Wednesday, February 3, 2016
Kadir Nagac (Zirve University, Department of Economics) has posted "Religiosity and Tax Compliance" to SSRN:
The intention of this paper is to analyze religiosity as a factor that potentially affects tax compliance. Studies in the 90s have shown that the puzzle of tax compliance is "why so many individuals pay their taxes" and not "why people evade taxes". It has been noted that compliance cannot be explained entirely by the level of enforcement (Graetz and Wilde, 1985; Efflers, 1991). Countries set the levels of audit and penalty so low that most individuals would evade taxes, if they were rational, because it is unlikely that cheaters will be caught and penalized. Nevertheless, a high degree of compliance is observed. Therefore, studies that analyze a variety of factors other than detection and punishment are need. Religiosity can play an important role in determining one's tax compliance decision. I use religious adherence data from the American Religious Data Archive and reported income data from IRS to analyze independent effects of church adherence rates on tax compliance in the United States at the county-level. Tax compliance at the county-level is measured as discrepancy in reported income between IRS data and census data. Existing studies focus on effect of religiosity on tax fraud acceptability (tax morale), not the actual tax fraud or tax compliance behavior. To writer's knowledge, this study is the first study that analyzes the effect of religiosity on actual tax compliance behavior.
(Hat tip: TaxProfBlog)
John George Archer (Law Student, Mississippi) has posted "This SOX: Combating Public Charity Fraud with Sarbanes-Oxley" to SSRN:
In the wake of the corporate scandals of the Enron era, Congress delivered the Sarbanes-Oxley Act (SOX) to bolster confidence in our nation’s financial system. To save the system and protect the investing public from corporate abusers, Congress created a capable “toolkit” within SOX to fight fraud and enhance disclosure. Sarbanes-Oxley has been effective in stemming the tide of corporate malfeasance. Currently, only for-profit, publicly traded companies are subject to SOX. But corporate fraud does not stop at the door of the nonprofit world. Fraud within nonprofit corporations is a widespread problem, and nonprofits – particularly large public charities – share many similarities (the good and the bad) with their for-profit cousins. By drawing a parallel comparison between large public charities and publicly traded companies, this Article makes the case that the strong governance principles encapsulated by Sarbanes-Oxley should also be imposed on large public charities.
While others have either argued against applying SOX to nonprofits or have cautiously advocated this approach because of the diverse and varying missions of nonprofits, this article particularly singles out large public charities and demonstrates that SOX is an ideal regulator for this group. While state governments and the IRS both engage in nonprofit regulation, the current regime suffers from a lack of resources and enforcement measures to be truly effective. This is where SOX can help. So much of what Sarbanes-Oxley accomplishes is self-reporting and a governance structure that promotes independence and transparency. Because of this, Sarbanes-Oxley is considered best practices for large entities, and is voluntarily followed by many public charities.
Extending SOX would not be as large a leap as previously imagined. The parallel to large public charities is this: there is a disconnect between the stakeholders of a nonprofit and its directors and management. Within this gap lies the great potential for abuse and fraud. The economic impact of the nonprofit sector upon the American economy is no small thing, much less its social impact. To protect this vulnerable system and combat nonprofit abuse, this Article contends that Congress should take notice of the problem and address it using the same “toolkit” it already created when it addressed fraud among publicly traded companies.
Wednesday, December 2, 2015
Eric C. Chaffee (Toledo) has posted Collaboration Theory: A Theory of the Charitable Tax Exempt Nonprofit Corporation to SSRN:
Legal scholarship regarding tax exempt nonprofit entities is meager at best. Although some excellent treatises, book chapters, and journal articles have been written, the body of scholarship relating to these entities is not nearly as healthy and robust as the scholarship relating to their for-profit companions. This is especially troubling considering that nonprofit entities help to improve our society in a myriad of different ways.
This Article seeks to fill a void in the existing scholarship by offering an essentialist theory for charitable tax exempt nonprofit corporations that helps to explain the essence of these entities. Beyond the purely academic metaphysical inquiry into what is a corporation, understanding the essential nature of these corporations is important because it helps to determine how they should interact with society, what rights they should have, and how they should be governed by the law. This discussion is especially timely because the recent opinions by the Supreme Court of the United States in Citizens United and Hobby Lobby have reinvigorated the debate over the essence of the corporation.
This Article breaks new ground by offering a new essentialist theory of the corporation, which shall be termed “collaboration theory.” The decades of debate over the essence of for-profit corporations has coalesced into three prevailing theories of the corporation, i.e., the artificial entity theory, the real entity theory, and the aggregate theory. The problem is that none of these prevailing theories fully answers the question of what is a corporation.
Collaboration theory suggests that charitable tax exempt nonprofit corporations are collaborations among the state governments, federal government, and individuals to promote the public good. Unlike the prevailing theories of the corporation, collaboration theory explains both how and why charitable tax exempt nonprofit corporations exist, which provides a fuller and more robust understanding of these corporations. Collaboration theory advances the existing scholarship by finally offering an essentialist theory for nonprofit corporations, and it shows remarkable promise for understanding the essential nature of for-profit corporations as well.
Jessica Owley (SUNY-Buffalo) and Adena R. Rissman (Wisconsin): Trends in Private Land Conservation: Increasing Complexity, Shifting Conservation Purposes and Allowable Private Land Uses, Land Use Policy 51, 76-84 (2016 Forthcoming):
The terrain of private-land conservation dealmaking is shifting. As the number of acres of private land protected for conservation increases, our understanding of what it means for a property to be "conserved" is shifting. We examined 269 conservation easements and conducted 73 interviews with land conservation organizations to investigate changes in private-land conservation in the United States. We hypothesized that since 2000, conservation easements have become more complex but less restrictive. Our analysis reveals shifts in what it means for private land to be "conserved." We found that conservation easements have indeed become more complex, with more purposes and terms after 2000 compared to conservation easements recorded before 2000. However, changes in restrictiveness of conservation easements varied by land use. Mining and waste dumping were less likely to be allowed after 2000, but new residences and structures were twice as likely to be allowed. We found a shift toward allowing some bounded timber harvest and grazing, and a decline in terms that entirely allow or prohibit these working land uses. Interviews revealed staff perceptions of reasons for these changes. Our analysis suggests that "used" landscapes are increasingly important for conservation but that conserving these properties stretches the limits of simple, perpetual policy tools and requires increasingly complex and contingent agreements.
Gerald Korngold (New York Law School), Semida Munteanu (Lincoln Institute of Land Policy), and Lauren E. Smith (London Fischer LLP): An Empirical Study of Modification and Termination of Conservation Easements: What the Data Suggest About Appropriate Legal Rules, NYU Environmental Law Journal, Vol. 24, No. 1 (2016):
The acquisition of conservation easements by nonprofit organizations (“NPOs”) over the past twenty-five years has revolutionized the preservation of American land. Recently, however, legislatures, courts, practitioners, and commentators have debated whether and how conservation easements should be modified and even terminated. The discussion has almost always been on a theoretical level without empirical grounding and has sometimes generated much heat but little light. The discussion has lacked the necessary empirical context to allow legislatures and courts to thoughtfully develop resolutions to these issues free from sloganeering and posturing.
This article provides and analyzes a previously uncollected dataset that offers guidance on the appropriate rules of law for conservation easement modification. It examines policy goals in light of the data to suggest various modification rules that would be more effective than current practice. The dataset represents a significant sample of easement modifications that have been made during a six year period (2008-2013) and indicates several findings: first, modifications have actually been taking place, despite claims that conservation easements are “perpetual,” apparently indicating that NPOs need flexibility in at least some areas; most of the changes have been “minor” and have been either conservation neutral or conservation positive, though one would expect pressure for more significant alterations over time due to shifts in the environment and human needs; there is a range of types and degree of modifications to this point, suggesting that there should be a spectrum of procedural and substantive requirements for the different varieties of modifications; and, a mandate for a stand-alone, state registry of conservation easements and modifications would allow for improved policymaking.
The article suggests that a doctrine that requires different procedures and substantive rules for various categories of modifications — a sliding scale — may yield the best, policy-based results. The work also identifies and analyzes existing doctrines — federal tax law, specific state statutes, charitable trust doctrine, standing rules, and director liability — that would need to be altered or clarified to adopt effective modification rules.
Amy L. Moore (Belmont), Rife with Latent Power: Exploring the Reach of the IRS to Determine Tax-Exempt Status According to Public Policy Rationale in an Era of Judicial Deference, 56 S. Tex. L. Rev. 117 (2014):
[Hat tip: TaxProfBlog]
Tuesday, October 6, 2015
Dana Brakman Reiser (Brooklyn) and Steven A. Dean (Brooklyn) recently published SE(c)(3): A Catalyst for Social Enterprise Crowdfunding, 90 Ind. L.J. 1090 (2015). Below is the abstract of their article:
The emerging consensus among scholars rejects the notion of tax breaks for social enterprises, concluding that such prizes will attract strategic claimants, ultimately doing more harm than good. The SE(c)(3) regime proposed by this Article offers entrepreneurs and investors committed to combining financial returns and social good with a means of broadcasting that shared resolve. Combining a measured tax benefit for mission-driven activities with a heightened burden on shareholder financial gains, the revenue-neutral SE(c)(3) regime would provide investors and funding platforms with a low-cost means of screening out “greenwashed” ventures.
Terri Lynn Helge
Friday, September 4, 2015
William P. Marshall, the William Rand Kenan, Jr. Distinguished Professor of Law at the University of North Carolina School of Law, has posted Remembering the Values of Separatism and State Funding of Religious Organizations (Charitable Choice): To Aid is Not Necessarily to Protect on SSRN. Here is the abstract:
When we are thinking about whether we have moved beyond separatism, the non-constitutional implications of this observation are worth considering. Does the current turn in constitutional law towards a more deferential approach to aid to religion programs mean that the policy arguments against such programs also should be discounted? Or should we remember the values of separatism in making legislative choices? This essay concludes that the values of separatism should continue to inform legislative judgment. To aid religion is not always to protect it, and the protection of religion and religious freedom fostered by separatism should not be forgotten even as the constitutional barriers to state aid to religion continue to subside.
Part I of this essay introduces this topic by discussing the values of separatism in their relation to current legislative attempts to provide state monies to religious institutions that offer social services -- legislative initiatives that popularly have been entitled “charitable choice.” Part II canvasses the constitutional background surrounding charitable choice and concludes that such programs would likely be found constitutional. Accordingly, the question of whether such programs should be adopted is more a matter of legislative choice than of constitutional mandate. Part III then addresses the legislative calculus. It begins by discussing why support for aid to religious programs is popular in the current political climate. The essay suggests that much of the political impetus behind such programs stems from the belief shared by many of defenders of religion that excluding religious institutions from the class of potential government beneficiaries reflects an anti-religious animus that warrants correction. The section contends, however, that this perception that anti-aid equates to anti-religion is misguided. The separationist objections to charitable choice noted in Part I demonstrate that the anti-aid position may be based on pro-religion values. Aid to religion does not always benefit religion. Remembering the values of separatism means understanding that government support of religion may harm, as well as assist, the religious mission.
Thursday, September 3, 2015
Federico Cheever, Professor of Law and Director of the Environmental and Natural Resources Program, University of Denver Sturm College of Law, and Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law, have posted An Introduction to Conservation Easements in the United States: A Simple Concept and a Complicated Mosaic of Law on SSRN. Here is the abstract:
The idea of a conservation easement – restrictions on the development and use of land designed to protect the land’s conservation or historic values – can be relatively easily understood. More significant and more challenging is the complex body of state and federal laws that shapes the creation, funding, tax treatment, enforcement, modification, and termination of conservation easements.
The explosion in the number of conservation easements over the past four decades has made them one of the most popular land protection mechanisms in the United States. The National Conservation Easement Database estimates that the total number of acres encumbered by conservation easements exceeds 40 million.
Because conservation easements are both novel and ubiquitous, understanding how they actual[ly] work is essential for practicing lawyers, policymakers, land trust professionals, and students of conservation. This article provides a “quick tour” through some of the most important aspects of the developing mosaic of conservation easement law. It gives the reader a sense of the complex inter-jurisdictional dynamics that shape conservation transactions and disputes about conservation easements.
Professors of property law, environmental law, tax law, and environmental studies who wish to cover conservation easements in the context of a more general course can use the article to provide their students with a broad but comprehensive overview of the relevant legal and policy issues.
Friday, July 24, 2015
Lloyd Hitoshi Mayer (Notre Dame and a fellow blogger) has posted "Limits on State Regulation of Religious Organizations: Where We Are and Where We Are Going" to SSRN. Here is a brief abstract of the article:
The breadth of activities and organizational forms among religious organizations rivals that of nonprofits generally, and religious organizations are vulnerable to the same types of problems that justify state regulation and oversight of nonprofits. Such problems include excessive compensation, improper benefits for board members and other insiders, misleading or fraudulent fundraising, employment discrimination, unsafe working conditions, consumer fraud, improper debt collection, and many others. Religious organizations are different, however, in that under federal and state law they enjoy unique protections from state regulation.
This paper describes how such federal and state protections limit state regulation of religious organizations under current case law. It also explores the tension between the general ability of states to apply neutral and generally applicable laws to religiously motivated conduct and the special legal protections provided for some internal actions of religious organizations — particularly employment actions relating to ministers and certain internal disputes. It concludes by exploring how courts are likely to develop such limits in the future.
Thursday, June 4, 2015
Neoclassic thinkers describe nonprofit organizations in terms of "nondistribution constraint" and "market failure." I beg to differ; nonprofits are better described in terms of distributive justice. In various other places, I have tried to develop the idea that profit-seekers are amoral, at best, in the sense that profit seekers indulge the highest bidder without regard to anything else. Profit cares nothing for social welfare, only exploitation. Capitalist reject the label and resulting assertion. They even more vigorously defend against being labeled "immoral" by arguing that "greed is good" essentially; that the search for profit makes life better for everybody who participates. It is only the lazy -- defined as those who will not get up in the morning and go hunting for profit; in other words those who do not participate -- who get hurt in a capitalist system.
There is no amorality or immorality in that because the lazy have only themselves to blame. But capitalism necessarily presupposes winners. There can be no winners without losers. There is something immoral, or at least amoral, about a system that demands that someone loses. That's what underlies Rawlsian theory regarding optimal laws, which are laws we would adopt if we knew we would be losers in an ostensibly fair game. If we economic actors knew ahead of time we were going to lose in a fair game, we would probably insist upon marxism over capitalism even if we also knew that societies would be worse off in the aggregate.
Americans are taught that the Marxist creed -- "from each according to his ability, to each according to his need"-- embodies the real immorality since communism and socialism invariably stifle the human instinct for the responsible individual pursuit of "mo' better" (more and better) upon which the aggregate is dependent for advancement towards Utopia. In the Capitalists' moral view, nonprofits' Marxists/Socialists tendencies are indulged only to ameliorate whatever lesser immorality (relative to the immorality in Marxists Socialists societies) exists in the capitalists "winner take all" societies requiring the presence of losers. Remember, nobody can be rich unless someone is poor. We create the poor by indulging the rich. We offer riches to stimulate the individual pursuit of profit upon which the aggregate benefits. Capitalists admit, in other words, that not only are the lazy hurt in a capitalist society; because of flaws (inherited wealth, fraud, cheating, discrimination, for example) which belie the idea of perfect competition, good faith participants are often wronged just like the lazy in a capitalists system. Nonprofits exist to ameliorate the lesser moral failures inherent in a capitalists system operated by fallible human beings. By providing "to each according to his need' but not demanding "from each according to his ability" nonprofits ignore but do not override the profit motive as the dominate driver of our existence. They serve as recognition that the profit motive is morally superior to the sharing motive only to the extent that flaws in human behavior upon which the capitalist system operate can be eliminated. Those flaws cannot be eliminated. They can be punished or regulated by laws, but not eliminated.
Three German economist are about to publish an article entitled "Nonprofit Organizations, Instutitional Economics, and Systems Thinking" in the journal, Economic Systems. Here is part of the argument which seems to support the foregoing discussion:
The relation between the societal effects of corporate power and the role of nonprofit organizations requires more elaboration, and indeed presents the key theme of this paper. The inspiration for this argument stems from both Galbraith's work and Kenneth Boulding's (1984) inquiry into “the ethics of economic organization”. Galbraith (1967) provided a rich and nuanced analysis of the degrading effects of corporate domination of society. In addition to undermining consumer sovereignty, these effects include neglect of the higher dimensions of life, such as social welfare, aesthetics and freedom. Stanfield and Stanfield (2011, p. 141) explain “the social predicament of the new industrial state” as follows: “industrial society embodies core tendencies that chronically undermine the quality of human life and threaten to acutely diminish it in a flash of military or ecological bedlam”. The contribution of Boulding lies in calling attention to a further important effect, namely the tendency of corporations to lower the relative status of certain social groups, most prominently workers and farmers. Boulding noted that the role of some nonprofits, such as labor unions and farmer organizations, is to improve the status of precisely these social groups. Put together, the arguments of Galbraith and Boulding suggest that the role of nonprofits can be more generally seen in compensating for the degrading effects of corporate domination of society. This view of nonprofits clearly differs from the neoclassical market failure approach and is free from the latter's limitations identified by Steinberg (2006, p. 129). The justification of this view will be the main aim of the present paper.
The paper's strategy is to embed the suggested institutional economics perspective on nonprofit organizations into a recent strand of the general systems theory associated with the voluminous work of the German sociologist Niklas Luhmann. Analyzing the regime of functional differentiation as a key attribute of modernity, Luhmann pointed out that the functional systems, such as the economy, law, and politics, tend to develop so much internal complexity that their continued self-reproduction (i.e., autopoiesis) in their respective environment becomes precarious. The present paper will show that Luhmann's ideas about the precarious relation between complexity and sustainability of social systems shed considerable light on the complementary societal effects of profit-seeking corporations and nonprofit organizations. In Luhmannian terms, the degrading effects of corporate domination of society exemplify the tendency of the functional system of the economy to overstrain the carrying capacity of the societal environment; the role of nonprofits is to improve the societal sustainability of this system. The following section summarizes the main thrust of the Luhmannian vision of complexity and sustainability of social systems. The rest of the paper builds on the institutional economics literature, particularly on Galbraith and Boulding, in order to apply the Luhmannian argument to the relation between profit-seeking corporations and nonprofit organizations.
The article is a fascinating read, I think. It argues that profit-seekers simultaneously depend upon and destroy the dignity of [wo]man for the exact successes that lead to a better aggregate society. Nonprofits help redeem that dignity and by doing so support the tracks upon which rats race to the betterment of society -- if one believes that profit may not be entirely "good" but is at least better than wholesale sharing; that is if one believes that capitalism is morally superior to Marxism.
Monday, June 1, 2015
Garry Jenkins has an interesting piece in the Stanford Social Innovation Review regarding the growing presence of capitalist minded people, particularly those from the Wall Street Finance sector, on Nonprofit Boards. I have, in the past, argued that the Service should allow exempt organizations greater flexibility to use profit-seeking approaches in the pursuit of the charitable goal. The danger has been that the more an exempt organization looks and acts like a for-profit, the more vulnerable it is to the argument that it ought to lose its tax exemption, perhaps under the commerciality doctrine. But lately, I have had to rethink my belief that for profit and non-profit motives can actually live as happy neighbors in the same charitable neighborhood. That rethinking was prompted mostly by the absolute mess at the Charleston School of Law, (I want to use that for context in a later post about the interplay between for profit and nonprofit motives in a social enterprise) where apparent profit-seeking influences have all but destroyed what originated from altruistic motives. Jenkins explores the longstanding pressures on nonprofits to "get that money" by adoption of for-profit processes. Here are the first few interesting paragraphs:
Over the past twenty-five years the composition of the boards at some of America’s most important nonprofit organizations has dramatically changed. Without much notice, a legion of Wall Street executives (investment bankers, hedge fund managers, and others) has taken a growing number of seats in nonprofit boardrooms. Not only that, they hold a disproportionate share of the leadership positions on these boards.
One of the obvious reasons for this shift is undoubtedly the pressure that nonprofit organizations are under to raise more private funds. After all, given the significant growth in personal wealth generated by those working in high finance, it shouldn’t be too surprising to find more of them on nonprofit boards. A more subtle reason for the growth of financiers on nonprofit boards is likely the growing popularity of using business approaches (and talent) to run nonprofit organizations.
Since 2008, when Matthew Bishop and Michael Green popularized the term “philanthrocapitalism” to describe a new trend of donors seeking to conflate business aims with charitable endeavors, the nonprofit sector has engaged in active interrogation and discussion about the trend and its effect on public charities. Scholars and practitioners have documented various pressures placed on nonprofit organizations by donors and private foundations to adopt business approaches.
Although some of the pressure to adopt business approaches has come from external forces, it may also be true that the concepts and norms of philanthrocapitalism are also now carried into nonprofit organizations by the directors of public charities themselves. Perhaps a new fault line to consider is the very makeup of the governing boards of nonprofit institutions.
To understand the ways in which the composition of nonprofit boards has evolved in recent years, my research team and I examined the biographies of governing directors in 1989 and 2014 of three sets of nonprofit organizations: major private research universities, elite small liberal arts colleges, and prominent New York City cultural and health institutions. The most striking finding was the sizable presence and growth on charitable boards of those whose primary professional background and skill set were drawn from the financial services industry. The tally indicates that the percentage of people from finance on the boards virtually doubled at all three types of nonprofits between 1989 and 2014.
More striking, the data reveal that finance professionals hold an even greater percentage of nonprofit board leadership positions (i.e., board chair, vice chair, or their equivalent). In the case of liberal arts colleges and New York City nonprofits, financiers make up 44 percent of board leadership positions, and in the case of private universities they hold 56 percent of leadership slots.
Of course the social sector, especially the largest and most powerful nonprofit organizations such as those represented by the three types of institutions studied, has long populated its boards with men and women of wealth and professional backgrounds tied to the corporate world. Indeed, it is not unusual for many (although not all) of such members to have the capacity to contribute substantial resources, especially those from business and industry. What’s new is the increased concentration of directors drawn from one narrow sector of business and industry: finance.
This quiet yet dramatic self-transformation of the nonprofit boardroom has come about with little notice and discussion. To understand fully these trends and the impact, the nonprofit sector should ask itself some tough questions: What is sparking these changes in board composition? What values are being represented and promoted? What are the consequences for organizations and the people they serve? How might they affect the quality of board governance? How might the sector respond?
This article begins to shed light on the increasing influence of the finance industry on nonprofit boards. In addition to examining the data, it explores some of the explanations and consequences of these prevailing governance composition choices—and they are choices—that deserve attention and reflection from nonprofit leaders, trustees, and constituents.
Tuesday, May 26, 2015
How much should charity and business intersect? Recent trends point toward a growing entanglement between the for-profit and nonprofit sectors, as evidenced by the growth of the social enterprise movement. The issue of the entanglement of business and charity is, however, not new; it was one of the primary concerns behind the enactment of the private foundation excise taxes in 1969, including the excess business holding excise tax of Code Section 4943. While Code Section 4943 has changed little since its original enactment, the business and investment world has changed substantially, specifically including the introduction and growth of the LLC as a business entity. This Article looks at the current treatment of LLCs under Code Section 4943 and considers various options for incorporating LLCs into the statutory framework. It then evaluates these options in light of the original concerns about the interaction between business and charity voiced in the debate over the 1969 excise taxes and echoed today in the evaluation of social enterprise as a viable means of accomplishing charitable goals. The article concludes with a recommendation for change to Code Section 4943 that would incorporate LLCs specifically, provides administrative clarity, minimize the possibility of abuse, and allowing for modern investment practices and innovation.
Thursday, May 14, 2015
Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of PILOTs to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percent higher property tax rate is associated with a 0.2 percent higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percent higher PILOT rate is associated with 0.8 percent reduced real property ownership by local nonprofits, 0.2 percent reduced total assets, and 0.2 percent lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.
Pamela Foohey (Indiana University Maurer School of Law) has published Secured Credit in Religious Institutions' Reorganizations, 2015 University of Illinois Law Review Slip Opinions 51. Here is the abstract from the SSRN posting:
Scholars increasingly assume that most businesses enter Chapter 11 with a high percentage of secured debt, which leads to a high percentage of cases ending in the sale of the debtor’s assets under section 363 of the Bankruptcy Code rather than with confirmation of a reorganization plan. However, evidence and discussions about “the end of bankruptcy” center on secured creditors’ role in the reorganizations of very large corporations. The few analyses of cross-sections of Chapter 11 proceedings suggest that secured creditor control is not nearly as omnipresent as asserted and that 363 sales are not as dominant as assumed.
This Essay adds original empirical evidence to the debate by highlighting how one subset of debtors — religious organizations — whose main creditors typically are secured lenders have used the reorganization process. By focusing on 363 sales and other indices of creditor control, plan proposal and confirmation rates, recoveries to creditors, and post-bankruptcy survival rates, this Essay establishes that the traditional negotiated Chapter 11 case is alive and thriving among these debtors. The data suggest that these cases preserved significant value for secured creditors, while distributing value to unsecured creditors. The results show that further empirical examinations of secured creditors’ role in Chapter 11 cases may yield insights that diverge from current understandings of how creditor control impacts modern reorganization, and what that control means for reforms of Chapter 11.
Brian Frye (Kentucky) has posted Social Technology & the Origins of Popular Philanthropy. Here is the abstract:
The prevailing theory of charity law holds that the charitable contribution deduction is justified because it solves market and government failures in charitable goods by compensating for free riding on charitable contributions. This article argues that many market and government failures in charitable goods are actually caused by transaction costs, and that social technology can solve those market and government failures by reducing transaction costs. Specifically, it shows that in the early 20th century, the social technology of charity chain letters solved market and government failures in charitable contributions and facilitated the emergence of popular philanthropy.
Brian Galle (Georgetown) has posted Pay It Forward? Law and the Problem of Restricted-Spending Philanthropy, 2016 Washington University Law Review (forthcoming). Here is the abstract:
American foundations and other philanthropic giving entities hold about $1 trillion in investment assets, and that figure continues to grow every year. Even as urgent contemporary needs go unmet, philanthropic organizations spend only a tiny fraction of their wealth each year, mostly due to restrictive terms in contracts between donors and firms limiting the rate at which donations can be distributed. Law has played a critical role in underwriting and encouraging this build-up of philanthropic wealth. For instance, contributors can typically take a full tax deduction for the value of their contribution today, no matter when the foundation spends their money, and pay no tax on the investment earnings the organization reaps in the meantime.
What, if anything, justifies public support for “restricted spending” charity? This Article offers the first comprehensive assessment of that question, and supplies original empirical evidence on several key aspects of it. I argue that restricted spending sacrifices crucial information, introduces unnecessary agency costs, and on average transfers funds to times when they are less useful. While there is a place for large and long-lived philanthropic organizations in American society, that role does not require public support for restricted spending. As long as foundations can demonstrate their value to new donors, they will continue to thrive. I therefore set out a series of policy recommendations aimed at better reconciling nonprofit law and the principles that justify it.
I support my claims with new evidence drawn from a data set of over 200,000 firm-year observations of private foundations. For example, I find that foundations earn about twice as much money per year as in earlier studies funded by foundation-industry lobbyists, and that they are growing three times faster than those earlier studies suggest. This finding implies that law could require a much higher annual “payout” from foundations. I also find that new laws introduced in about a dozen states since 2006 have significantly slowed foundation spending in the enacting states. And I offer simulations of several policy proposals for making foundations more effective at fighting recessions.
Ian Murray (University of Western Australia) and Fiona Martin (UNSW Australia Business School) have published The Blossoming of Public Benefit Institutions - From 'Direct' Provides to Global Networks, 40(1) Alternative Law Journal (2015). Here is the abstract:
Public benevolent institutions (‘PBIs’) form a class of not-for-profit (‘NFP’) entities that is entitled to various taxation concessions. The PBI concept was originally adopted in order to deliver selected tax benefits to a narrower group of NFPs than charities, given the wide legal meaning of ‘charitable’. As well as being eligible for income tax exemption like charities, PBIs can be deductible gift recipients (‘DGR’), which means that donors may be able to claim a tax deduction, and are entitled to fringe benefits tax (‘FBT’) exemptions, enabling more attractive employee remuneration packages. For decades, the Australian Taxation Office (‘ATO’) has insisted that PBIs must not only have purposes focused, narrowly, on the relief of poverty, sickness, destitution or helplessness, but that they must also directly provide relief to those suffering from such poverty, sickness, destitution or helplessness. The recent Full Federal Court decision of Commissioner of Taxation v Hunger Project Australia (‘Hunger Project’) clearly states that there is no such ‘direct’ requirement. The development is relevant for a range of state and federal taxes and is expected to have a large impact on federal revenue. This is due to the fact that the primary tax concessions relating to PBIs, the FBT exemption and DGR status, are currently in excess of $2 billion. The ‘cost’ of those concessions will likely increase with the broadening of the classes of entities that fall into the PBI category.
Not all transfers of value to qualified charitable organizations are deductible. When you buy a book from the college bookstore, your payment is not a contribution; you got what you paid for. If you give $300 to your local public radio station, and they give you a tote bag, you’ve made a charitable contribution, but you have to subtract the value of the tote bag from your deductible amount.
What if you make a substantial payment — say $2,000 — to a major college’s athletic booster club, knowing that, by virtue of that payment, you gain the right to purchase otherwise unavailable tickets to that school’s football games? Surely, the entire $2,000 should not be deductible. The deduction should be $2,000 minus the fair market value of the rights obtained. Congress says that the deduction should be 80 percent of the contributed amount, or $1,600, no matter which booster club it is. Is that fair? This essay will describe how we got to that 80 percent, and what we might do about it. Specifically, the essay describes how the secondary ticket market brokers, such as StubHub and Ticketmaster, could be used to value the rights obtained.
Leonel Cesarino Pessôa and Valeria Maria Trezza (both Getulio Vargas Foundation) have posted Main Problems with the Taxation of Civil Society Organizations in Brazil: Certifications and Impact on Payroll. Here is the abstract:
The objective of this paper is to identify and analyze the main problems in the taxation — regarding both taxes themselves and compliance costs of taxation — of civil society organizations in Brazil. This study is qualitative descriptive research. A multiple case study with 26 organizations was performed. The results show that the problems mainly affect organizations with lower revenue and that do not work in the areas of education, health or social care. The main problems involve the taxation of the payroll and the difficulties related to obtaining and maintaining certifications. The study concludes with suggestions for the improvement of the regulatory framework.