Tuesday, April 26, 2016
We received the following call for papers, which may be of interest to many of you. EWW
Nonprofit and Philanthropy Law
LLCS, NEW CHARITABLE FORMS, AND THE RISE OF PHILANTHROCAPITALISM
2017 AALS Annual Meeting
January 3-7, 2017
San Francisco, CA
In December 2015, Facebook founder Mark Zuckerberg and his wife, Dr. Priscilla Chan, pledged their personal fortune—then valued at $45 billion—to the Chan-Zuckerberg Initiative (CZI), a philanthropic effort aimed at “advancing human potential and promoting equality.” But instead of organizing CZI using a traditional charitable structure, the couple organized CZI as a for-profit Delaware LLC. CZI is perhaps the most notable example, but not the only example, of Silicon Valley billionaires exploiting the LLC form to advance philanthropic efforts. But are LLCs and other for-profit business structures compatible with philanthropy? What are the tax, governance, and other policy implications of this new tool of philanthrocapitalism? What happens when LLCs, rather than traditional charitable forms, are used for “philanthropic” purposes?
From the heart of Silicon Valley, the AALS Section on Agency, Partnerships LLCs, and Unincorporated Associations and Section on Nonprofit and Philanthropy Law will host a joint program tackling these timely issues. In addition to featuring invited speakers, we seek speakers (and papers) selected from this call.
Any full-time faculty of an AALS member or fee-paid school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper in this area is invited to submit a 1- or 2-page proposal by June 1, 2016. The Executive Committees of the Sections will review all submissions and select two papers by July 1, 2016. If selected, a very polished draft must be submitted by November 30, 2016. All submissions and inquiries should be directed to the Chairs of the Sections at the email addresses below:
University of Oregon School of Law
Garry W. Jenkins
Associate Dean for Academic Affairs
John C. Elam/Vorys Sater Professor of Law
Moritz College of Law, Ohio State University
Monday, April 4, 2016
Robert G. Picard (University of Oxford-Reuters Institute for the Study of Journalism), Valerie Belair-Gagnon (Yale Law School-Information Society Project), Sofia Ranchordas (Yale Law School-Information Society Project; Tilburg Law School-Department of Public Law), Adam Aptowitzer (Drache Aptowitzer, LLP), Roderick Flynn (Dublin City University), Franco Papandrea (University of Canberra-Communications and Media Policy Institute), and Judith Townend (Institute of Advanced Legal Studies) recently posted their joint research study, "The Impact of Charity and Tax Law and Regulation on Not-for-Profit News Organizations" to SSRN. Below is an abstract of their report:
Since the advent of the Internet, numerous media organizations have been forced to adopt new business models and convert into not-for-profit start-ups or hybrid entities. However, not-for-profit news organizations have faced an important challenge: outdated legal frameworks that were not designed to facilitate the development of digital journalism. This report inquires whether the legal systems in which they operate provide a conducive environment for charitable media and whether it can help explain their development. The legal qualification of news organizations as charities and the conferral of tax-exempt status are necessary to gather the necessary public support for their activities. However, in a number of jurisdictions, not-for-profit media outlets are often confronted with long-established legal frameworks that do not include journalistic activities within the concept of ‘charitable status’. These news organizations thus face significant delays and uncertainties during the process of obtaining tax-exempt status.
This report contributes to the evolving debate on not-for-profit news start-ups by examining legal systems that determine whether charitable and tax exempt status and a variety of benefits associated with them can be granted. This report compares and contrasts legislative frameworks and policies, and assesses how they affect both the development of startups and existing news organizations that would like to become charities and gain tax-exempt status. It also provides an overview of best regulation practices in an attempt to tackle legal and societal challenges that need to be addressed.
The study draws on the regulatory systems in five countries: Australia, Canada, Ireland, the United Kingdom (England and Wales), and the United States.
Saturday, April 2, 2016
John R. Brooks (Georgetown University Law Center) recently published "The Missing Tax Benefit of Donor-Advised Funds," 150 Tax Notes 1013-1024 (2016). Below is an abstract of Professor Brooks' article:
Donor-advised funds are often billed, by both their critics and advocates, as providing a preferred from of charitable donation relative to typical giving. This is because the tax law allows for a full deduction of the money or property contributed to the fund in the year of the contribution, even if the money does not go to operating charities until a future year.
In this report, I show that this feature of donor-advised funds does not actually provide an additional benefit over typical gifts of property to charities, and in many cases creates a tax cost. Furthermore, in some situations that do provide a modest tax benefit, most or all of that benefit is soaked up in fees by the donor-advised fund sponsoring organizations, such as Fidelity, Schwab, and Vanguard. Thus, donors need to better understand the potential costs and benefits of donor-advised funds.
Briton Jacob Myer (JD Candidate, Southern University Law Center) recently posted "In Pursuit of Religious Freedom: The RFRA and How It Applies to Non-Profit Organizations and Their Objections to the Accommodation of the Affordable Care Act Contraception Mandate" to SSRN:
The Hobby Lobby case decided by the Supreme Court back in 2014 determined the rights of for-profit corporations to refuse to provide certain contraceptives guaranteed by the Affordable Care Act in their employee’s health insurance plans. Hobby Lobby had argued their case under the three-part test of the Religious Freedom Restoration Act, claiming that the government-mandated provision of certain contraceptives substantially burdened its free exercise of religion. The Supreme Court with a narrow majority agreed with Hobby Lobby, finding a substantial burden existed due to Hobby Lobby’s limited options. In dicta, the Court noted the accommodation to the contraceptive mandate as a viable option to relieve Hobby Lobby of its substantial burden. This dicta gave birth to a new wave of contraceptive-mandate cases.
The Supreme Court will soon decide the new contraceptive-mandate issue in Zubik V. Burwell. As a consolidation of several cases, plaintiffs in this round of contraceptive controversy are all non-profit organizations who object on religious grounds not just to the contraceptive mandate but also to the accommodation process created for religious non-profit organizations by the government. This process requires the objecting non-profit to either notify by form the department of Health and Human Services (HHS) or, by form, notify its health-insurance provider.
These non-profit plaintiffs have the same argument as Hobby Lobby with a twist. They argue that the notification requirements make them complicit in the provision of the contraceptives that they find to be religiously abhorrent. In turn, the non-profits claim that once they notify either HHS or their insurance provider, they have essentially become facilitators of the provision of these contraceptives. Because they can either provide the coverage they find objectionable, give notification they find objectionable, or drop coverage and be subject to fines, the plaintiffs claim the government has placed a substantial burden on their exercise of religion. Thus, the question for the Court is whether a substantial burden is being imposed on the plaintiffs and if so has the government employed the least restrictive means of achieving its compelling interest in protecting the health of women. To answer the first question, this Article examines the historical interpretation by the Supreme Court of what constitutes a substantial burden since the RFRA’s enactment in 1993. This is critical in determining whether the plaintiffs will pass the first prong of the RFRA action and place the burden on the government to show its compelling interest and that it employed the least restrictive means. In answering the second question, this Article looks to the Hobby Lobby case discussion of least-restrictive means to determine if the government’s accommodation scheme will pass the least-restrictive-means test. With the recent death of Justice Scalia, these questions could go either way. The author believes this article gives insight into how the Court should and will decide to usher in this new era of RFRA litigation.
Leandra Lederman (Indiana University Maurer School of Law) recently posted "IRS Reform: Politics as Usual," 7 Columbia Tax Journal (forthcoming 2016) to SSRN. Below is an abstract of Professor Lederman's article:
The IRS is still reeling from accusations that it “targeted” Tea Party and other non-profit organizations for delays of their applications for tax-exempt status. Although multiple government investigations found no politically motivated behavior — only mismanagement — Congressional hearings were quite inflammatory. Congress recently followed up those hearings with a set of IRS reforms. Congress’s approach is reminiscent of the late 1990s, when highly publicized Congressional hearings regarding alleged abuses by the IRS resulted in a major IRS reform and restructuring, although the allegations subsequently were largely debunked. This Article argues that the recent allegations against the IRS also were overblown. It looks to the aftermath of the 1998 IRS reform, which included a major downturn in enforcement, for lessons for the present day. The Article concludes that Congress as a whole can do a better job of keeping politics from undermining tax administration.
Friday, March 4, 2016
Jonathan Backer (Michigan '15) has published Thou Shalt Not Electioneer: Religious Nonprofit Political Activity and the Threat "God PACs" Pose to Democracy and Religion, 114 Mich. L. Rev. 619 (2016). Here is the abstract:
The Supreme Court’s 2010 decision in Citizens United v. FEC invalidated a longstanding restriction on corporate and union campaign spending in federal elections, freeing entities with diverse political goals to spend unlimited amounts supporting candidates for federal office. Houses of worship and other religious nonprofits, however, remain strictly prohibited from engaging in partisan political activity as a condition of tax-exempt status under Internal Revenue Code § 501(c)(3). Absent this “electioneering prohibition,” religious nonprofits would be very attractive vehicles for political activity. These 501(c)(3) organizations can attract donors with the incentive of tax deductions for contributions. Moreover, houses of worship need not file with a government agency to begin operating and deriving tax benefits, and the IRS has shown reluctance to aggressively audit their activities. Two circuits have previously upheld the electioneering prohibition against legal challenges, but recent jurisprudential shifts expose the tax code provision to challenge under the Religious Freedom Restoration Act (RFRA), which directs courts to apply strict scrutiny to facially neutral laws that substantially burden the free exercise of religion. First, Burwell v. Hobby Lobby Stores, Inc. greatly reduced the barriers to successful RFRA claims. Second, by lifting restrictions on political speech for many other types of organizations, Citizens United magnified the burden the electioneering prohibition imposes on religious organizations. The decision also rejected compelling state interests that might have previously shielded the law from invalidation. This Note is the first analysis of the electioneering prohibition’s vulnerability in this new legal climate. Despite these significant developments, this Note ultimately concludes that the electioneering prohibition can survive RFRA challenges because the prospect for widespread use of religious organizations as conduits for political activity undermines the values reflected in Establishment Clause jurisprudence.
Ellen Aprill (Loyola L.A.) has published The Section 527 Obstacle to Meaningful Section 501(c)(4) Regulation, 13 Pitt. Tax Rev. 43 (2015). Here is the abstract:
Antonio Fici (European Research Institute on Cooperative & Social Enterprise) has posted on SSRN Recognition and Legal Forms of Social Enterprise in Europe: A Critical Analysis from a Comparative Law Perspective. Here is the abstract:
Social enterprise lawmaking is a growth industry. In the United States alone, over the last few years, there has been a proliferation of state laws establishing specific legal forms for social enterprises. The situation is not different in Europe, where the process began much earlier than in the United States and today at least fifteen European Union member states have specific laws for social enterprise. This article will describe the current state of the legislation on social enterprise in Europe, inquiring into its fundamental role in the development of the social economy and its particular logics as distinct from those of the for-profit capitalistic economy. It will explore the models of social enterprise regulation that seem more consistent with the economic growth inspired by the paradigms of the social economy. It will finally explain why, in regulating and shaping social enterprise, the model of the social enterprise in the cooperative form is to be preferred to that of the social enterprise in the company form.
James Fishman (Pace) has published Who Can Regulate Fraudulent Charitable Solicitation?, 13 Pitt. Tax Rev. 1 (2015). Here is the abstract:
The scenario is common: a charity, typically with a name including an emotional word like “cancer,” “children,” “veterans,” “police,” or “firefighters,” signs a contract with a professional fundraiser to organize and run a campaign to solicit charitable contributions. The charity may be legitimate or a sham. The directors of the charity may be allied or coconspirators with the fundraiser, or as likely, well-meaning but naïve individuals. The fundraiser raises millions of dollars through telemarketing, Internet, or direct mail solicitation. The charity receives but a small percentage of the amount. In some cases, at the close of the campaign, the organization owes the solicitor more than the amount raised for the charity. Thereafter, the state attorney general investigates the charity and finds fraud in the solicitation or an improper use of the funds raised. As part of the settlement, the professional solicitor agrees to be barred from operating in that particular state. Thereafter, the fundraiser moves to a neighboring jurisdiction, opens business (perhaps under a different name), and commences the same cycle of fraudulent fundraising using another charity
Deception in solicitation and misuse of monies raised for charitable purposes is not only a fraud on the donor; it also can be a diversion of tax dollars from state or federal treasuries. This article examines several approaches for regulating unscrupulous professional fundraisers and preventing carpetbagging, moving from jurisdiction to jurisdiction, committing fraud, or willfully violating regulatory requirements. It examines limitations in the existing regulatory framework to prevent charity fraud and offers possible solutions to the problem. As a first solution, the Internal Revenue Service should revitalize and extend the “private benefit doctrine” as a tool of enforcement. Second, Congress and the Service should amend § 4958 to address excess benefit transactions to more clearly include unscrupulous solicitors. A third possible resolution to the problem outlined would be the expansion of the Federal Trade Commission’s enforcement authority to cover charitable solicitation generally. Currently, the FTC has authority over telemarketing by for-profit fundraisers.3 The legislation proposed would enable the creation of a self-regulatory organization under Federal Trade Commission aegis that fundraisers would be required to join. This new organization would enforce norms and rules for professional fundraisers, have the authority to discipline and, if necessary, to bar dishonest fundraisers from the fundraising industry. A final recommendation is the creation of an online, readily accessible database containing records of violations of professional fundraising companies and the individuals who own and work for them, the contracts between professional solicitors and the charities they work for, the results of fundraising campaigns listing the percentage of dollars raised that goes to the charity, and the texts of settlement agreements between state charity officials and fundraisers and the charities involved. An important issue not addressed in detail is the fiduciary responsibility of charity boards to carefully select the firms that manage their solicitation campaigns.
Miranda Perry Fleischer (San Diego) has published on SSRN How is the Opera Like a Soup Kitchen, The Philosophical Foundations of Tax Law (Oxford University Press, forthcoming 2016). Here is the abstract:
The charitable tax subsidies are, at heart, redistributive. Some individuals (the recipients of charitable goods and services, such as students, museum-goers, and soup kitchen patrons) receive benefits. Other individuals pay for these benefits, both voluntarily (through donations) and involuntarily (in the form of higher taxes or reduced benefits). At first glance, it appears that the redistribution effectuated by the subsidies violates commonly-held notions of distributive justice. After all, the subsidies treat charities that serve the wealthy (like the opera) the same as charities that aid the poor (such as the soup kitchen). How can spending public funds on the wealthy in this manner be considered just? As this Chapter shows, so doing is just under expansive interpretations of resource egalitarianism and left-libertarianism that account for expensive tastes and talent-pooling. These understandings argue that individuals with expensive tastes deserve compensation to put them on equal footing with individuals with ordinary tastes when pursuing their visions of the good life – just as individuals who lack financial resources deserve compensation to put them on equal footing with the financially-advantaged when pursuing their life plans. Subsidizing not only the soup kitchen but also the opera thus helps a variety of individuals who are disadvantaged in their ability to pursue their visions of a good life to achieve those visions.
Philip Hackney (LSU) has published Charity Organization Oversight: Rules v. Standards, 13 Pitt. Tax Rev. 83 (2015). Here is the abstract:
Congress has traditionally utilized standards as a means of communicating charitable tax law in the Code. In the past fifteen years, however, Congress has increasingly turned to rules to stop fraud and abuse in the charitable sector. I review the rules versus standards debate to evaluate this trend. Are Congressional rules the best method for regulating the charitable sector? While the complex changing nature of charitable purpose would suggest standards are better, the inadequacy of IRS enforcement and the large number of unsophisticated charitable organizations both augur strongly in favor of rules. Congress, however, is not the ideal institution to implement rules for charitable purpose. The IRS is the better institution generally to institute rules there because of its informational advantage over Congress. Additionally, the IRS can implement rules in a more flexible rule format than can Congress. Still, Congress as a rulemaker makes sense in a few scenarios: (1) where it implements transparent procedural requirements; (2) where it regulates discrete behavior of charitable organization acts; and, (3) where it intends to remove a set of organizations from charitable status through simple rules.
Kristine Knaplund (Pepperdine) has published Becoming Charitable: Predicting and Encouraging Charitable Bequests of Wills, 77 Pitt. L. Rev. 1 (2015). Here is the abstract from the SSRN posting of the article:
What causes people to leave their property to charity in their wills? Many scholars have explored the effects of tax laws on charitable bequests, but now that more than 99% of Americans’ estates are exempt from federal taxes, what non-tax factors predict charitable giving? This Article explores charitable bequests before the federal estate tax and a deduction for charitable bequests were enacted by Congress. By examining two years of probate files in Los Angeles and St. Louis, in which 16.6% of St. Louis testators, but only 8.3% in Los Angeles, made charitable bequests, we can begin to discern why testators in St. Louis were far more inclined to give to charity. The surprising results may help policy makers encourage those in the United States and in developing countries to give beyond their family and friends.
This Article is unique in that it is the first to examine not just whether a will included a charitable bequest, but whether the charity received it. This crucial information adds key insights to who gives to charity. In fact, if we compare the two cities by looking at charitable bequests which were actually received, St. Louis testators are even farther ahead of their Los Angeles counterparts, with 15% of St. Louis testators giving to charity compared to 6% in LA.
By examining hundreds of wills executed before the federal estate tax was enacted, we can see patterns for the vast majority of people who die with estates far too small to be impacted by the estate tax. Five clear steps emerge to ensure that testators will give to charity.
Michael McConnell (Stanford) and Luke Goodrich (Becket Fund for Religious Liberty; Utah) have posted on SSRN On Resolving Church Property Disputes, Arizona Law Review (forthcoming). Here is the abstract:
In recent decades, major religious denominations have experienced some of the largest schisms in our nation’s history, resulting in a flood of church property disputes. Unfortunately, the law governing these disputes is in disarray. Some states treat church property disputes just like disputes within other voluntary associations — applying ordinary principles of trust and property law to the deeds and other written legal instruments. Other states resolve church property disputes by deferring to religious documents such as church constitutions — even when those documents would have no legal effect under ordinary principles of trust or property law.
We argue that both courts and churches are better served by relying on ordinary principles of trust and property law, and that only this approach is fully consistent with the church autonomy principles of the First Amendment. Only this approach preserves the right of churches to adopt any form of governance they wish, keeps courts from becoming entangled in religious questions, and promotes clear property rights. By contrast, deferring to internal religious documents unconstitutionally pressures churches toward more hierarchical governance, invites courts to resolve disputes over internal church rules and practices, and creates costly uncertainty.
Joel Newman (Wake Forest) has posted on SSRN What is a Church? A Look at Tax Exemptions for the Original Kleptonian Neo-American Church and the First Church of Cannabis, Lexis Federal Tax J.Q. (Dec. 2015). Here is the abstract:
The tax definition of "church," as well as the definition of "religion," have evolved. For years, the IRS defined churches with a fourteen factor test. More recent cases and rulings, however, have used an "associational" test.
This article applies these two definitions to two "marijuana churches" -- the Original Kleptonian Neo-American Church, founded in the 1960's, and the First Church of Cannabis, founded in 2015. I conclude that both churches either would already pass muster under either definition, or could easily do so with a bit of tweaking and some lawyerly advice. Therefore, it would not be too difficult to game the system, and to create a religious organization and a church for tax purposes, even when that status is not legitimate.
However, in light of First Amendment concerns, there are no alternative definitions that would do the job any better. The risk that an occasional illegitimate organization might derive the tax benefits of being a religious organization or church is an acceptable price to pay for a robust First Amendment.
Joseph Yockey (Iowa) has published Using Form to Counter Corruption: The Promise of the Public Benefit Corporation, 49 U.C. Davis L. Rev. 623 (2015). Here is the abstract from the paper's SSRN posting:
Many observers argue that part of the blame for foreign corrupt practices should be placed on legal form. Their claim is that traditional corporate norms of shareholder wealth maximization help explain why corporate corruption is so prevalent. This essay shifts that argument to examine whether there are characteristics among corporate forms that can boost the efficacy of internal compliance strategies. In doing so, the paper’s primary recommendation is for founders to focus greater attention on an emerging new corporate association — the public benefit corporation — as a promising option for blueprinting sustainable anti-corruption compliance.
: The Development of an Informal Support Network to Increase Access to ServicesLeadership in an Asian American Community in the South
, , and The Local Embedding of Community-Based Organizations
, , , and Episodic Volunteering and Retention: An Integrated Theoretical Approach
, , and Nonprofit Organizations Becoming Business-Like: A Systematic Review
, , and Workplace Giving in Universities: A U.S. Case Study at Indiana University
, , , , and Motivations to Volunteer and Their Associations With Volunteers’ Well-Being
, , , and Nonprofit Financing to the Rescue? The Slightly Twisted Case of Local Educational Foundations and Public Education in New Jersey
and Kristina T. Lambright, Program Performance and Multiple Constituency Theory
and Sharyn Rundle-Thiele, Supporter Loyalty: Conceptualization, Measurement, and Outcomes
: A Field ExperimentRecognition and Cross-Cultural Communications as Motivators for Charitable Giving
Book Review: Creating Value in Nonprofit-Business Collaborations: New Thinking and Practice by J. E. Austin and M. M. Seitanidi
Tobias Bürger, Book Review: Social Purpose Enterprises: Case Studies for Social Change by J. Quarter, S. Ryan and A. Chan (Eds.)
Amy Blackford, Book Review: Catalysts for Change by M. Martinez-Cosio and M. Rabinowitz Bussell
Thursday, March 3, 2016
The IRS Statistics of Income Division has published Nonprofit Charitable Organizations and Donor-Advised Funds, 2012, reporting on selected data for Internal Revenue Code section 501(c)(3) organizations and donor-advised funds. Highlights from the tax year 2012 Form 990 and Form 990-EZ filings include the following:
- 279,405 501(c)(3)s reported an estimated $3.3 trillion in assets, $1.3 trillion in liabilities, $1.7 trillion in revenues, and $1.6 trillion in expenses, representing modest increases in all of these categories over amounts reported for tax year 2011
- 501(c)(3) with $10 million or more in assets represented only 8% of returns but reported 92% of total assets and 86% of total revenues
- donor-advised funds, which less than 1% of 501(c)(3)s sponsor (2,121 total), had a value of nearly $53 billion
- only 4% of 501(c)(3)s had donor-advised fund holdings over $100 million, but these organizations held over 80% of the total value of such funds and Fidelity Investments Charitable Gift Fund held $24 billion in such funds alone
Saturday, February 27, 2016
Like December for children, or June for SCOTUS watchers, February is a time of wonder and excitement for legal scholars, as SSRN reveals new treasures by the hundred.
To that end, Matthew Bruckner (Howard) has posted "Bankrupting Higher Education" to SSRN. This piece (which might hit a little too close to home for some academics) compares bankruptcy options across organizational types (for-profit, nonprofit, and government). Here's the abstract:
Many colleges and universities are in financial distress but lack an essential tool for responding to financial distress used by for-profit businesses: bankruptcy reorganization. This Article makes two primary contributions to the nascent literature on college bankruptcies by, first, unpacking the differences among the three primary governance structures of institutions of higher education, and, second, by considering the implications of those differences for determining whether and under what circumstances institutions of higher education should be allowed to reorganize in bankruptcy. This Article concludes that bankruptcy reorganization is the most necessary for for-profit colleges and least necessary for public colleges, but ultimately concludes that all colleges be allowed to reorganize in chapter 11.
Monday, February 22, 2016
The Association for Research on Nonprofit Organizations and Voluntary Action (ARNOVA) and the Nonprofit Policy Forum have just published a special issue on nonprofit organizations and public policy. Here is the content:
Thursday, February 4, 2016
David Cay Johnston (Syracuse) published " Was Involvement of Private Foundation in Trump Event Illegal?" in the February 1st 1edition of TaxAnalysts:
Did Donald Trump violate the law January 28 by involving his private foundation in his campaign for the Republican presidential nomination?
Maybe -- and maybe not, according to three practitioners specializing in the nexus of tax and nonprofit law. But all agreed that Trump's actions put front and center why Congress needs to take a serious look at the growing connections between the charitable world and partisan politics, with a focus on what will make for sound policy.
Trump clearly used the charitable foundation under his control to further his campaign for the White House. But that may not be illegal.
Other politicians -- including the Clintons, the Kennedys, and the Rockefellers -- have or had foundations that they control. However, the politicians in those families did not hold campaign rallies to raise money for their charities while running for office.
Still, the existence of those foundations has sometimes led to controversy. The receipt of gifts to the Clinton Foundation, especially from foreign governments when Democratic presidential candidate Hillary Clinton was secretary of state, has drawn sharp rebuke from some Republicans and calls for an investigation.
(Hat tip: TaxProfBlog)