Wednesday, June 30, 2010
This blog has previously addressed the practice of soliciting payments in lieu of taxes (“PILOTS”) from nonprofits by revenue-strapped local governments. See, e.g., Massachusetts Municipalities Join Others Seeking PILOTs; Boston, Palo Alto Seek Nonprofit Payments and a "Church" in Illinois Fights Property Taxes; Anything Can be Tax Exempt: More on Pilots too; Debate on PILOTS, the sequel; More on PILOTS and Nonprofit Charities Paying Their Fair Share; Pittsburgh Mayor Reaches Deal with Nonprofits; Indiana Bill Would Impose PILOTS on Nonprofit Organizations.
The following are some recent stories concerning PILOTS.
From the Boston Globe: Here are the first two paragraphs of Boston University negotiating PILOT agreement with Brookline.
Boston University could pay Brookline almost $400,000 in lieu of taxes in the upcoming fiscal year in what town officials said Tuesday is the first agreement of its kind with the school.
Though the final details of the payment in lieu of taxes, or PILOT, program are still being ironed out, town and university officials said Tuesday they are confident they will be able to sign off on the agreement in early July.
And again from the Globe: Progress on BU Payment:
Talks are underway for the largest payment in lieu of taxes likely in Brookline, according to Stephen Cirillo, the town's finance director. He briefed selectmen Tuesday on the status of PILOT talks with Boston University, the town's largest taxpayer, and which also owns the highest value tax-exempt properties. The town and the university have agreed on a payment equivalent to 25 percent of the taxes that would otherwise be due on its holdings, Cirillo said, or roughly $380,000, starting with the fiscal year beginning July 1. Cirillo said that he and the university negotiators hope the eventual agreement will serve as a national model for such deals. Over the last few years, the town has negotiated PILOT agreements with several smaller nonprofit entities with tax-exempt property.
At a recent meeting of the Dallas City Council, ideas for raising revenue included the use of PILOTS. The Dallas Morning News reports as follows:
One idea was a program to try to get large non-profits who use city resources to voluntarily contribute to the city in lieu of taxes, which they are legally exempt from paying.
The practice, known as PILOT - Payment in Lieu of Taxes, is used by cities across the country, including Baltimore, Boston , Cambridge, Detroit, Indianapolis, Milwaukee, Minneapolis, New Haven, Palo Alto, Philadelphia , and Pittsburgh, according to city staffers.
"There are many different ways that they may charge the PILOT," said Jack Ireland of the city manager's office. "It may be based on a percentage of the taxable value, or it could be some negotiated rate to cover the cost of police and fire, or in some of the northern cities they use it to cover the cost of snow removal and the [sic] such."
Nearly 12,000 properties in Dallas valued at $10.7 billion have tax-exempt status, city officials say. They include cemeteries, charities, schools, hospitals and religious organizations. They also include about $1.2 billion worth of hospitals and medical buildings classified as charitable. Applying the city's property tax rate to the hospitals and medical buildings alone would generate $8.8 million in annual revenue, city officials noted.
Additionally, as noted on our sister TaxProf Blog, Town Wants Princeton to Increase Payments in Lieu of Taxes, Bloomberg reports that Princeton is facing pressure to increase its PILOTs. According to the story,
[t]he university would pay about $28 million in additional property taxes if all of its land were taxed, said Princeton Borough Councilman Kevin Wilkes. The college owns 43 percent of the borough’s assessed land value and 13 percent of adjoining Princeton Township’s, Wilkes said.
What does Princeton already contribute to the community? The Bloomberg story continues:
The university is already the largest taxpayer in Princeton Borough and Princeton Township, Durkee said. It paid $8.2 million last year in property taxes on housing for staff, faculty and some graduate students as well as for parking lots and other commercial facilities. It contributed an additional $1.6 million in sewer fees last year, according to the university….
The university doesn’t pay property taxes on academic, administrative and athletic facilities. Instead, it made a $1.2 million payment in 2009 in lieu of taxes, part of a six-year agreement that expires at the end of 2011.
Princeton University also pays $35,000 a year to support the First Aid & Rescue Squad and $100,000 a year for a staff position at the fire department, the university said. It gave $60,000 to the borough in 2008 to launch a free jitney service to the train station for residents, and community members can visit the art museum and children’s library on campus at no charge. The university helped restore the Garden Theatre, on Nassau Street bordering the college, in 2001. That same year, it gave a $500,000 gift to the school system for a new high school library.
The university employs about 5,300 people, and each year it helps generate more than $1 billion in economic activity, according to a 2008 college-issued report.
But, according to the rest of the story, Princeton’s PILOTS lag those of Harvard and Yale:
Harvard University, which has the largest university endowment in the U.S., made $4.14 million in voluntary payments in lieu of taxes in 2009 to Cambridge and Boston, the two cities where its campuses are located.
Yale University, which has the second-largest endowment in higher education in the U.S., increased its annual voluntary payment in lieu of taxes to its hometown, New Haven, Connecticut, to more than $7.5 million in 2009 from $5 million.
Peter Blessing, Chair of the Tax Section of the New York State Bar Association, has submitted a letter on behalf of the section to the IRS requesting guidance on several issues during the 2010-2011 guidance plan year. The full letter is available on Tax Notes Today at 2010 TNT 125-24. The following matters for which guidance is requested pertain to exempt organizations:
(1) What constitutes a "functionally unrelated business" under Code section 4943;
(2) Guidance on private foundation issues for investors in Ponzi schemes (NYSBA Tax Section Report No. 1183); and
(3) Guidance concerning whether a disregarded entity owned by a charity is disregarded for all exempt organization purposes (e.g., is a donation to a domestic or foreign DE subsidiary of a US charity tax deductible?).
Tuesday, June 29, 2010
Given the interest of the nonprofit sector in receiving federal funding allocated in the discretion of the Executive Branch, readers of this blog may find a brief essay by University of Missouri Law Professor Carl Esbeck of interest. An abstract of the paper, posted recently on SSRN, follows:
This essay plays off a critique by Professor Maya Manian of an article where I discussed the decision in Hein v. Freedom From Religion Foundation, Inc., 551 U.S. 587 (2007) (plurality opinion). While Professor Manian was concerned about how the result in Hein would lead to under enforcement of church-state separation, my article had utilized Hein, and more generally the law of taxpayer standing beginning with Flast v. Cohen (1968), to look beyond the question of aid to religion. Rather, I began by showing that the only cases in which the Court had announced a “generalized grievance” and thereby denied standing were when the cases alleged a structural violation of the Constitution as opposed to stating rights-based claims. Taxpayer claims allege a structural violation, thus they are dismissed as “generalized grievances”. Since Flast, however, the Court has made one exception: where the taxpayer claim concerns an appropriation said to violate the Establishment Clause. It follows that the Court is viewing the Establishment Clause as a structural restraint; namely, the separation of church and state is about keeping in right order these two centers of authority. That is why it can be said that the Establishment Clause is about policing the boundary between government and organized religion. The Court responded to that in Flast by making an exception to the rule against taxpayer standing. In Hein, the Roberts Court, by a vote of 7-2, continued to adhere to the presupposition that the Establishment Clause is structural in nature.
Sarah Dadush (Research Fellow, Institute for International Law and Justice, NYU School of Law) has posted on SSRN Profiting in (RED): The Need for Enhanced Transparency in Cause-Related Marketing. Here is the abstract:
As a case study of the privatization of development assistance, this paper examines the financing and public disclosure mechanisms underlying Product (RED), a marketing campaign designed to raise funds for the Global Fund to fight AIDS in Africa. The paper argues that many cause-related marketing programs operate in a non-transparent fashion that puts both consumer protection and consumer trust in philanthropy at risk. It suggests that charities regulation offers some useful tools for ensuring greater levels of transparency and accountability among programs like (RED). Specifically, the piece recommends that entities that cross the line from commerce into philanthropy should be subject to the same (or similar) regulations as are applicable to actors more commonly recognized as operating in the charities arena, such as professional fundraisers or commercial co-venturers.
In yesterday’s decision of McDonald v. City of Chicago, the United States Supreme Court (in a 5-4 decision) held unconstitutional Chicago’s ban on handgun possession by private citizens. The opening paragraph of the Court’s opinion, most (but not all) portions of which garnered the support of five justices, summarizes the legal significance of the case as follows:
Two years ago, in District of Columbia v. Heller, 554 U. S. ___ (2008), we held that the Second Amendment protects the right to keep and bear arms for the purpose of self-defense, and we struck down a District of Columbia law that banned the possession of handguns in the home. The city of Chicago (City) and the village of Oak Park, a Chicago suburb, have laws that are similar to the District of Columbia’s, but Chicago and Oak Park argue that their laws are constitutional because the Second Amendment has no application to the States. We have previously held that most of the provisions of the Bill of Rights apply with full force to both the Federal Government and the States. Applying the standard that is well established in our case law, we hold that the Second Amendment right is fully applicable to the States.
A notable qualification of the scope of the opinion appears in the following excerpt:
We made it clear in Heller that our holding did not cast doubt on such longstanding regulatory measures as “prohibitions on the possession of firearms by felons and the mentally ill,” “laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms.” Id., at – (slip op., at 54–55). We repeat those assurances here. Despite municipal respondents’ doomsday proclamations, incorporation does not imperil every law regulating firearms.
An interesting question is to what degree restrictions on hand gun possession on the premises of numerous types of nonprofits – not just schools, but also churches, hospitals, and homeless shelters, for example – would survive constitutional scrutiny. The question is already being mulled over in Georgia, as reported in an article appearing in the Atlanta Journal-Constitution.
Monday, June 28, 2010
Mark Sidel has published an interesting articleon the development of the laws and regulations affecting civil society organizations in Vietnam, a country that ICCSL has been following for several years. One worthwhile aspect of the paper is that it provides a means of comparing Vietnam and China as they continue on their quest to find ways to regulate civil society that are consistent with their political systems.
· New philanthropy research institute created. Wang Zhenyao, the head of China’s first philanthropic research institute, is calling on all Chinese billionaires to donate a million yuan a year to charity. Wang says multimillionaires should give a hundred thousand yuan annually. For the past two decades, Wang worked in the Ministry of Civil Affairs. He is famous in China for his efforts to help victims during the 2008 Sichuan Earthquake. He has also promoted care for orphans and asked the government for more money for the elderly. But Wang wants more than government support for China’s poor. He wants professional, sustainable, private philanthropy to grow. Now he has left the ministry to head the new Beijing Normal University One Foundation Philanthropy Research Institute full-time. While Wang has long been a firm believer in the importance of charity, one of his subordinates says that makes him “a rather lonely person” in official circles, according to a 21st Century Business Herald article. Charity is an emerging field in China, a sign of economic growth and a response to rising inequality. Traditionally, financial assistance came either from the state or from extended family networks. The Chinese government has long spoken of “serving the people” and “serving society.” However, China lags behind Western countries in private donations. The Chinese Civil Affairs Development Report shows that the Ministry received 6.86 billion yuan (just above $1 billion) in donations in 2009, reports a recent China News article.
· The China Charity Donation Information Center in partnership with Shanghai NPO Development Center completed its report on Diaspora Giving to China 2008-2009 as part of APPC’s Diaspora Philanthropy Grants. The grants provided seed money for specific research activities that lead to making operational databases that will map out the dynamic relationships being cultivated from the giving end to the receiving end. These grants were awarded to organizations in China, Pakistan, the Philippines and Bangladesh in July 2009 to conduct various database studies on Diaspora giving to home communities, as follow up work to APPC’s 2008 regional conference “Diaspora Giving: An Agent of Change in Asia Pacific Communities?”
Highlights of China Report on Diaspora Giving
· Between 1 January 2008 and 30 June 2009, 24 provinces and municipalities in Mainland China received Diaspora giving valued at RMB 6.7 million from Hong Kong, Macao, Taiwan and overseas Chinese around the world.
· Sichuan province received the most donations due to the Earthquake and snow disaster in early 2008, receiving 37% of the total Diaspora giving to China.
· Second biggest receiver was Beijing, receiving 19.6% of diaspora monies. The city of Beijing houses majority of national charity organization headquarters, such as the China Red Cross Society and China Charity Federation.
· Individuals compose the largest composition of givers followed by overseas Chinese groups and organizations and overseas Chinese enterprises.
· Diaspora funds received in this period were allocated to disaster relief, education, science and sports, poverty alleviation and development.
· Seeing the response of overseas Chinese, provincial and municipal governments passed related overseas donation regulations, which provide policy support and guarantees to further enhance the overseas Chinese donations’ impact.
Email to [email protected] for more information or the full report.
As reported by Tax Notes Today, at 2010 TNT 123-33, the IRS has determined that a winemaking organization purporting to operate as a club does not qualify for federal income tax exemption under section 501(c)(7) of the Internal Revenue Code because it is operated as a commercial business and its earnings inure to the private benefit of its founders. The ultimate determination is unsurprising on the facts, but one aspect of the IRS’s rationale is suspect.
By way of brief background, Code section 501(c)(7) exempts from federal income taxation clubs organized for pleasure, recreation, and other non-profitable purposes, substantially all of the activities of which are for these purposes, and no part of the net earnings of which inures to the benefit of any private shareholder. The United States Treasury regulations under this Code section state that a club which engages in business, such as making its social and recreational facilities available to the general public or selling real estate, timber, or other products, is not organized and operated for pleasure, recreation and other non-profitable purposes, and therefore is not exempt. Solicitation for public patronage of its facilities is prima facie evidence that the club is engaging in business and is not being operated exclusively for pleasure, recreation, or social purposes.
The adverse determination letter issued by the IRS concludes that the “club” in question fails the test of the statute and regulations. It conducts commercial advertisements for public patronage of its wine making facility. Any person wishing to purchase the organization’s services and products automatically becomes one of its members upon payment of a large fee. Membership, however, confers no voting rights or any other of the privileges and responsibilities normally associated with membership in a genuine social club. For example, ostensible members could not vote for officers or directors, and their prospects of social commingling were limited and seemingly secondary to the commercial nature of the organization’s operations.
More troubling is the superficial reasoning of the IRS on the distinct issue of whether the “club” failed the test of exemption additionally on grounds of private inurement. The adverse determination letter states as follows, in relevant part:
You fail to meet the requirement of section 501(c)(7) of the Code that your earnings must not inure to the benefit of private individuals. You are completely controlled by your founders Mr. and Mrs. X, who are in the winemaking business or who have winemaking as their profession. Mr. and Mrs. X, acting as both landlord and tenant, rented their winemaking facility to you. The fact that Mr. and Mrs. X charged you rent based on the fair market value of their facility (which was only established almost a year after the date of the lease agreement) does not mean that they did not realize a financial gain from this transaction. On the contrary, a prudent landlord would expect to make a financial gain by leasing a facility at a monthly rent equivalent to its fair market value. Renting the facility to you, an entity that they completely controlled, also relieved Mr. and Mrs. X of the expense of marketing the facility to an unknown, unrelated tenant. Thus, the lease between the closely related parties produced prohibited inurement and this reason, standing alone, constitutes sufficient justification for denying your request for exemption from income tax under section 501(c)(7), independent of the other reasons described in this letter. . . .
Your plan to pay Mr. X as your wine steward or winemaker as soon as you are financially able to do so confirms that your earnings will inure to the benefit of your founders, Mr. and Mrs. X. You asserted that the annual salary that you will pay Mr. X will be reasonable in comparison to salaries paid by other employers for employees providing similar services. However, the inurement derives more from your hiring methodology than from the specific amount of the compensation. As stated above, Mr. and Mrs. X formed you and made all of your business decisions. Your plan (formulated by Mr. and Mrs. X) to hire Mr. X provides a valuable economic benefit to Mr. X even if his salary does not exceed what is reasonable for his services. At a minimum, this arrangement relieves Mr. X of the time, effort and expense of seeking employment from an unrelated employer. This second form of inurement, standing alone, provides sufficient justification for the proposed denial of exemption independent of the other reasons described in this letter. . . .
These sweeping statements in the determination letter reflect an understanding of “private inurement” that is more expansive than that supported by the weight of federal case law. Although exclusive financial arrangements with insiders and promotion of the financial interests of a founder can indeed produce private inurement, or confer an unlawful private benefit even in the absence of private inurement, the payment of reasonable compensation or market rent for necessary services and facilities does not, “standing alone, provide sufficient justification” for denying tax exemption. Under the reasoning of the determination letter, no social club – and, by analogy, no public charity – could pay reasonable compensation for services or market-rate consideration for goods and facilities provided by insiders. Such a view is inconsistent with judicial decisions and, in the case of public charities claiming exemption under section 501(c)(3), would largely render moot the excess benefit transactions excise tax (i.e., the so-called “intermediate sanctions” regime) of Code section 4958.
An interesting story in the Boston Globe discusses the potential viability of raising governmental revenues through voluntary taxes. The article, which quotes Yale law professor Ian Ayres and U.S.C. law professor Edward McCaffery, begins with the following fascinating statistics:
In tax year 2008, the Massachusetts Natural Heritage and Endangered Species Fund received $216,544 in taxpayer money to protect threatened species, such as the bald eagle and the marbled salamander. The state's Organ Transplant Fund received $117,654 to help patients who need new kidneys and hearts pay for medical care. And the Massachusetts AIDS Fund got $112,939 for research and education relating to the disease. The functions of these programs differ widely, but they all share one remarkable feature. The taxpayer dollars were not wrenched from the pockets of the Commonwealth's residents.
The gist of the article is that those who object to higher taxes would not necessarily decline to pay more taxes when asked to do so. According to the story, research conducted by economists at the University of Texas at Dallas suggests that many people would in fact voluntarily raise their tax bills if they are given the opportunity to do something that donors to charity have long done – direct the use of their transfers to some degree. When tax revenues are sought to support specific governmental projects, research reportedly shows that people are almost as likely to pay additional taxes to support such projects as they are to donate sums to charity. The research suggests that people do not necessarily object to paying more to government. Rather, they want some assurance that taxes will be spent for purposes that the taxpayers value. The obvious potential benefit of facilitating voluntary tax payments is enhanced funding of worthy public projects. The article also notes the possible negative effects of relying on voluntary taxes, such as enhancing the political influence of the wealthy and shifting responsibility for making allocations of public resources from governmental decision makers to private hands.
These concerns are, of course, familiar to scholars of tax law and charity law, because analogous points figure prominently in debates surrounding the charitable contributions deduction and tax expenditures.
For those readers interested in following up on the story surrounding Sarah Palin’s speaking appearance at Cal State Stanislaus, previously blogged here, the Los Angeles Times reports that the June 25 event “grossed more than $450,000 in cash and in-kind donations, for a net cash total of $200,000.” A foundation official stated that a third of the net receipts will be used for scholarships, and the remainder will fund university programs. The event, sponsored by the nonprofit Cal State Stanislaus Foundation, reportedly triggered a lawsuit against the university by a watchdog group seeking disclosure of the Palin contract, and an inquiry into the foundation’s finances by California State Attorney General Jerry Brown.
Friday, June 25, 2010
We previously blogged about the New Jersey Attorney General's lawsuit against the Stevens Institute of Technology and the series of stories raising questions about the U.S. Navy Veterans Association. Some of this information is a bit dated, but I thought our readers would appreciate learning how those cases turned out or are progressing):
- Stevens Institute Settles: Bloomberg reported that the Stevens Institute quietly settled its dispute with the Attorney General only a few months after it began, agreeing to to numerous governance changes and the resignation of its long-time president. The president will, however, remain a consultant to the institute. For more details, see the AG's press release and the final consent judgment.
- Florida Orders US Navy Veterans Association to Cease Operations Immediately; Ohio Attorney General Seeks Restraining Orders: In its latest story on this group, the St. Petersburg Times reports that the Florida's Department of Agriculture and Consumer Services, which has jurisdiction over charities in that state, has filed an emergency order ordered the Association to cease operations in the state immediately, including solicitation of contributions. The article also reports that seven other states have launched investigations into the group, and U.S. Senator Jim Webb has asked both the Department of Veterans Affairs and the IRS to examine the organization. Separately, the Ohio Attorney General announced that he is seeking emergency court orders to stop solicitations of contributions from residents of his state by this organization because it has been unable to locate any of the claimed Ohio officers of the group and the organization's counsel, who is based in Ohio, has stated the group does not have to comply with that office's cease and desist orders.
We previously blogged about Vision Service Plan's quixotic quest to be recognized as tax-exempt under Internal Revenue Code section 501(c)(4), up to and including hiring Ken Starr to petition for certiorari after losing in the U.S. Court of Appeals for the Ninth Circuit. Still not willing to abandon the fight, six VSP subsidiaries sought to revisit the issue again in a different circuit. The U.S. District Court for the Southern District of Ohio ruled, however, that these VSP-related entities are collaterally estopped from claiming such recognition based on "their operational model of delivering vision care services to subscribing members" because of their parent's previous loss on this issue. The Court, did, however, consider whether these VSP entities provided sufficient individual charity and community outreach efforts to support such recognition. But that consideration was in vain for VSP, as the court found that "the undisputed evidence demonstrates that those efforts are so minimal in relation to plaintiffs' overall operations that plaintiffs cannot be said to be operating 'exclusively for the promotion of social welfare.'"
Ellen P. Aprill (Loyola - Los Angeles) has posted An Overview of Tax Issues for Synagogues (and Other Religious Congregations). Here is the abstract:This 9 page document discusses the issues that most often have (or should have) been asked in the many years that I have been giving pro bono advice to synagogueslocally and nationally: (a) requirements for setting compensation; (b) lobbying and political activities; (c) substantiation of charitable contributions, (d) charitable fundraising, (e) payroll taxes and withholding for clergy, (f) parsonage and housing allowances, and (g) discretionary funds. The summary of the applicable rules is designed to help guide lay leaders and congregational staff, whether volunteer or professional. Each topic appears on a single page, so that a page or pages can easily be distributed to those who have need of or interest in a particular topic; congregations have my permission to do so.
Two versions of the document follow. The first speaks specifically of “synagogues” and includes some discussion, such as the treatment of cantorial soloists, limited to that context. The second version, developed after a reader asked permission to adapt the guide for use at his church, speaks more generally of “religious congregations” rather than “synagogues.”
Zachary Bray (soon to be at Houston - see this Dean's Note) has published Reconciling Development and Natural Beauty: The Promise and Dilemma of Conservation Easements in the Harvard Environmental Law Review. Here is the abstract:
Local and regional private land trusts are among the most important and most numerous conservation actors in contemporary
Wednesday, June 23, 2010
The Committee Encouraging Corporate Philanthropy (CECP) has issued a report titled Shaping the Future: Solving Social Problems through Business Strategy. The report seeks to answer two questions:
1. What will the next decade look like, and what are the implications for corporate involvement in solving social issues.
2. How can corporations position themselves now to maximize their profitability and societal impact?
CECP created the report in collaboration with McKinsey & Company, which interviewed CEOs and thought leaders as well as polling CEOs who attended CECP's annual conference. Report highlights include:
- Global Forces. McKinsey has identified five game-changing trends that will affect the future of the global economy: talent shortages, shifting centers of economic activity, a new era of government action, increased scarcity of natural resources, and new levels of technological interconnectivity.
- Key Uncertainties. At the same time, business leaders face two key uncertainties about the future: the level of proactive action on behalf of companies and the expectations that are placed upon the private sector.
- Scenarios for the Future. These certainties and uncertainties combine to create four possible scenarios for 2020: the optimal being “Sustainable Value Creation” and the worst being the “Vicious Circle”. Sustainable Value Creation is a self-reinforcing state of trustworthy, pro-social corporate behavior that simultaneously delivers bottom-line results, provides competitive advantage, and leads to community benefits. The consequences for inaction are severe for both business and society.
- Capturing the Opportunities. Both business and society have responsibility for which scenario ultimately is realized; both have ownership over the future. Sustainable Value Creation requires new forms of collaboration across sectors to achieve results. This report shows how corporations are shifting their view on globalization and economic development – they will work in partnership with nonprofits and government in the future, taking a leadership role on ethical and moral issues for positive business and societal outcomes.
According to CECP's website, Paul Newman and others helped found the now the ten-year old organization, its Board of Directors include numerous CEOs of well-known companies, and its initial funders included a number of major private foundations.
James R. Hines, Jr. (Michigan), Jill R. Horwitz (Michigan), and Austin Nichols (Urban Institute) have posted The Attack on Nonprofit Status: A Charitable Assessment, 108 Michigan Law Review (forthcoming 2010). Here is the abstract:American nonprofit organizations receive favorable tax treatment, including tax exemptions and tax-deductibility of contributions, in return for their devotion to charitable purposes and restrictions not to distribute profits. Recent efforts to extend some or all of these tax benefits to for-profit companies making social investments, including the creation of the new hybrid nonprofit/for-profit company form known as the Low-Profit Limited Liability Company, threaten to undermine the vitality of the nonprofit sector and the integrity of the tax system.
Reform advocates maintain that the ability to compensate executives based on performance and to distribute profits when attractive investment opportunities are scarce makes for-profit entities more efficient than nonprofit counterparts. Offering more favorable tax treatment to for-profits engaging in charity would encourage greater charitable entrepreneurship, the argument goes, and provide worthwhile competition for the nonprofit sector. As matters stand, however, nonprofits can and occasionally do reward executives with performance-based compensation, and their nondistribution rules impose no obligation to make subpar investments. The existing nonprofit sector is extremely competitive, and the charitable activities of for-profits already receive favorable tax treatment. Going further and offering socially active for-profits the tax benefits equivalent to those available currently to nonprofits would create opportunities for tax arbitrage by providing tax deductions to high-bracket donors and taxable income for lightly taxed recipients. The difficulty of policing lines between nonprofit and for-profit activities of the same business entities would entail significant administrative complexity and is unlikely ultimately to succeed. And even should it succeed, the costs of offering new tax benefits to for-profit charities include not only foregone tax revenues, but also spillover effects on the charitable activities of nonprofits.
Linda Sugin (Fordham) has posted Lifting the Museum's Burden from the Backs of the University: Should the Art Collection Be Treated as Part of the Endowment?, 44 New England Law Review (forthcoming 2010). Here is the abstract:A few universities in economic straits have recently attempted to sell artwork to address their financial woes, causing much consternation in the museum community. This article relates the stories of some institutions’ attempts to deaccession artworks, and explains why universities may suddenly perceive their art collections as important assets to monetize. It contends that the universities and their critics have fundamentally divergent conceptions of the role of the art collection in the university, which explains why they cannot agree on the legal responsibilities of universities vis-à-vis their art. The critics have a strong cultural-property conception that privileges art, while these universities see their collections as similar to other property they use in carrying out their programs. This article advocates a contextual approach for choosing among these conceptions.
The legal regime that governs the responsibilities of university fiduciaries in managing and selling property generally depends on categorization as endowment or program-related property. Unfortunately, there is no clear law determining whether university art collections should be treated as endowment property subject to the statutory rules of investment responsibility, program-related property governed by fiduciary duties, or cultural property subject to its own unique standards. The article concludes that university art collections are hybrid cultural-instrumental property, and that universities should be subject to a more flexible standard than museums in making deaccessioning decisions. It argues that university trustees would be faced with too great a fiduciary-duty conflict if subject to the stricter museum standard. To accommodate the cultural-property concerns, it proposes that trustees exercise a heightened level of attention when selling art, but retain their discretion to act in the best interests of the university.
In an apparently somewhat light-hearted consideration of the issue, Andrew Delaney, Technology Editor at the Vermont Law Review, has posted Taking a Sack: The NFL and its Undeserved Tax-Exempt Status. Here is the abstract:This is an article about the NFL's tax status with some humor thrown in. Enjoy. I've tried to make it readable. Here's the mandatory roadmap: Part I of this article discusses the NFL’s current tax status. Part II attempts to put the NFL’s tax and antitrust exemption in proper context. Part III analyzes the NFL business model from a critical perspective, asking whether the NFL’s nonprofit status is deserved. More importantly, Part III begins with a great Dave Barry quote. This piece concludes, more or less, that the NFL should stop blowing smoke up a certain orifice of the American taxpayer and start paying its taxes.
The Balkan Civil Society Development Network has reported that on 15th April 2010, the Government of Montenegro adopted a decision to found the Council for Cooperation between the Government and NGOs. The Council acts as an advisory body to the Government. Its aim is to follow the government’s Strategy with NGOs as determined by the Action Plan for the implementation of the Strategy for the period 2009-2011. The Council is composed of a chairperson and 24 members, i.e. 11 representatives of Ministries and the Head of the Office for Cooperation with NGOs and 12 representatives of different sectors of civil society. The chairperson of the Council is a representative from the Government. The chairman and the members of the Council are appointed by the Government, for a period of 3 years. The decision also included the procedure for election of representatives of civil society by way of public announcement.
Karla Simon gave a speech on developments with regard to CSOs in China at the European China Law Studies Association meeting in Copenhagen on June 18, 2010. She presented a paper that she and Hang Gao, a former CUA Research Fellow, are working on, entitled “Opening the Space: New Developments for China’s Civil Community Organizations,” which is available on her SSRN page(and which has made several recent SSRN top-ten download lists). That paper and an earlier one published in the Fordham International Law Journal were featured by Stanley Lubman in his influential WSJ blog last month. Prof. Simon has also posted an analysis of other recent developments regarding the regulation of CSOs in China to the ICCSL website.