Nonprofit Law Prof Blog

Requiring Private Schools to Have More Diverse Boards

In prior posts, I have examined the problem of racial discrimination in private schools and how tax-exempt law might address this systemic problem.  Today, I wanted to explore race issues that are present in tax-exempt law more broadly.  Ideally, examining the issue from a broader perspective will produce creative ways of addressing racial discrimination in private schools.

A great primer on race issues and tax-exempt law is the 2004 article entitled Race and Equality Across the Law School Curriculum: The Law of Tax Exemption by David A. Brennen.  As Brennen observes, race bias in terms of tax-exempt law is focused on the justice or injustice in regard to blacks of the statutory requirements to gain and keep tax-exemption.  One of the main advantages of pursuing an activity through a tax-exempt organization is that such activity may be funded through public and governmental financial support, namely through tax expenditures.  In other words, tax-exempt organizations receive a financial subsidy or financial benefit from the government by virtue of their tax-exempt status.  Brennen asks a poignant question: “How should the government allow tax-exempt organizations to use this indirect, but admittedly financial government/public benefit?”  Accordingly, he next turns directly to an examination of the Bob Jones University public policy doctrine and its implications for racial preferences of tax-exempt charities. 

At the same time, Brennen raises at least two distinct issues aside from the public policy doctrine that are relevant to tax-exempt private schools.  First, he queries whether a charity (such as a private school) should be required to have a racially diverse board of directors if indeed it is to represent the broad community that it claims it serves.  This makes sense because one of the conditions for receiving tax-exempt status is to show that the organization will benefit the public broadly, rather than a group of pre-selected individuals.  Second, Brennen considers whether the prohibition on tax-exempt social clubs’ engaging in racial discrimination should be expanded or revised.   (As an aside, a third interesting point that Brennen raises is how restrictions on political activity might affect tax-exempt charities that have historically served as a meeting ground and voice for the black community, such as black churches).   One must conclude as Brennen does that it is important to examine how certain laws are affecting different racial groups with an eye to possible correction.   His solution of requiring board diversity in the context of tax-exempt private schools is one worth noting.

 

Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law, Tulane Law School

Study: Attendance Hemorrhaging at Small and Midsize US Congregations

An article in today's Religion News Service reports that the most recent round of the Faith Communities Today survey (FACT), found a median decline in worship attendance of 7% between 2015 and 2020. What is also quite interesting is that the survey period ended before the onset of the COVID-19 pandemic.

The new survey of 15,278 religious congregations across the United States confirms trends sociologists have documented for several decades: Congregational life across the country is shrinking.

According to RNS, 

The survey, fielded just before the coronavirus lockdown, finds that half of the country’s estimated 350,000 religious congregations had 65 or fewer people in attendance on any given weekend. That’s a drop of more than half from a median attendance level of 137 people in 2000, the first year the FACT survey gathered data.

Scott Thurman, director of the Hartford Institute for Religion Research and the survey’s author, had this to say: “The dramatically increasing number of congregations below 65 attendees with a continued rate of decline should be cause for concern among religious communities.”

Produced by the Hartford Institute for Religion Research, the FACT survey consists of self-reported questionnaires sent out to congregational leaders every five years since 2000 — mostly through 20 collaborating denominations and faith traditions. According to RNS, the most recent survey found that mainline Protestants suffered the greatest decline over the past five years (12.5%), with a median of 50 people attending worship in 2020. Evangelical congregations declined at a slower rate (5.4%) over the same five-year period and had a median attendance of 65 people at worship. Catholic and Orthodox Christian churches declined by 9%. The only groups to boost attendance over the past five years were non-Christian congregations: Muslim, Baha’i and Jewish. 

The survey found that half of the nation’s congregations were in the South, even though only 38% of the U.S. population lives there. It also suggested that small congregations in rural areas and small towns may be unsustainable. Nearly half of the country’s congregations are in rural areas (25%) or small towns (22%), while the 2020 census found that only 6% of Americans live in rural areas and 8% in small towns.

One bright spot in the study is this: Congregations are becoming more racially diverse. In 2000 only 12% of congregations were multiracial. In the latest survey, the figure climbed to 25%.

The survey defined multiracial congregations as those where 20% or more of participants are not part of the dominant racial group.

Many researchers are now investigating if racial diversity also equals integration in relationships — or if people are simply attending church together. Previous research has also found increased diversity is one-directional.

“It’s still in the direction of predominantly white churches becoming less predominantly white, said Chaves. “It’s very little in the other direction. There’s not a big increase in diversity in predominantly Black churches.”

Professor Vaughn E. James, Texas Tech University School of Law

 

Nonprofits Struggling to Meet Service and Organizational Demands During Pandemic

A special report published in yesterday's NonProfit Times revealed that more than half (53%) of nonprofits have had greater demand for their services during the COVID-19 pandemic, and one-third are experiencing higher operating costs. Indeed, four in 10 nonprofits have cut operating costs, and one-third have pared back programs or services. 

The Times' report cites to the 2021 Nonprofit Leadership Survey Report from Grassi Advisors & Accountants. According to the report, cutbacks hit smaller nonprofits harder than larger ones, with 48% of those having costs less than $5 million experiencing cutbacks, compared with 37% of those with expenses in the $5 to $25 million range and 36% with costs greater than $25 million.

Nonprofits have explored a variety of cost-cutting and revenue-supplementing activities. Slightly fewer than one-quarter (23%) have renegotiated leases and other contractual financial obligations. Some 7% have terminated automatic payments and 15% have increased their draws on their endowments. And, 5% merged with another nonprofit during the past year.

Human capital is also being affected. Nearly one-third of nonprofits had layoffs and furloughs, while 12% reduced employee benefits. Two in 10 are operating under a hiring freeze.

Nonprofits are experiencing great difficulty in locating volunteers to make up for their lost employee time. According to the report, 22% report challenges recruiting and managing volunteers. Given COVID concerns, this is not surprising. More than two-thirds (68%) of nonprofits have at least some staff that work in close physical contact with the populations they serve. Officials at nearly that many (63%) said the outbreaks had been at least somewhat of a problem for them.

In more bad news, notwithstanding their cost cutbacks, nonprofits are not on steady financial footing: A mere 2% report having at least 12 months of liquidity, with officials at roughly one-third indicating they have fewer than three months, between four and six months or between seven and twelve months of liquidity.

The Times continues:

[W]hile fewer than half (47%) report drops in funding, that level is likely due to Paycheck Protection Program loans and other federal relief programs. Another quarter said their funding had remained steady, while only 26% reported funding increases.

Working capital lines of credit offer only finite hope for nonprofits. Overall, 63% have access to this resource while one-third do not. And of those with this resource, 27% have availed themselves of it during the past 12 months.

Nonprofits aren’t being static in the face of COVID-related challenges. More than seven in 10 (71%) implemented new technologies during the past year, although many of these likely were in support of remote or home-based staff. Another 42% created new programs and services, while 36% launched new collaborations with other organizations.

Nonprofit managers also used the pandemic as a time for organizational self-reflection: 22% began to target and serve new client populations, 22% renewed their mission statements and 12% changed their mission.

Looking to the future, The Times -- and the report from Grassi Advisors & Accountants -- opine that to be successful, nonprofits will need

Funding, funding, funding. While 60% said their top priority was attracting [and] retaining qualified people, the next three priorities bunched revenue concerns, with 56% seeking improved fundraising, 55% indicating a pressing need for more funding for overhead costs, and 54% citing the need to stabilized revenue and cash flow.

For many, however, the future will look different. Currently 43% are considering working collaborations with other organizations to deliver their services, and 21% are mulling a merger. Two percent say closure is a possibility, and barely over half – 54% – indicated none of these options are on the table.

Things certainly look different for the future.

Prof. Vaughn E. James, Texas Tech University School of Law

 

  

 

 

New Paper: Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving

A new paper entitled Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving by Anil Arya, Tyler Atanasov, Brian Mittendorf, and Dae Hee Yoon looks at benefits enhanced inventory charitable giving incentives provides to firms. Bottom line: enhanced deductions for donating inventory ensure corporate giving is about much more than publicity and can help facilitate more economic efficiency, for consumers & charities alike.

The Abstract reads as follows: "Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather a result of the tax code creating such a preference due to an “enhanced” deduction for inventory donations. In this paper, we utilize a parsimonious model of inventory choice under uncertainty to demonstrate that enhanced tax deductions not only promote giving, they also promote better learning of consumer demand for products in the retail market. An inventory stockout curtails a firm’s learning of precise consumer demand since the firm’s sales volume only reveals that the underlying consumer demand exceeded the inventory level. Tax incentives for donations of excess inventory encourage a firm to boost its inventory stocks which, in turn, boosts the firm’s learning of consumer preferences. Accounting for this informational role of tax incentives, the paper derives charitable giving patterns, socially-beneficial tax policy, and firms’ information acquisition choices."

Philip Hackney

WBEZ and the Chicago Sun-Times

WBEZ, Chicago's NPR station, is reporting that its board of directors approved a "non-binding letter of intent" to pursue the acquisition of the Chicago Sun-Times, one of two large legacy newspapers in Chicago.

The Sun-Times has, like many newspapers, been facing financial difficulties over the last couple decades. It filed for bankruptcy about a dozen years and has changed hands a few times since then.

As best I can tell from the article, the Sun-Times would continue as an independent organization, but would join WBEZ as a nonprofit, tax-exempt organization.

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Varsity Blues On Trial

In keeping with yesterday's discussion of college athletics, yesterday, an article about William Singer and the Varsity Blues admission scandal came up in my Twitter feed yesterday. And, while I haven't really thought about Singer in a year or two, it's worth revisiting a little.

The news hook is that the prosecution rested its case against Gamal Abdelaziz, who is accused of paying $300,000 to get his daughter into USC as an alleged basketball player, and John Wilson, who paid a total of $1.2 million to get his three kids into USC, Stanford, and Harvard as athletes. These are the first two parents to go to trial, though 33 of the 40 parents charged have pleaded guilty.

The news from yesterday has two main takeaways. First, a forensic accountant testified that Singer personally made nearly $28 million in the scheme.

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Student-Athlete? Or Employee?

In a memorandum issued today, Jennifer A. Abruzzo, General Counsel for the National Labor Relations Board, reinstated the NLRB's 2017 determination that some college athletes are employees and, as such, have certain statutory rights under the National Labor Relations Act.

Not all college athletes are employees, but Abruzzo clarified that to the extent they perform services for a university and operate under the control of the university, and especially if they receive compensation, they qualify as employees. As employees, they're protected when they speak out about their conditions of employment and have the right to self-organize, whether or not the Board certifies a bargaining unit.

Moreover, the NLRB may pursue violations where a university misclassifies an employee-athlete as a "student-athlete, which, she says, risks chilling their protected speech.

The memorandum ends with this:

In sum, it is my position that the scholarship football players at issue in Northwestern University, and similarly situated Players at Academic Institutions, are employees under the Act. I fully expect that this memo will notify the public, especially Players at Academic Institutions, colleges and universities, athletic conferences, and the NCAA, that I will be taking that legal position in future investigations and litigation under the Act. In addition, it notifies them that I will also consider pursuing a misclassification violation.

Samuel D. Brunson

Photo by Dave Adamson on Unsplash

James Huntsman and the Return of Charitable Contributions

A couple weeks ago, a California federal judge dismissed a lawsuit filed by James Huntsman against the Church of Jesus Christ of Latter-day Saints. The suit got a reasonable amount of attention in my (Mormon, legal) circles, and seems to have gotten a fair amount of play in Utah, for two reasons. One is that it involved the Mormon church and a mall (more on that in a minute). The second was, it involved James Huntsman, brother of former (among other things) Utah governor Jon Huntsman and part of the prominent-within-the-Mormon-church Huntsman family.[fn1]

And what was his suit? In short, Huntsman was suing for the return of a couple decades' worth of tithing he had paid into the church.

As we all know, unless you make a restricted gift to a charity, the general rule is that once you make a charitable contribution, the money is out of your hands. If you don't like what the charity does with the money, you take your charitable deduction and you stop donating to that charity going forward. But you can't get your unrestricted donations back. (And in case it doesn't go without saying, tithing payments are unrestricted gifts.)

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The (Inflated) DAF Payout Rate

Donor-advised funds are a kind of weird hybrid between private foundations and public charities. As with private foundations, itemizing donors get an immediate deduction for donations even if that money doesn't go to an operating charity immediately. Donors don't have legal control over how their donations are distributed, but they have effective control.

Because of the way DAFs are structured, though, they're treated as public charities for tax purposes. That means, among other things, that donors can take advantage of the higher deduction limits applicable to public charities. It also means that DAFs don't face the 5-percent distribution requirement that applies to private foundations.

DAFs argue that a distribution requirement would be superfluous. After all, they say, aggregate DAF payouts exceed 20% of DAF assets. So what good, they ask, would a 5-percent payout requirement do?

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Supreme Court of Hawaii upholds Subpoenas to Environmental Advocacy Nonprofit

Hawaii Supreme Court: "KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status" under the public policy exception.

Interesting, but very problematic, decision out of the Supreme Court of Hawai'i largely upholding the Attorney General's subpoena of bank records from a charity. KAHEA: The Hawai‘ian Environmental Alliance, "advocate[s] for the proper stewardship of our resources and for social responsibility by promoting cultural understanding and environmental justice." KAHEA created the "Aloha ‘Āina Support Fund" which “prioritizes frontline logistical support for non-violent direct actions taken to protect Mauna Kea from further industrial development.” After around 30 protesters apparently affiliated in some way with KAHEA (the court doesn't discuss except to emphasize that the Fund paid for bail for some of the protesters) blocked a road to a construction site, the Attorney General issued sweeping subpoenas of bank records from the organization. The Court suggests that AG's true motive seems to be dislike for KAHEA's advocacy agenda. KAHEA was able to get the scope of the subpoenas narrowed at both the trial level and in the Supreme Court on the grounds that they were unreasonable, but Court upheld the demand for information about how expenditures made by the Aloha ‘Āina Support Fund.

The Supreme Court' rejects KAHEA's claim that the subpoena was improperly retaliatory for KAHEA's advocacy activities. The Court seems to agree that a subpoena is an adverse action that triggers First Amendment:

KAHEA's opposition to development on Mauna Kea falls squarely within the heartland of the First Amendment's protections. We also agree with KAHEA that the prospect of an administrative subpoena seeking extensive banking records is an adverse action that would chill a person of ordinary firmness from exercising First Amendment rights.

But, the Court concludes, the AG's subpoena is okay because "The State AG's investigation is premised on the notion that KAHEA's financial support for direct action opposing development on Mauna Kea may disqualify it from 501(c)(3) status."

The Court explains:

The State AG's investigation is premised on the notion that KAHEA's financial support for direct action opposing development on Mauna Kea may disqualify it from 501(c)(3) status. Nothing about this premise contradicts or runs counter to First Amendment principles.The federal tax exemption for charitable organizations is effectively a taxpayer-funded subsidy for organizations that serve some public benefit. As the Supreme Court explained in Bob Jones Univ. v. United States, 461 U.S. 574 (1983):

When the Government grants exemptions or allows deductions all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect and vicarious “donors.” Charitable exemptions are justified on the basis that the exempt entity confers a public benefit ....

Id. at 591. One corollary of the “public benefit principle” is that to qualify for the exemption, an organization must have a charitable purpose “ ‘consistent with local laws and public policy’.”

The State AG's characterization of its investigation as probing whether KAHEA has “an illegal purpose” is thus misleading because its use of the word “illegal” suggests as a necessary premise some unlawfulness on KAHEA's part. To the contrary, KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status.

The State AG has represented that it is not investigating whether KAHEA has done anything illegal; it is investigating whether KAHEA serves a public benefit such that all U.S. taxpayers – a group that may include supporters of development on Mauna Kea – ought to be KAHEA's “vicarious donors.” KAHEA could have an “illegal purpose” without having done anything illegal. As such – and given IRS Revenue Ruling 75-384 and the record here – the notion that KAHEA's support for “direct action” on Mauna Kea might impact its eligibility for § 501(c)(3) status is not so unsound that it betrays retaliatory animus.

 

 

The Court's reasoning makes quite a few missteps, but I want to focus on its view that KAHEA has federal tax exempt status, "all U.S. taxpayers – a group that may include supporters of development on Mauna Kea – [are] KAHEA's 'vicarious donors,'" which in turn gives the state AG latitude to investigate whether its advocacy is actually serving the public. (I'm setting aside the question whether federal tax-exemption is a valid basis for the state to exercise investigative authority.)

 

This is potentially very dangerous. The Court comes close to suggesting that the AG is empowered to assess whether KAHEA's advocacy goals serve the public benefit (which, as the Court notes, is likely the true motive behind the case). While this type of viewpoint discrimination is allowed in other nations (denying Greenpeace charitable status because its advocacy for the environment, if successful, would harm industry and thus not benefit the public), that isn't the American approach. I'll give the Court the benefit of the doubt and assume that isn't what it is saying. A more reasonable, but still problematic, interpretation of the Court's reasoning is that the AG is allowed to question the organization's methods of advocacy: the support of Direct Action. (There was no claim that KAHEA ran afoul of federal rules on lobbying and political activities). This too is flawed.

 

While an organization that engages in or plans significant illegal activities may lose its exempt status, the state AG assured the court that "it is not investigating whether KAHEA has done anything illegal." The Court concludes that "KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status." How? The Court primarily relies on an IRS revenue ruling from 1975 that denied tax-exemption to an Antiwar Protest Organization "whose primary activity is the sponsoring of antiwar protest demonstrations in which demonstrators are urged to commit violations of local ordinances and breaches of public order." That is nothing like KAHEA. Unlike the organization denied exempt status, KAHEA's primary purpose is not to sponsor or organize criminal acts. Even the AG conceded that KAHEA wasn't responsible for any violations of criminal law. Instead, the connection between the KAHEA and the protesters seems to rest on the Fund's payment for attorney representation and bail for people charged with a crime -- hardly a basis to call into question KAHEA's tax-exempt status, the supposed rationale for the subpoena. The debate over the scope of the public policy exception remains active, and the Hawaii Supreme Court's muddled reasoning doesn't do much to advance the ball.

 

On the bright side, the Hawai'i Supreme Court seems willing to scrutinize AG subpoenas of nonprofits when First Amendment values are at stake. But the decision rests on shaky legal grounds, and could be read to give Attorneys General problematic license to use the subpoena power to chill nonprofits' organizing and protest efforts.

 

@JosephWMead

jeopardize

In re KAHEA, No. SCAP-20-0000110, 2021 WL 4271347, at *9 (Haw. Sept. 21, 2021)

Religious Organizations Prepare for 'Potential Onslaught' of Evictions

Writing for today's edition of Religion News Service (RNS) news, Kathryn Post states that the Supreme Court’s August 26 decision to end the federal eviction moratorium brings new challenges for religious leaders and organizations working to aid those at risk for homelessness. Post cites to recent data from the U.S. Census Bureau indicating that more than 3.6 million Americans say they could face eviction in the next two months.

This startling statistic has brought the following response from Sarah Abramson, vice president of strategy and impact at Combined Jewish Philanthropies in Boston: "We’re very, very nervous. There is already a tremendous housing shortage in Boston. And we know from our data, and from the experience of our partners who do this work, just how difficult it was for somebody who has been evicted in the past to get housing.”

Jerrel T. Gilliam, executive director of Light of Life Rescue Mission in Pittsburgh, also shared concerns: “We are going to need to be very creative, and to think outside the box in order to prepare for what could be a potential onslaught of people needing assistance in a short amount of time.” 

In its August 26 decision, the Court ruled that the Centers for Disease Control and Prevention lacked the authority to establish a federal eviction moratorium. According to the Court, such a moratorium requires congressional approval. The decision comes as renters and landlords face a backlog of promised funds. According to Census Bureau data, the government has thus far distributed only about $5.1 billion of the $46.5 billion in federal rental assistance funds intended to prevent eviction.

“We definitely have to work hard to make sure that money reaches people,” said Shams DaBaron, a New York activist who also goes by “Da Homeless Hero.” “We have to cover both sides: these small landlords that need it, and those who are extremely poor.”

DaBaron is currently living in an apartment with the support of a voucher program, but he says the city is behind on three months of rent. An eviction moratorium is one measure that can help buy more time while such funds face bureaucratic delays.

DaBaron gained national attention as unofficial spokesperson for the residents of the Lucerne, a hotel-turned-shelter during the pandemic in Manhattan’s Upper West Side that became the center of New York’s “homeless hotel” debate. When he was not advocating for his fellow residents, DaBaron partnered with local group Open Hearts to develop a program called Soulful Walk and Talks. The program provided hotel shelter residents the opportunity to walk to the nearby Riverside Park with local faith leaders from a range of religious traditions who provided a safe space for spiritual reflection.

“We didn’t want to make it a religious thing, but we understand the value of spirit, of soul, of that deep essence within everybody,” said DaBaron. “One of the things that came out of it, from talking to many of the faith leaders, is that many of them were transformed, just as many of us were transformed.”

“It was definitely very impactful,” said Rabbi Lauren Herrmann of the Society for the Advancement of Judaism, who joined in the Walk and Talks and organized other clergy participants. “For one thing, I really understood for the first time in my life the issues surrounding the shelter system, and why people choose to be on the streets instead of being in shelters. … The shelter system is deeply broken, and some of the stories I heard were deeply upsetting.”

Herrmann and DaBaron see the Soulful Walk and Talks as tending to the essential spiritual needs of those facing homelessness. They hope to continue and expand the program as the federal eviction moratorium lifts. Yet, DaBaron and Herrmann also pointed to structural changes that need to take place. New York state implemented a new eviction moratorium on Sept. 1 that extends until January 2022. However, the moratorium does not address the city’s lack of affordable housing, the income cliffs that foster dependence on government programs and the health and safety risks facing those in congregate shelters, where many former Lucerne residents are finding themselves since the hotel shelter closed this summer.

In Pittsburgh, Light of Life Rescue Mission takes a multifaceted approach to homelessness by providing a range of services including case management, education, unemployment services and accommodations for those facing housing insecurity.

Gilliam, the Christian organization’s executive director, is concerned the end of the eviction moratorium will mean a sudden, sharp increase in the number of residents facing evictions. At one point during the pandemic, evictions in Pittsburgh slowed to a complete halt — in a typical year, according to Gilliam, Pittsburgh sees 14,000 evictions.

Gilliam suggested implementing preventive measures that would allow landlords to receive rent payments while enabling those at risk for evictions to find suitable housing.

“We’re pleading with everyone,” said Gilliam. “Let’s try to get people help while they’re still in the home and help the landlord have another month or two of rent, so that we can find a place for them without them having to pass through homelessness to get assistance.”

The pandemic has not been as kind to all religious organizations working to serve those facing housing insecurity. Chaplain Asma Inge-Hanif, founder and executive director of Muslimat Al Nisaa, has been serving the Baltimore community for 30 years. The organization provides health, education and social services to all, regardless of their ability to pay, and its Home Shelter is especially designed to meet the needs of Muslim women. She says her organization has served thousands of people over the years.

In the last year and a half, Inge-Hanif almost died from COVID-19 and lost her organization’s signature location. “I couldn’t pay the rent anymore, even though they claim there was an eviction moratorium,” she said. Now, Inge-Hanif is working to keep the shelter open on a small scale so she can help meet housing needs, especially those of people arriving from Afghanistan.

“I’m getting so many requests all the time from people who are getting evicted,” she said. “It’s often people who have no status and people of color. Everyday I get seven to 10 requests for shelter and housing. And I can’t help them.”

As the federal eviction moratorium ends, Inge-Hanif is hoping to raise money for an apartment building so she can house more people. She also says governments need to make rental assistance and other services more accessible.

“That’s why people are being evicted. They can’t get through the paperwork,” said Inge-Hanif. “The people who need the help are not in a position to maneuver through all the red tape. … The way the system is set up prevents the people who are most in need from actualizing success and being self-sufficient.”

That, indeed, appears to be the sad truth.

Prof. Vaughn E. James, Texas Tech University School of Law

IRS to No Longer Issue Letter Rulings on Certain Activities of Private Foundations

In Revenue Procedure 2021-40, 2021-38, IRB (due for publication on September 20, 2021), the Internal Revenue Service is set to announce that it will no longer issue letter rulings on whether certain transactions are self-dealing within the meaning of section 4941(d) of the Internal Revenue Code.  In making the announcement in a recent Guidewire release, the Service stated that specifically, it "will not issue rulings on whether an act of self-dealing occurs when a private foundation (or other entity subject to section 4941) owns or receives an interest in a limited liability company or other entity that owns a promissory note issued by a disqualified person." This approach amplifies Rev. Proc. 2021-3, 2021-1 IRB 140, which sets forth areas of the Internal Revenue Code relating to issues on which the Internal Revenue Service will not issue letter rulings or determination letters.

Prof. Vaughn E. James, Texas Tech University School of Law 

 

Adediran: Disclosures for Equity

Atinuke O. Adediran (Fordham) has posted Disclosures for Equity on SSRN (122 Columbia Law Review forthcoming 2022): Here is the abstract:

While one might expect that the nonprofit sector is an equitable space where generosity and social justice are the norms, the sector suffers from funding inequalities. Despite corporations’ and private foundations’ pledges to fund nonprofit organizations that are led by members of, or that serve, communities of color, there are racial disparities in nonprofit funding. Research reveals that in comparison to White-led nonprofit organizations, organizations led by or serving communities of color are chronically underfunded. These disparities in funding mean that organizations that serve communities of color are more likely to go defunct or lack resources. Increased funding for minority-led or serving organizations can have a profound positive impact on the criminal justice system, healthcare, environmental justice, housing, labor, and employment. Indeed, it would be difficult to fight mass incarceration without the work of nonprofit charities like Bryan Stevenson’s preeminent organization, Equal Justice Initiative.

This Article proposes two novel remedies to address this issue. The first is for charities to publicly disclose their institutional donors in Schedule B of Internal Revenue Service (“IRS”) Form 990. The second is for IRS Form 990 to include information on the race and ethnicity of top managers, directors, and the communities an organization serves. Mandating these disclosures would allow the public to assess whether pledges to support racial justice come with funding rather than empty promises. While the Supreme Court’s recent case, Americans for Prosperity Foundation v. Bonta (“AFPF”) struck down California’s donor disclosure requirements, this Article makes an important distinction between individual and institutional donors that the AFPF case ignores. As the disclosures would only apply to institutional donors and would include an opt out provision for controversial organizations, they would protect the right to freedom of association while promoting transparency in nonprofit funding and racial justice. By using mandatory disclosures to address racial inequities in not-for-profit law, the nonprofit sector might finally contend with persistent racial disparities in funding that leave communities of color underserved.

The article is particularly timely given a recent Washington Post analysis (Corporate America's $50 billion promise) that raises questions about corporate support for efforts to address racial inequality, noting that "more than 90 percent of that amount — $45.2 billion — is allocated as loans or investments they could stand to profit from, more than half in the form of mortgages" and that only about $70 million "went to organizations focused specifically on criminal justice reform."

Lloyd Mayer

Aronsson, Johansson-Stenman & Wendner: Charity, Status, and Optimal Taxation

Thomas Aronsson (University of Umea), Olof Johansson-Stenman (University of Gothenburg), and Ronald Wender (University of Graz) have posted Charity, Status, and Optimal Taxation: Welfarist and Non-Welfarist Approaches on SSRN. Here is the abstract:

This paper analyzes optimal taxation of charitable giving to a public good in a Mirrleesian framework with social comparisons. Leisure separability together with zero transaction costs of giving imply that charitable giving should be subsidized to such an extent that governmental contributions are completely crowded out, regardless of whether the government acknowledges warm glows of giving. Stronger concerns for relative charitable giving and larger transaction costs support lower marginal subsidies, whereas relative consumption concerns work in the other direction. A dual screening approach, where charitable giving constitutes an indicator of wealth, is also presents. Numerical simulations supplement the theoretical results.

Lloyd Mayer

Avci, Schipani, Seyhun & Verstein: Insider Giving

Sureyya Burcu Avci (Sabanci University), Cindy A. Schipani (University of Michigan), H. Nejat Seyhun (University of Michigan), and Andrew Verstein (UCLA) have posted Insider Giving on SSRN (71 Duke Law Journal forthcoming 2021). Here is hte abstract:

Corporate insiders can avoid losses if they dispose of their stock while in possession of material, non-public information. One means of disposal, selling the stock, is illegal and subject to prompt mandatory reporting. A second strategy is almost as effective and it faces lax reporting requirements and enforcement. That second method is to donate the stock to a charity and take a charitable tax deduction at the inflated stock price. “Insider giving” is a potent substitute for insider trading. We show that insider giving is far more widespread than previously believed. In particular, we show that it is not limited to officers and directors. Large investors appear to regularly receive material non-public information and use it to avoid losses. Using a vast dataset of essentially all transactions in public company stock since 1986, we find consistent and economically significant evidence that these shareholders’ impeccable timing likely reflects information leakage. We also document substantial evidence of backdating – investors falsifying the date of their gift to capture a larger tax break. We show why lax reporting and enforcement encourage insider giving, explain why insider giving represents a policy failure, and highlight the theoretical implications of these findings to broader corporate, securities, and tax debates.

Lloyd Mayer

Global Policy Special Issue: Restricting NGOs: From Pushback to Accommodation

Global Policy has published a special issue focusing on government restrictions on civil society groups. Here is the description and table of contents:

Since the mid-2000s, scholars, policy makers, and activists have been sounding alarm bells over the growing tendency of governments around the globe to restrict the ability of civil society groups to form, operate, advocate for particular causes, receive and use resources, and network with other actors. The contributions in this special issue examine how particular types of civil society organizations are impacted by this clampdown, how restrictions can change the balance between civil society actors with rival ideological perspectives, how restrictions can enable the rise of new civil society actors attacking existing CSOs, and how restrictions can shape popular attitudes and donor funds. Importantly, the contributions in this issue also shed light on how organizations attempt to push back against restrictive states.

Special Issue Article: Introduction

Restricting NGOs: From Pushback to Accommodation - Kendra Dupuy, Luc Fransen and Aseem Prakash

Special Issue Articles

Tempering Transnational Advocacy? The Effect of Repression and Regulatory Restriction on Transnational NGO Collaborations - Luc Fransen, Kendra Dupuy, Marja Hinfelaar, Sultan Mohammed and Zakaria Mazumder

The Selective Closure of Civic Space - Conny Roggeband and Andrea Krizsán

The Enemy Within? Anti-Rights Groups and Restrictions on Civil Society - Ines M. Pousadela and Dominic R. Perera

Who Cares about Crackdowns? Exploring the Role of Trust in Individual Philanthropy - Suparna Chaudhry, Marc Dotson and Andrew Heiss

The Implications of Closing Civic Space for Hunger and Poverty in the Global South - Naomi Hossain and Marjoke Oosterom

A Platform or Partner: Engaging the Media in Advocacy - Lisa-Marie Selvik

Defending Civic Space: Successful Resistance Against NGO Laws in Kenya and Kyrgyzstan - Nora Berger-Kern, Fabian Hetz, Rebecca Wagner and Jonas Wolff

Don’t Touch My Constitution! Civil Society Resistance to Democratic Backsliding in Africa´s Pluralist Regimes - Lise Rakner

Refraining or Resisting: Responses of Green Movement Supporters to Repression During the 2013 Iranian Presidential Elections - Ali Honari and Jasper Muis

Lloyd Mayer

Cryptocurrency and Nonprofits

Peter Howson (Northumbria University, UK) has published Crypto-giving and surveillance philanthropy: Exploring the trade-offs in blockchain innovation for nonprofits in Nonprofit Management and Leadership. Here is the abstract:

A blockchain is a smart electronic database, distributed to all users, immutably tracking every transaction that has ever taken place between nodes on a network. The technology is being used by some nonprofits to address various operational challenges, including attaching automated conditions to charitable donations facilitated by programmable “crypto-giving” platforms. Drawing from analysis of technical documents provided by active crypto-giving projects, this review considers how these platforms enable radical shifts in sectoral power relations through “surveillance philanthropy”. This algorithmic surveillance ensures project funding fully reflects the interests of donors, while potentially restricting nonprofits in meeting the dynamic and complex needs of project beneficiaries. The paper considers the benefit trade-offs from crypto-giving platforms in three areas of utilization: (a) new forms of donor engagement and fundraising, (b) new tools for organizational governance, and (c) novel provision of development assistance. Despite the possible efficiency and transparency benefits of crypto-giving platforms, more research and practitioner engagement is required to ensure the sector's funding is secure and sustainable, without entailing significant risks for proposed beneficiaries.

For additional coverage of cryptocurrency and nonprofit issues, see Philip Hackney & Brian Mittendorf, Charities are taking digital money — but there are risks (Salon), Crypto, Meet Donor-Advised Funds: a New Way of Giving (The Chronicle of Philanthropy), Nonprofits Get a New Type of Donation: Cryptocurrency (N.Y. Times).  

Lloyd Mayer

Huber, Pittavino & Peter, Tax Incentives for Charitable Giving: Evidence from the Canton of Geneva

Giedre Lideikyte Huber, Marta Pittavino, and Henry Peter (all from the University of Geneva) have posted Tax Incentives for Charitable Giving: Evidence from the Canton of Geneva on SSRN (to be published in the Routledge Handbook of Taxation and Philanthropy). Here is the abstract:

This contribution presents the legal framework of income tax incentives for charitable giving in Switzerland and describes the reform putting this system in place in 2006. Using a unique data set shared by the Tax Administration of the Canton of Geneva for this purpose, we provide descriptive statistics about taxpayers’ charitable giving behaviour in Geneva from 2001 to 2011. In this period, the number of taxpayers deducting charitable contributions significantly increased. In contrast, the size of individual annual deductions (both mean and median) decreases. The data show that the amount of tax deductions for charitable giving sharply increases relative to income class, and the median charitable deduction by taxpayer rises exponentially with income (i.e. years 2001 and 2011). Currently, no clear effects of the 2006 tax reform are visible; however, more in-depth studies are needed in this respect.

Lloyd Mayer

Pew Research Center, Pastors Often Discussed Election, Pandemic, and Racism in Fall of 2020

Over the summer the Pew Research Center released an analysis of sermons during the run-up to the 2020 election. Its conclusions included:

• "[A]mong churches that posted their sermons, homilies or worship services online between Aug. 31 and Nov. 8, 2020, two-thirds posted at least one message from the pulpit mentioning the election." 

• There were significant variations between major Christian groups (Catholic, mainline Protestant, historically Black Protestant, and evangelical Protestant), including with respect to language used and the proportion of sermons that discussed specific issues, parties, or candidates.

• "[R]elatively few pastors openly stumped for particular candidates or parties," although some sermons clearly favored either Republicans or Democrats.

Hattip: EO Tax Journal

Lloyd Mayer

Donors Battle GFA World (formerly Gospel for Asia) in Toronto Courtroom

MinistryWatch, a watchdog organization focusing on religious nonprofits, recently reported on the continuing legal dispute between former donors and GFA World (formally Gospel for Asia). The most recent developments may have been missed by U.S. nonprofit observers because they are happening in a Toronto courtroom, unlike an earlier class action suit against the organization that was brought in Arkansas and settled in 2019. 

According to the report, the Canadian lawsuit alleges that GFA World misused more than $100 million in donations. The allegations are based in part on asserted discrepancies between documents filed by GFA World, specifically Canadian tax forms reporting millions of dollars going to India and Indian forms showing no transfers from Canada to India. The donors bringing the suit are seeking class action status. GFA World has denied any wrongdoing.

Lloyd Mayer