Friday, June 23, 2017

Blumberg, Canadian Registered Charities Revoked as a Result of Audit 1992-2017

Blumbergs-0928_crop_small_175_175_c1_c_cMark Blumberg (Blumberg Segal LLP) has put together a list, with relevant links, of all 447 Canadian registered charities that have had their charity status revoked by the Charities Directorate of the Canada Revenue Service over the past 25 years. For anyone interested in seeing what types of activities get Canadian charities into trouble with the federal tax authorities, this list could be invaluable. I am not aware of a similar compilation with respect to the IRS in the United States, although Terri Lynn Helge (Texas A&M) has an article in the Pittsburgh Tax Review (Rejecting Charity: Why the IRS Denies Tax Exemption to 501(c)93) Applicants) that looks at IRS denials of applications for recognition of exemption as a charity under section 501(c)(3).

Hat tip: globalphilanthropy.ca.

Lloyd Mayer

June 23, 2017 in International, Publications – Articles, Studies and Reports | Permalink | Comments (0)

Thursday, June 22, 2017

Crystal Ball Gazing: Tax Reform and Nonprofits

CongressNo one knows what is going to happen with tax reform, which means now is the perfect time to speculate wildly about how Congress may help or hurt tax-exempt nonprofits if and when it actually does something.

Tax Simplification: If Congress follows the President's lead and simplifies in part by sharply increasing the standard deduction, it will make the charitable contribution deduction irrelevant to an even greater proportion of U.S. households as the number of itemizers shrinks significantly. According to an Indiana University Lilly Family School of Philanthropy report, this change alone could reduce charitable giving by an estimated $11 million annually, and if combined with a lower top tax rate of 35% they could together reduce charitable giving by $13.1 billion. To put these figures in perspective, the most recent Giving USA report reported $282 billion in donations from individuals for 2016.

Non-Itemizer Deduction: One proposal to counter this effect is a charitable contribution deduction for non-itemizers, as long advocated for by Independent Sector among others. The Lilly Family School of Philanthropy report estimates that allowing non-itemizers to deduct their charitable contributions would more than offset the negative effect on contributions from the standard deduction increase and rate reduction proposals. That said, it is hard to see how this proposal could have much chance of success given both its revenue cost and the administrative and enforcement complexity it introduces, particularly in an era of reduced IRS examinations. For an analysis of some of these issues, see this October 2016 Urban Institute report.

The Ghost of Rep. Camp: While Dave Camp is not dead he is no longer in Congress, which you would think would limit his influence over current tax legislation. But he did something brilliant when he was driving the tax reform bus as Chair of the House Ways & Means Committee several year ago: he went through the laborious process of actually drafting legislative language and having the result analyzed and scored by the Joint Committee on Taxation. This means that both the specific language and revenue effects of each provision of the Tax Reform Act of 2014 is available to be pulled off the shelf and deployed immediately as part of any current tax reform legislation. As detailed on pages 535-598 of the JCT report, this includes numerous provisions relating to tax-exempt organizations, including a number of limitations on the existing charitable contribution deduction. Especially if some revenue raisers are needed to pay for other aspects of tax reform, I expect to see some of Rep. Camp's proposals reappear in current legislation.

The Charities Helping Americans Regularly Throughout the Year Act of 2017: Given the uncertainty about the content, timing, and even liklihood of major tax reform legislation, it is a good idea to have a backup plan. The CHARITY Act (I do not know where they got the "I" from) is a modest, bipartisan attempt to tweak the existing tax laws for tax-exempt charities. Its provisions include simplifying the private foundation investment tax under section 4940, making donor advised funds eligible for IRA rollover contributions, increasing the mileage rate applicable to personal vehicle use for volunteer charitable activities, creating an exception to the private foundation excess business holdings rules under section 4943 (can you say Newman's Own Foundation?), and an electronic return filing requirement for all tax-exempt nonprofits.

I look forward to months if not years of further crystal ball gazing on these topics.

Lloyd Mayer

 

June 22, 2017 in Federal – Executive, Federal – Legislative, In the News, Studies and Reports | Permalink | Comments (0)

Wednesday, June 21, 2017

Feds In Action: Data, a Report, and the Occasional Indictment or Raid

IRSWhile the IRS is underfunded and Congress is deadlocked, this does not mean there is no action by the federal government with respect to tax-exempt nonprofit organizations. For starters, the IRS' continues to report data like clockwork, including the always informative Data Book. Highlights from the FY 2016 Data Book include the miniscule examination rate (only 2,956 annual returns examined, including Forms 990, 990-EZ, 990-N, 990-PF, 1041-A, 1120-POL, and 5227), continued strong closures of exemption applications (92,129 for the year, of which the IRS approved 86,406, disapproved 54, and had another 5,669 closed for other reasons, including withdrawals), and now almost 1.6 million organizations recognized as exempt under section 501(c).

The IRS Advisory Committee on Tax Exempt and Government Entities has also had its charter renewed for two more years, and released its sixteenth Report of Recommendations earlier this month. The Committee has been restructured in a way that many of its current members feel is not helpful, as they shared at length in the report. More specifically, the Committee is now divided into subgroups not based on functional areas but instead on subject areas, specifically FICA Replacement Plans, Online Accounts, and, ironically, Future of the ACT.

Finally, the IRS and other federal authorities continue to pursue the most egregious wrongdoing by actors at tax-exempt nonprofits, including criminally. Recent news reports include two major stories along these lines. One involves a federal indictment against a bank officer and her husband who are alleged to have transferred embezzled funds from Bank of America totalling $1.2 million to a variety of charities, possibly in exchange for return payments or other benefits from those charities, according to reports in the Atlanta Journal-Constitution and the Boston Globe. The other, separate situation involves a search by IRS and U.S. Postal Service investigators at the headquarters of televangelist Benny Hinn, as reported by the Dallas Morning News. No further public information is currently available regarding this investigation.

Lloyd Mayer

 

June 21, 2017 in Federal – Executive, In the News, Studies and Reports | Permalink | Comments (0)

Tuesday, May 10, 2016

Report: U.S. High School Graduation Rate Hits 82.3 Percent

Today's Philanthropy Digest is reporting that while the U.S. high school graduation rate rose to a record high 82.3 percent in 2014, the nation is not on track to reach the goal of achieving a 90 percent rate by 2020. That's according to an annual study from Civic Enterprises and the Everyone Graduates Center at John Hopkins University's School of Education.

Conducted in partnership with America's Promise Alliance and the Alliance for Excellent Education, the report from GradNation, 2016 Building a GradNation: Progress and Challenge in Raising High School Graduation Rates, found that while Iowa has achieved a 90 percent graduation rate and twenty other states are on track to do so by 2020, for the first time in four years the nation as a whole is not on track to meet the goal. According to the study, 2, 397 low-graduation-rate high schools -- defined under the Every Student Succeeds Act as those with at least a hundred students enrolled and an Adjusted Cohort Graduation Rate of 67 percent or lower -- enrolled a total of 1.2 million students nationwide, even as the number of large low-graduation-rate schools with at least three hundred students was halved from 2,000 to 1,000 between 2002 and 2014. In forty-one states, low-income students accounted for more than 40 percent of those enrolled in low-performing schools -- including twelve states where they made up more than 75 percent of the student body. African Americans and Latinos made up more than 40 percent of enrollment in low-graduation rate schools in fifteen and nine states, respectively.

The Digest continues:

The study also found that low-graduation-rate schools account for 7 percent of all district schools (and 41 percent of all low-graduation-rate schools), 30 percent of charter schools (26 percent), 57 percent of alternative schools (28 percent), and 87 percent of virtual schools (7 percent). The report recommends that policy makers set clear definitions and give graduation rates the weight they deserve in ESSA; require all states to report extended-year graduation rates in addition to four-year grad rates; create evidence-based plans to improve low-graduation-rate high schools; and ensure that alternative and virtual schools are included in state accountability and improvement systems.

"As the report points out, raising the graduation rate to 90 percent would require graduating an additional 285,000 students," said America's Promise Alliance president and CEO John Gomperts. "Putting it that way makes the goal appear that much more attainable. But to graduate this additional number of students equitably, the nation will have to focus on getting significantly more low-income students, students of color, students with disabilities, English-language learners, and homeless youth on track to earning a diploma. Persistence is key."

Needless to say, the government -- federal, state and local -- will have to allocate more tax dollars to education, to ensuring that the facilities and personnel are available to guide these students towards earning their graduation diplomas. 

VEJ

 

May 10, 2016 in Current Affairs, In the News, Studies and Reports | Permalink | Comments (0)

Wednesday, June 3, 2015

The Effect of Medicaid Expansion on Charity Care Costs

Let me just be honest about my biases.  I think it is absolutely shameful that 19 states, including Florida, have refused to participate in Medicaid expansion.  It's free money, for Christ's sake, you idiots! But I digress and I am supposed to be a scholar and speak in cold unemotional logic.  So let me restate my opinion in the language of a scholar:  Ahem . . . .  It's free money, for Christ's sake, you idiots!  Anyway, we have previously blogged about the early impact of the affordable care act on hospital charity care costs.  A more recent report by the Kaiser Family Foundation confirms the early trend:

Looking at particular cost items, charity care costs decreased 40.1 percent among hospitals in Medicaid expansion states compared to 6.2 percent in non-expansion states. However, another component of cost of care to the poor, Medicaid shortfalls – the difference between what Medicaid pays and the costs of treating Medicaid patients – increased 31.9 percent between 2013 and 2014. Shortfalls increased for hospitals in expansion states but were more than offset by increases in Medicaid revenue. Shortfalls increased more among hospitals in non-expansion states than expansion states and were not offset by increases in Medicaid revenue, possibly due to state cuts in provider reimbursement. Combining the decrease in charity care costs with the increase in Medicaid shortfalls, the net cost of caring for low income patients decreased among hospitals in expansion states, while these costs increased among hospitals in non-expansion states.

So let me get this straight.  The feds, using our tax dollars, will pay 90% of the costs of Medicaid expansion -- 100% until 2020.  Charitable costs will likely increase without medicaid expansion anyway, meaning we will pay for indigent care one way or the other.  But the nefarious nineteen (as I will call them from now on) don't want any of "Obama's stinking money."  Yeah, that'll teach us, alright!  We should remind the knuckleheads that Obamacare was based entirely on Romneycare!

dkj

 

June 3, 2015 in Studies and Reports | Permalink | Comments (2)

Tuesday, June 2, 2015

Bright Lines Project Issue Political Activity Draft Regulations

We previously blogged on the efforts of the Bright Lines Project to come up with draft political activity regulations here and here.  Bright Lines continues the work with these draft regulations.  The latest draft, by the way is dated November 11, 2014.  Recent reports suggest the real draft regulations may issue sometime this month.   

dkj

June 2, 2015 in Studies and Reports | Permalink | Comments (0)

Friday, May 29, 2015

The Economic Value of College Education by Major

If I were King of the world, I would allow for only a few majors at the undergraduate level.  Literature, Languages, History, Mathematics, Science, Art and Philosophy.  I would forbid students from majoring in jobs or careers.  On the other hand, I have a daughter going into her junior year in college and three more in line and they all need to get jobs to support me and my old bones one day.  Georgetown University's Center on College and the Workforce has an informative study out this month quantifying the economic value of a college education by major.   I intend to send this to all four of my daughters phones because they won't hear me unless they get it by text or snapchat or whatever other social media is out these days.   

 

 

Exec-Sum-Fig-1

May 29, 2015 in Studies and Reports | Permalink | Comments (0)

Friday, January 30, 2015

2014 Charitable Donations to Colleges = Record Year

The Wall Street Journal reported that Harvard, Stanford Lead Record Year for College Gifts; $37.5 Billion Is 10.8% Jump; Top 10 Schools Bring in 18% of Donations:

Colleges and universities received a record $37.5 billion in donations last year, led by massive gifts to Harvard University, Stanford University and other already-wealthy schools.

The new high, a 10.8% jump from the prior year, was due in part to stock-market increases that boosted capital gifts, as well as a jump in donations of art, according to an annual survey being released Wednesday by the nonprofit Council for Aid to Education. ...

The top 10 recipients brought in nearly 18% of all gifts last year, up from 15% a decade earlier, according to Ann E. Kaplan, who directs the survey.

(Hat tip:  TaxProf Blog)

Nicholas Mirkay

 

 

January 30, 2015 in In the News, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Saturday, January 24, 2015

Cooney et al.: Benefit Corporation and L3C Adoption: A Survey

Kate Cooney (School of Management, Yale), Justin Koushyar (Business School, Emory), Matthew Lee (INSEAD (Singapore)), and Haskell Murray (Belmont) have posted the results of their research titled Benefit Corporation and L3C Adoption: A Survey at the Stanford Social Innovcation Review blog.  Here is the introduction:

A major challenge for social enterprises pursuing both a social mission and financial profit has been the absence of clear legal guidance about their responsibilities to investors and other stakeholders. In the United States, a number of new legal forms specific to social enterprise have emerged over the last decade to fill this gap. The two most common, the low-profit limited liability company (L3C) and the benefit corporation, modify traditional business legal structures to clearly enable and mandate the pursuit of social and environmental as a for-profit business enterprise. This is no small matter—the last major legal form to be created in the United States was the LLP in 1991.

The success of a new regulatory infrastructure for social enterprise depends heavily on the extent to which state legislators, then companies, adopt these forms. To date, a lack of good data has made it difficult to evaluate progress. To address this, we worked over the last year with Secretary of State offices and Intersector Partners to develop systematic, nation-wide data on adoption of these forms.

Lloyd Mayer

January 24, 2015 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Monday, September 29, 2014

What happens if charity care becomes obsolete?

An article last week in the Washington Post (h/t Chronicle of Philanthropy) discussed a report by the Department of Health and Human Services that indicated that hospitals are experiencing significant declines in charity care and bad debt, thanks to expansions in Medicaid and a drop in the number of otherwise uninsured individuals due to the Affordable Care Act.  The report projects $5.7 billion (that’s billion, with a “b”) in savings in uncompensated care costs in 2014.

The first thing that I thought was, “Wow, that’s a big number!  Great news!”   The second thing I thought was, “Gee, I wonder if that will change how we evaluate nonprofit hospitals.”    What that might say about my mental state aside, it will be interesting to see how this structural change to the way we pay for health care works its way through the standards for tax exemption.

I note that the HHS report tracks “uncompensated care,” which it treats as the sum of bad debt and charity care.  While the HHS report does indicate that there is a difference between “self-pay” patients and “charity care”, the report is quick to note that not all hospitals break down their reporting this way.   (See HHS Report, FN 6).  Of course, part of the raging debate is whether bad debt is charity care – the Catholic Hospital Association says it isn’t but not all hospitals agree.

Either way, under traditional formulations of the community benefit standard, charity care is not the be-all and end-all of for exempt status – it might not even be necessary.   The recent trend, first evident in the Revised 990 Form’s Schedule H and then in the community assessment report requirements of the ACA, appears to lean toward wanting more discussion and disclosure of charity care as component of tax-exemption, even if that doesn’t appear anywhere formally quite yet.  It will be interesting to see if a structural reduction in the need for charity care (however defined) changes that conversation.

Then, of course, there are the states.   Having practiced in Illinois at the time of the Provena decision (good summary here), I’m particularly curious to see how that might play out.   For those of you who weren’t following Provena, Illinois revoked the property tax exemption for a number of nonprofit hospitals, stating that the Illinois property tax charitable exemption provisions (some of which are in the state constitution) require actual charitable use (as in relieving- poverty-charitable-use) of the property.   While denying that charitable use is a numbers game (that is, you need to show that there are enough charitable dollars spent to offset the property tax uncollected) – the court then engages in exactly that mathematical exercise.  

I’ve moved from Illinois since Provena came down, but I understand there was a legislative fix (SB 2194 and SB 3261, passed in 2012), that partially codifies this math-based analysis.  What happens if a hospital doesn’t meet its charity care dollars spent requirement because they are simply not necessary anymore due to ACA?

I might be going out on a limb here, but I’m guessing that Prof. Colombo might have a thought or two on this…

EWW

September 29, 2014 in Current Affairs, Federal – Executive, State – Legislative, Studies and Reports | Permalink | Comments (1) | TrackBack (0)

Friday, August 22, 2014

Study Finds Increase in Charitable Donations by Puerto Rican Taxpayers after Charitable Contribution Deduction Limitations Were Removed

As reported by the Philanthropy News Digest, a recent analysis discloses that charitable gifts reported by taxpayers in Puerto Rico increased by about $5 million in the year following a change in the law that expanded the deductibility of charitable contributions.  The change in giving patterns varied among income groups (predictably in part, but perhaps surprisingly in some respects). A summary follows:

              

The report … analyzed tax data from the Puerto Rico Treasury Department for 2011 — the first year that individual taxpayers in Puerto Rico were allowed to deduct 100 percent of their donations to nonprofits, up to a maximum of 50 percent of their adjusted gross income — and found that the number of people who claimed a charitable deduction jumped from 27,644 in 2010 to 47,004, or 4.6 percent of all tax filers, in 2011. Previously, Puerto Rican taxpayers were only allowed to claim a deduction of 33 percent on their charitable donations, or 100 percent of their donations in excess of 3 percent of their adjusted gross income.

 

The report also found that while the number of taxpayers claiming a charitable deduction increased across all income groups, the average amount claimed fell some 39 percent, with the total increasing 7 percent and 27 percent among individuals with an adjusted gross income of between $25,000 and $50,000 and more than $150,000, respectively, and falling among those with an adjusted gross income of between $100,000 and $150,000 (-8 percent), $75,000 and $100,000 (-2 percent), $50,000 and $75,000 (-1 percent), and less than $25,000 (-9 percent).

 

A copy of the full report is available here.

 

JRB

August 22, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 20, 2014

New Report on Governance by College Trustees

The Chronicle of Higher Education is running a story on a recent report exhorting college boards of trustees to engage more actively in governance.  The key details follow:

The report, “Governance for a New Era: A Blueprint for Higher Education Trustees,” was released on Tuesday by the American Council of Trustees and Alumni. It stemmed from a project led by Benno Schmidt, chairman of the City University of New York’s Board of Trustees and a former president of Yale University.

 

The document calls on trustees to rethink their leadership roles in light of colleges’ current challenges. Broadly, it asserts that trustees should take a strong role in areas such as defining an institution’s goals, protecting academic freedom, ensuring educational quality, and holding colleges accountable for their performance.

Interested readers may access the full report here.

 

JRB

August 20, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 13, 2014

DAF Millennials Get Charitable

        Earlier this week, I wrote about the need for donors to view their charitable giving as a form of investment. According to the results from a Vanguard Charitable study released earlier this month, Millennials are doing just that. See The NonProfit Times article "Millennials More Generous with Donor-Advised Funds."  Millennials want to track the results of their giving and be involved in implementation associated with their donations. They are frequently turning to donor-advised funds ("DAFs") in this endeavor, including Mark Zuckerberg and his wife. (If you are interested in the overall DAF debate, see the Forbes article from earlier this year).

        In “An Inside Look,” Vanguard Charitable looked at 15,330 donors over a 10-year period. These donors used Vanguard’s DAF to make their donations. Although Millennials comprised the smallest percentage of donors when compared to Baby Boomers and Traditionalists (those born before 1946), as a whole, they contributed more money on average. According to Vanguard Charitable, Millennials gave $9,065 compared to an average of $6,979 and $7,877 for Traditionalists and Baby Boomers, respectively.

        At the same time, Millennials report that they are unsure of how to give outside of using DAFs. Clearly, Millennials want their charitable dollars to end up with those charities that will put them to their most productive use. Although the chief philanthropic officer at Vanguard Charitable has recommended that they hold board positions as a way to achieve this result, I would argue that charities themselves should assume responsibility for communicating to donors what their “return” or “social impact” is for a given investment. Donors should not want to give a substantial amount to a charity or to charities without understanding what the resulting social impact is. Millennials are creating a culture in their giving that will demand more transparency and accountability and that has the ability to re-shape the future of the nonprofit sector.

Khrista Johnson

August 13, 2014 in In the News, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 12, 2014

Stanford Study: Nonprofits Need More of a Say in Measuring Social Impact

        Nonprofit evaluation is a key component of establishing an efficient charitable market. Without a way to measure social impact, both nonprofits and donors remain unaware of whether investment is being put to its most productive use. (Social impact may be thought of as what the charity has accomplished with a donation). As Stephen Goldberg has noted in his book Billions of Drops in Millions of Buckets, one of the reasons inefficiency exists in the charitable market is because funders currently cannot differentiate between effective and ineffective charities. The Stanford Social Innovation Review recently examined the need for a shift in nonprofit evaluation and the discourse surrounding it in “Measuring Social Impact: Lost in Translation,” and the ideas expressed hold valuable insights for the sector.

        Most importantly, the authors contend that nonprofits need to set the agenda in terms of evaluation and should use a qualitative approach in addition to a quantitative one. They point out that if nonprofits do not shape the evaluation conversation, funders will do it for them. They note five specific items that nonprofits should “talk more about” in terms of evaluation. First, nonprofits should focus more on their purpose and their strategy for achieving it. As the authors advise, “[A]ll nonprofits should have a clearly defined theory for how they will create change that connects their strategies and programs to the results that they anticipate.” Second, nonprofits should spend more time discussing people. Funders often want nonprofit assessment to include quantitative assessments, e.g., the number of people indirectly affected. However, too much emphasis on quantitative analysis reduces a nonprofit’s impact to a series of numbers. The authors promote a more balanced approach that includes qualitative assessments as well: “Qualitative assessments that draw on conversations with people are often more consistent with how nonprofits operate, and they are also a methodologically valid form of evaluation.” Third, nonprofits would benefit from drawing attention to the big picture. In other words, evaluation should consider how a given nonprofit’s work fits within the collective transformation of an area. Fourth, nonprofits should not shy away from discussing their challenges. Their failures and lessons learned are beneficial in terms of collective learning. Accordingly, the authors urge nonprofits to highlight not only monitoring but also transparency as a goal in evaluation. Finally, nonprofits should encourage more learning. Currently, funders (who focus more on monitoring than learning) have a much louder voice in evaluation than beneficiaries and nonprofit workers who are directly involved and who may facilitate learning.

        In terms of the discourse surrounding nonprofit evaluation, the authors caution that business, managerial, and scientific language is drowning out the nonprofit voice. This underscores the need for nonprofits to take charge of shaping evaluation. Too often terms such as “investment,” “returns,” “output,” and “outcomes” are used to discuss social impact, without regard to the five other areas identified. The Stanford team’s study of 400 individuals and organizations in the nonprofit sector revealed that the vocabulary of nonprofit evaluation typically falls within 3 cultural domains: (1) managerial, (2) scientific, and (3) associational, with managerial terms dominating the discourse. All of these domains hold valuable insights for the nonprofit sector; however, nonprofits themselves should be the ones to shape their evaluation and the discourse surrounding it.  

Khrista Johnson

August 12, 2014 in In the News, Publications – Articles, Studies and Reports | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 16, 2014

Notes on the CPI Report on the IRS Targeting Scandal

The Center for Public Integrity has released an investigative report about the IRS Tea Party targeting scandal, in which the CPI reviewed thousands of pages of documents and interviewed dozens of insiders. The report provides a good high-level overview of the scandal, and makes a few useful findings about the Exempt Organization function within the IRS. To many, the findings may come as no surprise, but bear repeating: over time the IRS has fewer employees to regulate a rapidly growing sector, the already low rate at which the IRS investigates exempt organizations is shrinking, the social welfare category (i.e., the one at the heart of the targeting scandal) is growing, and the IRS is increasingly timid – backing down to political pressure. Unfortunately, none of this makes for an effective overseer of a vital part of civil society.

Although the report is useful, some peripheral statements should be more closely considered if only because a number of misconceptions about the IRS targeting scandal continue inadvertently to be spread. One statement in the report is that “It wasnʼt until the Supreme Courtʼs Citizens United v. Federal Election Commission decision in 2010, however, that politically active nonprofits — social welfare groups as well as 501(c)(5) labor unions and 501(c)(6) trade groups — became a major force in political elections, all while receiving a de facto tax subsidy.” The implication from the “de facto tax subsidy” language is that political activity, when conducted after Citizens United by a noncharitable tax-exempt like a 501(c)(4), (5), or (6), gets an unwarranted subsidy and is abusive. But this is not really right. Political activity by a noncharitable exempt generally is not tax-advantaged relative to the same activity by a political organization (aka a “527”). Rather, political activity by a noncharitable exempt actually triggers a tax that is intended to make the tax treatment of political activity consistent across sections of the tax code. There is no abusive subsidy for political activity here.

Later, the report notes that “Social welfare and other nonprofit groups galloped into the post-Citizens United era with an inherent advantage over overtly political groups: They could hide the source of their funding, regardless of whether those sources were corporations, individuals or other special interests. And they're only required tell the FEC the names of donors who give money to help produce specific ads — something that rarely happens.” This point bears more than passing emphasis. The anonymity offered to donors by noncharitable exempt status, and not a tax subsidy, is the underlying legal issue at the heart of the targeting scandal post-Citizens United. In other words, the targeting scandal is not really about taxes at all, it is about donor disclosure or the lack thereof.

The report says that: “The tea party affair has directed attention away from what many IRS workers say is the much larger problem — regulating the activities of politically charged nonprofits.” and also that the IRS is “supposed to ensure 501(c) nonprofit organizations don't become more political than the law allows.” The broad meaning here is right: the targeting scandal has diverted attention from some real problems with the legal architecture. Also, the IRS does have a legitimate role to play when it comes to political activity and tax exemption. But these statements unintentionally play into another misconception about the IRS’s role when it comes to the political activity of noncharitable exempts and political organizations. In this context, the IRS does not really “regulate” political activity in the sense of deciding whether or not the activity is permitted. Rather, the IRS’s function is to classify organizations based on their purpose as measured by the quantum of their activities. This is an important distinction. The IRS does not regulate speech or activity as such; rather, the IRS, as charged by Congress, assesses organization purposes and activities and applies a tax label ((c)(4), 527, etc.). So political activity is relevant to tax classification, but it is not a question of permitting or prohibiting political activity.

The report also states that “Political ‘527 groups’ are tax exempt like 501(c)(4) groups, but unlike them, they must disclose their donors.” It should be noted that the point about disclosure is correct, but not the point about tax-exemption. Broadly, 527 groups are taxed on their investment income whereas 501(c)(4)s and other noncharitable exempts are not. So the tax treatment is not equivalent. But as noted earlier, if a noncharitable exempt engages in political activity, then a tax is triggered, which is intended to make the organizational tax treatment of political activity broadly uniform across exemption categories.

But none of this undermines the key thrust of the report's message -- that the regulatory environment of the IRS exempt organization function is in crisis and in need of constructive solutions.

Roger Colinvaux

July 16, 2014 in Current Affairs, Federal – Executive, Federal – Legislative, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Thursday, July 3, 2014

Silencing the Nonprofit Sector in Algeria, Azerbaijan, Ecuador, Indonesia - and Canada and the UK

DownloadThird Sector reports that the Charities Aid Foundation has issued a report criticizing several countries for introducing legislation or taking other steps aimed at preventing nonprofits from criticizing their governments.  Titled Future World Giving: Enabling an Independent Not-for-profit Sector, the report highlights six countries that have introduced such legislation and several others where government critics, including the leaders and members of NGOs, face prosecution and other government persecution.  The report also highlights how governments often use their funding of NGOs to impose conditions on those groups that effectively silence them, an issue that recently reached the Supreme Court here in the United States.

Lloyd Mayer

July 3, 2014 in In the News, International, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Monday, June 9, 2014

Does universal health care render health care tax exemption unnecessary?

The early indicators regarding the effect of the Affordable Care Act on the demand for free health care  are mixed, but seem to be trending towards decreasing that demand very quickly.  If the trend continues, we should continue seeing a blending of nonprofit and investor owned hospitals.  By that, I mean that the two types of hospitals will continue to morph into indistinguishable sides of the same coin.  The law already allows for insiders of nonprofit hospitals to be compensated on the same scale applied to investor owned hospitals.  And we already know that nonprofit hospitals are allowed -- nay, expected -- to apply the same business practices as investor owned hospitals.  Just as direct government subsidy for health care and the influence of managed care policies have already erased the historical distinctions between "alms houses for the poor" and investor owned hospitals, Obamacare will further eliminate whatever distinctions still exist between nonprofit and for profit hospitals.  When all is said and done, will the "nondistribution constraint" (which may exist as a hard and fast rule in theory more than reality) be enough to justify continued exemption for customer supported health care? I am not the first to make this observation, I'm sure, but as government continues to grow as the primary arbiter of health care -- I'm not saying whether this is a good thing or not -- in effect requiring all health care providers to serve the poor, tax exemption for health care seems less and less justifiable. 

According to this recent NY Times editorial

Some hospital systems have started tightening the requirements for charity care in efforts to push uninsured people into signing up for subsidized health plans on the insurance exchanges created by the reform law. In St. Louis, for example, Barnes-Jewish Hospital has started charging co-payments to uninsured patients no matter how poor they are. Those at or below the poverty level ($11,670 for an individual) are charged $100 for emergency care and $50 for an office visit.  But some medical centers have seen their charity care costs decline. A report late last month in Kaiser Health News and USA Today said that Seattle’s largest “safety net” hospital, run by the University of Washington, saw its proportion of uninsured patients drop from 12 percent last year to a surprisingly low 2 percent this spring, putting the hospital on track to increase its revenue by $20 million this year from annual revenues of about $800 million.

The editorial links to this report by Kaiser, suggesting that the ACA has resulted in a marked decrease in uncompensated health care.

That’s one of the reasons the hospital industry was among the first groups to support President Barack Obama’s health plan,agreeing to Medicare and Medicaid funding cuts exceeding $150 billion over a decade in return for getting more paying patients to reduce their uncompensated care.

Many hospital executives were unnerved, therefore, when the Supreme Court ruled in 2012 that states could not be forced to implement the Medicaid expansion and nearly half of them have refused. As a result, hospitals in non-expansion states are undergoing the funding cuts without a corresponding reduction in uncompensated care.

 

Big Impact On Patients

 

In Seattle, Harborview had projected a $10 million gain in revenue this year because it would be able to recoup payments for services provided to the newly insured. Now, with a 10-percentage-point drop in uninsured patients in one year, the hospital system managed by the University of Washington is projecting a $20 million revenue increase on annual revenue of about $800 million, said Associate Administrator Elise Chayet.

Hospital officials say the biggest impact of the change is on patients themselves. Rather than having to rely on emergency rooms, newly insured patients can see primary care doctors and get diagnostic tests and prescription drugs, among other services.

Some safety-net hospitals say they started to see their numbers of uninsured patients dropping almost immediately after the Medicaid expansion took effect in January.

“We have seen a steady decline in our uninsured visits,” said Roxane Townsend, CEO of UAMS. “We did not anticipate this big a drop this quickly.” 

 About 80 percent of the system’s new Medicaid patients had previously been seen by the hospital as uninsured patients, she said. Their enrollment in coverage means the hospital is paid more for their care and is able to direct them to outpatient services and preventive care.

She said that UAMS has also seen a drop in ER visits by uninsured patients — from 6,000 visits in first three months of 2013 to about 4,000 visits in first three months of this year, calling the decline “significant.”

 An even more comprehensive study published in Health Affairs confirms society's growing resolution of charity care and, without saying so, provides more reason to question the continuing tax exemption of nonprofit hospitals, which are no longer the exclusive providers of charity care:

The Affordable Care Act (ACA) is fundamentally reshaping the nation’s health care landscape, particularly in terms of how care is delivered to the low-income uninsured and how that care is financed. Chief among the ACA’s provisions is the expansion of eligibility for Medicaid, in which states can choose to cover people who have incomes of up to 138 percent of the federal poverty level. The ACA also provides subsidies for people with incomes below 400 percent of poverty to purchase health insurance and establishes health insurance exchanges, known as Marketplaces, through which people can obtain coverage. Over the next decade an estimated twenty-five million people will gain health insurance through the ACA.

Ideally, nonprofit ventures thrive and grow to eliminate a market failure problem.  They should, perhaps, be subsidized only so long as the problem exists and only to the extent necessary to solve the problem.  States, for example, are already in the process of a wholesale reconsideration of the necessity of property tax exemption for health care organizations.  I should think too that income tax exemption for hospitals should be reconsidered. 

dkj

 

June 9, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Friday, April 25, 2014

American Academy of Arts and Sciences Self-Reports Excess Benefit Transaction after Internal Investigation

Those of you in the Boston area are probably aware of the simmering controversy regarding the allegation of unreasonable compensation paid to, and the allegedly embellished academic credentialsl of Leslie Berlowitz, former President of the American Academy of Arts and Sciences.  This Boston Globe story triggered an avalanche of consequences, including separate investigations by the Academy (the Report of which blames the President, but not the Board), the Massachusettes AG, the National Endowment for the Arts Humanities, the National Science Foundation, and ultlimately the President's resignation.  After the President's resignation, the Academy amended its 990's to report excess benefit transactions primarily because of the finding that the President exerted improper influence on the Academy's compensation committee and that the President caused the Board not to follow the 4958 safe harbor procedures that would have protected the organization from an allegation that it engaged in an excess benefit transaction.  The Report presents a nice case study for the nonprofit governance, determining reasonable compensation under IRC 4958, and the application of IRC 4958 as it relates to an insider's -- or a disqualified person's -- compensation.  You can read many of the source documents, including the Board's mea culpa to its Fellows, and the former President's response to the report, via this Boston Globe link.  The Boston Globe limits visitors to ten free articles so you can also access the full report here.

The other thing that seems apparent from the report is that you are more likely to be found to have engaged in an excess benefit transaction, or some other conduct frowned upon in the Code if you are just a plain old meanie!  

dkj

April 25, 2014 in Studies and Reports | Permalink | Comments (1) | TrackBack (0)

Tuesday, April 15, 2014

Nonprofit Finance Fund: State of the Nonprofit Sector Survey

New York – April 7, 2014– The economic recovery is not offering signs of relief for the nonprofit sector, and many organizations are now looking to new models of funding, according to the results of the Nonprofit Finance Fund’s 2014 State of the Nonprofit Sector Survey. Leaders from more than 5,000 nonprofits nationwide participated in this sixth annual survey. Many reported daunting financial situations, and said they are looking at new ways to secure the future of their organizations for the benefit of the people they serve.  The survey was supported by longtime partner the Bank of America Charitable Foundation as well as the Ford Foundation.

The economic recovery is leaving behind many nonprofits and communities in need:

  • 80% of respondents reported an increase in demand for services, the 6th straight year of increased demand.   
  • 56% were unable to meet demand in 2013—the highest reported in the survey’s history.  
  • Only 11% expect 2014 to be easier than 2013 for the people they serve.

“Americans rely on nonprofits for food shelter, education, healthcare and other necessities, and everyone has a stake in strengthening this social infrastructure,” said Antony Bugg-Levine, CEO of Nonprofit Finance Fund. “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”

For many nonprofits, the funding landscape is changing. Of respondents who receive government funding, nearly half have seen support decline over the past five years.

 Nonprofits are working to bring in new money; in the next 12 months:

  • 31% will change the main ways in which they raise and spend money.
  • 26% will pursue an earned income venture.
  • 20% will seek funding other than grants & contracts, such as loans or other investments.

“Today’s environment requires creative problem-solving and good communication with funders and partners,” said Robert Chávez, Chief Executive Officer of Urban Corps of San Diego County, which provides a high school education and green job training to young adults. “As a conservation corps, we have always relied on a fee-for-service program model to fund job training projects. Now, we are diversifying our services and exploring new income-generating partnerships in order to supplement at-risk funding, become fully self-sufficient, and ultimately better serve youth.”

41% of nonprofits named “achieving long-term financial stability” as a top challenge, yet:

  • More than half of nonprofits (55%) have 3 months or less cash-on-hand. 
  • 28% ended their 2013 fiscal year with a deficit.  
  • Only 9% can have an open dialogue with funders about developing reserves for operating needs, and only 6% about developing reserves for long-term facility needs.  

“The closer a system gets to failure, the harder it becomes to devote scarce resources toward building a better future,” said Bugg-Levine. “The nonprofit sector’s greatest asset is tenacious, creative, smart leaders who, despite significant challenges and with the right support, have the capacity to lead the United States into a new era of civic and social greatness.”

Nonprofits are taking wide-ranging steps to survive and succeed.
In the past 12 months:

  • 49% collaborated with another organization to improve or increase services.
  • 48% invested money or time in professional development.
  • 40% upgraded hardware or software to improve organizational efficiency.
  • 39% conducted long-term strategic or financial planning.

“Today, it’s clear that government funding and traditional philanthropy alone can’t cover the critical work of nonprofits addressing pressing challenges in our communities,” said Kerry Sullivan, president of the Bank of America Charitable Foundation. “Tools like the Nonprofit Finance Fund survey can help fuel discussion among nonprofits and the private sector about how new funding models and strategies can better support shared goals of stronger organizations and communities.”

For the first time, the annual survey delved into impact measurement, a core component of some emerging funding models such as pay-for-success:

  • Respondents said that more than 70% of their funders requested impact or program metrics.
  • 77% agreed that the metrics funders ask for are helpful in assessing impact.
  • Only 1% reported that funders always cover the costs of impact measurement; 71% said costs were rarely or never covered.

“The NFF survey results illustrate the ongoing risks of a frayed social safety net dealing with increasing demand,” said Hilary Pennington, vice president of the Ford Foundation’s program for Education, Creativity and Free Expression. “If we continue to expect nonprofits and their dedicated staff to meet society’s most critical needs at the most crucial times– we need to recommit as a society to strengthen the necessary supports to do just that.”

dkj
 

April 15, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Thursday, April 10, 2014

Michigan Radio: Are Tax-Exempt Properties Bleeding Cities Dry?

Last week we blogged on a report out of the University of Michigan regarding the impact of tax exempt property owners on city coffers.  Click here to listen to Michigan Public Radio discuss the report.  There is an accompanying article here.

 

dkj

April 10, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)