Nonprofit Law Prof Blog

Video of Congressional Hearing re: Veterans' Charities Now Available

Some time ago, we reported on the hearing regarding veterans' charities before the House Committee on Oversight and Government Reform.  The video of one of the hearing involving Roger Chapin of "Help Hospitalized Veterans" is now available.

dkj

Americans United Calls for Investigation of Two More Religious Nonprofits

Americans United For Separation of Church and State (AUSCS) today called on the IRS to investigate the voter guides of two religious nonprofits.  Here is the opening statement from the groups press release:

The Internal Revenue Service should investigate two prominent tax-exempt Religious Right groups that produced biased voter guides for the presidential election, according to Americans United for Separation of Church and State.

AUSCS.  AUSCS has previously called for the investigation of a church that allegedly endorsed Obama.  In today's complaint, the organization asserts that the voter guides published by the American Family Association and Wallbuilders are [in the case of the AFA voter guide] "clearly constructed to persuade the group's audience, which is made up almose exclusively of conservative evangelical Christians, to cast ballots for Mike Huckabee"  and [in the case of Wallbuilder's voter guide,] "intentionally designed to promote the candidacy of Mike Huckabee."  The complaint against AFA is available here and the complaint against Wallbuilders is available here.  Both sources provide links to the organizations' allegedly improper voter guides.  From the looks of things last night, Huckabee could use all the help he can get, frankly.  But of course, federal law prohibits this sort of help [if the allegations are true].  I've been meaning to write an op-ed of sorts ever since we posted the saga regarding the Becket Fund's open challenge to the IRS to sanction a Wisconsin Church for an openly poltical sermon.  AUSCA condemned that action as a publicitiy stunt.  I actually think there is a larger objection.  Pretty much anybody with any interest in these matters acknowledges in their heart of hearts that the prohibition against campaign intervention is unenforceable, if not unconstitutional, as applied to places of worship.  Thus, the Becket Fund "publicity stunt" actually demonstrated how the prohibition breeds disrepect for the law.  Why should we maintain a prohibition in the law that nearly everyone -- even the IRS for Christ's sake -- agrees cannot be enforced!?  Perhaps it is a good thing in theory to prohibit all nonprofits from campaign intervention, but not everything can be achieved by law.  So long as we maintain a prohibition that is clearly unenforceable, we stoke the fires of disrespect that seep into other areas of the code and for the IRS.  Now, I know that some very smart people have proposed ways to police the prohibition even against houses of worship.  But those efforts are bound to fail, so long as we recognize the right to freedom of religion -- religion which, as stated in many a judicial opinion is inherently intertwined with governance of the masses.  Religion inherently involves the governance of the masses so its religious to talk about government.  Sheeesh, we should get over it already and let religious organizations say whatever they want to say!  We only feed righteous indignation by pretending they are doing something wrong.  That's just my two cents.  I just haven't had time to write a more scholarly op-ed piece. 

dkj

Wendy Gerzog on "The Strict Rules of Charitable Split-Interest Trusts"

Wendy Gerzog has published an article discussing an article that might be categorized under the headline "No good deed goes unpunished" or maybe "Tax traps for the unwary."  Here is the intriguing opening paragraph:

Now that we have finished the season of gift giving, which, for the tax-minded, includes the season of tax savings through charitable gifts, we should remember a few words of caution. When giving both to your family and to your charity, you must follow the rules carefully to qualify for a charitable deduction. Those who believe you really don’t have to be vigilant until after the audit letter arrives should rethink the costs of procrastination. Such is the sad story of Anthony J. Tamulis, a priest who wanted to leave most of his fortune to the Roman Catholic Diocese of Fall River, Mass

The rest of the article is as interesting and instructive as the opening paragraph.

dkj

President Bush Talks Up Faith Based Initiative at Jericho

As we reported yesterday, the President's state of the union address contained a plea to Congress that it formally enact provisions of law allowing exempt religious organizations to receive direct grants from the federal government in support of their secular social welfare activities.  Today, the President continued to talk about his proposed "Faith Based and Community Initiative Act" at a religiously sponsored social welfare program known as Jericho.   The White House issued a fact sheet on the topic, in which it touted the successes attributable to government funding of religious organizations pursuing secular social welfare goals:

FBCI Has Led A Quiet Revolution In The Way Government Addresses Human Need

The FBCI works to place locally-rooted solutions at the center of Federal efforts to help those in need. The Initiative has:

• Removed barriers and launched innovative programs to enable the government to partner with small, community-based nonprofits as never before.
• Established a level playing field for faith-based organizations, and set clear, Constitutional guidelines for their use of public funds.
• Delivered in-person training to more than 100,000 social entrepreneurs, by teaching them how to better track their outcomes, write grants, and develop other key skills that help their organizations maximize impact for the people they serve.

Federal competitive awards are expanding the good work of both faith-based and community organizations across America and beyond.

• In 2006 alone, the Federal government provided more than 18,000 direct, competitive awards to America's nonprofit organizations to aid the homeless, at-risk youth, recovering addicts, returning offenders, AIDS victims, and others.
• These grants totaled more than $14.7 billion to boost services to people in need. Faith-based organizations were welcomed as a central part of this work, winning more than 3,000 grants in 2006 totaling nearly $2.2 billion.

To see a video replay of the President's entire comments regarding the "Faith Based and Community Initiative" at a function in Baltimore earlier today, click here. 

dkj

CRS Release Legal Analsysis of Proposed Conservation Easement Tax Credit

The Congressional Research Service has issued a legal analysis of the proposed Conservation Easement Tax Credit in the 2007 Farm Bill.  Download it here:  Download conservationeasements.rtf .  Deductions for the grant of a conservation easement are particularly attractive because the property owner gets the deduction under IRC 170(h) even though she may still own the property subject to the easement.  A credit, of course, is worth more than a deduction.  Notice 2004-41 gives more background on conservation easements and also explains a potentially abusive transaction.  Here is the CRS conclusion with regard to the proposed credit:

Section 12204 of the Food and Energy Security Act of 2007 (H.R. 2419, as passed by the Senate) would create a new tax credit for taxpayers who agreed to protect a qualified species for a specified amount of time under an approved plan. The intent of the proposed credit is that, in exchange for forfeiting the development right to property, the landowner will receive a tax benefit, the habitat of endangered or threatened species will be protected, and the public will have the benefit of conserved property and protected species. While environmentalists and landowners appear united in wanting a method of conserving property in exchange for a tax credit, some aspects of this proposed legislation could complicate the public benefit intended. Those factors include an uncertain enforcement scheme in which several agencies could be involved, difficulty in monitoring compliance due to the scope of the program and uncertain provisions allowing access to the property, and the temporary nature of some of the protections provided.

dkj

Text of Grassley's Letter to Colleges and Universities re: endowment spending now available

We continue to monitor the Senate Finance Committee's scrutiny of college and university endowment spending.  For our most recent previous blog on the topic see Grassley Probes University Riches.  That post referred to Senator Grassley's inquiries to over 136 colleges and universities with endowments greater than $500 million.  The actual letter, containing 11 detailed questions regarding endowement spending and financial aid, is now available here.  A recent study by the National Association of College and University Business Officers, detailing double digit growth in endowments, is available here.  That link will also take you to previous informative studies on the topic. 

dkj

What Does Bill Gates' "Creative Capitalism" Have in Common With the Thinking of Nobel Peace Prize Winner Muhammad Yunus?

On January 30, 2008, the New York Times published an interesting "tid bit" on the relationship between Bill Gates' "creative capitalism" speech (previously blogged here) and the ideas of Nobel Prize Winner Muhammad Yunus.  Here is an excerpt from the story:

Bill Gates’s bold Davos challenge to the world’s capitalists last week should have come with equally bold footnotes.

“There are billions of people who need the great inventions of the computer age,” he asserted. “Breakthroughs change lives only where people can afford to buy them.”

Conspicuously missing from the appeal, which asserted that human nature is not just driven by greed but also by concern for our fellow beings, was any reference to the work and thinking of the Nobel Peace Prize winner Muhammad Yunus.

The microfinance innovator, who is known as the “banker for the poor,” recently wrote a book, “Creating a World Without Poverty: Social Business and the Future of Capitalism,” that foreshadows Mr. Gates’s newfound social philosophy.

For the entire article, go to "Many Are Already at Work on Fulfilling Gates’s Vision" in the January 30, 2008 New York Times.  For more information about the work of Muhammad Yunus, you can visit the website of a nonprofit that he supports, Results, Inc., with particular focus on this press release by Results.

DAB

Growing Popularity of Philanthropist Funded Think Tanks

On January 30, 2008, the New York Times contained an article about how philanthropists are funding think tanks that are, in turn, having an real impact of Presidential campaigns.  Here is an excerpt from the article:

The research institutions say the boom is fueled by three major factors: big money from Wall Street, a post-Sept. 11 sense that foreign policy matters and anger at the Bush administration.

“While President Bush was bad for the world, he was good for our business,” said John Podesta, the chief executive of the Center for American Progress, a liberal research institution financed by, among others, the investor George Soros and his Open Society Institute. Mr. Podesta’s annual operating budget is now $23 million after barely four years in business.

But Mr. Podesta’s group is hardly the only one flush with cash. Operating budgets are up at all of Washington’s top two dozen research organizations — liberal, conservative or bipartisan — and philanthropy is feeding them. As the very richest Americans have given away record amounts of money, the organizations have become prestigious and relatively well-priced recipients of largess.

For the entire article, see "Research Groups Boom in Washington" in the January 30, 2008, New York Times.

DAB

President's State of the Union Address Faith Based Initiative Debate

Some seven or eight years ago, the President proposed the Community Solutions Act (aka, the Faith Based Initiative or "Charitable Choice"), under which the government would be allowed to make direct grants to nonprofit religious organizations to assist them in their secular, social welfare activities.  In last night's State of the Union address, President Bush sought to reinvigorate the effort by specifically extolling the Congress to pass the Faith Based Initiative.  Here is the President's brief mention of the issue:

In communities across our land, we must trust in the good heart of the American people and empower them to serve their neighbors in need. Over the past seven years, more of our fellow citizens have discovered that the pursuit of happiness leads to the path of service. Americans have volunteered in record numbers. Charitable donations are higher than ever. Faith-based groups are bringing hope to pockets of despair, with newfound support from the federal government. And to help guarantee equal treatment of faith-based organizations when they compete for federal funds, I ask you to permanently extend Charitable Choice.

The Charitable Choice provisions of current law are today rather limited.  See here for the HHS regulations pertaining to religious organization's receipt of federal funding.  The whole idea seems a worthwhile effort even if, as noted by Justice Douglas' dissent in Walz v. Commissioner, 397 U.S. 664 (1970) there is simply no way to separate the religious and secular activities of religious organizations.  The reason I think it is nevertheless ok, is that so long as grants and direct subsidies for secular activities are dolled out in a non-discriminatory fashion, (a large order, I readily admit, but not impossible to achieve) there will be no danger of government "establishing" religion.  In addition, there is also little danger of government regulating or entangling itself in religion because those religious organizations that want nothing to do with government need not apply for government grants.  For more on the debate, see today's op-ed piece in the New York Times.  For more pros and cons on the 2001 version of the Faith Based Solutions Act, see here and here and here. 

dkj

Report on Hospital "Charity Care" in San Francisco

Following up on the recent blog post about defining "charity" in the U.S. and abroad, on January 29, 2008, the San Francisco Chronicle reported that two nonprofit hospitals in San Francisco were recently criticized for delivering little "charity care" to its patients.  Here is an excerpt from the article:

San Francisco's five nonprofit hospitals received $79 million last year in tax breaks intended to compensate them for providing free care to the city's poor and uninsured, but they spent just $16 million on charity care, according to a new city report.

California Pacific Medical Center, with campuses in Laurel Heights, Pacific Heights and the Castro, was responsible for the vast majority of the disparity, the report by the city Department of Public Health said. California Pacific received close to $70 million in tax breaks - $67 million in state and federal income tax exemptions and $2.8 million in local property tax exemptions - while spending $5.2 million on charity care, the report said.

. . .

Kevin McCormack, California Pacific spokesman, countered that the hospital's three campuses are located in wealthy neighborhoods where poor and uninsured people aren't likely to seek treatment.

"Those neighborhoods are not ones where you have a large low-income community," McCormack said. "We still have the responsibility, but ... it's not asked of us as much."

For the entire article, see "2 hospitals got millions, spent little on charity" in the January 29, 2008, San Francisco Chronicle.

DAB

India Considers Narrowing Definition of Charitable

The Economic Times (India) reports that India is considering adopting new legislation that would narrow the definition of charitable.  Earlier today, I reported on a seeming international trend to restrict the types of organizations who obtain charitable tax exemption.  The article provides further evidence:

NEW DELHI: Charity sees the need, not the cause, it is said. However, the government now wants to see the cause before extending tax benefits. It is examining a proposal to narrow the definition of charitable purpose to ensure only the trusts that carry out charitable activities are able to benefit from tax exemptions.

dkj

Tulsa College of Law Opens New Clinic to teach students Social Entrepreneurship

The Tulsa College of Law has started a new law clinic experience, called the "Social Enterprise and Economic Development (SEED) project, designed to give students real world experience with the organization and operation of nonprofit organizations.  Here is a snippet from a recent online article.

[Professor Patience] Crowder said there is a trend among law schools to go “beyond the traditional notion of what lawyers are and what folks are familiar with, recognizing that once people graduate, practice is often very different from what they experienced in law school.”

TU’s new clinic allows enrolled students to practice transactional law with small businesses, community groups and nonprofits as clients.  Crowder said clinic students will do everything from tax-exempt applications to working with nonprofit organizations that have social entrepreneurship or business-minded missions.

Congratulations to Tulsa and Professor Crowder.  We need more programs like this.  If you have such a program or any other innovative ways to teach about nonprofit organizations, please drop us a line so we can publicize it.

dkj

Canadian Tax Court Upholds Suspension of Exempt Status for Organization Not Serving the Poor

We previously told you of the case regarding a Canadian nonprofit whose exempt status was suspended because it could not prove its claim that it existed to serve the needs of people living in poverty.  The CRA (Canadian Revenue Agency) effectively suspended the tax exempt.  The organization, "International Charity Association Network" challenged the suspension but the Canadian tax court recently rejected the challenge.  Read more about it here.

dkj

Real Charity as "Relief of Poverty"

A brief comment on the meaning of charity:  Our sister Blog, Taxprof, reports this morning that the U.S. Census Bureau has released a report stock full of statistics regarding the extent to which tax policy can effect levels of poverty.  You may recall that we previously reported that both the Supreme Court of Minnesota and the UK Charity Commission have, each in their own ways, taken a new look at the idea of "charity".  The ironic thing is that two independent and separately convened groups have both come to the conclusion that "charity" necessarily involves relief of the poor and anything that excludes relief of the poor, though it may be worthy and good, perhaps is not charity.  It is something else worthy and good but not charity deserving of our highest form of tax support (exemption!).  The operation of expensive private schools, exclusive opera houses and the like are no doubt good for everyone but their direct benefits are dispersed rather regressively, are they not?  Anyway, that two independent bodies from both sides of the Atlantic would make the same seemingly "radical" suggestion might suggest a trend towards a return to the more traditional idea of charity.  I'm not so sure that relief of the poor ought to be the penultimate criterion (there are many exempt organizations that simply pursue a social good not implicitly related to relief of the poor -- such as environmental groups) but In an age of increasing income disparities and vastly proliferating exempt organizations sitting on piles of money, it is worth expressing some indignation that wealthy organizations exclusively (save for a few tokens here and there) serving the admittedly legitimate and underserved wants (not "needs"), i.e., art and leisure, of wealthy patrons are nevertheless subsidized by tax exemption.

I asked my exempt organizations students about this and, after much discussion, we have solved the world's problems in this regard.  There should be a special preferred class of exempt organizations comprised exclusively of those organizations that actually and directly provide relief to the poor.  All  other organizations should be treated separately, they said.   

dkj

Bill Gates' "Creative Capitalism" Speech

For those of you who saw the earlier blog posting about Bill Gates' "creative capitalism" speech at the World Economic Forum, here is an excerpt from the speech:

As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in helpful and sustainable ways, but only on behalf of those who can pay. Philanthropy and government aid channel our caring for those who can't pay, but the resources run out before they meet the need. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.

Such a system would have a twin mission: making profits and also improving lives for those who don't fully benefit from market forces. To make the system sustainable, we need to use profit incentives whenever we can.

At the same time, profits are not always possible when business tries to serve the very poor. In such cases, there needs to be another market-based incentive—and that incentive is recognition. Recognition enhances a company's reputation and appeals to customers; above all, it attracts good people to the organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive.

The challenge is to design a system where market incentives, including profits and recognition, drive the change.

I like to call this new system creative capitalism—an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world's inequities.

For the entire speech, go to "World Economic Forum: Prepared Remarks by Bill Gates (January 24, 2008)," available at the Bill and Melinda Gates Foundation website.

DAB

Anti-Immigrant Legislation Hurts the Drive to Educate Young People in America

One of the many powerful initiatives of the Bill and Melinda Gates Foundation, is its goal of educating young people in the United States.  An article in the January 27, 2008, New York Times suggests that the many state initiatives aimed at limiting illegal immigration may actually hurt the drive to educate young people overall.  Here is an excerpt from the article:

A report to the Legislature in December found that about 1,700 students had been denied in-state tuition at the Maricopa colleges because they were not able to prove their legal status, though it was unclear how many had dropped out.

Officials at the University of Arizona in Tucson said that some of the 200 to 300 dropouts from last fall were also illegal immigrants. Pima Community College, estimated that as many as 1,000 students may have been affected by the law.

More than enrollment declines, however, what worries some educators here is that nonlegal residents — some of whom have lived in the United States since infancy and attended American high schools — will be afraid to pursue any form of higher education.

For the entire article, go to "Arizona Law Takes a Toll on Nonresident Students" in the New York Times.

DAB

The Successes and Failures of Bush's "Volunteerism" Initiative

On January 27, 2008, the New York Times had an interesting article about President Bush's "volunteersim" initiative that he announced in his 2002 State of the Union address.  The article explains that, in addition to calling for an end to the dreaded "axis of evil," Bush called for a national move to increase the volunteer effort in America.  Here is an excerpt from the article:

The initiative has had some success. Early on, Mr. Bridgeland helped set up the Citizens Corps, a national network of doctors, firefighters and others who volunteer in an emergency, and today there are 2,300 Citizens Corps councils across the country. The White House says that since 2000 it has recruited more than one million Americans, far more than the 200,000 new recruits Mr. Bush promised.

But the initiative has also fallen short of some goals. The Peace Corps, which had 6,663 volunteers in 2002, today has 8,049 — more than at any time in the past 30 years, but hardly the doubling the president promised.

And though the president also pledged to increase the ranks of AmeriCorps to 75,000 from 50,000, critics said he did so through creative accounting, because fewer than half the 75,000 slots are full time.

For the entire article, go to "Bush’s 2002 State of the Union Volunteerism Initiative Is Seen as Sputtering" in the New York Times.

DAB

Gassley Probes University Riches

We previously blogged on the possible "real" reasons for Harvard's and Yale's recent proposals to increase financial aid to students from middle class households by mentioning an editorial claiming that wealthy schools are trying to avoid legislation that would require a 5% annual pay-out from endowments.  On January 25, 2008, the New York Times announces that the Senate Finance Committee is asking for information from "the nation's wealthiest colleges and universities" about tuition increases, financial aid and endowments.  Here is an excerpt from the article:

The committee, which has a central role in setting tax policy, has been pressuring universities to use more of their wealth for financial aid and threatening to require them to spend a minimum of 5 percent of their endowments each year, as foundations must. The committee pointed out that donations to universities and their endowment earnings were both tax-exempt.

Seeking to head off Congressional action, wealthy universities have been rushing in recent months to expand financial aid, in some cases using more of their endowments to increase assistance to low-income and upper-income students alike. Harvard recently said it would increase aid for families earning up to $180,000 a year, and Yale said it would help families with annual incomes of as much as $200,000.

For the entire article, go to "Senate Looking at Endowments as Tuition Rises" in the January 25, 2008, New York Times.

DAB

Bill Gates' "Creative Capitalism": What is it?

We previously blogged about the efficiency rationale in nonprofit organizations law and how we must jettison that rationale in nonprofit law if we are to ever fully realize the potential benefits of charitable organizations. Miscrosft Chairman and co-founder, Bill Gates, recently spoke at the annual meeting of the World Economic Forum about a concept called "creative capitalism."  What is "creative capitalism"?  According to a January 24, 2008, article in the New York Times, it means finding ''a way to make the aspects of capitalism that serve wealthier people serve poorer people as well."  As an example, the article states:

To illustrate his push toward more social responsibility, he announced that Redmond, Wash.-based Microsoft teamed with Dell Inc., the Round Rock, Texas-based maker of personal computers, to sell a Red-branded PC.

The Red brand includes products sold by American Express Co., Apple Inc., Motorola Inc., and other companies that give a slice of the revenue to the Global Fund to Fight AIDS, Tuberculosis and Malaria. It was first announced at the forum's 2006 meeting by U2 singer Bono.

Gates said the Red-branded products have generated $50 million for the fund in the last year and a half.

''As a result, nearly 2 million people in Africa are receiving lifesaving drugs today,'' he said.

This idea of "creative capitalism" is simply one way of expressing the idea that nonprofit leaders and scholars should not hinge thinking about charity law on principles that were developed for the for-profit environment.  Tax-exempt charities do not exist to make money for money's sake; instead, they exist to accomplish a value based mission.  That mission may, at times, require diverse considerations that have nothing at all to do with the financial bottom line.  This is a concept that I have previously referred to as "contextual diversity."

For the full article about Bill Gates' remarks at the World Economic Forum, see "Bill Gates Touts 'Creative Capitalism'" in the January 24, 2008, New York Times.

DAB

Brent Schaffer Publishes "Forming the Affordable Housing Nonprofit Developer"

Attorney Brent C. Shaffer (Young Conaway Stargatt & Taylor, LLP) recently published "Forming the Affordable Housing Nonprofit Developer" in Probate and Property magazine.  Here is an abstract:

This article discusses issues that should be considered in drafting the affordable housing entity's organizational documents, applying for tax-exempt status, and setting up its board and control structure. It assumes that the corporation is to be set up as a nonprofit corporation, with a true charitable purpose and not a profit motive, for the purpose of creating or enhancing affordable housing, either for sale or for rent. The corporation will need to qualify as tax-exempt under the Internal Revenue Code in order to attract the maximum amount of equity contributions. In the nonprofit context, corporations provide the advantages of liability protection to members, officers, and directors without the countervailing consideration that argues against using for-profit corporations in real estate projects: the taxation of both corporate-level income and personal income (on distributions to the members or shareholders) and capital gains at the corporate-level on appreciated real estate owned by the corporation.

For the entire article, see "Forming the Affordable Housing Nonprofit Developer,"  22-FEB Prob. & Prop. 29in Probate and Property magazine (available at the American Bar Association website and on Westlaw).

DAB