Friday, July 30, 2021
White House Announces New Religions Affairs Leaders, Including First Islamic Religious Freedom Ambassador
The White House announced Friday (July 30) a slate of nominations and appointments for top religious affairs roles, including the first Muslim American nominated to be the U.S. Ambassador-at-Large for International Religious Freedom.
According to a report by the Religious News Service (RNS), President Biden will select Rashad Hussain as his nominee for that post, filling a State Department slot vacant since former Kansas governor and U.S. Senator Sam Brownback left at the close of the Trump administration. Hussain, who would need to be confirmed by the Senate, currently works as director for Partnerships and Global Engagement at the National Security Council.
Mr. Hussain previously served as White House counsel under President Barack Obama, as well as U.S. special envoy to the Organization of Islamic Cooperation and U.S. special envoy for the Center for Strategic Counterterrorism Communications, among other roles.
Commenting on the upcoming nomination, Saeed Khan, an expert on American Muslim communities at Wayne State University, stated: “Rashad’s appointment demonstrates not only the importance the Biden administration places on religious freedom, it also shows the importance of the Muslim world to the administration both in terms of combatting Islamophobia and also promoting religious freedom in Muslim majority countries. Rashad’s background will allow him to have a frank discussion with Muslim majority countries about religious freedom.”
Anila Ali, a co-founder of the American Muslims and Multifaith Women’s Empowerment Council Iftar who has worked with Hussain in the past, also celebrated his nomination. “As AMMWEC, and as a woman leader, I look forward to working with him because women play an important role in peace-making,” Ali said. “He has worked with Muslim communities during the Obama period and we hope his relevant experience is going to make him a voice for all of us.”
According to the RNS report, President Biden is also expected to nominate Deborah Lipstadt as the next U.S. special envoy to monitor and combat antisemitism. Lipstadt is a professor at Emory University in Atlanta and a prominent Holocaust historian. She is the author of Antisemitism: Here and Now and is known for successfully defeating a libel suit brought against her by Holocaust denier David Irving.
Commenting on the expected nomination of Prof. Lipstadt, Mark (Moishe) Bane, president of the Orthodox Union, had this to say: “She is a leader with great moral courage; her dedicated work, clear voice in fighting Holocaust denial and preserving the memory of the attempted destruction of the Jewish people make her an exemplary choice for this role.”
In addition, President Biden plans to appoint two new commissioners to the United States Commission on International Religious Freedom: Khizr Khan and Rabbi Sharon Kleinbaum.
Khan became famous in 2016 when he and his wife, Ghazala, spoke during the Democratic National Convention as “Gold Star” parents, discussing their son, Humayun, a U.S. Army captain who died in Iraq in 2004. Mr. Khan, the founder of the Constitution Literacy and National Unity Project, runs his own law practice and has authored three books, including This is Our Constitution: Discover America with a Gold Star Father.
Kleinbaum, for her part, already served as a USCIRF commissioner in 2020 and leads the Congregation Beit Simchat Torah in New York City, a community that centers LGBTQ people. A human rights advocate, she also sits on Mayor de Blasio’s Faith Based Advisory Council and serves on New York City’s Commission on Human Rights. In addition, she is a board member of the New York Jewish Agenda and the New Israel Fund.
Prof. Vaughn E. James, Texas Tech University School of Law
As we enter the weekend, here is some news that makes the heart glad:
Created in 2017 by the city commission to stabilize the city's budget, lower property taxes, and address poverty, the foundation aimed to raise a total of $500 million by 2019. The new commitment, to be funded over a ten-year period, will establish a $500 million endowment and enable the city to balance its budget, maintain the 2017 property tax decrease for home and business owners, and support projects that address intergenerational poverty, economic development, parks improvements, youth development, affordable housing, and neighborhood infrastructure.
Speaking upon the announcement of commitment, Kalamazoo city manager and FFE co-founder and board president, Jim Ritsema, stated: "This remarkable gift is like none other. This is to our knowledge the largest gift in history to support a municipality."
"It is my hope," said Kalamazoo mayor, David Anderson, "that FFE can serve as a model to transform how we live together in community in a way that gives all of us more hope for the future."
FFE was launched with an initial donation of $70.3 million from William Johnston, head of the Greenleaf Cos., and William Parfet, retired chairman and CEO of MPI Research Co. The foundation has since received gifts including $57 million and $28.2 million from the Stryker Johnston Foundation. To date, the foundation has invested more than $120 million in support of efforts to address needs and projects identified by residents.
Prof. Vaughn E. James, Texas Tech University School of Law
Wednesday, July 28, 2021
The Giving Environment: Understanding Prepandemic Trends in Charitable Giving, a new study by the Indiana University Lilly Family School of Philanthropy at IUPUI, examines giving patterns across the past two decades from five nationally representative studies and concludes that giving to charity by U.S. households has been on the decline not only since the Great Recession but since the turn of the century: One out of two American households donated to charity in 2018 compared with two out of three in 2000.
The report, based on research funded by the Bill & Melinda Gates Foundation, noted that 66.2% of American households gave charitable contributions in 2000, a figure that dropped by 17% to 49.6% in 2018, the latest year for which data is available. It is the first time that giving has dipped below 50% of U.S. households since the studies began tracking this information.
It is also the first time since the Philanthropy Panel Study (PPS) began tracking the share of American households that donated to charity in a given year that the participation rate dropped to half.
Commenting on the study's conclusions, Una Osili, Ph.D., associate dean for research and international programs at the Lilly School, stated, “The new research offers clear evidence of a substantial decline in formal charitable giving rates prior to the unprecedented challenges of 2020.” With an eye on crowdfunding and impact investing as additional means of charitable giving, Dr. Osili further stated, “It’s also important to acknowledge the many additional ways individuals are participating in philanthropy today.”
According to a report in the NonProfitTimes which analyzed the study:
Data is not yet available to show whether the decline in participation continued in 2020. The study analyzed the latest data from the PPS, a module of the University of Michigan’s Panel Study of Income Dynamics. The study follows more than 9,000 households over time and provides the most comprehensive data available on giving trends by U.S. households.
Giving participation rates decreased for members of all racial and ethnic groups studied between 2000 and 2019. While giving to religious groups began its decline before the Great Recession in 2008-09 — 46% between 2000 and 2004 to 29% in 2018 — giving to secular causes didn’t begin to dip until after the economic downturn of 2008-09. In 2008, about 57% of households donated to secular causes, down to 52% in 2010, and a low of 42% by 2018. The decline in average amount donated to religious causes ($1,107 in 2000 to $771 in 2018) has outpaced the decline in average amount given to secular causes ($684 in 2000 to $509 in 2018).
The Times continues:
The largest drops in giving participation were found among Hispanic households, from 44% in 2000 to 25.5% in 2018, about 18.5%. During the same period, giving by Black households declined from almost 49% to less than 33% (16%) while participation by White households dropped from 71% to 58% (13%).
About one-third of the decrease in participation from 2000-16 can be directly attributed to shifts in income, wealth, and homeownership, according to the report’s authors, suggesting that factors like interpersonal trust, empathy and compassion, among others, also may play a role.
The General Social Survey (GSS), which includes questions about interpersonal trust, was another study examined for the report. It indicated that trust and giving participation rates declined simultaneously between 2002 and 2014:
The drop was more severe among Americans 30 and younger than among those older than 30. Younger Americans in 2002 reported giving participation of 84.5% with a 24.7% trust rate, compared with 78.9% and 18.6%, respectively, in 2014. Although the correlation does not mean that the decline in trust helped cause the decline in giving participation, it suggests there may be a relationship, according to researchers.
Now, that is something to think about.
Prof. Vaughn E. James, Texas Tech University School of Law
Friday, July 23, 2021
A couple more recent papers of note in the nonprofit sphere:
Andrew Hayashi & Justin Hopkins
In an era characterized by inequalities of income and influence, political polarization, and the segregation of social spaces, the income tax deduction for charitable contributions would appear to abet some of our worst social ills because it allows wealthy individuals to steer public funds to their preferred charities. But we argue that now is the time to expand and refocus—not abolish—the tax subsidy for charitable giving. Previous assessments of the charitable deduction have focused on how it helps charities but ignored an essential benefit of giving: its effect on the donor. We show that the charitable deduction increases volunteerism along with financial giving, and we report new evidence that volunteerism is associated with broader civic and political engagement, including engagement with people of different cultures, races, and ethnicities. Since people tend to undervalue the social and relational goods that flow from civic participation, the charitable deduction is a helpful corrective. We also report evidence that civic engagement is unequally distributed and propose a new refundable tax credit that turns low- and middleincome households from clients of charities to donors, which can both empower them and help remedy inequalities in civic and political participation.
The Tax Cuts and Jobs Act provided the most comprehensive update to the tax code in two decades. Born of it was the federal opportunity zone legislation that facilitates economic development in historically distressed areas by offering tax incentives. But does this “catalyst of economic growth” provide the needed relief and opportunity to the communities which it’s aimed to serve? This piece is an analysis of opportunity zones—the good, the bad, and the yet to be defined and their effect on actually curbing (or accelerating) gentrification. By considering the TCJA in general, this work evaluates stipulations regarding “Opportunity Zones,” and the concept of geographically-targeted tax policy. First, an analogization of supply-side tax policy and place-based incentivization programs; following the analysis of supply-side economics and its influence on a rising inequality; and a two-fold assessment of the factors most germane to this analysis: a historical overview of the ideological, legislative, and social factors most pivotal to the passage of TCJA, reforms are shown to have culminated not only in sky-high levels of wealth and income inequality in the U.S., but also an increasing distance and isolation between the wealthy ‘investor class’ targeted by ‘Opportunity Zone’ legislation, and the economically-distressed communities which such tax-based legislative incentives were designed to bring relief. Notably, this work will consider the impact of such legislation upon poor areas, both in terms of the apparent impact it has had upon local development and with respect to the phenomenon known as gentrification. After examining the shortfalls of the legislation, this paper offers recommendations on a robust, comprehensive response toward equitable growth for the communities intended to be served.
Thursday, July 22, 2021
Thought I'd provide some quick reflections on the NCAA v. Alston a SCOTUS case handed down a month ago on June 21.
First a personal reflection. When I joined the IRS in the mid 2000s, I was told only somewhat in jest: there are two iron clad rules in exempt organizations -- preachers and college athletics ("hook em horns") always win. This latest case suggests that this iron clad rule may be beginning to subside in part at least.
Justice Gorsuch, writing for a unanimous Court affirmed the US 9th Circuit Court of Appeals in finding that the NCAA rules restricting educational benefits offered by colleges and universities to student athletes violated the Sherman Antitrust Act.
The Court affirmed the 9th Circuit that found that the NCAA limits on educational compensation violated the Antitrust Act only insofar as they involved educational benefits rather than other forms of compensation.
Probably the most significant aspect of the case that may have impact on other places for the NCAA and college athletics is that SCOTUS rejected the idea that the NCAA ought be treated differently because it deals with amateurs and is engaged in education rather than commercial activity.
This case does not change anything for how to think about universities and college athletics qualifying as charitable organizations under section 501(c)(3). John Colombo wrote an article The NCAA, Tax Exemption and College Athletics that is still relevant to this question today.
First, I would not expect this decision to effect college athletics entities like the NCAA or the university athletic activities to be found to be not charitable. This is because Congress amended the Code to provide that promoting amateur athletics is a purpose that meets the charitable requirement of section 501(c)(3). Perhaps, if universities start paying athletes and their amateurism is called into question, this would become an issue, but as of now, I do not see it threatening college athletics on the tax exemption angle.
Secondly, this ruling does not immediately impact the unrelated business income tax and college athletics either. The IRS and Courts have generally been favorable to college athletics. Just as Colombo concluded in his article some years ago, I think it still unlikely for that favorability to end because of the Alston holding.
However, as in the first matter, should the veneer of amateur begin to fall, and college athletics begin to compensate athletes, then the question of unrelated business income tax could become a real issue again for college athletics. The most dangerous possibility for college athletics and its expected tax treatment at least was raised in a concurrence by Justice Kavanaugh who suggested he would find the limitations on all forms of compensation to violate the Antitrust Act.
Tuesday, July 20, 2021
Here are a few recent articles or writings of interest to the nonprofit world.
Ellen Aprill, Americans for Prosperity and the Future of Schedule B, Letter to the Editor in Tax Notes
"Before the July 1 decision of the Supreme Court in Americans for Prosperity,1 the California Attorney General had for a number of years required all section 501(c)(3) organizations operating in the state to file with it a full copy of its federal Form 990, the annual information return for exempt organizations. The required filing included an unredacted Schedule B, listing the donations, with names and addresses, of substantial contributors. The Supreme Court held California’s requirement to be facially unconstitutional. The Court determined that the California requirement failed an exacting scrutiny standard of review under which, to avoid violating the First Amendment, any compelled disclosure to government must be “narrowly tailored” to an asserted and substantial government interest. The Court concluded that California’s asserted need for an unredacted Schedule B in order to investigate fraud did not meet this standard."
Jennifer Bird-Pollan, Taxing the Ivory Tower, Pepperdine Law Review
The Tax Cuts and Jobs Act of 2017 introduced the first ever excise tax imposed on the investment income of university endowments. While it is a relatively small tax, this new law is a first step towards the exploration of taxing non-profit entities on the vast sums of wealth they hold in their endowments. In this Essay I take the new tax as a starting place for investigating the justification for tax exemption for universities and thinking through the consequences of changing our approach, both in the form of the new excise tax and possible alternatives. There remain reasons to be skeptical both about the design of the current tax and its ability to withstand the political efforts of the powerful set of universities who will be subject to it. Nonetheless, this new tax opens the door to a discussion of whether it is time to treat universities’ endowments more like the private equity funds they increasingly resemble.
Beckett Cantley, Ground Zero: The IRS Attack on Syndicated Conservation Easements, William & Mary Law & Policy Review
On June 25, 2020, the Internal Revenue Service (“IRS”) announced a settlement initiative (“SI”) to certain taxpayers with pending docketed cases involving syndicated conservation easement (“SCE”) transactions. The SI is the current culmination of a long series of attacks by the IRS against SCE transactions. The IRS has recently found success in the Tax Court against SCEs, but the agency’s overall legal position may be over- stated. It is possible that the recent SI is merely an attempt to capitalize on leverage while the IRS has it. Regardless, the current state of the law surrounding SCEs is murky at best. Whether a taxpayer is contemplating the settlement offer, is currently involved in an unaudited SCE trans- action, or is considering involvement in an SCE transaction in the future, the road ahead is foggy and potentially treacherous.
This Article attempts to shed light on the obstacles that face SCE transactions. This Article: (1) provides an overview of SCE transactions and the main attacks against them; (2) analyzes each of the IRS’s main attacks and the relevant issues that arise; (3) illustrates the relevant pro-taxpayer and anti-taxpayer cases on each issue; (4) discusses the subsequent considerations that taxpayers need to take into account and the future outlook of SCE; and (5) concludes with a summary of the Article’s findings.
J. Haskell Murray, The History and Hope of Social Enterprise Forms, Tennessee Journal of Business Law
This Article sketches the history of social enterprise legal forms in the United States and provides suggestions regarding their continued evolution. Social enterprises—companies that blend profit and social purpose—have a long history in the United States, but not until 2008 did a state pass a social enterprise specific statute. In that year, Vermont passed a statute allowing for formation of L3Cs, low-profit limited liability companies. The L3C was aimed primarily at funding issues for social enterprises and attempted to unlock program related investments (PRIs) for that purpose. Following the L3C form were a number of variations on a corporation-based social enterprise: social purpose corporations, benefit corporations, and public benefit corporations. These forms evolved over the past decade to address the issues of corporate purpose and social accountability. Lastly, a small handful of states passed benefit limited liability company (BLLC) statutes for companies that desired a form similar to the benefit corporation but built on an LLC framework.
Friday, July 16, 2021
I have been slow in getting to this, but last month the Nonprofit Organizations Committee of the ABA Business Law Section announced its 2021 Outstanding Nonprofit Lawyer Award recipients. While most of the recipients are practicing lawyers, each year the Committee awards an Outstanding Academic Award, This year's award went to Assistant Professor Priya Baskaran at American University's Washington College of Law. Here is her bio from the award announcement:
Priya Baskaran is an Assistant Professor of Law and Director of the Entrepreneurship Law Clinic (ELC) at American University Washington College of Law. Professor Baskaran is the founder and current director of the ELC, which provides free transactional legal services to organizations dedicated to economic justice and revitalization in greater Washington, D.C. Prior to joining the faculty at American University Washington College of Law, Professor Baskaran was an Associate Professor at West Virginia University College of Law where she taught in the Business Law curriculum and served as the Director of the Entrepreneurship & Innovation Law Clinic (EILC). Professor Baskaran has dedicated her teaching career to furthering economic justice in both urban and rural communities through transactional law. In West Virginia, she launched a novel program to address access to justice barriers faced by nonprofits and community organizations. Professor Baskaran partnered with Legal Aid of West Virginia to train transactional pro-bono attorneys and expand legal services across the state. As part of this collaboration Professor Baskaran provided ongoing training for Legal Aid attorneys on nonprofit organizations and relevant tax regulations. She also served as co-counsel for cases, assisting Legal Aid attorneys in more complex representations. In addition to her work with rural communities, Professor Baskaran also taught in the Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center where she was a Visiting Professor and Supervising Attorney. Professor Baskaran previously worked as a Staff Attorney for the Community and Economic Development Clinic at the University of Michigan Law School, where she provided transactional legal services to community-based organizations, non-profits, and small businesses in the City of Detroit.
Professor Baskaran’s publication and advocacy record reflects her passion for pursuing economic justice through transactional lawyering. She has written extensively on using transactional law and social enterprise to further economic justice. She has also worked closely with nonprofit organizations advocating for economic enfranchisement of returning citizens, including testifying before the West Virginia State Advisory Committee for the U.S. Commission on Civil Rights. As a teacher, Professor Baskaran encourages her students to embrace opportunities to facilitate change and support the public interest through transactional lawyering. She reminds students that such opportunities are not just limited to public interest careers, but through meaningful pro-bono engagements available to all attorneys—including those in traditional corporate practice.
Professor Baskaran is a graduate of New York University and the University of Michigan Law School.
Tuesday, July 13, 2021
The past month has seen a number of significant developments relating to donor advised funds, including the introduction of the Accelerating Charitable Efforts Act ("ACE Act") in Congress, a study of Michigan community foundation DAFs, and media criticism of various uses of DAFs.
Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) announced the introduction of the ACE Act in early June. The legislation aligned with the priorities and some of the proposals by the Initiative to Accelerate Charitable Giving. Some organizations quickly expressed strong opposition, including the Council on Foundations and the Philanthropy Roundtable. Others reserved judgment, awaiting further study and input from their members, including Independent Sector and the United Philanthropy Forum, although they joined a letter from some critics expressing concerns about the Act. Coverage: Devex; MarketWatch.
Also last month, the Council of Michigan Foundations released a study titled "Analysis of Donor Advised Funds from a Community Foundation Perspective." Here are its Key Findings:
- DAFs compose a considerably smaller percentage of endowments of Michigan community foundations compared to community foundations nationwide. The median community foundation in the United States holds roughly one in four dollars of its endowment on behalf of a DAF — compared to one in ten for Michigan’s community foundations.
- The median Michigan DAF experienced investment returns consistent with the median Michigan community foundation. DAF gains were slightly higher, and losses slightly greater, than the median community foundation’s results — suggesting that the median DAF accepts more risk with the opportunity for higher return.
- The median payout rate of all Michigan DAFs during 2017–2020 is 2% lower than the median Michigan private or community foundation. However, when only including DAFs that made a payout during a given year, the median DAF payout rate moves to 2% or more higher than the median private or community foundation payout rate.
- In any given year included in this study (2017–2020):
- One in ten Michigan DAFs received inbound contributions but made no outbound distributions (grants).
- More Michigan DAFs made a distribution (more than 60%) than received an inbound contribution (roughly 40%).
- Although an average of one in four Michigan DAFs was quiet (inactive) in any single year, across the four study years less than 10% of all Michigan DAFs were quiet in every year. These quiet DAFs hold less than 5% of total DAF assets in the state.
- DAFs that were active in every year 2017 through 2020 — with a contribution, distribution, or both — comprised the majority of Michigan’s DAFs (59%), received nearly all of the contributions (96%), made nearly all of the distributions (88%), and held nearly all of the assets (82%).
- In 2020 (the most recent year available), just under half (43%) of Michigan’s DAFs paid out 5% or more of their balance, and almost a third (32%) paid out 9% or more.
- Looking at the type of DAF:
- Michigan’s DAFs are nearly evenly divided in both number and total assets between endowed and spendable DAFs, with endowed DAFs holding just over 50% of all assets. However, spendable DAFs comprise nearly three-quarters of all contributions and distributions.
- One-quarter of Michigan’s spendable DAFs distribute nearly half of their balance in any given year, and one in every ten spendable DAFs distributes almost all of the available balance (80% or more) in any given year.
- Out of the approximately 2,600 DAFs housed at Michigan’s community foundations, only 2% were established by a private foundation. Balances, contributions, and distributions were also all in single digit percentages. Therefore, private foundation-established DAFs are rare within Michigan’s DAF universe.
- There is evidence that DAFs responded to the crises in 2020.
- Two-thirds of all DAFs made distributions in both 2019 and 2020, with just over one-third (35%) increasing both the dollars distributed and the payout rate in 2020 compared to 2019.
- Nearly one in five distributed dollars in 2020 came from DAFs that made no distributions during 2019.
- The median distribution from a Michigan DAF rose from $8,500 in 2019 to $9,750 in 2020.
Finally, there have been several news stories and opinion pieces including criticism of DAFs. These included a N.Y. Times story "How Long Should It Take to Give Away Millions?", an L.A. Times editorial "Charitable donations are a form of influence-peddling. And they should be stopped" (use of DAFs to avoid California's legally required public disclosure of the sources for donations requested by politicians), and a Daily Beast story "Christian Billionaires Are Funding a Push to Kill the Equality Act" (focusing on donations from the DAF sponsor National Christian Charitable Foundation).
Monday, July 12, 2021
The recently released 2020 IRS Data Book (for the fiscal year ending 9/30/20) contains the usual high-level statistics for exempt organizations, including:
- Number of tax-exempt organizations and certain trusts (1,907,711) (Table 14), with most (1,753,824) tax-exempt organizations under section 501(c), including 1,404,170 under section 501(c)(3).
- Applications for tax-exempt status closed (95,864) (Table 12), with 85,509 approved, 94 disapproved, and 10,261 resolved in other ways (withdrawn, lacked required information, otherwise incomplete applications, etc.). Most (89,477) of the applications were under section 501(c)(3).
- Notices of intent to operate under section 501(c)(4) (3,219) (Table 13), with 2,796 acknowledged and 423 rejected (because, for example, not required as the organization filed a Form 990 series return before 7/8/16, already exempt under another IRC provision, or the IRS was unable to confirm the submitted employer identification number).
- Number of returns and other forms filed by tax-exempt organizations (1,360,719) (Table 2), down from fiscal year 2019 as were returns and other forms filed by most other types of entities, which likely reflects delayed processing of returns and other forms caused by the pandemic. Of the returns and other forms filed by tax-exempt organizations, 1,138,931 were filed electronically (Table 4).
- Examinations of tax-exempt organizations (Table 21), including
- 1,417 Forms 990, 990-EZ, and 990-N;
- 178 Forms 990-PF, 1041-A, 1120-POL, and 5227;
- 427 Forms 990-T; and
- 356 Forms 4720.
In addition, the Statistics of Income program recently released its Annual Extract of Tax-Exempt Organization Data for calendar year 2020, drawn from Form 990, Form 990-EZ, and Form 990-PF. It provides granular data from these returns; for example, the Form 990 extract has 273,972 rows (one for each employer identification number) and 220 columns.
Thursday, July 8, 2021
Last week the Boy Scouts of America filed their fourth amended Chapter 11 plan. The PDF of their filing is almost 500 pages and, since I am not a bankruptcy person, I'm not going to go through all of it.
But the AP has a story raising some highlights of the filing. It looks like the big resolutions are that local councils have agreed to contribute $600 million to a fund for victims, which doubles their previous offer, in exchange for release from liability.
There are still some sticking points but, according to the AP, those sticking points are largely between the victims of sexual abuse and the Boy Scouts's insurers.
As I've said before, given both the size of the Boy Scouts and the size of the potential settlement, this is one of the biggest nonprofit stories in a long time. It's worth continuing to keep an eye on.
Samuel D. Brunson
Tuesday, July 6, 2021
I have written a detailed analysis of last week's Supreme Court donor disclosure decision, Americans for Prosperity Foundation v. Bonta. It is available at Law360. Here are the first several paragraphs:
On July 1, the U.S. Supreme Court issued its opinion in Americans for Prosperity Foundation v. Bonta, striking down as unconstitutional California's requirement that charities registered in that state submit Schedule B to Form 990/990-EZ/990-PF, the federal tax schedule with identifying information for major donors, to the state on a confidential basis.
The decision not only prevents California from requiring all charities registered in that state to provide this information but also has implications for other donor disclosure requirements. Such requirements include ones imposed by a handful of other states as part of their regulation of charities, the federal tax law requirement that charities exempt under Internal Revenue Code Section 501(c)(3) and political organizations exempt under Section 527 disclose their donors to the Internal Revenue Service and, for private foundations and political organizations, also to the public, and federal and state donor disclosure laws relating to elections.
My read of the opinion is that it contains two significant holdings that will both encourage future constitutional challenges to these requirements and give those challenges a better chance of succeeding than they had under prior rulings.
About two weeks ago, I read a New York Times article about the latest round of MacKenzie Scott's philanthropy. The article caught my eye for two reasons: first, a $2.7 billion round of donations is massive. And second, a lot of the money was going to arts organizations (and, as the article noted, dance organizations).
At this point, I kind of have a long history of attending dance performances. I'd been to very few before I moved to New York and met my now-wife. I'm more of a music person, personally, but my wife is a dancer and a dance teacher. So I'm familiar with several of the names on this latest round of funding.
And what was interesting to me was the framing. The donations were framed as being made to "organizations which are themselves historically underfunded." Which is hugely laudable and maybe not entirely accurate. Two names especially caught my eye: Alvin Ailey ($20 million) and Jazz at Lincoln Center (some amount that I can't find online in a quick search).
Monday, July 5, 2021
One June 30, Yale announced that its drama school had received a $150 million gift from David Geffen. With that gift, Yale has eliminated tuition for its drama students. It explained that his gift has "remov[ed] financial barriers to access."
According to the school, the $150 million donation is the largest in the history of American theater. And when you make the largest gift in the history of American theater, you get some benefits. Geffen's benefit? The Yale drama school has renamed itself--it is now the David Geffen School of Drama at Yale.
This isn't the first time a wealthy donor has gotten their name put on something they donated to, of course. It's not even the first time David Geffen has gotten his name on something: Lincoln Center's Avery Fisher Hall has been David Geffen Hall since he gave $100 million to Lincoln Center in the mid-2010s (or at least since Lincoln Center bought back the naming rights from the Fisher family).
Thursday, July 1, 2021
It’s rare we get a Supreme Court decision that falls squarely within the realm of “nonprofit law,” but today’s the day! The Court decided Americans for Prosperity Foundation versus Bonta. 501(c)(3)-exempt organizations challenged, on First Amendment grounds, a California law that required disclosure to the state of major donors to the organizations. Largely as expected, the Court vacated the 9th Circuit and struck down California’s donor disclosure requirements. Here’s my quick take, although I suspect other bloggers will be writing about this case as well.
No Threshold Chilling Showing is Required. One of the biggest divides between the majority and the dissent is whether the plaintiffs must first make a threshold showing that the disclosure requirement is meaningfully chilling its speech or its associational interests. As long as there is a “risk” of such a chill, the majority immediately places the burden on the government to show that the disclosure is justified. The dissent, in contrast, would first require "plaintiffs [to] plead and prove that disclosure will likely expose them to objective harms, such as threats, harassment, or reprisals."
Standard of review. The biggest thing we needed from the Court was clarification about what the standard of review was. And we didn’t get that. Instead, we have this breakdown:
Chief Justice (plurality in part II-1-B): "Regardless of the type of association, compelled disclosure requirements are reviewed under exacting scrutiny."
Thomas: Apply strict scrutiny: "Laws directly burdening the right to associate anonymously, including compelled disclosure laws, should be subject to the same scrutiny as lawsdirectly burdening other First Amendment rights."
Alito + Gorsuch: don't need to decide between strict and exacting scrutiny because California's law fails both (and "[t]he question is not even close.")
We fortunately did get some clarification on what exacting scrutiny means, at least in this context: “Where exacting scrutiny applies, the challenged requirement must be narrowly tailored to the interest it promotes, even if it is not the least restrictive means of achieving that end.” So the government must show more than a “substantial relation” between its goals and its ends, but need not show that it is the least restrictive. We’ll see how that turns out in practice.
Applying the standard.
The majority agrees "that California has an important interest in preventing wrongdoing by charitable organizations." However, the Court perceives a mismatch between amount of info disclosed (tens of thousands of charities) and the number of cases where that information is used/investigated (tiny). The Court describes the State's interest in broad proactive disclosure as "less in investigating fraud and more in ease of administration." Via Twitter, Phillip Hackney (@EOTaxProf) argues that this downplays the State's interests: first as a deterrent to those who might misuse the laws, and second to know who might be misusing a charity for fraudulent purposes. Without that information regulators are in the dark and unable to see fraudulent patterns." But the Court does not discuss this.
It's also significant that the district court made factual findings following a bench trial that rejected many of the state's asserted interests. The majority's ability to cite deference to the district court's findings allowed it to avoid a fact-intensive application of the standard.
Tax-Exemption. The Court left open the possibility that such disclosure requirements could be validly imposed through "revenue collection efforts and conferral of tax-exempt status." Recall that the California rules were implicated not by a charity's tax exempt status but merely operating in the state/soliciting donations. As the Court's citation to Regan v. Taxation with Representation confirms, the government has more latitude to impose restrictions as a condition of tax-exempt status (which is considered a government benefit) than it does when limiting/restricting/impeding on a constitutional right. Therefore, there's nothing about the opinion's logic that would call into doubt the constitutionality of the disclosure requirements in federal tax law.
Optics. One final note from me is that I worry about the way that this decision has been described in public discourse. This is ultimately a case about disclosure requirements for nonprofits that are not engaged in electioneering. The plaintiffs had support from a range of nonprofit ideologies -- such as the ACLU and the NAACP. This was not simply a case about campaign finance, or about conservative dark money. The news clips and commentary that reduce the case along political lines may be more dramatic and may fit in with some broader narrative, but they elide the actual dynamics of what is going on in the case.
That's my quick take. Look forward to reading others' views!
Sunday, June 27, 2021
In a 2000 EO CPE article entitled Private Schools, the Service stated, “private schools have long been of concern to the Service.” As stated therein, the Service’s determinations of whether private schools qualify for exemption under IRC 501(c)(3) were addressed in many of the CPE texts from 1979 through 1989. In Private Schools, the Service provided an important historical review, a discussion on the requirements of Rev. Proc. 75-50, 1975-2 C.B. 587, and a summary of the various filing requirements that apply to private schools.
In recounting the history of this problem, the CPE article notes the background and current status of an injunction (still in effect) that requires the Service to deny tax-exempt status to racially discriminatory private schools in Mississippi. The injunction resulted from a 1970 class action filed to prevent the Service from recognizing the tax-exempt status of or allowing IRC 170 deductions to private schools that engage in racial discrimination against black students. See Green v. Connally, 330 F. Supp. 1150 (D. D.C. 1971), aff'd sub nom., Coit v. Green, 404 U.S. 997 (1971). It is interesting to examine the injunction in place for Mississippi in considering how to handle the systemic problem of racially discriminatory private schools today. The CPE article states the following regarding Mississippi private schools:
These so-called “Paragraph (1) Schools” must demonstrate that they have adopted and published a nondiscriminatory policy. They must also provide certain statistical and other information to the Service to establish that they are operated in a nondiscriminatory manner. Most importantly, they must overcome an inference of discrimination against blacks.
As of now, the injunction from Green only applies to Mississippi schools. Clearly, Green provides a model for how to implement the restriction against private schools’ engaging in racial discrimination. The focus on “statistical” information is really the key. As we all know, numbers do not lie. If private schools were free and open to all, the student body at private schools would not be 90% or more white. The same is true regarding the bleak number of black teachers at private schools. The injunction from Green could cure some of the prevalent and pervasive problems of racial discrimination in private schools throughout the South.
Hoffman Fuller Associate Professor of Tax Law
Tulane Law School
Saturday, June 26, 2021
Last month, Forbes published an article entitled The Racist History of “School Choice.” The article underscores yet another way that racially discriminatory private schools are subsidized. Raymond Pierce points out that for equitable education to exist, public schools need true reform, such as more funding for faculty development and other support systems necessary for nurturing high-quality learning environments. Given the need for greater investment into public schools, the last thing that should be done is to take money from public schools that are struggling and give it to largely segregated private schools, but that is what is happening under a common practice referred to as “school choice.” Not surprisingly, “school choice” has its underpinnings in a racist history. Pierce states, “We are less than six months into 2021, and to date, ‘school choice’ legislation has been introduced in at least 20 states, half of which are in the South.” Generally, the legislation involves tax credits, school vouchers, or “education savings accounts.” A common thread is that these bills take money from “underfunded, under-resourced public schools” and give it to private schools. While some proponents maintain that the bills will provide better education opportunities for Black and Brown students and those from low-income families, the reality is they do not according to Pierce.
The article traces the roots of “school choice” legislation to a history of racism and school segregation that is important to understand. Interestingly, public education in the South emerged during Reconstruction. When the Fourteenth Amendment was passed, education in the South was mostly privatized and available only to white children from wealthy families. Black children and poor white children typically were not educated at all. The Southern Education Foundation (SEF), which was featured in the June 21, 2021 post, was one of the first proponents of public education. The Peabody Fund (which preceded SEF), provided funding as well as drafted and promoted legislation calling for funding of public education through taxes. Former slaves strongly supported public education initiatives because they viewed education as essential to true freedom and had a strong desire to have their children educated. As a result of public schools, literacy among both Black and white students increased tremendously. Additionally, starting in 1913, the Anna T. Jeanes Fund (another precursor of SEF), supported “Jeanes Teachers” who traveled across the South to strengthen curriculum and instruction in rural schools that Black students attended. They taught students and community members how to excel independently and economically and how to overcome the challenges of the Jim Crow South. From 1910 through 1940, public education in the South grew dramatically.
However, in the 1940’s, Southern white students began leaving public schools to attend private schools to avoid integration after it was clear that the “separate but equal doctrine” from the 1896 Plessy v. Ferguson Supreme Court ruling would be dismantled. After the Supreme Court’s landmark decision in Brown v. Board of Education in 1954, segregation was no longer constitutional, and school vouchers became a means for subverting integration. During the 1950’s, Southern politicians passed legislation establishing tuition voucher or grant programs that were used to annihilate completely the public school systems, instead of desegregate. Pierce goes on to provide an illustrative example from Prince Edward County, Virginia where public schools were closed for five years until the Supreme Court intervened. Ultimately, the Supreme Court ruled in Griffin v. School Board of Prince Edward County that the county’s transferring of public funds to private white schools, instead of supporting public schools, was a violation of the equal protection clause of the Constitution. The Court stated that private school tuition assistance covered up as “school choice” was a tool to “systematically exclude Black children from the educational process.”
Despite the prohibition against this approach, Southern legislatures used it as a “blueprint” in an attempt to circumvent integration. From 1954 to 1964, Southern legislatures passed at least 450 laws and resolutions to prevent public school desegregation, many of which permitted the transfer of public funds to private schools. From 1958 to 1980, private school enrollment in the South increased by over half-a-million students. Indeed, hundreds of private segregated schools were established. At the same time, schemes to fund private schools at the expense of public schools, by using vouchers or tax credits to cover large portions of student tuition and operating costs, also increased. By the 1980’s, the 11 states that made up the former Confederacy had enrolled 675,000 - 750,000 white students. Of these students, 65 to 75% attended schools where 90% or more of the student body was white.
Today, school vouchers still are used to support segregated private schools and to continue de facto segregation. The numbers speak for themselves. In the United States, public schools have a student body that is comprised of 51 % white children and 48.3% children of color (mainly Black and Latino). In stark contrast, almost three out of every four private school students are white. As Pierce notes, this is part of a historical pattern.
The question becomes whether tax funding and subsidizing of a directed, intentional system of inequality, namely segregation, should be tolerated. As I recounted in the June 22, 2021 post, private schools are required to publicize their policies disavowing racially discriminatory practices. However, the numbers show that there are unspoken policies and practices that are being used to perpetuate both segregation and unfair treatment. One solution is to develop a better way of reporting racially discriminatory treatment so that private schools engaging in such practices would lose their tax-exempt status. Another solution is to re-examine the concept of “school choice” programs and school vouchers in their proper historical context and to require some form of accountability for the low numbers of minority enrollment in the private schools benefiting from these programs.
Hoffman Fuller Associate Professor of Tax Law
Tulane Law School
Wednesday, June 23, 2021
Historically, since private schools have not received federal funds, they have not been subject to civil rights laws, including Title VI of the Civil Rights Act of 1964 (“Title VI”), which prohibits discrimination on the basis of race, color, or national origin. However, loans associated with the Paycheck Protection Program (“P.P.P. loans”) have changed this landscape. The $659 billion program was intended to help, among others, nonprofits who needed assistance with making payroll by using loans backed by the Small Business Administration. Perhaps surprisingly, in the words of The New York Times, it was private schools who “cashed in” on the P.P.P. loans. See Private Schools Cashed in on P.P.P. Funding.
While public schools were ineligible for P.P.P. loans, private and charter schools could and did apply for loans, despite their multi-million dollar endowments. When P.P.P. funding dissipated quickly, the Small Business Administration revised its guidelines to clarify that those with other financing options should stop submitting applications. Yet, in order to stem the tide, additional rule tightening was required. Minority focused lenders and watchdog organizations raised concerns about equity and loopholes in terms of the loans.
Nevertheless, there may be a silver lining to private schools’ cashing in on P.P.P. loans. Perhaps unknowingly, the private schools have made themselves subject to Title VI requirements by virtue of receiving federal funds. The P.P.P. loan application specifically states that borrowers must comply with several civil rights laws, such as Title VI. As noted above, Title VI prohibits discrimination on the basis of race, color, or national origin. This means that private schools cannot engage in racial discrimination against employees, students, parents, or other participants. This includes in terms of employment, admissions, enrollment, and other treatment.
An interesting question is whether Title VI imposes prohibitions against racial discrimination not covered by section 501(c)(3). One definite difference is that private schools who have accepted P.P.P. loans now may have to pay compensatory damages to individuals who prove intentional discrimination in lawsuits against the schools. In addition, injunctive relief may be awarded to such individuals. At the very least, due to the receipt of P.P.P. loans, some private schools now are subject to causes of action from individuals and families who have faced racial discrimination at their hands. Over the years, organizations such as the ACLU have despaired that no such actions were possible, but that has now changed.
Hoffman Fuller Associate Professor of Tax Law
Tulane Law School
Tuesday, June 22, 2021
Tax-exempt private schools are required to have and to publish a racially nondiscriminatory policy. In 2019, the IRS released Rev. Proc. 2019-22, which allows private schools to use their Internet websites to publicize such policies, a requirement for exemption under section 501(c)(3) of the Internal Revenue Code. By way of background, Rev. Proc. 75-50 outlines the guidelines and recordkeeping requirements for determining whether a private school has a racially nondiscriminatory policy and in fact operates in accordance with such policy. Rev. Proc. 75-50 applies to private schools that are applying for tax-exemption and to private schools that already are tax-exempt.
Specifically, Rev. Proc. 75-50 requires, inter alia, a private school to include a statement acknowledging it has a racially nondiscriminatory policy “and therefore does not discriminate against applicants and students on the basis of race, color, and national or ethnic origin.” The statement must be included in one of the listed governing documents and in its brochures, catalogues, and other written ads for prospective students. Moreover, the school must make the policy “known to all segments of the general community served by the school.” Newspaper circulation and certain broadcast media are listed as acceptable means of doing so.
Rev. Proc. 2019-22 modified Rev. Proc. 75-50 by naming a third means of making a racially nondiscriminatory policy known in the manner prescribed: the school’s Internet homepage. Generally, the policy must be displayed on the school’s publicly accessible Internet homepage throughout the taxable year. Rev. Proc. 2019-22 even sets forth a sample notice for a private school’s homepage:
NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS
The M school admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.
There are also enumerated factors used to determine whether the notice is “reasonably expected to be noticed” by homepage viewers, such as the size, color, and graphics used; whether the notice is unavoidable, etc.
Form 1023 is used to apply for tax-exemption under section 501(c)(3). Schedule B pertains to Schools, Colleges, and Universities. On Form 1023, there are a number of questions concerning the requirement of a racially nondiscriminatory policy for private schools. Moreover, private schools applying for tax-exemption are informed that they will need to file an annual certification regarding their policy. (Interestingly, there are also a number of questions under Schedule B that deal with racial discrimination, including whether the private school was established to subvert integration and the racial composition of the student body, faculty, and administrative staff).
Generally, tax-exempt organizations, including numerous private schools, must file an annual reporting return (Form 990 or 990-EZ). The return includes a question allowing private schools to satisfy the aforementioned annual certification requirement. Many of the other questions permit a private school to self-report and answer “yes” or “no” in regard to whether it maintains records regarding racial composition, engages in discriminatory practices in terms of admission policies and scholarships, etc. This comes as no surprise since our tax system is based largely on self-reporting. However, self-reporting depends on the overall honesty of taxpayers. Every year a tax student asks the inevitable question midway through the material on gross income (or sometimes earlier during the Cesarini/treasure trove lecture): How would anyone ever know? I respond by saying that I am there to teach them what the law says and how to abide by the law, and then I remind them that God will know. Many students who are facing or who have faced racial discrimination at private schools undoubtedly ask whether anyone will ever know about the systemic challenges they face in applying or almost daily while engaging in the necessary and noble pursuit of acquiring an education.
Perhaps one way the IRS could gain valuable insight into the true encounters of racial discrimination is to require private schools also to publish on their Internet homepages a number or a link to a nonprofit organization that would report such incidents to the IRS once a threshold number was reached. If amendable, the National Association of Independent Schools (NAIS) could serve in this role as it has already publicly announced that it plans to release initiatives to stop systemic racism. See NAIS Statement on Addressing Anti-Blackness and Systemic Racism.
Hoffman Fuller Professor Tax Law
Tulane Law School
Monday, June 21, 2021
It is widely known that private schools in the South were used during the later part of the 20th century as a way to escape mandatory desegregation mandates. However, it may come as a surprise that many private schools in the South and across the country continue to engage in racially discriminatory practices today and still benefit from federal tax-exemption. In other words, as two of my tax colleagues pointed in their article “Subsidized Injustice,” tax money is used to subsidize or fund these discriminatory schools. If such schools faced the loss of tax-exemption for racially discriminatory policies and practices, the two-fold fall out effect would require them to change their harmful ways. First, a loss of tax-exemption would mean the schools would have to pay tax on their net income for a given year. Many private schools cost on average over $20,000 per student per year. At the same time, they tend to have numerous business deductions, including salaries, which would decrease their overall tax liability. Second, a loss of tax-exemption would mean such schools could no longer provide donors with a tax deduction for their contributions. Most private schools rely on donations from affiliated families and board members to support their programs. In addition, as observers have noted, a loss of tax-exempt status would "signal" to potential applicants and current families that a private school was engaging in racially discriminatory practices.
It is important to observe the history of private schools in the South, as it provides important insight as to the continued racially discriminatory practices today and how tax law can provide a solution. As the Southern Education Foundation explains, a large-scale exodus from public schools in the South started in the 1940’s, which resulted in an approximately 43% increase in private school enrollment. This exodus from public schools began in the 1940s, after US Supreme Court decisions forbidding segregation in graduate and professional schools in the South. Even though the Supreme Court decisions only dealt with higher education, they were a signal to Southern families that public elementary and secondary schools were next.
Once the Supreme Court destroyed the “separate but equal” doctrine, another road to staying “separate” emerged in the form of private school migration. Notably, from 1950-1965, private school enrollment grew at rapid rates across America, with the South having the highest rates. According to the Southern Education Foundation, by 1958, private school enrollment in the South increased by over $250,000 in an eight-year period, resulting in one million students by 1965.
To bolster this migration, Southern state legislatures enacted approximately 450 laws and resolutions between 1954 and 1964 to subvert desegregation, including by specifically authorizing the systematic transfer of public assets and monies to private schools. Although ultimately federal courts invalidated these laws, which also caused some Southern states to recant, many private schools still found more secretive ways to funnel public funds to private schools.
During the next wave of migration from the mid-1960s to 1980, as public schools in the Deep South began to slowly desegregate due to federal court orders, private schools increased their enrollment by more than 200,000 students. Approximately 67% of the growth occurred in the following six states: Alabama, Georgia, Louisiana, Mississippi, North Carolina, and South Carolina. At the same time, the issue of federal tax exemption for segregated private schools came to the forefront. In the early 1960s, the IRS temporarily suspended applications of self-professed “segregation academies” given the pressure from civil rights organizations. In 1970, the IRS announced a non-discrimination policy applicable to private schools, which due to continued resistance took eight years to implement.
Meanwhile, private school enrollment in the South grew at an alarming rate. During the beginning of the 1980’s, the eleven Southern states that had made up the Confederacy enrolled around 675,000 and 750,000 white students. The racial composition of these schools was startling, with an estimated 65 to 75 percent of enrolled students attending schools having a student body that was 90 percent or more white.
In the end, the IRS was successful in implementing its new policies, but faced criticism from religious private schools in the South. Eventually, this controversy led to the landmark 1983 case, Bob Jones University v. United States, 461 U.S. 574 (1983). In Bob Jones, the Supreme Court held that the Internal Revenue Service (IRS) may deny tax-exempt status to schools with racially discriminatory policies. Such policies were denounced as “contrary to established public policy,” despite allegedly being based on religious beliefs.
Due to the new IRS rules and the Bob Jones case, all private schools in the South adopted statements of non-discrimination in admission and began admitting at least a small number of black students and other students of color. The story should have ended back in 1983 of federally funded segregation in private schools and a new story of integration and opportunity should have started. Unfortunately, the racist practices in private schools simply took on more covert forms in the South and in other areas, and private schools have continued to reap the benefits of tax exemption.
Hoffman Fuller Associate Professor of Tax Law
Tulane Law School
Thursday, June 17, 2021
This year's American Foundation for Suicide Prevention’s overnight fundraising event will be virtual. The Overnight Virtual Experience, an online event which will take place the night of June 26 through the morning of June 27, is a culmination of a month-long physical movement and self-care activities drive.
According to a report in the NonProfit Times,
The lead-up activities to June 26 consist of four components: physical activities, including walking at least 16 miles or other actions; social engagement, including guidance on using social media to share experiences and spread information online; fundraising milestones, with a variety of tiered rewards; and, programming on June 26, including time to honor loved ones, connect with the community and, for those who need it, healing activities. All participants will receive a luminaria they can decorate as they wish, including to honor those loved and lost, and which they can share via an app during the June 26 virtual event.
The Times continues:
The 2021 Overnight Virtual Experience marks the second year in a row the event will be held virtually. In 2020, the roughly 3,300 participants raised more than $1.6 million. Last year’s event was initially planned as an overnight walk, but was recast as a virtual experience in April 2020. At that time, a fundraising minimum of $1,000 per participant was waived.
This year’s virtual event similarly does not have a fundraising minimum, although participants who reached multi-tiered levels of fundraising by May 31 were given a variety of premiums. As of June 11, pledges totaled just less than $700,000, but American Foundation for Suicide Prevention Public Relations Director Alexis O’Brien was optimistic final totals would exceed $750,000.
According to the Times, some aspects of the fundraiser have carried over to 2021. As in the past, "each participant is paired with a Walker Coach who provides guidance and encouragement regarding reaching fundraising milestones, and who helps measure impact as participants disseminate information regarding mental health and suicide among their communities."
Unfortunately, the organization expects the 2021 fundraising level to fall short of what the organization realized during two in-person events in 2019. That year, more than 1,400 participants in San Francisco raised over $1.6 million, while a Boston event that boasted 2,400 participants brought in more than $2.7 million.
According to O'Brien, the Overnight should return to an in-person event in 2022.
Prof. Vaughn E. James, Texas Tech University School of Law