Nonprofit Law Prof Blog

Nonprofit Nursing Homes Having Fewer Deficiciencies Than For Profit Firms, According to IG Report

According to an Office of Inspector General Report dated September 18, 2008, a greater percentage of for-profit nursing homes were cited for deficiencies than not for profit and government nursing homes in each of the past 3 years.  Still the differences seemed too slight to draw any conclusions regarding the for-profit and nonprofit form:

In 2007, 94 percent of for-profit nursing homes surveyed were cited for deficiencies, compared to 88 percent of not-for-profit and 91 percent of government nursing homes. Since 2005, the percentages of for-profit nursing homes with deficiencies were between 3 and 6 points higher than the percentages of the other types of nursing homes with deficiencies. In each of the past 3 years, for-profit nursing homes made up 67 percent of the nursing homes surveyed, not-for-profit homes accounted for 27 percent, and government-owned homes accounted for the remaining 6 percent. For-profit nursing homes also had a higher average number of deficiencies per home than the other types of nursing homes. In 2007, for-profit nursing homes averaged 7.6 deficiencies per home, while not-for-profit and government homes averaged 5.7 and 6.3, respectively. As Table 2 below shows, the averages for all types of nursing homes increased since 2005.  In addition, a greater percentage of multifacility nursing homes were cited for deficiencies, compared to single-facility nursing homes. In 2007, 93 percent of multifacility nursing homes surveyed were cited for deficiencies, as opposed to 91 percent of single-facility nursing homes. These numbers have not changed significantly since 2005. The average number of deficiencies was also higher for multifacility homes than for single-facility homes in each of the past 3 years. 

For press coverage, see this New York Times article. 

dkj

Charter Schools Aren't Subject to Charitable Trust Rules -Says Ohio Court

The Columbus Dispatch reports that a Montgomery County judge rejected the State's attempt to close a poorly-performing charter school using the state's charitable trust laws.  The judge concluded, as a matter of law, that the school was a political subdivision of the state of Ohio and not a charitable trust.  The Attorney General had argued that the school, as a nonprofit, could be sued for not carrying out its charitable purpose.  The school is supported is tax funded and privately operated, and the legislature and the Department of Education oversee the school.

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Charities Bill Unlikely to Pass

The Wall Street Journal reports that tax legislation has stalled in Congress and that Congress will likely adjourn before passing the legislation.  As we blogged a few days ago, the Senate passed a bill extending a number of tax provisions related to charitable giving.  Because the Senate bill differed from the earlier-passed House bill, though, enactment is now unlikely.  The bill would have renewed the provision permitting people 70 1/2 years of age and older to contribute up to $100,000 from an IRA without paying income tax on the money.  The bill also contained incentives for charitable contributions to help victims of recent storms, floods, and tornadoes.

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Complaint about Policitical Activity - and It's Not about a Church

The Chronicle of Philanthropy reports that the Council on American-Islamic Relations has filed a complaint with the Federal Elections Commission, arguing that a DVD produced by the Clarion Fund constituted prohibited political activity.  The Clarion Fund, a 501(c)(3) organization, produced a DVD titled "Obsession: Radical Islam's War Against the West" and distributed millions of copies of the DVD.  CAIR thinks the DVD is intended to support John McCain's campaign, but the Chronicle article doesn't provide enough information about the DVD to give a reader a sense of the content of the DVD.  The Clarion website contains information about the DVD, including a trailer.  So far the Elections Commission has not contacted Clarion.

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More on Faith and Politics

The Washington Post also reports on the church protest.  The Post article focuses on Rev. Ron Johnson, Jr. of Crown Point, Indiana.  During his Sunday service Rev. Johnson discussed the candidates' views on abortion and gay marriage, showing slides explaining the candidates' views on the issues.  When asked why he felt it necessary to identify the candidates by name in describing their views, he explained that he was not sure that all members of his congregation could make the connections on their own.  (And these people get to vote?)

The article notes that the Interfaith Alliance, a group dedicated to the separation of faith and politics, has gathered 180 pledges from members of the clergy who agree not to endorse a candidate on behalf of their houses of worship.  To see the Sept. 18 press release announcing the pledge, go here.

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Warroad Community Church in Minn. Joins the Protest

For a story on one of the churches named by Americans for Separation of Church and State, see an article in the Minneapolis-St. Paul Star Tribune.  Rev. Gus Booth of the Warroad Community Church joined in the protest on Sunday, urging his congregants to vote for John McCain.  Rev. Booth had been a delegate to the Republican National Convention.  Rev. Booth says he realizes that the church may lose its tax-exempt status but says it's "not that big a deal."  He also says that his congregants support him, but he doesn't say whether they realize that the church could lose its exempt status.

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American United for Separation of Chuch and State Files Complaints Against Six Churches

Here is the text of a press releaase issued by Americans United for Separation of Church and State today.  If available, we will post the actual letters to the IRS tomorrow (along with my own indignant opinion on the subject):

Americans United Urges IRS To Take Action Against Six Churches That Joined Pulpit-Politicking Scheme
Monday, September 29, 2008

Church-State Watchdog Group Criticizes Religious Right Lawyers For Luring Congregations Into Intentional Violation Of Federal Tax Law

Americans United for Separation of Church and State today filed complaints with the Internal Revenue Service about six churches whose pastors endorsed candidates from the pulpit during a mass defiance of federal tax law last Sunday.

The Alliance Defense Fund (ADF), a Religious Right legal group in Scottsdale, Ariz., urged pastors to defy federal tax law by endorsing or opposing candidates during a so-called “Pulpit Freedom Sunday” Sept. 28. Under the IRS Code, churches and other 501(c)(3) tax-exempt groups may not intervene in elections.

“These pastors flagrantly violated the law and now must deal with the consequences,” said the Rev. Barry W. Lynn, executive director of Americans United.

Continued Lynn, “This is one of the most appalling Religious Right gambits I’ve ever seen. Church leaders are supposed to tend to Americans’ spiritual needs, not behave like partisan political hacks. I urge the IRS to act swiftly in these cases.”

Lynn also scored the ministers who took part in the ADF gambit.

“A pastor who knowingly violates federal tax law is setting a poor example for his or her congregation,” Lynn said. “Every pastor who took part in this stunt ought to be ashamed.”

The ADF overture has been roundly criticized. Many pastors refused to take part, arguing that America’s pulpits should not be politicized. In addition, three former IRS officials have filed a complaint asserting that the ADF has violated ethics standards governing tax attorneys by urging clients to violate the law.

The six churches reported to the IRS by Americans United today are:

Bethlehem Baptist Church, Bethlehem, Ga.: According to press accounts, Pastor Jody Hice “urged his congregation to vote for Sen. John McCain and to not vote for Sen. Barack Obama.”

Fairview Baptist Church, Fairview, Okla.: The Associated Press reported that Pastor Paul Blair “says he told his congregation that as a Christian and as an American citizen, he would be voting for John McCain.”

Warroad Community Church, Warroad, Minn.: Pastor Gus Booth told his congregation, “We need to vote for the most righteous of candidates. And it doesn’t take a brain surgeon to figure that out. The most righteous is John McCain.”

Calvary Chapel, Philadelphia, Pa.: The Rev. Francis Pultro told the congregation, “As Christians it’s clear we should vote for John McCain. He is the only candidate I believe a Christian can vote for.”

First Southern Baptist Church, Buena Park, Calif.: The Rev. Wiley Drake said, “I am angry because the government and the IRS and some Christians have taken away the rights of pastors. I have a right to endorse anybody I doggone well please. And if they don’t like that, too bad….According to my Bible and in my opinion, there is no way in the world a Christian can vote for Barack Hussein Obama. Mr. Obama is not standing up for anything that is tradition in America.”

New Life Church, West Bend, Wisc.: Speaking from the pulpit, Pastor Luke Emrich said, “I’m telling you straight up I would choose life. I would cast a vote for John McCain and Sarah Palin.”

Said AU’s Lynn, “When five of the six pastors choose to endorse John McCain, it’s hard not to see the ADF scheme as partisan in character.”

In complaint letters filed with the IRS, Americans United urged swift investigations of the churches and appropriate penalties.

dkj

Preachers vs. the IRS

The Atlanta Journal-Constitution reports that Rev. Jody Hice, minister at the Bethlehem First Baptist Church outside Atlanta, was one of the ministers who this morning urged his congregation to vote for John McCain and not to vote for Barack Obama.  The IRS has said that it is monitoring the actions being taken and will take appropriate actions in response.  More to come, no doubt.

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Tribute to Paul Newman

Paul Newman's death yesterday has been reported throughout the country (see the NY Times article).  It seems fitting to post a tribute to a man who, in addition to his work as an actor and director, founded a company, Newman's Own, that contributess ALL of its profits to charity.  The NY Times article reports that the company has contributed over $200 million so far.  Some of that money has been used to created Hole in the Wall Gang Camps, set up as summer camps to provide free recreational opportunities for children with cancer and other serious illnesses.  Mr. Newman's legacy as an actor will live on through the many movies he made, and his legacy as a caring man concerned about helping others will live on through the camps, his company, and the Scott Newman Center which he founded in memory of his son and which publicizes the dangers of drugs and alcohol.

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California's UPMIFA - is it a "high priority" bill?

California's version of UPMIFA, the Uniform Prudent Management of Institutional Funds Act, passed both houses and was sent to the Governor on September 17.  (For the bill's history, go here.) The Governor refused to sign any bills until the legislature passed a budget.  With the budget passed, the Governor has now signed 114 bills, the LA Times reports today.  The LA Times article notes that Schwartzenegger vetoed 95 bills, saying that at this point he would only sign those bills he considered "the highest priority for California."  Is UPMIFA a high priority or a bill that can wait until next session?  The legislative website has not been updated, so unless a reader knows what happened, we'll have to wait until tomorrow to learn the bill's fate.  Stay tuned.

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And More Politics

The Chicago Tribune reports on questions raised after the head of an Indianapolis nonprofit appeared in an ad for Mitch Daniels, Indiana Governor and a candidate for re-election. In the ad, Sharon Pierce, the president and CEO of the Villages, an organization that provides child and family services throughout Indiana, speaks about the incumbent governor's support for child protection.  During Gov. Daniels' administration, the Villages received a two-year, $12 million contract.

The news article does not specifically describe the content of the ad, but it sounds like Pierce's connection with the Villages was used in the ad.  The article does say that nothing in the ad clearly indicates that Pierce is speaking in her individual capacity, but it also sounds like Pierce does not say that she's speaking on behalf of the organization.  Although Pierce's participation may by ok under a strict reading of the rules against participation by charities in political campaigns, the decision to appear in the ad seems ill-advised.  The resulting bad publicity may hurt her organization, even if the IRS is satisfied that the ad did not violate the 501(c)(3) rules.

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Policitics and Charities, Again

The L.A. Times reports that St. Hope Academy, based in Sacramento, CA, will lose its federal funding effective immediately.  Questions about fiscal and operational improprieties in the Academy-run Neighborhood Corps volunteer program led to an investigation.  One of the allegations is that volunteers were used to campaign for school board members.  Although the investigation has not been completed, the Corp. for National and Community Service, which oversees Americorps and is involved in the investigation, concluded that suspending funding immediately was necessary.  St. Hope Academy is run by Kevin Johnson, a Sacramento Mayoral candidate.  The Johnson campaign suspects political motives in the decision to suspend funding immediately, before the completion of the investigation.

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House Passes Charitable Tax Provisions

The Chronicle on Philanthropy reports that the House of Representatives on Friday passed the tax bill that had already cleared the Senate.  The tax bill extends some of the charity tax breaks due to expire.  Because the House bill is different from the Senate bill, the ultimate fate of the bill remains uncertain.

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Church Leaders (a few) Take on Political Speech

In the lead-up to Sunday's event, the New York Times published an editorial today suggesting that the 33 ministers who have pledged to violate Section 501(c)(3) by making political statements from the pulpit are wrong.  A group of other clergy, more concerned with being spiritual leaders than being political leaders, have joined in opposition to speaking politics from the pulpit.  As the editorial points out, an attempt "to dash the pillar of church-state separation" should be a concern to taxpayers of any faith. 

And of course, any organization willing to give up its tax-exempt status can say whatever it wants about politics.

See the blog posted on Thursday, Sept. 25, for more information about the Sunday protest.  And read the New York Times Sept. 26 report on the planned event.  For earlier bolg coverage of this issue, see here and here.

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What Some Nonprofits Are Doing To Stave Off Financial Disaster

The Chronicle of Philanthropy has an interesting story describing what some nonprofits are doing in an effort to prevent the financial collaspe from damaging or destroying their charitable operations:

The downturn has already caused some charities to change their fund-raising approach.  Bruce Flessner, a Minneapolis fund-raising consultant who works with many of the country's largest charities, said that one of his clients recently decided to delay a big event to announce a new capital campaign. He declined to name the organization.  "They wanted to change the [event's] tone and flavor to be less flamboyant," he said. "A couple of their best donors are getting kicked" by troubles in the financial industry.  Charities in New York City, especially those that receive a lot of support from financial companies and their employees, are the most directly affected by the turbulence of the past few weeks. Gordon J. Campbell, president of United Way of New York City, said he is unsure exactly how much his organization will lose. While the United Way has received big gifts from Merrill Lynch in the past, he noted, it also benefits from long-term support from Bank of America, now in the process of buying Merrill Lynch.  To sort out its options, the New York United Way plans to hold a "regional summit" with other local charities to discuss problems such as government cuts resulting from shrinking tax revenue and possible solutions, including mergers and efforts to diversify sources of revenue.

dkj

Jones on the Private Benefit Doctrine and HMO Membership Requirements

Today, at the University of Iowa College of Law's Faculty Speaker's Forum, yours truly will discuss whether the  private benefit doctrine precludes tax exemption for nonprofit contract model HMOs that arrange for health care services for their members.  Earlier this year, the 9th Circuit Court of Appeals ruled that the  membership structure utilized by most, if not all HMO's prevents nonprofit HMOs from attaining or retaining tax exempt status.  The gist of my argument (set forth in my petition in support of VSP's cert petition (Download jones_amicus_brief_5.DOC) (Download vsp_cert.Petition.pdf ) is this:

This case involves a matter of extreme importance to the entire nonprofit health maintenance organization (HMO) industry.  The court below held, based upon an unexplained and misunderstood application of the private benefit doctrine, that an HMO operating under a membership structure primarily served the private benefit of its subscribers and, therefore, is not entitled to tax exemption under section 501(c)(4) of the Code.  It is true that the private benefit doctrine is implicated when a nonprofit organization confers private benefit on non-charitable recipients, such as the members of the HMO.  The private benefit doctrine, however, does not preclude an organization from economic dealings with a non-charitable class of persons when doing so is necessary to accomplish its charitable or social-welfare purpose.  For example, nonprofit hospitals routinely provide “profits” in the form of compensation to physicians and other service providers that they employ to achieve their charitable healthcare goals.  Likewise, nonprofit HMOs cannot possibly achieve their charitable purpose without a membership form of organization.

dkj

Nonprofit Leadership and Compensation Gender Gap Narrows According to Guidestar Report

A new Guidestar Report concludes that women are continuing to to make inroads against the nonprofit "glass ceiling," according to a report in Market Watch: 

Women led a greater proportion of nonprofits in fiscal year 2006 than FY 2005, the "2008 GuideStar Nonprofit Compensation Report" shows. In FY 2006, women headed 55 percent of organizations with budgets of $1 million or less, a 5 percent increase over FY 2005. The proportion of women who led nonprofits with budgets greater than $1 million grew 2 percent, from 34 percent in FY 2005 to 36 percent in FY 2006. As has been the case in the past few years, in 2006 female CEOs at larger organizations made slow but steady progress at closing the gender gap when it comes to compensation. Incumbent female CEOs at organizations of most sizes had a slightly higher median compensation increase from 2005 to 2006 than males. Despite these gains, women's compensation continued to lag behind men's in FY 2006.

The full report is available for purchase from Guidestar's website.  You can also get a pretty good glimpse of the report details for free here.

dkj

Campaign Intervention Showdown on the Horizon

The Los Angeles Times reports today about the plans of many religious leaders to intentionally violate the prohibition against campaign intervention in an effort to force a test case:

Setting the stage for a collision of religion and politics, Christian ministers from California and 21 other states will use their pulpits Sunday to deliver political sermons or endorse presidential candidates -- defying a federal ban on campaigning by nonprofit groups. The pastors' advocacy could violate the Internal Revenue Service's rules against political speech with the purpose of triggering IRS investigations.  That would allow their patron, the conservative legal group Alliance Defense Fund, to challenge the IRS' rules, a risky strategy that one defense fund attorney acknowledges could cost the churches their tax-exempt status. Congress made it illegal in 1954 for tax-exempt groups to publicly support or oppose political candidates.  "I'm going to talk about the un-biblical stands that Barack Obama takes. Nobody who follows the Bible can vote for him," said the Rev. Wiley S. Drake of First Southern Baptist Church of Buena Park. "We may not be politically correct, but we are going to be biblically correct. We are going to vote for those who follow the Bible."

Americans United for Separation of Church and State has issued a press release stating that participants in the effort will be "promptly reported" to the IRS:

Houses of worship that flagrantly violate federal tax law by taking part in a Religious Right-led effort to politicize America’s pulpits this Sunday will be promptly reported to the Internal Revenue Service, says Americans United for Separation of Church and State. The Alliance Defense Fund (ADF), a Religious Right legal group based in Arizona, is urging pastors to endorse or oppose candidates from the pulpit on Sept. 28, even though IRS regulations forbid tax-exempt groups from intervening in political campaigns. Reportedly, about 30 churches will participate.  “Taking part in this reckless stunt is a one-way ticket to loss of tax exemption,” said the Rev. Barry W. Lynn, executive director of Americans United. “We’ll be watching, and pastors who violate the law can expect their churches to be reported to the IRS the first thing Monday morning.”

Stay tuned for video at 11:00!  For earlier bolg coverage of this issue, see here and here.

dkj

Lloyd Mayer on Religion and Politics

Lloyd Mayer recently posted his article, The Pulpit, Politics, RFRA, and Institutional Free Exercise.  Here is the interesting abstract:

More than fifty years ago, Congress enacted with little deliberation a prohibition against political campaign intervention for all charities, including churches and other houses of worship. For many years the prohibition lay mostly dormant, invoked only rarely by the government and never against a house of worship for statements made from the pulpit. That period of relative peace is now over, however, as the government has begun a systematic enforcement effort and both religious liberty groups and houses of worship have reacted with increasing defiance. Yet predicating the ultimate result of this conflict is complicated by the shifting sands of free exercise of religion law, including still unsettled issues arising out of the Supreme Court's landmark Employment Division v. Smith decision applying the First Amendment and Congress' enactment of the Religious Freedom Restoration Act (RFRA) in response.

This article navigates that legal landscape, identifying and attempting to answer the open questions that courts may need to resolve to address this almost inevitable conflict. Those questions include the scope of the various exceptions to the rule announced in Smith and what exactly it is that the Religious Freedom Restoration Act restored. This exploration reveals that the First Amendment as currently interpreted by the federal courts is unlikely to prevent the government from applying the prohibition to sermons, but that churches and other houses of worship have a strong argument that RFRA does block the prohibition in the unique context of in-person, in-service sermons. This exploration also uncovers another possible line of argument for houses of worship - that, the First Amendment and the RFRA protect "institutional free exercise" as well as individual free exercise. Building on the existing but still somewhat incoherent church autonomy doctrine, an institutional free exercise approach would protect all religious communications between the leaders of a house of worship and its members from the reach of the prohibition under both the First Amendment and RFRA.

dkj

Point-Counterpoint: Erik Stanley and Barry Lynn Debate Church Tax Exemption

Yesterday's Los Angeles Times contained an interesting  point-counterpoint debate regarding the justification for church  tax exemption and the extent  to which government may exercise oversight over that grant.  Nobody called anybody an  "ignorant slut" (as used to be the case on old Saturday Night Live episodes), but both sides made interesting points:

Erik Stanley:  In its 1970 opinion in Walz vs. Tax Commission of the City of New York, the high court stated that a tax exemption for churches "creates only a minimal and remote involvement between church and state and far less than taxation of churches. [An exemption] restricts the fiscal relationship between church and state, and tends to complement and reinforce the desired separation insulating each from the other." The Supreme Court also said that "the power to tax involves the power to destroy." Taxing churches breaks down the healthy separation of church and state and leads to the destruction of the free exercise of religion.

Barry Lynn:  When any group accepts a tax exemption, it agrees to play by certain rules and accept a certain degree of oversight. Federal law actually makes it more difficult for the IRS to audit churches than other charities. In addition to this modest "no electioneering" rule, for example, tax-exempt groups cannot collect money for a "charitable" purpose and then use it all for the personal benefit of the director and her family (or the pastor and his family). Do you seriously believe that the IRS and possibly even criminal investigative bodies have no right to try to scrutinize possible misbehavior?

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