Thursday, July 9, 2015
The ABA's Real Property, Trust and Estate Section has a series called "Professors' Corner," which puts on some really great free webinars for ABA members (sorry - no CLE, but what do you want for free?) on real estate and T&E topics from both academic and practitioner view points. This Wednesday I was in the midst of a road trip, during which I dialed in to the latest in the series on an update to UPMIFA. (Don't worry, I pulled over to a Tim Horton's to dial in. And get coffee. Because road trip.)
The webinar featured Susan Gary from UOregon and Terry Knowles, the Assistant Director of Charitable Trusts in the New Hampshire Attorney General's office. Many of you may know that Susan was the Reporter for UPMIFA with the Uniform Law Commission, and that Terry was an advisor (I believe on behalf of NASCO but I could be wrong on that.) In any event, it was really interesting to hear both of them talk about what's happened in the nine years (has it really been nine years!!!) since UPMIFA was passed by the ULC.
I highly recommend listening to the whole webinar (I think that it will archive soon so ABA should be able to access it) but here are three big picture take aways:
- FIGHT! The lawyers and accountants continue to use different definitions when dealing with endowed funds, which causes confusion all over the place. Susan talked about how the accountants have defaulted to having their clients use historic dollar value to define restricted assets, even thought that isn't required anywhere and actually sort of undercuts what UPMIFA is trying to do. Often, if there is professional advice to small nonprofits, it's from the accounting folks and not the legal folks, so this problem really has cause some issues. I was happy to hear from Susan that FASB is looking to revise this, and that it has some draft rules out for comment.
- UNSAFE HARBORS. As some of you may know, the original UPMIFA draft from the ULC has a provisions that says that endowment spending in excess of 7% is subject to a rebuttable presumption of unreasonableness. Many states didn't adopt - it was interesting to hear that one of the professed rationales for not adopting the 7% rules was the concern that it would cause a safe harbor for 6.99% and under. It was also intersting to hear Terry talk about what her office sees as overcoming that presumption - "we needed it because our budget is short" is insufficient!
- WHAT IS THIS IPS OF WHICH YOU SPEAK? Again, it was interesting to hear Terry talk about what her office needs to do when evaluating spending decisions from endowments. If an endowment is supposed to be perpetual, it really is important to take into account inflation as a factor for consideration, even if there is no magic in how you do it exactly. It seems like the AGs are really looking for a thoughtful process and adherence to an investment policy statement.
In any event, I do recommend the webinar to anyone interested in the endowment spending issue (which seems to be getting some attention from Congress and otherwise as of late - I've linked to Brian Galle's thought-provoking paper on endowment spending) and I really recommend the webinar if you find yourself with lots of time on I-90.
Safe summer travels, all.
Monday, February 24, 2014
In a recent column in Forbes, Howard Gleckman asked why the US Olympic Committee is tax-exempt. After all, he notes, "The law says tax exempt status is granted to groups that 'foster national or international amateur sports competition.' But do the hyper-marketed modern games even remotely fit the ideal of amateur sports?" A bit later, he follows with the observation that "By almost any standard, [the USOC] is a commercial enterprise. It exists primarily to help organize a bi-annual made-for-TV entertainment extravaganza. Yes, it provides some support for athletes (though surprisingly little). But its real business is marketing itself and playing its part in a two-week orgy of athletic commercialization."
Welcome, Howard, to the modern world of charitable tax-exemption. Substitute "college sports" in the quotations above and you would have an equally accurate description. And it would hardly be inaccurate to say "By almost any standard, private nonprofit hospitals are commercial enterprises." (And at least some research universities may be heading in that direction). So what might we do about the commercialization of the modern charity?
One thing we could do is take the "primary purpose" rule seriously and apply it with an honest recognition of the way certain organizations operate in the modern world. A charity is supposed to engage in activities that "primarily" futher a charitable purpose. Does anyone really believe that a typical private nonprofit hospital "primarily" pursues a charitable purpose? I certainly don't - private nonprofit hospitals' primary mission is to provide the highest-quality health care they can for a fee. That's an admirable mission, one I heartily support, and one that our nonprofit hospitals mostly excel at; but it is in no way, shape or form "charitable." I could say the same thing about the Olympics or college athletics - these activities, whatever their origins, are hardly about "amateur" athletics any more. The Olympics are a showcase for pros at their sports (men's hockey, anyone?) and big-time college athletics (Division I men's basketball and FBS football) are nothing more than minor leagues for the pros.
I don't know why it is so hard for tax policy to recognize that activities change over time, and things that may once have been charitable might not be today. Nonprofit hospitals were unquestionably charities in the 1800's, when they were essentially homeless shelters staffed by religious volunteers. That model no longer exists. The Olympics were at one time truly about amateur athletics, just as college sports at the enactment of the UBIT in 1950 mostly involved real student-athletes. No longer. Things change, but we refuse as a policy matter to re-examine charitable exemptions in light of changed circumstances. From time to time there have been proposals to require charities to "re-qualify" for exemption every so often (every 5 years, or 7 years or 10 years, for example). But these proposals won't "get it right" if we don't update our views about whether certain activities are charitable or not.
So, Howard, I have an answer to your question: analytical inertia. Our views of charitable activities seem frozen in time. Until we get over it, commercial activities will continue to dominate certain "charities" that are not charities at all.
Tuesday, September 24, 2013
Are you ready for some football? I may not have any football to share or play, but I bring some news of the sport...
The U.S. Court of Appeals for the Eighth Circuit on Monday threw out a class action filed by National Football League retirees who claimed they were squeezed out of a deal negotiated amid the 2011 player lockout. The court affirmed a lower court's dismissal, finding that the retirees failed to show they could have negotiated a deal better than the $900 million in additional retiree benefits the agreement utimately yielded.
The National Law Journal provides some details about the suit:
The plaintiffs, a group of 28 retired players led by former Minnesota Viking Carl Eller, sued the National Football League Players Association in 2011. The lawsuit also named players union members including New England Patriots quarterback Tom Brady.
Filed in Minnesota district court, the class action claimed that the union, in reaching a collective bargaining agreement with the NFL two years ago, intentionally interfered with the retirees’ ability to negotiate with the NFL, which led to fewer retirement benefits than they could have gotten had they bargained separately.
In March 2011, the inability of the NFL and the union to reach an agreement on pay caps and other issues resulted in a lockout, which was lifted on July 25 of that year when the parties reached a 10-year deal.
Writing for the appeals panel, Judge James Loken wrote that "the retired players had no reasonable expectation of a separate, prospective contractual relation with the NFL that would provide them greater player benefits than the NFL agreed to provide in the new CBA."
Thursday, October 18, 2012
The Tax Status of the NFL: Why Reporters Ought Not to Write About Nonprofits Until They Talk To An Expert
I spend a fair amount of my working life talking with reporters about tax exemption issues. I do this not because I think I'll get quoted correctly (I almost never do; nuance, which is part of the stock in trade of an academic, is almost always lost in the translation), nor because I think I'll get famous from the occasional quote in a story, but rather because I hope to influence at the margin the competence of the stories that are written. And I will say that most of the time (not nearly all), the reporters I talk to write stories that by and large "get it right." I hope some of that is attributable to their discussions with me, but I think it is more attributable to the fact that reporters who seek out experts in the areas they are writing stories on really are trying to do a good job, and that tends to get reflected in the accuracy of what they write.
Contrast this to stories like this one in the Atlanta Journal Constitution, about the tax-exempt status of the NFL. Most of the basic facts are correct - the NFL is, in fact, a tax-exempt entity under 501(c)(6). But the reporter who wrote this story makes no effort to place this status in context, and therefore leaves the impression that this is a huge scandal. I hate stories like this.
I've talked many times with sports reporters across the country about this issue, and I invariably find that the reporter in question starts with no understanding about the differences between 501(c)(6) status and "charitable" status under 501(c)(3). Most of them don't realize that trade associations don't benefit from the Section 170 charitable contributions deduction; to them, "exempt" means the same thing whether you are the NFL or the Red Cross. When reporters leave this critical difference out, readers come away with the same confused impression: that the NFL enjoys the same tax benefits as the Salavation Army or the local church. It doesn't.
Second, the reporters invariably fail to distinguish the NFL league entity from the individual teams. The individual teams are taxpaying, for-profit enterprises (the Green Bay Packers do have a unique ownership structure, in which the corporation is owned by citizens of Green Bay, but it is organized as a for-profit corporation under Wisconsin law). They are not owned by the league. Again, notice that the quote used by the reporter from Tom Coburn talks about the value of the individual teams, juxtaposed against the very vague statement that "many" of the NFL's "subsidiaries and teams" are tax-paying entities. This is classic obfuscation, in which the reader is left with the impression that the NFL is a monolithic nonprofit, classified in the same way as the Salvation Army, with teams that may themselves be exempt.
Finally, the story doesn't point out that 501(c)(6) status doesn't get you very much in the tax world. In most states (actually, I think all), trade associations aren't considered charities, and their property would not be tax-exempt under general state property tax exemption rules. So the quote in the story about the NFL having "$1 billion in assets" again leaves the mis-impression that somehow these assets are escaping taxation. Even the value of the income tax exemption is questionable. If you look at the NFL's 2011 Form 990, you will see that its expenses for the year exceeded its revenue. While I can't conduct an audit from afar, it sure looks like virtually everything reported by the NFL as an expense would be deductible if the NFL were a taxpaying entity. The result: even if the NFL weren't tax-exempt, it probably could easily arrange its affairs to pay no income tax.
Now that's not to say that exempt status is worthless; it must be worth something to the NFL, or else it would have abandoned that status, like Major League Baseball did years ago. But this whole "shock and awe" tinge to the story makes me want to throw up. In the overall policy world of exempt organizations, I just don't find the NFL's "trade association" status all that bothersome. After all, all sorts of local, state and even national business organizations qualify under that same status (e.g., the American Bar Association; the American Medical Association, etc.). There's plenty of stuff in the exempt organizations world to get worked up over (political expenditures by (c)(4)'s, for example); the NFL's status just doesn't hit my hot button.
Tuesday, October 25, 2011
Yesterday's Chronicle of Higher Educationreports that a study commissioned by the Knight Commission on Intercollegiate Athletics has determined that "[a]thelitic programs in the Football Bowl Subdivision spent on athletes at a rate that far outpaced academic spending per student during a recent five-year period." One extreme example at the athletic conference level found that one league, the Southeastern Conference, reported academic spending of $13,471 per student in 2009 while athletic spending per athlete was $156,833. These results will no doubt inflame Senator Grassley and will add to the public's growing the public's growing skepticism about whether revenues from college athletic programs ought to be tax exempt because of their close connection to education.
Monday, March 23, 2009
Baseball season starts soon. I live in Florida -- in St. Petersburg, to be exact -- where baseball is not at all appreciated. St. Pete, for example, has the worst baseball stadium in the whole world. Its dark and dank with artificial turf, just awful. Like playing baseball in an old, poorly lit basketball arena. People in Florida don't appreciate a warm day at the ballpark like they do in places like Pittsburgh and Chicago. Ah yes, the wafting smell of hotdogs, brats, and cotton candy in the stands. I suppose I understand why, but there are ways to provide shade even at outdoor stadiums in Florida. Fortunately, I will be spending some time in Pittsburgh this summer -- the team there ain't that good, but they have a terrific stadium and there are always good seats.
But I digress. On Friday, the major league baseball association filed a grievance alleging that major league teams are acting unfairly when they insert clauses in ballplayers' contracts requiring that the players contribute a certain percentage of their salaries to team affiliated charities. The players' association website has information and press releases on just about all the great things ball players do, including volunteer service and pharmaceutical commericals (not really), but strangely no mention of the grievance. I guess they prefer not to publicize this part of their community spirit. To get an idea of what's going on, see this Newsday article. Here is a teaser:
On Friday, a rare day without a WBC game during the tournament's 19-day run, the players association filed a grievance regarding, of all things, the inclusion of designated charity contributions in players' contracts. What the union wants from a third-party arbitrator, should the grievance get that far in the process, is money returned to the players who already have made such donations. The Mets are one of 22 teams identified that have utilized this practice, according to the union's notice of grievance to central baseball. The others are Arizona, Atlanta, Baltimore, the Cubs, Cincinnati, Cleveland, Colorado, Detroit, Florida, Houston, the Angels and Dodgers, Milwaukee, Philadelphia, Pittsburgh, San Diego, San Francisco, Seattle, Tampa Bay, Texas and Toronto. It's a growing trend in baseball: When free agents sign with teams, they're essentially required to donate a percentage of their salary to a charity "associated or affiliated with the Club," to use the union's wording.
I guess I am all for "freedom of giving" and don't like the idea of forced contributions. I would side with the teams, nevertheless, if the clauses merely required players to give to a charity of their own selection. Why should the team get to select the charity? On the other hand, these are not really "mandatory" charitable contributions. A player can always turn down the contract -- but who would do such a foolish thing, give up a major league baseball career over a charitable contribution dispute. MLB is a buyer's market. Only a few players are so rare that they cannot be replaced by someone else laboring away in the minor leagues -- and thus can demand the removal of the clause. So maybe the charitable contribution clause is a contract of adhesion after all.