Monday, February 6, 2023
Apparently the two tried to merge in 2013 to, let's say, less-than-stellar results. And how is this attempt going? Not much better. On Friday, medical professionals and med students at the University of Minnesota medical school rallied against the proposed merger. Protestors seem to have two objections. The first is, they don't want the University of Minnesota's health care system controlled by an out-of-state entity.
More importantly, they point to the fact that mergers in the nonprofit health care industry almost inevitably lead to consolidations, job loss, and loss of care for patients who use the health care system. And it's hard to argue that they're wrong: the Times's reporting shows precisely that happening as a result of the mergers and consolidations it looked at.
Will the merger happen? Well, it's failed before. It's deeply unpopular. But we'll have to wait and see.
Samuel D. Brunson
Click on the picture to read a CRS report on material support
Just this morning, there was a major earthquake in Syria -- reportedly more than 1600 deaths and buildings collapsing all over the news. On top of that, there is a civil war raging with no end in site. Nonprofit organizations will no doubt quickly ramp up to provide critical aid. But do they have to worry about their aid somehow helping one side or the other in the civil war? Its a legitimate question because that circumstance could end in revocation.
The Associated Press, a 501(c)(6) according to ProPublica, teamed up with Shomrin, an Israeli nonprofit newspaper, to report that another Israeli nonprofit, Shlom Asiraich, is assisting terrorists -- including Prime Minister Yitzhak Rabin’s assassin, but more often right wing Israeli killers of Palestinians, according to Israeli media reports, and that a U.S. nonprofit, World of Tzedaka, has been collecting donations in the United States to help in all the trouble.
I did not find the Israeli based nonprofit, Shlom Asiraich, on the State Department List of Foreign Terrorist Organizations. But the whole story is laid out in the Associated Press, complete with erudite comments from Ellen and Marcus. Those two nailed the problem with two short sentences set out below. But first here is a summary from Shomrin:
An Israeli association that financially supports the murderer of Prime Minister Yitzhak Rabin, the murderer of the Palestinian Dawabsha family, the murderer of the girl Shira Banki, and other Jews convicted of a nationalist crime, is collecting donations in the United States. The American donors are entitled to deduct part of their contribution from their income tax payments and the meaning is that the American government indirectly subsidizes these contributions.
The association that collects the donations, named "Shalom Esirich," was established in 2020, but the collection of donations began at least two years earlier under the name " All of us with the prisoners of Zion." The registration of the association was carried out by the lawyer Hanmal Dorfman, the right-hand man of the chairman of Otzma Yehudit and the Minister of National Security, Itamar Ben Gabir, and who managed the coalition negotiations for entering the government on his behalf. In his response, Dorfman stated that he is not the association's legal advisor and refused to address further questions.
The AP version continues, rather expertly framing the issues from both sides with help from Ellen and Marcus;
Ellen Aprill, an expert on tax and charities at Loyola Law School in Los Angeles, said convicted criminals and their families could be considered in need and qualify as a permissible charitable purpose. While supporting someone convicted of acts of terrorism could be seen as encouraging criminal activity, that would need to be proven, she said. Marcus Owens, a lawyer who ran the IRS’s nonprofit unit in the 1990s, took a tougher stance. “The U.S. Department of Justice views assistance to the families of terrorists as a form of material support for terrorism,” he said.
Oh man, I love it when nonprofit experts talk that sexy nonprofit talk. Ellen and Marcus -- maybe they should get a room! -- are talking IRC 501(p), enacted after our traveling innocence was stolen on 9/11. Used to be, as nostalgialized in this NPR report, we could arrive at O'Hare or LAX a few minutes before the flight, run through the airport like the homicidal OJ Simpson in a rental car commercial, keep our shoes on, and still make our flight. IRC 501(p) is the airport equivalent for U.S. nonprofits who want to support [legitimately or illegitimately] disfavored causes overseas. Now, they gotta get there two or three hours earlier, stand in lines, lines, and more lines, just to take your shoes off and your laptop out, and be bombarded with gamma rays that look up your orifices right out there in public, before getting on the exempt organizations plane. I made all that up but you understand. By the way, here is how the law defines "material support or resources" for terrorists, the provision of which will get your nonprofit's name scratched off the Publication 78 list:
(The term “material support or resources” is defined in 18 U.S.C. § 2339A(b)(1) as ” any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safehouses, false documentation or identification, communications equipment, facilities, weapons, lethal substances, explosives, personnel (1 or more individuals who maybe or include oneself), and transportation, except medicine or religious materials.” 18 U.S.C. § 2339A(b)(2) provides that for these purposes “the term ‘training’ means instruction or teaching designed to impart a specific skill, as opposed to general knowledge.” 18 U.S.C. § 2339A(b)(3) further provides that for these purposes the term ‘expert advice or assistance’ means advice or assistance derived from scientific, technical or other specialized knowledge.’’
Federal tax treatment matters to churches, the term the IRS uses for all types of religious congregations, including synagogues, mosques, and temples. The federal tax provisions most significant for churches and certain entities closely related to them, however, are not those that the public and commentators often assume. Exemption from income tax and the ability of donors to deduct contributions, the benefits that receive the most public attention, in fact provide surprisingly little benefit either to churches in the aggregate or to most individual churches. Their status as organizations tax-exempt under section 501(c)(3) of the Internal Revenue Code, moreover, imposes a variety of burdens on them. The burdens include limitations on lobbying and the prohibition on any intervention in campaigns for public office.
At the same time churches enjoy special tax benefits not afforded to other section 501(c)(3) organizations, not even other kinds of tax-exempt religious organizations. These special benefits make church status appealing. Such benefits include exemption from filing with the IRS Form 990, an annual information return that, with the exception of the names and addresses of major donors, is also publicly available. In addition, the IRS cannot begin any audit of a church unless it complies with a number of procedures.
These advantages limit oversight of churches by the IRS, the media, and the public. They create an incentive for religious organizations that share some traits commonly found in churches to seek status as a church. Two recent IRS grants of church status have attracted sharp criticism from the media and members of Congress. At the same time, a number of developments, such as loss of membership, expansion of virtual worship, and recent Supreme Court Free Exercise jurisprudence, have created new challenges for churches and their tax treatment.
In response to all these developments, this article recommends changes to the longstanding IRS approaches for defining “church” and certain church-affiliated entities. These changes would substitute a definition for church developed by courts and limit the definition for conventions or associations of churches to those of a single denomination. The definitional changes will clarify the distinction between non-church religious organizations and churches. Updating the understanding of “church” to reflect the twenty-first century realities of virtual participation and the increasing diversity of faith communities will also improve IRS oversight.
This article also recommends that the GAO undertake a renewed study of campaign intervention by section 501(c)(3) organizations generally. This study will clarify whether all section 501(c)(3) organizations, including churches, are in fact violating this prohibition in ways that go beyond sporadic, minor, and usually inadvertent footfalls.
In the authors’ view the recommended changes would benefit churches and the public because they take into account both current realities and current concerns. In so doing, they would not only give churches welcome guidance but also increase public trust that churches are not abusing the special privileges they enjoy under federal tax law.
To see exactly what might happen to Ellen and Lloyd if they keep poking the bear, check out this video:
Ellen and Lloyd keep poking the church tax exemption bear.
Friday, February 3, 2023
The five states with the friendliest regulatory environment toward charitable organizations are Montana, Wyoming, Nebraska, Delaware and Idaho. The five states with the most burdensome regulatory environment toward charitable organizations are Connecticut, Mississippi, New Jersey, Florida and Pennsylvania. Relating these rankings to the vibrancy of the charitable sector (as measured by the number of charities per billion dollars of GDP) provides initial perspective regarding the consequences from imposing a more burdensome regulatory environment on charitable organizations. There is, in fact, a strong correlation between the states that impose more burdensome regulatory environments and the vibrancy of the charitable sector. While more research is required, the results are an initial indication that the states imposing the most burdensome regulatory environments are dimming the vibrancy of the charitable sector. Consequently, states should consider the benefits from streamlining state regulations and eliminating unnecessary burdens as a means for promoting a more efficient and effective charitable sector.
. . .
- While there is a need for regulations on the charitable sector to foster accountability and trust in charities, excessive levels
of regulation impose a burden on charities that outweighs the benefit of the regulation.
- Little research has been done to examine the impact of overregulation on the charitable sector. This study is a first
step toward gaining a better understanding of the regulatory burden imposed on charities.
- By comparing states along five categories of charitable regulations, one can see that overregulation is correlated with
relatively fewer charities in a state.
- Our society and those in need depend on a thriving, vibrant charitable sector. The evidence in this study suggests excessive levels of regulation are counterproductive to fostering a positive environment for charities and those they serve.
Here is part of the overall rankings. The entire table is available in the report.
A Press Statement issued yesterday by Secretary of State Antony Blinken:
I am taking action today to impose additional visa restrictions on certain current or former Taliban members, members of non-state security groups, and other individuals believed to be responsible for, or complicit in, repressing women and girls in Afghanistan through restrictive policies and violence, including the Taliban’s decision to ban women from universities and from working with NGOs. The immediate family members of such persons may also be subject to these visa restrictions, enacted under Section 212(a)(3)(C) (“3C”) of the Immigration and Nationality Act.
The Taliban’s most recent edicts ban women from universities and from working with NGOs, and further the Taliban’s previous measures that closed secondary schools to girls and limit the ability of women and girls to participate in the Afghan society and economy. Through these decisions, the Taliban have again shown their disregard for the welfare of the Afghan people.
So far, the Taliban’s actions have forced over one million school-aged Afghan girls and young women out of the classroom, with more women out of universities and countless Afghan women out of the workforce. These numbers will only grow as time goes on, worsening the country’s already dire economic and humanitarian crises. Women’s and girls’ quality, safe, and inclusive education and workforce participation is essential to growing and strengthening economies, reducing inequality, and fostering stability. Equal access to education and work is also an essential component to the vitality and resiliency of entire populations, including all adults and children, regardless of gender. The Taliban cannot expect the respect and support of the international community until they respect the human rights and fundamental freedoms of all Afghans, including women and girls.
We continue to coordinate closely with allies and partners around the world on an approach that makes clear to the Taliban that their actions will carry significant costs and close the path to improved relations with the international community.
We condemn in the strongest of terms the Taliban’s actions. The United States stands with the Afghan people and remains committed to doing all we can to promote and advance respect for the human rights and fundamental freedoms of all Afghans, including women and girls.
For previous coverage, see this post.
Thursday, February 2, 2023
The Williams Institute at UCLA Law "conducts independent research on sexual orientation and gender identity law and public policy. We ensure that facts—not stereotypes—inform laws, policies, and judicial decisions that affect the LGBT community." It reports that as of March 2022 "15 states have restricted access to gender-affirming care or are currently considering laws that would do so. The bills carry severe penalties for health care providers, and sometimes families, who provide or seek out gender-affirming care for minors."
Elsewhere on Planet Earth, but in the same country and indicative of a reactionary trend portraying LGBTQ and African Americans as the Boogeymen, a local property tax assessor argues that charities like Vanderbilt University that provide gender affirming care for minors should not be tax exempt. Stephen King would be proud. In a letter to the Governor and state legislators, The Rutherford County (Tennessee), property tax assessor said "I don’t want to subsidize it necessarily with my taxpayer dollars being used there, I’d rather my tax dollars go into a school." Vanderbilt is headquartered in a neighboring county, but it has health care facilities in Rutherford County that provides gender affirming care to minors, though the state is apparently poised to pass a bill outlawing or penalizing such care for minors. The Property Tax Assessor wants the Governor and state to deny property tax exemptions for charities providing that care at the same time it finally outlaws the care.
"It can be argued that by way of their tax-exempt status they are forcing taxpayers to pay for a type of medical care which is contrary to their moral/religious convictions," Mitchell said. "In Tennessee for instance, 'gender affirming' surgeries are found to be offered primarily through tax-exempt hospitals. This is a revelation which most lawmakers would find concerning if not an objectionable practice altogether."
How do I know this is a boogeyman distraction? Because the property tax assessor' "letter to state officials comes one year before he's up for election in 2024. He won his seat in 2012 as a Democrat before becoming a Republican in a GOP dominated county to win reelections in 2016 and 2020. "I’m absolutely going to run again, but this is not an election issue," Mitchell said. Why, you old Blue Dog Democrat, you! Anyway, when people say it ain't about the money, trust me, its about the money.
VUMC approaches its responsibility to care for patients by following the most widely recognized national and international standards of care, while at all times doing so in accordance with state and federal laws. Our clinical teams provide transgender care that is informed by the professional practice standards and guidance established by leading medical specialty societies, such as the Endocrine Society and the World Professional Association of Transgender Health (WPATH) . . .
You have asked that VUMC halt permanent gender affirmation surgeries being performed on minor children. On September 6, 2022 WPATH published a new version of its recommendations to health care professionals for treatment of transgender persons, known as SOC-8 guidance. In light of these new recommendations, and as part of completing our internal clinical review of the SOC-8 guidance in patients under 18, we will be seeking advice from local and national clinical experts. We are pausing gender affirmation surgeries on patients under age 18 while we complete this review, which may take several months.
A story in the Nonprofit Times highlights a book I had not previously heard about entitled "Uncharitable: How Restraints on Nonprofits Undermine Their Potential." Has anybody read this book? So the book has now turned into a documentary, the slick trailer for which is below. The author, Dan Pallotta, apparently believes (I don't want to speak for him, especially since I have neither read the book nor seen the upcoming documentary) nonprofits should be allowed to harness the profit-seeking motivations and practices prevalent in the capitalist market, presumably without fear of losing tax exempt status. Here is a portion of the Nonprofit Times summary.
Uncharitable, a documentary that argues nonprofits operate under excessively prohibitive constraints, is set to be released in late March. The movie is based on Dan Pallotta’s 2008 book, Uncharitable – How Restraints on Nonprofits Undermine Their Potential. Uncharitable was initially published by Tufts University Press. A new paperback edition was released by Brandeis University Press last year. The book offers a series of arguments against some of the primary complaints perennially levied against nonprofits. Within its first chapter, Pallotta cautions against:
- Constraints on compensation, stating that the impulse for leadership to act charitably does not automatically require self-deprivation;
- Prohibitions on risk which punish bold actions by nonprofits while rewarding timidity;
- A focus on short-term vision spurred by a perceived need for immediate gratification;
- Discouragement of paid advertising, which potentially allows nonprofits to cede attention and other results to competitors; and,
- Discouragement of investment returns, which potentially reduce or eliminate non-donation funding sources.
By the way, Kathleen Man Gyllenhaal is a Yale Graduate with a degree in Film Studies; she married the father of Jake, of Brokeback Mountain fame, and adopted the Swedish name pronounced "Yeelenhall." Uncharitable's author has also delivered a TED Talk entitled, "The Way We Think About Charity is Dead Wrong." This guy is kinda fixated on nonprofits and tax exemption obviously. Must be some kind of nut or something. Listen to his TED Talk below.
Wednesday, February 1, 2023
See yesterday's post regarding NIL nonprofits with tax exemption. Meanwhile, here is how the the Big Red Collaborative, Nebraska's nonprofit NIL organization describes its charitable mission:
Founded by prominent University of Nebraska-Lincoln supporters and former athletes, the Big Red Collaborative launched as a new NIL collective that will secure opportunities for Nebraska student-athletes. The group is poised to support hundreds of Husker athletes across all sports through a new model that generates maximum benefits for all stakeholders.
The Big Red Collaborative differentiates itself in its unique approach to supporting athletes. There are two primary components of the collaborative. The Big Red Collaborative Foundation (the “Foundation”) is established as a nonprofit corporation which will operate under Section 501(c)(3) of the Internal Revenue Code. The Foundation will accept charitable donations which will be used to support charitable organizations in Nebraska and elsewhere through matching programs and by arranging for Husker athletes to promote the charitable organizations and their fundraising efforts. The Big Red Collaborative, Inc. (“BRC”) is a wholly owned subsidiary of the Foundation that will enter into agreements with student-athletes. Through BRC, student-athletes will leverage their name, image, and likeness, to promote private businesses who contract with BRC and to benefit charities identified by the Foundation.
In addition, as part of the Big Red Collaborative’s passion to ensure the University of Nebraska student-athletes are best prepared to navigate this new chapter in college athletics, the Foundation will encourage and support student-athlete education in the areas of financial literacy, wealth planning and entrepreneurship. The University of Nebraska College of Business already has available programming, curriculum, and assistance student-athletes can access regardless of their major.
Financial literacy?! Well yeah, when you are paying a kid a million bucks, I suppose he really does need to learn about financial literacy, but that don't make the organization's purposes charitable. It looks like the Big Red Collaborative is admitting that, at best, its a private non-operating foundation, [supporting student-athletes, which seems charitable enough], but the strong whiff of THC-like private benefit is still there. Compare the Nebraska Collective's mission to that of the University of Florida Gator Collective's mission:
Gator Collective’s mission is to compensate Gator athletes for their name, image, and likeness (NIL) by connecting them with Florida Gator fans and businesses through a variety of fan experiences. As a Gator Collective Athlete, you will have the opportunity to earn compensation through interviews, fan meet & greets, merchandise signing, merchandise sales, sending fans personalized video messages, live appearances at events, promotions, online Q&A sessions, and more. Additionally, Gator Collective offers athletes the opportunity to serve as ambassadors and earn commission earnings based on tracked membership referrals.
The Gator Collective does not claim tax exempt status. Instead, its a for-profit LLC. Gators are not as tax aggressive as Cornhuskers, I guess. And Florida has a whole LL.M (Tax) program that Nebraska does not. There doesn't seem a whole hill of beans difference between what the two organizations do, and both dispense substantial private benefit, to say the least. Does either or both organizations qualify for IRC 501(c)(3) status? If so, maybe chickens have lips, pigs fly, and maybe bears don't poop in the woods. I still don't understand why some of these groups organize as tax exempt organizations.
At long last, I have finally finished my article, the name of which is in the headline. It proves that hate groups are not entitled to tax exemption. It argues, as well, that government may not grant tax exempt status to hate groups. My purpose is to get to the right outcome so I admit that there is an argument against the proposition that government is constitutionally prohibited from granting tax exempt status to hate groups. That argument is wrong, I am sure and I will strengthen my conclusion as I edit. The arguments that government must grant tax exempt status because to do otherwise is to deprive hate groups of their right to free speech is an exceedingly lazy one. It is made, not because constitutional scholars like Eugene Volokh are racist or stupid (though the notion of a hate group being charitable, even just for tax purposes, is so absurd that it must be hard to see the stupidity of it). I think instead that there are some free speech purists who cling to the discredited "marketplace of ideas" and so speech should never be infringed, no matter how odious or dangerous. Fair enough. But that hardly equates to a requirement for subsidy. Here is a quote from Justice Stevens that succinctly summarizes my conclusion: "[Hate] groups may exclude or mistreat Jews, blacks, and women—or those who do not share their contempt for Jews, blacks, and women. A free society must tolerate such groups. It need not subsidize them, give them its official imprimatur, or grant them equal access to law school facilities." Christian Legal Society Chapter of the University of California v. Martinez, 561 U.S. at 703 (Stevens, J. concurring).
Here is the abstract to my article:
Stochastic terrorists demonize and dehumanize groups of people through propaganda to incite “lone wolf” violence against those groups. Their demonization and dehumanization is explicit, but their solicitation of murder is implicit and sufficiently ambiguous that most listeners will not perceive their call. But a few will perceive, fewer still will act. The resulting murder, legally attributable to the killer but not the hate group, is random and unpredictable by time, place, or manner. Researchers theorize that stochastic terrorism is nevertheless capable of statistical analysis the results of which positively correlates violence to hate speech; murders increase even if it cannot be determined when, where or how a particular murder will occur. Stochastic terrorism is the raison d’etre of hate groups.
Stochastic terrorism is protected speech so far; it does not constitute fighting words, incite imminent lawlessness, or provoke a stampede to the exits. The law is not yet enlightened. I accept but do not rely on the inevitability of murder in my analysis. Whether stochastic terrorists are successful is not essential to my conclusion. Nevertheless, we should be explicit about what hate groups seek and the murders they incite before discussing their claim to tax exemption under IRC 501(c)(3). It diminishes the analysis not to be explicit. I do not allow for any other possibility than that hate groups seek the death of those they hate. Stochastic terrorists are genocidal; they would neither settle for subjugation or forced expatriation, nor concede reparations even if those were acceptable alternatives. I disprove the argument that because their speech is protected, stochastic terrorists are entitled, as an exercise of their free speech, to tax exemption under IRC 501(c)(3). The opposite is true. Government is required to deny tax exemption to stochastic terrorists.
Tuesday, January 31, 2023
I am glad student athletes can be paid for their game, but I swear, the whole NIL infection has pretty much ruined everything from a fan standpoint. Before NCAA v. Alston, when everybody made money except players, and players were locked into their team (economically, if not legally) like indentured servants or baseball players before free agency, you could watch a kid for at least three years. You kinda felt like you "knew" the kid and the team, and that feeling contributed to your rabid affinity for your team. But the market is amoral and doesn't care about your stinking feelings! So I guess we better get used to student athletes acting just like the head coaches who condemn NIL money have been acting for years. Go where the money is, forget team loyalty.
Anyway, here is an excerpt from an interesting Forbes article regarding NIL money being funneled through nonprofit organizations:
Across the country, groups known as collectives have sprung up to channel money to high school and transfer-willing superstars looking to finally get their cut of the multibillion-dollar enterprise that is college athletics. Some of the groups — at least five by Forbes’ count — do so as IRS-approved, tax-exempt organizations. Rather than stuffing paper bags with cash in the hopes of luring a can’t-miss prospect to campus, donors can make “charitable” gifts that, after a bit of transmogrification, are every bit as tax deductible as a check sent to St. Jude. Think of it. For decades, college football’s legions of followers have shown they’re not only willing to pay for game tickets and jerseys, they’ll fork over cash just for the remote possibility their team might beat State, or whomever their rival is, with no other return on investment expected.
That’s where non-profit collectives come into play. “The primary purpose for the tax-exempt collectives was to enable individuals to make tax-deductible charitable contributions,” Larry Mohr, a tax partner at Baker Tilly, told Forbes. “The key with the tax-exempt organizations is making sure they have a charitable mission.” Rather than raising money from the local car dealership or fireworks store, it’s coming from donors. But there’s a rub. For a collective to be a nonprofit, contributions can’t go directly to players.
The workaround involves a bit of theater. Donations to the nonprofit collective are said to be a gift to a charitable organization (which may or may not be directly affiliated with the collective itself). But rather than, you know, give the money to the charity to do its good deeds, the money is earmarked to pay players to, at least on paper, serve as fundraisers. The arrangement leads to a whole host of other questions. Unlike a business, charities can’t pay people whatever they feel like. To keep their tax-free privileges, charities must pay compensation considered “fair value.” And if players are essentially being paid to do charitable work, is it even charity? Stepping afoul of either guideline could put the player and the charity in jeopardy with the IRS.
“A commonly cited example of an appropriate payment is the payment of a ‘fair market value’ appearance fee at a fundraiser for a nonprofit organization,” attorneys Tom Molins and Ethan Sanders from Stinson LLP told Forbes in an email. “On the other hand, just paying a student-athlete a large sum to sign autographs may not be viewed as fulfilling a collective's charitable purpose. Similarly, paying student-athletes to donate their time working at a soup kitchen or homeless shelter probably will also not suffice. While those are clearly charitable endeavors, paying a student-athlete to do volunteer work is really not serving a public good that justifies payment.”
Something stinks, alright, but I think both points made in the article are incorrect and I sent a note to the author about it. Here is the email I sent:
I just finished reading your interesting article “Looking for A Tax Break? Buy Your Alma Mater Its Next Football Star.” A few important quibbles: (1) Actually, charities can indeed pay employees whatever they want. That is, charities can pay “going rate,” and they are allowed to use for-profit business to determine going rate. That’s why the head of Red Cross or some big nonprofit hospital can earn as much as the head of American Airlines or a for profit hospital. So if the going rate for celebrity endorsements – broadly defined – is $13 million, a charity hiring a college football or basketball player to endorse it can pay whatever for-profits would have to pay for the same endorsement from a pro football or basketball player. (2) People who work for charities – even just to appear at a “volunteer event” – are entitled to be paid the “going rate.”
Once these two issues are understood, the only real (and real big) issue in your article is whether the charitable collectives are operating for a “public” rather than “private” purpose. Clearly, there is a strong legitimate question whether these organizations deserve or qualify for tax exempt status. I don’t think the article makes this point strong enough though it does quote a practitioner who says “charitable mission is key.” And even that is a bit imprecise. A hospital, for example, that dispenses health care might be deemed charitable, but if it does not distribute its beneficial impact to a broad swath of people, without regard to ability to pay in some instances, it is operating for a private purpose (that of those who can pay) rather than a public purpose. It’s all right there in the easily accessible, fun to read (oh boy, oh boy!) tax regulations. The collectives are likely operating for private benefit and therefore not entitled to charitable tax exemption.
Besides, donors can get a trade or business expense deduction for the amount paid for NIL licenses, easy enough, and with a little creative or not so creative planning (form an LLC that does "something" business, and pay the kid to use his or her pic on a billboard or mailer!) I am not quite clear what benefits are derived from funneling the money through a nonprofit but there must be something there because according to the article, two senators -- a Democrat and a Republican -- have sponsored a bill that would deny the charitable contribution deduction for NIL payments. Here is how the bill was described in the Senators' press release:
“In this new NIL era, we want to ensure that the opportunities available for student athletes to benefit from their own name, image and likeness are protected,” said Senator Cardin. “We also have an obligation to protect taxpayer funds, which means that charitable deductions should be reserved for charitable activities. Purposefully blurring the line between private expenses and charitable contributions dilutes both these efforts.”
“College athletes have the ability to benefit from opportunities related to their own name, image, and likeness, but outside organizations and collectives should not be able to write contributions off their taxes that are used to compensate athletes,” said Senator Thune. “This common-sense legislation would prohibit these entities from inappropriately using NIL agreements to reduce their own tax obligations. These basic taxpayer guardrails would protect athletes, strengthen NIL, and uphold the responsible stewardship of taxpayer dollars.”
The bill proposes a new IRC 170(p). Here is the gist of it:
(p) CONTRIBUTIONS FOR CERTAIN PURPOSES RELATING TO COLLEGE ATHLETICS.—
‘(1) IN GENERAL.—No deduction shall be allowed for any contribution any portion of which is used by the donee to compensate 1 or more secondary or post-secondary school athletes for the use of their name, image, or likeness by reason of their status as athletes.
(2) EXCEPTION.—Paragraph (1) shall not apply to any contribution made directly to an organization which is an eligible educational institution (as defined in section 25A(f) (2)).’’
I suppose a nonprofit can be structured to work, as suggested in this interesting On3 NIL article on the topic:
Winter says there is a way collectives can operate within the 501(c)(3) world, especially if the groups are paying the student-athletes for work that is serving a charitable purpose. For example, Winter said paying a student-athlete fair-market value to make an appearance on behalf of the charity at a fundraiser would probably “pass muster.” “But if you’re just paying guys for serving soup, I don’t see how that necessarily aligns with the charitable mission of the collective,” Winter said. “How does that serve the public good by paying to do volunteer work?”
Sure it works, even if you pay a celebrity to serve soup. The celebrity is paid for the association of her name, image and likeness with the charity while serving soup. Not for serving soup! The celebrity endorsement need only be reasonably conducive to the accomplishment of the charitable purpose, it seems to me. A celebrity endorsement -- like a commercial or billboard featuring a college athlete asking for donations to Save the Children or Ronald McDonald House -- seems reasonably conducive. Maybe the issue is whether exempt organizations should even be paying for celebrity endorsements, particularly when the payment for the endorser is millions more than the cost of the soup. Ahh, yes, now we have the private benefit issue cornered. Read Judge Posner's opinion in United Cancer Council for an explanation of the private benefit issue when we suspect that the costs of charitable operations outweighs the charitable benefits derived by several multiples. Anyway, all of this gnashing of teeth makes me ask the question, why? What is the benefit derived from using a nonprofit?
Monday, January 30, 2023
Last week, the Service released recently updated Technical Guide 58, regarding IRC 4941 excise taxes on self-dealing. I was particularly tickled to see the announcement in the IRS email update to which I subscribe because the update is based on Chief Counsel Advisory 202243008. The Advisory was written to Casey Lothamer, Area Counsel (Tax Exempt and Government Entities), Mid-Atlantic Region. Casey is one of my former students from my days at Pitt. It makes me wanna hitch up my pants and brag when I see one of my former students out in the trenches. "Yeap. I taught that boy dang near ere'thang he knows about exempt organizations!"
Pittsburgh Mayor Ed Gainey displaying executive order requiring audits of nonprofits in Pittsburgh ensure they are "purely public charities."
Pittsburgh Mayor Ed Gainey is following a familiar script in seeking to supplement the city's budget with up to $36 million in PILOTS from the city's nonprofit organizations. First, announce the City's budget is stretched to the limit, but the Mayor is holding the line against higher taxes. Second, note the presence of apparently wealthy nonprofits sitting around doing nothing while eating up more than their "fair share" of public services. Third, make explicit that tax exempts pay no taxes, free-riding all over the working and tax-paying folk. Fourth suggest some sort of legal scrutiny, short of legal process because the City would lose probably. Fifth, ride the media circuit shaming the big nonprofits for bringing nothing to the cookout. Sixth, wait until one of the big nonprofits --UPMC, Pitt, Duquesne or Carnegie Mellon -- get tired of bad press and finally just pay up. Wash, rinse, repeat. You can watch Mayor Gainey's the press conference here. The City has even established an email address citizens can use to report the untaxed excesses of nonprofits, including excessive compensation practices. Tax law in the court of public opinion, I guess.
Friday, January 27, 2023
Call for Papers (deadline: 3/15/23): 2023 Modern Studies in the Law of Trusts, Wealth Management & Philanthropy Conference
I received a call for papers for the fifth conference in the Modern Studies in the Law of Trusts, Wealth Management & Philanthropy series to be held at Yong Pung How School of Law, Singapore Management University on July 27-28, 2023. The deadline is March 15, 2023. Here is the full announcement:
Call for papers for Modern Studies in the Law of Trusts, Wealth Management & Philanthropy 2023
The fifth conference in the “Modern Studies in the Law of Trusts, Wealth Management & Philanthropy” series will take place on 27-28 July 2023 at the Yong Pung How School of Law, Singapore Management University (Singapore). The 2023 conference will be co-organised by Singapore Management University, Centre for Commercial Law in Asia, the University of York, and The Dickson Poon School of Law, King’s College London.
The theme of the conference is “The Law of Trusts, Wealth Management & Philanthropy: Innovation and Reform in the Law of Trusts”. The conference will focus on current developments and challenges facing trust law, wealth management and philanthropy, with particular focus on the need for innovations responding to contemporary developments and emerging issues – for example, technological disruption, new forms of regulation, climate change and sustainability goals - that impact global families and how they manage their wealth. The conveners of the conference (Richard Nolan (York), Tang Hang Wu (SMU), Yip Man (SMU) and James Lee (KCL)) plan to publish a selection of the papers presented at the conference in a special edition of a journal (subject to review and availability of space).
If you would like to offer a paper, please submit a working title and an abstract (of no more than 1500 words) by 15 March 2023 by email to James Lee (email@example.com) and Yip Man (firstname.lastname@example.org). The conference conveners are particularly keen to hear from Global South, women and emerging scholars in the field. Acceptance will be on a rolling basis and the conference conveners will be grateful for early submissions. There are no speaker registration fees for those whose papers are accepted this conference. Speakers and attendees are expected to meet their own travel costs and accommodation for this conference.
The Cathedral of Learning at the University of Pittsburgh
PILOTS depend on public shaming for their implementation and perpetuation. The process of imposing PILOTS invariably follows a well worn pattern: (1) a local government official searches for revenues while maintain an incumbent's aversion to any type of tax increase. (2) The official floats the idea that "hey, those rich nonprofits don't pay for anything!" (3) There follows a media campaign -- press releases and the release of official reports, maybe a board of carefully selected local citizens appointed to study the issue -- to keep attention focused on the "rich" nonprofits. (4) Nonprofits, fearing damage to their brands more than a legal challenge, eventually agree to another round of PILOTS. Sometimes the nonprofits offer a feeble defense of their status, pointing to their economic impact on the city and county. But they don't push too harshly, lest they erode their goodwill in the community. When they inevitably pay, its all very much "voluntary," though.
On Tuesday, Pittsburgh Mayor Ed Gainey called for a deep dive into the city’s “purely public charities.” According to Pa. Act 55 of 1997, a purely public charity has to meet certain requirements. It has to have a charitable purpose directed in one or more of six areas: poverty relief, education, religion, health care, government and “accomplishment of a purpose which is … important and beneficial to the public.” It also must be “entirely free from private profit motive.” It must “donate or render gratuitously a substantial portion of its services.” It must “benefit a substantial and indefinite class of persons who are legitimate subjects of charity.” And, notably, it must “relieve the government of some of its burden.” The problem is that charity is big business. Of the top 30 employers in Pennsylvania, 11 are nonprofits. They include UPMC, the University of Pittsburgh and Allegheny Health Network.
In some ways, this is a good thing. These are industries that rebuilt Pittsburgh’s economy as it transitioned away from steel. But they do so without paying taxes, which makes it a lot easier to expand. That means more of the tax map is ceded to nonprofits, which puts more of a burden on the government and other property owners. Gainey isn’t the first mayor to deal with it. His predecessor, Bill Peduto, tried to bring the government and charities together with his ONE PGH collaboration aimed at creating up to $115 million for city projects. Gainey walked away from it last summer, favoring pursuit of voluntary payments in lieu of taxes. But if payments are voluntary, unlike taxes, they are an unreliable foundation for building a budget. Gainey’s call is long past due. It isn’t because the nonprofits are untrustworthy. They are a critical part of the city, county and state economic infrastructure. It is important because, like a car’s inspection, it is an impartial assessment of where the entity stands.
A January 10, 2023 Chief Counsel Memorandum concludes that cryptocurrency donors must obtain a qualified appraisal to claim a charitable contribution deduction. Donors hoped to rely on the exception set out in 170(f)(11)(A)(ii)(I). But Chief Counsel concluded that cryptocurrency traded on a crypto exchange is not a "publicly traded security:"
A qualified appraisal is not required for donations of certain readily valued property specifically set forth in the Code and regulations, namely: cash, stock in trade, inventory, property primarily held for sale to customers in the ordinary course of business, publicly traded securities, intellectual property, and certain vehicles. See section 170(f)(11)(A)(ii)(I); Treas. Reg. section 1.170A-16(d)(2)(i). Section 1.170A13(c)(7)(xi) defines the term “publicly traded securities” for purposes of section 170 to mean securities as defined by section 165(g)(2). Section 165(g)(2) defines a security as a share of stock in a corporation; a right to subscribe for, or to receive, a share of stock in a corporation; or a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or a government or political subdivision thereof, with interest coupons or in registered form. Cryptocurrency B is none of the items listed in section 165(g)(2), and therefore does not satisfy the definition of a security in section 165(g)(2).
I wonder if IRS Chief Counsel ran this through SEC Chief Counsel. I thought the SEC was seeking to regulate cryptocurrency and that a necessary condition for SEC jurisdiction is that cryptocurrency be as a security. The qualified appraisal must meet the requirements of 1.170A-17, but wouldn't an appraiser just go look up the price at which the crypto is selling on a crypto exchange to determine value? It just seems unnecessary to require a qualified appraisal when there is a market in which buyers and sellers are, for reasons I still don't understand, valuing the crypto.
I cannot get my head around it. Crypto is not backed by gold or a country with lots of guns and bombs or taxing authority. As best I can tell, its somebody's computer program from which invisible tokens are minted, and then offered to customers. Something about blockchains, too. Apparently, as explained below, if a big institutional buyer purchases an amount of tokens, that signals value to other buyers who follow suit. As demand increases, value increases, assuming a fixed supply. This strikes me as if I were a small cow in a large herd. The heard is too large for me to see what we are eating or where we are going, but since the big bull up front is eating imaginary bramble bushes, the rest of the herd follows suit. The herd assumes that the big bull is big because he eats imaginary bramble bushes. Or the big bull, because he is out front, has the best information so his tastes must be reliable and superior. So we all eat imaginary bramble bushes, convincing ourselves we are full, and suddenly demand increases and I should go buy more imaginary bramble bushes. Sounds either Orwellian or Darwinian, I don't know which. I get the idea of following the successful investor's tastes, but I don't understand what makes the big bull up front decide that imaginary bramble bushes are valuable in the first place! This article is helpful but I still don't get it:
Demand can increase as a project gains awareness or as utility increases. Broader adoption of a cryptocurrency as an investment also increases demand while effectively limiting the circulating supply. For example, when institutional investors started buying and holding Bitcoin in early 2021, the price of Bitcoin increased significantly as demand outstripped the pace at which new coins were created, effectively decreasing the total available supply of Bitcoin.
Likewise, as more decentralized finance (DeFi) projects launch on the Ethereum blockchain, the demand for Ether increases. Ether is required to perform transactions on the blockchain regardless of what cryptocurrency you're transacting with. Or, if a DeFi project takes off itself, its own token will become more useful, thereby increasing demand.
Wisconsin 3rd DCA Holds Catholic Charities Bureau is Not "operated primarily for religious purposes," must pay unemployment tax
The Catholic Charities Bureau, Superior Diocese, does not operate primarily for religious purposes, court rules. There are about 60 nonprofit operating "under the CCB umbrella" and the ruling means the CCB must pay unemployment tax for all employees, despite a provision in Wisconsin law exempting nonprofits operating primarily for religious purpose.
It is always dangerous for a court or tribunal to scrutinize an organizations' religious bona fides to determine whether it operates for a religious purpose. But on a quick first read, I kinda think a Wisconsin Court of Appeals opinion's counter-intuitive conclusion that CCB (which holds a group ruling from the IRS that it operates for religious purposes) does not operate primarily for a religious purpose under state law might actually be right! Its a winding path to that conclusion so I won't even try to summarize it here. I could be wrong though, considering that the first Wisconsin administrative agency to consider the matter ruled that CCB was not operated primarily for religious purposes, that decision was then reversed by an ALJ, the ALJ's decision was then reversed by another administrative tribunal, that decision was reversed by a circuit court opinion, and then the circuit court was reversed by Wisconsin's 3rd DCA. CCB has petitioned the Wisconsin Supreme Court for review. Clearly there is a difference of learned opinion here, and the case has national implications for the Catholic Church, unemployment and state and federal tax law, not to mention the Religious Freedom Restoration Act and the First Amendment (which the 3rd DCA said "ain't got nothing to do with it!"). If CCB loses before the Wisconsin Supreme, it will no doubt petition the U.S. Supremes. I think CCB makes that last point in a veiled threat sort of way in its petition to the Wisconsin Supremes (see the last paragraph of the introduction below). "Listen to me now, believe me later on!" CCB's petition, filed just this week, looks like a great read. Pass me the popcorn because this oughta be good! Here is how CCB's Petition for Review begins:
The court of appeals’ published decision stands church-state relations on their head. At the heart of its decision is the astonishing conclusion that the Catholic Charities Bureau of the Diocese of Superior—one of Wisconsin’s largest religious charitable organizations—does not qualify for the religious exemption from the State’s unemployment compensation system because it is not “operated primarily for religious purposes.” Wis. Stat. § 108.02(15)(h). To reach that remarkable conclusion, the court of appeals relied on two equally remarkable—and false—premises of law.
First, the court of appeals decided that the purposes of the Diocese of Superior are irrelevant to determining whether CCB is operated for “religious purposes,” as described in Section 108.02(15)(h). But CCB and its sub-entities are entirely creatures of the Diocese, and of the broader Catholic Church. As the court of appeals acknowledged, the government does not dispute, and CCB’s name indicates, the Diocese specifically formed CCB to carry out its mandated social ministry in northern Wisconsin, and the bishop of the Diocese has complete control over CCB’s ministry. CCB’s purposes and the Diocese’s are thus one and the same. The court of appeals’ conclusion to the contrary is plain error and flies in the face of common sense and the typical treatment of parentsubsidiary relationships in Wisconsin.
Second, the court of appeals held that the word “operated” in the statutory phrase “operated primarily for religious purposes” means “actions” or “activities” rather than the more obvious mean ing of “managed” or “used.” The court of appeals’ attempt to shoehorn the word chosen by the Legislature into a subsidiary meaning found on Dictionary.com is untenable when read in pari materia with the other provisions of Section 108.02(15)(h). Those errors of law, which run directly counter to the text, structure, and context of Section 108.02(15)(h), are reason enough for this Court’s review. But the court of appeals’ published decision does not just contort Wisconsin law. Uncorrected, it will also put a Wisconsin statute at odds with the First Amendment to the United States Constitution and Article I, Section 18 of the Wisconsin Constitution. The decision below runs afoul of both constitutional provisions in three ways.
First, it violates the church autonomy doctrine, which preserves a sphere of control over internal church affairs to religious bodies. Here, the court of appeals effectively severed CCB from the Diocese of Superior for purposes of Section 108.02(15)(h). That constitutes gross interference with the ability of the Church in this State to structure itself freely in accordance with its beliefs about religious polity.
Second, the decision violates the Free Exercise Clause by penalizing CCB for serving non-Catholics and for avoiding proselytism when engaging in ministry. The undisputed belief that the Church ought to help all who are in need is core to Catholic social teaching. Yet the lower court held that because of these beliefs, CCB could not invoke Section 108.02(15)(h). That burdens CCB’s religious exercise in violation of the Free Exercise Clause.
Third, the decision violates the Establishment Clause by entangling church and state. By forcing Wisconsin executive branch officials and Wisconsin courts to finely parse all the activities of religious bodies in the State and decide whether those activities are “inherently” or “primarily” religious, the court of appeals has thrust those officials and courts into a constitutional thicket. That is the opposite of church-state separation. * * *
Because the court of appeals’ decision was published, only this Court (or the United States Supreme Court) can repair what the decision below has broken. This Court should therefore grant review to put Wisconsin law back onto a sounder footing and eliminate the conflict with the First Amendment.
Thursday, January 26, 2023
The Committee on Nonprofit Organizations of the American Bar Association's Business Law Section is calling for nominations for the "2023 Outstanding Nonprofit Lawyer Awards." The Committee presents the Awards annually to outstanding lawyers in the categories of Academic, Attorney, Nonprofit In-House Counsel, and Young Attorney (under 35 years old or in practice for less than 10 years). The Committee will also bestow its Vanguard Award for lifetime commitment or achievement on a leading legal practitioner in the nonprofit field. Nominations are due by March 31, 2023.
For a nomination form, please go to the Nonprofit Organizations Committee webpage and scroll down to find the form under "2023 Outstanding Nonprofit Lawyer Awards." The Awards will be discussed at the Business Law Section's Spring Meeting on April 27-29, 2023. The Committee expects to formally announce the awardees in late May.
Send nomination forms by March 31, 2023 to:
Emily N. Chan
Adler & Colvin
135 Main Street, 20th Floor
San Francisco, California 94105
(415) 421-0712 (fax)
Ian Murray (University of Western Australia) has published Donor Advised Funds & Delay: An Intergenerational Justice Solution in the Nonprofit Policy Forum. Here is the abstract:
Much writing on Donor Advised Funds (DAFs) relates to whether they ‘unduly’ delay the direct application of donated funds to achieve public benefit. However, the discussion rarely touches on a normative basis for determining what is ‘undue’ or that can be used to shape potential reforms, which are typically framed with reference to a private foundation payout rate or time limit for expending contributions. Research on charity accumulation conducted across the United States, United Kingdom, Canada, Australia and New Zealand, suggests that the normative principle of intergenerational justice is helpful for grounding such discussions (Murray, I. 2021. Charity Law and Accumulation: Maintaining an Intergenerational Balance. Cambridge: Cambridge University Press). This article considers intergenerational justice in the context of DAFs and considers whether the principle can be implemented in ways that support DAF sponsor independence and flexibility. One way that this could be achieved is by imposing (or enforcing existing) procedural obligations on decision-makers to give genuine consideration to intergenerational justice when making decisions about how much to spend and retain.
A reminder that Brooklyn Law School will be hosting a conversation with Dana Brakman Reiser and Steven A. Dean on Tuesday, February 7th to discuss their new book For-Profit Philanthropy: Elite Power & the Threat of Limited Liability Companies, Donor-Advised Funds, & Strategic Corporate Giving. Attending by Zoom is available, but RSVPs are due by February 2nd. Here is the abstract:
In For-Profit Philanthropy, the authors reveal that philanthropy law has long operated as strategic compromise, binding ordinary Americans and elites together in a common purpose. At its center stands the private foundation. Prophylactic restrictions separate foundations from their funders' business and political interests. And foundations must disclose more about the sources and uses of their assets than any other business or charity. The philanthropic innovations increasingly espoused by America's most privileged individuals and powerful companies prioritize donor autonomy and privacy, casting aside the foundation and the tools it provides elites to demonstrate their good faith. By threatening to displace impactful charity with hollow virtue signaling, these actions also jeopardize the public's faith in the generosity of those at the top.
Private ordering, targeted regulation, or a new strategic bargain could strike a modern balance, preserving the benefits of the compromise between the modest and the mighty. For-Profit Philanthropy offers a detailed roadmap to show how it can be accomplished.
In this space we have previously reported on first the Minnesota Attorney General seeking to replace the trustees of the Otto Bremer Trust, and then on the decision by a Minnesota trial court to remove one trustee but not two others. That decision led to an appeal by the removed trustee, and last week the Minnesota Court of Appeals upheld the removal.
Applying an abuse of discretion standard, the appellate court found that the district court had properly removed the trustee for a "serious breach of trust" arising from self-dealing in the form of misuse of the Trust's assets, violations of his duty of loyalty for allowing his personal interests to significantly and negatively impact his decisions and behavior as a trustee in the form of inappropriate and abusive behavior, and a violation of his duty of information by refusing to disclose his designated successor's identity to the Attorney General until forced to do so while testifying at trial. The appellate court further found that the district also properly removed the trustee because it was in the best interest of the Trust and its beneficiaries given these continual breaches of his duties that rendered the removed trustee unfit to administer the Trust.