Nonprofit Law Prof Blog

Chris Rock Swears for Charity

The Daily Tell reports that Chris Rock, the funny, foul-mouthed comedian, offered at a charity fundraiser to tell off the former lover of the highest bidder.  After a woman pledged $20,000, Rock phoned her ex from the stage and unleashed a stream of profanities at him. 

My question is, how much can she deduct, given that Rock provided a valuable service in exchange for her donation?

TAK

Politics

The LA Times picked up an AP story about a federal judge in New York who rejected a challenge to state election law brought by a group that opposes gay marriage and supports the Republican candidate for governor, Carl Paladino, who has made plain his feelings about gay rights.

The group, the National Organization for Marriage, planned to run television ads mocking gay rights and explicitly supporting Paladino.  It sought what was in essence a declaratory judgment from the court stating that the group would not be required under New York law to list their donors.  Although the article did not specify, I assume NOM is a 501(c)(4), which ordinarily would not be required to reveal its donors, but which would be forced to do so under New York law if New York's Board of Elections were to rule that NOM was a political committee.  The group's legal theory was that being branded as a political committee and thus having to reveal its donors would "interfere with NOM's free speech rights by imposing so many burdens that it wouldn't be worth it to NOM to run the ads."  That argument sounds like a loser on the merits, but the judge never got there, dismissing the suit as not ripe since the New York Board of Elections had not yet acted.

I leave it to Lloyd to educate us about how this story fits into the larger story of the use and abuse of nonprofit organizations in the political sphere.

TAK

Law School Clinic Under Attack

The Chronicle of Higher Education, along with many media outlets, reported recently that an appeals court in New Jersey ruled that anEnvironmental Law Clinic at Rutgers University must comply with open records laws.  The ruling, which overturns the decision of a trial court, means that clinical programs (which generally view themselves as law firms that are based at law schools) at public law schools in New Jersey will have to turn over documents that normally would be considered privileged.  The law suit was brought by the developer of an outlet mall whose development plans were delayed by opposition from a community group that the clinic represented.  The developer seeks documents to prove that the community group received assistance from the owners of rival outlet malls. 

If this ruling stands, it could have a huge impact on the future of clinical programs, particularly those based at public universities.

Gates Foundation Gives $1.45 Million for Improved Seed Production

The Gates Foundation recently granted $1.45 million to Iowa State University to explore ways to provide better access to improved seed varieties in Africa, according to an item in the The Daily Tell.  This storycaught my attention because as a younger person I had a profoundly unhappy experience with a seed program in Africa.

The USAID program I was attached to in the Republic of Niger (for two years in the late '80s) had the goal of introducing "improved" millet seeds to Niger's farmers.  Millet is Niger's staple crop.  Scientists at a California university (I forget which one) had developed a strain of seeds that would grow to maturity quickly and would yield more per acre thantraditional Nigerien varieties, so long as the rains fell steadily and so long as the farmers followed a strict regimen of ploughing their soil and adding fertilizer.  What the California scientists failed to recoginze is that 1) the  rains almost never fall steadily in Niger, 2) farmers never plough their fields because the sand content of the soil is so high that if they do, it all blows away in the wind, 3) asking the subsistence farmers to take the financial risk of buying fertilizer on credit was ludicrous.

The short version is that the improved seed project in Nigerwas a disastrous, multimillion dollar failure, and that the failure was caused by the Western experts' ignorance of conditions on the ground.  It turned me into a development skeptic and, eventually, launched me into an academic career in which I spend a good deal of my time explaining why development interventions, particularly law and development interventions do not work.

TAK 

Questioning the Viability of the Hybrid Social Enterprise Model

Yesterday's New York Times reported the not-terribly-surprising news that many hybrid social ventures are failing.  The article quotes the prominent social enterprise lawyer, Allen Bromberger, as claiming that the hybrid structures "allow social enterprises to tap conventional investors interested in making profits while continuing to pursue their social missions."  But the balance of the article tells the story of several prominent social enterprises that failed to achieve social or financial returns.  "Like Dr. Doolittle's pushmi-pullu, the animal had trouble moving because its two heads could not agree on a single direction . . .."   Adding injury to insult, these failed social enterprises have been very difficult to wind down because of their hybrid structures.  One wonders whether the Fourth Sector's overall track record would be better, and the Times would be writing hagiographies, if the domestic and global economy were stronger.

TAK

Microlending in the USA

For years, social entrepreneurs in the U.S.  have applauded microlending programs as tools for wealth generation in poor countries.  The programs, generlly based on the model established by Muhammad Yunus and the Grameen Bank, provide small loans to entrepreneurs who ordinarily do not qualify for bank financing.  Until recently, microloan programs were confined primarily to the poorest nations.

Recently, the Community Development Law Clinic that I supervise in North Carolina has received requests from local groups wishing to form microloan programs in their communities.  And it appears that microloan programs' migration to the US is not confined to my home state.  The Wall Street Journalreported recently that Kiva, a nonprofit known for helping foreign entrepreneurs receive microloans, is beginning to do business along the U.S. Gulf Coast.  Kiva is the best known of the so-called "crowdfunding" organizations that act as a portal, matching donors who want to loan to microentrepreneurs with low income people who need capital to start businesses.

TAK

Abuse of "Green" Labeling

Not long ago I wrote a law review article about the emerging Social Enterprise/Fourth sector in the United States.  One of many challenges that social entrepreneurs face is distinguishing their double or triple bottom line philosophy from practitioners of mere Corporate Social Responsibility ("CSR").  According to a recent article in the Wall Street Journal, social entrepreneurs have yet more reason to distance themselves from CSR.  The Journal says that the phenomenon of "greenwashing" is rampant in the corporate world.  That is, many, many corporations in the U.S. claim that their products are environmentally responsible, or "green," when in fact there is absolutely no evidence to support the "green" claims.  In fact, more than 95% of consumer products examined in a recent study committed at least one "greenwashing" offense.  Interestingly, the article mentions that there are two firms that offer to provide third-party "green certification" for corporations that make green claims.  Such firms could provide CSR practitioners the same sort of seal of approval that B-Lab purports to provide for social enterprise organizations.

TAK

Chamber of Commerce Controversy

Several media outlets in recent days, including the NY Times, have reported on controversy surrounding the legislative and political activities of the US Chamber of Commerce.  In brief, the controversy includes the facts that 1) tens of millions of dollars are being spent on political issue campaign advertisements, mostly on behalf of Republican candidates, 2) a significant percentage of the Chamber'sfunds are coming from a handful of huge corporations, 3) the Chamber is not required to divulge its donors, so long as the donations are not specifically earmarked for ads aimed at a particular candidate, 4) the Chamber appears to be spending the money for purposes dictated by the corporations while doing back flips to ensure that the contributed funds have not been "earmarked;" 5) some of the donated funds are coming from overseas corporations and being intermingled with domestic contributions and spent on the advertising, in apparent contravention of US law.  The Times obtained details about corporate donations, not through the Chamber's records, but by combing through the public financial documents, corporate filings,  and annual reports of some of the large donors.

TAK

From the Oops Department

From my own neck of the woods, the Winston-Salem Journal  in North Carolina recently reported that staffers and students at Winston-Salem State University received university-generated emails urging them to take advantage of early voting and to help the Democratic Party.  After complaints from the local Republican Party, the University agreed to 1) send out a retraction (six hours after the original email went out), 2) send out an email to the same list urging them to help the Republican Party and 3) then, six hours later, retract the second email.  It appears that two wrongs do make a right.

TAK

Governing Civil Society Symposium

Several regular contributors to this blog attended a symposium last Friday at Brooklyn Law School on Governing Civil Society: NGO Accountability, Legitimacy, and Influence.  Brooklyn's International Law Journal will be collecting and publishing the papers (next spring)?  My paper, "Wait! That's Not What We Meant by Civil Society: Questioning the NGO Orthodoxy in West Africa," described how Western efforts to engender civil society in several West African nations has produced unintended consequences as Islamic religious organizations have flooded into (and as often as not taken over) civil society.  One problem with the nascent civil society organizations promoted by the West is that they tend to be run by Western-oriented elites whose interests diverge from those of grassroots citizens and groups.  This is one of the reasons that Islamic organizations have had so much success.  The paper argues that there is not much that we (i.e., the U.S.) can or should do about the situation.  All of the papers were thought provoking, but I particularly enjoyed Gary Jenkins' remarks.  He pointed out that Western insistence on NGO best administrative practices might have the effect of exacerbating the elitism of host country NGOs, rendering them illegitimate in the eyes of the ordinary citizens. (Gary, sorry if I misstated your argument.)

TAK

No State Property Tax Exemption for Vacant Property in Wisconsin

We have previously blogged about Massachusetts putting property back on the tax roles when churches close down parishes or schools and leave the property vacant.  In this earlier post we predicted that we would see more of this kind of litigation, and indeed the trend apparently has migrated to the Midwest.  A recent decision by the U.S. District Court in the Western District of Wisconsin (Asbury United Methodist Church v. City of La Crosse) has held the same thing.  In this case, Asbury United Methodist Church in La Crosse owned property that had been used as a parsonage, but which was vacant at the time of property tax assessment (January 1, 2008).  The church later converted the parsonage to a "hospitality house" to provide housing for people being treated at local hospitals that could not afford to stay at a motel.  This conversion, however, did not begin until April, 2008.  The court held that under Wisconsin law, property must be used for charitable purposes at the date of assessment in order to qualify for exemption.  In this case, the property in question was vacant and not being used for charitable purposes at the relevant date.

The court also considered the church's claim that Wisconsin law permits exemption for vacant property if it is being "readied" for charitable use (for example, undergoing renovation as a predicate to a charitable use).  The court noted, however, that the conversion of the parsonage did not get underway until April 2008, over three months after the relevant assessment date.  Accordingly, the property was not being "readied" for a charitable use at the key time in question.  The court also rejected free exercise and due process arguments presented by the Church.

JDC

EU Probing Property Tax Exemptions in Italy

The EU has opened a probe into property tax exemptions provided by Italy to the Catholic Church and some other nonprofit organizations.  According to another report, the issue involves an Italian law that shields these organizations from property taxes even on property used for some commercial purposes, like hostels and athletic clubs.

JDC

Microsoft Moves to Protect Nonprofits from Government Piracy Claims

The NY Times reports that Microsoft will provide free software licenses to more than 500,000 advocacy groups, independent media outlets and other nonprofit organizations in 12 countries with tightly controlled governments, including Russia and China, in order to prevent those governments from using software piracy claims to shut down anti-government advocacy groups. The move comes after an earlier Times story reported that Microsoft lawyers often encouraged and/or participated in crackdowns on anti-government advocacy groups in Russia, and that Russian security services confiscated computers from dozens of advocacy groups under the guise of enforcing piracy laws.

JDC

Another Property Tax Fight with a Hospital

The New Jersey Star-Ledger reports on another fight between a local community and a nonprofit hospital over property taxes.  Morristown is seeking $1 million in back taxes from Morristown Memorial Hospital relating to property that the hospital leases to doctors for their offices.  The hospital, which has already lost in state court, plans to appeal, but the city apparently isn't done, yet, either: the story quotes the mayor saying, "There is a lot more of the hospital that we believe that could be taxed."

While I'm not an expert on New Jersey property tax law, in most jurisdictions property is exempt from tax only if the property is both owned AND USED for charitable purposes, and many states tax property owned by charities that is leased to for-profit businesses or otherwise used for for-profit purposes.  This appears to be the grounds on which the trial court held against the hospital.

More importantly, the court refused to dismiss issues raised by Morristown regarding the overall exemption of the hospital.  The judge cited various disclosures on the hospital's form 990, particularly the levels of executive compensation and charity care, that according to the judge raised material issues regarding whether the hospital as a whole was operated for profit.

This is a case that may bear watching in the future.

JDC

Gift Tax on Political Gifts - Not So Fast

Although 2501 may not exclude these gifts directly, Paul Caron blogged that case law in effect prior to adoption of that Code section focused on donative intent, and a person making a gift to a 501(c)(4) organization does not have the donative intent that the Code seeks to tax under the gift tax.  There seems to be little direct information about the issue, but perhaps the gifts are not the sort Congress intended to tax as gifts.

Here's a link to Paul Caron's blog.

Thanks to Wendy Gerzog and Harvey Dale who also raised questions about applying the gift tax to these gifts.  

If anyone has other information, let me know!

sng

Trouble for (c)(4)s?

Nonprofit organizations that meet the requirements of 501(c)(4) are not charities, but they can obtain tax exempt status.  These organizations can engage in political activity, unlike 501(c)(3)s, and for that reason are appealing to donors who want to remain anonymous.  A well-known 501(c)(4) organization is Crossroads Grassroots Policy Strategies, or Crossroads, GPS, an organization created by Karl Rove.

The Huffington Post reports today that Senator Dick Durbin of Illinois has asked the IRS to investigate Crossroads GPS.  The organization has spent $3.3 million on the Senate race in Illinois, supporting Mark Kirk's campaign against Alexi Giannoulias.  In total, Sen. Durbin states in his request to the IRS, the organization has spent nearly $20 million buying television advertising in Senate campaigns around the country.

In addition to the issue of the tax-exempt status of the organization, big donors to the organization, and to others like it, may have something else to worry about.

William Barrett's Forbes blog reports on a memo written by Ofer Lion, an LA lawyer who specializes in the laws affecting nonprofit organizations.  Mr. Lion's memo, written for his clients, explains that the Internal Revenue Code provides no gift-tax exemption for contributions to 501(c)(4) organizations.  That means not only that will the donor not receive an income tax contribution for the gift, but also that the donor may owe a gift tax on the gift, with a maximum gift tax of 35% this year increasing to 55% in 2011.  Although the donor might be able to use an annual exclusion ($13,000) and the lifetime exclusion ($1 million), reports indicate that many donors have been making multi-million dollar gifts to 501(c)(4)s this year.  The tax bills may be significant, if the IRS decides to enforce the gift tax.  Although 501(c)(4)s need not make their donor lists public, federal law requires the organizations to provide the IRS with the names of all donors of $5,000 or more.  Thus, the IRS would have a lot of information about which taxpayers to investigate.

sng

 

 

Petition to IRS Concerning Fellowship Foundation

The Kansas City Star reports that a group called Clergy VOICE has petitioned the IRS to investigate a 2004 payment of $50,000 made to the Fellowship Foundation by the Islamic American Relief Agency.  The Fellowship Foundation is the organization that runs a boarding house on Capital Hill used by conservative members of Congress.  The Islamic American Relief Agency was designated a supporter of global terrorism by the U.S. Department of the Treasury in 2004 and was being investigated by the U.S. Senate for possible ties to terrorism.

The money given to the Fellowship Foundation was supposed to have been paid to Mark Deli Siljander, a former congressman who had agreed to lobby for the Islamic American Relief Agency to have it removed from a list of organizations being investigated by the Senate.  Siljander pleaded guilty to lying to federal investigators and to acting as an unregistered foreign agent.  He is awaiting sentencing.  

Clergy VOICE is a group of Ohio pastors dedicated to "safeguarding the separation of church and state, while promoting the historic role of organized religion in our society."  In the petition to the IRS the group expressed concern that some of the money intended for Siljander was used by the Fellowship Foundation to fund overseas trips by congressmen.  The president of the Fellowship Foundation has said that the entire amount was paid to Siljander and that the organization did not know that the Islamic American Relief Agency was being investigated for possible terrorist activities.

In an article in Roll Call, Mark Owens, lawyer for Clergy VOICE, notes that the denial by the president of the Fellowship Foundation of knowledge of the payment suggests that "'they don't have control over their money.  They let other people control it for their private purposes and that raises a question' about whether the foundation is meeting the obligations of its tax-exempt status."  Owens says the DOJ documents, filed in connection with the criminal case, do not provide enough detail to show that the Fellowship Foundation did something wrong, but they raise "legitimate questions about whether the organization is entitled to tax-exempt status."

sng

 

Pastors Preaching Politics

It happens every fall - some religious leaders speak about politics in church.  On September 26, nearly 100 pastors spoke about politics as part of "Pulpit Freedom Sunday," sponsored by the Alliance Defense Fund.The report appears in Onenewsnow.com, a division of the Family News Network.  The article there describes the action as a challenge the IRS to take the churches to court. In other political action described in the online journal, Pastor Cary Gordon of Sioux City sent a letter to other pastors in Iowa urging them to help in the effort to encourage votes against renewing terms for three Supreme Court Justices who had ruled in favor of same-sex marriage. Americans United for Separation of Church and State has filed a complaint against Mr. Gordon.

sng

Growing Pot to Support Art

At a time when fundraising has gotten increasingly difficult, a California art foundation plans to support its activities by raising medicinal marijuana.  The New York Times reports that Life Is Art will soon sell its first marijuana crop.  The goal is to grow enough pot to raise about $1 million next year.  The director notes that producing income through labor feels more honest than trying to get money from donors during difficult economic times, and some of the artists whose work will be exhibited at a show opening Oct. 22 have helped with the harvesting operations.  The New York Times article mentions drug-crime concerns as a possible problem, but does not talk about whether the pot-growing operation will generate unrelated business taxable income.

sng

Field Foundation to Go to Chicago Community Trust

Marshall Field V, the great-great-grandson of the founder of the Field's merchandising empire in Chicago, has decided, with his wife Jamee, to contribute the amount remaining in their private foundation to a separate fund in the Chicago Community Trust.  Then, when Mr. Field dies, his estate will make a more substantial gift to the Trust.  The Trust will manage the gifts as a separate fund through the lives of Mr. Field's grandchildren, and at that point the Trust will take over full management of the assets and discretion over the distribution of the assets.  Mr. Field has been working with the Trust as it begins a $500 million fundraising campaign, and his announcement kicked off the campaign. See the Chicago Tribune report.

sng