Nonprofit Law Prof Blog

TEGE Exempt Orgs Council Seeks Input and Volunteers

If you are not a member and would like to rub shoulders with IRS and Treasury folk who work in tax exempt and government entities, consider joining the The TEGE Exempt Organizations Council.  Here are the latest projects about which the group could use your help.  

The TEGE Exempt Organizations Council, through the Comments Committee and the newly formed EO Roundtable, is convening several working groups to assemble and draft feedback and comments on the following items.

1. DAF Regulations Working Group. The comments project will be starting very soon. If you would like to participate, please reach out to Alex Reid ([email protected]) or Chelsea Rubin ([email protected]). We are specifically seeking volunteers to address each of the following topics in the proposed donor advised fund regulations:

• Definition of a DAF, including a fund for a single identified organization, multiple donor funds, scholarship funds, and disaster relief funds;
• Definition of advisory privileges and advisory committees;
• Definition of donor-advisor including financial advisors; and
• Definition of taxable distributions.

2. IRS’ Strategic Operating Plan Working Group. We are also looking for volunteers to help with the three following identified areas. This project is starting soon.  If you are interested in participating, please reach out to Eve Borenstein ([email protected]).

• Mapping of how the BMF data interacts with other areas at the IRS;
• Cataloging the errors with the BMF; and
• Explication of the need for IRS resources for the EO sector.

3. State Regulatory Discussion Group. The EO Roundtable has formed this discussion group to address various issues of state regulation that impact the sector. If you want to be part of this group from the inception, please reach out to Amanda Adams ([email protected]) or Elisabeth Ponsano ([email protected]).

Stay tuned for registration for our March 7-8, 2024 meeting in DC. In the meantime, please also remember that our Treasury IRS Connection – Tax Advisors’ Queries (“TIC-TAQ”) Forum continues to collect and analyze questions and comments for the Council’s government speakers. Please submit questions and comments at any time on the EO Council website at https://www.eocouncil.org/question-submission.html. 

In addition, the new EO Roundtable meets monthly and welcomes all participants. Please reach out to Jennifer Becker-Harris ([email protected]) if you are interested in an invitation.

More on Anti-Semitism in Nonprofit Discourse

 

I have one more thing to say about this and then I'll let it go. Its not a comfortable conversation.  I don't blame Alan Waldenberg for telling my dean -- who knows better anyway -- that I am an anti-Semite.  I am a black man in America who grew up as always one of only a few in white neighborhoods and white schools.  My father was a military officer and we lived in officer neighborhoods.  As a young soldier, my father could not use the Greyhound bus station cafeteria to buy a sandwich on his way home from Ft. Benning, Georgia to Memphis, Tennessee.  In uniform.  A kindly bus driver collected his and other others' money, and bought sandwiches for them.  Its true though that anybody can be a racist and its not my point that I am incapable of racism. I use racism to include anti-Semitism.  But someone who knows racism probably knows better, though that is not my point either. 

I get it though.  My point is that people who live racism, see it clearly and more often.  And we call it out quicker, sometimes too quickly.  People who oppose critical race theory -- that, being undefined except as "black" -- are confirmed racists to me. You can hardly convince me otherwise, because I know what this is and I am quick to call it out. I assume by his Hebrew surname that my accuser is Jewish, a fact of no relevance if only his allegation were true.  My assumption makes it easier for me to understand the accusation, not because Jews or Blacks play the race card.  But because those who live it, see it more often and clearly.  I certainly do.  And nobody's learned or expressed sensitivity discounts the reality.  Mr. Waldenberg may see things clearly in my article.  My article, though, speaks for itself.

As regards the more narrow point of this post, this morning I came across an opinion piece entitled "Charitable givers putting colleges, universities on notice." It is in Philanthropy Daily, a useful publication put out by Center for Civil Society.  The Center for Civil Society is a conservative educational nonprofit that believes today's colleges and universities are "morally and ideologically adrift."  The headline caught my attention so I read it.  Here is what stopped me:

Colleges that are morally and ideologically adrift or that lack a clear philosophical or even religious affiliation, on the other hand, face an uphill battle for continued charitable funding from conservatives and non-conservatives alike. This is not necessarily new. But what is now evident is that many, including traditional liberal Jewish givers, have woken up to the fact that top-tier schools are nothing more than hedge funds with a school attached. 

Is it just me? I might play the race card too often, but I would bet the house that the word "especially" first appeared where "including" is now.  I am having an academic discussion, here not accusing anybody. But I am sensitive enough to think the sentence is not a mistake.  My radar is tall and may even cause some false positives.  I would not have used the sentence even if all that is meant is that Jewish donors, in particular, have stopped donating to big universities.  There is a genocidal war going on against Israel what else would we expect?  But this is the only time religion or heritage is mentioned, is all I am saying.

The biggest conundrum is that I have to acknowledge the racism to see what I see.  Perhaps at the risk of characterizing myself as a racist.  If nobody else sees it, does my seeing it mean I am a racist for being the only one seeing it?  I don't know the folks at Center for Civil Society. I know its political bent only from its publications.  The racism -- the "obvious anti-Semitic trope" -- that I see is implicit.  And if I am correct that the author may not even be cognizant, the racism is deeply hard-wired.  So I don't blame people for being reactionary in defense of their human dignity.  

darryll k. jones

 

Nonprofit Hospital Wolves Disguised as Sheep

From a NY Times Op/Ed:

Over the past year, a new hospital strategy has come to the fore, the cross-market merger. In the past, most mergers and acquisitions involved hospitals or physician groups in the same geographic area. Now health care systems are reaching far and wide to find other hospitals to acquire. This is exemplified by the California-based Kaiser’s acquisition of Geisinger Health in Pennsylvania announced in April. Since then, hospitals in Missouri, Texas and New Mexico were involved in two other cross-market mergers. In another example, Advocate Aurora Health’s merger late last year with Atrium Health created a juggernaut with 67 hospitals strung across six states, from Wisconsin to North Carolina. We are witnessing the advent of the new American megahospital system.

So why are nonprofit hospitals behaving in ways that seem to focus more on dollars than patients? Hospitals are undergoing a reckoning about their role in the national health system. The United States will require fewer hospital beds in the future if current trends continue. This looming likelihood — plus financial challenges from the pandemic, a severe worker shortage, rising inflation and stock market volatility — has put nonprofit hospitals in survival mode.

Accordingly, they have prioritized protecting their finances, focusing on scale and market power. Unfortunately, these actions too often come at the expense of their mission to serve their communities. This has meant less charity care for patients who cannot afford expensive surgeries or emergency room visits and higher prices for those who can.

The key is getting boards to act in service of the mission. They need greater accountability. And that’s where lawmakers and policymakers can help, by finding ways to encourage or require boards to resist the growth interests common to organizations. Hospital systems, like living organisms, tend to put survival and proliferation above all else.

A second related issue is that too many boards are full of members who have financial skills or have made big donations. To shift toward their mission would almost certainly require hospitals to reconstitute their boards. They would need to replace some financially minded members with community-minded ones. And regulators like the I.R.S. may need to remove the tax-advantaged status for egregious actors so that boards take this threat seriously, just as in Pennsylvania.

darryll k. jones

Ways and Means Takes Up 501(p) Terrorist Supporting Organizations

"Blessed are the Peacemakers . . . "

I told you just before Thanksgiving about a bipartisan effort to amend IRC 501(p).  I think it signals a greater willingness or desire to summarily revoke tax exemption for domestic charities accused of providing material support to terrorists.  There's no due process in the current regulations authorizing revocation not even for domestic organizations accused of supporting terrorists.  This bill injects a very minimal amount, and a proposed amendment to be considered today provides for an internal IRS appeal process.  So far, more than a few domestic charities have been accused of supporting terrorists, by the way.  Not just apparently obvious (to some) fifth columns like the National Students for Justice in Palestine, which is still effectively tax exempt via a fiscal sponsor.  Harvard and Penn, too.  We better tread lightly here because we are navigating a mine field.  Ways and Means will do a mark-up today of the proposal.  Here are the background materials:  

H.R. 6408, “To amend the Internal Revenue Code of 1986 to terminate the tax-exempt status of terrorist supporting organizations”

• H.R. 6408, “To amend the Internal Revenue Code of 1986 to terminate the tax-exempt status of terrorist supporting organizations”
• JCT Description of H.R. 6408, “To amend the Internal Revenue Code of 1986 to terminate the tax-exempt status of terrorist supporting organizations”
• Amendment in the Nature of a Substitute to H.R. 6408, “To amend the Internal Revenue Code of 1986 to terminate the tax-exempt status of terrorist supporting organizations”
• JCT Description of the Amendment in the Nature of a Substitute to H.R. 6408, “To amend the Internal Revenue Code of 1986 to terminate the tax-exempt status of terrorist supporting organizations” (Green Sheet)

darryll k. jones

Anti-Semitism in Nonprofit Tax Scholarship

I penned an article in Tax Notes this week entitled, The Undemocratic Charitable Contribution Deduction.  It's about the tax advantages afforded the wealthy via IRC 170. I am supposed to wait 30 days before posting it, but this can't wait because Alan Waldenberg sent my dean an email yesterday.  Here is what he said:

I am the head of the tax department and the former Chairman of Schulte Roth & Zabel LLP, a major international law firm.  I was shocked and appalled to see the blatantly anti-Semitic article that was recently authored by your Professor Darryll Jones.  Why an institution of higher learning like yours would permit one of it’s Professors to publish an article that peddles in obvious anti-Semitic tropes such as this is a mystery to me.  The age old depiction of Jews using their wealth to undermine democracy was far more at home in Nazi Germany than, I would have thought, on your campus!!  I have also attached a letter signed by most of the major international law firms suggesting to the Deans a major law schools that they take the same unequivocal stance against anti-Semitism, racism, Islamophobia and the like as we law firms do.  In this instance, I am surprised that FAMU has either apparently not taken our suggestion or has unknowingly allowed one of its faculty members to engage in such heinous conduct.  I look forward to hearing your views which will be shared with the other major law firms who have taken such a strong position of these issues. Thank you.

Please read the article and tell me where I am being "blatantly anti-Semitic."  And where I "peddle in obvious anti-Semitic tropes."  Ambassador and former Utah Governor John Huntsman, one of the richer than God donors who cut off UPenn for asserted anti-Semitism, is the first person mentioned in the article at note 5.  He's from Utah.  I'm pretty sure he's friends with Joseph Smith and gives money to God at church, not synagogue.  Anyway, if you agree with Alan you should contact my editor at Tax Notes.  She and her staff of editors from hell ripped apart earlier drafts so they bear some responsibility for whether it is or isn't.  Her name is Ariel Greenblum.  

darryll k. jones

 

A Follow-Up on Late Night Musings: More on The Charitable Act

Lo and behold, I opened up Tax Notes Today (subscription required) this morning and found an article on the Charitable Giving Coalition’s position on the renewal of the above the line charitable deduction, which I discussed in my post yesterday.

The Tax Notes article notes that the Charitable Giving Coalition sent a letter to the House Ways and Means Committee and Senate Finance Committee in support of The Charitable Act. The Charitable Act reinstates the above the line charitable deduction, increases the limitation from $300 to one-third of the then standard deduction, and permits gifts to donor advised funds.  In support of the need for the Act, the Charitable Giving Coalition noted in its letter (cited in Tax Notes) that

Giving trends from 2020 and 2021, when the temporary non-itemizer charitable deduction was in place, indicate the deduction works. According to the Fundraising Effectiveness Project, charitable gifts of $300 — the cap of the temporary deduction in 2020 — increased by 28 percent on the last day of the year. Furthermore, interim Internal Revenue Service data for tax year 2021 shows 47 million households used the non-itemizer charitable deduction for donations totaling around $18 billion. A higher deduction cap, as included in the Charitable Act, would encourage even more charitable giving in communities across the country.

While I am generally in favor of reviving the above the line deduction, I’m dubious that this thinking holds. The primary beneficiaries of the above the line deduction are lower and middle income tax payers, If the “universal” deduction (which isn’t universal because it’s not available to those who itemized…) is increased, then the question is whether individuals who don’t itemize have the financial ability to make significantly larger contributions.  There is a marked difference in $300 and $4600, the estimate for the higher deduction.  I’d also be curious to know how much of the $300 giving is giving that’s already occurred and is just being captured for the first time in tax statistics – things like the weekly contributions to the church plate and such not.  Maybe the last $25 dollars given on Giving Tuesday, but I’d be curious where the incentive effect of increase in the universal deduction tails off.  Probably an interesting project to look at…

Curiously, eww

Gaza and Charities at War: Louis Brandeis Center vs. UC Berkeley

 

I haven't been on my high horse about the impact of the Hamas-Israeli war on civil society for a minute.  I keep feeling there is something absurd or arrogant about being an academic when men, women and children are dying right now.  I mean we are all going on about our business while this human vulgarity is ongoing like prime time television.  Not just there, though.  Whatta you gonna do though?  

The Louis D. Brandeis Center filed a brain warping complaint yesterday against UC Berkeley.  The gist of the complaint is that Berkeley discriminates against Jewish people directly and in nearly all of its operations, including its tolerance of student and nonprofit organizations that support Palestinian causes.  I am not nearly qualified to give it an accurate description, but I can tell its an intellectual heavy-weight and resolving the complaint (in a court of law or public opinion) will have a serious impact on civil society.  I'm inclined, if you haven't noticed, to deride politicians who want to defund Palestinian rights advocacy groups or revoke their tax exemptions, or the universities that host them, because of those groups' alleged "material support to terrorists."  I think its mostly war hysteria of a sort we've seen before.

But, well, I don't think that can be said of the Brandeis Complaint.  This is to my mind a serious and legitimate complaint opening a serious, less political conversation.  One that needs to be had.  The conversation will require some hard thinking about the difference between "advocacy" and "material support to terrorists." And how we mediate issues underlying national security, social justice, and civil society. Because advocacy is the invariable currency of humanitarian NGOs even if by only silently feeding the homeless or displaced. But does the International Red Cross and Red Crescent provide material support to terrorism by feeding a terrorist's homeless family while he is off fighting?  And if the ICRC or just some local campus group speaks sympathetically about the issues terrorists terrorize about, does the nonprofit provide material support to terrorists?  

Some hard thinking ahead.

darryll k. jones

 

 

Nonprofit Shade in the Santos Report

 

I'm not gonna lie.  I am such a tax exempt nonprofit freak, I might just pour the wine, dim the lights, and play me some Luther Vandross or Teena Marie before I read the Santos report.  There must be all kinds of steamy sultry tales of stolen donations and fake charities in there.  Private inurement, campaign intervention, and everything.  I bet that thing reads like Fifty Shades.  Let's just all get naked and jump in the pool right now!  

Or . . .  Somebody please read it and let me know if there are teachable moments relating to how we regulate nonprofit organizations.  Whew.  I think I might need a smoke now.

darryll k. jones

Some Late Night Reflections on Giving Tuesday

If you are like me, your inbox today is filled with emails from nonprofits looking for donations – Giving Tuesday has been in full swing.  I’ll admit to being somewhat cynical about Giving Tuesday.   I support the charities I support during the year and I don’t need a special day to do it.  I suppose one could see it as a day of penance for the twin orgies of commercialism known as Black Friday and Cyber Monday.  I am, however, without shame and feel no need to buy any indulgences on Giving Tuesday for my recent overconsumption.

But it would appear that I’m alone in my cynicism and that’s a good thing – no one needs curmudgeons like me grumbling about such things!   GivingTuesday.org tracks the impact of Giving Tuesday on charitable donations.   There are a number of interesting observations in the information collected in their Data Commons about giving trends, including the impact of Giving Tuesday.   According to one of their reports, Giving Tuesday enhances giving among supporters, grows existing relationships, and importantly, engages younger volunteers.

Givewp.com, citing the 2022 GivingTuesday.com study, states that

• In 2022, donors in the United States gave $3.1 billion on Giving Tuesday, 15% more than in 2021

• More than 20 million people gave, with 6% more donors in 2022 than in 2021

• 82% of nonprofits that participated in Giving Tuesday tried something new

• #GivingTuesday trends annually on social media

• More than $1 billion of U.S. Giving Tuesday donations were contributed online

That lead me to think about a potentially tax law significant change that occurred between 2022 and 2021 – that being the sunset of the $300 above the line deduction for cash charitable gifts from the CARES Act.  It seems like that particular deduction would be beneficial to the folks that Giving Tuesday targets – smaller, younger, and online donors.  That deduction hasn’t been in effect for 2022 and 2023, but there is at least some noise about trying to bring it back.  There have been a number of bills trying to revive and maybe even increase the deduction – you can find a summary of them at the Charitable Giving Coalition website here.   The most recent bill would reinstate the deduction for 2023 and 2024 but increase the limit to 1/3 of the standard deduction.

Who knows what the future of the above the line deduction is, given that all of the tax cuts that are facing sunset will be revisited here in due time.   In a world where the increased standard deduction remains and fewer people itemize, the above the line charitable deduction has its merits, especially among younger and less wealthy donors.   That being said, Roll Call reports that the Joint Committee on Taxation estimates that the above the line charitable deduction cost $2.9 billion in 2021, which is a pretty significant chunk of change.

While we wait to see what the tax writers will do… it’s now 11 pm eastern on Giving Tuesday – there’s still time to support your favorite charity, even if you won’t get an above the line deduction for it.

Grumpily guilted into generosity, eww

NY Attorney General Issues Annual Charitable Fundraising Report

 

From the NY Attorney General's annual Pennies for Charity report on fundraising and other things in the Empire State:

darryll k. jones

 

More on Fiscal Sponsorships: The Poorer Peoples' Donor Advised Fund

We posted last summer about a quick read on Fiscal Sponsorships.  New research out yesterday apparently confirms all the fuss about fiscal sponsors making charitable activities more do-able.  Remember when DAF's were advertised as the poor person's private foundation?  Fiscal Sponsorships are the poorer person's public charity.  The poor person who can afford a DAF but not a whole private donation is richer than a lot of folk I'll tell you that.  Consumer Reports says the bare minimum to open a DAF is between $5,000 and $25000, peanuts for some I guess.  I found a few online advertising no minimum at all, but why?  For some, even the $5000 bare minimum is too much.  So fiscal sponsors are to public charities what donor advised funds are to private foundations.  With fiscal sponsorships, there is no paperwork, no nothing except some simple agreement between a 501(c)(3) sponsor and some people too poor to afford their own (c)(3). By the way, I am pretty sure that a sponsor that does nothing other than administrative services for other real charities is itself not a real charity. That is, its not tax exempt. A couple of ex-NFL players are running one such operation. But see Treas. Reg. 1.502-1(b) and this article published about 100 years ago. 

But fiscal sponsorship can also be a useful for a larger public charity that is thinking of expanding its charitable reach into new activities.  It might sponsor a legally separate entity first, just to see how things work without committing itself to full fledged legal exposure.  

There is a fairly thorough background report out in yesterday's Chronicle of Philanthropy.  Here is an excerpt:

Fiscal sponsorship is a significant and rapidly growing part of the nonprofit world, according to a new report from Social Impact Commons and the National Network of Fiscal Sponsors. The report and experts involved in the sector indicate that the rise of fiscally sponsored projects appears to be both a response to the bureaucratic complexity of establishing and running a nonprofit and the increasing professionalization of the field. It’s being used as a way to pool resources, incubate new ideas, and provide oversight to organizations that are not yet charities.

The last 20 years have seen larger growth in the field than the previous 50, the report found, and demand for fiscal sponsors has surged since 2020. Seventy-one percent of survey respondents said demand for their services increased during the pandemic, and many are experiencing growing pains. The model, which has been around since at least 1959, when the Massachusetts Health Research Institute in Boston began offering a form of fiscal sponsorship for public and community health research efforts, has gained currency as a simpler way to organize charitable work at a time when the pandemic, racial reckoning, and other local and national concerns such as education and the environment are motivating people to quickly mobilize for social change.

The arrangement comes in many forms. Some sponsors centralize back-office support like accounting, human resources, and sometimes assistance with fundraising and leadership development for groups that don’t have nonprofit status. Others offer a purely financial relationship in which the sponsor receives the tax-deductible funds on behalf of a group that does not have charity status and passes the funds along. Most take a fee, which can vary widely depending on the sponsor and the services offered.

darryll k. jones

Ways and Means Witnesses Urge Revocation of Hate Groups' Tax Exemption

I am not yet convinced that Palestinian rights advocacy groups -- like the National Students for Justice in Palestinian -- are "hate groups." We too often conflate Palestinian rights group with Hamas these days.  Some of the witnesses at Ways and Means' hearing on tax exemption for universities and groups they host might be guilty of that conflation.  Two of them asserted that the First Amendment does not prevent the government from revoking tax exempt status for hate groups, an assertion with which I agree.  But overall, I thought the hearing was a missed opportunity because the witness list included no higher education law experts.  I used to be a member of the National Association of College and University Attorneys and can tell you that there are some very knowledgeable people in that group who could have taught us about campus speech codes, and how the First Amendment restricts university administrators' efforts to police campus speech.  Still, I was interested to hear the testimony from those witnesses.  The first, Jonathan Schanzer, stated that hate groups have no place in Congress, on campus, or in 501(c)(3).  Another witness, Jonathan Greenblatt stated categorically that the IRS can and should revoke tax exempt status for hate groups.  Neither witness, though, established a sufficient factual predicate nor did they engage in any sort of analysis towards a constitutional rule of law that would allow revocation.  They are both correct, but they essentially presented "there oughta be a law" type arguments. 

 

darryll k. jones
 

CCDH Anti-SLAPPs Elon, and Elon "Thermonuclear" SLAPPs Media Matters

As we easily predicted, the Center for Countering Digital Hate filed a 12(b)(6) motion against the social media platform formerly known as Twitter.  Elon sued CCDH a while back because CCDH complained about hate speech on X.  Our next prediction is that CCDH will win on that motion and Elon X will eventually pay CCDH's legal fees.  Life must great when have money to burn. 

Here is CCDH's mission statement:

The Center for Countering Digital Hate works to stop the spread of online hate and disinformation through innovative research, public campaigns and policy advocacy.  Through research, we expose the producers and spreaders of hate and disinformation, and demonstrate the offline consequences. Through campaigns, we galvanize support from the public and advertisers to pressure social media companies and tech platforms to reform. Through communications, we shape the debate to educate the public and key stakeholders about online harms. Through policy and partnerships, we persuade policymakers and collaborate with civil society leaders to demand reform of social media.

CCDH is not shy about calling out X or its main rival, Tic-Toc, for allegedly enabling and then tolerating hate speech on their separate platforms.  And its advocacy has been effective, apparently, because advertisers are sensitive to ESG, not because they are using stockholder money for their bleeding heart causes but because they understand that social injustice lowers their bottom line.  Word on the Street is that X is losing money and users faster than Mike Pence lost MAGA voters on January 6. 

Elon X is no less shy about filing SLAPP suits.  Last week he sued Media Matters America, another watch dog, for reporting on Elon's antisemitic comments on X.  It's so crazy that people who stretch the limits of free speech want everybody else to shut up. 

The Motion to Dismiss is beautifully written, heavily weighed down by authorities, and an easy read.  It will be interesting to read the response once it is filed.  Here is a bit from Motion:

Despite all the window dressing, this is fundamentally a case about speech. Plaintiff X Corp. is a multibillion-dollar, privately-held corporation that operates “X,” formerly known as Twitter— one of the world’s largest and most influential social media platforms. The CCDH Defendants are nonprofit organizations with the mission of protecting human rights and civil liberties online, founded after a white supremacist (radicalized online) murdered a colleague of their founder and CEO. The CCDH Defendants and other nonprofit groups have researched, authored, and published reports and articles documenting how major social media companies, including X Corp., protect or fail to protect against hate speech and false narratives relating to public health, climate change, and other topics of public concern. In turn, the companies, including X Corp., and their respective executives have spoken to defend their policies and critique these reports’ methodologies. Users, advertisers, and the public are obviously free to compare the arguments marshaled by both sides. And after evaluating each side’s speech, users and advertisers can decide for themselves whether and how to continue using the companies’ platforms.

I thought that paragraph brilliantly related the virtual "marketplace of ideas" to the real marketplace.  

darryll k. jones

Kaplow, Optimal Income Taxation and Charitable Giving

Louis Kaplow (Harvard) has posted Optimal Income Taxation and Charitable Giving, 38 Tax Policy and the Economy (forthcoming). Here is the abstract:

The philanthropic sector is highly consequential, particularly in the United States, and the most important policies directed toward this sector are tax policies. Yet most economic analysis of the optimal tax treatment of charitable giving is ad hoc, treating it as a subject unto itself. This article advances a different approach: integrating the tax treatment of charitable giving into the optimal income tax framework that has been developed over the past half century. The results supplement or overturn conventional wisdom. Notably, the analysis of revenue effects and the purported efficiency of subsidies to charitable giving is recast, focusing on the pertinent externalities rather than the direct revenue costs, which themselves are irrelevant in the basic case. Distributive concerns regarding donors are also misplaced because distributive effects can be offset by tax rate adjustments to the broader income tax and transfer system. These ideas are developed systematically, with an emphasis on intuition rather than technical formalism. The analysis also broadens and deepens the assessment of externalities from charitable giving, which are more numerous and heterogeneous than is generally recognized. Finally, refocusing our understanding of the optimal tax treatment of charitable giving identifies important subjects requiring further research.

Lloyd Mayer

Ryan, Cy Près and Religious Discrimination

C.J. Ryan (Louisville) has posted Nearer to Thee: Cy Près and Religious Discrimination. Here is the abstract:

In the law of charitable trusts, courts wield exceptional power with respect to two equitable remedies—cy près and the closely related doctrine of deviation—they can confer on trusts that have purposes or terms rendered ineffectual. Either doctrine allows the court to prolong the trust’s life, perhaps forever. Historically, the invocation of these remedies was anathema to American courts. But increasingly, they have contemplated the possibility of extending the life of charitable trusts through application of these doctrines. In many ways, the evolution of these doctrines is owing to the jurisprudence involving trusts created for the benefit of a religious congregation or charity. Yet, this connection and the implications of judicial decisions regarding the right to these remedies has not garnered academic attention until now.

In this study, I analyze the extent to which courts have applied these equitable remedies to religious purpose charitable trusts via an econometric analysis of a universe of cases with a published opinion from an American court from the nation’s founding through 2019. This study provides a novel analysis of these equitable remedies and the history of religious purpose charitable trusts along a considerable timeline in American history. First, it explores how the equitable remedies of cy près and deviation were shaped by and shaped the caselaw around religious purpose charitable trusts, elucidating the simultaneity of the recognition of each as valid remedy and trust. Second, it examines the possible bias of the courts in awarding these remedies to certain religious groups but not others, ultimately finding that trusts created for the benefit of Catholic churches and charities were deemed less worthy of these remedies by the courts, all else equal. These findings have implications not only for understanding the application of these equitable remedies more deeply but also for uncovering the implicit and overt bias of the courts in cases where it has no actual basis.

Lloyd Mayer

Silvia, Child & Witesman, A New Look at Hansmann’s Contract Failure Theory

Chris Silvia, Curtis Child, and Eva Witesman (all BYU) have published The Value of Being Nonprofit: A New Look at Hansmann’s Contract Failure Theory, Nonprofit and Voluntary Sector Quarterly (subscription required). Here is the abstract:

In his theory about the role of nonprofit enterprise, Henry Hansmann suggested that nonprofit status provides important information to consumers in low-information environments. In this article, we assess whether consumers use nonprofit status to form purchasing preferences as Hansmann predicted. Using choice-based conjoint analysis, we find that under different types of low-information circumstances, study participants prefer goods and services provided by nonprofits to those offered by businesses. In the absence of additional information (such as customer ratings and third-party certifications), nonprofit status serves as an important value signal to consumers. In the presence of additional information, nonprofit status is still relevant in some cases, although it becomes less so. The findings suggest that additional forms of information do not necessarily displace the value to consumers of information about organization type. We reflect on these findings in light of Hansmann’s thesis.

Lloyd Mayer 

Slenn, Fraudulent Donations to Charity: The Gifts That Keep on Giving

David J. Slenn (Akerman LLP) has published Fraudulent Donations to Charity: The Gifts That Keep on Giving, Business Law Today (November 2023). From the introduction:

This article examines what a charity should know about its exposure to liability as the transferee of a donation that turns out to be a fraudulent transfer by the donor. A charity can perform due diligence to manage most kinds of risk resulting from its receipt of a donated asset (e.g., hard-to-manage/risky assets, the risk of inadvertently participating in a tax shelter,[3] etc.), but a charity—even a large charity with sophisticated general counsel—faces a much more difficult challenge in attempting to mitigate the risk potentially posed by fraudulent transfer law. This article will also address how the law surrounding this intersection has evolved and how the courts have approached the issue of charity liability under fraudulent transfer law.

This article is especially timely given the recent federal bankruptcy court decision ordering a church to repay over $500,000 it had received, even though the church itself had acted in good faith and without knowledge that the funds originated from a fraudulent transfer (and even though the church had apparently already spent the contributed money).

Lloyd Mayer

Independent Sector, Health of the U.S. Nonprofit Sector Annual Review

Independent Sector has released its latest Annual Review of the Health of the U.S. Nonprofit Sector. Here is the overview:

Independent Sector regularly releases Health of the U.S. Nonprofit Sector reports – an evolving and growing resource of data, analysis, and recommendations about key areas powering more than 1.8 million U.S. nonprofits. Since 2020, when Independent Sector launched these reports, the focal points have included: Financial Resources, Human Capital, Governance and Trust, and Public Policy Advocacy. The reports make a broad set of measures easily accessible and present them side-by-side, so stakeholders and key decisionmakers can quickly see the most accurate snapshot of the state of civil society.

The 2023 Health of the U.S. Nonprofit Sector: Annual Review covers sector health data from 2021 through the second quarter of 2023. The report includes data from a range of sector research as well as Independent Sector’s analysis of nonprofits’ economic contributions and workforce demographics.

Lloyd Mayer

California AG Proposes Charitable Crowdfunding Regulations

The California Department of Justice just issued a Notice of Amendments to Regulations implementing Assembly Bill No. 488, which relates to charitable crowdfunding. Fellow blogger Darryll Jones summarized an earlier set of proposed regulations on this topic, which it appears that the new set of proposed regulations is superseding. 

I have not had time to parse through them to see what has changed from the initial proposed regulations - nor does it appear anyone else has, which is understandable given the upcoming Thanksgiving holiday - but in the interests of getting the news about them out as quickly as possible I am doing this initial post. Comments are due in 45 days, so early January 2024.

Lloyd Mayer

Founder of Christian Health Care Sharing Ministry Pleads Guilty to $8 Million Wire Fraud Conspiracy

Following up on an earlier post that reported federal authorities had shut down section 501(c)(3) Medical Cost Sharing Inc., the U.S. Department of Justice has announced that the founder of this charity has pleaded guilty to conspiracy to commit wire fraud and making false statements on a tax return. According to the press release:

[Craig Anthony] Reynolds admitted that he and his co-conspirators used false and fraudulent promises to market Medical Cost Sharing as a “Health Care Sharing Ministry” to defraud hundreds of “ministry members.” Reynolds and his co-conspirators collected more than $8 million in member “contributions,” yet paid only 3.1 percent in health care claims so that they could personally profit and take most of the members’ contributions for themselves

Of course health cost sharing ministries do not automatically qualify for section 501(c)(3) status, for the reasons discussed in the recent IRS ruling discussed by fellow blogger Darryll Jones earlier this week. But this case highlights that even when they do appear to qualify, problems can still arise from their actual operations.

Coverage: KMBC; Medium.

Lloyd