December 28, 2012
Lecy & Searing: Anatomy of the Nonprofit Starvation Cycle
The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2008, the phenomenon has been referenced several times, but seldom explored empirically; this study utilizes twenty-five years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in overhead costs, reflecting a deep cut in administrative expenses partially offset by an increasing in fundraising expenses. The organization’s size is instrumental to its behavior, with a sharp rise in overhead occurring when revenues equal $100 thousand, but diminishing at $550 thousand. Finally, the brunt of the cuts have fallen on non-executive staff wages and professional fees, which heighten the concern of ill effects from a fixation on overhead cost reduction.
Reiser: Flexible-Purpose Corporations
Over the past few years, jurisdictions across the country have enacted specialized organizational forms to house social enterprises. Social enterprises are entities dedicated to a blended mission of earning profits for owners and promoting social good. They are neither typical businesses, concentrated on the bottom line of profit, nor traditional charities, geared toward achieving some mission of good for society. Their founders instead see value in blending both goals. This article examines the latest specialized form to take shape: the flexible purpose corporation (FPC). After explaining the genesis of FPC enabling legislation, the article critiques its major provisions and compares them with relevant aspects of other specialized forms for social enterprise.
Schwing: Why it is Wrong to Promote Amendment and Termination of Perpetual Conservation Easements
Ann Taylor Schwing has posted Perpetuity is Forever, Almost Always: Why it is Wrong to Promote Amendment and Termination of Perpetual Conservation Easements, 37 Harv. Env. L. Rev. (forthcoming), on SSRN. Here is the abstract:
This article is a response to Jessica Jay's, When Perpetual Is Not Forever: The Challenge of Changing Conditions, Amendment and Termination of Conservation Easements, 36 Harv. Envtl. L. Rev. 1 (2012). When Perpetual Is Not Forever suggests that government entities and land trusts accepting conservation easement donations are free to ignore both federal tax law requirements and the rules that govern administration of charities and the charitable gifts they solicit and accept when amending and terminating perpetual conservation easements. This article explains that, when a conservation easement donor makes a charitable gift of a conservation easement and elects to seek a federal income tax deduction, both the property owner and easement holder become subject to federal law governing the creation, monitoring, amendment, and extinguishment of the easement, as well as state laws that protect charitable gifts on behalf of the public. Accordingly, contrary to the representations made in When Perpetual Is Not Forever, neither property owners nor holders can elect to amend or terminate such perpetual easements pursuant to procedures that are inconsistent with such laws.
Bloom: The Rise of the Virtual Church
Brett Bloom has published a student comment titled The Rise of the Virtual Church: Is It Really a Church Under I.R.C. Section 170(b)(1)(A)(I)?, 6 Liberty U. L. Rev. 495 (available through Westlaw). Here is a summary of the article from its introduction:
This Note begins with a background discussion of tax exemption for religious organizations, including historical and constitutional concerns, along with a brief discussion of the rationale for tax-exempt organizations. This Note then discusses the distinctions between religious organizations and churches. Next, this Note presents the problem with the Service's and courts' application of their respective tests with respect to the Foundation of Human Understanding. Finally, this Note proposes (1) that the Service and courts abandon their respective tests for determining church status; and (2) that the United States Department of Treasury (the “Treasury”) provide guidance to the meaning of church through Treasury regulations.
Brantley: Beyond Politics in the Pulpit
One of my students, Brittany Brantley, has published Beyond Politics in the Pulpit: When Pastors Use Social Networks to Preach Politics, 38 J. Legis. 275 (available through Westlaw). Here is a summary of the article from it's introduction:
Part II of this note will provide an overview of the history of the political campaign prohibition. Part III will explain how churches have attempted to be completely exempt from the prohibition. Part IV will discuss the acts of Individuals of a section 501(c)(3) organization in their individual capacities. Part V will discuss how the development of the Internet has broadened the scope of the prohibition. It will also discuss how pastors use their websites and social media pages. Finally, Part VI will suggest some steps that the Internal Revenue Service and the Federal Election Commission can take to ensure that section 501(c)(3) organizations are aware of what constitutes a violation on social media pages.
NVSQ December 2012 Issue Now Available
- Femida Handy, Jeffrey L. Brudney,and Lucas C.P.M. Meijs, From the Editor's Desk
- James E. Austin and Maria May Seitanidi, Collaborative Value Creation: A Review of Partnering Between Nonprofits and Businesses. Part 2: Partnership Processes and Outcomes
- Amanda Moore McBride, Benjamin J. Lough, and Margaret Sherrard Sherraden, International Service and the Perceived Impacts on Volunteers
- Graham Dover and Thomas B. Lawrence, The Role of Power in Nonprofit Innovation
- Weiwei Lin and Gregg G. Van Ryzin, Web and Mail Surveys: An Experimental Comparison of Methods for Nonprofit Research
- Beth Gazley, Laura Littlepage, and Teresa A. Bennett, What About the Host Agency? Nonprofit Perspectives on Community-Based Student Learning and Volunteering
- Gregory D. Saxton, Jenn-Shyong Kuo, and Yi-Cheng Ho, The Determinants of Voluntary Financial Disclosure by Nonprofit Organizations
- Tim Vantilborgh, Jemima Bidee, Roland Pepermans, Jurgen Willems, Gert Huybrechts, and Marc Jegers, Volunteers’ Psychological Contracts: Extending Traditional Views
- Teck-Yong Eng, Chih-Yao Gordon Liu, and Yasmin Kaur Sekhon, The Role of Relationally Embedded Network Ties in Resource Acquisition of British Nonprofit Organizations
- Chris Cornforth, Nonprofit Governance Research: Limitations of the Focus on Boards and Suggestions for New Directions
- Chi-kan Richard Hung and Paul Ong, Sustainability of Asian-American Nonprofit Organizations in U.S. Metropolitan Areas
- Rebecca Nesbit, The Influence of Major Life Cycle Events on Volunteering
- Hans Peter Schmitz, Paloma Raggo, and Tosca Bruno-van Vijfeijken, Accountability of Transnational NGOs: Aspirations vs. Practice
- Simona Haivas, Joeri Hofmans, and Roland Pepermans, Self-Determination Theory as a Framework for Exploring the Impact of the Organizational Context on Volunteer Motivation: A Study of Romanian Volunteers
- Eric Bidet, Overcoming Labor Market Problems and Providing Social Services: Government and Civil Society Collaboration in South Korea
- Michael R. Sosin, Social Expectations, Constraints, and Their Effect on Nonprofit Strategies
- Christian Hopp, For Better or for Worse?—Nonprofit Experience and the Performance of Nascent Entrepreneurs
- Micheal L. Shier, Book Review: Handbook of Practical Program Evaluation
- Patsy Kraeger, Book Review: Advocacy Organizations and Collective Action
- Liz Fisher, Book Review: The Nature of the Nonprofit Sector and Understanding Nonprofit Organizations: Governance, Leadership, and Management
- Daniel Tinkelman, Book Review: Nonprofit Financial Management: A Practical Guide
- Eleanor W. Sacks, Book Review: Philanthropy in America: A History
- Barbara Levine, Book Review: High Ideals and Noble Intentions: Voluntary Sector-Government Relations in Canada
December 13, 2012
Ordower: Charitable Contributions of Services
This paper examines the structure of the charitable contribution deduction for donations of cash and appreciated property. It suggests that non-itemizing taxpayers are the donors who have the most “skin in the game” for charitable contributions in terms of personal sacrifice. The paper recommends renewed emphasis on service contributions for non-itemizing donors and for the charitable organizations to which those non-itemizers tend to contribute. Promoting service, rather than money or property, contributions helps maximize the tax subsidy of the charitable contributions. From the perspective of efficient tax planning for low and moderate income taxpayers, the tradition of volunteerism in United States is compelling. Yet, despite the ability to get more “bang for the buck” from service contributions, many charitable organizations that used to rely on volunteers for support increasingly have shifted their operations to reliance on paid staff. This trend toward paid staff may stem from an effort to empower professional volunteers by giving them paid positions or may represent poor marketing of the value and accompanying tax benefits of charitable work.
Sugin: Reduced Constitutional Scrutiny of Taxes and Tax Expenditures under the Roberts Court
Linda Sugin (Fordham) has posted to SSRN "The Great and Might Tax Law: How the Roberts Court has Reduced Constitutional Scrutiny of Taxes and Tax Expenditures." The abstract provides:
Taxation is the Supreme Court’s new darling. In its last two terms, the Court has endowed the tax law with legal superpowers, giving it the astonishing ability to elude constitutional limits. The justices have sent Congress and state legislatures a strong signal that they may use their tax laws as a means to aggressively enact public objectives unrelated to the traditional revenue-raising function of taxation. They have made clear that the Court will uphold policies administered through the tax law even where those same policies would be unconstitutional if administered as either direct regulation or appropriated spending.
In National Federation of Independent Business v. Sebelius, the newly muscular tax law saved Obamacare from near death at the hands of the Commerce Clause. The case confirmed the broad reach of the taxing power under the Constitution, and showed the current high Court’s willingness to treat regulatory legislation as taxation, even where Congress declined to call the legislation a “tax.” The cliffhanger ending to the Obamacare challenge may have been made possible by a much-less publicized -- but more legally radical -- case from the previous term; in Arizona Christian Schools v. Winn, which involved tax benefits for religious schools, the Court adopted a novel judicial approach to targeted tax benefits. In that case, the Court rejected the widely accepted treatment of tax expenditures as government spending administered through the tax law, and instead treated them as simple tax cuts. It thereby allowed tax benefits that are functionally equivalent to direct government spending to bypass the constitutional scrutiny that both taxes and direct spending would receive. Tax benefits are now beyond the reach of the Bill of Rights, which prohibits government action from treading on individual rights.
The consequences of this new judicial strategy are profound, raising the troubling question: Is there any justiciable limit to the great and mighty tax law? Both these cases aggravate a growing tension between economic and legal analysis of taxation, widening the gap between these two central approaches to tax law. The Court transformed tax expenditures from state action subject to constitutional limits into nonreviewable private spending by individuals. This development reduces the protection that the Constitution provides to individuals, undermines tax reform efforts and fiscal responsibility, jeopardizes established legal doctrine, and encourages less transparent and less equitable government.
Fisk & Chemerinsky: Political Speech and Association Rights
Catherine Fisk (UC-Irvine) and Erwin Chemerinsky (UC-Irvine) published "Political Speech and Association Rights after Knox v. Seiu Local 1000" in volume 98 of the Cornell Law Review (2013). The SSRN abstract of the article provides:
In Citizens United, Boy Scouts of America v. Dale, and other recent cases, the Supreme Court has given organizations a newly-robust First Amendment right to use the entity’s money in ways that stakeholders within the organization may find anathema and to discriminate against employees and members in order to advance the expressive interest of the entity. Yet, in Knox v. SEIU Local 1000 in 2012, the Court held that a labor union violates the First Amendment rights of dissenters if it levies a special assessment for political speech without first having dissenters opt in. The Court’s jurisprudence on associational speech lacks any theory of when and why an organization’s speech violates the rights of dissenters. Nor does it consider what kinds of internal organizational governance mechanisms are necessary to ensure a fair allocation of speech protections between those who wish the organization to promote one message and those who wish it to promote another. Moreover, the majority in Knox casts First Amendment doubt on the validity of the entire concept of collective bargaining by a union elected by a majority to represent all employees in a bargaining unit of government employees. As ballot measures in various states have been enacted or are pending limiting the rights of unions to raise and spend money on politics in the name of protecting dissident employees, a principled approach to the free speech rights of unions, corporations, and other associations is ever more needed.
In this article we offer an approach to reconciling the First Amendment expressive interests of organizations with the expressive interests of dissenting stakeholders within them. We suggest an approach to resolving the inconsistency between Citizens United, the union-dues cases, and the Court’s other compelled speech and associational speech jurisprudence. Contrary to the prevailing wisdom, we suggest not that shareholders be given the opt out (or opt in) rights of dissenting union employees but instead that unions be given the same broad speech rights as corporations to use dues and fees paid by all employees on political activity.
Cafardi: Prohibition on Church Electioneering
Nicholas P. Cafardi (Duquesne) has published Saving the Preachers: The Tax Code's Prohibition on Church Electioneering in 50 Duqesne University Law Review 503 (2012). Here is a brief abstract of the article on SSRN:
Churches, like other 501(c)(3) organizations are subject to a prohibition on electioneering. This prohibition has survived decades of constitutional challenges because the tax exemption that 501(c)(3) organizations enjoy is a privilege and not a right. This article examines the claim of churches that they have a right to intervene in elections contrary to existing IRS regulations based on the free exercise clause and the Religious Freedom Restoration Act, and finds such claims wanting.
The article explains that tax exemption and the ability to attract tax deductible gifts are a form of government and taxpayer subsidy. This subsidy exists for 501(c)(3) organizations because Congress believes that their charitable activities promote the public welfare and are worthy of subsidy. On the other hand, Congress did not wish to subsidize the political activities of tax exempt organizations, hence the prohibition. The rules prohibiting electioneering are rather lenient and very rarely have churches lost their exemption. Finally this article explains that this prohibition on electioneering has been very beneficial because it has helped maintain the separation of church and state that is fundamental to our nation.
November 12, 2012
More on Conservation Easements
With h/t to our friends at the TaxProf Blog:
Preservation Easements in an Uncertain Regulatory Future
Jess R. Phelps (Historic New England), Preserving Preservation Easements?: Preservation Easements in an Uncertain Regulatory Future, 91 Neb. L. Rev. 121 (2012):
While federal tax deductions are an important tool for organizations operating easement programs, recent IRS enforcement activity has called the future of this incentive into question--at least as currently constituted. Even if these incentives continue, the presence of continued regulatory uncertainty will make federally subsidized easements less viable unless enforcement activity decreases or easement-holding organizations begin to change how they protect privately-owned homes. However, these challenges provide easement-holding organizations a chance to step back and evaluate their accomplishments of the past thirty years. Many significant structures have been protected, but preservation easements lag far behind in numbers, impact, and public awareness when compared to land conservation efforts. The public has yet to fully “buy in” to the concept of preservation easements and are suspicious of efforts to provide funds to protect private residences.
For this perception to change, easement-holding organizations need to fundamentally re-evaluate the role they play within the preservation movement and determine whether a larger role is possible. There are a variety of ways that easement-holding organizations can shift their thinking and practices to expand the benefit provided through their programs. Similarly, there are clear alternatives to securing the preservation of significant historic resources via reliance on the federal tax incentives. In the end, the efforts of easement-holding organizations to respond to these challenges and reimagine the possibilities of preservation easements will go a long way toward fulfilling SPNEA's original vision of obtaining control of the most significant historic properties and “let[ting] them to tenants under wise restrictions.” Perhaps more importantly, these efforts can also expand upon this vision to protect the underlying stories and preserve a more meaningful spectrum of our collective architectural heritage.
McLaughlin & Small on Important Lessons to Be Learned from Federal Tax Cases
Our contributing editor Nancy A. McLaughlin (Utah) and Stephen J. Small (Law Office of Stephen J. Small) have posted Trying Times: Important Lessons to Be Learned from Recent Federal Tax Cases. Here is the abstract:
This outline was prepared for a panel discussion on recent case law developments in the conservation easement donation context that took place at the Land Trust Alliance national conference in Salt Lake City, Utah, in early October 2012. The four panelists were Nancy A. McLaughlin, Robert W. Swenson Professor of Law at the University of Utah SJ Quinney College of Law; Stephen J. Small, national expert on conservation easement donation transactions and one of the principal drafters of the Treasury Regulations interpreting Internal Revenue Code § 170(h); Karin Gross, Supervisory Attorney, IRS Office of Chief Counsel; and Marc L. Caine, Senior Counsel, IRS Office of Chief Counsel.
Brown et al. on Charitable Donations to Higher Education
Jeffrey R. Brown (Illinois - Department of Finance) and his co-authors have posted The Supply of and Demand for Charitable Donations to Higher Education. Here is the abstract:
donations are an important revenue source for many institutions of
higher education. We explore how donations respond to economic and
financial market shocks, accounting for both supply and demand channels
through which these shocks operate. In panel data with fixed effects to
control for unobservable differences across universities, we find that
overall donations to higher education – and especially capital donations
for university endowments or for buildings– are positively and
significantly correlated with the average income and house values in the
state where the university is located (supply effects). We also find
that when a university suffers a negative endowment shock that is large
relative to its operating budget, donations increase (demand effects).
This is especially true for donations earmarked for current use. We
conclude by discussing the importance of understanding how donations
respond to economic shocks for effective financial risk management by
colleges and universities.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Nonprofit and Voluntary Sector Quarterly October Issue Available
From the Editors’ Desk
In Memoriam: Elinor Ostrom
James E. Austin and M. May Seitanidi, Collaborative Value Creation: A Review of Partnering Between Nonprofits and Businesses: Part I. Value Creation Spectrum and Collaboration Stages
Lourdes Urriolagoitia and Alfred Vernis, May the Economic Downturn Affect Corporate Philanthropy? Exploring the Contribution Trends in Spanish and U.S. Companies
James Griffith, A Decade of Helping: Community Service Among Recent High School Graduates Attending College
Brett Agypt, Robert K. Christensen, and Rebecca Nesbit, A Tale of Two Charitable Campaigns: Longitudinal Analysis of Employee Giving at a Public University
Laurie E. Paarlberg and Stephen S. Meinhold, Using Institutional Theory to Explore Local Variations in United Way’s Community Impact Model
Kirsten Holmes and Alix Slater, Patterns of Voluntary Participation in Membership Associations: A Study of UK Heritage Supporter Groups
Roger Bennett, Why Urban Poor Donate: A Study of Low-Income Charitable Giving in London
Margaret Harris, Nonprofits and Business: Toward a Subfield of Nonprofit Studies
Marlene Walk, Book Review: The Jossey-Bass Handbook of Nonprofit Leadership and Management
Thomas Adam, Book Review: Charity in Islamic Societies
Janice Wassenaar Maatman, Book Review: The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation’s Charities
Jonathan P. Hill, Book Review: Making Volunteers: Civic Life After Welfare’s End
November 05, 2012
Case Western Publishes Tribute Issue for Laura Brown Chisolm
In spring 2011, it was my sad duty to report that Professor Laura Brown Chisolm, a pioneer in nonprofit legal scholarship, had passed away. In honor of her memory and her work, the Case Western Reserve Law Review has now published a tribute issue including both reflections on her life and scholarship and substantive articles on one of her favorite topics - nonprofits and advocacy. Here are the tributes and articles that can be found in Volume 62, Issue 3 of the Law Review:
Tribute: A Tribute to Professor Chisolm by Daniel Van Grol
Tribute: Laura Chisolm: An Advocate and Ally by B. Jessie Hill
Tribute: An Ode in Memory of Dear Laura by John Simon
Tribute: Laura Chisolm: The Light in the Room by Harvey P. Dale
Tribute: Laura Chislom and the Mandel Center for Nonprofit Organizations by David C. Hammack
Tribute: Laura Brown Chisolm by Karen Nelson Moore
Tribute: Laura's Contributions by Wilbur C. Leatherberry
Tribute: Laura Chisolm: Colleague, Peer, Friend by Jonathan L. Entin
Article: Why the IRS Should Want to Develop Rules Regarding Charities and Politics by Ellen P. Aprill
Article: The Political Speech of Charities in the Face of Citizens United: A Defense of Prohibition by Roger Colinvaux
Article: Nonprofit Legislative Speech: Aligning Policy, Law, and Reality by Jill S. Manny
Article: Nonprofits, Politics, and Privacy by Lloyd Hitoshi Mayer
September 28, 2012
Reiser: Benefit Corporations - A Sustainable Form of Organization?
Dana Brakman Reiser (Brooklyn) has published Benefit Corporations - A Sustainable Form of Organization, 46 Wake Forest Law Review 591. Here is the introduction:
Founders of social enterprises believe profits and social good can be produced in tandem and wish to form organizations that will pursue these dual missions. They will, however, encounter obstacles to articulating and enforcing such dual missions if they adopt either a traditional nonprofit or for-profit form of organization. Nonprofit forms bar profit distribution and for-profit forms will create practical, if not legal, pressure to favor profit maximization over social good when the two come into conflict. And these two imperatives will certainly, at times, conflict. If more profit could always be obtained by pursuing social good, traditional for-profits would produce the optimal level of social goods, charities would be swimming in resources, or both. Social entrepreneurs believe social good can be produced along with profits and desire hybrid forms of organization to smooth a single enterprise’s path to realizing both goals.
A mounting number of jurisdictions have attempted to meet this demand by enabling new hybrid organizational forms. These include the low-profit limited liability company (“L3C”) available in nine U.S. states and the community interest company (“CIC”) available in the United Kingdom. In addition, “B Corp” is a private certification available to U.S. for-profits that demonstrate their commitment to a dual mission of making profits and promoting social good. Qualifying entities can license the B Corp mark to market themselves to consumers, investors, and others. This Article examines another recent entrant into the hybrid form category: the benefit corporation. A handful of states have enacted statutes enabling “benefit corporations” in the past two years, and several more are considering similar legislation. The benefit corporation form differs from the L3C, CIC, and B Corp in several respects, especially in its use of third-party standard-setting organizations to vet the social good bona fides of potential incorporators. This Article evaluates whether the innovations in the benefit corporation form can meet the goals social entrepreneurs have for hybrid organizational forms, ultimately concluding it will fall short.
This Article proceeds in two parts. The first Part explores the new benefit corporation form. After briefly summarizing the key elements of the L3C, CIC, and B Corp for purposes of comparison, it describes the major components of the benefit corporation form. The second Part then undertakes an admittedly preliminary assessment of the benefit corporation. This Part offers four reasons why social entrepreneurs view hybrid organizational forms attractive: articulating and enforcing a dual mission, expanding funding streams, branding their enterprises, and achieving sustainability. The new benefit corporation form offers potential gains in formally articulating a dual mission, an advantage as compared with traditional nonprofit and for-profit forms. However, like the other hybrid forms simultaneously under development, the benefit corporation lacks robust mechanisms to enforce dual mission, which will ultimately undermine its ability to expand funding streams and create a strong brand for social enterprise as sustainable organizations.
Smyth: NGOs and the Legitimacy of International Development
Sophie E. Smyth (Temple) has posted NGOs and the Legitimacy of International Development, 61 Kansas Law Review (forthcoming 2013) on SSRN. Here is the abstract:
The influence of NGOs in international development policy and practice has grown exponentially since the end of the Cold War. These NGOs’ agendas now compete with donor states’ in setting the priorities for international development assistance. Indeed, many NGOs now claim that the legitimacy of international development institutions depends on their inclusion in institutional governance. Several prominent policymakers have expressed a similar view. This article challenges that position.
I maintain that legitimacy is the wrong basis on which to stake out a claim for greater NGO involvement in international development institutions. I show that the legitimacy of an international development institution, like the legitimacy of a government bureaucracy, derives from the legitimacy of the states that created it and depends on its due and efficacious discharge of the mandate such states confer on it. Therefore, if the member states of a development institution mandate that NGOs be included in governance, NGO inclusion is critical to that institution’s legitimacy. Absent such a mandate, however, an international development institution’s legitimacy depends on its carrying out the pre-determined tasks and goals of the states that create it. As international bureaucracies, development institutions’ legitimacy equates with efficacy. NGO participation independent of, and unrelated to efficacy, has no bearing on an international development institution’s legitimacy.
Whether NGO participation in governances contributes to a development institution’s efficacy is a matter for empirical research. General principles suggest that NGO participation contributes to a development institution’s credibility both within developing and developed countries. Lessons gleaned from the recent experience of development institutions further support that view. If efficacy depends on credibility and credibility depends on NGO involvement, several conclusions follow; the design of new development institutions should include a space for NGOs, existing institutions that exclude NGOs should change. Paradoxically, NGO participation as a contributor to increased institutional credibility could also contribute to an institution’s legitimacy. How and why we get to that result, however, matters.
August 29, 2012
Three new papers on charitable issues
From and with a deep hat tip to Prof. Paul Caron's most wonderful Tax Prof Blog, we have three recent papers on charitable topics, including one by our own Prof. Lloyd Mayer:
Lloyd H. Mayer (Notre Dame), The ‘Independent’ Sector: Fee-for-Service Charity and the Limits of Autonomy, 65 Vand. L. Rev. 51 (2012):
Although numerous scholars have attempted to explain and justify the benefits provided to charities, none has been completely successful. Their theories share, however, two required characteristics for charities. First, charities must be distinct from other types of entities in society, including governmental bodies, businesses, other types of nonprofit organizations, and informal entities such as families. Second, charities must provide some form of public benefit. Given these defining characteristics, the principal role for the laws governing charities is to protect charities from influences that could potentially undermine these traits. This Article is the first to recognize fully the importance of this approach, which I term the autonomy perspective. Applying this new perspective to the law governing charities reveals that while existing law generally protects charity autonomy, it fails to do so in one major respect. Current law does not directly address the growing and often negative influence of consumers who purchase services from charities primarily for the consumer’s own benefit and with little if any regard to the public benefit charities must provide. This Article then considers under what market conditions the influence of these consumers, whether patients, students, retirement community residents, or others, is likely to be detrimental to a charity’s pursuit of public benefit, and what options exist for addressing this influence. It concludes with suggestions for further research that would help lawmakers target this influence and so better address questionable behavior by charities.
Jaclyn Cherry (South Carolina), Charitable Organizations and Commercial Activity: A New Era. Will the Social Entrepreneurship Movement Force Change?, 5 J. Bus. Entrepreneurship & L. 345 (2012):
The purpose of this article is to take a broad look at where we are now as a result of the continuing confusion regarding the “commerciality doctrine.” It will focus on three areas influencing and defining organizations that are struggling with the law in this sector: 1) it will briefly define commercial activity in terms of social entrepreneurship and provide examples of organizations that have entered this hybrid sector as L3C Organizations and B Corporations; 2) it will give an overview of the law that has developed as the “commerciality doctrine;” and 3) it will discuss the UBIT and suggest that this test needs to be utilized by courts in conjunction with the “commerciality doctrine” for there to be any semblance of order for nonprofits to follow. Finally, this article concludes by suggesting that changes within the system are overdue. It suggests a three part analysis requiring that the IRS and courts apply the UBIT tests in coordination with, and not separate from, the “commerciality doctrine” (with a new definition of “substantial commercial activity”); second, that the “commerciality doctrine” be defined more clearly by synthesizing the courts tests from Presbyterian and Reformed Publishing and Airlie Foundation; and third, that an “intermediate sanction” type penalty be developed which would be triggered by failure to meet the above tests, before the loss of tax exempt status occurs. If nothing is done to address this issue, which may well end up being the case, then organizations will drift between the nonprofit and for-profit worlds in a very counter-productive manner for the sector and for the individuals they are created to benefit.
Carly B. Eisenberg (Nixon Peabody, Boston) & Kevin Outterson (Boston University), Agents Without Principals: Regulating the Duty of Loyalty for Nonprofit Corporations Through the Intermediate Sanctions Tax Regulations, 5 J. Bus. Entrepreneurship & L. 243 (2012):
Delaware corporate law imposes a duty of loyalty on officers and directors as a mechanism to regulate and deter self-dealing transactions. In nonprofit corporations, however, there are generally no shareholders with direct financial incentives to monitor against self-dealing. In the absence of shareholders and other principals, Congress and the IRS have articulated duty of loyalty rules for nonprofits that reach far beyond those applied to the for-profit world — most prominently the § 4958 intermediate sanctions. This article identifies the persons who owe a duty of loyalty to a nonprofit corporation, the applicable fiduciary standards for violating the duty of loyalty, and the remedies, procedures, and exoneration provisions under these fiduciary rules. While § 4958 and Delaware corporate law cover similar territory, they take remarkably different paths. By comparing the Tax Code with Delaware corporate law, it is readily apparent that, in the absence of shareholders, tax rules police the duty of loyalty for nonprofits more strictly than Delaware corporate law.
August 12, 2012
Drennan on Charitable Naming Rights
William Drennan (Southern Illinois) has published Where Generosity and Pride Abide: Charitable Naming Rights, 80 U. Cincinnati L. Rev. 53 (2011). Here is a portion of the introduction:
This Article asserts that the economic substance of a charitable contribution rewarded with naming rights is part gift and part purchase. Data from other naming situations suggests that the lion‘s share of a naming philanthropist‘s total transfer to charity is an unrequited gift, but the data also suggests that a portion purchases a return benefit. Accordingly this Article proposes that Congress should continue to allow deductions for the gift portion, but reverse course and prohibit income tax deductions for the naming portion. This Article also explores implementation issues.
August 10, 2012
NVSQ Publishes August 2012 Issue
The Nonprofit and Voluntary Sector Quarterly has published its August 2012 issue. Here is the table of contents:
- Femida Handy, Jeffrey L. Brudney, and Lucas C. P. M. Meijs, From the Editors’ Desk
- Woods Bowman, Howard P. Tuckman, and Dennis R. Young, Issues in Nonprofit Finance Research: Surplus, Endowment, and Endowment Portfolios
- Gordon Liu and Wai-Wai Ko, Organizational Learning and Marketing Capability Development: A Study of the Charity Retailing Operations of British Social Enterprise
- Hyung-Woo Lee, Peter J. Robertson, LaVonna Lewis, David Sloane, Lark Galloway-Gilliam, and Jonathan Nomachi, Trust in a Cross-Sectoral Interorganizational Network: An Empirical Investigation of Antecedents
- Kyu-Nahm Jun and Ellen Shiau, How Are We Doing? A Multiple Constituency Approach to Civic Association Effectiveness
- Stephanie Moulton and Adam Eckerd, Preserving the Publicness of the Nonprofit Sector: Resources, Roles, and Public Values
Douglas Houston and Paul M. Ong, Determinants of Voter Participation in Neighborhood Council Elections
- Russell N. James III, Book Review: Donor-Centered Planned Gift Marketing
- Book Review: Voices From the Voluntary Sector: Perspectives on Leadership Challenges
- Lindsey M. McDougle, Book Review: Leadership in Nonprofit Organizations: A Reference Handbook
- Kelly LeRoux, Book Review: Politics and Partnerships: The Role of Voluntary Associations in America’s Political Past and Present