Wednesday, November 27, 2019
Loyola Law School (Los Angeles) will be hosting the 23rd Annual Western Conference on Tax-Exempt Organizations on December 5-6. Attendees will be able "to choose from more than 12 sessions on tax developments of critical importance to charities and other nonprofit organizations," with panelists including "officials from the U.S. Department of the Treasury and the IRS, plus a variety of prominent West Coast tax lawyers," and Professor and WCTEO founder Ellen Aprill.
In a significant set back for a former for-profit university, the U.S. Department of Education has decided that Grand Canyon University is not a nonprofit for the purposes of Title IV funding even though it has been recognized by the IRS as tax-exempt under Internal Revenue Code section 501(c)(3). The University had also (eventually) secured approval from its accreditor for the terms of its conversion from for-profit to nonprofit status, even given a continuing and extensive financial relationship with a for-profit company. The Department of Education found that relationship to be particularly troubling, concluding that the primary purpose of the relationship "was to drive shareholder value" for the for-profit "with GCU as its captive client - potentially in perpetuity." The University has responded with a detailed statement and a lengthy letter, signaling it plans to aggressively fight this adverse decision.
The past couple of months have been a busy time for reports, articles, and litigation relating to charitable contributions.
With respect to reports, three studies highlighted trends in charitable giving. The CAF World Giving Index 2019 reported that levels of individual giving in the world's wealthiest countries - particularly the United States, Canada, Ireland, the Netherlands, and the United Kingdom - have declined over the past ten years since the 2008 financial crisis. In the United States, the Center for Effective Philanthropy reports that declining support from small- and medium-gift givers means that charities that rely on the $428 billion (in 2018) in donations from individual donors are increasingly dependent on major donors. Finally, the National Philanthropic Trust reports that in 2018 grants from donor-advised funds totaled $23.42 billion, or roughly 5 percent of all individual giving, with $37.12 billion flowing into DAFs. (Hat tip for all three of these reports to the Philanthropic News Digest.)
With respect to articles, the Urban Institute/Brookings Institution Tax Policy Institute published a chartbook on Tax Incentives for Charitable Contributions that "explores the implications of current-law income tax incentives for charitable donations along with several alternatives for tax deductions that are more universally available." And Eric A. Kades (William & Mary Law School; pictured here) posted The Charitable Continuum, which argues that "[g]ranting a 100% deduction only for donations to the desperately poor, along with 50%, 25%, and 0% for gifts yielding progressively fewer efficiency, fairness, pluralism, and institutional competence benefits promises to deliver a socially more desirable charitable deduction."
With respect to litigation, taxpayers continue to fight (and generally lose) substantial charitable contribution deduction cases. In Presley v. Commissioner, the U.S. Court of Appeals for the 10th Circuit affirmed the Tax Court's denial of over $300,000 in claimed charitable contribution deductions based on several failures, including trying to deduct land improvement expenses in one tax year that were actually incurred in a different tax year, failure to separately list a donated mower as required on Form 8283, and failure to obtain a qualified appraisal for a donated house. In Coal Property Holdings, LLC v. Commissioner, the Tax Court denied a claimed $155.5 million conservation easement deduction on the grounds that the conservation purpose was not protecting in perpetuity, as required by statute, because the complicated transaction that created the easement meant "the charitable grantee was not absolutely entitled to a proportionate share of the proceeds in the event the property was sold following a judicial extinguishment of the easement." Finally, another conservation easement Tax Court case currently on appeal to the 11th Circuit (Pine Mountain Preserve, LLLP v. Commissioner) has attracted interest in the form of an amicus brief filed by a number of prominent academics and practitioners (including contributors to this blog Roger Colinvaux and Nancy A. McLaughlin (pictured)), as reported by Tax Analysts and Law360 (both of which require subscriptions). For the most recent summary of the many conservation easement cases, see Trying Times: Conservation Easements and Federal Tax Law (October 2019), by Nancy A. McLaughlin (Utah). The IRS also recently announced that it is increasing its enforcement actions relating to syndicated conservation easement transactions.
A federal district court struck down as unconstitutional a New York state ethics law that would have required the disclosure of donors to section 501(c)(3)s that contributed more than $2,500 to a 501(c)(4) that engages in lobbying and $1,000 or more donors to section 501(c)(4)s that spent more than $10,000 on grassroots lobbying. The law had been on hold during the three years the litigation was pending. Numerous nonprofit groups challenged the law, including Americans for Prosperity, Citizens Union (joined by its affiliated foundation), Citizens United, Lawyers Alliance for New York (joined by the Nonprofit Coordinating Committee of New York), and the New York Civil Liberties Union (joined by its affiliated foundation and the ACLU Foundation),. Coverage: Law.com; National Law Review; Times Union.
In other litigation news, a federal district court dismissed the lawsuit brought by Nonbelief Relief and supported by the Freedom from Religious Foundation challenging the exemption that churches enjoy from having to file the annual Form 990 series information return with the IRS. The grounds for the dismissal are not yet available, however, nor has the time begun to run on filing an appeal, as the court has yet to issue its final order or a memorandum opinion explaining its reasoning.
A previous post described the announcement by the now nonprofit Salt Lake Tribune that it had been formally recognized by the IRS as tax-exempt under Internal Revenue Code section 501(c)(3). Now at least two other news publications have announced plans to take the same path. The Chicago Reader, an alternative weekly paper founded in 1971, announced that it will be moving to a nonprofit model in 2020 (hat tip: Nonprofit Quarterly). And Fauquier Now reported that the weekly Fauquier Times will essentially be given to the section 501(c)(3) Piedmont Journalism Foundation, along with several other publications and their related websites.
Previous posts in this space discussed the fallout from Richard Epstein's donations. But just over the past week there have been a flurry of other stories relating to both donors and donees.
At MIT, which was also caught up in the Epstein furor, the Boston Globe reports that the decision to name an auditorium after donor and energy company Shell has led to a backlash from both students and environmental activists. At the University of Pennsylvania, a plan to rename the law school to honor the $125 million gift from the W.P. Carey Foundation led to objections from alumni and students, Above the Law reports (hat tip: Nonprofit Quarterly; additional coverage: Law.com). In response, the dean announced that the law school will keep its short-form name as "Penn Law" until 2022, when it will change to "Penn Carey Law."
On the donee side, there were also several stories. Chick-Fil-A announced it would end contributions from its foundation to groups that have been criticized as anti-LGTBQ, instead limiting its 2020 donations to Covenant House International, Junior Achievement of America, and certain community food banks. This change triggered a backlash from conservatives, who issued a letter urging the company to continue its donations to The Salvation Army and the Fellowship of Christian Athletes.
Finally, two sponsors of donor-advised funds or DAFs have come under fire for recipients of their donations. Sludge reports that Fidelity Investments Charitable Gift Fund, the nation's largest charitable grantmaker (over $5 billion in 2018), in recent years distributed tens of thousands of dollars to the New Century Foundation, which is commonly described as a white supremacist group (hat tip: EO Tax Journal). On a more local level, the Charlotte Observer reports that the Foundation for the Carolinas (the sixth-largest community foundation in the United States, with $2.6 billion in assets) gave millions of dollars to prominent anti-immigration groups over the past ten years (hat tip: Nonprofit Quarterly; additional coverage: Charlotte Agenda). In both instances, the DAF sponsors appear to have only considered whether the recipients were recognized as charities by the IRS (under Internal Revenue Code section 501(c)(3)), which they are, and the Carolinas group explicitly said this was the case. But of course this begs the question of who actually controls the funds in reality.
The Miami Herald reports that the nonprofit Florida Coalition Against Domestic Violence is stonewalling a state audit that was triggered by an earlier report that the group's chief executive office was paid over $761,000 for the fiscal year that ended on June 30, 2017. While that amount might not seem high for those familiar with the top salaries at hospitals and universities, it raised eyebrows both because the group income consists almost entirely of more than $51 million in government funding (that it distributes to 42 domestic violence center) and because the compensation only reached that level after pay raises totaling over $313,000 during a two-year period. Again to the latest report, the nonprofit has refused to provide the Florida Department of Child and Families with basic financial and governance documents, leading to the Department suggesting that it will end its contracts with the organization. However, for now the existing contract extends to June 2020.
In other compensation news, AZCentral (part of the USA Today Network) reports that the Chief Executive Officer of nonprofit Valleywise Health earned a total of $25.5 million in 2017, including a one-time $17 million retirement plan payment. That means that even without taking into account this one-time payment, which came from a Supplemental Executive Retirement Plan or SERP and so presumably was earned over multiple years, that still leaves annual compensation of $8.5 million. Concern about his compensation led to a split board vote on raising his base salary, even though even with the approved increase that base salary is only $685,000 annually (with the rest of the compensation presumably reflecting bonuses and other incentives).
Tuesday, November 26, 2019
The University of Maryland Medical System is not the only charity scandal with developments this month. Here is a brief update on three other prominent ones:
- The Boston Globe reported additional, extensive details regarding the alleged purchase of Harvard University admissions through "donations" to a foundation established by the then fencing coach and other business transactions, in an echo of the Varsity Blues scandal. (Harvard dismissed the fencing coach earlier this year.)
- Journalist and writer Julie Roys reported that megachurch Harvest Bible Chapel has received a financial review from the law firm of Wagenmaker & Oberly that reveals "a massive corporate governance failure apparently developed over several years at HBC." The report traces the failure primarily to now former Senior Pastor James MacDonald, and says that he "appears to have extensively misused HBC's financial resources for improper financial benefit." In response, James MacDonald has asserted his innocence.
- Finally, the NRA is facing not only complaints from its past supporters but now a lawsuit from one of them, in addition to continuing government investigations.
Last week former Baltimore Mayor Catherine Pugh pled guilty to four counts of conspiracy and tax evasion relating to her self-published books series, Healthy Holly. Concerns arose about her sales of the books when it was reported that the University of Maryland Medical System had agreed to pay $500,000 to buy them when Mayor Pugh was on the UMMS board. Details of the federal charges brought against Mayor Pugh can be found in the DOJ press release announcing her indictment. The actual indictment is available here.
The Baltimore Sun has provided extensive, in-depth coverage of not only Mayor Pugh's dealings but also other apparent governance lapses at UMMS, including:
- Other transactions with board members.
- Disregard of term limits for board service.
- Complaints from state auditors that UMMS has "hindered" their investigation.
The scandal has led to the Maryland governor appointing 11 new members to the board, the resignation of four executives, and additional, state-imposed governance requirements, including public financial disclosures by board members.
Wednesday, November 20, 2019
There are many talks of interest upcoming at this year's ARNOVA (Association for Research on Nonprofit Organizations and Voluntary Action) annual conference this week, which is being held in San Diego. ARNOVA has long had an active and vibrant "Public Policy, Law, Regulation, and Advocacy” track, with leading international scholars of nonprofit law presenting. Here are a few of the sessions happening tomorrow (Thursday):
Public Policy Impacts on Nonprofits: Barriers, Mandates, Building Capacity to Engage, Chaired by Sasha Zarins (Lilly Family School of Philanthropy), 11 am.
Policy and Legal Constraints on Civil Society and Civic Space: China, Hungary, Israel and Turkey in Comparative Perspective, convened by Mark Sidel (Wisconsin), 2:15.
Closing or Changing Space? The Role of CSOs in Explaining Why Countries Change Laws Governing Civil Society, chaired by Anthony James DeMattee (Indiana), 4 pm
Tyler (Chief Executive Officer of Directory of Social Change) has this op-ed about the UK Charity Commission's urging charities to behave:
IT IS NOT THE JOB OF CHARITIES TO BEHAVE! (Yep, I’m a woman shouting!) Charities effect change by being disrupters, campaigners, advocates, activists. There wouldn’t be animal welfare laws without animal charities shouting; there wouldn’t be child protection laws without children’s charities getting angry; there wouldn’t be clean air legislation without health charities badgering politicians. So long as we’re not breaking any laws, it’s entirely up to us how we behave. And if we don’t get it right, we’ll be punished by our donors, supporters and beneficiaries. Their voices are way more important than those of a hectoring, ill-informed, populist, increasingly politicised commission. And we know them better than it does.
Saturday, November 9, 2019
On November 7, New York Supreme Court Judge Saliann Scarpulla ordered President Trump to pay $2 million in resitution to charity for his breach of his fiduciary duties as an officer and director of the Trump Foundation. The link attached to ordered above is the Judge's actual order. Since this is written up a lot in other places, like here by David Fahrenthold who has been the best chronicler of the Foundation, I only provide resources here for digging deeper into the case.
To fully comprehend what has happened to the Trump Foundation, President Trump, and his children, you have to read more than the order. They all entered into a series of stipulations with the NY AG Letitia James. The stipulations spell out a series of significant admissions of wrongdoing made by President Trump and his three children who sat on the board. The press release issued by the NY AG does a nice job of summarizing all that has taken place. I recommend reading all three.
If interested in seeing all of the evidence held by the NY AG you can go to the NY Supreme Court and search in the case index for the index number of the case (451130/2018). That should take you here, which if it works would save you the time of searching the case index. More information can be found from CREW who did a FOIA search that yielded the Form 4720s and checks filed by the Foundation with the IRS.
I have written about the matter on The Conversation here. In that piece I try to grapple with whether there are any situations in history that place this occurrence in proper historical context. If you get a chance to look at that, and have thoughts about the choice, let me know what you think.
Thursday, November 7, 2019
Pennsylvania bears watching on hospitals and tax exemption.
Pennsylvania's Northumberland County Board of Assessment just denied a request on October 30 for property tax exemption for some hospitals UPMC acquired a few years ago. UPMC, headquartered in Pittsburgh in the old US Steel building, bought Susquehanna’s Sunbury and Lock Haven hospitals from for-profit Quorum Health in 2016.
Apparently no specific reason was sited for the denial. From the article:
“There was testimony during the hearing that indicated that some parcels, or portions of the parcels, were utilized for purposes that likely are not exempt. UPMC felt all of the parcels were exempt,” Mr. Garrigan wrote in an email.
“When questioned by the Board, UPMC gave an indication as to the approximate breakdown of the parcels by use, but there was little documentary evidence provided at that time to backup these percentages.”
UPMC has 30 days to appeal.
The healthcare giant recently entered into a 10 year agreement with Highmark for Highmark to be allowed to use the UPMC provider network. This came on the heels of the Pennsylvania AG bringing a complaint sounding in state charitable nonprofit law to force UPMC to enter into such a relationship with Highmark.
Tuesday, November 5, 2019
The Salt Lake Tribune, a major paper of Salt Lake City, announced recently it converted its operation into a tax exempt charitable organization. The newspaper received its determination letter from the IRS on Oct 29.
From the Tribune: "The move from a for-profit model was spurred by Tribune owner Paul Huntsman, who, in agreeing to turn Utah’s largest paper into a nonprofit, is giving up his sole ownership."
“The current business model for local newspapers is broken and beyond repair,” said Huntsman, who also serves as The Tribune’s publisher. “We needed to find a way to sustain this vital community institution well beyond my ownership, and nonprofit status will help us do that. This is truly excellent news for all Utah residents and for local news organizations across the country.”
This is not a new move. Both the Philadelphia Inquirer and apparently the Tampa Bay Times have made operational changes to be strongly associated with a nonprofit. As a result of the crash of the news industry generally, many have been long considering such a move. St. Louis Tribune thus is not new, but it is a suggestion that the trend might be getting stronger.
Richard Schmalbeck of Duke Law School has written academically about the issue here. Sam Brunson, one of our co-bloggers, wrote comprehensively about the Salt Lake Tribune conversion and its practical tax legal implications here. This remains an issue worth following.
Monday, November 4, 2019
Where are we on the regulation of charity fifty years after Congress passed the Tax Reform Act of 1969? My colleague Tony Infanti and I along with our Pitt Law Students of the Pitt Tax Review hosted six scholars and two practitioners as commenters on Friday November 1 to consider that question. The symposium was entitled The 1969 Tax Reform Act and Charities: Fifty Years Later
Natural questions arise: (1) What was that act’s goal with respect to Charity? With respect to tax? (2) Did it accomplish these goals? (3) Are those goals still relevant today? (4) What goals might suggest themselves today? (5) Do we have the ability to make those changes that are needed? In our conversations we did not answer all of those questions, but we sure tried.
Pittsburgh as a city strikes me as a fit and proper place to ask these questions. Why do I say this? Pittsburgh, city of the rust belt, but also city of Carnegie, Frick, Mellon, Heinz, city of steel, coal, banking, and ketchup and now city of higher ed, tech, and cutting edge health care. It provides the natural and social landscape for investigating private wealth and its philanthropic use. At the beginning of the 20th Century Pittsburgh generated an enormous amount of the GDP of the US particularly through its manufacture of steel. That industrial choice brought great wealth to a few, and supported the careers of many, but also caused great damage to the environment for the long term. Pittsburgh as a city crashed in the 1980s (I have heard different dates, but place it there as that is when many of the steel mills seem to have closed down), and it has struggled to come back from the loss of the steel industry ever since.
However, today the city has transformed itself with Carnegie Mellon and Pitt driving a high tech economy, UPMC engaging in cutting edge health care connected with the University of Pittsburgh, and a robust provision of higher education. It almost surely survived to another day as a result of major philanthropic capital from the robber barron days from the likes of the Mellon, Heinz, Pittsburgh, and Hillman foundations. These private foundations led an effort to clean up the city and transform it into the more vibrant place that it is today.
Congress in the 1969 Tax Reform Act responded to a concern about the type of wealth harnessed in foundations like those in Pittsburgh. In fact, as discussed by Jim Fishman in his presentation about the history of the 1969 Tax Act the Mellon Foundation played a big role. Congress at the time was deeply concerned that wealthy individuals were abusing money put into charitable solution and decided it was important to stop those abuses. These papers consider both the origins of these rules and whether these rules still have relevance today.
The first panel considered the topic of Investing for Charity. Ray Madoff presented The Five Percent Fig Leaf critiquing the five-percent payout rule that the 1969 Tax Act imposed on private foundations. Professor Madoff's paper was paired with Dana Brakman Reiser's contribution Foundation Regulation in Our Age of Impact. Professor Brakman considered the placement of program related investments and mission related investments within the current regulatory context and found the rules wanting in many ways.
The second panel was entitled Origins of Private Foundation Rules and their Meaning for Today. Jim Fishman provided great historical insight leading up to the Act in Does the Origin of the 1969 Private Foundation Rules Suggest a Match for Current Regulatory Needs? Interestingly, Professor Fishman thinks the Act really helped in creating the positive attitude many feel towards private foundations today. He thinks there is a real problem though with smaller private foundations where compliance is likely low. Khrista McCarden focused on a category we had not yet considered that of private operating foundations, which are treated a little better than typical private foundations in her piece entitled Private Operating Foundation Reform & J. Paul Getty. She is concerned about private art museums particularly because of their lack of broad community access.
Finally panel 3 considered Regulating Charitable Actors. Ellen P. Aprill presented The Private Foundation Excise Tax on Self Dealing: Contours, Comparison and Character. It usefully compares the general ethic of the different self-dealing rules that exist within the charitable context particularly that of section 4941 and 4958. However, more interestingly she considers both whether NFIB v. Sebelius might suggest that the 4941 excise tax is a penalty rather than a tax, and whether the tax might be able to serve as a Pigouvian tax. Finally, Elaine Wilson presented her paper Is Consistency Hobgoblin of Little Minds? Co-Investment under Section 4941. The paper focuses on certain PLRs that allow private foundation donors to "co-invest" with their related private foundation, seemingly in violation of the section 4941 self-dealing rule. It then shows why it is valuable from a securities regulation perspective for the private foundations to be provided this leeway from the IRS, and asks why the IRS would have twisted the seemingly clear meanings of the self-dealing exise tax.
I hope to blog about each panel in more depth the rest of this week.
Friday, November 1, 2019
Just a reminder: today is Pittsburgh Law's symposium "The 1969 Tax Act and Charities: Fifty Years Later."
It looks like a spectacular program. And for those of us who can't make it in person, we're in luck: the symposium will be live-streamed here.
It starts at 9:15 am Eastern time. I look forward to learning more about the last half-century of tax and charities.
Samuel D. Brunson
Thursday, October 31, 2019
Frankly, when I think about holidays and nonprofits, I think about the Thanksgiving-to-Christmas corridor. That seems to be when a lot of volunteering happens and, as the end of the tax year approaches, it also seems to be when a lot of year-end funding requests happen.
Are there any Halloween-oriented charities? Almost certainly. And the one I found quickly on Google was 'Ween Dream, a Louisiana-based public charity that provides costumes to kids who might otherwise not have costumes.
It's a small organization, collecting roughly $10,000 of donations annually. I don't know anything substantive about it, but I like that they're taking a charitable approach to a holiday that, as wonderful as it is, doesn't usually invoke thoughts of charity.
Samuel D. Brunson
Wednesday, October 30, 2019
On Monday, former House Speaker Paul Ryan launched the American Idea Foundation. The American Idea Foundation is a nonprofit, exempt under section 501(c)(3), and plans to focus on Ryan's legislative interests from his years in Congress, including poverty, economic opportunity, and "evidence-based approach[es]" to solving other problems.
At this point, of course, there's not much to say about the American Idea Foundation. It just launched, and hasn't filed any 990s or actually done anything. And, in fact, it's not completely clear to me what the Foundation plans on doing. It doesn't look like it plans on doing its own research; rather, it plans to identify successful organizations, and maybe education policymakers about what they're doing?
Tuesday, October 29, 2019
Chronic Disease Fund and Patient Access Network Foundation, the two nonprofits that paid the fine, are pubic charities, exempt under section 501(c)(3). Their charitable mission? To help poor individuals with chronic diseases get the medication they need by paying their out-of-pocket costs for the medication. The allegations that they settled claim that seven pharma companies used the nonprofits as flow-throughs, essentially donating money to the nonprofits, which would then help patients pay for those drug companies' medicines.
The problem? The Anti-Kickback Statute prohibits drug companies from subsidizing copayments from patients on Medicare. Drug companies can donate to nonprofits that subsidize these out-of-pocket expenses, but the nonprofits must operate independently from their donors; here, the allegation was that CDF and PANF didn't act independently. And, while neither admitted wrongdoing, they did settle.
Monday, October 28, 2019
By: Philip Hackney
The University of Pittsburgh School of Law's Pittsburgh Tax Review hosts a symposium this Friday November 1, 2019 entitled: "The 1969 Tax Reform Act and Charities: Fifty Years Later.” It will offer experts in the taxation of charities, and those working in the nonprofit field, the opportunity to reflect upon and discuss the impact of the changes made by the 1969 Tax Reform Act 50 years after the law’s enactment. It will be held at The University Club in the Gold Room, located at 123 University Place on Pitt's campus. You can RSVP here. If you are in the area, please join us.
The event is free and open to the public. CLE of 4.5 hours is available for $90. It will be livestreamed at this youtube link.
Here is the schedule and the speakers:
8-9 Registration/continental breakfast
9 – 9:15 Introduction
Panel 1: Investing for Charity 9:15 – 10:45
Ray Madoff, The Five Percent Fig Leaf
Dana Brakman Reiser, Foundation Regulation in Our Age of Impact
Commenter: Carolyn D. Duronio, Partner, Reed Smith LLP
10:45 -11 Break
Panel 2 Origins of Private Foundation Rules and their Meaning for Today 11 – 12:30
Jim Fishman, Does the Origin of the 1969 Private Foundation Rules Suggest a Match for Current Regulatory Needs?
Khrista McCarden, Private Operating Foundation Reform & J. Paul Getty.
Commenter: Penina K. Lieber, Partner of Counsel, Dinsmore & Shohl LLP
Panel 3 Regulating Charitable Actors 1:30 -3:00
Ellen P. Aprill, The Private Foundation Excise Tax on Self Dealing: Contours, Comparison and Character
Elaine Waterhouse Wilson, Is Consistency the Hobgoblin of Little Minds? Co-Investment under Section 4941
Commenter: Philip Hackney, Associate Professor, University of Pittsburgh School of Law