Thursday, September 27, 2012
We previously blogged about the New York Attorney General Eric T. Schneiderman's inquiry into politically active Internal Revenue Code section 501(c)(4) tax-exempt organizations. Last week U.S. Senator Orrin Hatch (R-Utah) and U.S. Representative Dave Camp (R-Mich.), the Ranking Member of the Senate Finance Committee and the Chairman of the House Ways and Means Committee, respectively, called on AG Schneiderman to halt his investigations. They focused in particular on the reported attempts by the AG to obtain IRS filings directly from the targeted organizations, including the non-public schedule of significant donors, rather than through the IRS-admnistered process for states to obtain tax return information, and stated that "We emphasize strongly that willful unauthorized disclosure of returns or return information is a federal crime subject to fines and/or imprisonment."
This week the Hill reports that AG Schneiderman fired back, defending his right as a state attorney general to directly request tax information from charitable and other nonprofit groups, including federal information returns such as the Form 990. And according to a report in Politico, the AG's response provided that "“Each state has a fundamental interest in ensuring compliance with its tax laws and in regulating certain activities of nonprofits. The recent activities of some tax-exempt organizations and businesses have been matters of great concern to New Yorkers. While my office respects applicable federal requirements and restrictions, I will continue to perform my duties and enforce the laws of the State of New York.”
The bottom line is that it appears that a previously obscure issue - whether charities and other nonprofits required to provide copies of their Forms 990 to state officials under state law could withhold or redact the schedule of donors for those returns (Schedule B) so as not to have that information publicly disclosed by the state - is now front-and-center in the ongoing dispute over politically active 501(c)(4) organizations.
The Seattle Times reports that Washington's Public Disclosure Commission has clarified that while churches may ask members to donate to Preserve Marriage Washington, a group opposing Washington's same-sex marriage law, churches may not themselves collect the contributions and turn them over to Preserve Marriage. Instead, either Preserve Marriage must collect such contributions or church members individually must send their contributions directly to the organization. According to an Associated Press report, the limitation is because of Washington state's "anti-bundling" laws that limit the role of intermediaries in raising and collecting funds for groups engaged in campaign spending. Preserve Marriage is supporting Referendum 74, which would ask voters this November to either approve or reject the state's same-sex marriage law.
Sunday, August 12, 2012
The NY Times reports that New York Attorney General Eric T. Schneiderman has stepped up his inquiry of politically active tax-exempt organizations by requesting tax returns and other financial documents from these groups. According to the article, the almost two dozen targeted entities include both right-leaning groups such as Crossroads Grassroots Policy Strategies (Crossroads GPS) and American Action Network and left-leaning groups such as Priorities USA Action and Patriot Majority USA. All of these entities claim tax-exempt status as social welfare organizations under Internal Revenue Code section 501(c)(4), which permits them to avoid publicly disclosing their donors unless they engage in certain types of election-related activity. The NY Times reported earlier this summer that AG Schneiderman had begun this investigation, with an apparent focus then on the U.S. Chamber of Commerce (a section 501(c)(6) organization that also generally is not required to publicly disclose its donors).
Thursday, August 2, 2012
New Hampshire Attorney General, Michael A. Delaney, announced today that the New Hampshire Center for Public Policy Studies (NHCPPS) has issued its report on executive compensation at New Hampshire's nonprofit hospitals. The Attorney General commissioned the NHCPPS to conduct the study in 2011. The review was to determine whether the trustees of New Hampshire's nonprofit hospitals are meeting their fiduciary responsibilities in setting executive compensation, and to examine the types and variations in executive compensation among the hospitals.
According to a press release from the New Hampshire Department of Justice,
The report finds that most hospitals follow the process established by the Internal Revenue Service (IRS) for determining executive salaries. However, these hospitals do not necessarily follow the same process in determining other forms of executive compensation including hiring and retention agreements, bonuses, and perquisites. These additional forms of compensation can, in some circumstances, constitute a significant portion of an executive's pay package. The Report also finds that for most hospitals there is a correlation between hospital size and levels of compensation paid to the chief executive officer (CEO). The data does not however show a significant correlation between CEO compensation and hospital performance measures such as quality of care, cost of care, or charitable care provided. Given these hospitals exist to provide quality health care and are required to provide community benefit and charitable care in light of their non-profit status, the lack of such a correlation is a significant concern.
The Report found that in using IRS guidelines to set compensation, there is a potential "log-rolling" effect created. As long as other hospitals are "moving the log forward" with similar levels of compensation, the industry remains in compliance with the IRS guidelines. Hospitals are supposed to use a range of salaries when setting their CEO compensation. In actual practice hospitals tend to target the 75 percentile, and often higher, in setting their CEO's compensation. This creates an upward spiral and executive compensation can grow at a rate disproportionate to relevant measures of achievement, or to increases experienced by other sectors of the population. This appears to have been the case even during the significant economic downturn experienced since 2008.
All of New Hampshire's 23 nonprofit hospitals were included in the review.
Thursday, July 12, 2012
A while ago I posted about a recent Pennsylvania Supreme Court decision on tax exemption that I speculated might reopen the door to property exemption challenges. The President of the Pittsburgh City Council might have kicked that door open a bit recently. A story posted on Pittsburgh's public radio station web site notes that city council president Darlene Harris is "investigating whether the city could legally challenge the tax-exempt status of large nonprofits in Pittsburgh." Harris apparently specifically referred to the recent Pennsylvania Supreme Court decision as grounds for her investigation.
“What some call ‘nonprofit’ is not necessarily all nonprofit,” said Harris. “If you can pay for having commercials during Super Bowls, if you can pay for your name to be on the top of the highest buildings in the City of Pittsburgh… There are doctors that will not see poor people.”
It appears that the City Council is not exactly happy with the PILOT deal struck with a consortium of Pittsburgh nonprofits that we blogged about last week. The story quotes council budget director Bill Urbanic, who stated “If these were ‘taxable organizations,’ the amount of payroll tax we would receive would be somewhere around $22 million… Also, the real estate, with the new assessment, is probably somewhere between $35 to $50 million. So, you’re looking at somewhere around $60 to $70 million that we’re forgoing, and what we’re getting instead is $2.6 million annually.”
Has the rumble over property tax exemption started in Pennsylvania?
Friday, June 22, 2012
As reported in The Washington Post, a $4 billion charitable trust created by the late Alfred I. duPont is the subject of scrutiny by the Delaware Attorney General Beau Biden. Biden alleges in court documents filed in Florida, where the trust is managed, that the trustees have mismanaged the trust and not adhered to the grantor's intentions. Specifically, the trustees are accused of deviating significantly from duPont's original intent by not focusing the trust on Delaware, as stipulated in duPont's will. The trust provides annuity payments to certain beneficiaries of duPont's will and, more significantly, funds the Nemours Foundation which operates health care facilities in Delaware, Florida, New Jersey, and Pennyslvania. The Foundation also operates the Nemours Mansion and Gardens in Wilmington, Delaware. Among some of the allegations in the court filing, the Delaware AG claims that certain renovation costs of the Mansion as well as administrative expenses were over-attributed to Delaware, thereby reducing its annual trust distributions over a 6-year period. As a result, the trust has not been operating more for the benefit of Delawareans.
The trustees "welcome a dialogue" with the Delaware AG. This court filing adds further complications to the trustees' efforts to bifurcate the existing trust to achieve better foreign tax treatment for its overseas investments. For more details on the lawsuit, see the Delaware AG's media release.
(Hat tip: Philanthropy News Digest)
Wednesday, June 13, 2012
The NY Post reports that New York Attorney General Eric Schneiderman is planning to send letters this week to 1,649 charities threatening them with cancellation of their registrations with the state unless they submit late reports within 20 days. If the AG cancels their registrations, the charities will no longer be legally eligible to raise funds in the state from either private or government sources. The New York registration and reporting requirements are enforced by New York's Charities Bureau, housed in the AG's office.
The NY Times reports that the section 501(c)(4) Committee to Save New York, organized at the urging of Governor Andrew Cuomo to promote his policies and praise his performance, received $17 million last year. Only now it has come to light that among the Committee's financial supporters is the New York Gaming Association, a trade group that supports expanding legalized gambling, that contributed $2 million. That information was apparently not known before because the Committee, like all section 501(c)(4) organizations generally, is not required to publicly disclose its donors. The NY Times is urging Gov. Cuomo to push the Committee to reveal all of its donors, especially giving the Governor's recent support for pro-gambling measures.
Wednesday, June 6, 2012
I always tell my students in my basic income tax class that I usually forge exam problems from stuff I read in the press, because I can't possibly make up stuff as good as what I read.
And so it is today. Hot on the heels of my post yesterday regarding the definition of a religious organization comes a story in the Milwaukee newspaper that the local Jewish Community Center (JCC) is seeking tax exemption for a family water park. According to the story,
In a legal brief, the JCC noted that what appears to be purely recreational activity "has religious and community-building purposes." At the park, members observe Shabbat, attend kosher barbecues and Jewish holiday events, and play Israeli games. All of the signs in the facility are in English and Hebrew.
<Sigh> OK - so maybe not exactly a claim that the water park is a religious organization, but close. On the other hand, JCC does appear to have raised one interesting issue: why should a YMCA be tax-exempt under Wisconsin law, but not a family water park? Why, indeed . . .
Friday, May 25, 2012
Word out of Minneapolis is that Mark Eustis, the CEO of Fairview Health Services, has decided to step down following the revelations regarding the debt collection practices of Accretive Health that we blogged about a few weeks ago. I sincerely hope, however, that Eustis' departure does not dissuade the IRS from revoking Fairview's tax-exempt status for violations of I.R.C. Section 501(r)(6) (and the community benefit standard of exemption in general). Frankly, it's time to make an example of someone and send a clear message to the rest of the exempt health care industry that if they expect tax-exemption, they need to act like a charity, instead of just claiming to be one.
Wednesday, May 23, 2012
An interesting article/editorial in the New London, Connecticut newspaper, The Day, analyzing whether the region should consider comprehensive property tax reform and restructuring of local municipalities and services (i.e., going to a more regional structure on schools, fire and emergency services, etc.) rather than seeking payments in lieu of taxes (PILOTs). It is an interesting discussion that is likely applicable to other local governments and taxing jurisdictions across the country.
Hat tip: Nonprofit Quarterly
Tuesday, May 22, 2012
As reported by the Nonprofit Quarterly, a Scripps Howard News Service new study (utilizing data reported to the IRS and available through Guidestar) revealed found that 15,389 nonprofit groups, or 41% of all domestic nonprofits with annual receipts of $1 million or more, report on their annual Forms 990 that they expended no dollars on fundraising. While this may be possible with respect to certain nonprofits, Scripps Howard did a further investigation, including interviews, which further revealed that a number of these zero-expense organizations actually do incur fundraising expenses but choose not to report them. The percentage of nonprofits with zero reported fundraising costs varies greatly by state, with 60% or more of the nonprofits in the following states reporting no fundraising expenses: Alaska, Arkansas, Idaho, Mississippi, and West Virginia (see a state ranking here). As the study states, some nonprofit executives that were interviewed admitted that fundraising costs are nonreported or underreported to lower their nonprofits' overhead rates, which donors and funders use to rate nonprofits' efficiencies and effectiveness in achieving their purposes.
[See also an article in the Chronicle of Philanthropy]
Sunday, April 29, 2012
Earlier this month, Montana Attorney General announced that his office had reached a settled with the section 501(c)(3) Central Asia Institute and its founder, author Greg Mortenson, after allegations arose regarding the accuracy of reports regarding the Institute's work (see, e.g., the 60 Minutes segment reported on by the NY Times/AP). According the AG's announcement, he concluded "that CAI’s board of directors failed to fulfill some of their responsibilities as board members of a nonprofit charity. Further, Mortenson failed to fulfill some of his responsibilities as executive director and as an officer and director of the organization." In the settlement agreement, Mortenson, who co-authored "Three Cups of Tea" and "Stones into Schools" about the Institute's accomplishments, agreed to repay over $1 million to the Institute and not sit on the Institute's board as long as he remains an Institute employee. A new board of at least seven members will be appointed during a 12-month transition period.
In related news, the Christian Science Monitor reports that Mortenson and the Institute also face a civil lawsuit from four individuals claiming that they were mislead by allegedly false accounts in his books. The readers claim they bought the books and donated to the Institute based on the stories of the Institute's work related in the books.
Thursday, April 19, 2012
As reported by the Daily Tax Report, at a Georgetown University Law Center program yesterday on Nonprofit Governance, Missouri Attorney General Bob Carlson provided simple advice - nonprofit boards can avoid potential legal liability for a breach of fidicuary duties if their reaction to such breach "is quick and shows immediate action." Carlson provided the example of a nonprofit executive director that failed to share financial information with the board of the directors, resulting in the board being completely unaware of the organization's near collapse. Upon learning of the dire financial status of the organization, the board immediately fired the executive director, installed an interim director, “and essentially righted the ship on the fly, so the organization did not go under.” Their prompt reaction, opined Carlson, prevented them from being sued. Carlson stated that he typically gives Board members the opportunity to correct a fiduciary problem, and only pursues lawsuits if there is not a sufficient response.
Along with IRS Exempt Organizations Director Lois Lerner, Carlson advised erring on the side of transparency, with both officials providing examples of items that nonprofits should considered posting to their websites: financial statements, executive compensation, and the minutes of meetings. He believes that more transparency ultimately leads to better fundraising ability, because donors often complain about their lack of knowledge with respect to the use of their donations. Both Carlson and Lerner agreed that recruiting and retaining "engaged" board members is essential to smooth operations and avoidance of trouble. In addition, board knowledge of its governance responsibilities leads to overall better decisionmaking.
NOTE: Lerner advised that the IRS will release the preliminary results of its study of governance on April 19, 2012.
Wednesday, April 18, 2012
As reported by the Daily Tax Report, Fitch Ratings, a global rating agency, released a report entitled Illinois Property Tax Exemption Battle, in which the rating agency concluded that the Illinois Department of Revenue's current enforcement stance on the property tax exemptions of Illinois nonprofit hospitals is a "negative credit development" for certain of these hospitals. As previously blogged, Illinois Governor Quinn lifted a moratorium on nonprofit hospital exemption cases last month. Essentially, according to the report, a nonprofit hospital's loss of tax exemption, along with current operational challenges, could "negatively affect" the hospitals' creditworthiness. The report opines that certain "lower rated entities will have a limited ability to absorb an additional expense in the form of a property tax."
The report acknowledges that this tax-exemption challenge is not limited to Illinois, mentioning an Ohio nonprofit dialysis clinic [Dialysis Clinic, Inc. v. Levin, see previous blog] that, similar to Provena Covenant Medical Center in Illinois, lost its property tax exemption due to insufficient provision of charity care. The Ohio Supreme Court upheld revocation of the clinic's property tax exemption. The Court noted that the Ohio test for exemption was narrower than the “community benefit” test of federal law, but did not find that a minimum amount of charity care is required. Rather, in Ohio, an exemption is granted if services are provided “on a nonprofit basis to those in need, without regard to race, creed, or ability to pay.”
Whether the Fitch report will impact the ongoing Illinois debate on hospitals' property tax exemption is unclear. The spokesman for the Illinois Hospital Association is nevertheless "hopeful that a legislative solution can be enacted" in the upcoming General Assembly session.
Friday, March 16, 2012
The Hartford Courant reports that Rhode Island State Police are looking into a variety of financial transactions engaged in by the Institute for International Sport that may have improperly benefited Executive Director Daniel Doyle Jr. Among the transactions at issue are tuition payments for one of the Mr. Doyle's children, $80,000 of "reimbursed expenses" over two years, and millions of dollars in land purchases on an island where Mr. Doyle and an investment partner also owned property. According to the Institute's website, Mr. Doyle founded the Institute in 1986 and has organized programs involving thousands of student-athletes around the world. The Institute's most recent Form 990 available on Guidestar shows an annual budget that was $2.3 million in 2008 and $1.1 million in 2009, net assets of approximately $2 million, and annual reportable compensation paid to Mr. Doyle of $72,000 from the Institute, another $72,000 from related organizations, and $25,151 in other compensation from the Institute and related organizations. The investigation apparently arose from Rhode island's acting state auditor raising questions about the Institute's use of a $575,000 government grant, and over the past month the Providence Journal has run dozens of stories on the Institute, including its financial and other connections to the University of Rhode Island.
Monday, February 13, 2012
The New York Times reports on a recent study showing that New York's charity care system has significant problems that are not being acknowledged nor addressed by the state government. The complicated system, which is partially financed by an 8.95% surcharge on hospital bills, is criticized by some patient advocates as ineffective in improving patient access and care. The study found that some hospitals failed to provide patients with elibility information on discounted care as required by NY state law, did not provide patients with financial aid applications, and made impermissible demands for unnecessary documents. While providing limited to no financial aid and utilizing aggressive bill collection practices (including liens against patients' homes), hospitals continued to collect, without questions or audits, from the state charity care pool that distributes more than $1 billion a year. Patient advocates and hospital administrators are reportedly being assembled to overhaul a better system.
Wednesday, December 28, 2011
There is no immediate news on the efforts to link nonprofit groups with CA state parks to keep the parks open, but I wanted to share a blog that is posting reports on the efforts for anyone who wants to keep up on the latest news for the CA parks. On October 4, 2010, the CA legislature enacted AB 42, a bill that adds §5080.42 to the California Public Resources Code. The new provision modifies the statute that gives control of the state park system to the Department of Parks and Recreation. The new section gives the department the authority to enter into "an operating agreement for the "development, improvement, restoration, care, maintenance, administration, or operation" of a state park with a "qualified nonprofit organization." The goal is to keep parks open, using nonprofits to help find resources to manage and maintain the parks.
Christine Sculati's Blog has posted a number of stories about the efforts of nonprofit organizations to work with particular parks in California. Her most recent post on the subject describes efforts of the Portola and Castle Rock Foundation to save Castle Rock and Portola Redwoods State Parks. She notes that 70 state parks have been identified for closure, with 18 of those in the Bay Area. The parks located near populous areas may have a better chance of generating the kind of fundraising that will be needed to keep them open. Her posts provide excellent descriptions of the problems and the efforts to save the parks, and are worth a read if you're interested in this topic.
Tuesday, December 27, 2011
Oregon's Attorney General recently posted a list titled "Oregon's 20 Worst Charities: 2011." The charities on the list are those that spend most of their revenue on telemarketing or administrative work. This is the third year the AG has posted a list, which represents an attempt by the Attorney General's office to educate consumers about charitable giving. The charity topping the list is Shiloh International Ministries, labeled the worst in 2010, too. The charity raises money to provide medical necessities and moral support for needy children, but its financial filings show that 96.8% of the money spent by the nonprofit went towards management and fundraising. The organization is based in California. Number 2 on the list is a Florida organization, American Medical Research Organization, which spent 4.2% of its annual expenditures on its charitable purposes. The Attorney General's office posts Tips for Charitable Giving and uses the list to educate the public about careful philanthropy.
Charity Navigator gives Shiloh International Ministries zero stars and shows that 83.8% of expenditures in 2009 went to fundraising expenses and most of the rest went to salaries for three people. Total expenditures in 2009 were $829,220, with revenues of $825,928. Because the states cannot regulate fundraising by charities, the Attorneys General and sites like Charity Navigator try to educate the public about the uses made of charitable dollars.
Monday, December 12, 2011
Continued Decreases in State Funding of Social Programs
The Chronicle of Philanthropy reports that nonprofits should expect to see continued decreases in funding and additional increases in demand for services through 2013 as state governments' budgets continue to deal with decreasing revenues. A new report, issued by Changing Our World, a philanthropy consulting firm, does a historical review of the economic crisis, calculates its negative effects on state budgets, and assesses whether charitable giving can stave off the decrease in government spending on social programs. Because 44 states have greatly reduced their spending and used federal stimulus money to make up the difference, the loss of that stimulus money will mean further cuts in social programs during the next two fiscal years. In order for nonprofits to meet the resulting increase in demand for such services in some of the most affected states, the report estimates that charitable giving would need to increase by 30 percent in 2011 and 60 percent in 2012, which the report refers to as “historically unprecedented.”
Taxation of Nonprofits' Real Estate
We continuously blog about state and local governments looking to nonprofits as additional revenue sources. In another such development, The Nonprofit Quarterly reports that Pennsylvania State Senator Wayne Fontana introduced in October Senate Bill 1281, which would grant local governments the ability to tax the assessed value of nonprofits' land. The Senator stated that specific exemptions would be enacted to protect "small" nonprofits, such as Boys and Girls Clubs and churches. The bill as introduced specifically exempts properties owned by local, state, and federal governments, and by “police, fire, including volunteer fire and relief, public works or emergency services.” According to the article, although there is no mention of small nonprofits, the asserted "small" nonprofit carveout is likely the proposed exemption of the first $200,000 of aggregate land value. The tax would only be imposed on the value of the underlying land, not any improvements on it. The specified intent of the Bill reads: “It is necessary and proper for local governments to have the option to ensure the continued viability of certain essential services it provides or causes to be provided by requiring a contribution from owners of tax-exempt properties toward the cost of the services.” The Senator explained: “There are nonprofit organizations out there that are sitting on high-valued, tax-free real estate. If they sold this land, these nonprofits would make a handsome profit.”