Monday, January 31, 2011
The Charitable Contribution Deduction Must Go, says Nonprofit Quarterly Op-Ed
An op-ed piece in the Nonprofit Quarterly makes a compelling argument for eliminating the charitable contribution deduction and replacing it with a credit:
I completely and totally support the proposal for broad base tax reform that includes getting rid of the charitable deduction for giving. Seventy-one percent of Americans receive no tax benefit for their giving because they don’t exceed the standard deduction and they file a short form. One of those 71 percent is my mother. She owns her house free and clear and has no other deductions so despite the fact that she gives often and generously, close to or surpassing the Biblical 10 percent, her tax bill is not reduced.
Contrast to someone I know who earns $250,000 per year, gives at most $2,000, declares all of it and proudly announces “It only cost me $1,200.” Richard Thaler, writing in the Dec. 19, 2010, edition of the New York Times, calls this, accurately I think, a tax subsidy. The government is subsidizing wealthy people’s giving while ordinary people (the majority of people) get nothing.
Of course many charity leaders are squawking that getting rid of the charitable deduction will be another body blow to nonprofits. In fact, it will be a minor scratch to the people who receive tax benefits for giving. And one such person who receives tax benefits for giving is me. I own a house, I have a mortgage deduction (which I also think should be abolished) and my partner and I give away 5 percent to 10 percent of our income. I am more of a hypocrite than my dentist friend so I have always declared my giving.
I am not so sure of the argument. It has surface appeal and may very well be correct; it does seem unfair that the deduction is worth more to wealthier taxpayers than to poorer taxpayers. But that seems an inevitable consequence of progressive rates. Unless we either eliminate all deductions or adopt a flat tax, the regressivity of deductions will always be present. We might reduce the regressivity by permanently allowing the charitable contribution above the line but it will still be worth more to the higher earners. A credit is fairer, particularly if it is capped, as most credits are -- or perhaps even retains progressivity since a $2500 credit means less to the wealthy than to the less wealthy -- but ultimately it will increase the tax burden on everybody. Which is to say that a credit essentially places the government in the shoes of the donor. I can't quite put my finger on it, but something about that bothers me. If the government pays wealthy people 100% on the dollar donated, the wealthy will have disproportionate influence over the characteristics defining the charitable sector. I'm thinking aloud here so don't hold me to the argument. It may be the case already that the wealthy already define the charitable sector.
January 31, 2011 in Current Affairs | Permalink | Comments (2) | TrackBack (0)
Tuesday, January 25, 2011
Singapore Issues a Revised "Code of Governance for Charities and Institutions of a Public Character"
The Singapore Charity Council has issued a revised Code of Governance for Charities and Institutions of Public Concern available for downloand here:(Download Code_of_Governance_for_Charities_&_IPCs_(2011)) The revised Code replaces the previous code that became effective in November 2007 andn is effective April 1, 2011. From the introduction:
WHY A CODE OF GOVERNANCE?
Charities are community organisations that work for public benefit. They are encouraged to applythe principles and practices of governance and management listed in this Code of Governance. Governance is important because it affects how a charity is run and the services that the organisation provides. The Board of a charity is responsible for putting in place the principles and practices of good governance in the organisation. The Code also helps charities to be more effective, transparent and accountable to their stakeholders. Members of the public donate and volunteer services to charities. This Code aims to help the public understand what good governance is and to make an informed decision on which charity to support.
And here is the preamble:
1. Charities differ greatly in size, activity and circumstances. Not all Code guidelines will apply to every charity. But all charities should go through the entire Code and take the necessary action to improve their governance. 2. The Code was first introduced by the Charity Council in November 2007. To help charities apply the Code more effectively, the Charity Council held an exercise to refi ne the Code in 2010. A Sub-Committee was formed, as well as three workgroups of representatives from charities/Institutions of a Public Character (IPCs), professional bodies, academia, auditors and grantmakers. They proposed changes based on feedback and their experiences on the ground. 3. This refined Code provides greater clarity and relevance about good governance to the charity sector. Charities are encouraged to refer to the related guides and templates on the Charity Council Website (www.charitycouncil.org.sg) to better understand the Code and how it could be applied.
1. Charities differ greatly in size, activity and circumstances. Not all Code guidelines will apply to every charity. But all charities should go through the entire Code and take the necessary action to improve their governance.
2. The Code was first introduced by the Charity Council in November 2007. To help charities apply the Code more effectively, the Charity Council held an exercise to refi ne the Code in 2010. A Sub-Committee was formed, as well as three workgroups of representatives from charities/Institutions of a Public Character (IPCs), professional bodies, academia, auditors and grantmakers. They proposed changes based on feedback and their experiences on the ground.
3. This refined Code provides greater clarity and relevance about good governance to the charity sector. Charities are encouraged to refer to the related guides and templates on the Charity Council Website (www.charitycouncil.org.sg) to better understand the Code and how it could be applied.
January 25, 2011 in International | Permalink | Comments (1) | TrackBack (0)
Thursday, January 20, 2011
Social Welfare Groups for and against ObamaCare: What is a social welfare organization anyway?
The Los Angeles Times reports today that "social welfare organizations" exempt under IRC 501(c)(4) are re-engaging the debate on ObamaCare. You may have seen the ad featuring former Governor MiKe Huckabee imploring viewers to give Congress a "spanking" by signing a petition aimed at repealing the new healthcare act.
The commercial (video clip) has run nonstop on cable television for several weeks, paid for by Repeal HealthCare Act, one of at least three nonprofit groups formed in recent months to campaign against the healthcare law. By designating themselves under tax law as 501c(4) social welfare groups, they can accept unlimited donations without identifying their contributors. Activists on the left are fighting back with their own social welfare groups. An organization called Americans United for Change, financed by labor unions and other undisclosed donors, this week began its own national ad campaign supporting the healthcare law.
I thought it was the case that political advertising could not be the raison d'etre of social welfare organizations; that they had to do something other than engage in lobbying to be exempt, though lobbying has never been entirely prohibited. The LA Times story quotes an unnamed expert as saying that social welfare organizations are safe as long as they devote at least 51% of their annual spending to non-political purposes. When I read that, I kinda new why the story does not attribute the quote to anybody. Really, I am more baffled by the whole notion of a "social welfare organization." What is that? I will at least go on record as saying that a social welfare organization, as best I can tell, is a charity that is not subject to the more stringent political activity prohibitions/limitations to which 501(c)(3)'s are subject and contributions to which are not deductible. But who really knows what a social welfare organization is?
January 20, 2011 in Current Affairs | Permalink | Comments (1) | TrackBack (0)
More reaction on Kaiser University to Nonprofit Status
The Nonprofit Quarterly chimes in today on Keiser University's conversion to nonprofit, 501(c)(3) status in a mildly skeptical opinion piece:
Why the switch? There's the nice spin for public consumption that the 57-year-old CEO wanted to ensure that the school would "remain a legacy of the Keiser family," which might not happen somehow if it stayed for-profit. But there is the more pragmatic economic explanation that is equally if not more compelling. Nonprofit status exempts the university from property taxes. It becomes eligible for donations and for tax-exempt bonds.
But also Keiser was among the leaders of the for-profit colleges' campaign against the U.S. Department of Education's proposed "gainful employment" regulation which would deprive for-profit colleges of federal money if too high a proportion of their students couldn't pay their federal student loans; apparently. As a nonprofit, Keiser University would be exempt from this regulation. The conversion would mean more subsidies for Keiser students, who would be eligible for a $2,425 annual grant to students attending nonprofit colleges compared to $945 for attending for-profit schools.
Making this more confusing is that Arthur and Belinda Keiser bought Everglades in 1998 (when it was American Flyers College), converted that 1,200-student school to nonprofit status, and structured it so that it purchased many of its administrative functions from the for-profit Keiser University.
Keiser says that this is all on the up and up, with no ulterior motives, but the executive director of the American Association of Collegiate Registrars and Admissions Officers queried, "Until now, the very purpose of this entity was to be a profit-maximizing firm. Now we're being told it has suddenly done a 180 degree turn and become a charity?" Is it all so easy simply to say, “Today we are a nonprofit?”—
I am not so sure it was property tax exemption that motivated the switch. Previous reports have indicted that Keiser doesn't own its own property. The real issues, obviously, will be in whether the Keiser family can make the transition from private owners to public fiduciaries of a public trust. In my experience, its often the founders who, years into a successful nonprofit venture, simply can't stop acting like owners entitled to reap the financial advantages resulting from the commercial success of their charitable dream. In this case, Mr. Keiser not only represented buyer and seller but continues to serve as chief insider for new, tax exempt Keiser. I'd say this is a case that requires careful and close monitoring by the advisors.
January 20, 2011 | Permalink | Comments (1) | TrackBack (0)
Wednesday, January 19, 2011
WSJ Says Tax Code Too Complex to be Constitutional, Uses private foundation provision as primary evidence
From the tax trivia department: In a SmartMoney column published yesterday, the Wall Street Journal used a few sentences from the charitable tax exemption provisions (specifically, IRC 509) to demonstrate the absurd complexity of the tax code:
The tax system has clearly gotten too complicated. The code itself holds about 3.8 million words, nearly five times as many as the King James Bible. There's also a much larger body of regulations, which carry the weight of law, written by the Internal Revenue Service, along with court precedents going back at least a century. Add to that the IRS's published opinions on its regulations. Even if someone could read all of it, the rules would be obsolete by the time he finished. There have been more than 4,400 changes to the tax code over the past decade, or more than one a day.
Can the tax system become too complicated to be constitutional? Consider the following two sentences from different sources:
1. "[A] statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law."
2. For purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in section 501(c)(4), (5), or (6) which would be described in paragraph (2) if it were an organization described in section 501(c)(3).
The first sentence comes from a 1926 Supreme Court decision that helped establish the right of citizens to known what laws mean. The second comes from the tax code.
January 19, 2011 | Permalink | Comments (2) | TrackBack (0)
Tuesday, January 18, 2011
Keiser University Converts to Nonprofit Status
Here is a recent transaction that would make for an interesting case study in a class or seminar on charitable tax exemption. According to the South Florida Business Journal, Arthur and Belinda Keiser recently sold Keiser University to Everglades College, Inc thereby converting to nonprofit, federally tax exempt status:
The Fort Lauderdale-based university was sold by Arthur and Belinda Keiser to Everglades College Inc., a nonprofit that owns Everglades University, a separately run institution. It is managed by a nine-member board, which Arthur Keiser recently stepped down from. Keiser said he would remain chancellor and CEO of Kesiser University for the foreseeable future. He called it a family planning situation. He did not disclose the amount he sold it for. “The institution has gotten very large in the last 35 years,” Keiser said. “We always looked at the institution as serving the community. Moving to nonprofit is a good way for us to have an exit strategy and ensure the legacy of the family and the legacy of the university.” It also exempts Keiser University from certain taxes and makes it eligible for federal grants, donations and tax-free bonds. All of its real estate is leased.
One wonders what sort of tax planning was undertaken to ensure that the buyer's presumed tax exempt status was not jeopardized by the transaction, particularly if the sellers can be considered disqualified persons by virtue of their service on the buyer's board. The transaction provokes discussion of the "first bite" rule, the five year rule pertaining to the definition of disqualified persons, and IRC 4958 in general among other issues. Can the buyer keep the selling price confidential? And what sort of planning has to go into the setting of Arther Keiser's salary as Chancellor and CEO of the newly nonprofit Keiser University? If he were receiving any sort of profit sharing from old Keiser, can new Keiser continue with the same arrangement without running afoul of the tax code?
January 18, 2011 in Current Affairs | Permalink | Comments (1) | TrackBack (0)
Thursday, January 13, 2011
"Spending and Management of Endowments under UPMIFA"
The Association of Governing Boards of Universities and Colleges, in conjunction with the Commonfund Institute has issued a very informative report regarding the effects of the Uniform Prudent Management of Institutional Funds Act on college, university and institutionally related foundations. Key findings include:
On average, underwater funds accounted for 22.4 percent of the total value of endowment funds held by colleges and universities at the end of the 2009 fiscal year ending June 30, 2009 (NCSE data). Under UPMIFA, institutions and affiliated foundations have adopted new spending practices yielding greater ongoing distributions from underwater endowments as well as adopting a variety of more flexible methods for determining distributions from underwater endowments. AGB’s survey findings include (as seen in Table 4):
• 46.9 percent are continuing distributions in keeping with their normal spending rule, an increase of 8.7 percentage points over practice prior to the enactment of UPMIFA;
• 25.1 percent are discontinuing all distributions from underwater funds, a decrease of 16.4 percentage points from practice prior to UPMIFA;
• 9.7 percent are distributing only interest and dividends, a decrease of 7.2 percentage points from practice prior to UPMIFA;
• 12.5 percent employ a threshold or tiered approach to spending or some other flexible methodology; and
• 6.8 percent of institutions described a flexible process for determining distributions from underwater funds that was used in lieu of or in conjunction with the spending practices listed above.
After the enactment of UPMIFA, 47.1 percent of institutions and foundations which previously discontinued all distributions or distributed only interest and dividends from underwater endowments adopted a new spending approach likely to yield grater ongoing distributions supporting endowment purposes.
College, university, and affiliated foundation boards are actively involved in making decisions about spending from underwater funds. Survey findings include:
• 75.8 percent of boards approve decisions regarding spending from underwater funds;
• 68.2 percent of institutions have some formal policy addressing spending from underwater funds; and
• 48.3 percent of boards document decisions regarding underwater funds in their minutes.
Only 14.5 percent of institutions and foundations have made use of provisions in UPMIFA allowing charities to modify restrictions on smaller and older funds that have become impracticable or wasteful.
Institutions and foundations have also made changes to endowment-management practices not immediately related to spending from underwater funds but in keeping with UPMIFA’s updated prudence standard for investment and management of charitable funds. Nearly one-third (28.5 percent) of institutions have changed their approach to portfolio construction to focus on factors such as risk reduction, inflation protection, and liquidity; 11.6 percent have made changes in their due diligence and risk management procedures; and 19.3 percent have made changes in investment management staffing and support.
AGB’s recent Statement on Conflict of Interest has advocated heightened conflict-of-interest standards for board members involved in investment decision making. While 97 percent of boards have some type of conflict-of-interest policy, only 60.9 percent of institutions and foundations have conflict-of-interest policies that apply to all volunteers responsible for investment decision making; 15.9 percent have policies which include especially rigorous provisions applicable to investment decision makers; and 13.5 percent have policies addressing board members’ parallel or “side-by-side” investments.
January 13, 2011 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)
Tuesday, January 11, 2011
Leslie on "Groupthink and Nonprofit Governance"
Melanie Leslie has published "The Wisdom of Crowds? Groupthink and Nonprofit Governance". Here is the interesting abstract:
Scandals involving nonprofit boards and conflicts of interest continue to receive considerable public attention. Last month, for example, Wyclef Jean’s Yele Haiti charity became the target of intense criticism after the charity disclosed that it had regularly transacted business with Jean and entities controlled by Jean and other directors. Although scandals caused by self-dealing undermine public confidence in the charitable sector, they continue to erupt. Why do charitable boards sanction transactions with insiders?
This article argues that much of the blame lies with the law itself. Because fiduciary duty law is currently structured as a set of fuzzy standards, it facilitates groupthink. Groupthink occurs when directors place allegiance to fellow board members ahead of the nonprofit’s best interests, and it can undermine social norms that facilitate sound governance procedures. Groupthink blinds directors to conflicts of interest, and may also induce directors to refrain from adequately monitoring ongoing business relationships with board members. When groupthink occurs, boards can convince themselves that their conduct falls within the law’s murky limits. As a result, charitable assets are diverted from the charities’ intended beneficiaries and into directors’ pockets.
Social norms against self-dealing are the primary tool for combating harmful groupthink. The law should be reformulated to support and reinforce fiduciary duties as social norms. Restructuring laws against self-dealing as a set of clear rules would give needed direction to confused boards and would entrench social norms against self-dealing. A flat prohibition on self-dealing and conflict of interest transactions would be the most effective way to ensure that fiduciaries place the best interests of the nonprofit ahead of self-interest. Short of that, clear directives requiring disclosure of conflicts, investigation of alternatives and proof that inside transactions are clearly below market would do much to counter the damaging impact of groupthink.
January 11, 2011 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)
Monday, January 10, 2011
Punishing Good Deeds: 2010 RMD's Cannot Be Re-Directed Towards Charitable Contributions, IRS Spokesman Says
The Service recently missed an easy opportunity to correct a Congressional mistake by not allowing taxpayers who had previously received a required minimum distribution from their IRA an opportunity to re-do the distribution to the benefit of taxpayers and charities. The Wall Street Journal explained the problem in a January 7, 2011 article:
The questions arose after lawmakers tucked a provision into the giant December tax package that retroactively extended the IRA charitable donation. This highly popular rule, which had expired at the beginning of 2010, allows taxpayers who are 70½ or older to donate up to $100,000 a year of IRA assets directly to a charity. There isn't a deduction for the gift, but it doesn't count as income and it can satisfy the Required Minimum Distribution, or RMD. (See Tax Report, Dec. 18, 2010.) Lawmakers, recognizing that their own delays had caused problems, gave taxpayers until Jan. 31 of this year to make 2010 donations. But the law didn't address the predicament of those who wanted to make IRA donations last year but took required payouts instead, often at the last minute, because they were afraid Congress wouldn't extend the law.
Surely, the Service would allow a do-over for those taxpayers who took an RMD to avoid any penalties but who otherwise would have avoided taxation by making a charitable contribution instead. Yes, Congress should have said so, but this would not be the first time Congress left the details to the Service, thinking the Service would take the reasonable route. Alas, according to IRS spokesperson Eric Smith, (whose statement was issued on January 5, 2011):
"Required minimum distributions (RMD) from an IRA received by a taxpayer cannot be rolled over to an IRA. As noted on page 24 of the 2009 IRS Publication 590, Individual Retirement Arrangements, "Amounts that must be distributed during a particular year under the required distribution rules are not eligible for rollover treatment." Moreover, there's no provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act Of 2010, nor any hint in the Committee report for such RMD recontribution."
Of course, nobody is talking about a rollover. The issue is whether the extension to January 31, 2011 will do any good for what has got to be the majority of taxpayers who decided not to wait until the last minute to get their tax house in order, only to find that being prudent and timely will cost them (and charities) money). Here, a case of no good deed goes unpunished!
January 10, 2011 | Permalink | Comments (0) | TrackBack (0)
Does Unrelated Business Activity Detract from the Charitable Goal?
One would think that in an age of severely restricted donations and government funding, nonprofits would logically step up their unrelated business activities in an effort to generate funds for their charitable goals. Now, though, one researcher finds that doing so only exacerbates the problem. According to a recent report authored by Rebecca Tekula of the Wilson Center for Social Entrepreneurship at Pace University, nonprofits that engage in unrelated business activity do so at the expense of their charitable goal.
By pursuing income-related activities such as selling donors' contact information to third-party marketers and running online shops, nonprofits have diverted income away from service activities, says Rebecca Tekula, the report's author.
"Organizations that spend money and divert resources to other activities do so at the detriment of the homeless, domestic violence victims and people who need these services," says Ms. Tekula, executive director at the Wilson Center for Social Entrepreneurship at Pace University. "Social enterprise may be an innovation," she says, but it is one that can tempt nonprofits into a substantial "mission distraction."
The Wall Street Journal wrote about the report (subscription required) in its November 4, 2010 issue. If the report is correct, engaging in unrelated business activities not only jeopardizes tax exempt status (if the activity is substantial enough) but it also accomplishes exactly the opposite of what is intended. Rather than funneling money into charitable causes, unrelated business activities divert funding from charitable causes. The UBIT has always been justified as a tool to level the playing field between for-profit and tax exempt entities. Now, it seems the UBIT might also be effective in ensuring the more effective accomplishment of the chartiable goal.
January 10, 2011 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)
Sunday, January 9, 2011
Aprill, Colinvaux, Mayer on Citizens United and Nonprofit Speech
Ellen Aprill (Loyola - L.A.), Roger Colinvaux (Catholic), and I have posted papers examining different ways that the Supreme Court's Citizens United v. FEC decision affects - or does not affect - speech by nonprofit organizations. We initially presented these papers at the National Center on Philanthropy and the Law's Annual Conference last fall, which focused on nonprofit speech in the 21st century. Richard Briffault (Columbia) also presented a paper on this topic at that conference, but that paper is not yet publically available. Here are the abstracts and links for our three papers in the order they were presented:
Roger Colinvaux, Citizens United and the Political Speech of Charities
The Supreme Court’s decision in Citizens United v. Federal Election Commission makes a Supreme Court challenge to the tax law rule that prohibits charities from involvement in political activities likely, and a reexamination of the political speech of charities necessary. Part I of the Article surveys the history of the political activities prohibition in order to emphasize that it was not a reactionary policy but quite considered, and that there are strong State interests supporting it. Part II of the Article analyzes Citizens United in detail and argues that if the Supreme Court considers a challenge to the political activities prohibition, Citizens United is distinguishable: the purpose of the political activities prohibition is not to suppress speech but to define charity; the legal setting is tax and not campaign finance; unlike the campaign finance rule, violation of the political activities prohibition is not criminal; and the political activities prohibition is by nature a rule associated with a tax status rather than a ban on corporate speech. Accordingly, the political activities prohibition, unlike the campaign finance rule, is not a burden on speech and therefore is constitutional. Part III of the Article discusses cautionary notes to the analysis of Part II, and explains that even if there is a constitutional defect to the political activities prohibition, the political activities limitation on the charitable deduction nonetheless would survive. Regardless of the constitutionality of the political activities prohibition, Part IV examines a number of possibilities for a charitable tax status in which political activity is allowed, and concludes that the current rule is the best option. Part V concludes that the prohibition represents the evolution of a century of wrestling with the subject of political activity and charity, and the wisdom that the two are not compatible. Such wisdom should not be contravened.
Lloyd Mayer, Charities and Lobbying: Institutional Rights in the Wake of Citizens United
One of the many aftershocks of the Supreme Court’s landmark decision in Citizens United v. FEC is that the decision may raise constitutional questions for the long-standing limits on speech by charities. There has been much scholarly attention both before and after that decision on the limit for election-related speech by charities, but much less attention has been paid to the relating lobbying speech limit. This article seeks to close that gap by exploring that latter limit and its continued viability in the wake of Citizens United. I conclude that while Citizens United by itself does not undermine the limit on lobbying by charities, the decision does reinforce the constitutional requirement that the government allow charities to easily form a non-tax favored alternative for engaging in unlimited lobbying. Some post-Citizens United proposals for regulating speech-related activity may in fact run afoul of this requirement. More importantly, the intersection of Citizens United and this tax-based limit on charity speech may be a catalyst for renewed consideration of whether the unconstitutional conditions doctrine could be successfully refined in the subsidy context through an approach that considers the purpose of the subsidy and how important the speech-related limit is to the accomplishment of that purpose.
Ellen Aprill, Regulating the Speech of Noncharitable Exempt Organizations after Citizens United
The role of noncharitable exempt organizations was perhaps the key feature of this year’s election. Senator Baucus as Chairman of the Senate Finance Committee, for example, sent a letter calling upon the IRS to survey major noncharitable 501(c) organizations to ensure that they are obeying the rules regarding political activity, including limits on politicking. In Citizens United, however, the Supreme Court decreed that “[n]o sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.” Nowhere does Citizens United acknowledge the tax limits on political speech or address their constitutionality. Supreme Court cases predating Citizens United have justified these tax limits on the grounds that government has no duty to subsidize political speech. To the extent that “no duty to subsidize” is and remains the justification, nothing in Citizens United explicitly threatens the current tax regime. Nonetheless, we must ask whether the reasoning of Citizens United has undermined Regan v. Taxation with Representation of Washington (“TWR”), the key ”no duty to subsidize” case. In addition, the rules regarding politicking by tax exempt entities have changed significantly since TWR. As a result, the standards as announced in the case and interpreted by its progeny may call for a different conclusion today.
Furthermore, this piece will explore both the tax rules that are, and some that might be, applicable to the political speech of noncharitable tax exempt organizations. Part I will review TWR, its ancestors and its progeny as well as Citizens United. Part II will describe the current tax rules regarding lobbying and politicking applicable to exempt organizations that can engage in unlimited lobbying and politicking as part, but not the primary purpose, of their activities: section 501(c)(4) social welfare organization, section 501(c)(5) labor organizations, and section 501(c)(6) trade associations. The discussion will include consideration of treatment of contributions to such organizations for gift tax purposes and the special tax that may be applicable to membership dues because of lobbying and politicking by such organizations. Part II will also review the history of section 527, the section governing political organizations, with particular attention to the 2000 amendments that added registration and disclosure requirements. Part III examines the possible impact of Citizens United on the tax law’s current approach to political speech. It highlights the difference between the definitions of lobbying provided in the Internal Revenue Code and Treasury regulations and the uncertain “facts and circumstances” approach employed by the Internal Revenue Service (“IRS” or “Service”) in identifying politicking. It offers a reconciliation of seemingly contradictory language in Taxpayers With Representation and Citizens United regarding use of affiliates to conclude that Citizens United has not sub silentio overturned TWR’s “no duty to subsidize” holding. It defends, albeit unenthusiastically, the 2000 amendments to section 527. Part IV proposes a number of possible additional disclosure requirements for noncharitable exempt organizations engaged in lobbying and politicking. They include requiring applications for exemption, establishing a new category of exempt organizations for organizations primarily engaged in lobbying and expanding disclosure of contributors for all or for some noncharitable exempt organizations. It also explores the possibility of taxing the politicking expenditures of noncharitable tax exempt organizations not conducted through a separate segregated fund, whether or not the organization has investment income. The piece concludes by reminding us that the tax law regulation cannot substitute for campaign finance regulation.
January 9, 2011 in Paper Presentations and Seminars | Permalink | Comments (0) | TrackBack (0)
Nonprofit and Voluntary Sector Quarterly February 2011 Issue Available
The February issue of the Nonprofit and Voluntary Sector Quarterly is now available. Here is the table of contents:
- Sandra Verbruggen, Johan Christiaens,and Koen Milis, "Can Resource Dependence and Coercive Isomorphism Explain Nonprofit Organizations’ Compliance With Reporting Standards?"
- Tracey Chadwick-Coule, "Social Dynamics and the Strategy Process: Bridging or Creating a Divide Between Trustees and Staff?"
- Juan L. Gandía, "Internet Disclosure by Nonprofit Organizations: Empirical Evidence of Nongovernmental Organizations for Development in Spain"
- Yuko Suda and Baorong Guo, "Dynamics Between Nonprofit and For-Profit Providers Operating Under the Long-Term Care Insurance System in Japan"
- Thomas Perks and Michael Haan, "Youth Religious Involvement and Adult Community Participation: Do Levels of Youth Religious Involvement Matter?"
- David Campbell, "Reconsidering the Implementation Strategy in Faith-Based Policy Initiatives"
- Luca Bagnoli and Cecilia Megali, "Measuring Performance in Social Enterprises"
- José Juan Vázquez, "Attitudes Toward Nongovernmental Organizations in Central America"
- Kate Cooney, "An Exploratory Study of Social Purpose Business Models in the United States"
- Jullet A. Davis,Louis D. Marino, Joshua R. Aaron, and Carl L. Tolbert, "An Examination of Entrepreneurial Orientation, Environmental Scanning, and Market Strategies of Nonprofit and For-Profit Nursing Home Administrators"
- Robert D. Herman, "Book Review: John Tropman and Thomas J. Harvey. Nonprofit Governance: The Why, What, and How of Nonprofit Boardship"
- Patsy Kraegerm, "Book Review: Uluorta, H. M. The Social Economy: Working Alternatives in a Globalizing Era (Rethinking Globalizations)"
January 9, 2011 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)
Discussion of Hammack & Anheier's American Foundations: Roles and Contributions Hosted by Hudston Institute
On Tuesday, January 25th in Washington, DC, the Hudson Institute will be hosting a book discussion of American Foundations: Roles and Contributions, edited by David Hammack (Case Western Reserve) and Helmut Anheier (UCLA). According to the announcement, the panelists will include co-editor David Hammack, as well as Leslie Lenkowsky of Indiana University, Steven Rathgeb Smith of Georgetown University, and Susan Ostrander of Tufts University. Bradley Center Director William Schambra will moderate the discussion.
January 9, 2011 in Books, Paper Presentations and Seminars | Permalink | Comments (0) | TrackBack (0)
Saturday, January 8, 2011
Regulating Charities: Should the How (and Who) Be Changed?
The St. Petersburg Times, using the U.S. Navy Veterans Association scandal (see previous post) and a recent Stanford study (see previous posts here and here) as starting points, is calling for reconsideration of how charities are regulated, and by whom. The U.S. Navy Veterans Association appears to have been the creation of a single individual, who created the false impression of a long-established organization with numerous members and state chapters and then used that vehicle to raise tens of millions of dollars in contributions and gain access to powerful politicians during the past decade. The Stanford study found that almost all applications for tax-exempt status sent to the IRS are approved, although as noted in an earlier post, that approval rate did not take into account the over 30 percent of applications that are withdrawn, never completed, or not processed because of a lack of a required filing fee, with the former two conditions occurring in many cases because of pointed IRS questionning of the applicant based on my personal experience. The St. Petersburg Times articles cite a proposal by Marc Owens (Caplin & Drysdale) to ceate a new public-private agency to oversee nonprofits. For a more comprehensive list of suggestions, including a new proposal for federal funding of state oversight, see Regulating Charities in the Twenty-First Century: An Institutional Choice Analysis, authored by Brendan Wilson (Akin Gump) and me and published in the Chicago-Kent Law Review. Finally, for critical commentary on the St. Petersburg Times article, see Jack Siegel's blog post ("We Get the Government That We Fund").
January 8, 2011 in Federal – Executive, In the News, State – Executive | Permalink | Comments (0) | TrackBack (0)
Did Orange Bowl Committee Violate Its Charitable Tax-Exempt Status?
Speaking of regulating charities, the Chronicle of Higher Education reports that Playoff PAC, a group that opposes the Bowl Championship Series, filed a complaint with the IRS alleging that the Committee improperly funded a Caribbean cruise for athletic directors, conference commissioners, and spouses. (Full disclosure: I am of Of Counsel with the firm that filed the complaint on behalf of Playoff PAC.) The complaint follows an earlier complaint critical of three of the BCS Bowl committees, including the Orange Bowl Committee.
January 8, 2011 in In the News | Permalink | Comments (0) | TrackBack (0)
Friday, January 7, 2011
Senator Grassley's Staff Issues Recommendations for Churches; ECFA to Form Independent Commission
Senator Chuck Grassley has issued a press release and staff memo reporting on the result of his investigation of six high-profile television ministries and making recommendations for possible tax law changes relating to churches and ministries. The memo, available through a link at the bottom of the press release, is particularly interesting because it covers almost every possible hot topic in this area, including disclosure, compensation, housing allowances, love offerings, and electioneering. On the last item, the memo calls for limiting or eliminating the electioneering prohibition on churches.
In response to a related invitation from Senator Grassley, Christian news sources are reporting that the Evangelical Council for Financial Accountability (ECFA) will be holding a press conference today to announce the formation of an independent commission to consider major accountability and policy issues affecting churches and other religious organizations. According to Paul Streckfus of the EO Tax Journal, Matt Batts, CPA will chair the commission, and Dan Busby, ECFA President, will serve in an ex-officio capacity, with the other members still to be determined.
UPDATE: ECFA press release announcing commission.
UPDATE: NY Times "Tax-Exempt Ministries Avoid New Regulation"
January 7, 2011 in Federal – Legislative, In the News | Permalink | Comments (0) | TrackBack (0)
NYT: "Microlenders, Honored with Nobel, Are Struggling"
The New York Times reports that in many developing countries microfinance is experiencing a political backlash. In the wake of reports that for-profit microcredit businesses are using strong-arm tactics to obtain loan repayments and possible over or poor lending that fail to create businesses capable of repaying the loans, governments from Asia to Latin America are imposing new restrictions on such businesses and urging borrowers not to repay their loans. In part these developments may reflect the tension between nonprofit microcredit organizations that, without a profit motive, may be more careful in targeting loans and working with borrowers but lack access to sufficient capital to meet the borrowing demand, and for-profit microcredit businesses that have access to that capital but then face the profit-making pressures that can lead to unwise lending practices and excessive growth. Article, anyone?
January 7, 2011 in In the News, International | Permalink | Comments (0) | TrackBack (0)
Chronicle of Philanthropy: "The New Congress and Charities"
The Chronicle of Philanthropy reports on new Congress and its likely impact on nonrpfits. Highlights include:
- The 93 new House members may not know much about nonprofits - nonprofit advocates are already stepping in to try to educate this large freshman class.
- As early House actions already suggest, the new Congress will ilkely cut back significantly on federal spending, particularly in the social services area, as the primary if not only means of addressing the federal deficit and debt. Even with Democratic opposition, nonprofits therefore face an era of greater uncertainty about federal funding.
- As another post today indicates, Senator Chuck Grassley still plans to stay on the Senate Finance Committee and keep an eye on tax-exempt organizations, even as he surrenders the senior Republican spot on that committee to Senator Orrin Hatch. That said, Senator Grassley will have a reduced staff and budget for such oversight, while Senator Hatch may very well have other priorities.
- Representative David Camp, new Chair of the House Ways and Means Committee, has in the past supported greater tax incentives for charities, which may translate into such support in the new Congress.
- Also on the House side, the House oversight committees and subcommittees may be taking a closer look at nonprofits that have, in the views of the new chairs of those committees, may have departed from their charitable or other nonprofit mission.
Interesting times for nonprofits in Washington.
January 7, 2011 in Federal – Legislative, In the News | Permalink | Comments (0) | TrackBack (0)
Thursday, January 6, 2011
Taxpayer Advocate Calls for Limit on Retroactive Effect of Revocation
In her annual report to Congress, National Taxpayer Advocate Nina E. Olson including one item of particular interest to nonprofit organizations - creating a statute of limitations to limit the retroactive effect of revocation of an organization's tax-exempt status. Here is the relevant section from her report:
No statute of limitation governs the revocation of tax-exempt status for charities and non-profit organizations. This situation creates a procedural loophole through which the IRS can revoke exempt status even for past years when assessment of tax is already timebarred. Potentially, an organization could face revocation and assessment in current years based on audited activities in closed years.
Under initial and annual filing requirements, the IRS receives timely notice of a charity’s claim to exempt status and honors deductions claimed by donors until announcement of a revocation, so it is unclear whose interests could be protected by an indefinite period for revocation. Meanwhile, exempt status generates numerous consequences, such as qualification for certain bond financing or participation in certain programs, which potentially could affect third parties. Given the far-reaching impact of revocation, procedural safeguards should apply.
The National Taxpayer Advocate recommends that Congress enact a statute of limitation on revocation of a charity’s tax-exempt status, to run concurrently with the existing period of limitation on assessment in general. Thus, revocation may occur for up to three or, in case of substantial omission of items from a return, up to six years after the filing of the return. In case of fraud, tax evasion, or non-filing, no period of limitation on revocation would apply. The time-bar would apply not only to the effective date but also to past facts as a reason for revocation.
January 6, 2011 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)
Governments Increasingly Competing with Charities for Contributions?
The Washington Post reports that in Fairfax County, Virginia, one of the largest (by population) and richest counties in the country, the public school system is expanding its efforts to attract private contributions. Going well beyond the traditional bake sale model, the system has established a second education foundation aimed at obtaining donations from local businesses. The first foundation, the Fairfax Education Foundation, is limited to supporting technology initiatives, particularly at the highly selective and acclaimed Thomas Jefferson High School for Science and Technology, and only raised $330,000 in 2009. The new foundation, the Fairfax County Chamber of Commerce Public Schools Education Foundation, formed in cooperation with the county's largest business association, has a mandate to support the entire system, which has an enrollment of more than 175,000 students and a budget of $2.2 billion. This development raises the question of whether local governments will begin competing more aggressively with charities on the revenue side, as well as increasingly reducing exemptions from fees and taxes on the expense side.
January 6, 2011 in In the News, State – Legislative | Permalink | Comments (0) | TrackBack (0)