Nonprofit Law Prof Blog

State Board Refuses to Renew Contract of University of Oregon President

In Oregon the university system is under the oversight and control of the State Board of Higher Education. Yesterday, the State Board told President Richard Lariviere that they would refuse to renew his contract which will expire in June 2012.  Lariviere has been a visionary leader for the UO, attempting to help the UO navigate continuing budget cuts and decreasing state support.  Lariviere has worked on a new governance system for the UO, a system that would result in greater independence for UO from the state system.  It is assumed that his pursuit of this idea caused the State Board to decide to terminate his contract.

In the hours since the announcement, faculty have rallied to his support.  A blog has been set up, We Love Our Pres, and faculty are planning a variety of actions, including a rally on Tuesday.  Contacts for the Governor, legislatures, and the State Board appear on the blog.

A story in the Eugene, Oregon newspaper, the Register Guard is here.

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A New Resource for the Church Tax Exemption Debate

In doing some trolling on the web, I came across a fairly new web site that addresses the pros, cons and history of tax exemptions for Churches.   The site is well-done, and with the exception of a few minor nitpicks (the exemption for churches goes back farther in history than Constantine; there are references to exemptions for churches in the Old Testament of the Bible and in ancient Egypt), gives a good overview of the issues involved in this continuing debate (about which I am sure we will hear more during the upcoming election cycle).

Check it out: http://churchesandtaxes.procon.org/

JDC

Prof. Roth in the Movies

Prof. Randall Roth (Hawaii) served as a consultant to the new George Clooney movie, The Descendants.  I haven't seen it yet, but watch for Roth's name in the credits.  Here's a story about opening night that explains a little about Prof. Roth's involvement.  And here's an interview Prof. Roth did.  Roth advised the movie makers about trust law, to keep the movie a little closer to reality.  Prof. Roth has long been a hero of mine for the great work he did with the Bishop Estate Trust.  If anyone has not yet read the book about the Bishop Estate, Broken Trust, do so!  It's a fascinating story of the history of the trust and all the legal mess that unfolded.

Hat tip to Evelyn Brody for sending me the links.

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PA to Investigate Sandusky's Charity

As the scandal in Pennsylvania continues to unfold, Governor Tom Corbett has called for an investigation into Second Mile, the charity founded by Jerry Sandusky, the retired coach now charged with multiple counts of child sexual abuse.  The Governor is quoted as saying, "I need to know what [the charity's] board members knew."  According to a story in the Wall Street Journal, Second Mile banned Sandusky from interacting with children in 2008 when he informed them that he was being investigated.  Sandusky retired from the charity in 2010.  In 2002 Penn State's athletic director told the chief executive of Second Mile about inappropriate behavior by Sandusky, but the chief executive says that he was told there was no finding of wrongdoing and Second Mile took no action at that time.

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NY Reviewing Cause Marketing

In connnection with Breast Cancer Awareness Month, a number of companies promise to benefit breast cancer charities with the sale of their products and services.  The NY Attorney General has directed the Charities Bureau to send questionnaires to companies and charities to ask about these cause marketing campaigns, to determine whether money was reaching the charities.  The Attorney General seeks to protect both consumers and charities, both by shutting down sham fundraising campaigns and through education for consumers.  In June, the AG sued to shut down the Coalition Against Breast Cancer, a sham charity, and in August, two defendants pleaded guilty to criminal charges for misusing more than $500,000 donated to the phony charity.  The AG provides "tips" to consumers on its website, to guide consumers in making wise choices when buying products or services in response to cause marketing.  For the AG's press release explaining the concern, go here.

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Oregon SCT to Address Church Property Dispute

The Oregon Supreme Court will review a Court of Appeals decision, Hope Presbyterian Church of Rogue River v. Presbyterian Church (U.S.A.), 255 P3d 645 (2011), that reversed a trial court decision involving real property owned by a church.  The Hope Presbyterian Church of Rogue River owns a church building and holds title to the real property in its name.  The church was affiliated with the United Presbyterian Church of the United States of America (UPCUSA), and in 1983 UPCUSA merged with PCUSA - Presbyterian Church (USA) and as part of the merger, adopted the PCUSA Book of Order.  The Book of Order declares that all property held by an individual church is held in trust for the denomination.

The current case arose because in 2007 Hope decided to disaffiliate  with PCUSA.  A dispute developed around the ownership of the land and Hope brought the suit to quiet title.  The trial court resolved the case using the "neutral secular principles" doctrine, looking at the legal documents and disregarding purely church documents.  The majority of states follow this approach.  The Court of Appeals applied the "hierarchical deference" doctrine, followed by a minority of states, and held in favor of PCUSA.  The Court of Appeals also said that under the neutral principles doctrine PCUSA would prevail.

The Supreme Court will decide which of these two doctrines should apply in Oregon and whether a trust was created over Hope's property.  The Supreme Court will hear the case on March 5, 2012.

Thanks to Samantha Benton for bringing the case to my attention.

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David Levinson Has a Suggestion for Kim Kardashian

In an op-ed in the Los Angeles Times, David Levinson, the founder and executive director of the charity Big Sunday, suggests that Kim Kardashian put her money-making talents to work for charity.  He suggests that she film the divorce, and give the proceeds to his charity, then re-marry and register on Charity Navigator instead of asking for wedding gifts.  He points out the challenges of fundraising these days.  He's "been trying to raise $5,000 to fix up the crumbling house of a veteran who did two tours in Iraq" and suggests that Kardashian could raise that amount by "letting us watch you call your lawyer."  The op-ed is humourous, of course, but it reminds us of the odd juxtaposition of the needs of so many people in our society with our celebrity culture - their wealth and our fascination with them.  And he's right about the power of celebrity status - I googled "charity" on the LA Times website and couldn't resist reading an article that popped up with Kim Kardashian in the title.  So after you read the amusing op-ed - and it is amusing - take a look at the Big Sunday website.  It looks like a great organization:  "building community through community service."

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Sole Control of Finances Led to Alleged Theft

The Pennsylvania Attorney General has been busy in recent days.  One news release deals with a lack of financial controls in a nonprofit and charges of theft for money allegedly stolen from the nonprofit.  Frank Bongivengo and his wife managed the New Caste Youth Football Program and "had sole control of the organization's finances."  The Attorney General investigated suspicions involving the finances and after reviewing records turned the case over to the State Police.  Criminal charges have been filed against the Bongivengos.  As noted in the University of Illinois post, oversight and checks and balances are important.

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U of Illinois Reporting Problems Provide a Broader Message

The Paul Pless, the Dean of Admissions at the University of Illinois Law School manipulated data on academic credentials of entering classes and on acceptance rates for some of those classes.  The consequences of the manipulation - higher ranking for the school in the U.S. News rankings and a significantly higher salary for Pless whose salary doubled over seven years.  There are two messages in this mess, one for law schools and one more generally for nonprofits.  An article in today's Chicago Tribune describes the "intense culture" in which Pless worked and the emphasis the school put on the U.S. News ranking.  "The college's strategic plans and annual reports focused on that ranking.  Pless' salary increases were tied to it.  The law dean and other top officials exchanged emails about the benefits of different cominations of test scores and GPA medians to achieve it."  Those of us in academia complain about the legitimacy of the rankings, but we know about the importance of the rankings to prospective students, alumni, and potential donors.  Pless not only submitted false data, but he also developed a program to admit high-GPA undergrads early, without LSAT scores that might bring down the school's median for reporting purposes.  At least one purpose for the program was a way to manipulate the numbers.  (Law Dean Bruce Smith notes that a purpose of the plan was to encourage high-achieving Illinois students to stay at Illinois, and that he was disappointed to learn about the reasons behind Pless' development of the plan and about Pless' description of the plan.)

The lesson for nonprofits in general is the importance of checks and balances in connection with any kind of reporting.  The importance of a system of checks and balances in connection with financial reporting is well understood, but the Pless case makes clear that having oversight in connection with other reporting is also important.  A report, produced by two firms hired by the school, points out that the law school was at fault for "putting unchecked power with one individual and not having controls to prevent or detect abuses." 

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IRS Denies (c)(3) Status to Member Organization

A member organization argued that its members conducted volunteer activities and that the organization provided scholarships.  The IRS determined that the activities included more than an insubstantial part of the activities consisted of social and professional events that benefitted the members.  Even the scholarships were limited to members.  Thus, the private benefit to the members was not incidental to the exempt purposes of the organization.  PLR 201143020 provides an interesting (although not surprising) analysis of the findings that the organization conducted member activities that were more than an insubstantial part of the organization's activities.

Gerry Beyer's Trusts and Estates Blog provides a description and links to the PLR, so this posting is for those of you who don't already ready his terrific blog.

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Oregon Takes On a Telemarketer

The Oregon Department of Justice has announced "an agreement that resolves accusations of misconduct against an Oregon-based veterans charity and its for-profit telemarketer."  A suit was filed in 2010 against Veterans of Oregon & Members of the Community (VOMC) and Associated Community Services, Ind. (ACS), a telemarketer.  The suit involved alleged violations of Oregon's no-call law and misleading statements about how contributions would be used.  

Among other things, the DOJ suit alleged that VOMC, through their fundraiser, ACS, raised hundreds of thousands of dollars from Oregonians by soliciting donations over the phone "telling donors that contributions would be used to help homeless veterans or veterans with medical needs."  Instead, 80% of the fundraising money went to ACS, and only a minimal amount of the remaining 20% went to veterans. The majority of the money VOMC received was used to pay travel expenses of the Director, John Neuman, and other members of VOMC as they traveled around Oregon awarding honorary medals to veterans.  

Under the agreement the former director of VOMC cannot serve as a director for two years, and the board agrees to procedures that will insure that donations are spent for actual charitable purposes.  The board must obtain proposals from at least three telemarketing firms before agreeing to a contract with a telemarketer.  VOMC must not permit the telemarketer to use donor information for commercial purposes, and the board must review all scripts and written materials provided to donors.  ACS paid $40,000 and agreed to refrain from soliciting donations in Oregon on behalf of any nonprofit client until December 31, 2013.  If ACS acts as a fundraiser in Oregon after that date, it must register with the Attorney General and show that it will comply with the law.  ACS must disclose its status as a professional fundraiser. 

The announcement by the Attorney General states, "It is extremely important that charities be properly managed, that they do not deceive donors and that the telemarketers they hire follow the law."

Thanks to Samantha Benton who provided information about this action by the Attorney General as part of my Nonprofits Organizations class.

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OWS' Fiscal Sponsor

The Alliance for Global Justice (AfGJ) announced on Oct. 19, 2011 that it is serving as the fiscal sponsor for Occupy Wall Street (OWS). As fiscal sponsor, AfGJ collects and manages contributions, reports OWS' activities and financial information on the AfGJ 990, and reviews OWS activities to make sure the activities are consistent with those of an exempt organization. AfGJ takes a fee of 7% of all money raised and says that much of the fee is used to cover administrative expenses.

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Some Local Boards of Realtors' Property May Be Exempt in Texas

As reported in State Tax Today (subscription required), the Texas Attorney General has recently issued an opinion responding to a question from a Texas State Senator of whether local boards of realtors qualify for the property tax exemption for "nonprofit community business organizations" set forth in section 11.231 of the Texas Tax Code.  While noting that the Office of the Attorney General “does not determine questions of fact, and we therefore cannot ultimately determine whether a tax exemption applies” to any specific property, the opinion nonetheless concludes that an entity that is engaged primarily in performing one of the economic development functions listed in the statute constitutes a "nonprofit community business organization" that qualifies for the property tax exemption.  In reaching this conclusion, the opinion contains an interesting discussion of the effect of the legislative intent of the statutory exemption:

You indicate that your intent was to provide an exemption for local chambers of commerce. See Request Letter at 1. Although that statement may manifest your intent, the Texas Supreme Court has ruled that the statement of a single legislator does not determine legislative intent. See AT&T Commc'ns of Tex., L.P. v. Sw. Bell Tel. Co., 186 S.W.3d 517, 528-29 (Tex. 2006). The Texas Supreme Court has further stated that "[w]here [the] text is clear, text is determinative of [legislative] intent." Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009). Accordingly, we are required to rely on the plain text of the statute, which grants the exemption not to a "chamber of commerce" but to a "nonprofit community business organization." Tex. Tax Code Ann. § 11.231(a) (West Supp. 2010). There is no indication in the text of section 11.231 that the exemption was meant exclusively for a chamber of commerce.

Remember, readers, to whom the Texas Attorney General is writing when he remarks that "the statement of a single legislator does not determine legislative intent."  United States Supreme Court Justice Scalia has little on Texas Attorney General Greg Abbott in this regard!

JRB

New Section 501(c)(4) Entity Formed in Part to Endorse Candidates Supporting Nonprofits

In New Group to Endorse Politicians Who Pledge to Strengthen Nonprofits, the Chronicle of Philanthropy reports that a Code section 501(c)(4) organization, called CForward, has been formed to educate political candidates about the contribution made by nonprofits to the economy through job creation and the resulting generation of payroll taxes.  The entity reportedly will also endorse political candidates who have concrete plans to strengthen nonprofits.  Says the story:

CForward—the brainchild of Robert Egger, president of D.C. Central Kitchen—seeks to turn the tens of millions of people who work or volunteer at nonprofits into a “powerful political force” that can reward politicians who include nonprofits in their economic strategies.  “It will allow candidates to see there’s an army being activated” that gives priority to that issue, Mr. Egger says.

For now, CForward is focusing on local elections, not the presidential campaign. It is asking supporters to identify candidates for governor or mayor who agree to appoint a person to work directly with nonprofits—for example, conducting economic analyses, making it easier for them to work with government, and promoting loan programs that can help them or their constituents open businesses so they can develop reliable sources of income.

JRB

Is Charitable Giving by the Rich Really Responsive to the Income Tax?

David Joulfaian (U.S. Department of the Treasury) has posted Is Charitable Giving by the Rich Really Responsive to the Income Tax? on SSRN.  Here is the abstract:

The income tax deduction for charitable contributions is limited to a fraction of reported income. Consequently, some of the contributions by large donors are not deductible in the year of the transfer, if deductible at all. Because this limit is often ignored in the empirical literature on charitable giving, the tax rate (the implicit subsidy rate) is often measured with error and this may bias estimates of the effects of the tax deduction. In addition to the errors in measuring the tax price, income and the size of gifts are also potentially measured with error; the deduction for contributions is often employed as the measure of transfers when using administrative records even though the amount contributed can be much larger, and income is often understated as the embedded accrued gains in gifts of appreciated assets are overlooked. This paper reviews the key features of the tax treatment of charitable gifts by individuals and employs panel data to explore the sensitivity of behavioral responses to taxes when measurement errors are corrected. The empirical findings suggest that giving by the rich may not be as responsive to the income tax as previously thought.

JRB

A Neuroeconomic Perspective on Charitable Giving

David V. Yokum and Filippo Rossi have posted A Neuroeconomic Perspective on Charitable Giving on SSRN.  Here is the abstract:

Psychologists and economists, particularly those assuming that people are rational egoists, have struggled to understand the causes of voluntary donation for decades. Why would a person decide to sacrifice part of his or her material payoff in order to increase the well being of others? In the first part of this paper, we outline a core set of possible motivations, and then consider how those motivations can be used to construct behavioral models that can also be tested in terms of what we know about brain function. We emphasize the role of other‐regarding preferences and argue that there are moral judgments, independent of any consideration of payoffs, that partially determine when and to whom such preferences exist. In the second part of the paper, we argue that a neuroeconomic perspective can help understand charitable giving, and then discuss recent neuroimaging studies that demonstrate this potential.

JRB

2011 Transfers from an IRA to Charity

In The Upside of Gifts Made Directly From I.R.A.'s, the New York Times reminds us of some of the circumstances in which a taxpayer may want to benefit charity by effectuating a transfer of money directly from his or her individual retirement account to a charitable donee.  Through the end of this year, a taxpayer may arrange for such a transfer to charity in lieu of receiving a required minimum distribution from the IRA.  Such amounts transferred are not included in the taxpayer’s gross income.  Although the taxpayer cannot claim a charitable contributions deduction for the transfer, in some circumstances, a transfer from an IRA may nonetheless be advisable.  The article cites Robin Christian, a senior tax analyst for Thomson Reuters, who explains:    

A required minimum distribution raises the recipient’s income, which in turn limits some itemized deductions.   Medical expenses, for example, are deductible only to the extent they exceed 7.5 percent of adjusted gross income. A higher income may also put a taxpayer into a higher marginal bracket.  The I.R.A. gifts … are particularly beneficial to people in two groups, Ms. Christian said — those who did not itemize deductions and those for whom a gift from regular accounts would exceed the single-year deduction limit of 50 percent of adjusted gross income.

The story includes a caveat offered by Chris Zander of Evercore Wealth Management.  In the case of those who own outright highly appreciated shares of stock,

“It is better to contribute the highly appreciated stock to the charity in lieu of doing the charitable I.R.A. transfer.”  That avoids capital gains tax on the stock and allows for an income tax deduction for the fair market value of the assets contributed.

JRB

Kentucky Law to Host Conference on Disaster Relief

The University of Kentucky College of Law will host Helping and Hindering Disaster Relief: Law, Policies, and Politics Impact Aid, the 2011 James and Mary Lassiter Distinguished Visiting Professor Conference, on Friday, November 4, 2011.  Featured speakers include fellow nonprofits law professor Nina J. Crimm (James and Mary Lassiter Distinguished Visiting Professor at the University of Kentucky College of Law and Professor at St. John's University School of Law ), as well as William Canny (Director of Emergency Operations, Catholic Relief Services), James P. Cullen (Retired Brigadier General, United States Army Judge Advocate General’s Corps), and Greg Elder (Acting Regional Coordinator for Latin America and the Caribbean, United States Agency for International Development).  The conference announcement offers the following overview:

Over many years, the United States government, its executive and independent agencies, and nonprofit humanitarian organizations have assumed vital roles in providing disaster relief to victims of innumerable natural and man-made disasters. Their ability to respond and operate diplomatically, quickly, efficiently, and effectively has been impacted not only by financial and human resource capacities, but also by domestic, international, and foreign laws and policies, politics, and infrastructures. This conference presents perspectives and insights as to problems that face several notable governmental and non-governmental actors – the United States military, the United States Agency for International Development, and nonprofit humanitarian relief organizations – and how laws, policies, politics, and infrastructures help and hinder disaster relief responses and interactions among responders, perhaps especially those with responsibilities for providing initial assistance.

JRB

Universities and Commercializing Research

In Universities Continue to Increase Start-Ups and Commercialization of Research, the Chronicle of Higher Education (subscription required) reports that universities continued to commercialize academic research in 2010.  “Institutions completed more licensing deals with companies than in the previous year while also forming more start-up companies and filing for more patents, according to newly released data from the Association of University Technology Managers.”  The increase in the number of companies formed around university-owned intellectual property (613, compared with 555 the previous year) was reportedly attributable to “increasing political pressure to contribute more to economic development and job growth.”  The article indicates that nonprofit educational organizations made no small contribution to the uptick:

Three institutions accounted for more than a quarter of the total revenue reported: Northwestern University, which reported nearly $180-million in revenue, up nearly $20-million from the previous year; New York University, with $178-million, up $65-million from the previous year; and Columbia University, with $147.2-million, down slightly from its $154.3-million in 2009….  New York University, which saw the biggest one-year jump in revenue, said three factors drove that increase: a spinoff company that makes a touch-screen technology was sold, and NYU was paid for its ownership stake in the company; the arthritis drug Simponi, based on a university invention, came onto the market; and royalties from several other licenses rose.  The university has been a leader in licensing revenue ever since another NYU-related arthritis drug called Remicade became a big seller, and for several more years at least, it faces no imminent threats to its big-producing patents. "There are no cliffs on the horizon," said Abram M. Goldfinger, executive director of industrial liaison.

JRB

Updated Colbert Report 501(c)(4) Link

A reader brought to my attention that our previous link to the Colbert Report segment on section 501(c)(4) organizations and politics is no longer working, but provided this active link to the segment.

LHM