Friday, March 1, 2024

DAF Proposed Regulations: Service Announces May 6, 2024 Public Hearing, Outlines Due April 5, 2024


This document provides a notice of public hearing on proposed regulations regarding excise taxes on taxable distributions made by a sponsoring organization from a donor advised fund (DAF), and on the agreement of certain fund managers to the making of such distributions.


The public hearing on these proposed regulations has been scheduled for May 6, 2024, at 10 a.m. ET. The IRS must receive speakers' outlines of the topics to be discussed at the public hearing by April 5, 2024. If no outlines are received by April 5, 2024, the public hearing will be cancelled.


The public hearing is being held in the Auditorium, at the Internal Revenue Service Building, 1111 Constitution Avenue NW, Washington, DC. Due to security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present a valid photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.

Send Submissions to CC:PA:01:PR (REG–142338–07), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday to CC:PA:01:PR (REG–142338–07), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224 or sent electronically via the Federal eRulemaking Portal at (IRS REG–142338–07).

For Further Information Contact

Concerning the proposed regulations, Christopher A. Hyde, (202) 317–5800 (not a toll-free number); concerning submissions of requests to testify, the hearing and/or to be placed on the building access list to attend the public hearing, call Vivian Hayes (202) 317–6901 (not a toll-free number) or by email to [email protected] (preferred).

Supplementary Information

The subject of the public hearing is the notice of proposed rulemaking (REG–142338–07) that was published in the Federal Register on Tuesday, November 14, 2023 (88 FR 77922).

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by April 5, 2024.

A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing and via the Federal eRulemaking Portal ( ) under the title of Supporting & Related Material. If no outline of the topics to be discussed at the hearing is received by April 5, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to [email protected] to have your name added to the building access list. The subject line of the email must contain the regulation number REG–142338–07 and the language TESTIFY In Person. For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG–142338–07.

Individuals who want to testify by telephone at the public hearing must send an email to [email protected] to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG–142338–07 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG–142338–07.

Individuals who want to attend the public hearing in person without testifying must also send an email to [email protected] to have your name added to the building access list. The subject line of the email must contain the regulation number REG–142338–07 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing In Person for REG–142338–07. Requests to attend the public hearing must be received by 5:00 p.m. ET by May 1, 2024.

Individuals who want to attend the public hearing by telephone without testifying must also send an email to [email protected] to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG–142338–07 and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG–142338–07. Requests to attend the public hearing must be received by 5 p.m. ET by May 1, 2024.

Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and Regulations Section of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to [email protected] (preferred) or by telephone at (202) 317–6901 (not a toll-free number) by April 30, 2024.

Any questions regarding speaking at or attending a public hearing may also be emailed to [email protected].

Oluwafunmilayo A. Taylor,
Section Chief, Publications and Regulations Section, Associate Chief Counsel, (Procedure and Administration).
[FR Doc. 2024–04262 Filed 2–28–24; 8:45 am]
darryll k. jones

March 1, 2024 | Permalink | Comments (0)

Elon Musk Files Suit Asserting OpenAI Burned Down Its Nonprofit House

Elon Musk on how to build the future – Interview with Sam Altman – Elon Musk  Interviews

The richest man in the world filed a lawsuit last night against another very rich guy and his tax exempt scientific research organization.  From the Associated Press:

Elon Musk is suing OpenAI and its CEO Sam Altman over what he says is a betrayal of the ChatGPT maker’s founding aims of benefiting humanity rather than pursuing profits.  In a lawsuit filed at San Francisco Superior Court, billionaire Musk said that when he bankrolled OpenAI’s creation, he secured an agreement with Altman and Greg Brockman, the president, to keep the AI company as a non-profit that would develop technology for the benefit of the public.  Under its founding agreement, OpenAI would also make its code open to the public instead of walling it off for any private company’s gains, the lawsuit says.  

However, by embracing a close relationship with Microsoft, OpenAI and its top executives have set that pact “aflame” and are “perverting” the company’s mission, Musk alleges in the lawsuit.  “OpenAI, Inc. has been transformed into a closed-source de facto subsidiary of the largest technology company in the world: Microsoft,” the lawsuit filed Thursday says. “Under its new Board, it is not just developing but is actually refining an AGI to maximize profits for Microsoft, rather than for the benefit of humanity.”

Here are excerpts from the complaint:

B. The Founding Agreement Of OpenAI, Inc.

23. Mr. Altman purported to share Mr. Musk’s concerns over the threat posed by AGI. In 2015, Mr. Altman wrote that the “[d]evelopment of superhuman machine intelligence (SMI) is probably the greatest threat to the continued existence of humanity. There are other threats that I think are more certain to happen . . . but are unlikely to destroy every human in the universe in the way that SMI could.” Later that same year, Mr. Altman approached Mr. Musk with a proposal: that they join forces to form a non-profit AI lab that would try to catch up to Google in the race for AGI, but it would be the opposite of Google.

24. Together with Mr. Brockman, the three agreed that this new lab: (a) would be a nonprofit developing AGI for the benefit of humanity, not for a for-profit company seeking to maximize shareholder profits; and (b) would be open-source, balancing only countervailing safety considerations, and would not keep its technology closed and secret for proprietary commercial reasons (The “Founding Agreement”). Reflecting the Founding Agreement, Mr. Musk named this new AI lab “OpenAI,” which would compete with, and serve as a vital counterbalance to, Google/DeepMind in the race for AGI, but would do so to benefit humanity, not the shareholders of a private, for-profit company (much less one of the largest technology companies in the world).

25. The Founding Agreement was also memorialized, among other places, in OpenAI, Inc.’s December 8, 2015 Certificate of Incorporation, which affirmed that its “resulting technology will benefit the public and the corporation will seek to open source technology for the public benefit when applicable. The corporation is not organized for the private gain of any person.” Ex. 1 at 1. The Certificate of Incorporation further affirmed that all of the corporation’s property was “irrevocably dedicated” to these agreed purposes. Id

26. In reliance on the Founding Agreement, which Mr. Altman, Mr. Brockman, and OpenAI, Inc. reaffirmed with Mr. Musk on multiple occasions, Mr. Musk was a moving force behind the creation of OpenAI, Inc. contributing a majority of its funding in its first several years, advising on research directions, and most importantly, recruiting some of the world’s leading scientists and engineers to work at the non-profit venture, including Chief Scientist Ilya Sutskever. Recruiting for OpenAI, Inc. was a Herculean task in the face of relentless recruiting efforts by Google/DeepMind, coupled with the lavish compensation Google/DeepMind offered. There would have been no OpenAI, Inc. without Mr. Musk’s founding contributions and early leadership. Mr. Musk continued to make contributions to OpenAI, Inc. from its founding through September 14, 2020.

27. OpenAI’s initial research was performed in the open, providing free and public access to designs, models, and code. When OpenAI, Inc. researchers discovered that an algorithm called “Transformers,” initially invented by Google, could perform many natural language tasks without any explicit training, entire communities sprung up to enhance and extend the models released by OpenAI, Inc. These communities spread to open-source, grass-roots efforts and commercial entities alike.

28. Mr. Altman became OpenAI, Inc.’s CEO in 2019. On September 22, 2020, OpenAI entered into an agreement with Microsoft, exclusively licensing to Microsoft its Generative Pre-Trained Transformer (GPT)-3 language model. However, OpenAI published a detailed paper describing the internals and training data for GPT-3, enabling the community to create similar models themselves. And, most critically, the Microsoft license only applied to OpenAI’s pre-AGI technology. Microsoft obtained no rights to AGI. And it was up to OpenAI, Inc.’s non-profit Board, not Microsoft, to determine when OpenAI attained AGI. 

C. The 2023 Breach Of The Founding Agreement

29. In 2023, Defendants Mr. Altman, Mr. Brockman, and OpenAI set the Founding Agreement aflame.

I haven't had time to read the entire complaint yet, but how's that for a teaser?  Click on the link above to read the full complaint.  

darryll k. jones

March 1, 2024 | Permalink | Comments (0)

Thursday, February 29, 2024

Oversight Committee Wants IRS to Explain Lax Enforcement of Political Activity Restrictions

Fact check: Republicans make false, misleading claims at first Biden  impeachment inquiry hearing | CNN Politics

House Oversight Committee Chair James Comer, pictured above, has taken a break from watching Hunter Biden porn videos to address the IRS's alleged failure to investigate liberal organizations engaging in too much political activity.  He's even pulled out his trusty Lois Lerner faux indignation multiplex demodulator weapon.  From an article in the National Review:

House Oversight Committee Chairman James Comer (R., Ky.) is opening an investigation into how the IRS is enforcing its lobbying restrictions on tax-exempt organizations.  Comer wrote a letter to IRS Commissioner Daniel Werfel Wednesday and suggested the agency is withholding enforcement efforts against lobbying by 501(c)(3) tax-exempt organizations designed for charitable purposes.  . .  .  “Despite these limitations on political and lobbying activities by 501(c)(3) designated entities, activist advocacy organizations, such as One Fair Wage, Inc., seem to view their charitable work as indistinguishable from their substantial lobbying pursuits,” he added. 

Comer uses left-wing activist group One Fair Wage as an example of the blurry distinctions between nonprofit charities and political lobbying organizations. . . The IRS previously targeted conservative groups by selectively scrutinizing the organizations and delaying requests for tax-exempt status. Former director of the IRS exempt organizations division Lois Lerner and her colleagues orchestrated the IRS scandal perpetrated against Tea Party groups. The Justice Department settled with dozens of conservative groups in 2017 and the IRS admitted wrongdoing.

I try to exhibit neutrality on this blog, I swear I do.  But these voyeurs kill me.  First they withhold funding and even legislate against IRS efforts to define "substantial lobbying" and then they complain when nothing gets done.  Border security much?  So after doing their best to claw back IRS funding, in addition to the appropriations rider prohibiting political activity rule-making and enforcement, these legislators -- with straight faces, even -- send out indignant letters demanding to know why nothing is getting done.  No kidding.  Here is a bit from Comer's letter:

Reports by the U.S. Treasury Inspector General for Tax Administration (TIGTA) note specific problems with the IRS’s capabilities to enforce regulations for charities and other tax-exempt organizations, including: a lack of responsiveness by the IRS to tax-exempt organizations and internal IRS resource allocation plans covering tax-exempt enforcement. A Committee investigation previously found that the IRS systematically targeted perceived conservative tax-exempt applicants for additional scrutiny instead of neutrally enforcing regulations for tax-exempt charities and organizations. We are concerned that IRS may now be engaged in withholding legitimate enforcement efforts as they pertain to activist groups hiding behind their non-profit statuses.

I expect nothing much will come from any of this, except Comer will still get paid.  It all reminds me of the line from the hit song by Dire Straits:  "That ain't working.  That's the way you do it.  Money for nothing and your chicks for free."  
darryll k. jones

February 29, 2024 | Permalink | Comments (3)

Virginia Legislators Yank the Confederacy's Tax Exemption

Opinion] Mama and the Confederate Flag | Department of African American  Studies

Let's get one thing straight.  I won't be having a beer with members of the United Daughters of the Confederacy, or at the Stonewall Jackson Memorial.  And I will not join a book club meeting sponsored by the Confederate Memorial Literary Society.  I certainly won't donate to any of those organizations and I would rather my tax dollars not subsidize them.  But I am not comfortable with two bills passed by the Virginia legislature revoking, by name, the state charitable tax exemption of those groups. The Governor should veto the bills.

I have asserted that tax exemption should and must be denied to "hate groups."  My argument concerns the principle that not everything nonprofit is charitable, and that not everything that teaches is "educational."  I acknowledge that the government has a high burden of proof to meet when it decides to revoke tax exemption for groups reasonably perceived as expressing or celebrating racial hatred.  But at some point racial affinity or antipathy -- even if only expressed by speech -- is just racial hatred. The speech may not be prohibited, but government is Constitutionally precluded from exempting or otherwise subsidizing it.  Virginia's legislative decree seems like a bill of attainder.  A legislature can Constitutionally declare that "hate groups shall not be granted tax exemption" but I have a problem with the legislature declaring that a particular group is a hate group. I do not mean to assert that any of those groups are or are not hate groups, as I define them in my article. But a legislative body cannot make the required factual determination.  A legislature making that determination seems clearly to violate due process.  Can Congress revoke a specific group's tax exempt status by legislative fiat?  Sometimes people who try to help only make things worse.

Anyway, here is a bit from an AP article:

Legislation that would end tax benefits for the United Daughters of the Confederacy — the Richmond-based women’s group that helped erect many of the country’s Confederate monuments — is on its way to Republican Virginia Gov. Glenn Youngkin, who hasn’t said whether he supports it. The Democratic-led House of Delegates gave final passage Monday to a bill that would eliminate both a recordation and property tax exemption for the group. A separate, companion measure that reached final passage last week also eliminates those exemptions. The bills have moved through the legislature with mostly party-line support and relatively little debate. The few individuals who have spoken out against the legislation have called it discriminatory, while supporters argued the tax benefits have amounted to state-sponsored subsidies for Confederate monuments and are out of line with 21st-century values.  “Since Virginia no longer supports the legacy of the Confederacy, we need to reflect that in our legislation,” Democratic Sen. Angelia Williams Graves of Norfolk, the sponsor of the Senate version of the bill, said in a legislative hearing.

The United Daughters of the Confederacy for over a century has “spread the lie” of the Lost Cause — an ideology that downplayed the role slavery played in the Civil War — and “instilled fear in marginalized groups by erecting Confederate monuments around the United States,” Williams Graves said.  The nonprofit group, which owns a marble-clad Memorial Building positioned on a prominent Richmond boulevard with an assessed value of over $4.4 million, did not respond to requests for comment Monday.  But last week, it told TV station WRIC the state created the property-tax exemption in 1950, also extending “an offer of land in Richmond” to erect the Memorial Building.  The property tax exemption helps the group, which had members in the House gallery Monday, provide aid to other organizations, including the Wounded Warriors Project and homeless veterans organizations, the statement said.

An entity called the Confederate Memorial Literary Society is listed in city property records as the owner of the former White House of the Confederacy, which is part of Richmond’s multi-site American Civil War Museum. A museum representative didn’t respond to phone and email messages seeking comment.  United Daughters of the Confederacy was founded in 1894 and is open to membership by female descendants of individuals who served in the Confederate military or who “gave Material Aid to the Cause,” according to the group’s website. The group denounces white supremacy, is “grieved” that certain hate groups have adopted the use of the Confederate flag, and believes Confederate monuments are part of “our shared American history and should remain in place,” its website said.  Articles and studies have found the group helped erect hundreds of monuments and other tributes to the Confederacy around the country. The group has also been involved in lawsuits in more recent years aimed at stopping the removal of monuments from public spaces.

darryll k. jones

February 29, 2024 | Permalink | Comments (0)

Wednesday, February 28, 2024

Taxation's Limits forthcoming paper by Luís C. Calderón Gómez*

Luis C. Calderon Gomez, Assistant Professor of Law at Cardozo Law, has a new draft paper forthcoming in the Northwestern University Law Review entitled Taxation's Limits that is likely to be of interest to Nonprofit Scholars.

The Abstract is as follows:

"Countless pages have been devoted to the question of why should everyone pay tax, yet its obverse has gone largely unnoticed: why should some people and organizations not pay tax? Our tax system exempts from ordinary income taxation a wide and diverse array of people and organizations engaged in significant economic activity—from parents providing childcare services for their family, to consular activities and charities operating animal shelters—seemingly without a convincing explanation. Perhaps as a result of the dizzying diversity of activities that have been exempted from tax, scholars and policymakers have eluded comprehensively or coherently justifying our exemption regimes.

This Article develops a novel normative theory that rationalizes and justifies our current tax exemption regime. Rather than conceiving exemptions as subsidies or individual deviations from a normative base explainable by ordinary politics, the Article argues that exemptions are best understood as mapping the “limits” of tax. These limits are neither arbitrary nor merely a collection of individual subsidies to favored activities; rather, they are best seen as being reflective of deeper collective socio-political judgments about the scope of the State and the public sphere.

The Article constructs the “Limits Theory” by explaining and justifying the three most significant exemption regimes—those exempting the nuclear family, other sovereigns, and charities. The nuclear family perhaps occupies the center of the private sphere; its location demands exemption due to its intimate and private—not public—character. The exemption for other sovereigns is buttressed in notions of comity and federalism, cautioning against the taxation of a public sphere by other public spheres. Lastly, charities’ unique public-private hybrid character, oriented towards purposes aligned with the public sphere yet operated as private autonomous associations, justifies charities’ exclusion from the ordinary limits of taxation—limits that do extend to ordinary for-profit organizations that strive to both do good and do well. The collective socio-political judgments grounding these exemptions are neither novel nor idiosyncratic; in fact, they are traceable to the work of political theorists of all stripes who seek to define the public sphere, from Rawls’ liberalism to Nozick’s libertarianism and communitarianism à la Walzer or MacIntyre.

In developing a theoretical account, the Article does not only construct a coherent framework for thinking about tax exemptions more generally. Visualizing exemptions as limits rather than subsidies also allows us to explain and justify key common features of the exemptions—e.g., the law’s insistence that the commercial character of an activity vitiates exemption across different exemption regimes, foreclosing the possibility of for-profit charities and supporting the taxation of commercial enterprises run by other States. But perhaps most importantly, the theory illuminates the direction for further examination and refinement of the law. It renders exemptions intelligible and coherent at a more granular level and offers a common and normatively rich framework for scholars and policymakers to engage in more fruitful debates about old and new issues regarding the proper scope of current exemption regimes—for example, on whether the PGA Tour and the Saudi sovereign wealth fund deserve to lose their tax exemptions upon completion of their controversial combination."

February 28, 2024 in Publications – Articles | Permalink | Comments (0)

DAF Proposed Regulations: Anti-Abuse Rules vs. Anti-Abuse Standards

Recent Federal Cases Provide Some Guidance for Title IX Compliance in  Massachusetts - Campus Counsel



I'll be honest.  Like most tax law professors, I love me some anti-abuse.  But only anti-abuse standards, not anti-abuse rules.  There is a long debate -- mostly one sided in the academy -- regarding whether we would be better served by standards than rules. I admit, rules provide certainty and that is good for taxpayer compliance. But excessive verbiage in the Code invariably tells taxpayers just how to get away with some unjustifiable, but technically or literally supported outcome.  It's not as if a detailed "stop it!" statute or regulation stops anything other than the exact thing the detailed rule prohibits. The slightest movement left or right avoids the proscription and violates the spirit.  Take a look at the precisely defined prohibition in IRC 1014(e).  The rule tells us that all it takes is to keep the old geezer on life support for a day longer than a year and voila!  Stepped up basis.  The precision in IRC 1014(e) makes it a lot harder to argue that appreciated property acquired from a decedent who dies 18 months after receiving the property as a gift from the very same beneficiary was just a ruse to get a stepped up basis.  Specificity invariably implies that everything else is fair game.  

So I am not all that sympathetic to those who object to the anti-abuse provisions in the proposed 4966 regulations.  Few, if any, commenters like them.  The first relates to a fund that makes distributions to a "single identified organization."  Prop. Treas. Reg. 53.4966-4(a)(3).  IRC 4966(d)(2)(B)(i) excludes what commenters call "designated funds" from the definition of a DAF.  A fund that provides grants to a "single identified organization" -- a "designated fund" -- is not a DAF. A donor can advise the sponsor on what activities within the identified charity should be funded, but donors may not advise the identified charity regarding distributions it makes.  To do that makes the fund a DAF. The regs indicates that the exception does not apply if a donor to the fund is even in the position to influence the specified charity as to how it makes distributions:

Example 1. A and B, a married couple, establish Fund V at X, a sponsoring organization. Fund V is established by written agreement to make distributions only to Y, a university recognized as exempt under section 501(c)(3) of the Code and described in section 170(b)(1)(A)(ii). In the gift instrument, A and B reserve the right to recommend which university projects should be supported by Fund V and which investments to make with fund assets. A and B certify that A, B, and persons related to A and B do not benefit from any distributions from Fund V and do not have, or reasonably expect to have, the ability to advise regarding some or all of the distributions from Y to other entities. Fund V is not a donor advised fund because all distributions are made to a single identified organization, Y.  

Example 3. Assume the same  facts as paragraph Example 1, except that A is on the Board of Y. Because A has the ability to advise some or all of the distributions from Y to other entities, Fund V does not meet the exception for a fund or account that makes distributions only to a single identified organization.

Prop. Treas. 53.4966-4(a)(6), Example 3.  Commenters hate example 3.  They think a donor's mere presence on the identified charity's board is insufficient to cause concern that a donor will do whatever it is the law is trying to prevent.  I would not support the objections except that in other parts of the proposed regulations, a donor's presence on an advisory committee with at least two other unrelated members is permitted without treating the donor as though he or she has advisory privileges.  Prop. Treas. Reg. 53.4966-3(c)(iii).  A donor who sits on the board of an identified charity has the same diffused advisory privileges, so the proposed regs ought to incorporate the same concession into the designated fund exception.  That's my take.

But I don't agree with the opposition to the explicit adoption of the step transaction doctrine -- commenters call it the "daisy chain rule" -- in Prop. Treas. Reg. 53.4966-5(a)(3).  I say explicit because even if the rule is not in the proposed regulations, courts don't have to respect a step transaction.  Here is how the doctrine is articulated in the proposed regs:  

Special rule. If a series of distributions is undertaken pursuant to a plan that achieves a result inconsistent with the purposes of section 4966 of the Code, the distributions are treated as a single distribution for purposes of section 4966. For example, if a donor advises a distribution, that the sponsoring organization subsequently makes, from a donor advised fund to Charity X and the donor or the sponsoring organization arranges for Charity X to use the funds to make distributions to individuals recommended by the donor, the distribution will be a taxable distribution from the sponsoring organization to individuals.

Some commenters want . . . yep, more specificity in what is intended as an anti-abuse standard.  But that misunderstands the nature of anti-abuse provisions intended to enforce the spirit not the letter.  For example, the Orange County Community Foundation and others, want the proposal to adopt rules developed in "earmarking" cases where donors give money to a charity and the money is earmarked for a specific individual.  Earmarked donations are generally viewed as gifts to individuals, not the charity.  The charity is just a conduit that, if respected, provides a deduction.  That's a specific rule enforcing a general standard.  And like most "stop doing that" rules, it is easier avoided than a standard.  It would be a rule against a single transaction rather than an anti-abuse standard applicable generally.  So no, the proposal ought to keep what is essentially nothing more than an expression of the step doctrine that applies, even if rarely, throughout the tax code.  That's my take.

darryll k. jones

February 28, 2024 | Permalink | Comments (0)

Hackney: Keep Charitable Oversight in the IRS

CharityWatch - A Charity Watchdog Organization - Screamer Magazine


Phil Hackney has a new paper out this week.  Here is the abstract:

Critics are increasingly calling for Congress to remove charity regulation from the IRS. The critics are wrong. Congress should maintain charity regulation in the IRS. What is at stake is balancing power between the state, charity as civil society, and the economic order. In a well-balanced democracy, civil society maintains its independence from the state and the economic order. Removing charitable jurisdiction from the IRS would blind the IRS to dollars placed in charitable solution increasing tax and political shelters and wealthy dominance of charities as civil society. A new agency without understanding of, or jurisdiction over, tax cannot act as the bulwark as can the IRS. The critics are right that both the states and the IRS are failing at charitable regulation. Ideally, Congress would allocate sufficient resources to the IRS. However, the long history of charity regulation shows that we are unwilling to allocate the resources to this endeavor. This in fact is a flaw of the proposals for a quasi-federal charitable regulatory agency. These proposals will not generate new funds but will instead spread scarce resources even thinner. Instead, Congress should acknowledge its unwillingness to adequately fund charity regulation and shrink the tax-exempt sector by removing the parts that have limited justification to charitable benefits such as hospitals and private foundations.

darryll k. jones

February 28, 2024 | Permalink | Comments (0)

Tuesday, February 27, 2024

Hackney Gives Sage Advice on Politics and Exempt Orgs

The Johnson Amendment and the Agenda to Silence Christians | David Fiorazo  Ministries

Here is part of an op-ed our resident expert Phil Hackney published recently in the Chronicle of Philanthropy:

U.S. charities aren’t allowed to campaign for or against specific political candidates. But they can legally engage in nonpartisan voter education and candidate-neutral efforts to get out the vote, as well as voter registration drives.  I’m an expert on charitable tax law who used to work at the Internal Revenue Service.  While testifying before a House subcommittee in December 2023, I explained that these electoral-related activities are consistent with a healthy democracy and don’t violate any U.S. laws.   Some nonprofits like the League of Women Voters have engaged in these nonpartisan efforts for decades. Others, like Nonprofit Vote and Rock the Vote, seek to motivate people of color and young voters to cast their ballots.  It’s hard to find data on how much charitable money funds these causes. But there’s no shortage of conjecture about its possible impact.  The Republican Party has long seen nonpartisan voter registration and get-out-the-vote campaigns as being somehow tied to the Democratic Party or more helpful for turning out votes for Democratic candidates than Republican hopefuls. As far back as the 1960s, Republican representatives accused the Ford Foundation of using voter registration in what they alleged was a partisan manner.  Today, Republican objections and concerns are getting louder. There are GOP efforts underway to make some of these donations illegal.

. . . 

This restriction, on the books since 1954, is known as the Johnson amendment because of Lyndon B. Johnson’s insistence on its passage when he was serving in Congress.  Former President Donald Trump tried and failed to get rid of the Johnson amendment for churches and other houses of worship, which the U.S. government lumps together with all other charities.  House Speaker Mike Johnson and other Republican lawmakers would like to go even further than Trump’s proposed change. They have backed the Free Speech Fairness Actwhich would practically eliminate restrictions on politicking for not just churches but all charities.  Some conservative preachers, meanwhile, have been flouting the Johnson amendment without eliciting much of a response from the IRS.

Here is the best part:   

As I advised House lawmakers, I believe that drafting any restrictions on the nonprofit sector requires proceeding with great care. Charities make up a part of civil society — a place outside of government and business — where we all have an opportunity to generate important information, develop our opinions and share those with government representatives.  In my view, Congress needs to assess whether any cure it seeks to implement will be better or worse than the disease that it thinks afflicts the U.S. electoral system. Clamping down on nonpartisan voter registration and get-out-the-vote efforts seems to me to be misguided at best.

Congress can, if it wishes to take action, appropriate more funds to ensure that all local and state authorities have the money they need for a well-run election system. That could eliminate the need for donors to step in.  In any case, Congress can help by supporting increases in the IRS budget, especially for the tax agency’s capacity to enforce compliance with the laws pertaining to tax-exempt organizations.

darryll k. jones

February 27, 2024 | Permalink | Comments (0)

DAF Proposed Regulations: Does the DAF Definition Discourage Best Practices?

Can replicating best practices stifle disruptive innovation?

IRC 4966 defines donor advised funds as a fund or account:

(i)  which is separately identified by reference to contributions of a donor or donors,
(ii) which is owned and controlled by a sponsoring organization, and
(iii) with respect to which a donor (or any person appointed or designated by such donor) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in such fund or account by reason of the donor’s status as a donor.
Regarding the first requirement -- separate identification by reference to a donor's or donors' contributions -- the proposed regulations say this:  

Separate identification by reference to contributions of a donor or donors—(1) In general. A fund or account is separately identified by reference to contributions of a donor or donors if the sponsoring organization maintains a formal record of contributions to the fund or account relating to a donor or donors. If there is no formal record, whether a fund or account is separately identified by reference to contributions of a donor or donors is based on all the facts and circumstances.


Prop. Treas. Reg. 53.4966-3(b)(1). The American College of Trust and Estate Council (ACTEC) reasonably points out that any well-managed charity or charitable fund ought to keep records of contributions by donors' names.  If for no other reason than to put all of our names and phone numbers in an auto-dialer and then call us incessantly.  I added the last part, but ACTEC makes a perfectly reasonable point, suggesting that the regulation ought to articulate a distinction between records that are maintained by good managers, and those that are maintained to indicate to whom the fund is especially beholding.  I don't know how the distinction can be made but its a good point.  The sponsor's devotion of extraordinary attention to a particular donor is seemingly what the requirement is trying to get at, and the normal records of any charity don't suggest that a donor is the "big cheese" to whom special attention is given regarding a particular fund.  

If no "formal" record is maintained, the proposed regs instruct that relevant facts include whether the sponsor refers to the fund as a DAF, agrees with a donor that its a DAF, names the fund after a donor, donor-advisors, or related persons, or solicits advice from donors or donor-advisors before making distributions.  All reasonable.  But then the proposal includes these two facts:

  • The fund or account balance reflects items such as contributions, dividends, interest, distributions, administrative expenses, and gains and losses (realized or unrealized);
  • One or more donors or donor-advisors regularly receive a fund or account statement from the sponsoring organization; and

Here too, ACTEC reasonably asserts that these factors, comprising two-thirds of the six factors listed, will always be present in any well-managed charity or charitable fund.  Good record keeping is, of course, not just good management but probably also required by IRC 501(c)(3).  A charity ought to keep good records just to maintain tax exemption or proof that it is not a private foundation.  And what about state record keeping requirements?  ACTEC points out that sponsors should be transparent too, perhaps by sending "impact" statements and telling the public how much money has been spent and how. So the factors above are as strong an indication of best practices (transparency and good management) as they are that a particular donor is being kept appraised of how his donations are being spent.  

Is all this just nit-picking?  The definition still requires that a donor have advisory privileges so a sponsor that doesn't want DAF status can simply withhold those privileges.  But what if, in order to encourage sustained engagement (best practices again) a sponsor sends out quarterly, annual, biannual or semi-annual reports to all donors.  And questionnaires or surveys asking "how are we doing?" or "tell us what you think are the most pressing needs."  ACTEC didn't exactly raise those examples, but they are consistent with ACTEC and others' concerns that the proposed regulations might treat as DAFs virtually all well-managed funds that are transparent, or seek to generate donor engagement and loyalty.  What about churches that keep track of tithes and offerings and regularly solicit members' input for outreach activities?

What are the consequences of an overly broad regulatory interpretation of the statutory definition?  I am not quite sure.  We can probably think of all sorts of "worst case" scenarios, some legitimate and others not.  And in any event, we can probably plan around even a broad definition with a little thought.  But at the least, treating good management and transparency as indication of DAF status -- with its associated excise taxes under IRC 4958 and 4967, and the expenditure responsibility under IRC 4966(c)(1)(B(ii) -- will make sponsors think twice about implementing recording keeping and donor relations procedures that are just good stewardship rather than indications of special solicitousness to a particular donor.  I suppose, too, that overbreadth is good for us lawyers though.

darryll k. jones


February 27, 2024 | Permalink | Comments (0)

Monday, February 26, 2024

NCAA Loses Another Round in Amateur vs. Pro Battle

NCAA Protecting Amateurism or Capitalism - Unafraid Show

Three things can be true at the same time.  First and foremost, student athletes ought to share in the revenues they help generate.  Second, student-athletes should not be treated like common law employees.  And third, universities and the NCAA should not be treated as employers.  There are a whole host of unintended and unnecessary consequences -- having nothing to do with education or charity or fairness to students -- from treating student-athletes and the universities they play for as employees and employers. Or NCAA rules as things to be regulated by market rules.  The sooner the law mediates these three assertions, the sooner we can preserve a meaningful distinction between sports competition as an educational and charitable endeavor, and sports as a business.  Another thing is true in life if you think about it.  Sex and money ruin everything.  You ever notice how your favorite best friend turns into your on-again-off-again worst enemy as soon as the two of fall into each other's passionate embrace?  The only other thing that has that effect is money. Yeah. And right now, money is ruining college sports, though student-athletes ought to get a fair cut of it.  

Last Friday, a federal district court judge in State of Tennessee v. National Collegiate Athletic Association enjoined the NCAA from enforcing its NIL rules regulating the extent to which student-athletes may exploit their athletic personhoods.  Here is a bit from the opinion:

Since its inception, the NCAA, the governing body of intercollegiate athletics, has limited compensation of student-athletes in an attempt to maintain amateurism across college spo11s. The original 1906 bylaws provided that '"[n]o student shall represent a College or University in any intercollegiate game or contest who is paid or receives, directly or indirectly, any money, or financial concession."' Joseph Ranieri, The First Step: Student-Athletes Finally Get the Right to Be Compensated for Their Names, Images, and Likenesses, 18 DePaul J. Sports L. 1, 4 (2022) (quoting Intercollegiate Athletic Association of the United States Constitution By-Laws, Art. VII, §3 (1906)). In 1948, however, the NCAA "authorized colleges and universities to pay athletes' tuition." Nat' Collegiate Athletic Ass'n v. Alston, 594 U.S. 69, 77 (2021) (citation omitted). Almost ten years later, "the NCAA expanded the scope of allowable payments to include room, board, books, fees, and 'cash for incidental expenses such as laundry."' Id. ( citation omitted). Then, in 2014, the NCAA permitted conferences "to increase scholarships up to the full cost of attendance." O'Bannon v. Nat'! Collegiate Athletic Ass'n, 802 F.3d 1049, 1055 (9th Cir. 2015).

Despite the foregoing evolution of student-athlete compensation, the NCAA has long prohibited student-athletes "from receiving any 'pay' based on ... athletic ability, whether from boosters, companies seeking endorsements, or would-be licensors of [athletes' NIL]." Id. But that changed in July 2021 when the NCAA's Interim NIL Policy went into effect, allowing student athletes to engage in NIL activity and to be compensated accordingly. This change created a market for student-athletes' NIL, which quickly led to the creation of NIL collectives, e.g., "organizations created by alumni, boosters, or businesses with the purpose of providing NIL opportunities to their school's athletes." Kassandra Ramsey, NIL Collectives-Title IX's Latest Challenge, 41 Cardozo Arts & Ent. L.J. 799, 801 (2023).

The first known collective, the Gator Collective, launched merely two months after the NCAA's interim policy went into effect. Id. Since then, "approximately 200 NIL collectives have been created across several colleges and universities." Id. at 802. With the rise of NIL collectives, the NCAA issued supplemental guidance regarding the involvement of third parties in the NIL landscape. The guidance clarifies that NIL collectives are considered "boosters" to the extent their "overall mission .. . is to promote and support a specific NCAA institution by making available NIL opportunities to prospective student-athletes (PSA[s]) and student-athletes (SAs) of a particular institution[.]" NCAA, Interim Name, Image and Likeness Policy: Guidance Regarding Third Party Involvement (May 2022), 021/2/8/about-taking-action.aspx (last accessed February 14, 2024). The guidance reiterates that boosters, which now include NIL collectives, are prohibited "from engaging in recruiting activities, including recruiting conversations, on behalf of a school." Id. Boosters are also prohibited from guaranteeing or promising student-athletes an NIL agreement that is contingent on initial or continuing enrollment at a particular institution. Id.

Because the NCAA classifies NIL collectives as boosters, any NIL discussions between collectives and student-athletes are considered impermissible inducements under the NCAA rules. Thus, student-athletes are prohibited from discussing potential NIL deals until they commit to a particular school. Plaintiffs initiated this action, alleging that the foregoing prohibition, referred to as the "NIL-recruiting ban," constitutes an "illegal agreement to restrain and suppress competition" within the labor market of Division I athletics. Plaintiffs also moved for a temporary restraining order ("TRO") and a preliminary injunction (1) "enjoining the [NCAA]; its servants, agents, and employees; and all persons in active concert or participation with them, from enforcing its NIL-recruiting ban or taking any other action to prevent prospective college athletes and transfer candidates from engaging in NIL discussions prior to enrollment" and (2) enjoining enforcement of the "Rule of Restitution (NCAA Bylaw as applied to the NIL-recruiting ban" The Court denied Plaintiffs' Motion for a Temporary Restraining Order due to the failure to demonstrate irreparable harm [Doc. 29]. Thereafter, the partiies provided supplemental briefing [Docs. 32, 37], and, on February 13, 2024, the parties presented oral argument on Plaintiffs' Motion for a Preliminary Injunction. The motion is now ripe for review. 

In the wake of that ruling, NCAA President Charlie Baker warned that dragging universities and student-athletes into professionalism would end up destroying intercollegiate sports, and excluding 95% of student-athletes from college and university sports competition:

NCAA President Charlie Baker said Friday that action by Congress was needed to protect what he described as the “95 percent” of athletes whose ability to play college sports would be endangered by a court ruling or regulatory decision declaring them as employees of their schools.  Speaking to a small group of reporters near the NCAA’s Washington office, Baker was realistic but still hopeful about the prospect of Congress doing what it didn’t do despite persistent requests from his predecessor, Mark Emmert: granting the NCAA a limited antitrust exemption that would allow it to make rules safeguarding college sports without the constant threat of litigation.

If we don't figure this out, the same reasoning will extend downwards into high schools and even Pop Warner and Little League.  Capitalism is our national religion.  But life should not always be about the money.

darryll k. jones


February 26, 2024 | Permalink | Comments (0)

DAF Proposed Regulations: Should Personal Investment Advisors Be Subject to the Per Se Excess Benefit Prohibition?

Reasons to Work with a Financial Advisor | Morgan Stanley

I am working my way through the comments submitted in response to the proposed 4966 regulations.  I am about halfway through and although I am reading the comments, not just skimming them, I doubt that I am reading them as closely as Ward Thomas and the folks in Chief Counsel’s office.  Suffice it to say, they have a whole lotta work yet based on my reading of the comments.  The treatment of a donor's personal investment advisor (PIA) in the proposed regs will likely get the lion's share of further study and attention.  Here is the gist of the concerns:

  1. IRC 4958(c)(2) defines DAF excess benefit transactions as “any grant, loan, compensation, or other similar payment” (apparently any payment like any one of those dissimilar transfers) from the fund to a donor or donor advisor if the donor or donor-advisor has advisory privileges.  Thus, practically any transaction between a DAF and the donor or "donor advisor" is automatically taxed as an EBT, regardless of whether the payment is no more than FMV for goods or services rendered to the DAF.  The whole grant, loan, or compensation is the excess benefit.
  1. IRC 4966(d)(2)(iii) indirectly defines what the regs call a “donor-advisor” as a person appointed or designated by a donor to provide advice to the DAF. Prop. Reg. 53.4966-1(h)(1).  As a practical matter, neither donors nor their appointees or designees may transact with the DAF because excess benefit transactions are defined so broadly.
  1. Proposed Regulation 53.4966-1(h)(2) states that a donor’s personal investment advisor who also advises a donor regarding the donor’s DAF is an automatic [“deemed”] donor-advisor even without an explicit designation or appointment to that effect by the donor. There is an exception for a donor’s personal investment advisor who advises the sponsor “as a whole” rather than just the DAF.  Prop. Treas. Reg. 53.4966-1(h)(3). Even so, that investment advisor is prohibited from more than incidental private benefit by IRC 4967.
  1. Thus, a donor’s personal investment advisor is effectively prohibited from accepting even FMV compensation from the donor’s DAF.

All that seems reasonable, but perhaps only if (like me) you are relatively ignorant about the industry.  The commenters who know a thing or two more hate the proposal. Here are the common assertions:

a.  Whatever conflict of interest might exist when a PIA also advises a donor regarding her DAF is adequately policed by laws and licensure standards pertaining to investment advisors. There is no need for a per se rule prohibiting a donor’s personal advisor from transacting with the donor’s DAFs when the advisor is not designated or appointed by a donor as having advisory privileges.

b.  The proposal would provide an advantage to the big investment advisory firms that set up their own charities to sponsor DAFs.  The Morgan Stanleys, Goldman Sachs, and JP Morgan Chases, according to the Kansas City Community Foundation.  These big investment firms create sponsors, and then serve as the exclusive investment advisor for those sponsors while also sometimes providing personal investment advice to individual donors.  Since the big firm advises the sponsors regarding its entire operations, the PIA will not be a donor-advisor subject to IRC 4958 according to 53.4966-1(h)(3)(ii).  Funds established by community foundations and other non-commercial industry groups will not enjoy the same natural advantage since they will not have in-house advisors serving their entire operations. Instead, donors will more often want to retain their own advisor for their DAF and their personal assets. But those advisors will be subject to 4958.  Thus, the proposal creates an incentive for sponsors (whose managers are subject to an excise tax for approving transactions) to affiliate or remain with the larger firms that serve and advise sponsors generally, rather than accept advice or services from a donor’s personal investment advisor.  A sponsor would rather work with the larger firm because doing so provides greater assurance that managers will not get hit with the excise tax.  IRC 4958(a)(2). 

c.  Investment Advisors are thoroughly regulated by IRC 4967, which imposes a 125% tax on a designated advisor whose advice to a sponsoring organization regarding a DAF leads to the advisor’s receipt of “more than incidental benefit.” But even that provision applies to an investment advisor designated by a donor (not treated as a donor-advisor by virtue of a “deemed” rule.)  IRC 4966 incorporates IRC 4958(f)(7)’s definition of donor-advisor and the latter provision incorporates the definition in 4966(d)(2)(A)(iii).  That provision refers to a specific designation or appointment by the donor.  The Kansas City Community Foundation threatens that if the proposed rule is adopted, we should probably expect some "post Chevron deference" litigation about it. 

1.  The counter-argument.  It depends on what the definition of "is" is.  A personal investment advisor who advises the donor regarding her personal assets is necessarily "appointed or designated" to advise the donor (even if the exact magic words -- designate or appoint -- are never spoken), and thus the DAF, regarding investment or distributions from the DAF.  I think this is an indisputable truth, but that doesn't mean PIAs should be treated with suspicion, given the laws and licensure standards to which they are subject.

2.  Has Congress already settled this question?  Are the proposed regulations an administrative attempt to change Congress's mind?

e.  Nothing in IRC 4958, 4966, or 4967 explicitly authorizes the treatment of a donor’s personal investment advisor as a “donor advisor” for purposes of the excess benefit or taxable distribution tax without a donor’s designation of the IA as a person having advisory privileges.  

f.  Congress did not make investment advisors automatic donor-advisors when it amended 4958 to deal with DAFs. Nor did it intend to automatically prohibit personal investment advisors from transacting with a donor’s DAF.  It addressed investment advisors in 4958(f)(1)(F), and 4958(f)(8)(A) and neither provision imposes an automatic and complete ban on a donor’s personal investment advisor transacting with the donor’s DAF in the absence of a designation or appointment. 

g.  Prohibiting personal investment advisors from working with a DAF when the investment advisor also works with a donor’s personal investments will end up diverting assets from charities altogether, or perhaps to private foundations where no such blanket rule exists.

One supposes that a personal investment advisor invariably has advisory privileges regarding a donor’s assets whether transferred to a DAF or not.  The proposed regs sensibly note that no specific language is necessary to "appoint or designate" an advisor.  So there is a practical justification for treating an otherwise undesignated personal investment advisor in the same manner as an explicitly designated or appointed donor-advisor. 

But if the concern is only that a personal investment advisor will coordinate a donor’s personal and charitable investments, at least one commenter suggests the concern is overblown.  Don’t donors do that anyway?  There is nothing wrong with a donor’s investment in renewable energy, for example, being coordinated with the donor’s contribution to an environmental nonprofit pursuing similar goals.  It’s only a problem if the donor derives a private benefit.  IRC 4967 seems to cover that sufficiently.  Except that by its language IRC 4967 does not apply to undesignated or un-appointed advisers.  Perhaps the "deemed designation" rule works better as a regulation under IRC 4967, as another commenter suggests.  

Finally, some commenters assert that investment advisors don't often make recommendations regarding disbursements.  The regulations suggest that an investment advisor might counsel against disbursements to keep assets under management (and thus fees) higher.  Commenters suggest that investment advisors mostly provide investment expertise,  not disbursement advice.  I suppose the distinction might not be real, because an investment advisor might recommend holding.  That advice, if followed, necessarily reduces disbursements.  Still, the asserted distinction makes me think of a suggestion I have not seen in the comments yet.  If an investment advisor provides no disbursement expertise, but only advises on investments, the concerns motivating the proposed treatment of PIA as automatic donor-advisors seem unnecessary.  Presumably, investment advice will always be objective and well researched regardless of whether the investment advice concerns DAF assets or the donor's personal assets.

darryll k. jones

February 26, 2024 | Permalink | Comments (0)

Friday, February 23, 2024

New York Jury Finds NRA Liable for Mismanagement; LaPierre Forced to Pay More Restitution

The jury in the NRA civil matter brought by the NY Attorney General's office came back finding the NRA liable for mismanagement and found that Wayne LaPierre had to pay restitution of $5,400,000.

From ABC: "After five days of deliberations, a jury in New York on Friday held the National Rifle Association liable for financial mismanagement and found that Wayne LaPierre, the group's former CEO, corruptly ran the nation’s most prominent gun rights group.

The jury determined that LaPierre’s violation of his duties cost the NRA $5,400,000, though he already repaid more than $1 million to the organization.

LaPierre, staring forward with his hands clasped in his lap, sat in the first row of the gallery while the jury read the verdict.

The New York Attorney General's Office sued the NRA and its senior management in 2020, claiming they misappropriated millions of dollars to fund personal benefits -- including private jets, family vacations and luxury goods. The accusations came at the end of a three-year investigation into the NRA, which is registered in New York as a nonprofit charitable corporation."

Philip Hackney

February 23, 2024 | Permalink | Comments (0)

Some Much Needed DAF Analytics


From the Study

Over the past couple of weeks, I've come to the understanding that our concerns regarding DAFs are largely anecdotal and responsive to possibilities more than documented occurrences.  We think DAFs allow taxpayers to indefinitely "warehouse" charitable dollars.  That's a word used in a few of the comments to the proposed taxable distribution regulations.  I have also acknowledged -- mostly to myself, to be honest -- that our reactions to DAFs are sometimes based on caricature.  At the same time, we shouldn't ignore the real possibility of private benefit that DAFs present.  We need objective analytics, not just fancy reports from industry giants touting all the upside but none of the downside of DAFs.

The Donor Advised Fund Research Collaborative is a group of independent researchers without a dog in the hunt.  This week, DAFRC published The 2024 National Study on Donor Advised Funds, a study providing a wealth of objective data.  Here is the executive summary.  

The Donor Advised Fund Research Collaborative (DAFRC) is a consortium of academic and nonprofit researchers. Working across institutions, the collaborative is leading a 30-month, comprehensive research initiative to provide empirical data and insights on the characteristics and activities of donor advised funds (DAFs) in the United States. One of the initiative's main goals is to gather and analyze account-level DAF information that is not available from publicly accessible data sources, such as the IRS Form 990. The account-level data allows for a more nuanced and accurate understanding of DAFs, as well as comparisons across different types and sizes of DAFs and DAF sponsors.

The present report is the first of three major nationwide projects: (1) compiling a large, anonymized dataset from DAF providers, (2) fielding a management survey to gather policies and procedures from DAF sponsors, and (3) fielding a donor survey to gain insights into how individuals and families think about and use DAFs as part of their household giving.

The 2024 National Study on Donor Advised Funds includes information about DAFs from 2014 to 2022, covering aspects such as account size, age, type, succession plan, donor demographics, contributions, grants, payout rates, and grantmaking speed. The report represents the most extensive independent study on DAFs to date. Thanks to the collective efforts of 111 DAF programs that voluntarily provided anonymized data to the research team, the dataset covers nine years of activity from more than 50,000 accounts, with over 600,000 inbound contributions to DAFS and more than 2.25 million outbound grants from DAFs.

darryll k. jones

February 23, 2024 | Permalink | Comments (0)

Side Effects of the Tax Cuts and Jobs Act of 2017: Evidence from the Hospital Industry

Tax Incidence

Samantha Liew and Frank Murphy, on SSRN

We examine how the Tax Cuts and Jobs Act of 2017 (TCJA) altered the hospital industry. Nonprofit hospitals make up approximately 80 percent of all hospitals and generally have an advantage over their for-profit counterparts due to their tax-exempt status. Provisions in the TCJA exogenously increase the relative cash flow in for-profit hospitals compared to nonprofit hospitals. We hypothesize and find that this comparative change in tax-driven cash flows results in greater investment, primarily in capital assets, among for-profit hospitals relative to nonprofit hospitals. We then test for changes in the quality of care around the TCJA and present evidence of a reduction in relative readmissions among for-profit hospitals, indicating an increase in for-profit quality of care. Lastly, using financial data from California hospitals, we find that the TCJA reduced implicit taxes among for-profit hospitals. Our results contribute to the tax literature by providing initial evidence of how a shift in tax policy altered the dynamics of the hospital industry.

darryll k. jones

February 23, 2024 | Permalink | Comments (1)

Thursday, February 22, 2024

Washington Post Investigates Nonprofits Providing Covid Misinformation

The Washington Post published a good look at charities engaged in covid misinformation and promoting anti-vaccine campaigns this week.

From the article: "Four major nonprofits that rose to prominence during the coronavirus pandemic by capitalizing on the spread of medical misinformation collectively gained more than $118 million between 2020 and 2022, enabling the organizations to deepen their influence in statehouses, courtrooms and communities across the country, a Washington Post analysis of tax records shows.

Children’s Health Defense, an anti-vaccine group founded by Robert F. Kennedy Jr., received $23.5 million in contributions, grants and other revenue in 2022 alone — eight times what it collected the year before the pandemic began — allowing it to expand its state-based lobbying operations to cover half the country. Another influential anti-vaccine group, Informed Consent Action Network, nearly quadrupled its revenue during that time to about $13.4 million in 2022, giving it the resources to finance lawsuits seeking to roll back vaccine requirements as Americans’ faith in vaccines drops.

Two other groups, Front Line Covid-19 Critical Care Alliance and America’s Frontline Doctors, went from receiving $1 million combined when they formed in 2020 to collecting more than $21 million combined in 2022, according to the latest tax filings available for the groups.

The four groups routinely buck scientific consensus. Children’s Health Defense and Informed Consent Action Network raise doubts about the safety of vaccines despite assurances from federal regulators. “Vaccines have never been safer than they are today,” the Centers for Disease Control and Prevention said on its webpage outlining vaccine safety."

Philip Hackney

February 22, 2024 in In the News, Science | Permalink | Comments (0)

Tax Court Upholds Service's Sledgehammer: Denies $20.7 Million Conservation Easement Deduction

Sometimes you have to kill a fly with a sledgehammer.. And its not just  about that fly.. it's about the other flies watching. - iFunny

In a 78-page opinion issued yesterday, the Tax Court upheld the Service's sledge-hammering of a conservation easement deduction for lack of a "qualified appraisal" and because the land with respect to the conservation easement was not a capital asset. And a 40% penalty and then a 20% penalty, to boot.  Sounds like the Service and the Tax Court just ain't having it anymore with these syndicated conservation easements.   

We hold that Oconee is entitled to a charitable contribution deduction of zero for 2015, for two independently sufficient reasons. First, it failed to secure and attach to its return a “qualified appraisal” of the contributed property. See § 170(f)(11)(D). Second, the property on which the easement was granted was “ordinary income property” in Oconee’s hands, so that any charitable contribution deduction would be limited to its basis. See § 170(e)(1). Because Oconee failed to prove that its basis exceeded zero, its contribution is limited to zero.  With regard to penalties, we find that the FMV of the easement was less than $5 million. Because the value claimed on Oconee’s return exceeded the FMV of the easement by more than 400%, it is liable for the 40% gross valuation misstatement penalty. See § 6662(a), (h). Finally, we hold that Oconee is liable for a 20% penalty on the portion of the underpayment not attributable to the valuation misstatement.

 The facts reported in the opinion pretty much describe a huge planning and tax strategy blunder, seized upon by an agency and a court pretty sick and tired of conservation easements.  The Service even argued that there was no donative intent because the whole transaction was motivated by the availability of a tax deduction.  The donors weren't sufficiently altruistic, the Service argued, because they were doing it solely for the tax deduction.  The Court wisely rejected that argument; a big purpose of deductions is to encourage the false altruism in the first place.  Ain't no such thing as true altruism.  Anyway, the appraisers had all the credentials and the paperwork seemed in order.  But the Service and Tax Court, through a questionable and winding road of related party attribution and constructive notice said the appraisers should have known better.  

Respondent agrees that Messrs. Wingard and Van Sant met these general requirements at the time they prepared the final appraisal in April 2016. However, respondent contends that Messrs. Wingard and Van Sant were not qualified appraisers by virtue of the “Exception” set forth in Treasury Regulation § 1.170A-13(c)(5)(ii). It provides that an individual is not a qualified appraiser with respect to a particular donation “if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser falsely to overstate the value of the donated property.” This will be true, for example, if “the donor and the appraiser make an agreement concerning the amount at which the property will be valued and the donor knows that such amount exceeds the fair market value of the property.” Ibid. The “knowledge” requirement in Treasury Regulation § 1.170A13(c)(5)(ii) implicates the donor’s actual and/or constructive knowledge. See Dunlap v. Commissioner, T.C. Memo. 2012-126, 103 T.C.M. (CCH) 1689, 1708 (considering whether the information the donor knew or should have known would cause a reasonable person to believe that the appraiser would falsely overstate the value of an easement).

In gauging a partnership’s “knowledge” for this purpose, we look to the knowledge of the person(s) with ultimate authority to manage the partnership. The Reynoldses (through intervening entities) were the ultimate managers of Oconee and Oconee Investors. Thus, in determining what facts were “known” by Oconee, we must determine what facts were known—actually or constructively—by the Reynoldses. During 2013–2015 the Reynoldses persistently marketed the Parent Tract to prospective buyers. In 2013 they offered the Parent Tract to TPA for $7.9 million, but TPA rejected that offer. The Reynoldses then commissioned a new DCF analysis valuing the Parent Tract at $6.7 million; according to Mr. Denbow, $6.7 million “became the new asking price.” In September 2013 the Reynoldses offered the Parent Tract to TPA at $6.7 million, but TPA again declined. During 2015 the Reynoldses authorized Mr. Baker to sell the entire Parent Tract at $7.7 million. Only one prospective buyer expressed interest, and no deal was consummated. On the basis of these facts, we conclude that the Reynoldses knew that the Parent Tract in 2015 was worth considerably less than $10 million. They may have believed that the property had considerable intrinsic value and might ultimately be developed into the Reynoldsboro of their dreams. But they were shrewd, experienced, and highly sophisticated real estate developers. Whatever the property’s future potential, they knew that, as of late 2015, the current market value of the Parent Tract was considerably less than $10 million. 

Pigs turn into hogs I guess.

darryll k. jones

February 22, 2024 | Permalink | Comments (0)

Texas AG Targets Nonprofit Kingpin of the Border Crisis

Migrants at U.S.-Mexico border face mumps, illnesses | The Texas Tribune

I am not making any of this up.  We've all heard about the "border crisis."  Thousands of people flooding through the southern border every week or month, calls for impeachment, and unabashed demands that Congress do nothing so Trump can campaign on the issue later this spring and summer.  Well, in the midst of all that, Texas AG Ken Paxton -- young enough to be the next Governor and a future presidential candidate himself -- identified the kingpin of it all and is taking decisive action to solve the crisis.  That kingpin, it turns out, is Annunciation House, a religious nonprofit in El Paso:

Annunciation House is a volunteer organization that offers hospitality to migrants, immigrants, and refugees in El Paso, Texas. Rooted in Catholic social teaching, the volunteers of Annunciation House live simply and in community, in the same houses as the guests we serve, who are mostly from Mexico and Central America. We also participate in advocacy and education around immigration issues. We seek to be a voice for justice and compassion, especially on behalf of the most marginalized of our society.

From its beginnings, Annunciation House has sought to serve the poorest of the poor in our El Paso-Juarez border community. Many of the most vulnerable here are people from south of the border, who can’t receive services from most established social agencies. They can be identified by their immigration status and the poverty, injustice, and oppression that are so much a part of their reality. These migrants and refugees have become the primary constituency of Annunciation House.

I checked Guidestar and found that the organization pulled in $173,000 according to its 990.  The latest available is from 2003, so that could be proof of the organization's secret efforts to orchestrate the whole border crisis.  Anyway, when the AG got wind of Annunciation House' feeding and housing of people, via a fairly innocuous article describing its efforts to assist asylum seekers, he opened an investigation and demanded access to the organization's entire records.  Annunciation filed suit to block what it considered harassment and the AG responded with a counter-claim (attaching and citing the article as the only evidence) to revoke the organization's Texas business license.  Naturally, the AG issued a grand public announcement touting his Mr. America credentials and explaining how Biden is the Wizard of Oz behind it all.  Here are what seem like shouted allegations from the complaint

First, it is a federal crime for an alien to enter the United States “at any time or place other than as designated by immigration officers” or to “elude[] examination or inspection by immigration officers.” 8 U.S.C. § 1325(a). Annunciation House, however, has boasted that it houses “migrants who avoided Border Patrol when crossing the Rio Grande, out of fear that agents would send them back to Mexico.” See Priscilla Totiyapungprasert, Annunciation House helps undocumented immigrants apply for asylum El Paso Matters (Jan. 20, 2023),, Ex. 2. Indeed, Annunciation House has publicly claimed that it “hous[es] close to 300 migrants” at a given time, “many of whom are struck in limbo because they” avoided law enforcement. Id. Annunciation House’s provision of shelter to migrants who avoided law enforcement when crossing the Rio Grande facilitates and aids and abets violation of 8 U.S.C. § 1325(a).

Second, it is illegal to “encourage[] or induce[]” aliens to “enter . . . this country in violation of federal law by concealing, [or] harboring” the aliens from “detection.” Tex. Penal Code § 20.05(a)(2); see also Berry v. Golden Light Coffee Co., 160 Tex. 128, 131 (1959) (establishing civil liability for an “unlawful conspiracy to evade and circumvent the [] laws of this state”). When Annunciation House shelters aliens whom it knows entered illegally, it is necessarily “concealing” or “harboring” them from “detection.” And Annunciation House’s publication of the fact that it actively performs this service for illegal aliens logically “encourages or induces” others to come, all in violation of Texas Penal Code § 20.05(a)(2). 

Third, it is illegal to engage in human smuggling, defined to include “us[ing] a motor vehicle” to “transport an individual with the intent to conceal the individual from” law enforcement. Tex. Penal Code § 20.05(a)(1)(A); State v. Flores, 679 S.W.3d 232 (Tex. App.—San Antonio 2023) (rejecting constitutional challenges to human smuggling statute). Annunciation House appears to be engaged in the business of human smuggling. According to its own in-Court admission, Annunciation House “contracts with a local company once or twice a week to transport migrants in passenger vans in groups of approximately 15.” Annunciation House v. Abbott, Compl. ¶ 15, 3:21-cv-00178 (Aug. 4, 2021) As noted supra, Annunciation House knows that at least some of the aliens it provides services to are present illegally and are trying to avoid Border Patrol. Annunciation House’s transportation of those aliens presents a very significant likelihood of human smuggling. 18.

Fourth, it is illegal to operate a “stash house,” defined as “knowingly” allowing “another to use any real estate” owned by a person to commit a number of other offenses, including human smuggling offenses. Tex. Penal Code § 20.07(a). Annunciation house appears to be engaged in the operation of an illegal stash house by potentially allowing others to use its real estate to engage in human smuggling.

Fifth, it is illegal to counsel aliens to commit fraud, including fraud within the asylum application process. See e.g. Tex. Pen. Code Ann. § 37.10 (“a person commits an offense if he…makes…or uses any record, document, or thing with knowledge of its falsity and with intent that it be taken as a genuine governmental record”); see also Tex. Pen. Code Ann. § 38.05 (establishing a crime where a person “with intent to hinder the arrest…of another… (1) harbors or conceals the others…[or] (2) provides or aids in providing the other with any means of avoiding arrest”). Annunciation House, however, may be violating these laws because it publicly represents that it has “workshops” to assist aliens with asylum claims, and specifically instructs them on “what situations qualif[y] for asylum and what records they could gather to establish their case.” Priscilla Totiyapungprasert, Annunciation House helps undocumented immigrants apply for asylum El Paso Matters (Jan. 20, 2023), It is possible that the provision of such information crosses the line from mere counseling into specific instructions on how to commit fraud.

The counter claim goes on to state that there exists good reason -- the article again -- to think that Annunciation House is doing all of those illegal things.  None of this is made up.

darryll k. jones

February 22, 2024 | Permalink | Comments (0)

Wednesday, February 21, 2024

NRA Closing Argument Transcript

A Few Good Men (1992) | Chad Likes Movies


Tired of crazy winter weather?  Need some spring or summer reading?  Can't handle the truth?  Here is the 265 page transcript of the closing arguments in NY by Letitia James v.  The National Rifle Association of American and Wayne LaPierre.

darryll k. jones

February 21, 2024 | Permalink | Comments (0)

Exemption for Accountable Care Organizations: Primary Purpose or Substantial non-exempt Activity?

Accountable Care Organization (ACO) - Care Partners Medicine

When last we checked in on Memorial Hermann Accountable Care, it was licking its wound from a Tax Court Opinion upholding the Service's kinda silly denial of 501(c)(4) status because of private benefit and a "substantial non-exempt activity." An accountable care organization is a creature of Obamacare, having been created and sanctioned to improve patient care and reduce costs by encouraging different healthcare providers to collaborate.  The Medicare Share Savings Program provides rebates for demonstrated savings and increased health care.  Sounds good.  Memorial Hermann shares those rebates with hospitals and private physicians, just as Obamacare envisioned.  In effect, the rebates serve to incentivize hospitals and physicians to avoid unnecessary expenses without sacrificing quality of care.  Sounds real good, we should get behind the effort.  Memorial applied for 501(c)(4 status, but the Service denied the application and the Tax Court upheld the denial:

Petitioner fails to qualify as an organization described by section 501(c)(4) because its non-MSSP activities primarily benefit its commercial payor and healthcare provider participants, rather than the public, and therefore constitute a substantial nonexempt purpose. While petitioner’s stated goal of providing affordable healthcare to patients is an admirable one, the provision of healthcare alone is insufficient to qualify for recognition of exemption under section 501(c)(4). Petitioner’s non-MSSP activities benefit primarily the commercial payors and healthcare providers with which it contracts. To that end, petitioner contravenes the requirements of section 501 by conducting business with the public in a manner similar to a for-profit business. See Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii).

Last week, Memorial filed its [well-written ] brief on appeal to the 5th Circuit.  Here is a sample:

Among the numerous reasons for the United States having the most expensive health care in the world is the lack of communication and coordination between providers throughout the patient’s care continuum, as well as, the prevalence of the FFS payment and delivery model among insurers and medical providers. Under this payment model, medical providers are compensated for each medical procedure or service, resulting in the incentive to offer and perform as many medical procedures as possible. This often leads to unnecessary health care spending and the waste of medical resources.

Under a VBP model, on the other hand, medical providers are paid an overall sum for the patient’s care rather than being paid for each additional treatment or procedure performed for the patient. The VBP model removes the incentive to perform as many procedures as possible and rewards the providers through payment arrangements such as a shared-savings arrangement for providing efficient care.

To illustrate a shared-savings arrangement, the insurance payor, either Medicare or a private insurer, establishes a benchmark for the cost of care for its patients. ROA.178-186. When the ACO successfully works with the medical providers to provide quality care at a cost lower than the established benchmark, the difference between the benchmark and the actual cost is cost savings, which the insurer will then pay a portion of to the medical provider as compensation for
delivering care at lower costs. ROA.185-190. The result of this share-savings arrangement is lowered health care costs due to the provider being incentivized to provide efficient care to the patient and receive a share of the savings, as opposed to
being incentivized to include as many procedures and treatment expenditures as possible in the course of the patient’s care under FFS.

Though it is indeed very well written, I think the brief gets too caught up in the word games we play.  It argues that the Tax Court applied the wrong standard when it concluded that the ACO has a "substantial non-exempt purpose" and that it should have applied the primary purpose test.  Seems like two $5.00 phrases trying to get at the same thing:  What is the organization's raison d'etre?  Once it gets beyond what it refers to as "lip service," appellants argue that its interactions with hospitals and physicians not in the MSSP does not make its participation within the program insubstantial or prove that its activities within the program are not its primary purpose.  That is the better argument and I hope appellants win.  

darryll k. jones

February 21, 2024 | Permalink | Comments (0)

Tuesday, February 20, 2024

Great Post at HistPhil.Org on Medici, Magnificence and Philanthropy

There is a great read over at by Guido Alfani discussing his new book  As Gods Among Men: A History of the Rich in the West (Princeton University Press, 2023). In particular it looks at the concept of "magnificence" as it related to Lorenzo de' Medici and his public provision of money to the arts and other endeavors.

From the post: "Why was Lorenzo de’ Medici (1449-1492) called “the Magnificent”? Because of all he did for his Republic, Florence. He was a major patron of the arts, also establishing an art school, the Garden of San Marco, where the likes of Michelangelo were trained. He raised splendid buildings, such as the Basilica di Santa Maria in Prato and his own villa at Poggio a Caiano (both commissioned to Giuliano da Sangallo, one of the most celebrated architects of the time). A poet himself, he protected and promoted writers and intellectuals (Poliziano, Marsilio Ficino, Pico della Mirandola) and in general, he did much to strengthen the position of Florence as one of the main cultural hubs of Renaissance Europe. There is no doubt that to this day, the city continues to benefit from Lorenzo’s deeds."

Philip Hackney


February 20, 2024 in Books | Permalink | Comments (0)