Nonprofit Law Prof Blog

Ropes & Gray Podcast: Tax Reform and Its Impact on Exempt Organizations, One Year In

Podcast

Attorneys from the tax exempt group at Ropes & Gray have produced a podcast summarizing the changes to tax laws pertaining to exempt organizations.  Click on the Podcast link centered above to listen during your lunch time.  The podcast is about 20 minutes.  Here is a summary from the transcript:

Morey Ward: Hi, everyone, and thanks for joining us for this Ropes & Gray podcast. I'm Morey Ward, counsel in our tax-exempt group. I am joined by my colleagues Kendi Ozmon, Gil Ghatan and Brittany Cvetanovich, who also focus their practices on representing tax-exempt organizations. Today's podcast is called "Tax Reform and Its Impact on Exempt Organizations, One Year In." This is meant to provide listeners with an update on the provisions of the Tax Cuts and Jobs Act (the "TCJA"), that specifically target tax-exempt organizations, including some major guidance issued on these provisions in late 2018. We'll also mention some questions about the TCJA that remain unanswered.  Brittany and Gil will begin by talking about some changes to the rules on unrelated business taxable income, (or "UBTI"). Brittany will address questions about the new "silo" rule for calculating UBTI, and Gil will talk about the new tax on parking expenses. We'll then turn the focus of our discussion to two excise taxes the TCJA imposed on exempt organizations. Kendi will talk with me about the excise tax on executive compensation, and we'll wrap up with an update on the excise tax on certain college and university endowments.

Darryll K. Jones and Easter L. Floyd-Clarke

What's Wrong with "Behested" Payments to Charity? (Part I)

There was an interesting article in yesterday's L.A. Times regarding something the left coasters call "behested payments."  On the right coast, the practice is probably more often referred to as "pay to play."  Anyway, yesterday's L.A. Times article described left coast politicians' habit and history of soliciting charitable donations to their favored causes.  Sounds ok so far.  "These payments are not considered campaign contributions or gifts," the state's political watchdog explains, "but are payments made at the 'behest' of elected officials to be used for legislative, governmental or charitable purposes."  The more sinister implication is that the donors are doing two bad things.  First, they are avoiding campaign donation limitations by steering campaign contributions to a candidate's favorite charity, through which the candidate receives some sort of implicit benefit associated with the donation.  Secondly, the donor is buying access to city hall.  Los Angeles Councilman Mitchell Englander has caused many a donor to contribute, at Councilman Englander's "behest," to a charity at whose well attended events Councilman Englander is a frequent and featured guest speaker.  For federal tax purposes the implication is that in exchange for benefitting from a politician's fundraising prowess, charities are providing focused and featured face-time and feel good associations for the candidate.  In other words, the candidate who can steer donations to a charity by sending out personal "behests' [sic], is treated as the charity's favorite son or daughter, though the charity never implicitly tells its stakeholders to "vote for so and so because he supports us."  A 2017 article graphically illustrated the potential in this graphic regarding behested payments solicited by Mayor Eric Garcetti:

 

 

Mayor Garcetti has raised a boat load of money mostly for the Mayor's Fund of Los Angeles, a 501(c)(3) he set up himself and which generally does its good works in partnership with L.A. city government, especially the incumbent Mayor.  One commentator describes Garcetti's success with behested payments thusly:

Garcetti has raised more than twice as much in behested payments as California Gov. Jerry Brown and more than 40 times the amount of Lt. Gov. Gavin Newsom over the same time period, according to a KPCC analysis of reports filed by the politicians.  Most of the donations Garcetti raised went to a charity he helped create after his election, the Mayor's Fund for Los Angeles, according to reports he filed with the Los Angeles City Ethics Commission.  Other contributions given at his request benefited other efforts, including two that are dear to his heart: L.A.'s Olympic bid and The GRYD Foundation, which runs a summertime park program Garcetti has supported for years.  “It strikes me that he’s taking advantage of the law more than anybody else has ever done,” said Bob Stern, a former California Fair Political Practices Commission general counsel who helped write the state's 1974 Political Reform Act.

 

 

 

California has disclosure rules that require politicians to disclose "behested payments."  I suppose transparency in politics is a good thing so I don't have a philosophical bent against campaign disclosure laws.  But what exactly is the public to conclude from, for example, the disclosure that a political incumbent has generated -- "behested" -- millions of dollars for a charity whose glow benefits everybody with whom the charity associates, including its political incumbent rainmaker?  The answer to that question begs the question what exactly is the politician purchasing from the charity who benefits from behested payments and what implication does that expectation have for charitable organizations prohibited from campaign intervention.  I will talk about that in my next post.

 

Darryll K. Jones

 

 

 

 

 

IRS Issues Guidance Aimed at Limiting Impact of Tax on Nonprofits’ Parking Expenses

    This past December the Treasury Department and IRS released guidance that officials designed to minimize the impact of the tax on nonprofits’ parking-benefit expenses. Steven Mnuchin said in a press release, “The Treasury is offering tax exempt organizations a roadmap for navigating their responsibilities. The guidance issued today aims to provide flexibility while minimizing the burden on non-profit groups that provide employee parking.” The 2017 tax law eliminates tax exempt organizations’ ability to deduct expenses they incur while providing employees with fringe benefits, like parking. The new law also subjects nonprofits to a 21% tax on transportation benefits. The 21% tax received heavy criticism from nonprofits, who argue that the tax will cause them to divert resources that without the tax would be used to further their missions. To learn more about the Treasury’s guide, click here: https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fthehill.com%2Fpolicy%2Ffinance%2F420674-irs-issues-guidance-aimed-at-limiting-impact-of-tax-on-nonprofits-parking&data=02%7C01%7Cdavid.brennen%40uky.edu%7C56aa26fe4e8d455ef31c08d695aab44b%7C2b30530b69b64457b818481cb53d42ae%7C0%7C1%7C636860957742458795&sdata=%2FY6g%2BMSjmL2OKlqzHYBMz%2FbPtho9VlWS%2FthvsCTTDLg%3D&reserved=0

 

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Ellen Aprill's Review of Hamburger's "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech"

Ellen Aprill (Loyola-LA) recently posted a review of Professor Philip Hamburger's (Columbia) "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech" at HistPhil.org.     HistPhil, which is "a web publication on the history of the philanthropic and nonprofit sectors, with a particular emphasis on how history can shed light on contemporary philanthropic issues and practice."   Prof. Hamburger's book argues that, as a constitutional law matter,

    

...  theopolitical fears about the political speech of churches and related organizations underlay the adoption, in 1934 and 1954, of section 501(c)(3)’s speech limits. He thereby shows that the speech restrictions have been part of a broad majority assault on minority rights and that they are grossly unconstitutional.

 

Prof. Aprill bring a tax lens to this issue, highlighting the history of the Johnson Amendment.   The review introduces readers who might not be familiar with the public subsidy theory of exemption to a different approach to the Constitutionality issues and highlights much of the tax-focused scholarship in the area.

 

EWW

ABA Business Law Section: Call for Nominations for 2019 Outstanding Nonprofit Lawyer Award

 

Seeking Nominations for the

2019 Outstanding Nonprofit Lawyer Awards

 

WASHINGTON, D.C.—February 11, 2019:  The Committee on Nonprofit Organizations of the American Bar Association’s Business Law Section is calling for nominations for the “2019 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 18, 2019.

For a nomination form, please go to the Nonprofit Organizations Committee webpage and scroll down to find the form under “2019 Outstanding Nonprofit Lawyer Awards."  The Awards will be announced at the Business Law Section's Spring Meeting at the end of March.

Send nomination forms by March 18, 2019 to:

David A. Levitt
Adler & Colvin
135 Main Street, 20th Floor

San Francisco, California 94105
(415) 421-7555
(415) 421-0712 (fax)
levitt@adlercolvin.com

 

Darryll K. Jones

The Association for Mid-Career Tax Law Professors 2019 Conference and Call for Papers

The 2019 AMT organizing committee—Michelle Drumbl, Heather Field, Miranda Fleischer, Brian Galle, Shu-Yi Oei, and Darien Shanske—welcomes proposals for our annual conference.

AMT is a recurring conference intended to bring together relatively recently tenured professors of tax law for frank and free-wheeling scholarly discussion. Our fifth (!) annual meeting will be held on Thursday and Friday, June 13 and 14, 2019, at the lovely & temperate campus of the University of San Diego. We’ll begin early on Thursday and adjourn by noon on Friday. Sunscreen is not provided but strongly recommended.

Thanks to the support of USD and its outstanding graduate tax program, AMT is able to provide attendees with conference meals and refreshments. Attendees will be expected to cover remaining expenses incurred while away from home in the pursuit of their trade or business. Conference-rate housing will be available. AMT takes no position on the interaction of sections 132(d), 67, or other potentially applicable provisions. Your in-house finance office probably has it wrong, though.    

Eligible participants are those who have been voted tenure by a graduate-degree-granting institution within the past ten years (as of June 13, 2019). Send in your proposal now!

Proposals should provide a brief description (not to exceed one double-spaced page) of a working paper or “incubator” idea that the participant would present at the conference. Participants are expected to read all of the presented papers, and each will serve as lead discussant for one paper. In your proposal, please note additional areas of topical interest for which you would be willing to serve as discussant. In the spirit of recent legislative efforts, the committee can commit to assembling the final program hastily behind closed doors without a formal hearing; there will be no revenue estimates.

Proposals may be submitted to: af810@georgetown.edu under the subject header “AMT Proposal.” Proposals should be received no later than 5 pm EST on Friday, March 15, 2019. Proposals containing gratuitous Julius Caesar jokes or those otherwise addressing §82 will receive bonus points. 

Salamon and Newhouse Publish The 2019 Nonprofit Employment Report

From the conclusion of Lester M. Salamon and Chelsea L. Newhouse, "The Nonprofit Employment Report," Nonprofit Economic Data Bulletin No. 47 (Baltimore:  Johns Hopkins Center for Civil Society Studies, January 2019):

The data presented in this report demonstrate that the nonprofit sector is not only a significant employer, but also a significant contributor to employment growth even in recessionary periods of the sort that occurred in the wake of the 2007 financial crisis. This resilience is due in important part to the overall shift in America toward a service economy, demographic trends such as the aging of the population and the expanded female participation in the labor force that are boosting demand for the kinds of services that nonprofits have traditionally provided, the expansion of government funding for many of these services, and the counter-cyclical nature of many of the government “safety net” programs, which causes funding to expand when recessionary pressures disrupt normal sources of revenue.

However, nonprofits are not the only institutions benefiting from these trends. To the contrary, for-profit firms have increasingly entered these service fields as well. The fact that government has shifted from producer-side subsidies such as grants to consumer-side subsidies such as tax expenditures and vouchers has intensified this trend by channeling increasing shares of government support through the market, where for-profits have inherent advantages. For-profits also benefit from their superior access to investment capital through the issuance of stock, which gives them an edge in responding quickly to increases in demand occasioned by new or expanded governmental support. In addition, for-profits are less held back than are nonprofits by mission-related constraints on the types of clients they should primarily serve, giving them greater access to paying customers. The upshot has been an uneven playing field for nonprofit providers and a resulting steady loss of nonprofit market share even as the overall scale of nonprofit employment has increased.

While competition certainly has its place in this field as in many others, the competition needs to be on a level playing field, particularly given the special contributions that nonprofits have been found to make in devising innovative forms of service, serving more disadvantaged clients, and staying the course even when economic circumstances turn sour. These findings therefore have significant practical implications for both nonprofit stakeholders and policy makers. In the first place, they demonstrate the significant job creation potential of the nonprofit sector, especially during recessions, and therefore highlight the need to keep this sector’s potentials in view as national and regional efforts to boost job growth are put in place. Among other things, these findings demonstrate why job promotion efforts that operate exclusively through the income tax mechanism are insufficient because they discriminate against this important set of job-creators for which income tax incentives have little effect. So, too, government contracting regimes that select providers of government-funded services purely on the basis of the lowest unit cost of services can inadvertently squeeze out some of the major features that make nonprofits special, such as their community-building activities and their charity care. Finally, expanded efforts are needed to overcome the structural impediment that nonprofits face in raising capital due to the prohibitions that bar them from sharing profits with investors and therefore prevent their access to equity finance through the issuance of shares. Expanded interest subsidies and loan guarantees are among the interventions that can help in this area.

Despite the growth of the for-profit presence in many traditional nonprofit fields, the nonprofit sector remains a crucially important provider. To date, the sector has shown remarkable resilience in the face of significant economic pressures and competitive challenges. With public funding under siege and private resources strained, however, the nonprofit job engine is under increasing pressure, with clear evidence of loss of market share in crucial fields. If evidence of the sort provided here can call attention both to the strengths that this sector has displayed and some of the challenges it now faces, it will have served its purpose well.

 

Darryll K. Jones and Easter Floyd-Clarke

How Charitable Contribution SALT Workarounds work (in the absence of proposed regulations)

 

 

 

Darryll K. Jones

Revenue Procedure 2019-12 Allows Limited Corporate and Passthrough Entity SALT Workarounds

Revenue Procedure 2019-12 provides for a seemingly unjustifiable horizontal inequity when it comes to individual state and local taxes.  I could be wrong, these are just my first thoughts and I should probably ponder it a little more.  But deadlines never stop!  Recall that as a result of the TCJA, individual deductions for state and local taxes are capped at $10,000.   State law efforts to use charitable deductions to "work around" SALT limitations were likely thwarted when the Treasury Department issued proposed regulations concluding that charitable contributions will not be allowed to avoid or undermine the $10,000 SALT limitation.  In other words, if a state reduces state or local taxes by the amount of charitable contributions made, the federal contribution amount will be reduced by the amount of SALT reduction at the state level.  Historically, corporations and other profit making entities could not make charitable contributions, proper, because a business entity is limited to profit-making purposes.  Corporations exist to make profit not give away investors' money even for the most worthy cause.  That was the lesson in Dodge v. Ford, a classic introductory case in every business organizations text.  The oft-repeated distinction is that a corporation has the power to make a charitable contribution, but only for the purpose of making money.  Today, the social purpose and benefit corporation statutes allow certain profit making corporations to have charitable purposes, even if they are not exempt under 501(c)(3).  And corporate charitable contributions are generally viewed as "good business" leading to more profits in the long term.  

So anyway, the proposed regulations effectively prevent charitable workarounds by individuals.  The Revenue Procedure allows through a backdoor what the proposed regulations prevent through the front door, in limited but significant circumstances.  In federal tax law, a passthrough entity -- especially a partnership -- works like a magic hat.  Although it appears empty, the right person can stick his hand into the hat and pull out a rabbit!  Individuals who want to make charitable contributions to reduce state and local taxes can use passthrough entities to get the charitable workaround that the proposed regulations deny to individuals who make the same charitable contribution directly.    They simply have to stick their hand into the partnership hat and out pops a rabbit!  Since corporations and partnerships exist to make money, theoretically every payment -- even a charitable contribution properly made for a profit seeking purpose (like the generation of good will and more customers) -- is a trade or business expense (or perhaps an expenditure).  And trade or business deductions under IRC 162 are not reduced by the receipt or expectation of return benefit.  The whole reason for making the deductible payment is to obtain a return benefit, albeit a profit making one.  So here is what Revenue Procedure 2019-12 says about individuals who make charitable contributions through a partnership even if the payment reduces a state and local tax liability:

.03 Safe harbor. If a specified passthrough entity described in section 4.02 of  this revenue procedure makes a payment to or for the use of an organization described in section 170(c) and receives or expects to receive a tax credit described in section 4.02(4) of this revenue procedure that the entity applies or expects to apply to offset a state or local tax described in section 4.02(3) of this revenue procedure other than a state or local income tax, the specified passthrough entity may treat such payment as meeting the requirements of an ordinary and necessary business expense for purposes of section 162(a) to the extent of the credit received or expected to be received.

.04 Examples.

(1) Example 1. P is a limited liability company (LLC) classified as a partnership for federal income tax purposes under section 301.7701-3 and is owned by individuals A and B. P is engaged in a trade or business within the meaning of section 162 and makes a payment of $1,000 to an organization described in section 170(c). In return for the payment, P receives or expects to receive a dollar-for-dollar state tax credit to be applied to P’s state excise tax liability incurred by P in carrying on its trade or business.  Under applicable state law, the state’s excise tax is imposed at the entity level (not the owner level). Under section 4 of this revenue procedure, P may treat the $1,000 payment as meeting the requirements of an ordinary and necessary business expense under section 162.

(2) Example 2. S is an S corporation engaged in a trade or business and is owned by individuals C and D. S makes a payment of $1,000 to an organization described in section 170(c). In return for the payment, S receives or expects to receive a state tax credit equal to 80 percent of the amount of this payment ($800) to be applied to S’s local real property tax liability incurred by S in carrying on its trade or business.  Under applicable state and local law, the real property tax is imposed at the entity level (not the owner level). Under section 4 of this revenue procedure, S may treat $800 of the payment as meeting the requirements of an ordinary and necessary business expense under section 162. The treatment of the remaining $200 will depend upon the facts and circumstances and is not affected by this revenue procedure.

In both examples, the charitable contribution reduces state taxes (other than income taxes) payable at the entity level; for federal purposes the payment passes through to the members (in the LLC) and the shareholders (in the S Corporation) and reduces federal income dollar for dollar.  But the passed-through charitable contribution deduction does not apply towards the $10,000 SALT limitation at the federal level, nor is it reduced for federal purposes by the amount of state tax liability reduction, because it retains its entity level characterization as an ordinary and necessary business expense (almost as if it were not an intentional workaround the SALT limitation when we know it is).  Had the members or or shareholders made the charitable contributions directly and in return for the same state level tax reduction, the charitable contribution deduction would have been reduced by the amount of the state tax reduction.  Importantly, the magic hat trick works only if the passthrough entity is subject to a state entity level tax and according to AICPA so far only thirteen states impose taxes at the entity level for an entity treated as a passthrough for federal purposes.   Apparently, the only distinction between an individually made state tax offsetting charitable contribution and one made via a passthough is that in the latter circumstance, the individual has a profit-seeking purpose as a matter of law because of the existence of the partnership through which the contribution was made.  The distinction does not resolve my cognitive dissonance!  Maybe somebody can make an argument in defense of the outcome or better yet explain what I am missing!   Or maybe this is not such a big deal.  Somehow it does not feel right.  In any event, AICPA reports that more states are considering enacting entity level taxes on partnerships so that partners may take advantage of the magic hat that is partnerships!

 

Darryll K. Jones and Harry Germeus

 

Musings on Management Contracts and Florida Coastal's Planned Conversion to Nonprofit Status

The thing that caught my attention last week regarding Florida Coastal School of Law's planned conversion to nonprofit status was the suggestion that after the conversion, Infilaw, the current owner, might continue its relationship with the school under a management agreement.  A word of unsolicited advice is perhaps in order.  When the owners of a for-profit entity decide or even consider converting to nonprofit status (with an application for tax exempt status as part of the conversion), its probably not a good idea to announce ex ante that the current for-profit owners will enter into a management contract with the soon to be formed exempt nonprofit.   I am not even quite sure what law school operations a for-profit management company can actually and legitimately manage if the school is to operate in accordance with the accreditation standards.  Will the management company select the Dean, hire faculty, set class sizes, make admissions decisions, determine curricular content or determine tenure and promotion standards?  I can think of a host of accreditation concerns with regard to a for-profit management company doing any of those things. 

Let's assume a privately managed tax exempt Coastal can get around the accreditation questions.  Even so, and as Corso might say, "not so fast, my friend!" In the world of "big time tax exemption," management contracts are fraught with private benefit issues, especially when the management company has or had a financial interest in the exempt organization.  Consider this excerpt from the analysis of Situation 2 in Revenue Ruling 98-15 (I have substituted Florida Coastal and Infilaw, respectively, for the principals named in Rev. Rul. 98-150):

The primary source of information for [Florida Coastal's] board members will be the chief executives, who have a prior relationship with [Infilaw], and the management company, which is a subsidiary of [Infilaw]. The management company itself will have broad discretion over [Florida Coastal’s] activities and assets that may not always be under the board’s supervision. For example, the management company is permitted to enter into all but "unusually large" contracts without board approval. The management company may also unilaterally renew the management agreement.

Maybe its safe to assume that Infilaw will do its homework before the conversion.  Still, I really doubt that Old Florida Coastal can decide ex ante that Infilaw or an Infilaw controlled entity will serve as New Florida Coastal's manager, at least not without serious private benefit issues arising.  Its hard to imagine a compensation structure for that management agreement that would not put the Infilaw owners in almost the same position they would have been in absent the conversion.  Nor can I imagine any set of contractual terms that would require the former for-profit owners to manage new Florida Coastal in a manner that ensures charitable goals take precedence over profit making.  As a matter of law, new [exempt] Florida Coastal would have to engage in serious due diligence, wholly independent from the thinking or plans of Infilaw, before awarding a management contract.  Common law fiduciary duties and the tax law duties to conserve charitable assets and avoid private benefit mandate that the board select an independent management company with no incentives to relegate the charitable goal to the company's profit making goals.  See below the fold for more on management contracts.

Darryll K. Jones and Harry Germeus

 

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Hemel on The State-Charity Disparity Under the 2017 Tax Law

David Hemel (Chicago) has posted The State-Charity Disparity Under the 2017 Tax Law, Washington University Journal of Law and Policy (forthcoming). Here is the abstract:

Since December 2017, several states have enacted laws granting state tax credits for charitable contributions that go toward public education or public health. One purpose of these laws is to allow individuals to claim federal charitable contribution deductions for payments that simultaneously serve to reduce those individuals’ state tax liabilities and to support programs that state governments would otherwise fund. The strategy adopted by these states — if effective — would mitigate the impact of the $10,000 cap on individual state and local tax deductions imposed by the December 2017 tax law. The U.S. Treasury Department and the Internal Revenue Service (“IRS”) have proposed, but not yet finalized, regulations aimed at shutting down that strategy.

The ongoing debate regarding state charitable credit programs and the proposed Treasury regulations raise a number of interesting legal questions — some of which may be addressed at subsequent stages of the rulemaking process, others of which will likely be resolved by litigation. Rather than trying to answer any of those questions, this Essay — an edited transcript of remarks at the Washington University Journal of Law & Policy-Missouri Department of Revenue 2018 Symposium on State & Local Taxation — focuses instead on a separate, though related, question, a question that is implicated by the charitable credit debate but that will linger long after any litigation is resolved. That is: Why should federal tax law allow more favorable treatment to charitable contributions than to state and local tax payments? What are the essential differences between non-governmental charities and sub-national governments, or between contributions and tax payments, that justify this lack of parity?

Ultimately, this Essay concludes that there is little justification for allowing a virtually unlimited charitable contribution deduction while capping the deduction for SALT. That conclusion gives rise to a critique of the December 2017 tax law, but also to a critique of presidential candidate Hillary Clinton’s tax plan, which would have capped the rate at which state and local tax payments could be deducted without applying the same cap to charitable contributions. The Essay ends with reflections on the long-term implications of the state charitable credit programs for tax policy and politics.

Hat tip: TaxProf Blog

Lloyd Mayer

NBER Working Paper on Corporate Philanthropy and Strategic Advocacy

Marianne Bertrand (Booth School of Business, University of Chicago), Matilde Bombardini (Vancouver School of Economics, University of British Columbia), Raymond Fisman (Economics, Boston University), Bradley Hackinen (University of British Columbia), and Francesco Trebbi (University of British Columbia) have posted a National Bureau of Economic Research working paper titled Hall of Mirrors: Corporate Philanthropy and Strategic Advocacy. Here is the abstract:

Politicians and regulators rely on feedback from the public when setting policies. For-profit corporations and non-pro t entities are active in this process and are arguably expected to provide independent viewpoints. Policymakers (and the public at large), however, may be unaware of the financial ties between some firms and non-profits - ties that are legal and tax-exempt, but difficult to trace. We identify these ties using IRS forms submitted by the charitable arms of large U.S. corporations, which list all grants awarded to non-profits. We document three patterns in a comprehensive sample of public commentary made by firms and non-profits within U.S. federal rulemaking between 2003 and 2015. First, we show that, shortly after a firm donates to a non-profit, the grantee is more likely to comment on rules for which the firm has also provided a comment. Second, when a firm comments on a rule, the comments by non-profits that recently received grants from the firm's foundation are systematically closer in content similarity to the firm's own comments than to those submitted by other non-profits commenting on that rule. This content similarity does not result from similarly-worded comments that express divergent sentiment. Third, when a firm comments on a new rule, the discussion of the final rule is more similar to the firm's comments when the firm's recent grantees also comment on that rule. These patterns, taken together, suggest that corporations strategically deploy charitable grants to induce non-pro fit grantees to make comments that favor their benefactors, and that this translates into regulatory discussion that is closer to the firm's own comments.

Lloyd Mayer

Research Handbook on Not-For-Profit Law

Edward Elgar Publishing has released the Research Handbook on Not-for-Profit Law, edited by Matthew Harding of Melbourne Law School. Here is the description:

This Research Handbook provides a comprehensive overview of scholarship on not-for-profit law. The chapters, written by world leading experts, explore key ideas and debates in relation to: theories of the not-for-profit sector, the composition and scope of that sector, not-for-profit organisations and the constitution, the legal conception of charity, the tax treatment of not-for-profit organisations and the regulation of not-for-profits. The book serves to represent not-for-profit law as a field of academic inquiry, and to point the way to future research in that field.

And here is the table of contents:

Introduction
Matthew Harding

Part I Theories of the Not-for-Profit Sector
1. A Law and Economics Perspective on Nonprofit Organizations
Richard Steinberg and Brian Galle

2. A Primer on the Neo-Classical Republican Theory of the Non-Profit Sector (And the Other Three Sectors Too)
Rob Atkinson

3. A Charity Law Perspective on a Liberal Perspective on Charity Law
Adam Parachin

4. The Not-for-Profit Sector: A Roman Catholic View
Fr Brian Lucas

Part II The Composition and Scope of the Not-for-Profit Sector
5. An Overview of the Not-for-Profit Sector
Myles McGregor-Lowndes OAM

6. The Boundary between Not-for-Profits and Government
Darryn Jensen

7. The Boundary between the Not-for-Profit and Business Sectors: Social Enterprise and Hybrid Models
Benjamin M Leff

8. Donor Intention and Dialectic Legal Policy Frames
John Picton

Part III Not-for-Profit Organisations and the Constitution
9. Not-for-Profit Organisations, Public Law and Private Law
Kathryn Chan

10. Not-for-Profit Organisations and Equality Law
François du Toit

11. Charity Law and Freedom of Political Communication: the Australian Experience
Jenny Beard

12. Not-for-Profit Law and Freedom of Religion
Pauline Ridge

Part IV The Legal Conception of Charity
13. The History and Future of the Law of Charity
G E Dal Pont

14. Charity in Common Law and Civilian Jurisdictions
Michael H Lubetsky

15. The Heads of Charity in Comparative Perspective
Debra Morris

16. Public Benefit Post-Pemsel
Mary Synge

Part V The Tax Treatment of Not-for-Profit Organisations
17. Taxation and the Not-for-Profit Sector Globally: Common Issues, Different Solutions
Ann O’Connell

18. Subsidizing Charity Liberally
Miranda Perry Fleischer

19. Ways the Charitable Deduction Has Shaped the US Charitable Sector
Roger Colinvaux

20. The Major Tax Concessions Granted to Charities in Australia, New Zealand, England, the United States of America and Hong Kong: What Lessons Can We Learn?’
Fiona Martin

21. Reforming Tax Policy with Respect to Non-Profit Organisations
Evelyn Brody

Part VI The Regulation of Not-for-Profit Organisations
22. Principles of Regulation of Not-for-Profits
Jonathan Garton

23. Design and Implementation of a Charitable Regulation Regime
Brian Galle

24. Redefining the Measure of Success: A Historical and Comparative Look at Charity Regulation
Oonagh B Breen

25. A Regulator’s View
Susan Pascoe AM

Lloyd Mayer

Boris & Cordes on How the TCJA's New UBIT Provisions Will Affect Nonprofits

Elizabeth Boris and Joseph J. Cordes at the Urban Institute's Center on Nonprofits and Philanthropy have published How the TCJA's New UBIT Provisions Will Affect Nonprofits. Here is the abstract:

Changes in Unrelated Business Income Taxes (UBIT) mandated by the Tax Cuts and Jobs Act (TCJA) of 2017 will have significant costs for some nonprofit organizations. A survey of Independent Sector members and partner organizations in November 2018 reveals the costs and other implications of those changes.

Costs of New Transportation Benefits UBIT Taxes: Over 200 nonprofit organizations estimate it will cost them more than $2.1 million dollars in unrelated business income taxes (UBIT) on transportation fringe benefits they provide to employees, and for organizations that will report UBIT for the first time under that requirement, there will be estimated associated administrative expenses for filing IRS tax forms (Form 990T) of more than $200,000.

Costs of New Reporting Rules for UBIT: Required separate reporting of multiple revenue streams for purposes of UBIT is estimated to cost an additional $376,150 for affected organizations.

Lloyd Mayer

Pennsylvania AG Challenges the University of Pittsburgh Medical Center's Public Charity Status

Pennsylvania Attorney General Josh Shapiro announced yesterday that he is seeking to modify consent decrees governing the relationship between the University of Pittsburgh Medical Center (UPMC) and Highmark (a health insurer and health care provider), with the support of Highmark's leadership. According to the AG "UPMC is not fulfilling its obligation as a public charity." More specifically, in the petition his office filed he is asking the Commonwealth Court to:

• Enable open and affordable access to UPMC’s health care services and products through negotiated contracts with any health plan;
• Require last, best-offer arbitration – commonly known as “baseball arbitration” – when contract negotiations between insurers and providers fail; and
• Protect against UPMC’s unjust enrichment by prohibiting excessive and unreasonable billing practices inconsistent with its status as a non-profit charity providing healthcare to the public.

Alleged violations of UPMC's charitable obligations include "[w]ithholding access to doctors for patients in Williamsport, Pennsylvania whose employers have contracts with a competing health plan" and "[r]efusing to negotiate reasonable payment terms with self-insured employers, resulting in UPMC's unjust enrichment through excess reimbursements for the value of its services."

Press coverage: Pittsburgh Business Times; Pittsburgh Post-Gazette.

Lloyd Mayer

California AG Announces $410,000 Settlement of Overvaluing In-Kind Donations Case

California Attorney General Xavier Becerra recently announced that his office had settled a case it had brought against charity Giving Children Hope alleging that the charity had overvalued in-kind donations it had received in order to inflate the value of the contributions it received and therefore its claimed direct aid. Here is the AG's description of what the charity did:

Giving Children Hope provides international assistance in the form of food, clothing, and medical supplies. The Attorney General’s investigation revealed that between July 1, 2012 and June 30, 2016, GCH inaccurately claimed, in its public financial reporting and on its website, that 99 percent of all contributions provided direct aid. This was misleading and the result of deceptive reporting of Gift-in-Kind donations. GCH created two subsidiaries, Giving Hope International and International Clinic Aid, which purchased pharmaceuticals from a wholesaler in the Netherlands for less than $225,000. The two subsidiaries then donated the same pharmaceuticals to GCH. GCH reported the total value for these pharmaceuticals as being over $34.9 million using U.S. prices of drugs rather than the actual purchase price paid by its affiliated charity. GCH should not have reported $34.9 million in revenue and donations when the pharmaceuticals cost less than $225,000. Also since GCH failed to submit any documentation showing that the pharmaceuticals were, in fact, distributed in furtherance of Giving Children Hope’s charitable purpose, the actual value for those pharmaceuticals should have been zero.

For previous coverage of the California AG's other enforcement actions in this area, see this earlier blog post.

Lloyd Mayer

U.S. Olympic Committee Responds to Senator Grassley's Challenge to Its Tax-Exempt Status

In the wake of the recent sexual assault scandal involving Olympic athletes, Senate Finance Committee Chairman Senator Chuck Grassley sent a letter to the United States Olympic Committee asking for details regarding how the organization would comply with its congressional expanded purpose that now includes providing a safe environment in sports. He based his inquiry on the need for the organization to comply with its purpose in order to maintain its tax exempt status under Internal Revenue Code section 501(c)(3).

The USOC has now responded through the Covington & Burling law firm, detailing its planned activities, which include:

• Providing $6.2 million to fund the Center for SafeSport in 2019, double the amount of its 2018 support for the Center, and continuing to work with the Center on various initiatives.
• Surveying athletes regarding USOC's policies, programs, services, and priorities and considering other ways to increase the influence of athletes within the organization.
• Conducting a governance review focusing on USOC's relationship with the fifty national governing bodies and athletes more generally.
• Continuing with proceedings to revoke the status of USA Gymnastics as the national governing body for gymnastics, although that process is currently stayed because of the pending bankruptcy of that organization.

Lloyd Mayer

More Back Story on Big Mama Rag

I found this picture of old issues of Big Mama Rag online as I was searching for information.  Click here to get the story of Big Mama Rag from one of its reporters.

 

Darryll K. Jones

Charity Commission Relies on Big Mama Rag-type Definition of "Education" to Sanction Charity

The Charity Commission for England and Wales has reprimanded The Institute of Economic Affairs, described as a "prominent rightwing thinktank" due to "misconduct and mismanagement."  By lobbying for a hard Brexit, the charity violated the UK Charity Law because its lobbying campaign in support of BREXIT was too one-sided to be "educational."  After Big Mama Rag in the United States, Congress and the Service have essentially thrown up their hands on what is considered sufficiently "fair and balanced" so as to constitute educational.  Interestingly, the Charity Commission states "seeking to change governmental policy is only permitted in so far as doing so specifically advances education."  It then waded into analytically treacherous waters, as did the Treasury Department before Big Mama Rag:

2. Education does not need to be value free or completely neutral; however, educational charities must ensure that their research reports present balanced and neutral information allowing the reader to make up his or her own mind about the issue explored. The report in question did not invite the reader to make up his or her own mind, and instead presented one proposal for the way that Brexit should be achieved. There was no reference to or presentation of an equally prominent publication or event presenting a different view which could have provided balance in the round. We therefore do not consider the report is sufficiently balanced and neutral as required from a charity with educational purposes.

The Institute of Economic Affairs responded thusly:

A note from IEA Chairman Neil Record

In response to the Charity Commission issuing the Institute of Economic Affairs with an Official Warning, Chairman of the IEA’s Board of Trustees Neil Record said:

“The Institute of Economic Affairs is disappointed that the Charity Commission has issued us with an official warning for the publication and launch of a trade paper in September 2018.  The IEA is considering a range of options, as we believe this warning has extremely widespread and worrying implications for the whole of the think tank and educational charity sector.  A precedent is being set: research papers – and their launches – which put forward policy proposals may now fall outside the parameters of what the Charity Commission considers acceptable activity.  We will be working with the Charity Commission to address these points. Earlier this year, we asked a number of questions of the Commission relating to these regulatory matters and have yet to receive a response.  We look forward to receiving such a response shortly to help inform our future activity.”

Media coverage is here and the full text of the written reprimand and demand for remedial measures is below the fold.  

Darryll K. Jones and Easter L. Floyd-Clarke

Continue reading

Race and Gender Bias In Nonprofit Organizations

Report finds that racial and gender biases, not lack of experience or talent, blocks advancement for women of color

(New York, NY) – The Building Movement Project (BMP) today released a new report, Race to Lead: Women of Color in the Nonprofit Sector, which examines the impact of both race and gender on the career advancement and experiences of women of color working in the nonprofit sector. Based on data from more than 4,000 survey respondents, this latest report in the Race to Lead series shows that women of color encounter systemic obstacles to their advancement over and above the barriers faced by white women and men of color.

Some key findings include:

1. Racial and gender biases create barriers to advancement for women of color. Women of color report being passed over for new jobs or promotions in favor of others—including men of color, white women, and white men—with comparable or even lower credentials.
2. Education and training do not provide equity. Women of color with the advanced education were more likely than men of color, white men or white women to work in administrative roles and the least likely to hold senior leadership positions. Women of color also are paid less compared to men of color and white men and more frequently report frustrations with inadequate salaries.
3. The social landscape of organizations is fraught for women of color. Women of color who reported that their race and/or gender have been a barrier to their advancement indicated that they were sometimes left out or ignored and sometimes hyper-visible under intense scrutiny, with both conditions creating burdens.  

The report also includes a section detailing key themes from survey write-in responses by women of color and from focus groups and interviews conducted with Asian/Pacific Islander, Black, Latinx, Native American, and transgender women of color.

“In response to the Movement for Black Lives and the struggles for the rights of indigenous peoples and immigrants, nonprofit leaders have become more adept at talking about intersectionality, anti-Black racism, and de-colonization,” said Frances Kunreuther and Sean Thomas-Breitfeld, co-directors of the Building Movement Project, “but the Race to Lead data shows that nonprofit organizations need to dramatically change more than the words we use on our websites and in our grant reports. Real change means re-shaping the hierarchies and power structures in the nonprofit sector, the ways organizations behave, and how they treat their staff, particularly women of color.”

Some solutions BMP recommends include:

• Leverage the power of philanthropy. Funders should examine their own grant-making practices to support more organizations led by women of color. Funders should also encourage their grantees to embark on a race and gender equity journey by asking about the racial composition of staff and boards of organizations in grant proposals and demonstrating to organizations that the diversity information informs their strategy and funding decisions. 
• Advocate for enforcement of anti-discrimination laws. The nonprofit sector should advocate for the Equal Employment Opportunity Commission to receive more appropriations to investigate charges of discrimination—even if this means uncomfortably turning the lens on itself.
• Address internal biases. Organizations should address both conscious and so-called “unconscious” biases that affect the mentoring, feedback, evaluations and overall treatment of women of color. These steps toward equity cannot be limited to anti-bias training, which is necessary but insufficient. Nonprofit organizations also need robust and equitable HR policies and systems that will set an expectation that racism, sexism, anti-trans bias, etc. will not be tolerated, and also enforce real consequences for staff who violate those expectations.
• Pay women of color fairly and create transparency around pay scales to expose discrimination. Organizations should ensure transparency regarding pay scales to ensure that individuals with similar credentials and experiences are similarly compensated.
• Create peer support affinity groups for women of color. Peer support does not take place by happenstance: it must be intentionally structured and supported. Peer support should be understood as a supplement to—not a substitute for—in-organization mentoring opportunities provided by supervisors and other senior staff, and increased grant investments in women of color-led organizations.

Darryll K. Jones