: Prop Up the Heavenly Chorus? Labor Unions, Tax Policy, and Political Voice Equality

Philip T. Hackney (Louisiana State University Law Center) has posted his forthcoming article, Prop Up the Heavenly Chorus? Labor Unions, Tax Policy, and Political Voice Equality, St. John's Law Review, on SSRN.  Below is the abstract of Professor Hackney's article:

Labor Unions are nonprofit organizations that provide laborers a voice before their employer and before governments. They are classic interest groups. United States federal tax policy exempts labor unions from the income tax, but effectively prohibits labor union members from deducting union dues from the individual income tax. Because these two policies directly impact the political voice of laborers, I consider primarily the value of political fairness in evaluating these tax policies rather than the typical tax critique of economic fairness or efficiency. I apply a model that presumes our democracy should aim for one person, one political voice. For the model, political voice means the ability of citizens to participate in setting and discussing the political agenda and to vote on any final decision. In a modern democratic state, citizens largely depend upon organized interest groups to fulfill this role of political voice. In the Article, I demonstrate that tax policy applicable to labor unions likely modestly harms political voice equality. We allow almost all nonprofit interest groups to obtain tax exemption whether they face collective action challenges or not. This subsidizes interests that would organize without government assistance and fails to provide much support to those politically weak interests. A more neutral treatment would be to end tax exemption for both business interests and labor interests. Additionally, although the case is weak, we could maintain tax exemption for labor interests alone in order to modestly correct a political voice inequality associated with labor. Finally, we should allow union members to deduct union dues above the line to offer parity with the treatment of a businessman’s dues.


October 9, 2017 in Publications – Articles | Permalink | Comments (0)

Helge: Rejecting Charity: Why the IRS Denies Tax Exemption to 501(C)(3) Applicants

Terri Lynn Helge (Texas A&M University School of Law) has published Rejecting Charity: Why the IRS Denies Tax Exemption to 501(C)(3) Applicants, 14 Pitt. Tax. Rev. 1 (2016).

New charitable organizations generally must file an application for exemption (Form 1023) and await approval from the Internal Revenue Service. Unfortunately, the criteria the Internal Revenue Service uses to evaluate applications has not always been transparent. If an application is approved, the Internal Revenue Service determination letter and the application for exemption are required to be made publicly available and can be requested from the Internal Revenue Service or the organization itself. Prior to 2004, in the case of denials, neither the application nor the Internal Revenue Service’s correspondence setting forth its rationale for the denial were made publicly available.

This project is the first of its kind. While others have commented on isolated denial letters, this study is the first to conduct a comprehensive analysis of the Internal Revenue Service denial letters issued from when they first became available in 2004 through January 31, 2017. In conducting this project, I examined 603 determination letters in which the Internal Revenue Service denied exemption to an applicant seeking recognition as charitable organizations described in Section 501(c)(3) of the Internal Revenue Code. This project looks in-depth at the basis on which the Internal Revenue Service denied exemption to these applicants.

To provide background for the basis of on which the Internal Revenue Service reviews exemption applications for charitable applicants, Part I of this article describes the requirements to obtain federal tax exemption as a charitable organization. In Part II of this article, I explain the methodology and the process by which I arrived at the data I present. Part III presents the data from my study and my analysis of the manner in which the Internal Revenue Service applies the five-part test for exemption in its review of the applicants who were denied exemption. The data pays particularly close attention to the evidence used by the Internal Revenue Service to support its denial of tax-exempt status. In Part IV of this article, I discuss the implications of my findings on the streamlined application process implemented by the Internal Revenue Service in July 2014. My data identifies concerns with the streamlined exemption process, and I suggest revisions that should be considered to the streamlined exemption process to make it more reliable.

October 9, 2017 in Publications – Articles | Permalink | Comments (0)

Herzig and Brunson: Let Prophets Be (Non) Profits

David Herzig (Valpraiso School of Law) and Samuel D. Brunson (Loyola University Chicago School of Law) have posted their forthcoming article, Let Profits Be (Non) Profits, Wake Forest Law Review, on SSRN.  Below is the abstract of their article:

In this article, we take a step back and ask whether the Supreme Court’s application of the fundamental public policy rule as espoused in the Bob Jones case is the normatively correct position. In our analysis, we conclude that using fundamental public policy as a filter in granting tax exemption gets both tax and public policy wrong. Our conclusion is informed by the history of the role played by public charities espousing minority views. We believe that a legitimate space in society should exist and populated by nonprofits to both espouse popular and unpopular minority views. But it is also informed by tax policy: applying the fundamental public policy rule to qualification for tax exemption misunderstand how exemption fits into the corporate income tax. Ultimately we conclude that homogeneity of viewpoint is normatively detrimental to a robust society. Therefore, in order to allow nonconforming views, we propose that the proper sector to house those views is in an expansionist version of the nonprofit sector.


October 9, 2017 in Publications – Articles | Permalink | Comments (0)

Hogg: What Regulation, Who Pays? Public Attitudes to Charity Regulation in England and Wales

Eddy Hogg's (University of Kent, UK) new article is available at Nonprofit & Voluntary Sector Quarterly. HoggFrom the abstract:

Funding for England and Wales’ Charity Commission has been cut by 48% between 2007 and 2016, affecting its ability to deliver its core regulatory functions. Conversations around what charity regulation should look like and how it should be funded have, therefore, gained momentum. These debates, however, are not limited to England and Wales, and in this article, we contribute to them by exploring public attitudes to these questions, presenting the findings of four focus groups. We find that although public knowledge of charity regulation is low, people are, nonetheless, clear that charities should be regulated. There is no clear preferred method of funding a charity regulator and a significant amount of complexity and nuance in public attitudes. People trust charities, but this can be eroded if they do not have confidence in how they operate. A visibly effective regulator supporting and supported by charities is central to maintaining trust.


October 9, 2017 in Publications – Articles | Permalink | Comments (0)

Friday, August 18, 2017

Martin, Should the Government Be in the Business of Taxing Churches?

Martin-MichaelJ. Michael Martin (Evangelical Council for Financial Accountability) has published Should the Government Be in the Business of Taxing Churches?, 29 Regent U. L. Rev. 309 (2017). Here are the first two paragraphs of the introduction (footnotes omitted):

Throughout our entire history as a nation, the United States has never imposed a federal income tax on churches. In spite of this longstanding policy for over two centuries and the principle it represents of the separate spheres of sovereignty of church and state in America, some critics have recently become more vocal in questioning the legitimacy of church tax-exempt status, based primarily on financial and constitutional concerns.

As a practical matter, the courts and Congress are the two institutions where the unbroken practice of church tax exemption could be placed at risk. As the dissenting Supreme Court justices observed in Obergefell v. Hodges, the newly interpreted constitutional right to samesex marriage in the courts could evolve to threaten tax exemptions and other freedoms heretofore enjoyed by religious organizations. Also, with one political party now controlling Congress and the White House after the 2016 elections, new legislation like comprehensive tax reform has its greatest chance of passage in decades. And as with any scenario involving tax reform, there is always the chance that churches and other types of corporations and entities could find their tax status changing under a new paradigm. In light of these developments, more people may be asking: “Why should churches continue to be tax-exempt?” As the title of this Article suggests, perhaps a more appropriate way to frame the inquiry might be: “Should the government be in the business of taxing churches?”

Lloyd Mayer

August 18, 2017 in Church and State, Publications – Articles | Permalink | Comments (0)

Schlunk: Why the Charitable Deduction for Gifts to Educational Endowments Should Be Repealed

ImageHerwig Schlunk (Vanderbilt) has published Why the Charitable Deduction for Gifts to Educational Endowments Should Be Repealed, 71 U. Miami L. Rev. 702 (2017). Here is the introduction (footnotes omitted):

The country’s collective patience for coddling private institutions of higher education is waning. At the local level, there is an effort afoot to challenge the tax-exempt status of Princeton University. At the state level, legislators in Massachusetts and Connecticut have suggested imposing taxes that would target Harvard University and Yale University. At the federal level, a number of proposals have been floated that would impact the tax treatment of universities and their endowments, including imposing an excise tax on endowment income.

In this paper, I will add my voice to the chorus of those who would change the rules of federal taxation as applied to institutions of higher education. But rather than focus on the taxation of such institutions directly, I will instead focus on the propriety of granting such institutions the ability to receive gifts that are tax-deductible by the donor. I argue that in the specific and limited context of gifts made to university endowments, an adequate defense for providing the tax preference of a charitable contribution deduction is lacking. 

Lloyd Mayer

August 18, 2017 in Publications – Articles | Permalink | Comments (0)

Tyler: Essential Policy and Practice Considerations for Facilitating Social Enterprise

John_tylerJohn Tyler (Ewing Marion Kauffman Foundation) has posted Essential Policy and Practice Considerations for Facilitating Social Enterprise: Commitment, Connections, Harm, and Accountability, forthcoming in J. Yockey & B. Means, eds., The Cambridge Handbook of Social Enterprise Law, on SSRN. Here is the abstract:

There are numerous opportunities for policy interventions to clarify, enable, or perhaps even inhibit social entrepreneurship. As one example, consider the emergence and expansive growth of available social business forms, particularly of the benefit corporation, which substantially modified traditional conceptions of fiduciary duties perhaps to the point of elimination. Other policy efforts or possibilities include financing mechanisms involving public money, tax favored treatment, exemptions from securities requirements, and affording bid procurement preferences on government contracts. 

As an essential precursor to material policy concessions to social entrepreneurship, especially to the extent it or its enterprises compete with or seek to distinguish themselves from other market participants, several determinations must be made. These determinations have two key roles: (a) shaping whether to provide the relevant incentives or make the applicable concessions and, if so, (b) how far to go to ensure a reasonably commensurate relationship between benefits and burdens for enterprises, movements, and society. 

Four essential sets of questions should shape, or in some cases even dictate, how those roles are defined. Beyond policy, these sets of questions have practical implications for those who invest in, operate, and interact with social ventures. Lack of mutual clarity about any or all of these risks longer term problems for the enterprises and those involved with them but more importantly for the social benefits being sought. 
• What should the underlying commitment be to pursuing social results: devotion or does mere tolerance suffice? 
• What should the relationship be between the effort dedicated to social returns and the actually realized result? 
• What attention should be given to or require about social harms that might be associated with, connected to, or caused by actions taken in the pursuit of social good? 
• What form(s) should accountability take and what consequences, if any, should be expected for failure – not just non-compliance but less than optimal outcomes? 

Clarity on these matters can also help regulators and enforcement personnel as they evaluate whether/how to proceed with guidance or actions. Resolving ambiguities that exist could facilitate more and faster adoption of social business forms and other efforts to achieve worthy objectives of the social entrepreneurship movement. 

In some ways, this analysis also involves bringing clarity and discipline to whether “impact” and “intent to have impact” are the same or even similar.

Lloyd Mayer

August 18, 2017 in Publications – Articles | Permalink | Comments (0)

Nonprofit Voluntary Sector Quarterly August 2017 Issue

NVSQ 2017 08 coverThe Nonprofit and Voluntary Sector Quarterly has published its latest issue. Here is the table of contents:


Accountability in Nonprofit Governance: A Process-Based Study
Richard Tacon, Geoff Walters, Chris Cornforth
Pressure to Manage Ratios and Willingness to Do So: Evidence From Nonprofit Managers
Linda M. Parsons, Charlotte Pryor, Andrea Alston Roberts
Improving Charity Accountability: Lessons From the Scottish Experience
Diarmuid McDonnell
Founders, Families, and Futures: Perspectives on the Accountability of Australian Private Ancillary Funds
Alexandra Williamson, Belinda Luke, Diana Leat, Craig Furneaux
Toward a Theory of Membership Association Finance
H. Woods Bowman†
Managing Dual Identities in Nonprofit Rebranding: An Exploratory Study
Zoe Lee, Humphrey Bourne
Charitable Giving in Arts and Culture Nonprofits: The Impact of Organizational Characteristics
Kelly Krawczyk, Michelle Wooddell, Ashley Dias
Nudging Art Lovers to Donate
Boram Lee, Ian Fraser, Ian Fillis

Research Note

Understanding and Measuring Endowment in Public Charities
Thad D. Calabrese, Todd L. Ely

Book Reviews

Book Review: Nonprofit Organizations: Theory, Management, Policy by H. K. Anheier
Book Review: Cases in Innovative Nonprofits: Organizations That Make a Difference by R. A. Cnaan and D. Vinokur-Kaplan (Eds.)
Book Review: An Introduction to the Nonprofit Sector: A Practical approach for the Twenty-first Century by G. M. Grobman
Book Review: Nonprofit Organizations and Civil Society in the United States by K. LeRoux and M. K. Feeney
Book Review: Understanding the Social Economy of the United States by L. Mook, J. R. Whitman, J. Quarter, and A. Armstrong
Book Review: Effective Nonprofit Management: Context and Environment by J. E. Pynes
Book Review: Managing Nonprofit Organizations in a Policy World by S. K. Vaughan and S. Arsneault
Kevin Kearns
Book Review: The Logic of Charity: Great Expectations in Hard Times by J. Mohan and B. Breeze
Marty Sulek


Lloyd Mayer

August 18, 2017 in Publications – Articles | Permalink | Comments (0)

Thursday, August 17, 2017

Another Crackdown on Foreign NGOs - Will the G20 Try to Address This Issue?

Download (2)The N.Y. Times reports that the Cambodian Prime Minister has ordered U.S.-based Agape International Missions to end its operations in that country after it was featured in a CNN report on the sex trade there. As detailed in the story, the Prime Minister accused the NGO of possibly misleading CNN regarding the extent of the sex trade in Cambodia and thereby violating the terms of its operating agreement with the government. At this time it is not clear how Agape will respond or whether the Prime Minister's statements have in fact led to the expulsion of the group from that country.

Regardless of the details of this particular situation, there is a growing trend of foreign NGOs, domestic NGOs with foreign support, and sometimes domestic NGOs more generally being targeted for burdensome regulation or worse by the governments of many countries, as I have detailed in this space previously. These concerns have led Helmut K. Anheier (President of the Hertie School of Governance in Germany) to call on the G20 to address this issue in a recent G20 Policy Paper. Here is the abstract:

The roles of non-governmental or civil society organizations have become more complex, especially in the context of changing relationships with nation states and the international community. In many instances, state–civil society relations have worsened, leading experts to speak of a “shrinking space” for civil society nationally as well as internationally. The author proposes to initiate a process for the establishment of an independent high-level commission of eminent persons (i) to examine the changing policy environment for civil society organizations in many countries as well as internationally, (ii) to review the reasons behind the shrinking space civil society encounters in some parts of the world and its steady development in others, and (iii) to make concrete proposals for how the state and the international system on the one hand and civil society on the other hand can relate in productive ways in national and multilateral contexts.

Lloyd Mayer

August 17, 2017 in In the News, International, Publications – Articles | Permalink | Comments (0)

Monday, July 24, 2017

Distributive Justice and Donative Intent

Professor Alexander A. Bon-Saenz has posted his forthcoming article, Distributive Justice and Donative Intent, UCLA Law Review (forthcoming), on SSRN. The following is the abstract for his paper: Boni-Saenz_Alexander_portrait

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.


July 24, 2017 in Publications – Articles | Permalink | Comments (0)

Friday, June 23, 2017

Blumberg, Canadian Registered Charities Revoked as a Result of Audit 1992-2017

Blumbergs-0928_crop_small_175_175_c1_c_cMark 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:

Lloyd Mayer

June 23, 2017 in International, Publications – Articles, Studies and Reports | Permalink | Comments (0)

More Social Enterprise Articles & Book Chapters

Social EnterpriseEarlier 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

Lloyd Mayer


June 23, 2017 in Books, Publications – Articles | Permalink | Comments (0)

Interdisciplinary Nonprofit Studies: Recent Articles & Upcoming Conferences

IU PhilanthropyThe 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)

The Foundation Review, Volume 9, Issue 1 (2017): Exit Strategies

Nonprofit & Voluntary Sector QuarterlyApril 2017 Issue & June 2017 Issue

Nonprofit Policy Forum, January 2017 Issue

Voluntas: International Journal of Voluntary & Nonprofit Organizations, April 2017 Issue & June 2017 Issue



Nonprofit Academic Centers Council Biennial ConferenceIndianapolis, 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


Lloyd Mayer

June 23, 2017 in Conferences, International, Publications – Articles | Permalink | Comments (0)

Tuesday, June 20, 2017

Brewer, Runquist & Minnigh: Nonprofit LLCs

Brewer_Cass Lisa-runquist-attorney-poodles-225 MINNIGH1@2x
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.

Lloyd Mayer

June 20, 2017 in Publications – Articles | Permalink | Comments (0)

Colinvaux: Defending Place-Based Philanthropy by Defining the Community Foundation

13-Colinvaux-Roger-004Roger 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.

Lloyd Mayer

June 20, 2017 in Publications – Articles | Permalink | Comments (0)

Fishman: Rethinking Riley (First Amendment & Charitable Solicitation Regulation)

James_FishmanJames 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.

Lloyd Mayer

June 20, 2017 in Federal – Judicial, Publications – Articles | Permalink | Comments (0)

Reiser & Dean: Financing the Benefit Corporation

Dana Brakman Reiser (Brooklyn) and Steven A. Dean (Brooklyn) have published Financing the Benefit Corporation, 40 Seattle University Law Review 793 (2017). Here is the abstract:

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.

Lloyd Mayer

June 20, 2017 in Publications – Articles | Permalink | Comments (0)

Sepper: Zombie Religious Organizations

SepperlElizabeth Sepper (Washington University in St. Louis) has posted Zombie Religious Organizations, 112 Northwestern Law Review (forthcoming 2018). Here is the abstract:

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.

Lloyd Mayer

June 20, 2017 in Church and State, Publications – Articles, Religion | Permalink | Comments (0)

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 image from www.lls.eduentitled "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.


May 9, 2017 in Publications – Articles | Permalink | Comments (0)

Monday, May 8, 2017

Amarante: Why Don't White Supremacists Pay Taxes?

Eric Franklin Amarante (UNLV) posted an essay entitled "Why Don't White Supremacists Pay Taxes?" to SSRN. Here is the abstract: image from

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: Screenshot 2017-05-08 12.49.05
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.

-Joseph Mead

May 8, 2017 in Publications – Articles | Permalink | Comments (1)