Friday, March 13, 2020

IRS Charities Providing Disaster Relief Publication

With the challenges we will all face from the CoronaVirus Pandemic, I thought it would be useful to have the IRS Disaster Relief publication handy.

"This publication is for people interested in assisting victims of disasters or those in
emergency hardship situations through tax-exempt charities. Charitable organizations
have traditionally been involved in assisting victims of disasters such as floods, fires, riots,
storms or similar large-scale events. Charities also play an important role in helping those
in need because of a sudden illness, death, accident, violent crime or other emergency
hardship. This publication includes:

 advice about helping to provide relief through an existing charitable organization,
 information about establishing a new charitable organization,
 guidance about how charitable organizations can help victims,
 documentation and reporting requirements,
 guidance about employer-sponsored assistance programs,
 information about tax treatment of disaster relief payments,
 information about gifts and charitable contribution rules, and
 reference materials and taxpayer assistance resources.

By using this publication as you begin to plan your relief efforts, you will be able to ensure
that your program will assist victims in ways that are consistent with the federal tax rules
that apply to charities."

Philip Hackney

March 13, 2020 in Current Affairs, Federal – Executive, In the News | Permalink | Comments (0)

Letter - Nonprofits Must Be Included in Economic Stimulus Package

Two days ago 29 major nonprofits, such as Council on Foundations and United Way, wrote to Congress demanding that they be a part of any relief and economic stimulus package that arises amidst the CoronaVirus crisis.

"Nonprofits employ 12.3 million people (the third largest workforce – tied with manufacturing), with
payrolls exceeding those of most other U.S. industries, including construction, transportation, and
finance. A substantial portion of the nearly $2 trillion nonprofits spend annually is the more than
$826 billion they spend on salaries, benefits, and payroll taxes every year.ii Yet, in multiple disaster
relief laws in the past, Congress has ignored this core economic fact and approved employment related tax credits that left nonprofit employers and employees out of the provisions."

"Most nonprofits are relatively small: 97 percent of nonprofits have budgets of less than $5 million
annually, 92 percent operate with less than $1 million a year, and 88 percent spend less than
$500,000 annually for their work. Thus, the “typical” nonprofit is community-based, serving local
needs. Also, relatively few nonprofits have an endowment and most have limited reserves — about
50 percent have less than one month of cash reserves."

"No one doubts that hospitals, community health centers, and senior living communities will continue
to be hit hard by the coronavirus. Most of those organizations are charitable nonprofits. And many
other nonprofits are responding to the outbreak, such as local Meals on Wheels which are serving
their normal community of elderly people and a growing number of individuals under quarantine. The
list goes on to include nonprofit food banks, shelters, domestic violence services, houses of worship,
early care and education centers, after-school facilities, and more that are being called on to feed,
house, and care for people whose lives have been disrupted by closures, job loss, and sickness."

Philip Hackney

March 13, 2020 | Permalink | Comments (0)

Wednesday, March 11, 2020

Nonprofits Dealing with the Corona Virus

I saw a tweet the other day from Al Cantor:

"The COVID-19 pandemic is likely to expose one of the myths of 21st-c. America: that the nonprofit sector adequately provides services in an emergency. No. Nonprofits are a web of underfunded, independent orgs. We need gov't coordination, funding, + leadership. We don't have that."

Having lived in Louisiana many years and lived through many hurricanes I can attest strongly to this statement. When Katrina hit New Orleans, nonprofits played important roles, but the government was critical to handling the immediate crisis and providing the long range services to allow people to recover from that traumatic event. 

Thought I would take a look in this blog post at what the media is reporting about the nonprofit situation at this moment in the crisis. 

This Washington Post story considers the confusion and distress that the Washington DC nonprofit sector is experiencing as it tries to figure out how it might help, but also how the nonprofits and their employees will make it through the crisis and not go bankrupt. As it notes, these nonprofits are typically making it on a "razor-thin margin." A brief shutdown of operations can cause them to miss a rent payment, or miss payroll for staff. But they also are involved in feeding hungry people. Thus these nonprofits are facing both need from the community, need to maintain operations, but also a need to shut down so that they don't participate in spreading the virus.

This Boston story describes how the crisis is already harming the fundraising of nonprofits. "“This situation is unprecedented,” said Paul Medeiros, the president and CEO of Easter Seals Massachusetts. He’s concerned about the organization’s bottom line. That’s because they’ve had to cancel the Evening of Empowerment, Easter Seals’ biggest fundraiser. “That event can bring in as much as $250,000 to the organization, which is over a quarter of our fundraising in a year,” he explained."

New York City is offering loans to some businesses including nonprofits to weather the storm. "The city is offering small businesses with fewer than 5 employees a grant to cover 40 percent of payroll costs for two months (an average of $6,000) to help retain employees. Businesses with fewer than 100 employers who have seen their sales decrease by 25 percent or more will also be eligible for zero-interest loans of up to $75,000 to help mitigate profit losses."

This story contains some helpful information for nonprofits as they consider how to manage the crisis. Like many universities, also large number of which are nonprofits, around the country, including now mine at University of Pittsburgh, nonprofits ought to be considering closing down in person meetings. Anyone who can work from home ought to be doing so to slow the spread of the virus. This story in Medium does the best job I have found of explaining the problem of the virus's exponential growth and the intense stress that will put on any country's health care system.

As we go forward in this crisis, lets remember that nonprofits like hospitals and universities and food banks will be working hard to alleviate the deep challenges we will face, those nonprofits are going to be facing deep challenges themselves. They really need the full force of federal state and local government backing their efforts and supporting them when they begin to fall. 

Philip Hackney

March 11, 2020 | Permalink | Comments (0)

Monday, March 9, 2020

Gates Foundation Funds Covid-19 Testing Project in Seattle: Good Billionaire Philanthropy?

Yesterday I noticed that the Gates Foundation would be providing the funds to back a program to provide at home testing in the Seattle area for Covid-19  I tweeted the following:

"I am no fan of billionaire philanthropy - I think it skews our democratic project in problematic ways - this on its face though seems like an excellent use of that money all the same."

In effect, I think of billionaire philanthropy as a problem as a synonym for the idea that we have enormous income and wealth inequality in the United States. The problem has nothing to do with the billionaires themselves as individuals. Instead, because some people have vastly greater resources than most other people, those individuals arbitrarily wield much greater power than the rest of us in deciding what the group is going to do. This political voice imbalance harms the democratic order that would ideally give each of us an equal voice in group decisions.

We also provide incentives to these wealthy individuals to make more efficient tax use (some might say take advantage of) contributions they make to charitable organizations. When they then use those tax-subsidized dollars to wield greater power, we might be doubly troubled.

For instance, the Gates Foundation invested an enormous amount into changing the way we conduct education in the United States. Though there are many community activists around the country that have a great depth of knowledge in how to best arrange our educational institutions, their voices have been likely crowded out by the Gate's Foundation effort. Today, even Bill and Melinda Gates agree their effort did not have a good effect.

The interesting thing to me in the current potential pandemic we face is that even with all the resources of an institution like the Gate's Foundation, their resources are still puny compared to the need to fight a potential pandemic. They cannot close down a country's borders or support all the people who have to go without income as a result of the crisis.  They are puny in comparison to the worldwide need.

To fight such a gargantuan problem, we really need a coordinated governmental effort ideally along international lines. But we in the United States do not have that government capable of such an effort right now. So, in steps the Gates Foundation, with what I think has to be a good use of its dollars, providing the funds to develop a test for home use to end reliance on having to go to the doctor to both test (for containment) and keep people out of doctors’ offices and hospitals (to deal with overwhelmed health professionals). 

All the same, I can't help but think the existence of billionaire philanthropy (and perhaps a certain reliance upon billionaire philanthropy) may be a symptom/cause of our current malaise. This is not to say I don't think philanthropy has a role to play in this crisis. I clearly think it does. I hope to look at this question the rest of the week while I blog on Nonprofit Law Prof Blog.

Philip Hackney



March 9, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Friday, March 6, 2020

Brody, Pause Play

NUPOC Show EBYesterday I got an email from Eveyln Brody (Professor Emeritus, Chicago-Kent). I'm sure everybody reading this knows what an important voice she has been in the world of nonprofit and tax law. But did you know that she's an amazing artist?

A year and a half ago or so, I went to see an exhibition of her pastels at the Leslie Wolf Gallery in Chicago. And now, for the next two months, she's back with a new show of seven of her large pastels entitled "Pause Play." The show will be at the NUPOC Gallery in downtown Chicago during all of March and April.

Evelyn's paintings capture apparently unremarkable moments in time--my favorite are when she paints people riding public transportation, but she also does amazing things with people in museums. And other things. Somehow, the moments she captures manage to be both perfectly ordinary and somehow transcendent.

If you're in Chicago during the next two months, I'd highly recommend checking out the second career of a tremendously talented law professor; maybe I'll see you there.

The exhibition is free and open to the public. It's located inn Suite 1100 at 680 N. Lake Shore Drive.  Public hours are 9:00-4:45, Monday-Friday.

Samuel D. Brunson

March 6, 2020 in Other | Permalink | Comments (0)

Thursday, March 5, 2020

BSA and Bankruptcy

image from upload.wikimedia.orgAs I'm sure you've heard by now, on February 18, 2020, Boy Scouts of America filed a petition for Chapter 11 bankruptcy

This is a really big deal. BSA is one of the largest youth organizations in the country. It is not only a nonprofit and tax-exempt organization, but it (like the Girl Scouts, interestingly enough) is a federally-chartered organization.

Its bankruptcy was largely triggered by the risk of litigation over sexual abuse claims. It turns out that, while the national organization (the one that declared bankruptcy) has about $1.4 billion in assets, the local councils (that is, the entities that your sons--and sometimes daughters--join) hold a little more than twice that. In bankruptcy, the BSA is purportedly attempting not only to reorganize, but to shield local councils' assets from litigation claims.

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March 5, 2020 in Current Affairs | Permalink | Comments (0)

Wednesday, March 4, 2020

Mayer & Pohlman, What Is Caesar's, What Is God's: Fundamental Public Policy for Churches

Lloyd_mayer Pohlman_Picture-247x300Lloyd Hitoshi Mayer (Notre Dame) and Zachary B. Pohlman (JD Candidate, Notre Dame) have posted What Is Caesar's, What Is God's: Fundamental Public Policy for Churches. Before I post the abstract, just let me say: I saw this on Twitter about a week ago. While the topic has been addressed before, this is a pretty comprehensive look at at least one theory for exempting churches and what that theory has to say about the prohibition on churches endorsing or opposing candidates. I've written notes all over my copy. And here's the abstract:

Bob Jones University v. United States is both a highly debated Supreme Court decision and a rarely applied one. Its recognition of a contrary to fundamental public policy doctrine that could cause an otherwise tax-exempt organization to lose its favorable federal tax status remains highly controversial, although the Court has shown no inclination to revisit the case and Congress has shown no desire to change the underlying statutes to alter the case’s result. That lack of action may be in part because the IRS applies the decision in relatively rare and narrow circumstances.

The mention of the decision during oral argument in Obergefell v. Hodges raised the specter of more vigorous and broader application of the doctrine, however. It renewed debate about what public policies other than racial discrimination in education might qualify and fundamental and also whether and to what extent the doctrine should apply to churches, as opposed to the religious schools involved in the original case. The IRS has taken the position that churches are no different than any other tax-exempt organizations in this context, although it has only denied or revoked the tax-exempt status of a handful of churches based on this doctrine.

The emergence of the Bob Jones University decision in the Obergefell oral argument, along with developments over the past several decades both with respect to the legal status of churches and what arguably could be considered fundamental policy, render consideration of these issues particularly timely. This Article therefore explores whether there are emerging conflicts between a significant number of churches and what could be considered fundamental public policy, not only with respect to sexual orientation discrimination but also with respect to sex discrimination, sanctuary churches, and other areas. Finding that there are several current or likely future such conflicts, it then explores whether there are philosophical and legal grounds for treating churches differently from other tax-exempt organizations for purposes of applying the contrary to fundamental policy doctrine and the related illegality doctrine. Drawing on both the longstanding concept of “sphere sovereignty” and emerging work in the area of First Amendment institutions, the Article concludes that churches should not be subject to the former doctrine while still being subject to loss of their tax benefits if they engage in or encourage significant criminal illegal activity. The Article then concludes by applying this conclusion to the identified areas of current or likely future conflict to demonstrate how the IRS and the courts should apply the Bob Jones University decision to churches.

Samuel D. Brunson


March 4, 2020 in Publications – Articles | Permalink | Comments (0)

Tuesday, March 3, 2020

Updates on the .Org Domain Sale

PIR_RGBAbout a month ago, Lloyd Mayer blogged about the potential sale of of the .org domain to Ethos Capital, a private equity firm. As of Lloyd's post, ICANN had agreed to make a final decision by February 17.

February 17th has come and gone without a decision. It turns out that the sale of the .org domain to a private equity company has proven, well, controversial. Among other things, people are concerned that the cost of charities' website will skyrocket. These concerns have prompted the California Attorney General to intervene, requesting information about the proposed sale and ultimately delaying its consummation.. At the same time, Ethos has made a number of commitments to assuage the concerns that have prompted concern.

As we wait to see how this plays out, there's an underlying issue for those of us interested in the details of the transaction: technically, to acquire the .org domain, Ethos will purchase Public Interest Registry. Public Interest Registry is a section 501(c)(3) organization operated to maintain the .org domain registry. So can ISOC sell a section 501(c)(3) organization to a for-profit buyer?

Obviously not. But, as Benjamin Leff explains, they can structure the transaction in such a way that Public Interest Registry becomes a for-profit entity, as long as its charitable assets remain in charitable solution. And how can they do that? Ben lays it out in excellent--and accessible--detail here.  You should give it a look.

Image: Official Public Interest Registry LogoCC BY-SA 4.0.

Samuel D. Brunson

March 3, 2020 in Current Affairs | Permalink | Comments (0)

Monday, March 2, 2020

Brunson, God Is My Roommate?

Nypl.digitalcollections.510d47e2-8bc1-a3d9-e040-e00a18064a99.001.rHappy March! To start my week here at the Nonprofit Law Prof Blog, I'm going to do some shameless self-promotion. I recently posted God Is My Roommate? Tax Exemptions for Parsonages Yesterday, Today, and (if Constitutional) Tomorrow to SSRN. I'll copy the abstract below, but a little non-abstract information first:

I wrote this in response to the Seventh Circuit's decision in Gaylor v. Mnuchin. In that case, the court held that section 107(2), which allows "ministers of the gospel" to receive a tax-free housing allowance, did not violate the Establishment Clause. It based its ruling on two tests: the Lemon test and, in the alternative, what it called the "historical significance test." The second of these tests, it said, essentially provides that if something was accepted at the time of the Framers and has continuously been accepted since, it doesn't violate the Establishment Clause.

The big problem? Well, the income tax hasn't been around nearly that long. The court held that the property tax exemption for parsonages had no substantive difference (n.b.: the two differ substantially, both substantively and constitutionally), and instead looked at that. Or, rather, looked at a caricature of the history of property tax exemptions for parsonages.

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March 2, 2020 in Publications – Articles, State – Judicial, State – Legislative | Permalink | Comments (0)

Friday, February 7, 2020

Breen & Quinn, Philanthropic Giving in Ireland

Photo O48-FF6q_400x400Oonagh B. Breen (University College Dublin) and Patricia Quinn (Benefacts) have posted Philanthropic Giving in Ireland: A Scoping Project. Here is the abstract:

For a developed country, with a reputation for generosity towards the needy, Ireland has a very limited profile in structured, persistent philanthropic giving. At €120m, institutional philanthropic giving (as defined) represents a tiny proportion of Ireland’s €11bn turnover in the non-profit sector. Philanthropists need evidence of need and potential impact if their donations are to be well informed; the public needs to witness and approve of the effects of philanthropy if philanthropy is to be recognised as creating social goods; policymakers need tangible evidence to support decision-making including tax regulation.

Recognising the growing coalition of interest in measuring philanthropy and the lack of any Irish equivalent to the annual surveys produced overseas, this paper sets out to close the knowledge gap by identifying the factors necessary to make Irish philanthropy more transparent and better understood.

Supported by Benefacts, a leading non-profit research body in Ireland, the researchers aim to conduct a multi-annual research project 2018–21 to set out for the first time an agreed definition of ‘philanthropy’ in the Irish context and to provide a comparative basis for the study of Irish philanthropy by third party researchers. This paper is the first step towards facilitating valid international philanthropic comparisons between Ireland and other similar countries. Identifying the available data sources on, and gaps in knowledge about, philanthropy in Ireland, focusing specifically on gifts and receipts, it assesses the discernible trends in philanthropic giving in Ireland.

Lloyd Mayer

February 7, 2020 in Publications – Articles | Permalink | Comments (0)

Chan, Constitutionalizing the Registered Charity Regime

Chan-profileKathryn Chan (University of Victoria) has posted Constitutionalizing the Registered Charity Regime: Reflections on Canada Without Poverty v. Canada (AG), Canadian Journal of Comparative and Contemporary Law (forthcoming 2020). Here is the abstract:

In Canada Without Poverty v Canada (AG), the Ontario Superior Court of Justice struck down provisions of the federal Income Tax Act that limited the political activities of charitable organizations, on the ground that the provisions violated the freedom of expression of the registered charity before the court. This paper addresses the decision's complex legacy, reflecting on the promise and the perils of charity law’s increasing encounters with public law. I address some of the difficult questions raised by the decision: (1) What types of associations are rights-holders under the Canadian Charter of Rights and Freedoms? (2) What are the constitutional limitations on the government’s ability to set the outer bounds of the registered charity regime? (3) What is the rationale for limiting the political advocacy of charities? While Canada Without Poverty has generated significant improvements to the registered charity regime, I argue, the Ontario Superior Court of Justice missed an important opportunity to draw constitutional law and charity law into closer conversation.

Lloyd Mayer

February 7, 2020 in Publications – Articles | Permalink | Comments (0)

Dupuy & Prakash, Why Restrictive NGO Foreign Funding Laws Reduce Voter Turnout in Africa’s National Elections

Images Prakash_2018aKendra Dupuy (Chr. Michelsen Institute) and Aseem Prakash (University of Washington) have published Why Restrictive NGO Foreign Funding Laws Reduce Voter Turnout in Africa’s National Elections in the Nonprofit and Voluntary Sector Quarterly. Here is the abstract:

Laws that restrict foreign funding to nongovernmental organizations (NGOs) can depress voting through two mechanisms. First, they can signal a democracy recession. Consequently, citizens might fear rigged elections where their vote will not influence who forms the next government. Second, by denying funding to NGOs, these laws can undermine NGOs’ ability to generate social capital, which is crucial to mitigate collective action problems associated with voting. Since 1990, 13 of Africa’s 54 states have enacted laws restricting foreign funding for NGOs. Drawing on the 2016 Afrobarometer survey (36 countries, 53,936 respondents), we find support for the argument that restrictive NGO laws reduce citizens’ electoral participation in national elections probably by signaling democracy recession, and not by undermining social capital that foreign-funded NGOs are supposed to generate. In fully democratic countries, respondents are around 94% more likely to report having voted in a recent national election even after controlling for restrictive NGO laws.

Lloyd Mayer

February 7, 2020 in Publications – Articles | Permalink | Comments (0)

Yu et al., Understanding the Effect of Central Government Funding on the Service and Advocacy Roles of Nonprofit Organizations in China

InfoInfo (1)Liyong0Jianxing Yu (Zhejiang University), Yongdong Shen (Zhejiang University), and Yong Li (Tsinghua University) have published Understanding the Effect of Central Government Funding on the Service and Advocacy Roles of Nonprofit Organizations in China: A Cross-Regional Comparison, inthe Nonprofit and Voluntary Sector Quarterly. Here is the abstract:

This research examines the effects of government funding on the service and advocacy roles of nonprofit organizations in China through a cross-regional comparison. Based on a nationwide survey of 2,058 nonprofits and in-depth interviews with 65 nonprofit executives from the same sample in 2013–2017, we find that a higher level of central government funding leads to stronger organizational capacity for service provision through leveraging matching funds and to more intensive administrative advocacy and media advocacy. Furthermore, a cross-regional comparison shows that, in contrast to those in nonwestern regions, nonprofit organizations with higher levels of central government funding in the western region engage in more administrative advocacy but less in media advocacy. Taken together, these findings highlight the importance of the government’s leverage strategy and selective empowerment in shaping nonprofits’ service and advocacy roles through government funding in China.

Lloyd Mayer

February 7, 2020 in International, Publications – Articles | Permalink | Comments (0)

Nonprofit Policy Forum: Special Issue on INGO Governance and Public Policy

S21946035The Nonprofit Policy Forum published a Special Issue on INGO Governance and Public Policy: Implications of the Oxfam Scandal. From the Editor's Note for the issue:

This special issue of Nonprofit Policy Forum contains a set of papers derived from a roundtable panel discussion at the 2018 ARNOVA annual conference, organized by special editor Aseem Prakash and his colleagues, to examine the recent Oxfam sexual exploitation scandal and its implications for governance of international NGOs, nonprofit theory and public policy. Prof. Prakash’s insightful introductory essay opens the issue by providing background on the scandal itself, the organizational and historical context in which it, and other NGO scandals, have occurred, and the questions that these events raise for policy, practice, nonprofit theory and future research. No need to summarize that content on this page, as Prof. Prakash’s essay provides a well-crafted yet compact overview of the symposium papers.

Lloyd Mayer

February 7, 2020 in Publications – Articles | Permalink | Comments (0)

Rogel, Executive Compensation in the Charitable Sector

ImageLauren Rogal (Vanderbilt University) has published Executive Compensation in the Charitable Sector: Beyond the Tax Cuts and Jobs Act, 50 Seton Hall Law Review 449 (2019). Here is the abstract:

This Article examines charity executive compensation in light of the reforms enacted by the Tax Cuts and Jobs Act of 2017. Charities receive preferential tax treatment under Section 501(c)(3) of the Internal Revenue Code because they provide humanitarian, educational, and other services that benefit the public. The payment of excessive compensation undermines the policy purpose of charitable tax status by diverting resources from the public good to private gain. The costs are borne by the intended charitable beneficiaries, the subsidizing taxpayers, and the charitable sector as a whole, which requires public confidence to sustain its work.

The Tax Cuts and Jobs Act reformed charity compensation laws for the first time in decades, imposing an excise tax on compensation over $1 million. With its enactment, there are now three legal constraints on charity compensation that together provide piecemeal accountability. This Article deconstructs the three mechanisms, assessing their enforceability and metrics for appropriate compensation. It argues that the excise tax is the mechanism best tailored to the goals of Section 501(c)(3), but that it is impaired by a blunt and arbitrary metric. This Article then explores alternative metrics that may better align with the policy objectives of 501(c)(3) status and proposes avenues for further investigation.

Lloyd Mayer

February 7, 2020 in Publications – Articles | Permalink | Comments (0)

Has It Been 50 Years Already? HistPhil Series on the Tax Reform Act of 1969

DownloadThe HistPhil blog has a series of in-depth posts reflecting on the Tax Reform Act of 1969 and its effects on tax-exempt nonprofit organizations and more broadly. Here are the titles and authors:

Karen Ferguson (Simon Fraser University), Parallel Confrontations: The Ford Foundation And the Limits of Racial Liberalism, 1968 And 2019

Ellen Aprill (Loyola-Los Angeles), Penalty or Tax: Reconsidering The Constitutionality Of The Private Foundation Excise Taxes

Lila Corwin Berman (Temple University), The Private Charity Lacunae: The Tax Reform Act Of 1969 And The Rise Of Donor-Advised Funds

James Fishman (Pace University), The Private Foundation Rules At Fifty: How Did We Get There?

Lloyd Mayer

February 7, 2020 in Publications – Articles | Permalink | Comments (0)

In Other News: Who Will Own .ORG; 4th Edition of the Model Nonprofit Corporation Act

DownloadStories are starting to hit the mainstream media about the controversy brewing over ownership of the .org domain that is home to the websites of many nonprofit organizations. An opinion piece in the N.Y. Times (The Shaky Future of .org Domains) came in the wake of an ABC News story (Coalition of NGOs battling private equity firm trying to buy ".org" domain). I do not claim to understand all of the nuances here, but the main concern appears to be that not only has a private equity firm agreed to buy the domain (from the Internet Society), but the Internet Corporation of Assigned Names and Numbers (ICANN) has removed any price caps on what that firm can charge nonprofits to maintain their .org websites. See this National Council on Nonprofits article. The National Association of State Charity Officials (NASCO) has also expressed concern. The current state of play is that ICANN is still considering whether to approve the sale, but has agreed to make a decision by February 17th. (The agreement refers to the Public Interest Registry, which is apparently the technical name for the .org domain.) For a response from the firm proposing to purchase the domain, see here.

41ikVR546fL._SX352_BO1 204 203 200_Less controversially, the Nonprofit Organizations Committee of the ABA's Business Law Section has made available for comment an exposure draft of the next, 4th edition of the Model Nonprofit Corporation Act. The timing for preparation of this new edition is curious, given there has not been a lot of state interest in adopting the 2008 3rd edition (last I checked only DC had done so). I have not had a chance to review the draft, so I do not know how significantly it departs from previous editions. Here is a list of the Task Force members who are working on the new edition: Chair Lawrence J. Beaser (BlankRome), Reporter William H. Clark, Jr. (Faegre Drinker), Associate Reporter Matthew H. Gaul (Carmody Torrance Sandak Hennessey), Willard L. Boyd III (Nyemaster Goode), William M. Klimon (Caplin & Drysdale), Kimberly Lowe (Avisen Legal), Lisa A. Runquist (Lisa A. Runquist, Attorney-at-Law), and Myron Steeves (Church Law Center).

Lloyd Mayer



February 7, 2020 in In the News | Permalink | Comments (0)

The Costs and Benefits of Being a Tax-Exempt Church

114281There has recently been an eclectic set of stories about churches and their federal tax status. In its January/February 2020 issue, Christianity Today's cover story was The Hidden Cost of Tax Exemption (subscription required) with the sub-title "Churches may someday lose their tax-exempt status. Would that be as bad as it sounds?" The story concludes:

It might not be such a bad thing to lose tax-exempt status. We should consider, at the very least, the cost of maintaining this kind of cultural privilege. The true church of God, after all, is not reliant on its special status in the tax code. We can walk by faith and not by government largess.

At the other end of the spectrum, the Washington Post had a recent story titled Major evangelical nonprofits are trying a new strategy with the IRS that allows them to hide their salaries. The story cited several religious organizations, including the Billy Graham Evangelistic Association and Focus on Family, that had successful sought church status from the IRS. The implication of the story was that they sought this status not for the tax benefits (which they already enjoyed) but for the ability to hide financial details, and particularly salary information, from government and public scrutiny because of the church exemption from filing the Form 990 series annual information returns. The religious charity rating organization MinistryWatch has also been critical of this trend.

Relatedly, the U.S. District Court for the District of Columbia has now released its reasons for dismissing the lawsuit brought by a section 501(c)(3) organization associated with the Freedom from Religion Foundation that challenged the church exemption from Form 990 filings. Perhaps not surprisingly, the court found standing to be a problem (citations omitted):

NonBelief Relief alleges in its proposed amended complaint that “[t]he Defendant’s unequal treatment of the Plaintiff is ongoing and will continue as long as churches continue to be exempted from the information filing requirements of § 6033.” The Court disagrees. The injury it alleges occurred when it had to file a Form 990, a requirement from which churches and religious organizations are exempt. But as discussed above, this alleged unequal treatment is not ongoing or imminent because NonBelief Relief faces no current or future prospect of having to fill out a Form 990. See And while it is true that the loss of its tax-exempt status is, in a sense, ongoing, NonBelief Relief has not based its standing argument on that loss, and for good reason. The relief it seeks—a declaration that the church exemption is unlawful and an injunction prohibiting the Commissioner from enforcing it—will not redress that loss. And as explained above, in any event, the Anti-Injunction Act and Declaratory Judgment Act deprive the Court of jurisdiction to reinstate NonBelief Relief’s tax-exempt status.

The Freedom from Religion Foundation has promised to continue challenging the church exemption from Form 990 filing, presumably by having NonBelief Relief pay some taxes, file a claim for refund, and then going to court when the IRS refuses to grant that claim (an option described by the court in its decision).

Finally, there is some interesting pressure on classification as a church from a different. non-tax direction. The N.Y. Times had a story late last year titled Inside the War for California's Cannabis Churches (hat tip: TaxProf Blog). The story highlights the emerging conflict between such churches and California authorities seeking to enforce the various rules regulating marijuana dispensaries in that state. The key issue is whether enforcement of those rules discriminates on the basis of religion, assuming that the members of these churches can demonstrate that they beliefs relating to use of marijuana are sincerely held.

Lloyd Mayer

February 7, 2020 in Federal – Judicial, In the News | Permalink | Comments (0)

College & University Investments: Slowing Returns, Fossil Fuels Divestment

2019 NACUBO-TIAA Study of EndowmentsThe initial results of the 2019 NACUBO-TIAA Study of Endowments, released late last month, reported that the 774 U.S. colleges, universities, and affiliated foundations reporting had an average annual endowment return of 5.3% (net of fees) from July 1, 2018 through June 30, 2019. This was a decline from the previous fiscal year's 8.2% average. Here is more information from the press release announcing the results:

Data gathered from 774 U.S. colleges, universities, and affiliated foundations for the 2019 NACUBO-TIAA Study of Endowments® (NTSE) show that participating institutions’ endowments returned an average of 5.3 percent (net of fees) for the 2019 fiscal year (July 1, 2018 – June 30, 2019).

Despite posting a lower return than FY18’s one-year average of 8.2 percent, the average 10-year endowment return reached 8.4 percent, surpassing institutions’ long-term average return objective of 7 percent for the first time in a decade. This reflects the strong stock market recovery since the 2008 financial crisis as well as solid management practices.

Due in part to strong 10-year returns, three quarters of institutions increased spending from their endowments to support students and faculty, with an average increase of more than $2 million. Participating institutions put 49 percent of their endowment spending dollars to student financial aid, 17 percent to academic programs, 11 percent to faculty, and 7 percent to campus facilities.

“The jump in spending from endowments last year shows once again the value of college and university endowments in supporting students and their access to a high-quality education,” said NACUBO President and CEO Susan Whealler Johnston. “These endowments help make opportunity available to college and university students and ensure the strength of academic programs that prepare them for work and life.”

“Endowments continue to play a significant role in institutions’ operations and financial strength, making it essential to take advantage of a wide range of investment options and strategies,” said Kevin O’Leary, Chief Executive Officer of TIAA Endowment and Philanthropic Services. “Endowment asset allocations and returns varied across different size endowment cohorts.  Considering larger endowments generally have greater access to certain asset classes, such as private equity and venture capital, which were some of the highest performing asset classes in FY19, they again outperformed their smaller cohorts.”

One current hot topic with respect to higher education endowments is whether institutions should divest from fossil fuel holdings. C.J. Ryan (Roger Williams University School of Law) and Christopher Marsicano (Davidson College) have posted Examining the Impact of Divestment from Fossil Fuels on University Endowments. Here is the abstract:

Between 2011 and 2018, 35 American universities and colleges divested, either partially or completely, their endowments from fossil-fuel holdings, marking a shift toward sustainability in university endowment investment. However, the decision by these universities to divest was often marred by controversy, owing to conflicts between student- and faculty-led coalitions and the university board. Principally, endowment fiduciaries are averse to divestment decisions because they think that it will hurt the endowment's value, but this concern, motivated by a narrow interpretation of fiduciary law, can be empirically examined.

To date, the academic study of the effect of divestment on endowment values has focused on the top university endowments and has produced mixed results. Our study is different from the extant but limited literature in this area in that we examine holistically the impact of total or partial divestment on endowment values for all universities as well as a select group of institutions that are illustrative of their peers by endowment size. More importantly, we evaluate the assumption that divestment does injury endowment values through legal and empirical lenses.

Results from our difference-in-differences analyses of the effect of full and partial divestment suggest that either form of divestment does not yield discernible consequences--either positive or negative--for endowment values, at statistically significant levels. However, we do find evidence that divestment improved the value for three of four universities that we examined through synthetic control analysis, with the greatest increase in value at a university with a very large endowment (Stanford University) and modest increases at two universities with mid-sized and large endowments, respectively (University of Dayton and Syracuse University). Thus, the negative consequences of divestment may be overstated in the near-term. This challenges the assumption that divestment yields negative returns to endowments and cracks open the door for endowment fiduciaries to divest without violating duties of loyalty and prudence. We hope that this study both grounds and advances the debate about endowment divestment with empirical evidence and a reasoned discussion of its costs and benefits.

Lloyd Mayer

February 7, 2020 in Publications – Articles, Studies and Reports | Permalink | Comments (0)

Speakers List For Today's Hearing on Eliminating Schedule B Identification of Donors for Non-Charitable 501(c)s

Schedule BToday is the public hearing on the proposed regulations (REG-102508-16) that would eliminate the requirement that non-charitable section 501(c) organizations provide certain identifying information annually to the IRS on Schedule B to the Form 990/990-EZ for significant donors. The hearing is scheduled to be held in the IRS Auditorium at 1111 Constitution Avenue NW in DC, starting at 10:00 a.m. The second link provided above is to the website that includes not only the text of the proposed regulations but also all of the 8,387 comments received to date on them. Finally, here is the list of speakers from the agenda for the hearing:

  1. Noah Wall, Freedom Works Inc.
  2. Allen Dickerson, Institute for Free Speech
  3. Hans A. von Spakovsky, The Heritage Foundation
  4. Jenny Beth Martin, Tea Party Patriots Action
  5. James Bopp, Jr., James Madison Center for Free Speech
  6. Ryan Mulvey, Americans for Prosperity
  7. Carol Platt Liebau, Yankee Institute for Public Policy
  8. Catherine Suvari, State of New York Office of the Attorney General
  9. Brendan Fischer, Campaign Legal Center
  10. Scott Walter, Capital Research Center
  11. Eric Peterson, Pelican Institute for Public Policy
  12. Ann Stillman, Church Alliance
  13. G. Daniel Miller, Conner & Winters, LLP
  14. Mark Brnovich, Office of the Arizona Attorney General
  15. Ashley Varner, Freedom Foundation
  16. Robert Alt The Buckeye Institute

Lloyd Mayer

February 7, 2020 in Federal – Executive, In the News | Permalink | Comments (0)