Nonprofit Law Prof Blog

Tax Court Case - Contemporaneous Substantial Required for Deduction

Sec. 17o(f)(8)(C) says that a contribution of over $250 is not deductible unless the charity sends the donor a letter stating the amount of the donation and also stating that no goods or services were provided to the donor in exchange (or if some were provided, the value provided).

Daniel Gomez and his wife made tithes to their church and took a charitable deduction for the gifts.  On audit, the IRS discovered that the church had not sent a letter with the magic language, language stating that the church had provided the donors with no goods or services in exchange for the contribution.  The Tax Court agreed that the gifts were charitable but disallowed the deduction because the donors had not received a letter with the magic language and thus the substantiation requirements had not been met.  The donors provided cancelled checks in the amount claimed, to no avail.  The church sent a letter during the audit process, but the court ruled that that letter was not "contemporaneous."

Thanks to Christopher Hoyt , of the University of Missouri at Kansas City, for providing news of this case.  Chris says, "I know the Tax Court followed the letter of the law, but in my humble opinion it is not 'justice.'"  Agreed.

As Chris also points out, the case serves as a reminder of the importance of the contemporaneous written acknowledgements that charities must send to their donors.

Daniel Gomez et ux. v. Commissioner, T.C. Summ. Op. 2008-93 (July 30, 2008).

The Tales of Beedle the Bard -Proceeds for Charity

J.K. Rowling has written the Tales of Beedle the Bard, a collection of fairy tales from the wizarding world, with commentary by Albus Dumbledore.  Ms. Rowling has assigned her royalties to the charity she founded, The Children's High Level Group, a charity that assists institutionalized children.  The charity hopes to raise $8 million through sales of the book, which will be available December 4 this year.

This story is a bit removed from nonprofit law, but for those of us who love the world of Harry Potter, it's welcome news.

To see the AP report, go here.

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Network for Good - Online Fundraising Assistance

Network for Good helps small and medium nonprofits use online fundraising effectively.  The Wall Street Journal's MarketWatch reports that Network for Good has acquired ePhilanthropy Foundation, an educational organization that has developed best practices for nonprofit internet use.  ePhilanthropy created a Code of Ethics that has been endorsed by more than 100 organizations and individuals.  The combination of these two organizations should improve the ethics and best practices for small nonprofits struggling to figure out online fundraising.

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Gates Foundation Promotes Saving

The Chronicle of Philanthropy reports that the Gates Foundation will launch a new iniative to promote personal savings accounts for people in developing countries.  The project will require working with financial services institutions and others in these countries, branching out from the type of work commonly conducted by nonprofits.

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Acorn Will Benefit from Housing Bill

The Wall Street Journal reports that Acorn, a housing advocacy organization, will likely be one of the beneficiaries of funds from the Housing Trust Fund created under the housing bill signed into law yesterday (and blogged yesterday).  Acorn has multiple arms - housing advocacy, a housing services, and voter-registration.  These arms are separate entities and most are tax exempt, but the main entiity, National Acorn is not tax-exempt and therefore its records are not public.  The advocacy arm lobbied hard for the housing bill.

The voter registration arm of Acorn caused some Republicans to try to keep the Housing Trust Fund out of the housing bill.  Although trust fund money will go directly to create new low-income housing, the concern is that for an organization like Acorn, providing money for one of its arms means that it will use more of its other money for voter registration.  Voter registration drives conducted by an exempt organization must be nonpartisan, of course, but Acorn works in areas where voters are more likely to vote Democratic.

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Housing Bill Signed - Includes Money for Low Income Housing

The federal housing bill, HR 3221 was signed by the President today.  The bill includes funding for the creation of the Housing Trust Fund, a fund that will provide money for low-income housing, especially rental units.  The fund could distribute as much as $300 million a year for new low-income housing and some of the grants could go directly to nonprofit housing organizations.

See a description of the Housing Trust Fund in the Chronicle of Philanthropy.

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Report on Nonprofit Advocacy and Lobbying Posted

The Chronicle of Philanthropy describes a report posted today on the webpage of the John Hopkins Listening Post Project, prepared by Lester Salamon and Stephanie Lessans Geller, with assistance from Susan C. Lorentz.  The report describes a survey conducted in 2007 involving 872 nonprofits concerning advocacy work and lobbying.  Although "no substantial part" of the activities of a 501(c)(3) exempt organization can be influencing legislation, exempt organizations can conduct some amount of lobbying within the rules of IRC 501(c)(3) and 501(h) and can also engage in advocacy work.

The survey found that nearly 3/4 of the nonprofits surveyed engaged in lobbying, but the amount of lobbying was small - mostly less than 2% of their budgets.  Both the nonprofits that did engage in lobbying and those that didn't indicated that the lack of money and staff was the primary reason they didn't do more policy and legislative work.

The report suggests that nonprofits should take a stronger role in policy and advocacy work and recommends that nonprofits engage their boards and the people they serve in this work.

The report is "Nonprofit America: A Force for Democracy" and was conducted through the John Hopkins University Centerfor Civil Society Studies.

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Conservation Program for Farmland

The New York Times reports that the federal goverment will not lift penalties on farmers who breach contracts that set aside farmland for conservation.  Under the Conservation Reserve Program, farmers are paid not to plant crops for a period of years.  The Program protects land, currently 34.7 million acres, that includes bird nesting sites and flyways, and provides a variety of conservation benefits.  Barton James, of Ducks Unlimited, described the Conservation Reserve Program as the "holy grail of conservation."

Farmers had pushed for a lifting of the penalties this year, to permit more planting to reduce crop prices.  Organizations like the American Bankers Association and the National Pork Producers advocated in favor of lifting the penalities, because their members face increased costs of production as crop prices rise.  The government determined that prices on some crops had not increased as much as expected and that the benefits of the conservation program should be supported.  If crop prices remain high. farmers are likely to take land out of the program, either by paying the penalties or by not renewing the contracts when they expire.

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"Green Lining" of the Real Estate Slump: More Land for Conservation

In what Will Rogers, President of the Trust for the Public Land, describes as the green lining of the real estate slump, conservation groups are finding it easier to acquire and protect land that otherwise would have been developed with housing.  The Trust for the Public Land alone has preserved nearly 1,000 acres in several states since last fall.  One particularly exciting possibility is the chance to acquire land in Oahu that is home to endangered green sea turtles and monk seals.  The land had been scheduled for a development that would have included 2,500 hotel rooms and 850 condos.  Now the development is on hold and the Trust for Public Land is looking for a buyer to protect the land.

An article in the San Francisco Chronicle describes the shift in the market and also points out that protected land can be good for the real estate market in the longrun, because protected open space usually increases property values.

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IRS Denies Exempt Status to "Church"

A family - Mom, Dad and two sons - applied for tax exempt status for a "church" founded as a nonprofit corporation by Dad.  The IRS determination letter notes that the church does not hold regular services, does not have a group of people who gather for services, and is not served by a pastor.  The application indicated that the organization conducts some "street ministries" but did not provide details.  The application also indicated that the organization might buy a building and might, someday, maintain a religious school, but again provided no details about when or how these things might happen.  The application did not include the required financial information and indicated "no financial data to report at this time . . . ."

The final determination letter provides a careful review of the criteria used by the IRS to determine whether an organization qualifies for exempt status as a church.  The letter notes that the IRC does not include a definition of church and then discusses case law that has developed criteria the IRS uses in determining whether a church exists and cases that have applied those criteria in reviewing IRS decisions.

For a Chronicle of Philanthropy article by Grant Williams on the decision, go here.

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Economy Affects Food Banks

The LA Times reports that demand at food banks is up, way up.  One agency said that the number of people it served in June was up 28% from June 2007 and 46% from June 2006.  Agencies report that middle class families are having a tough time and many people who have never visited a food bank have resorted to asking for help.  Donations are down, too, including donations from grocery stores that now try to sell food closer to the expiration date before donating it.  Although focused on LA, this story probably reflects what's going on throughout the country.

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Reasonable Compensation? - Yet Another Example of Comp that Appears Too High

Continuing complaints about the salary of the director of the National Association of Town Watch threaten both funding and support for National Night Out, the event the association helps to organize.  National Night Out seeks to encourage community to host local events that bring the community and local law enforcement together.  The Philadelphia Inquirer reports that this year a number of communities in Minnesota have decided to host their own events, and will not be linked to National Night Out.  Rep. Arlen Spector has refused to support further federal subsidies for the Association.

Matt Peskin, the director of NATW, receives a salary, with benefits, of over $300,000.  In addition, $442,000 has been paid into a retirement plan over the past 10 years, most of that for his benefit (he is one of two employees of NATW and his salary constituted 79% of the payroll).  Peskin insists that his compensation is reasonable, even though it constitutes one-third of the operating budget of the organzation and may be as much as that received by directors of organizations with revenues 50 times as big.  Also of concern, until recently the Board of Directors of NATW consisted of Peskin, his brother, his father-in-law, and three family friends.  Peskin says the board is being restructured so that it will no longer include relatives.

Last year, when Peskin's salary was reported publicly, Rep. Spector noted that ""it makes no sense that I make so much less than he."   Law professors make a lot less than Peskin does, too!

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IRS Issues Rev Rul on Dividing CRTs, Rev Procs on CLUTS

The Internal Revenue Bulletin issued today includes a Revenue Ruling and two Revenue Procedures of interest to nonprofit lawyers.

Rev. Rul. 2008-41 provides guidelines for dividing a charitable remainder trust into two or more separate and equal CRTs, without violating IRS 664.  If carried out according to the ruling, the division is not a sale or exchange producing a gain or loss, the division does not result in a change in the trust's status as a trust subject to the private foundation rules, does not result in the imposition of an excise tax under 507(c), will not be considered an act of self dealing, and does not constitute a taxable expenditure.

Rev. Proc. 2008-45 provides sample inter vivos grantor and nongrantor Charitable Lead Unitrust forms, with annotations and alternate provisions.

Rev. Proc. 2008-46 provides a sample testamentary Charitable Lead Unitrust form, with annotations and alternate provisions.

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Gas Prices Up - Mileage Rates for Charity Work Aren't

The IRS announced in June that it would increase the mileage rate for business purposes, from 50.5 cents per mile to 58.5 cents.  The mileage rate for medical and moving also increased by 8 cents, from 19 cents per mile to 27 cent.  But the rate for charitable work remains at 14 cents per mile.  The mileage rates normally change just once a year, but the IRS adjusted the rate for July - December 2008, due in large part to the gas price increases.

See the IRS announcement.

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Frances Hill, Ellen Aprill, and Marilyn Phelan Comment on Copeland Ministries Investigation

Frances Hill, of the University of Miami, Ellen Aprill, of Loyola Los Angeles, and Marilyn Phelan, of Texas Tech, were all interviewed in connection with an AP investigation of the Kenneth Copeland Ministries. 

Kenneth Copeland Ministries is one of the six churches Sen. Grassley has contacted for information.  Copeland Ministries has refused to provide any information to the Senate Finance Committee.  (See information on the Senate Finance Committee website about March 11 follow-up letter to Copeland).   The AP investigation was able to review public documents and church records and conduct interviews.  Hill, Aprill, and Phelan all comment in an article published today in the Chicago Tribune.  All three say that the documents, which they were shown, raise questions.  Hill notes, "There's too much money sloshing around . . . with people with overlapping affiliations and allegiances by either blood or friendship or just ties over the years."  Aprill adds that "leasing and selling land to the church's top executive raises concerns."  And Phelan says that paying honorariums to members of the board for speaking at the church "could pose problems."

Kenneth Copeland Ministries is organized as a church and therefore is subject to fewer reporting requirements than other 501(c)(3) organizations.  Copeland preaches that believers are destined to prosper financially, spiritually, and physically and that they should share their wealth with others.  Apparently many believers have shared their wealth with Copeland Ministries, which owns a 1,500 acre campus in Texas, a campus that includes a $6 million mansion.  The AP investigation found records from 1995 that indicate that Kenneth Copeland was paid $364,577 that year, and his wife, Gloria, earned an additional $292,593.  Beyond benefits to the senior Copelands, the investigation has found what appear to be private benefits to family and friends.  The Copeland's son, John Copeland purchased land from the Ministries, land that increased significantly in value a short time after the purchase.  Board members, although not compensated through salaries, are paid for speaking at church events.  And a company owned by Gloria Copeland's brother-in-law buys television time for the ministry.

The Kenneth Copeland Ministries has refused to respong to Sen. Grassley's requests for information.  Perhaps with the help of the AP investigation, Sen. Grassley will be ready to seek a subpoena for the information.

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Shriners Look At - But Don't Deal With - Financial Improprieties

In Friday's New York Times, Stephanie Strom reported about the findings of an investigative committee created by the Shriners of North America and the Shriners Hospitals for Children.  Much of the report from the committee focused on allegations surrounding the refusal of an employee to hire a particular direct-mail fundraiser.  The committee found that the chairman of the board of trustees of the Shriners, Ralph Semb, tried to fire a Shriners fund-raising employee who refused to hire a direct-mail company Mr. Semb and Gene Bracewell, another board member, wanted the employee to hire.  The company appeared to have close ties to a company headed by the son of a close friend of Mr. Bracewell.  That company, Vantage, had done some fundraising work for the Shriners in the past and the results were unsatisfactory.  In a campaign that raised $46.2 million, the Shriners received only $2.5 million. 

The committee recommended that Mr. Semb and Mr. Bracewell be reprimanded for a breach of the Shriners' conflict of interest policy and ethics policy, but the Board declined to take any action penalyzing the two men.  The two men deny any wrongdoing.

The committee had intended to investigate financial improprieties alleged by a longtime financial executive, but the Board disbanded the committee before the committee completed its investigation.  At the Shriners' annual meeting, a discouraged member of the committee told Shriners that they should expect an investigation by an Attorney General or the IRS.

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Niger Tells Doctors Without Borders to Get Out

According to this BBC Report, the Government of Niger has order the French charitable organization, Medecins Sans Frontieres to get out.

MSF says no reasons were given for the order to stop work but local media say it is suspected of having links with Tuareg rebels. The charity said it was continuing to offer a reduced level of help while talks continued with the government.  The group provides treatment and food aid for ten of thousands of children in Niger, where malnutrition is rife.  In 2005, it suffered a major food crisis which aid organisations said the government was trying to hide.  Niger's Radio Anfani said MSF was suspected of helping a group fighting a rebellion in the north of the country, the Niger Movement for Justice (MNJ).

This is the kind of stupid stuff that happens once government retreats to self-preservation mode and begins sniffing its nose at every group that happens to assist people even remotely connected to government's declared enemy.  The most ironic thing about this tactic is that ultimately it only provokes more revolution.  Hungry people fight the government.  People with jobs and food with which to feed their families don't participate in revolutions.  Charities ultimately contribute to peace and good order, even at the cost of preserving an inept government.  Good thing something like this will never happen in America.  Hey, I'm just sayin . . .

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Op-Ed Piece on Nonprofits and the War on Terror

William Fisher has authored an interesting op-ed piece on the effects the current war on terror is having on civil society.  Here is an exerpt:

"While the House Un-American Activities Committee once relied on the private sector to mete out punishment through the destruction of reputations and careers, today measures such as the Anti-Terrorist Financing Guidelines have turned funders into the new enforcers. In this light, [Professor David Cole, a constitutional law expert at the Georgetown University Law Center] said.  He said the nonprofit sector has an obligation to resist such a partnership with government," he says.  Other observers believe that the campaign against charities that conduct programs in Muslim areas is part of a larger suspicion of Arabs and other Muslims. Samer Shehata, professor of Arab Politics at Georgetown University, told me Islamophobia "produces an environment that is fundamentally at odds with what the U.S. is supposed to be about; our values for treating everyone fairly and not discriminating on the basis of skin color, race, religion, gender, etc."  He adds, "This is damaging certainly for all Americans and it is also damaging for the reputation of the U.S. overseas. One of the questions I hear the most whenever I am in Egypt and other parts of the Middle East is: how is it like now in the U.S. for Arabs? Have you been the victim of discrimination, bigotry, abuse?"

For a copy of the OMB Watch report, on which the op-ed is largely based, see our recent blog post on the topic.

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Yelling "God Hates Fags" is not a nonprofit religous activity for property tax exemption purposes

Westboro Baptist Church, more popularly known as a family of damnable loonies who spew hate for lesbian and gay people (and after them, who else?), and demonstrate at funerals for soldiers, sailors, and marines killed in Iraq, recently lost a battle to have their 2002 Ford F-150 homophobe-mobile declared tax exempt under Kansas' exemption for property used for charitable or religious purposes.  In In the Matter of the Application of Westboro Baptist Church For Exemption From Ad Valorem Taxation (Kansas Court of Appeals, Case No. 98443, July 25, 2008) the church argued that its truck should not be subject to ad valorem taxation because it was used exclusively in support of the church's religious activities, charitably described by the court as follows: 

This activity consists of transporting handmade signs to various locations around the country, including churches, military funerals, government offices, political conventions, and other locations. The signs generally express in acrimonious language the WBC's religious message regarding "whether and who God loves or hates." WBC members believe that they are God's messengers on earth, and it is their duty to publish the message that God has punished and will continue to punish the United States because of the country's willingness to condone homosexuality. 

   Personally, I wouldn't waste a warm pot of urine if any one of the church members were on fire.  I must say, though, that the Appellate Court is on shaky ground in its determination that the messages conveyed by the signs are, as a matter of law, not "religious messages."  The opinion comes dangerously close to establishing what seems to me an unconstitutional content-based test for what constitutes "religion," "religious speech" or "religious activity." 

Basically, the court defines "religious activity" as pretty much anything that fits the Judeo-Christian tradition of worship (of which I am a sinful participant, I might add).  The Court characterized as "circular" the evidence in support of the assertion that the signs transported in its trucks are religious and not political.  I don't mind at all admitting that religious beliefs are ultimately circular, insofar as human understanding is concerned.  Which is to say that Christians believe because the Bible says so, and the Bible is authoritative because we believe it to be so. Yep, that is circular.  See, there is a point beyond which human understanding cannot go; faith must provide the only evidence.   We can proceed only so far and then we must leap in faith (based on some undefined knowledge witin us that there is a God).  Faith, it should be admitted, is ultimately circular reasoning by human standards, though admitting that fact acknowledges only that we cannot fathom the mystery of God, not that God does not exist.  But I digress.  The Court stated that Westboro's beliefs were political and not religious because the church's evidence ultimately rested exclusively on their members own subject beliefs.  At the same time, the Court admits that religion is essentially a set of sincerely (i.e., subjectively) held beliefs.  I think the Court's reasoning is whats circular.  I think the Court is ultimately judging the sincerely held belief, even in a manner with which I agree.  But that certainly cannot be the basis for denying that the beliefs are religious beliefs.  Wrong, yes, but religious nonetheless.

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MSNBC Report on Implicit Campaign Intervention

A report on MSNBC's online magazine, Contribute, discusses the ways that 501(c)(3) organizations can engage in what might be referred to as "disguised" campaign intervention:

Truth is, there’s a fine line between what they can and cannot do legally when it comes to politics. That line distinguishes issues advocacy from partisan electioneering, but this election season, it’s a line that’s getting blurred quite a bit as more groups turn to the Internet to raise money and awareness for their favorite causes and candidates.  To be sure, federal law bars tax-exempt organizations from donating money to a politician’s campaign or endorsing a candidate, either verbally or in writing. But it’s OK to put on such events as a voter registration drive or voter forums — or a get-out-the-vote push, as long as all are nonpartisan. Clearly, some issues and causes are aligned more with one party than another — Al Gore and global warming, or George Bush and troop support in Iraq, for starters

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