Nonprofit Law Prof Blog

Flirting for Philanthropy

I cannot vouch for the credibility of the on-line publication The Daily Tell, which purports to report on "the better side of human nature," but I feel compelled to pass on their story about the launch of GiveAndDate.com.  This new organization will post photos and profiles of single New Yorkers and will ask readers to make charitable donations.  As a reward for their donations, the readers/donors might have their contact information passed on to the singles shown in the photos.  Since this is a nonprofit law blog, I pose the question: What portion of the donation, if any, is deductible?

TAK

Zambia—Repressive NGO Bill Signed by President

AllAfrica.comreports that Zambian president Rupiah Banda has signed legislation regulating the operations of civil society, sending shock waves through the sector, which fears its independence will be severely compromised. Presidential assent means the 2009 NGO Bill, withdrawn in 2007 after widespread protests by civil society and opposition parties, now only needs gazetting to become legislation that will require "the registration and co-ordination of NGOs" and can “regulate the work, and the area of work, of NGOs operating in Zambia.”  Dickson Jere, a special assistant to the president for press and public relations, confirmed in a statement: “His Excellency the President Mr Rupiah Banda has assented to 13 Bills, which were recently passed by the National Assembly, including ... the Non-Governmental Organisations Bill.”  The new stipulations will compel NGOs to re-register every five years and submit annual information on their activities, funders, accounts, and the personal wealth of their officials; failure to comply could result in the suspension or cancellation of registration.  On 28 August 2009 civil society organizations held an emergency meeting in the capital, Lusaka, to plan a response to the looming regulations, which the NGOs have termed “unconstitutional.” “We have already resolved to carry out a peaceful demonstration next week on 4 September 2009 in Lusaka, and there are arrangements going on so that people in the provinces also carry out the protests. I think the court action [a proposed injunction] is a definite intervention as well, but we are still talking,” an NGO worker, who declined to be identified, told IRIN News Service.

 

kws

 

The Dilution of the Term Venture Philanthropy

In a recent post on this blog I discussed Jacqueline Novogratz who founded one of the early venture philanthropy funds, the Acumen Fund.  She and her collaborators have gone to great pains to organize their philanthropy along the lines of a venture capital firm.  But the working definition of venture philanthropy is broad and slippery.  To take one example, a recent article in the Wall Street Journal reports on the activities of the "billionaire philanthropist, Eli Broad," and quotes him as claiming that he, too, is a venture philanthropist.  Why?  Because "he wants to see results."  Is that all it takes?  I suppose then that we are all venture philanthropists.

TAK

Fiscal Sponsorship and an African Well

 I am new to blogging but I have been told that Sunday is a slow news day for nonprofit law.  I will fill the news hole with a personal nonprofit law anecdote. 

As the director of a law school-based community development law clinic (which is a straight nonprofit law clinic in all but name) I often find myself in the position of dissuading people from rushing to form new nonprofit organizations.  I counsel them to test their charitable ideas by seeking a fiscal sponsor: an existing tax exempt organization that will act as an administrative umbrella for their project.  This way, they can seek tax deductible donations, and in some instances get help with basic project administration, without going through the hassle and expense of forming a new organization.  If the project succeeds, if it has legs, they can always form the organization and apply for tax exemption later.

Not long ago, I had the chance to follow my own advice.  My son and I had spent time together in the West African Republic of Niger and decided it would be a good idea to help fund the digging of a well in a rural village where I had done some research.  We pulled together a core group of supporters who -- you guessed it -- wanted to form a new nonprofit.  At my urging, we instead sought fiscal sponsorship from an existing tax exempt organization, Friends of Niger.  They very kindly agreed to receive donations for what became known as the Saabu Dey Well Project.  They were happy to publicize our project and, unlike some fiscal sponsors, did not ask for a slice of the funds we raised (otherwise known as administrative fee).  My son raised the money through e-mail and snail mail appeals and by convincing his high school's student council to donate proceeds from its coffee cart sales to the project.  A week or so ago, we received news that the the well diggers had hit sweet water at fifty-six meters.

I close by admitting that I am not my own best client.  Even though I urge my clinic clients to draft letter agreements or MOUs to set the terms of their fiscal sponsorship arrangements, we did ours on a handshake.  It seems to have worked out.  Up next is the Fandou Berri Well Project.

TAK

Profile of a Venture Philanthropist

You may have missed a nonprofit-related item in last week's New York Times.  It was in the Business section in a regular column called The Boss, which typically features former Ivy League quarterbacks explaining how they became billionaire financiers.  This version, entitled A Banker for the World, focuses on Jacqueline Novogratz, who founded and now runs the Acumen Fund, one of the early entrants in the category of so-called venture philanthropy.  As is true of other, later arriving venture philanthropies, Acumen invests rather than making grants, takes management positions in many of the organizations in which it invests, organizes its activities into investment portfolios, and tracks performance according to a complicated set of metrics.  It is unabashed about the fact that financial sustainability (meaning, I assume, profit) is among its investment criteria.  Although it is not clear from Acumen's website, I know that Jacqueline's original plan included compensating fund managers (otherwise known as program officers) based on the overall performance of their investment portfolios.  With all of this socially entrepreneurial innovation, I would love to be a fly on the wall in the office of Acumen's counsel.  I have to believe they have a direct line open to the Exempt Organizations division at the IRS.

TAK

Volunteering Down During Recession

It appears that cash donations are not the only thing that has been adversely affected by the recession.  This story in the Chronicle of Philanthropy notes that a recent study by the National Conference on Citizenship found that 72% of Americans say they have cut back on time spent volunteering or on other civic activities. The survey, however, also found that people were doing more informal, personal sorts of volunteer activity, such as giving food or money to a needy individual, or even allowing a non-family-member to stay in their homes.  The National Conference on Citizenship characterized the trend as "civic foreclosure" - people focusing on basic needs during the economic crisis.

JDC

Provena Oral Argument Set for September 23

Oral argument before the Illinois Supreme Court in the ongoing Provena Covenant property tax exemption case is set for Wednesday, September 23.  The case is the first on the docket for that day; unfortunately, my teaching schedule probably will cause me to miss the argument.  At this stage, however, I'm not sure there is anything left to be said.  For earlier posts on the Provena Covenant saga, see here, here, and here.

JDC

New Nonprofit Uses You-Tube-like Technology to Link Donors with Need

World Flix, a new nonprofit launched this month, aims to link donors with need around the world by using You-Tube-like mini-movies involving interviews with people in their community showing potential donors what the money will be used for.  The site will have a catalog of videos sorted by category (e.g., needs for food, water, shelter, sanitation or health care) that potential donors can view.  According to this story in the San Jose Mercury News, each project is carefully vetted and videos will be added later to track progress. The site will specialize in projects needing less than $5000, and currently lists videos about a Ugandan hospital that needs $4,000 for mosquito nets, a Haitian water organization that needs $3,500 to provide a community with clean water, and a blindness prevention project in Tibet that calls for $4,000 to buy a slit-lamp microscope for new eye-care centers.

JDC

New Study Finds Nonprofit Nursing Homes Provide Better Care

A new study led by P.J. Devereux and an army of other researchers finds that nonprofit nursing homes provide better care than for-profits.  Their meta-analysis of 82 individual studies of nonprofit vs. for-profit nursing homes found that nonprofit facilities delivered higher quality care than for-profit facilities for two of the four most frequently reported quality measures: (1) more or higher quality staffing and (2) less prevalence of pressure ulcers, sometimes called bedsores.  The results also suggest better performance of nonprofit homes in two other quality measures: less frequent use of physical restraints and fewer noted deficiencies (quality violations) in governmental regulatory assessments.  According to the meta-analysis, in 40 of the 82 studies, all statistically significant comparisons favored nonprofit facilities. In three studies, all significant comparisons favored for-profit facilities. The remaining studies had less consistent findings.

The authors opine that nonprofits provide better care because they do not have to provide an investor return or pay taxes, and thus can invest more money in patient care.

JDC

Nonprofit Wins Appeal to Build Affordable Housing in New Jersey

The Philadelphia Inquirer reports that a three-judge appeals panel upheld a lower New Jersey court ruling requiring the town of Eastampton to grant a zoning request to nonprofit Homes of Hope for an exception to build two multifamily duplexes in a neighborhood zoned for single-family homes.  Eastampton had argued that because they already had 21 more affordable-housing units than required by New Jersey law, they were not required to grant the zoning variance.  But the appeals court agreed with an earlier ruling by Superior Court Judge John Sweeney that the state's affordable housing regulations did not intend for each town only to meet the needs of the homeless within its own boundaries, but rather to contribute to the needs of the entire state.  Accordingly, building the affordable housing was an "inherently beneficial use" under New Jersey law, and local authorities could not deny the zoning exception.

JDC

Billion-Dollar Philanthropists

Forbes has put together a list of living philanthropists who have given away at least $1 billion (yes that's BILLION) during their lifetimes (and are still going).  Leading the group, no surprise, is Bill Gates, who according to Forbes has cut checks worth $28 billion.  But the story also notes some interesting trends: the biggest philanthropists are almost all entrepreneurs who accumulated their wealth during their own lives; inherited wealth is conspicuously absent from the list.  Also, the vast majority of the individuals (and only individuals qualify - corporate donors were not included) come from the U.S., even though only 45% of the world's billionaires live here.  One observer quoted in the story speculates that this the result of a long history of big philanthropy in the U.S. (e.g., Carnegie, Rockefeller) absent from Europe, Asia and Latin America.  Wonder if our tax structure and incentives for giving also have some effect . . . 

JDC

Churches and Property Tax Exemptions

While many of us that work in the nonprofit/tax-exempt world focus on federal tax exemption policy under I.R.C. Section 501(c)(3), we shouldn't forget that a major part of the "law" on tax exemption occurs at the state and local level in cases dealing with state property tax exemption.  In fact, when it comes to the exempt status of nonprofit hospitals, states generally have been in the forefront of these issues, beginning with the famous Utah County v. Intermountain Health Care case decided by the Utah Supreme Court back in the mid-1980's and continuing today with the Provena Covenant case in Illinois.  

An interesting story from the Rochester, NY, Democrat and Chronicle illustrates this "law on the ground" (both literally and figuratively) with respect to the difficulty local property tax assessors and review boards have with implementing property tax exemption for churches.  As the story notes, determining when real estate is used for religious purposes (and therefore exempt) is a very blurry line.  Particularly difficult are the cases that deal with undeveloped real estate which does not have any current religious use, but may (or may not) be used in the future for religious purposes.

I have my doubts that churches should get a general property or income tax exemption at all.  They are, at their core, more or less clubs for believers, and their income and assets overwhelmingly are directed toward benefiting church members, rather than the community (or nation) as a whole.  I think there is much to recommend an approach, which has been suggested by Rich Schmalbeck at Duke, that would limit exemption to money spent/property used for purposes OTHER THAN the congregation itself - such as helping the poor.  Nevertheless, as long as we continue to have laws that exempt religious organizations per se, understanding the difficulties facing local tax officials in dealing with exemption reality is worthwhile.

JDC 

Treasury Inspector General Recommends Stepped-up Fraud Enforcement by TE/GE

In a report issued on July 6, the Treasury Department's Inspector General for Tax Administration has recommended "a more corporate approach with centralized oversight" to improve tax fraud detection and enforcement in the exempt sector.  The report noted that TE/GE had implemented several changes in its fraud enforcement program in response to prior Inspector General audits.  These changes led to an increase in reported fraud cases from 11 in 2000-2002 to 48 in 2006-2008.  However, the changes were implemented by each of the five TE/GE offices without any centralized oversight, and it appears that one office was far ahead of the others in its fraud detection and management policies.  As a result, the Inspector General recommended more forceful direction "from the top" in implementing fraud policies. Exempt organizations can expect to see an increased emphasis on fraud within TE/GE as a result and organizations undergoing audits should be prepared to deal with this emphasis.

JDC

Chinese Authorities Release Activists and Withdraw Tax Evasion Charges

The New York Times reported on August 23, 2009 that Chinese authorities unexpectedly released two political activists from detention on Sunday, including one whose case had drawn worldwide attention.  Officials offered no reason for the releases, but they occurred one day after the new American ambassador to China, the former Utah governor Jon M. Huntsman Jr., arrived in Beijing. The government made it clear it has also suspended criminal tax-evasion charges that were made last week against one of the freed men, Xu Zhiyong, a well-known public-interest lawyer, that could result in a prison sentence of seven years were he convicted. “It is difficult to say” whether the charges against him remain intact, Mr. Xu told The Associated Press after his release. Mr. Xu, 36, and a co-worker, Zhuang Lu, were released more than three weeks after they were seized in their homes on July 29.

kws

American Muslims: Give Without Fear (But Give Wisely)

A guest post from Mazen Asbahi, Esq.:

American Muslims face unique and troubling challenges in trying to fulfill their religious obligations to give charity or zakat. The laws meant to serve the legitimate purpose of preventing the diversion of humanitarian aid to terrorist groups are, instead, overly broad, ambiguous and constitutionally suspect.   Sweeping powers granted to federal agencies in the wake of 9/11 resulted in the closing of nine American Muslim charities. However, the majority of these charities were not charged with any wrongdoing and only one investigation resulted in a conviction.   In addition to the closures, aggressive law enforcement tactics like widespread FBI interviews with donors and mosque surveillance has led to a pervasive chilling effect in the American Muslim community with respect to charitable giving. The full extent of this chilling effect and related civil liberty issues is the subject of a recent report issued by the American Civil Liberties Union entitled Blocking Faith, Freezing Charity.

But, in recent months, these dark clouds are giving way to sunshine – sunshine that is thawing the chill felt by American Muslims, as recent public attention has shined a welcome light on the issues.   When President Obama gave his highly-regarded Cairo address, he noted that the “rules on charitable giving have made it harder for Muslims to fulfill their religious obligation,” and he made the following pledge: “That’s why I’m committed to working with American Muslims to ensure that they can fulfill zakat.” As if to amplify the President’s words, only days later, the ACLU issued the Blocking Faith, Freezing Charity report, which generated significant media coverage.

Moreover, recent court decisions are chipping away at some of the more problematic aspects of these laws. A federal court recently ruled that the Department of Treasury had violated a charity’s basic due process rights. In January, a federal appeals court upheld a lower court’s ruling that the “material support” provisions of certain counter-terrorism financing laws were overly vague and therefore unconstitutional. In addition, advocacy groups for the nonprofit sector, like the Charity and Security Network and Grantmakers without Borders continue their efforts to reform charitable giving policies and pull the pendulum back towards the middle after its far swing to the right during the Bush administration.

Some observers will note that the administration has not yet taken concrete action to reform the underlying laws governing charitable giving. That may be the case. However, there are reasons to be optimistic. The Secretary of the Department of Treasury Timothy Geithner recently gave his own commitment to working with representatives from the nonprofit sector on the issues. But actual reforms of the underlying laws will likely need time. In office for only seven months, President Obama is handling an unprecedented economic crisis and two wars, and engaged in an all out effort to reform our broken healthcare system. Many key political appointments at the agency level, including the Department of Treasury, remain to be filled. Those appointees who have been appointed need time to get situated, as they are critical in pushing the President’s agenda forward.

But let’s put all that aside for a moment: the economic downturn along with rising unemployment and lower consumer spending means charitable contributions are down, and many American Muslim nonprofits are cutting staff and scaling back on important programs. This Ramadan, you simply cannot shy away – even if you may feel constricted financially. The need is simply too great.

But Give Wisely.

Many donors, particularly those immigrants from Muslim majority countries, feel strongly that their zakat should go to the poor of their countries of origin – especially when those countries are suffering from man-made or natural disasters.    However, donating to causes overseas can be very complicated. When contributing internationally, consider these few suggestions that can help minimize the risks of running afoul of counter-terrorism financing laws:

 *   First, consider U.S.-based Section 501(c)(3) charities that provide relief services overseas and that have a significant track record of conducting such activities. These charities are organized under U.S. laws and are accountable to federal and state authorities.

 *   Do your due diligence. Investigate the charity. Is the organization transparent? Does it give the names and bios of its board of directors or trustees and staff? Does it conduct annual audits and are those readily available? Are its annual filings to the IRS easily accessible? Are its board members and staff reachable and accessible to answer your questions? Important information about a nonprofit’s programs and activities are generally made available on Guidestar.

 *   When making a contribution, clarify your intent and indicate whether the donation is to be used for a specific program or activity or whether it is for general purposes. You can specify your intention by writing a notation on the memo line of your check.

 *   Understand the wide variety of permitted types of charitable activities that may be funded by your zakat. While zakat is often focused on the poor, zakat may be paid to fund organizations and activities that engage in education, economic development, health care, civic engagement and community relations, just to name a few.

 *   Be wary of giving directly to individuals or foreign-based organizations. Direct giving is the practice most affected by counter-terrorism financing laws. The standards for due diligence, oversight and reporting are, as a general matter, too difficult and expensive for the individual donor.

For more guidance, consult resources provided by Muslim Advocates and the BBB Wise Giving Alliance.   Do not let the chill of past years prevent you from giving. The need is great. This Ramadan, give without fear (but give wisely).

Mazen Asbahi

China Posts, Past and Future

I should have signed my initials to the last blog -- sorry to have forgotten to do so. But I will be blogging on China and developments there over the course of the next several weeks/months.  One of the things to note is that the Western press is almost always exclusively interested in sensational stories.  There are lots of other ones, including incremental changes for the better in the legal landscape for civil society in China. These are really glass half full glass half empty issues!

I will address some of the issues in a paper I will be presenting at the ABA Section of International Law's program in October on Miami.  The paper will be published in the October issue of the International Journal of Civil Society Law (www.iccsl.org).  A recent scholarly article of mine on China is "Regulation of Civil Society in China: Necessary Changes After the Olympic Games and the  Sichuan Earthquake," 32 Fordham, J. Int'l L. 943.

kws

China--Legal Activist Charged with Tax Evasion; Organization Shut Down

After his arrest and detention in July, Xu Zhiyong, (许志永) 36, a soft-spoken and politically shrewd legal scholar who has made a name representing migrant workers, death row inmates and the parents of babies poisoned by tainted milk, has been accused of tax evasion. He could face up to seven years in prison.  A New York Times story reportsthat the accusation is almost universally seen here as a cover for his true offense: angering the Communist Party leadership through his advocacy of the rule of law.  Mr. Teng helped establish the Open Constitution Initiative (Gongmeng), a six-year-old nonprofit legal center that the authorities closed in July (see IJCSL-N for August 2009), charging that it was improperly registered and that it failed to pay taxes on a $100,000 grant received from Yale’s China Law Center.  Given Mr. Xu’s international stature and reputation for working within the law, legal scholars both in China and abroad say his prosecution suggests a new level of repression.

 

China Human Rights Defenders reportsthat Gongmeng’s remaining organizers have been calling for donations to help pay the banned organization’s enormous fine of 1.42 million RMB. Complicating the process, however, is the refusal of tax authorities to issue the necessary paperwork, and the fact that bank accounts belonging to the organization and director Xu Zhiyong have been frozen. A letter dated August 21, 2009, from the Committee to Protect Chinese Lawyersto Premier Wen Jianbao, raises concerns about the inability to clear up the claims for back taxes.  Mr. Li Xiongbing, Gongmeng’s lawyer, has made multiple attempts to establish a process for paying the fines on behalf of Gongmeng. According to the letter, between August 11 and August 17, 2009, Mr. Li sent more than 700,000 RMB by post office money orders to the State Administration of Taxation and the local tax bureau.

 

There are several legal issues here.  One concerns the deregistration of the organization Gongmeng.  Gongmeng’s registration with the State Administration of Industries and Companies (SAIC) was revoked under Article 69 of the revised Regulation on the Administration of Company Registration (2005). This states in translation (from LawInfoChina): “Where a company registration is acquired by false submissions or other fraudulent means, a company registration organ shall order correction, and impose a fine of not less than 50,000 yuan but not more than 500,000 yuan; if the case is serious, shall revoke the company registration or revoke the business license.” (http://www.lawinfochina.com/law/displayModeTwo.asp?ID=4821&DB=1&keyword=)

 

Furthermore, looking at it from a social organization standpoint (organizations that should be registered in accordance with the Regulations on the Administration and Management of Social Organizations of 1998), if Gongmeng was truly a social organization instead of a business organization, as seems to be alleged, the “Temporary Measures Banning Illegal Organizations” from April 20, 2000, say that illegal organizations include ones that are “unregistered and unauthorized [as social organizations] and engage in activities in the name of a social organization.”  This was widely seen at the time as an end-run around SOs, like Gongmeng, that could not receive sponsorship in order to register as SOs, and therefore were seeking to be registered with SAIC.  It certainly leaves them vulnerable to being shut down, by placing them in the never-never-land between properly registered business organizations and properly registered social organizations.

 

The other issue involves the tax evasion charges.  If Gongmeng was truly a business, there is no question that it should have paid taxes on the grant from Yale.  See Leon E. Irish, Jin Dongsheng, and Karla W. Simon, China’s Tax Rules for Not-for-Profit Organizations, available at http://siteresources.worldbank.org/INTCHINA/1503040-1122886803058/20601839/NPO_tax_En.pdf. If it was truly an SO, then it would not be required to do so, but it was clearly registered with SAIC. 

 

Most important is the fact that the law requires mitigation of the criminal charges if full restitution is offered.  According to the letter from the Committee to Protect Chinese Lawyers, according to Article 201 of the Criminal Law of the People’s Republic of China, if a tax offender pays in full the taxes owed and has received administrative punishment, then no criminal action may be brought against the tax offender.  This would again raise the question of political motives behind the arrest, the criminal charges, and the closure of the organization.

 

 

 

 

 

IRS Grants Exemption to Pro-Life Group Protesting Planned Parenthood

Back in July, Darryll Jones blogged about the troubles the Thomas More Society was having getting 501(c)(3) status from the IRS, apparently because it disclosed plans to protest a local Planned Parenthood office.   This story reports that the IRS has since dropped its objections to exemption for the group.  As Darryll reported earlier, this is clearly the correct result; there is no prohibition in the Internal Revenue Code or elsewhere against an exempt organization protesting or picketing.  Such activity would not generally be considered lobbying under the existing regulations (which require activity directed at lawmakers), and as long as the picketing/protesting is legal, there are no grounds for the IRS to assert a denial of exemption under the illegality/public policy doctrine.  This is one of those cases where some lower-level reviewing agent went crazy, and fortunately the IRS upper management now appears to have corrected the problem.

JDC

Fairfax County Schools Drop Automatic Failure Rule

For years Fairfax County Public Schools (the twelfth largest school system in the nation) has had a strict attendance policy: Students who miss three classes in a quarter without a legitimate excuse get an automatic F.  That is about to change.

Claiming that the three-strikes policy has provided little motivation for students who had already missed three classes in a quarter to show up for class, school officials have decided to get rid of the policy starting this fall.  

Today's Washington Post reports that going forward, Fairfax County principals will instead have a list of ways teachers can punish students who skip classes and reward those who show up.  Teachers can, for example, give points for class participation and credit for turning in homework or doing well on pop quizzes. As far as punishment goes, teachers will be able to utilize options such as detention, taking away parking or extracurricular privileges, and meetings with parents. 

I wonder whether the new policy will truly motivate Fairfax County students to show up for classes. 

VEJ

  

Evangelical Lutheran Church in America Loosens Gay Clergy Policy

Earlier this week, we blogged that the Evangelical Lutheran Church in America ("ELCA") was set to discuss the issue of gays and lesbians in committed relationships serving as members of the clergy.  Reuters is reporting that the church has indeed taken steps to allow gays and lesbians to serve in ministry. The Reuters report states in part:

The Evangelical Lutheran Church in America also encouraged its congregations to find ways to support or recognize members in "accountable lifelong, monogamous, same-gender relationships."

But it did not give official sanction to gay marriage or approve any rites for such ceremonies.

The report continues:

The resolution, approved by a vote of 559 to 441, said the church was committed to finding ways to allow people in "accountable, lifelong, monogamous, same-gender relationships to serve as rostered leaders of this church."

The measure applies to clergy as well as professional lay leaders.

The assembly still has to approve procedural changes to allow the resolution to go forward. [John] Brooks[, the director of the Evangelical Lutheran Church in America's news service and a spokesman for the church,] said he expected the new policy to be in place by 2010.

VEJ