Wednesday, June 12, 2024

Excellence and Financial Crisis in Nonprofit Theatre

Maleah Joi Moon (foreground) and the company of ‘Hell’s Kitchen.’

Nonprofit theatre is so financially sick that a group of Senators have proposed a $1 billion cure called the "Stage Act."  I am not completely unsympathetic, mind you, but I am not sure about spending $1 billion annually on it either.  Only people sufficiently well off to have disposable income can spend a week or a four days in New York to see a Broadway play anyway.  I took my daughter years ago when she thought she wanted to be an actress. We saw Chicago, The Musical. The seats alone set me back about $400.  A Broadway tax exempt nonprofit theatre can legitimately charge as much, but that can't possibly be charitable.  Its a good thing the University paid for my flight and hotel.  Official business, you know. 

It's not that people in nonprofit theatre are getting rich or anything.  It's just that commercial nonprofit theatres have to charge so much to stay afloat that they necessarily exclude poor and most middle income people most of the time. But Broadway is not really an accurate exemplar.  Noncommercial community playhouses, the kind in Nebraska for example, are accessible and great for communities.  Even in big cities but especially in small towns where they often conduct classes and host children's performances.  I think they would survive even if we let the Broadway nonprofits -- the commercial ones, I mean -- die peacefully.  Anyway, by the sound of things below, nonprofit theatre generates higher performance art than anything else.  So I suppose nonprofit theatre is worth saving.  The bill also calls for a study designed to find long-term solutions:

The Wall Street Journal has an interesting story about how nonprofit theatre has produced the best plays this year:  

Although it has been little remarked-upon, what’s most notable about this season’s crop of Tony Award contenders in major categories is their provenance. All five best-play nominees and all five for best musical were produced or initially produced (or both) at nonprofit theaters—an unusual occurrence.  Remarkably, Manhattan Theatre Club presented three of the five candidates for best play: “Prayer for the French Republic,” “Jaja’s African Hair Braiding” and “Mary Jane”—the last of which was originally produced at another nonprofit, New York Theatre Workshop, which also first presented this season’s front-runner, by a mile, for best musical revival: “Merrily We Roll Along.” “Mother Play” came from Second Stage, while “Stereophonic,” the category’s lone commercial production, began life at Playwrights Horizons.

There are now four nonprofit theaters in the city with Broadway venues. The Roundabout Theatre Company and Lincoln Center Theater have had theirs for decades, with MTC and Second Stage more recently acquiring Broadway spaces. The generally fine quality of this year’s best-play contenders suggests that these companies are an important bulwark keeping Broadway from becoming a shop window for splashy, crowd-seducing musicals. As for the new musicals in the Tony sweepstakes, “Suffs” and “Hell’s Kitchen” started at the Public Theater, while “Illinoise,” “The Outsiders” and “Water for Elephants” were first staged at regional nonprofits. This phenomenon, increasingly pronounced, illustrates how intertwined the nonprofits and Broadway have become—and points to a potential danger sign. The most troubling development in the theater ecosystem since the Covid-19 pandemic has been the financial turmoil faced by nonprofit institutions, which in turn threatens the future pool of potential Broadway productions.

Among the more notable headline-makers in this regard have been the tumult at the Center Theatre Group in Los Angeles, which laid off roughly 10% of its staff and halted all programming at its major incubator of new work, the Mark Taper Forum (it recently announced plans for a resumption); the reduction of the Public Theater’s staff by an astonishing 19%; and, most recently, the nearly $4 million deficit in one season at the prestigious Guthrie Theater in Minneapolis. The announcement that New York’s Second Stage would be giving up its off-Broadway space—where such notable Tony winners as “Dear Evan Hansen” and “Next to Normal” were first seen in New York—was also disheartening. And the problem is likely to get worse before it gets better. If it gets better.

. . . 

darryll k. jones

June 12, 2024 | Permalink | Comments (0)

DEA Nullification of Religious Drug Use and Tax Exemption


We have previously complained that the Iowaska Church of Healing was suing the wrong agency.  That's the Church that has an absolute right to tax exemption even though it uses the Ayahuasca -- "huasca" -- plant in its religious sacraments.  The Supreme Court confirmed a few years back that the government may not prohibit organized worshippers from using huasca in their sacraments.  So the illegality doctrine cannot be used to deny it tax exemption. 

The Church filed a 1023. The IRS rejected it but the told the Church it would be tax exempt as soon as DEA issued a license.  A license DEA is absolutely required to issue.  Well, the Church had previously filed an application for a license but DEA is dragging its feet.  The application has sat on someone's desk over at DEA for at least five years now.  Its hard to get a "yes" from people trained to say "no," I'm just saying.  So Iowaska sued the IRS, inexplicitly omitting DEA as a defendant.  And now the case is pending before the 7th Circuit, not over the substantive issue, but whether Iowaska has standing to sue the IRS.  It doesn't because whatever relief granted against the IRS will not resolve the case.  Iowaska will still need to get a permit from DEA.  That's the part I have complained about. Iowaska should have sued DEA years ago instead of chasing the IRS down a rabbit hole.  

As it turns out, GAO confirms that DEA is literally dragging its feet.  And that Iowaska should have sued DEA in the first place.  GAO found that although there have been 24 applications for licenses to use controlled substances in religious sacraments, not a single one has been granted. Ever. These guys are trained to say "no."  And if "no" is not interposition and nullification, I don't know what could be.  GAO made a number of polite suggestions, all of which amount to "stop dragging your feet." 

Iowaska would sooner vindicate its religious freedom -- even after five or six years chasing the IRS -- if it filed an action against DEA today.


darryll k. jones

June 12, 2024 | Permalink | Comments (0)

Tuesday, June 11, 2024

Should Charities Return Tainted Donations?

Filthy Lucre: How do Nonprofits Handle Tainted Gifts?

Filthy Lucre: How do Nonprofits Handle Tainted Gifts?

You have probably seen the video of that lying bastard Sean Combs beating up his former girlfriend. I won't link to the video.  Google it if you want to be thoroughly disgusted.  As bad as it looks, I still don't think Howard University should let his punk ass off the hook for donations he's made or has pledged to make pursuant to a gift agreement.  If the gift agreement is enforceable I would enforce it.  Howard is giving it back because it's sickened by it, I understand that. From the Howard University Board of Trustees:

The Howard University Board of Trustees voted unanimously today to accept the return by Mr. Sean Combs of the honorary degree conferred upon him in 2014. This acceptance revokes all honors and privileges associated with the degree. Accordingly, the Board has directed that his name be removed from all documents listing honorary degree recipients of Howard University. Mr. Combs’ behavior as captured in a recently released video is so fundamentally incompatible with Howard University’s core values and beliefs that he is deemed no longer worthy to hold the institution’s highest honor. 

The University is unwavering in its opposition to all acts of interpersonal violence. The Board has also directed the University administration to immediately take the following actions: terminate a 2016 gift agreement with Mr. Combs, disband the scholarship program in his name, return his $1 million contribution, and terminate a 2023 pledge agreement with the Sean Combs Foundation.  

No payments toward the $1 million pledge have been due or made by the Sean Combs Foundation as of this date, therefore no funds are due to be returned under the 2023 pledge agreement.” 

If the donations are conditioned on the honorary degree I suppose I would advise the University to yank the degree and return the donations. I would definitely not want him to be an honorary anything. If not, why not hold him to the agreement and announce that it will be directed exclusively to establish a center for the prevention of intimate partner violence? I have four daughters and Howard keeping the gift would more likely prevent a future Combs than returning the gift.  Pragmatism would generate more benefit to the prevention of interpersonal violence than indignation in this instance, it seems to me. But I could be wrong. Here is the abstract to "When tainted money should fund public goods: fundraising professional and public moral preferences, published late last year:

Philanthropy is essential to public goods such as education and research, arts and culture, and the provision of services to those in need. Providers of public goods commonly struggle with the dilemma of whether to accept donations from morally tainted donors. Ethicists also disagree on how to manage tainted donations. Forgoing such donations reduces opportunities for societal well-being and advancement; however, accepting them can damage institutional and individual reputations. Half of professional fundraisers have faced tainted donors, but only around a third of their institutions had relevant policies (n = 52). Here, we draw on two large samples of US laypeople (ns = 2,019; 2,566) and a unique sample of experts (professional fundraisers, n = 694) to provide empirical insights into various aspects of tainted donations that affect moral acceptability: the nature of the moral taint (criminal or morally ambiguous behavior), donation size, anonymity, and institution type. We find interesting patterns of convergence (rejecting criminal donations), divergence (professionals’ aversion to large tainted donations), and indifference (marginal role of anonymity) across the samples. Laypeople also applied slightly higher standards to universities and museums than to charities. Our results provide evidence of how complex moral trade-offs are resolved differentially, and can thus motivate and inform policy development for institutions dealing with controversial donors.

darryll k. jones

June 11, 2024 | Permalink | Comments (0)

Politico's Fake News About Leonard Leo

Hell | Answers in Genesis

If that conservative scoundrel and Clarence Thomas benefactor Leonard Leo is deriving improper private benefit from tax exempt organizations to which he contributes, as Politico reported last week, I sure don't understand what the ultimate tax goal might be.  And I teach this stuff, so I should know.  Maybe somebody else can explain it.  Here is what Politico reported:

A key advocacy group in conservative judicial activist Leonard Leo’s network paid millions to his consulting firm, a new filing shows, the latest example of Leo’s web of nonprofits sending money to his business amid government scrutiny of his dealings. The Concord Fund, a Virginia-based nonprofit, paid $6 million to Leo’s firm CRC Advisors between July 2022 and the end of June 2023 for “Consulting,” according to the filing, provided to POLITICO by the left-leaning watchdog group Accountable.US. The revelations of the large sum transferred to Leo’s firm come amid mounting questions around Leo’s advocacy activities and whether he has stood to gain financially from nonprofit groups pushing a conservative agenda around the country.

. . . 

In recent years, Leo, co-chairman of the Federalist Society’s board, has amassed outsized influence in conservative legal circles, advising former President Donald Trump on judicial picks. That role has also brought added scrutiny to his financial activities.  He also obtained a massive $1.6 billion gift from the businessman Barre Seid to fund Leo’s agenda through a group called the Marble Freedom Trust. The Marble Freedom Trust, which counts Leo as a trustee and chairman, has transferred tens of millions of dollars to the Concord Fund. The Concord Fund has also paid millions to Leo’s for-profit business. Between July 2022 and the end of June 2023, the Concord Fund, also known as the Judicial Crisis Network, received about $52.8 million. Between May 2022 and the end of April 2023, Marble Freedom Trust reported giving $55.5 million to the Concord Fund.

When a billionaire finances an exempt organization, only to have that organization turn around and obtain goods and services from the billionaire's for-profit business, does it make sense that the billionaire would do so for personal enrichment and tax avoidance?  It seems to me the billionaire would have been better off just spending the money in his for-profit in the first place and generating an equal  -- and unlimited -- amount in trade or business expense deductions.  What am I missing?

Maybe Leo is using an exempt organizations to generate darkness by which to obscure the source of political funding for fascist causes.  But that effort sure isn't working here. I'm just confused by Politico's insinuation.  Maybe if I crunched some numbers at each part of the suspected step transaction I might see a scam. The insinuation would make more sense if Leo started a nonprofit that attracted donations from people everywhere and then he used those donations to buy goods or services from his for-profit business.  But it doesn't look like that is what Leo is doing, either.  

If Politico's purpose was just to expose Leo's fascist agenda -- funding Ron DeSantis' elevator cowboy boot collection, for example -- the story would have been clearer had it just reported those facts.  Here is a sample in that regard:

The Concord Fund gave $8.8 million to Susan B. Anthony Pro-Life America, a leading anti-abortion group, along with $3 million to Protect Women Ohio Action, a group that was fighting the constitutional amendment in Ohio that enshrined abortion access. The amendment ultimately passed. The Concord Fund also gave $6 million to the Republican Governors Association and $4 million to the Republican Attorney Generals Association. It gave an additional $3 million to a group that was backing the Republican candidate for Kentucky governor, David Cameron, who ultimately lost.

The large gift to the Republican Attorneys General Association is notable, in part, because a number of Republican attorneys general have also questioned Schwalb’s inquiry into Leo. The Concord Fund also gave $500,000 each to a Florida political committee then called Friends of Ron DeSantis and a nonprofit founded by former Vice President Mike Pence called Advancing American Freedom. It also gave $300,000 to a nonprofit founded by former presidential candidate and U.S. ambassador to the U.N. Nikki Haley.

I think Politico is using an unfounded insinuation of improper private benefit to bootstrap an argument that the causes Leo the fascist supports are illegitimate in a legal sense.  I wouldn't mourn Leo's soul burning in a hot place, but I don't see anything violating 501(c)(3) here yet.

darryll k. jones

June 11, 2024 | Permalink | Comments (0)

Monday, June 10, 2024

Cleveland Clinic Pays $7.6 Million To Settle Foreign Funding Source Disclosure Violation

File:Cleveland Clinic Miller Family Pavilion.jpg - Wikipedia

From a DOJ Press Release, May 17, 2024

The Cleveland Clinic Foundation (CCF) has agreed to pay $7,600,000 to resolve allegations that it violated the False Claims Act (FCA) by submitting to the National Institutes of Health (NIH) federal grant applications and progress reports in which CCF failed to disclose that a key employee involved in administering the grants had pending and/or active financial research support from other sources.

The settlement resolves allegations that CCF made false statements to NIH, a component of the Department of Health and Human Services (HHS), in connection with three federal grant awards. Despite NIH requirements to do so, CCF repeatedly failed to disclose that the employee who it designated as the Principal Investigator on each grant had pending and/or active grants from foreign institutions that provided financial assistance to support the employee’s research and already obligated that employee’s research time. CCF falsely certified that the grants submissions were true and accurate.

NIH requires full transparency in applications and throughout the life of the grants it awards. This includes a requirement that grant applicants disclose all sources of research support, from any source, on grant applications and on follow-up documents relating to grant awards. NIH uses this information to determine if the applicant has the time necessary to allocate to the proposed research project, and if the research proposal has other sources of funding that are duplicative. It also assists NIH in determining if an applicant’s financial interests may affect its objectivity in conducting research.

The settlement also resolves allegations that CCF violated NIH password policies by permitting CCF employees to share passwords. Some of the false submissions wherein CCF failed to disclose the Principal Investigator’s foreign grant support were made by CCF employees who were inappropriately given access to NIH’s online grant reporting platform.

“Each year, NIH awards federal grants to support research to improve public health, but those funds are limited and the grant process is competitive. Every entity or person who seeks such grant money must strictly play by the rules. As stewards of taxpayer dollars, our Office takes seriously its responsibility of ensuring that grant recipients fully and accurately report all required information to NIH so that it may properly award its limited funds to deserving institutions,” said U.S. Attorney Rebecca C. Lutzko for the Northern District of Ohio. “Today’s settlement illustrates the importance of being truthful at every stage of the grants process.”

In addition to the $7.6 million settlement, NIH has imposed Specific Award Conditions on all CCF’s grants for a one-year period. Federal regulations allow NIH to impose Specific Award Conditions on grant recipients, including on recipients that do not comply with the terms of a federal award. In this case, NIH is requiring a high-level CCF employee to personally attest to the truth, completeness, and accuracy of all “other grant support” information CCF provides to NIH. CCF must also develop a corrective action plan that includes an assessment of internal controls related to other grant support and foreign-component reporting; create a mandatory training program addressing requirements for disclosing other grant support, research security, and cyber security; and develop an improvement plan for its internal controls, ensuring that CCF has oversight at the institutional level to confirm that the information its Principal Investigators disclose is true, complete, and accurate, among other requirements. The Specific Award Conditions will begin Oct. 1, 2024, and remain in effect through Sept. 30, 2025, or until NIH is satisfied that CCF has successfully completed the Corrective Action Plan.

“The accuracy of information reported in applications and other documentation related to federal grants is critical to ensuring that these limited funds are utilized in the most efficient and effective manner and that the integrity of the application process is upheld,” said Special Agent in Charge Mario M. Pinto, of the United States Department of Health and Human Services Office of Inspector General (HHS-OIG). “Our agency is committed to ensuring that those who submit false statements in grant applications are identified and investigated, in cooperation with our federal law enforcement partners.”

A cooperative effort between HHS-OIG, the FBI, and the U.S. Attorney’s Office for the Northern District of Ohio resulted in the resolution obtained in this matter. Assistant United States Attorneys Michelle Heyer and Elizabeth Berry investigated the matter on behalf of the U.S. Attorney’s Office.

This settlement illustrates the government’s emphasis on combating fraud. If you have information regarding potential fraud, waste, abuse, or mismanagement in the U.S. Department of Health and Human Services’ programs, please file a report with OIG's Hotline. You can submit your tip or complaint online at or contact the OIG Hotline at 1-800-447-8477. The claims resolved by the settlement are allegations only and there has been no determination of liability. Cleveland Clinic Settlement Agreement Fully Executed.pdf

darryll k. jones

June 10, 2024 | Permalink | Comments (0)

Gaza and Charities at War: Columbia Law Review And the Demand for Civil Society Subservience

Unprecedented”: Board shutters Columbia Law Review website

Columbia Law Review's website is back online by the time of this post.

"As I suspected," a reader told me in an email last week, "you have become a mouthpiece for Hamas."  He was reacting to my posting of an essay critical of Civil Society for not speaking out regarding Israel's ongoing war effort.  The night before the post, coincidentally, Israel launched an airstrike on an UNRWA facility where Hamas terrorists were hiding.  There were also women and children taking shelter there -- it was a school being used as shelter for displaced persons -- and about 40 of them died too.  Donald, the email writer, suggested I would understand if was the KKK.  He said "please educate yourself" before concluding that this blog "was not helping things."  Except that if KKK terrorists were holed up in a near north Chicago neighborhood actively plotting the murder of all African Americans, the Air Force would still commit a war crime if it launched Sidewinders and Tomahawks, killing the Klansmen and 40 neighbors too. Even if those neighbors were sympathetic to the Klan.  

The posted essay implies that Civil Society is afraid to speak up regarding Israeli war crimes in Gaza.  Thirty five thousand civilian deaths make a rebuttable prima facie case.  Explicit or implicit threats to an independent Civil Society will always make for an interesting and relevant topic on this blog.  Because so many people are demanding ideological allegiance, not independence, from what is ironically sometimes called the "Independent Sector." That's what Republicans are doing, demanding ideological subservience actually. Hell, there are a whole lot of right wing nut job nonprofits I wish would shut up too, if I am being honest. 

So the demand for situational ethics in Civil Society -- you are either for us or against us, depending on context -- generates a legitimate issue.  I'm pretty sure Donald is against women and children dying in war.  He just thinks it anti-Semitic to condemn those deaths and the Army that causes them in this situation.  The same worrisome observation applies on an institutional level to Civil Society and lawmakers who get mad when Civil Society speaks against death and starvation in Gaza.  It's fair to admit, by way of example, that one source of our relative silence and apathy in Gaza is our unstated belief that the starving and dying civilians are probably sympathetic to Hamas anyway. Let's just be honest about that.  Secretly or not, our darkest thought is that maybe they deserve it.  The posted essay asserts that we would think differently about the otherwise legitimate killing of Hamas, at all costs and despite whatever collateral damage, if Hamas were hiding in a different neighborhood.  That's situational ethics.

Anyway, tax exempt and nonprofit organizations are not isolated bystanders to history; they are important, influential, and indispensable history makers too. We want them to be that.  Whatever an organization's views may be, Civil Society functions less effectively when we demand ideological subservience. All law is contextual, moreover, and we can hardly understand Civil Society without context.  Hence, the topic of this post.  

At Columbia last week, the Law Review's Board of Directors pulled the plug on the Law Review's website for fear that the latest issue was being used as a "mouthpiece for Hamas."  From the Washington Post:

Student editors at the Columbia Law Review say they were pressured by the journal’s board of directors to halt publication of an academic article written by a Palestinian human rights lawyer that accuses Israel of committing genocide in Gaza and upholding an apartheid regime.  When the editors refused the request and published the piece Monday morning, the board — made up of faculty and alumni from Columbia University's law school — shut down the law review’s website entirely. It remained offline Tuesday evening, a static homepage informing visitors the domain “is under maintenance.” The episode at one of the country’s oldest and most prestigious legal journals marks the latest flashpoint in an ongoing debate about academic speech that has deeply divided students, staff and college administrators since the start of the Israel-Hamas war.

Several editors at the Columbia Law Review described the board’s intervention as an unprecedented breach of editorial independence at the periodical, which is run by students at Columbia Law School. The board of directors oversees the nonprofit’s finances but has historically played no role in selecting pieces.

The offending article, written by a Harvard SJD candidate who is also a human rights attorney, accuses Israel of genocide and crimes against humanity.  There might be a good amount of evidence in support of the charges, according to the ICC.  The editors say they accepted the article before October 7.  Only situational ethics would require they withdraw the offer of publication in response to October 7.  Regardless, the article probably makes life harder for Columbia as it fights accusations of anti-Semitism. 

So after the Directors disabled the website, the editors posted the article elsewhere for public consumption.  If I really were a mouthpiece for Hamas, I would need to read it.  But that I haven't and don't need to read the article for this post proves my point.  The point is that the context presents an interesting study about nonprofit governance and editorial independence in nonprofit news and scientific media. Whether the post is unflattering to Israel or Hamas is irrelevant, though the war generates reader engagement. Every story needs a hook. 

Here is the academic point of interest: The board of a nonprofit media organization vetoed an editorial decision because the board disagreed with the writer's views.  A nonprofit board has ultimate authority, of course and can act according to its conception of charity.  But would we be disinterested if, say, the Board of Directors for the Journal of the American Medical Association pulled the plug on JAMA's website because it disagreed with an article's assertions about COVID-19 public health measures? There was another article in that same Columbia Law Review issue about abortion, by the way.  What if the board disdained that article's assertion and decided to pull it over the editors' objections?  And how might that occurrence impact our willingness to subsidize by tax exemption JAMA or the Columbia Law Review? 

I get paid to ask these questions, ya know.  Like the rest of Civil Society, I shan't be a potted plant.   


darryll k. jones  



June 10, 2024 | Permalink | Comments (0)

Friday, June 7, 2024

CFO of Detroit Nonprofit Indicted

David Fahrenthold of the NYTimes has a story of an indictment of the CFO of a Detroit Nonprofit issued by Federal Prosecutors on Wednesday June 5, 2024. It's an interesting one as it suggests at least that this nonprofit had the appearance of good controls and of being in good shape, and yet.

From the story: "On Wednesday, federal prosecutors said Mr. Smith abused his power to pull off an astonishing fraud: He stole nearly $40 million between 2012 and this March, they said, equal to 39 percent of all the money that the group had reported spending in that time, burning through the group’s cash reserves.

Mr. Smith, 51, was charged with bank fraud and wire fraud, both felonies that can come with as much as 30 years of prison time.

The case highlights an enduring problem among nonprofits. A lax or informal approach to financial management can leave groups that handle millions of dollars in public and private funds vulnerable to waste, runaway costs or, in the worst cases, insider theft. When this happens, it’s often hard to catch. While the Internal Revenue Service has oversight over nonprofits, the average annual audit rate by the agency is less than 1 percent."

"The nonprofit’s outside auditing firm, which had conducted annual financial checkups, declined to comment.

The group has successfully redeveloped a long stretch of the city’s Detroit River waterfront and, until recently, had shown no public signs of distress. Local foundations contributed to it annually and it received grants from the Environmental Protection Agency, among others. In 2013, Mr. Smith was named a finalist for “C.F.O. of the year” by a local business magazine.

But the nonprofit discovered problems with its finances this spring and invited Michigan State Police to investigate, according to reporting by The Detroit News. The police then handed the case to the F.B.I. In May, the group fired Mr. Smith."

Philip Hackney

June 7, 2024 | Permalink | Comments (0)

Lessons to Be Learned Regarding FAMU's Lack of Donor Due Diligence

Due Diligence is Critical in Charitable Donations

The Chronicle of Philanthropy is out this morning with some lessons to be learned from the $300 million dollar donation to FAMU that evaporated like it was never even there.  Here is an excerpt:

Look for patterns in the donor’s giving history. In the FAMU situation, an internet search would have revealed news reports about a $95 million donation that Gerami promised Coastal Carolina University in July 2020 as an anonymous donor. The gift fell apart several months later, when the university officials’ relationship with Gerami soured and the university ended the agreement. The Sun News, a news outlet in Myrtle Beach, S.C., later uncovered and revealed Gerami’s identity. FAMU’s now-departed head of advancement, Friday Stroud, said in a news report that university officials conducted a thorough vetting of Gerami and knew about the earlier pledge to Coastal Carolina University but did not contact officials to learn more.

Size up the donor’s resources, starting with public data. Gerami’s contract with FAMU called for him to donate 14 million shares of stock, presumably in Batterson Farms, Gerami’s privately held company in Texas. Information on Batterson Farms’ website was scarce. Details about the company’s board members, investors, and business holdings were either password protected or unavailable. (Sections of the site have since been removed). Gerami and university officials did not enlist a third party to analyze Gerami’s valuation of the stock, and it was unclear whether it was worth the $15.85 a share that Gerami claimed, according to coverage by Florida’s Sun News. It also came out that the gift was never reviewed by an audit committee, the Sun News reported.

Keep senior leaders and your board in the loop. Once her team has compiled a donor report, Sankey says, she shares it with the university’s president, its chief financial officer, the chair of the university’s foundation, and the chancellor of the Texas A&M University System, which includes Prairie View. Depending on the size of the gift, Sankey says her team would likely enlist the university’s marketing and communications team to help further vet the donor. She also would alert the legal office of the Texas A&M System and the system’s budget and accounting leaders. “The different levels, the different expertise of these offices can support the overall vetting and the overall receipt of the gift and provide lots of different safeguards,” says Sankey.

Call on legal experts to vet the gift agreement and other documents. Matt Clausen, a lawyer who advises donors, foundations, and others in the nonprofit world, cites a wide range of areas where legal expertise is crucial in drafting a strong gift agreement. For example, he says, if a donor offers stock in a privately held company, lawyers should review that company’s articles of incorporation, bylaws, and the shareholders’ agreement, which typically has provisions about who can be a shareholder.  “If the [nonprofit] is going to become a shareholder in this company, they’re going to have to sign on to various agreements, and we’d want to see all of those agreements,” Clausen adds.  By contrast, Clausen says, the gift agreement FAMU released to the public doesn’t identify the company whose stock Gerami is donating.  “There should be some other document whereby these shares are actually transferred to the university,” Clausen says. “It doesn’t transfer any assets to the FAMU Foundation.”

Never leave board members out of conversations about a potential big gift. Friday Stroud signed a nondisclosure agreement at Gerami’s request during the gift negotiations. The document stipulates that information can’t be shared publicly, but Clausen says nothing in the document suggests the university couldn’t share information about the negotiations internally with its trustees and lawyers. He says a nine-figure gift like the one Gerami promised would have a significant effect on a university’s profile and operations, so there is no reason to keep information from trustees.  “The board of directors has fiduciary obligations to manage the organization and should not ever be put in the position of having to hear about a gigantic transaction that they didn’t even have a chance to review or think about,” says Clausen.

Due diligence first; celebrations later. Any attempt by a donor to hide gift negotiations from top officials should be considered suspect, says Indiana University’s Freeman. If a donor balks at sharing details about a potential gift with multiple officials, it is important to explain that it is standard practice and in the best interests of the donor and the organization to have more than one or two sets of eyes and ears in the gift negotiations.

The one thing I would add is "keep pride, arrogance, and covetousness out of it."

darryll k. jones


darryll k. jones

June 7, 2024 | Permalink | Comments (0)

A Johnson Amendment to Control Politicians: More on the Political Harassment of Church Migrant Relief

I am pretty much in favor of free speech for nonprofits and even the right of nonprofits to participate in the political process through endorsements and lobbying.  There is a difference between keeping nonprofits out of politics on the one hand and keeping politicians out of nonprofits on the other.  I think nonprofits are invariably and necessarily involved in questions about which politics and politicians are concerned. They should not be excluded from the political process if they are inclined to participate.  After all, Civil Society is about grassroots governance.  Many nonprofits don't want anything to do with formal government anyway.  They just want to perform their charity and don't really care who is in office. 

I feel differently about politicians intruding into Civil Society. It's an illegitimate effort at capture, I think. Politicians who want Civil Society to operate but only in accordance with their politics.  Politicians ought not be involved in partisan efforts to constrain Civil Society.  By that, I mean charity should not be defined according to ephemeral political winds.  If anything, there oughta be a Johnson Amendment prohibiting campaign intervention or substantial lobbying by politicians in or about Civil Society rather than the other way around.  The current politically motivated harassment of church migrant nonprofits is proof enough.  

Out in Yuma, Arizona, there is a small church called Gethsamani.  For about 25 years, the Church has operated a food distribution and soup kitchen ministry every Friday from 5:00 to 7:00 pm and every Saturday from 7:00 to 11:00 am.  Also on Fridays, the Ministry receives a truckload of food items by donation and delivers that food to a few other food distribution ministries around the city:

We freely share food products with you, as a blessing that comes from God and we give it to you in the name of Jesus Christ. Because that is our mission, to fulfill his mandate. We only ask that you pray for us to have resources to continue bringing blessing to this community. Christians are called by Jesus to love the poor and care for children in need. Jesus tells them “I am the bread of life; whoever comes to me will never be hungry; and whoever believes in me shall never thirst” (John 6:35)

The disciples there don't ask to see your ID or proof of income, they don't care about your political druthers.  If you show up and tell them you are hungry, they will just give you bags of groceries and even a meal right then and there.  But Yuma is only about 30 miles from the Mexican border.  As a matter fact, Yuma used to be part of Mexico.  The United States "acquired" it after a series of armed conflicts.  It was our manifest destiny so we pushed the indigenous people off and told them don't ever come back here without an invitation.  The late arrivals no longer care much for the people Gethsamni attracts by its charity.  Ever since the new Mayor arrived, the food ministry has been hit by fines and penalties pretty obviously designed to shut the whole thing down:

For the past 23 years, Gethsemani Baptist Church in San Luis, Ariz., made it its mission to offer food to anyone who wanted it. Through free meals and food drives, the church fed its local community, as well as hungry families in the greater region, like California and Mexico. The church, which is about a 5-minute drive from the Mexican border, also served as a crucial support system for people who crossed into the United States, often fatigued, overwhelmed and with little to no belongings. But that all came to a halt this month, according to a lawsuit filed in federal court by the church earlier this month.

Here is a bit from the Church's complaint:

1. For decades, Plaintiff Gethsemani Baptist Church (the “Church”) has operated a food ministry as part of its religious mission to support some of the most vulnerable families in the southernmost part of Yuma County and across the border in Mexico. Through this ministry, the Church fills a critical need in the City of San Luis (the “City”) by sharing the Gospel and donating food and other supplies, which it ferries to its property using a semi-truck. Because no other food ministries exist within the City, the Church’s charitable activities have been a blessing for the community, with the City often celebrating or even participating in the Church’s ministry efforts.

2. However, the election of a new mayor in December 2022 heralded a major shift in the City’s approach. Although the Church had operated the food ministry in the same manner for approximately twenty-three years without complaint, the City suddenly turned hostile, bombarding the Church with a series of accusations that the Church’s use of its property and semi-trucks violate the City’s Zoning Code, and threatening to take enforcement action if the Church does not cease its operations. Although the Church disclaimed that any of its operations were currently illegal, and committed to rectifying any potential issues moving forward, Defendants refused to even discuss a solution that would allow the ministry to continue—even resorting to citing the Church’s pastor for passing out food to just a few hungry people. Accordingly, the Church has been forced to bring this action to protect its ability to exercise its religious beliefs.

3. Defendants’ actions heavily burden the Church’s religious exercise, violating its constitutional and statutory rights. The Church accordingly seeks declaratory and equitable relief and nominal damages to prevent the City of San Luis and named Defendants from violating its fundamental rights to share the Gospel by feeding the hungry.

I am no Religious Freedom Restoration Act or First Amendment scholar, but the rest of the complaint sets out a fairly persuasive case that the Mayor just doesn't like the Church's brand of religion, at least not so far as it makes life easier for migrants.  I am surprised that the party of Reagan, so long all about God and country, takes such a dim view of food ministries.  

Annunciation House is another example.  I have posted often about the small El Paso church that also provides sustenance for any poor soul showing up at its facilities not far from the southern border.  The case is beginning to attract national attention.  You might recall that the Texas AG is all about a full-on Crusade to shut down that operation, calling it nothing more than a "stash house" hiding migrants according to the Washington Post:  

The influential patriarch of Annunciation House, a faith-based network of shelters based in El Paso, Garcia has taken in tens of thousands of undocumented immigrants he calls “guests” for nearly five decades. Working in collaboration with U.S. immigration officials, he provides them food, clothes and a first home in the United States, and some of his expenses are reimbursed by the federal government. It’s work he sees as a religious calling — to help the most vulnerable, no matter how they arrived.  But as Texas Gov. Greg Abbott (R) clamps down on illegal immigration, state investigators are raising questions about Garcia’s humanitarian work. In court records, they contend that his shelters are “stash houses” sheltering the undocumented from authorities.

The article explains Reverend Garcia's frustration at the recent nativism that labels him some sort of human smuggler.  When the political winds shift, as inevitably they do, this will all die down I expect.  But by then, the damage might have been done already.  We should pass a Johnson amendment prohibiting politicians from intervening in charity, rather than the other way around.

darryll k. jones

June 7, 2024 | Permalink | Comments (0)

Thursday, June 6, 2024

Gaza and Charities at War: Is Civil Society Complicit?

Israel unleashes more airstrikes on Gaza Strip, after deadliest single  attack so far - ABC News

Somewhere around 40 more civilians were killed in an Israeli airstrike on an UNRWA displaced persons facility last night in Gaza.  Most were women and children. 

Coincidentally Nonprofit Quarterly Magazine posted a difficult and provocative anonymous essay about the Israeli/Hamas conflict yesterday.  The essay asks whether nonprofits are complicit, by silence, in the deaths of civilians and noncombatants in Gaza.  The essay notes that civil society is largely afraid to speak up for fear of retaliation from donors and even from government.  It also emphasizes the role of race and gender in our response to the humanitarian tragedies occurring in Gaza.  The essay is written by "Anonymous," as if to emphasize the fear of reprisal in response to the points made.  Here is an excerpt from "Silence Is Complicity, but Nonprofits Struggle to Condemn Israeli Violence in Gaza:"

We are leaders of a nonprofit in the social justice space here in the United States. Outside of calling for a ceasefire early on, we’ve kept relatively quiet on the ongoing Israeli violence that is killing tens of thousands of civilians in Gaza. But with the United States continuing to supply weapons to the Israeli military—in May, a shipment of another $1 billion in weapons was authorized by President Joe Biden—as well as the bravery of college students across the country risking their futures in protest (with over 2,600 arrested as of May 10), and with a United Nations official issuing a report that states there are “reasonable grounds” to believe that Israel is committing genocide against Palestinians in Gaza, it is important to speak out.

Yet it would be foolish not to acknowledge that many funders and nonprofits are rightfully frightened to take a stand. We are fearful, too. It is for this reason that we are writing this article anonymously. Opposing the mass killing and growing starvation of an entire people should be a simple position to take. We do not condone the horrors of October 7, 2023, in which Hamas and its militants killed over 1,000 Israelis and took 250 hostages into Gaza. We also understand that two things can be true at a time: October 7 was wrong, and it is important to acknowledge that it did not happen in a vacuum—as Palestinians have been oppressed by the Israeli government for more than 75 years. Israel’s current response is one that is highly likely to perpetuate and continue the cycle of violence.

Make no mistake: Israel’s genocide, funded in large measure ($12.5 billion to date) by the US government, against the Palestinian people is a racial and gender justice issue. We don’t have to imagine the empathy the Western world would proudly display if Palestinians were White.  We can see it in action with the tremendous public and political support for Ukraine. No nonprofit leader was worried about being branded a bigot or losing their funding for expressing their solidarity by posting a blue and yellow flag. 

With the majority of the overwhelming death toll in Palestine being women and children, it is certainly a gender justice issue as well. Violence is a tool of the patriarchy, which is quite literally what’s happening with Israel’s male-dominated government enacting this collective punishment upon Palestinians.

. . . 

darryll k. jones


June 6, 2024 | Permalink | Comments (0)

Some Thoughts on Fearless Fund

The Court Ruling to Halt The Fearless Fund Fails Black Women | TIME

Well.  I am finally reading Students For Fair Admission v. Harvard and UNC. I had to because I wanted to comment on the Eleventh Circuit’s decision in Fearless Fund.  In Fearless Fund, the 11th Circuit reversed a lower court's refusal to grant a preliminary injunction against an exempt organization that made grants exclusively to Black women.  It is one of the many cases filed in the wake of SFFA.  So far, I have read SFAA's majority opinion and Justice Thomas’ concurrence.  I had hoped never to read any of it. 

SFAA's language about equality and discrimination is majestic and confessional.  As if to admit that slavery and Jim Crow were the country’s greatest wrongs but also to ask “how long must we persist in collective recompense before we may claim to be forgiven and that equality is here?”  The majority believes it’s been long enough in either case.

The Eleventh Circuit's holding in Fearless Fund is not the end of the case, though it is not unreasonable to think the end is nigh, and it won’t be good for Fearless Fund or nonprofits that work to remedy the effects of slavery and Jim Crow.  Fearless Fund hinges upon the presence of a contract – a quid pro quo – exchange. Because 42 U.S.C. 1981 prohibits discrimination in contracts, even between two private parties.  Fearless Fund is a 501(c)(3) that takes applications and makes grants to businesses owned by Black women.  If Black women don’t own at least 51% of the business, the owners are not eligible.  According to the Court, Fearless Fund’s grant process amounts to a contract because Fearless Fund receives the right to use a successful grant applicant’s NIL in future advertising, and to discuss or disclose a successful applicant’s propriety business information.  It’s a dubious conclusion that a contract is formed, but a defensible one nevertheless. 

Thus, the case cannot yet be interpreted to mean that nonprofit organizations can’t make no strings attached grants and other disbursements in pursuit of charitable purposes, even if those grants are reserved exclusively for African Americans or another racial or gender category.  A nonprofit, for example, can still make grants to fight the pipeline to prison that afflicts Black boys today.  It might even admit that it funds only programs and activities that work with black boys, at least as long as the funding comes with no strings from which one can discern a contract. 

But the bigger issue – the one that persists even after SFAA and Fearless Fund – is whether the Service should take the position that a tax-exempt organization violates law or clearly defined public policy by funding efforts to address social maladies unique to one demographic.  May an organization fund scholarships solely for Black men severely overrepresented in prison and just as severely underrepresented in higher education?  Fearless Fund does not necessarily impact an organization’s ability to do so, unless the awarding of a scholarship constitutes a contract between the organization and the recipient. 

Current regulations allow organizations to engage in activities designed to “(ii) to eliminate prejudice and discrimination; or (iii) to defend human and civil rights secured by law.”  Until SFAA, most people took the former to include “eliminating the effects of prejudice and discrimination, but the SFAA majority took what seems a very dim view of remediation as justifications for affirmative action and to a lesser extent DEI.  In hindsight, we should have recognized that Bakke’s attempt to portray affirmative action as something justified by classroom diversity, rather than remediation of slavery and Jim Crow-ism, doomed remediation as a compelling interest.  The constitutional law specialists probably saw this coming.

To this point, I have been very critical of the lawyers representing Fearless Fund.  The argument that the First Amendment’s guarantee of free speech justifies grant-making to a single demographic seemed absurd, and in the tax-exempt arena, contrary to the lesson of Bob Jones.  I had a long debate with an attorney directly involved in vetting the strategy a couple of weeks ago.  The basic explanation was that there was no other argument to make, given the Supreme Court’s rejection of remediation of slavery and discrimination as a compelling state interest.  I had not read SFAA when I yelled at the attorney for being so stupid.  The First Amendment argument could never have worked without overruling Bob Jones.  But now I see why the litigants bothered with the argument.

SFAA goes back, now, to the district court where it is seems pretty clear that the First Amendment argument will be summarily rejected if it’s not abandoned.  I still think, despite the Court’s dim view of affirmative action as a tool by which to remedy slavery and Jim Crow-ism, that SFAA need not determine the outcome.  Explicit race-based affirmative action in higher education has a much longer track record than affirmative action by exempt organizations seeking to balance the marketplace.  One of the problems the Court had in SFAA is that without an end game, remediation efforts were based on an “ageless” justification extending infinitely backwards and forwards in time.  Affirmative action might never end if based on remediation of historic discrimination, according to the majority.  Fair enough, even if the Court’s conclusion that we have reached the end game – equality in higher education – is Pollyannaish at best, a straight out lie at worst. 

I think a better case can be made that equality in the marketplace is not even close to a reality, especially for Black women entrepreneurs.  That demographic must be the most underrepresented group in the marketplace, if not exceeded only by Black men.  So  I think it’s worth pursuing a factual predicate – the underrepresentation of Black women business owners -- to meet the strict scrutiny standard applied without success in SFAA.  But yeah, lots of luck with that.

I doubt the Service will start looking sideways at organizations that spend money on one demographic to the exclusion of others any time soon.  But after eliminating considerations of race in education and private contracts, proponents will presumably set their sights on no-strings attached disbursements by exempt organizations focused on solving problems unique or nearly unique to a single demographic. 

darryll k. jones

June 6, 2024 | Permalink | Comments (0)

Wednesday, June 5, 2024

"Who’s Really Funding Campus Protests?" Ways and Means Sends 9 More Letters to Universities

US campus protests – News, Research and Analysis – The Conversation – page 1

House Republicans are back on their high horses about campus protests.  Even though the protests are nearly all gone.  The protests died down at the end of the spring semester and commencements.  But that didn't stop House Republicans from sending out 9 more foot-stomping letters warning that Congress will not "sit idly by" or "countenance" universities' foot-dragging on shutting down allegedly anti-Semitic protests.  Threatening federal funding and tax exemptions.  These letters are getting silly and repetitive so I won't quote from them here.  Click the links below to read one or all of them:

Read the letter to Barnard here. Read the letter to Columbia here.  Read the letter to UC Berkeley here. Read the letter to UCLA here. Read the letter to Harvard here.  Read the letter to MIT here. Read the letter to Northwestern here. Read the letter to Penn here. Read the letter to Rutgers here

Inside Higher Ed reports that universities are likely using the summer to prepare for a resurgence in the fall if the Israeli/Gaza conflict is still ongoing.  Maybe the Republicans are trying to influence that preparation.  Or just pandering for votes. 

Meanwhile, The Chronicle of Philanthropy ran a story delving into the source of campus protest funding.  The story asserts that the movement is fairly grassroots and funded by small donations. I think that's heartening for two reasons.  First, young people are recognizing and participating in Civil Society one way or the other.  That has to be a good thing.  Second, people are donating even without the benefit of tax deduction since most of us can't claim it.  Here is some of the article:  

As the campus protests have swelled in size and intensity, so too have the questionsconspiracies, and conjectures about the funding behind them, with many feeding into longstanding right-wing talking points about billionaire George Soros and other left-wing donors.  But data and testimony provided by movement leaders show that the student protests have not been largely funded or significantly shaped by any single donor or philanthropic organization. Although many pro-Palestinian groups participating in the protests — and pro-Israel groups more broadly — have received some funding from foundations or large donors, such as the Tides and Open Society Foundations, organizers maintain that a rapidly growing and decentralized network of young activists has propelled the protests forward.

. . . 

The Power of Small Donations

Among organizations supporting the protests is Jewish Voice for Peace, a pro-Palestinian advocacy group whose student members have helped organize Passover Seders and Shabbat dinners in campus encampments across the country.

While the group has received significant support from several philanthropic organizations and high-profile donors — including just over $60,000 from the Tides Foundation, $210,000 from the Kaphan Foundation, $75,000 from the Rockefeller Brothers Fund, and $225,000 from Open Society Foundations in 2022 — much of its funding comes from smaller individual donations.

“Our most common contribution is $15,” says Ari Solomon, director of development at Jewish Voice for Peace. “The overwhelming majority of our budget is fundraised every single year from tens of thousands of individual people.”

In a typical year, around 85 percent of the organization’s roughly $4 million budget comes from individual donors whose average-sized contribution is $60, with the remainder coming from philanthropic groups, says Solomon.

Funding Grassroots

For critics of the protests, “the real answer is scary, which is that there’s a true genuine grassroots movement of people who are upset about what’s happening in Gaza,” says Dan Shannon, chief partnerships officer at the Tides Foundation, which funds social justice organizations.

Earlier this month, an article in Politico went viral after suggesting that prominent Democratic donors were covertly funneling money toward student protesters through the Tides Foundation’s support for some pro-Palestinian groups, amounting to roughly $100,000 of its $800 million annual grant portfolio in 2022.

Tides has also received flack for its support of the pro-Palestinian groups Palestine Legal and the Adalah Justice Project through fiscal sponsorships, a system that can reduce the administrative legwork for small grassroots groups, but at the expense of funding transparency.

In reality, says Shannon, such critiques obscure the true funding mechanisms and popular support for the constellation of pro-Palestinian nonprofits and student groups behind the protest movement, many of which have received an influx of small donations and volunteers over the past seven months.

. . . 

darryll k. jones

June 5, 2024 | Permalink | Comments (0)

Catholic Charities Increasingly Fear Stochastic Terrorism

Disinformation And Stochastic Terrorism: Part II, 55% OFF

I have posted before, here and here, about the Texas AG's vote-generating harassment of a small Catholic Charity he blames for people pouring across the southern border.  I am not sure I am bothered more by the demonization for political purposes of civil society, or the larger nativist demonization of the poor migrants trying to survive.  You have heard me use the phrase stochastic terrorism too. The NY Times reported last Sunday that Catholic Charities are increasingly subjected to stochastic terrorism because of their charitable efforts assisting migrants:  

For decades, Catholic Charities and other faith-based organizations have played a crucial role helping federal authorities and local governments manage influxes of migrants. Their work has been funded with bipartisan support in Congress, even through the presidency of Donald J. Trump, who often vilified immigrants. 

Much like public officials who have faced increased threats to their security, employees of groups like Catholic Charities are now routinely targeted. In San Diego, the threats online spawned threats in real life, as supporters of Mr. O’Keefe started appearing at other Catholic Charities sites, according to Vino Pajanor, the chief executive of Catholic Charities San Diego. Private armed guards were posted at Catholic Charities facilities across the city, including at a shelter for homeless women and a center for Afghan refugees, after people, apparently prompted by Mr. O’Keefe’s posts, came searching for “smuggled” children.

In April, Representative Marjorie Taylor Greene, Republican of Georgia, berated Alejandro Mayorkas, the Homeland Security secretary, for his past service on the board of HIAS, a refugee resettlement agency formerly known as the Hebrew Immigrant Aid Society. She claimed that the group was “not only financing the invasion of the country, but also telling illegal aliens to vote in the United States elections.”

Last year, Representative Tom Tiffany of Wisconsin claimed during a House Judiciary Committee hearing that nongovernmental organizations working on the border “are complicit in the greatest human trafficking operation perhaps in the history of the world.”

The risk of such incendiary allegations is that they could spur threats like those against Catholic Charities, and worse, could instigate violence.  “When you have this kind of hateful rhetoric spreading, and those who are supposed to be trusted echoing it or egging it on, some people hear a call to action,” said Cynthia Miller-Idriss, a professor at American University who studies extremism.

I think what Paxton, Taylor Green and Tiffany are doing constitutes stochastic terrorism against migrants and Catholic Charities.

darryll k. jones

June 5, 2024 | Permalink | Comments (0)

Tuesday, June 4, 2024

CBSNews Story on $64 Million Anonymous Dark Money Contribution to Help the 2020 Biden Campaign

CBS News Daniel Klaidman has a story describing efforts to determine who donated $64 million to a section 501(c)(4) organization called the Impetus fund that the story suggests went on to help President Biden defeat former President Trump in the 2020 election. 

It is described as a story to evaluate dark money, but it focuses solely upon the use of dark money by the Biden 2020 campaign. It discusses no dark money organizations associated with Republican groups and makes it a question of whether the Biden campaign is hypocritical. 

From the story: "Democrats have long decried the lack of transparency in the campaign finance system and have advocated to close the dark money loophole that currently exists in the law. But some critics say it smacks of hypocrisy.

"For too long the left has been playing a game of decrying dark money while at the same time being fully dependent on it, even supercharging Mr. Biden's reelection campaign," says Caitlin Sutherland, executive director of the right-leaning government watchdog group Americans for Public Trust.

Others say that it's unrealistic to expect Democrats to unilaterally disarm. "That would be a big ask of Biden not to set up a super PAC and not to accept dark money," Holman of Public Citizen said."

The money flow was described as such: "First, $55 million of that initial donation moved to the nonprofit arm of the Biden super PAC, Future Forward USA Action, which had been anointed by allies of President Biden as the primary super PAC supporting his reelection. Then, a few weeks before the 2020 election, Future Forward USA Action moved $60 million to FF PAC, as the main campaign committee is commonly known. That committee, also a super PAC, is required to disclose its donors. But since it received the money from its own nonprofit, the original source of the contribution remained under wraps. Future Forward was then able to spend freely on electioneering, including explicit endorsements of candidates, so long as it did not explicitly coordinate those efforts with the Biden campaign." 

The story is not wrong that dark money is an issue, (I have written about it extensively here and here) but I think it does its readers a disservice by focusing on one old donation solely benefitting the Democratic side of the ailse. It feels more like this was a story primed by right leaning groups like the Conservative Partnership Institute that writes often about Arabella Group that was ultimately involved with this particular contribution. And the reality is that Republicans though they complain about the matter have made it all but impossible to do anything about what is complained of here. 

Philip Hackney

June 4, 2024 | Permalink | Comments (0)

"Who Will Spare a Dime? Impulse Giving Decisions at the Checkout"

CSRWire - Major Checkout Charity Campaigns Grew 24% From 2020 to 2022

From Journal of Public and Nonprofit Affairs, Winter 2023


Campaigns asking for donations at the checkout of retail stores through rounding-up, donating an amount, or purchasing a token are becoming ubiquitous. The concept of “checkout charity” is really one of impulse giving, i.e.,a prosocial activity done under time constraints. Industry reports inform us how much money the corporate campaigns are generating, but we have yet to develop a philanthropic profile of an “impulse giver” or compare them with traditional donors. Using the social heuristics hypothesis, this research helps us to better understand impulse giving and the individuals who engage in it. Women, the middle class, and those who are married or divorced were all more likely to give at the register. In contrast with formal giving, education levels had little relation to giving, and those approaching and over 50 years old were less likely to give. Familiarity with the charity and being Blackor African-American correlate with greater amounts donated.

darryll k. jones

June 4, 2024 | Permalink | Comments (0)

Hypocrisy as Private Inurement and Excess Benefit.

100+ Insincerity Stock Photos, Pictures & Royalty-Free Images - iStock |  Hypocrisy, Duplicity

If you told me that former confederates in North Carolina were about to elect their first black governor, I would drink a toast.  If you added that North Carolina’s potential first black governor condemned the Trump verdict as “rigged,” I might lose a little enthusiasm but chalk it off as just more political “pimply white posterior kissing."  That phrase uttered by Jimmy Kimmel on late night TV last week, by the way.  I would still celebrate the first.  I would even hold my nose if you told me the presumptive first campaigns on dismantling of the safety net that he says re-enslaves us po’ black folk.  Alright dude, say what you need to get elected, I ain’t mad.  Just don't act so happy saying it, butt kisser.

But now I hear tell that all the while the presumptive first and his kinfolk have been suckled from the bountiful taxpayer-funded breast of a tax-exempt organization.  Ok, now this where we’re gonna have a problem.  I gotta draw a line somewhere.  Politics is one thing, nonprofit exploitation – private inurement and excess benefit, it sounds like in this case – is another. There is even slight suggestion that the nonprofit funded the anointed man of color's (his colors are red, black, and green, apparently) political career but I don't talk about that here. Just the hypocrisy of private inurement.  From the AP:  

In his bid to become North Carolina’s first Black governor, Republican Mark Robinson assails government safety net spending as a “plantation of welfare and victimhood” that has mired generations of Black people in “dependency” and poverty.  . . . “The Democratic Party is the party of welfare checks and dependency. The Republican Party is the party of freedom and opportunity,” Robinson wrote in his memoir.

But the lieutenant governor’s political rise wouldn’t have been possible without it. Over the past decade, Robinson’s household has relied on income from Balanced Nutrition Inc., a nonprofit founded by his wife, Yolanda Hill, that administered a free lunch program for North Carolina children. The organization, funded entirely by taxpayers, has collected roughly $7 million in government funding since 2017, while paying out at least $830,000 in salaries to Hill, Robinson and other members of their family, tax filings and state documents show.

Bruh!!!!! What are you doing? Get with some prostitutes, pay hush money, incite an insurrection why don't you! Hell, shoot somebody on Fifth avenue in broad daylight, even. I don't care. But don’t go getting involved with private inurement and excess benefit.  Damn you!  This might set us back 30 years.  And now, according to the AP, the state auditor is getting involved.  Here is more of the hypocrisy that likely precludes tax exemption and might cost us all another first. 

Hill founded her nonprofit in 2015 and soon gained approval to administer a joint state and federal program that reimburses day cares for feeding low-income children. The program requires detailed records of operations and spending. Starting in 2020, state officials noticed problems with Balanced Nutrition’s paperwork and nearly placed the organization on the Department of Health and Human Services “seriously deficient” list. A major issue, according to government emails obtained by The Associated Press, was a lack of documentation: missing menus, timesheets, prior approval for some expenses and confirmation of income eligibility for children receiving aid.

Another issue flagged in those emails: $134,729.23 in spending from last year that was not explained in documents Hill submitted to the state as part of annually required paperwork. As state regulators ramped up scrutiny, Hill moved in April to shutter her nonprofit while suggesting that state officials were pursuing “some type of vendetta, be it personal or political,” according to her email correspondence.

The most boneheaded part of all this is that in approving salaries and raises for the presumptive first lady -- she was CEO of the nonprofit -- they fit even fumbled on the safe harbor provided in 53.4958-5. The presumptive first lady packed the board with her own doggone family members. Who then approved the raises, I mean c'mon. Doggonit, the fault here is so easy and obvious I can't even use it as an exam hypothetical.  Except the raises have been relatively modest in absolute terms, so maybe even without the safe harbor, the facts might make a good exam question.

Another potential exam tidbit is that that the presumptive first lady received a raise each time the nonprofit got more government funding. That same government that got the rest of us stuck on the plantation, by the way.  The raises were all reasonable, remember.  Now that makes a good hypothetical to talk about implicit private inurement.  If the raises happened regularly enough and always coincided with new revenue, does it amount to revenue sharing? And does revenue sharing constitute private inurement or excess benefit if the end result is "reasonable."  Those are issues I expect would be spotted on an exam maybe. So at least something good might come out of this boneheaded private inurement.  Here is more of the reporting raising those interesting classroom and maybe courtroom questions:  

Documented clearly, though, is a series of raises Hill gave herself with the blessing of a Balanced Nutrition board that included her family members.  Though the organization had an inauspicious start, by 2022 its budget topped $1.7 million, tax filings show. By 2023, Hill earned $150,000 a year, according to state documents. Some of her raises coincided with Balanced Nutrition receiving additional government pandemic aid, including a $150,000 grant in 2023 that was made possible through the American Rescue Plan — signature legislation signed into law by President Joe Biden. On the same day she disclosed receiving the grant, Hill submitted paperwork giving herself a $10,000 raise, according to a revised budget for Balanced Nutrition that was submitted to the state.

Hill also took a $28,000 raise in 2020 that coincided with about $57,000 in federal loans through the Paycheck Protection Program, intended to help businesses struggling with lost revenue during the pandemic. The loans, which were later forgiven, were previously reported by The Assembly, a North Carolina news site. Balanced Nutrition received $45,000 in minority women in business grants between 2022 and 2023, according to state documents.

Records also show a $5,600-a-year raise given to the couple’s son in 2023 for his part-time work, while their daughter was paid $83,000 that year. The Robinson’s children, who are both adults, did not respond to requests for comment.

Robinson himself appears to have been paid through the nonprofit in 2018, as previously reported by The Daily Haymaker, a conservative North Carolina website. State records show he was slated to earn $42,000, though the organization did not report paying him on their tax filing that year, and he did not report making income from the organization on financial disclosure forms he filed as a candidate for lieutenant governor.

darryll k. jones

June 4, 2024 | Permalink | Comments (0)

Monday, June 3, 2024

11th Circuit finds standing in Fearless Fund Case and Allows Injunction to go into Effect

The 11th Circuit Court of Appeals found against the Fearless Fund today finding that the American Alliance for Equal Rights has standing in the case, and additionally allowed an injunction to go into effect prohibiting the assistance to black women owned businesses because of a substantial liklihood of success on the merits.

From the opinion: In this appeal from the denial of a preliminary injunction, we are asked to decide whether the Fearless Strivers Grant Contest, an entrepreneurship funding competition open only to businesses owned by black women, violates 42 U.S.C. § 1981, which prohibits private parties from discriminating on the basis of race when making or enforcing contracts. We must also decide, as a threshold matter, whether the plaintiff, the American Alliance for Equal Rights, has standing to challenge the contest.

After careful review, and with the benefit of oral argument, we hold (1) that the Alliance has standing and (2) that preliminary injunctive relief is appropriate because Fearless’s contest is substantially likely to violate § 1981, is substantially unlikely to enjoy First Amendment protection, and inflicts irreparable injury. We therefore affirm the district court’s determination that the Alliance has standing to sue but otherwise reverse its decision and remand with instructions to enter a preliminary injunction." 

We have blogged about this matter before including the amicus brief Roger Colinvaux participated in drafting and filing and the oral arguments at the 11th Circuit.

Philip Hackney

June 3, 2024 | Permalink | Comments (0)

Reports from AMT/EITC Continued - All.The.Politics.

Or should I say, electioneering....

It's a unique and polarizing election year and we have a very active Supreme Court on a variety of First Amendment topics,  so it's no suprise that we had two important presentations on the Johnson Amendment's prohibition on the politicial campaign intervention. 

Ben Leff presented a project that he is working on with Sam Brunson are working on some public interest litigation in this space.   As many of you may know, and as blogged about most recently here just a couple of days ago,  SAFE SPACE v. Commissioner s a test case in the works challenging the Johnson Amendment, a project that Ilya Shapiro had a hand in.   SAFE SPACE takes an all-or-nothing approach to the problems, clearly stating that the organization intends to do both electioneering and lobbying directly.

Ben and Sam intend to do something similar, in that they are filing with the intent of developing a test case.  Ben discussed their project on the blog previously - see here.  With the latest report that SAFE SPACE has been dismissed and returned to the administrative stage to develop additional facts,  Ben and Sam's project may be able to catch up procedurally.   Their project is very different from SAFE SPACE, however, as it will continued to utilized an affiliate organizations in their structure:

This Article describes the actions that Sam and I plan to take to create our own nonprofit organizations to endorse candidates in November 2024 using our
“alternate means” strategy that is explicitly distinguished from the marginal cost paradigm advanced by SAFE SPACE.  While it is likely that noting will happen to our application prior to the 2024 election, we believe that engaging in Constitutional self-help using an alternate means strategy is urgent given the existence of SAFE SPACE and its case pending in Tax Court.

The paper walked its way throught the Constitutional analysis of Branch Ministries and Taxation Without Representation, and why their alternative structure works to address the First Amendment speech issues while also protecing the charitable sector from being overrun.  Look for more updates on all of this - I'm sure Nonprofit Law Prof Blog will have the scoop, since both Ben and Sam are contributors here.

Phil Hackney, yet another of our bloggers and one who has been very active on this issue, presented his paper "The Political in Taxation."   Phil says that the motiviation for the article was "the House Ways and Means recent suggestion that spending on voter registration and get out the vote efforts ought to be prohibited."  It takes a wider view of how the tax code view political (again, in the electioneering sense) expenditures.   The article is a wonderful take on the artifical and overlapping distinctions among electionerring, lobbying, issue advocacy, and straight up personal consumptions that we deal with regularly in the Code.    As nonprofit types, we are used to these silos, but the are really artificial to the rest of the world.   Phil's project is really important as we try to think through an issue that threatens the legitimacy of our sector.

Speaking of Phil... he takes over blogging this week so be sure to ask him about it!

Thoughtfully, eww




June 3, 2024 in Conferences, Current Affairs, Federal – Judicial, Federal – Legislative, In the News, Paper Presentations and Seminars | Permalink | Comments (0)

For-Profit to Nonprofit Conversions: The IRS Says Don't Bother

U.S. Department of Education on X: "Message to #4profit schools who are  thinking about converting to non-profit status for the wrong reasons:  #DontDoIt" / X

Is it ever really possible for a for-profit company to convert to nonprofit tax exempt status and continue operating using the same proven business model?  Surely, there are plenty of  instances where successful business-people get to an age where they want to give back; and why not by simply deciding that henceforth all profits, from what could have been a charitable endeavor in the first place, will no longer be distributed as profit?  And why shouldn't the former owners stay involved in what is now more a labor of love than profit?  I don’t have a lot of links or citations to back it up, but it seems to me that the Service invariably looks askance at for-profit to nonprofit conversions, insisting that the successful for-profit owner transfer the business to a nonprofit and then go away completely.  The picture above captures the apparent attitude, though it relates to the Department of Education.  

That attitude animates Private Letter Ruling 202422013, released a few days ago.  Here are factual excerpts:

In the past, your founder using a for-profit limited liability company (LLC) in conjunction with the for the profit companies, E and H, ran a large-scale artificial intelligence (AI) competition that was designed to be inclusive for all by catering to beginner and expert competitors. The participants competed for free and were eligible for potential prizes as well as were provided a forum for connecting with companies that sponsored the competition. Your founder subsequently formed you as a tax-exempt organization on C in B to conduct these same AI competitions.

You explained that every year you will host a few AI competitions, with various mini competitions held during the main ones. The competition requires a game engine/AI environment that takes actions from one or more team's submitted AI agents and returns new observations to those agents. An agent is a user submission of code that defines logic for how the agent should respond to game observations. The game engine/AI environment is always built by and owned by you, but the code will always be open sourced under the D license.

You explained that you collaborate with E who is providing compute resources for running your competition, as well as giving you public visibility to their community. The competitions will be hosted on E's Platform. H will provide the services for the competitions (such as the development, consulting, hosting and administration of the competition on E's Platform). A review of E's website (which states that E is the world's largest data science community) shows that E hosts a number of different competitions, including competitions for businesses to solve various problems. H's parent is a recognized leader among generative AI companies.

The PLR continues with quite a few details explaining that the computer competitions are entirely free, anybody can enter and that the competition has gained national exposure, sort of like the Scripps Spelling Bee.  The only reason for pause is that the people who built this competition as a profit-making venture want to remain involved as it converts to nonprofit status.  But even that continuing relationship is summarized in the PLR as a donative one:

One of your board members is an employee of E. The board member helps facilitate communication between you and E and provides competition support via engineering. No private code is shared between you and E, only open-source code. You do not pay or perform any monetary transactions to E other than providing E/H with prize pool money so E/H can help distribute it to competition prize winners. You have indicated that E through hosting the competitions on its platform and collaboration with you may receive potential new subscribers and benefit from well-run competitions. You may pay for various technological services such as E Cloud compute in the future. All fees and expenses, if any, will be paid to H.

You indicated that you have sponsoring relationships with the same for-profit entities as the for-profit LLC. You also explained that you primarily reach out to companies who have an interest in leveraging artificial intelligence in their company and are looking for potential new employees. These entities sponsor your competitions or provide donations to you. You will advertise sponsors or donors on various platforms including the competition website, your own website, F, and G. Depending on the amount of funding provided by the sponsor, you may also give out special prizes in their name.

Some sponsoring entities will provide various opportunities such as job opportunities in the AI technology space to participants. Specifically, you state that the sponsors/donors receive increased visibility and access to potential new candidates for hire. These sponsors often will contact the top competitors and give them opportunities for interviews. You stated that you do not share any resources with your for-profit sponsors.

Still, the PLR relies on revenue rulings and caselaw, all except one issued before 1966, to conclude that the organization does not qualify for tax exemption essentially because the former profit-takers are still involved in the organization.  And from that fact, the PLR concludes that there is too much private benefit.  I admire and respect the young exempt org attorneys in EO, but this ruling is miserly and bone-headed. 

You are not operated for a charitable purpose, the ruling states, because you provide improper private benefit.  You are not educational, or scientific, and because your operations benefit the entire public, you are not benefiting a recognized charitable class such as the poor or distressed!  No kidding, read the PLR for yourself.  Here are four propositions relied upon to deny exemption, none of which make a damn bit of sense to me.

    1. You do not meet Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) which provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private purpose. Your AI competitions are opened to all. In addition, sponsors use the activities to find potential employees. [Open to all, therefore not charitable. WTF!?]
    2. Further, you do not limit your services to a specific charitable class. You claim that developing AI code will benefit the general public; but the general public is not a defined charitable class, as it includes all persons, not just those with charitable characteristics, such as the poor and distressed.  [You don’t have to serve only the poor or distressed to be charitable these days.  You just cannot exclude the poor and distressed like some hospitals and universities.  There is a difference about which the PLR is confused.
    3. You do not provide explicit training programs for your participants now, nor do you plan to. At most, you release public code serving as tutorials on various topics in AI and teach participants how to compete in the current competition. Even if a portion of your activities further educational purposes, a substantial portion of your activities are not primarily educational and are not otherwise exempt. [Educational exemption is clearly not limited to "explicit training."]
    4. Your activity is of a type ordinarily carried on as an incident to commercial or industrial operations. Through your relationships with companies that are focused on the development of AI, your competitions enhance those companies' opportunities for leverage in that industry. Any research resulting from the competitions is not made available to the public as it is owned by the creators of the code. You have not demonstrated that you conduct scientific research because your activities are an incident to commercial operations and the code created by the competitions is not shared with the public.  [Most university research these days is commercially sponsored, what's wrong with commercial sponsors?]

June 3, 2024 | Permalink | Comments (0)

Considering NYC PILOTS

This is Big Apple | Meer

"The Center for New York City Affairs at The New School is an applied policy research institute that drives innovation in social policy. The Center provides analysis and solutions. [It focuses] on how public policy impacts low-income communities, and strives for a more just and equitable city."  The Center recently published a brief addressing whether New York City would benefit from the implementation of PILOTs.  The study focuses on the 14 tax exempt entities in the City owning property worth at least $500 million.  It notes that there is legislation pending that would begin the process of amending the state constitutional provision mandating charitable property tax exemption.  

A bill to begin the amendment process has been introduced this session in the State Assembly (A08478) and the State Senate (S07797). If adopted, the legislation would allow the City to alter the charitable exemptions of private universities with the new revenue to be used to help shore up the finances of the public City University of New York (CUNY).

While that slow process proceeds, the report suggest PILOTS be pursued with the top 14 charitable property owners.


The report briefly summarizes arguments for and against NYC PILOTs before setting out the potential revenues from PILOT agreements requiring payments of 25, 35 or 50 percent of savings from property tax exemption:

III. Should Hospitals and Universities be Asked to Pay Tax or PILOTs?

Analysts and advocates looking for funds to sustain or enhance services at the local level have drawn attention to the incomes and wealth generated by private hospitals and universities.4 They have noted the large salaries received by senior executives of some of the wealthiest institutions, and a trend towards a more corporate and profit-seeking culture at some of those institutions, suggesting that the commitment to a charitable model is fading even as they retain the charitable exemption. It is also not unreasonable to expect private institutions to pay for at least some of the public services they receive. Advocates for having large medical and education institutions pay taxes or PILOTs note that such institutions, particularly universities, expand by purchasing formerly taxable property. The aggregate cost of the charitable exemption has outpaced overall property tax growth in the city. Between 2013 and 2023, the number of education exemptions in New York grew by 12.4 percent, more than twice as fast as the 5.1 percent increase in non-residential (Tax Class 4) parcels. The value of education exemptions grew by 89.7 percent while the increase in Class 4 assessments was 55.4 percent. 

In their defense, these major non-profit institutions usually note that their faculty and staff, who are not exempt from paying income or sales taxes, are helping to pay for some of the public services used by their employers; this argument is particularly strong in the case of New York, which is less reliant on the property tax than many other cities. Hosting such major institutions helps New York in attracting visitors, students, and scholars to the city. The institutions also often point to the benefits they generate as drivers of economic growth in their host neighborhoods, and the value of the public good generated from the research and learning that occurs on campus and in their labs. However, while the entire region or nation may recoup those benefits, the burden of the foregone tax revenues is only borne locally. Also, tax exemption only benefits those institutions which own their property. Institutions that rent rather than own, which tend to have smaller budgets and endowments, receive no benefit from the exemption.

darryll k. jones

June 3, 2024 | Permalink | Comments (0)