Nonprofit Law Prof Blog

Michigan SCt Gives Rosa Parks Memorabilia Back to Nonprofit

When civil rights icon Rosa Parks died in 2005, she left most of her estate to the Rosa and Raymond Parks Institute for Self-Development, a nonprofit she had founded in 1987 with her friend, Elaine Steele.  The nonprofit's purpose is to teach young people leadership and character development. Her heirs, nieces and nephews, challenged her will and trust and in 2007 entered into a Settlement Agreement with the institute.  Last April the Michigan Appeals Court held that statements by counsel regarding fees in the appellate case had breached a confidentiality provision of the Settlement Agreement between the institute and Rosa Parks' heirs.  The Appeals Court had ordered the institute to transfer property to the heirs in compensation for the breach.  The Supreme Court reversed that decision and remanded the case to the Probate Court with instructions to implement the Settlement Agreement.  The decision "will allow the institute the financial solvency and ability to carry on Rosa Parks' legacy," said institute lawyer Steven G. Cohen.  Parks' estate included memorabilia that may be worth millions.  A New York auction house, Guernsey's Auctioneers, will try to find buyers for some of the memorabilia.  See stories in the Detroit Free Press and the Detroit News.

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Egypt to Back Off on Nonprofit Crackdown

The New York Times reports that just two days after raids on as many as ten human rights organizations, the Egyptian government has signaled that it will back off and return confiscated property.  The groups raided included several American-financed organizations and a German organization.  The government said it was investigating illegal foreign financing of NGOs, but Egyptian activists argue that the government is trying to block criticsm because groups have called for the military leaders to cede power to civilian leaders.

The story notes that the future of human rights groups in Egypt remains uncertain, because nearly all are technically illegal.  Under Mubarak era law, the groups must get licenses that are almost never issued and most groups depend on foreign financing, which is tightly regulated.  A U.S. state department spokesperson said that the military council had issued assurances that the organizations would be able to resume work. The groups said they had been told they would soon be able to work on getting legal status.

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Low-Income Housing for Gay Seniors

An AP story in the Houston Chronicle reports a growing need for - and growing development of - low-income housing for GLBTQ seniors.  Kathy Matheson reports that Philadelphia developers have secured a site for a gay-friendly, low-income housing project in Philadelphia. Of course, housing developments cannot discriminate in favor of gay seniors, but a facility known to be gay-friendly and marketed as such will be appealing to gay seniors.  

The first gay housing complex was built in LA by the nonprofit, Gay and Lesbian Elder Housing, founded in 2001.  The organization is "committed to constructing and maintaining high-quality affordable residential communities that provide a safe nurturing environment for gay, lesbian, bisexual and transgender (LGBT) older adults."   Approximately 90% of the residents of the LA facility, Triangle-Square Hollywood, identify as LGBT.  

In addition to new housing developments, the Philadelphia Corporation for Aging, a nonprofit serving seniors, has begun offer cultural competency seminars to health care workers who will be working with increasingly diverse populations.  The goal is to have better training so workers will be sensitive to the needs of all seniors.

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Michigan's Tax Credits for Charitable Giving to End

Michigan tax credits for charitable gifts will expire at the end of 2011.  The state has provided tax credits of 50% of amounts given to Michigan charities of three types: homeless shelters and food banks; public institutions such as universities, libraries, public broadcast entites and the Detroit Institute of Arts; and community foundations such as the Community Foundation for Southeast Michigan.  Credits are limited to $100 for an individual or $200 for a couple, for gifts to each of the three categories (total credits of $300 or $600)  Charities report a disproportionate share of donations in $200 increments, and they fear the end of the credits will mean a loss of donations in 2012. The actual effect on charitable giving is hard to predict, and the Johnson Center for Philanthropy at Grand Valley State University has announced that it will study the effects of the change.  Even if their overall charitable giving does not decrease, some taxpayers may have been influenced by the credits to focus their giving on Michigan charities.  For now, charities are trying to get the word out that gifts should be made before the end of the year to take advantange of the credits. See the story in the Detroit Free Press.

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Gingrich's 527 Back in the News

A Washington Post story discusses the link between contributions made to American Solutions for Winning the Future, a 527 organization started by Newt Gingrich, and Ginginch's shifting stands on energy policy.

Gingrich started American Solutions in 2007 to fund his travel and speaking engagements.  The organization went bankrupt in August 2011, after Gingich the candidate had to sever ties with the nonprofit.  See a New York Times story describing the closing of the organization, which had raised and spent over $50 million.

The Post story explains that in 2008, shortly after joining with Nancy Pelosi to voice concern over climate change, Gingrich began advocating drilling and greater use of coal and also worked to block cap-and-trade legislation.  Energy companies responded by making substantial contributions to American Solutions.  The changes in Gingrich's stands on energy issues seem to reflect both opportunism on his part and the growing force of money in politics and policy.

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Efforts to Save CA State Parks Continue

There is no immediate news on the efforts to link nonprofit groups with CA state parks to keep the parks open, but I wanted to share a blog that is posting reports on the efforts for anyone who wants to keep up on the latest news for the CA parks.  On October 4, 2010, the CA legislature enacted AB 42, a bill that adds §5080.42 to the California Public Resources Code.  The new provision modifies the statute that gives control of the state park system to the Department of Parks and Recreation.  The new section gives the department the authority to enter into "an operating agreement for the "development, improvement, restoration, care, maintenance, administration, or operation" of a state park with a "qualified nonprofit organization."  The goal is to keep parks open, using nonprofits to help find resources to manage and maintain the parks.

Christine Sculati's Blog has posted a number of stories about the efforts of nonprofit organizations to work with particular parks in California.  Her most recent post on the subject describes efforts of the Portola and Castle Rock Foundation to save Castle Rock and Portola Redwoods State Parks. She notes that 70 state parks have been identified for closure, with 18 of those in the Bay Area.  The parks located near populous areas may have a better chance of generating the kind of fundraising that will be needed to keep them open.  Her posts provide excellent descriptions of the problems and the efforts to save the parks, and are worth a read if you're interested in this topic.

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Stratfor Attack May Harm Charities

Two days ago the LA Times reported that hackers (a group called Anonymous initially claimed responsibility) had attacked Stratfor, a company that provides security consulting.  The hackers stole credit card information and charged donations to a variety of charities. Initially, the group taking responsibility said its goal was to donate $1 million to charities.  The LA Times story said that phony charges had been discovered to charities that included Red Cross, CARE, and Save the Children.  A blog post in the NY Times blogs describes the problems for charities.  The obvious problem is that the charges are invalid, but the question is what happens next.  Charities will lose time and money trying to identify the invalid charges and work with credit card holders to refund the donations. The charities may even be hit with penalties by the credit card companies due to the time lag in sorting all this out.  Perhaps the credit card companies could make exceptions for penalty fees in this sort of situation, but the complexity of the situation - multiple charges and multiple charities - makes this unlikely.  

Whoever the hackers are - Anonymous now says it was not responsible - they haven't done the charities any favors.

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Oregon's Naughty, not Nice, List

Oregon's Attorney General recently posted a list titled "Oregon's 20 Worst Charities: 2011."  The charities on the list are those that spend most of their revenue on telemarketing or administrative work.  This is the third year the AG has posted a list, which represents an attempt by the Attorney General's office to educate consumers about charitable giving. The charity topping the list is Shiloh International Ministries, labeled the worst in 2010, too.  The charity raises money to provide medical necessities and moral support for needy children, but its financial filings show that 96.8% of the money spent by the nonprofit went towards management and fundraising.  The organization is based in California.  Number 2 on the list is a Florida organization, American Medical Research Organization, which spent 4.2% of its annual expenditures on its charitable purposes. The Attorney General's office posts Tips for Charitable Giving and uses the list to educate the public about careful philanthropy.

Charity Navigator gives Shiloh International Ministries zero stars and shows that 83.8% of expenditures in 2009 went to fundraising expenses and most of the rest went to salaries for three people.  Total expenditures in 2009 were $829,220, with revenues of $825,928.  Because the states cannot regulate fundraising by charities, the Attorneys General and sites like Charity Navigator try to educate the public about the uses made of charitable dollars.

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Membership Dispute

The Nonprofit Quarterly reports on a dispute among members of a Hmong community center in Wisconsin.  Individuals paid an initial $1,000 to become members of the organization.  Included in membership privileges was the right to hold funerals at the facility.  When the organization later fell into financial difficulty, it went back to the members and said they would have to contribute further to retain their memberships and the attendant rights.  Some of the members sued, claiming breach of an enforceable contract.

What I find interesting about this case is the likely blending of law and equity.  I tell my nonprofit law students that in the U.S. the strong trend has been toward resolving nonprofit difficulties and disputes through the application of corporate law, but that equity pops up at unpredictable times and in unpredictable ways.  This is certainly true when it comes to disputes among members or between memberships and boards.  The corporate law answer would be to look in the organization's governing documents to see what they say about members' rights and perhaps to assess whether any enforceable contract exists.  Equity, however, would demand that the organization treat its members fairly.

In this case, the judge made the wise decision to send the parties to mediation.  If all goes well, s/he will not have to decide whether to apply law or equity or, as often is the case, some jumbled combination of the two.

TAK

National Service CEO Driven Out By Politics

In my law teaching, I find that students who have had some work experience between their undergraduate studies and law school tend to be more focused and mature.  Among that cohort, I particularly enjoy working with former Americorps volunteers.  Often, they have worked in or been exposed to under-resourced communities, and they understand that 1) law (including nonprofit and community development law) has a role to play in improving conditions those communities, and 2) there are precious few lawyers willing and able to help.  The former Americorps students tend to arrive at law school hungry to learn so that they can lend a hand, whether they are headed for careers at Legal Aid or in big-city corporate law firms.

Now comes word that the CEO of the Corporation on National and Community Service, the agency that oversees Americorps and similar programs, resigned because he and his agency were under political attack.  According to the Chronicle of Philanthropy, Patrick Covington left because "the corporation was under assault by House Republicans who have been trying to slash the agency's budget and kill Americorps. . . ." 

TAK

Nonprofit Theaters Turn to the Market

A recent article in the New York Times reports that nonprofit theater companies in NYC are acting ever more like for-profit companies in that they choose their productions with popularity and box office receipts in mind and spin them off to larger, more commercial sites if they are successful.  On one hand, such practices appear to risk the invocation of the dread Commerciality Doctrine.  In the Goldsboro Art League case, for example, the court (which ruled against the IRS) found it significant that the arts organization in question chose artwork for its exhibitions without regard to commercial appeal.  On the other hand, it's hard to imagine that the IRS would risk inflaming the passions of New York's theater community as it struggles to survive these lean economic times.

TAK

Dispatches From the World of Nonprofit Law Clinics

As I have mentioned before on this blog, I supervise my law school's Community Development Law Clinic, which really should be called a Nonprofit Law Clinic.  As the semester ends, I have been engaging in my usual practice of reviewing our progress, and it occurs to me that, in this season of religious celebration, we have taken on several projects for religious organizations.

One project is for a well established religious organization in North Carolina that is concerned about liabilty and wishes to explore incorporating under state law.  The interesting challenge for the clinic students is that the congregation is strictly committed to non-hierarchical decision making on all aspects of its governance.  The legal question, then, is how to devise a board comprised of any congregant who feels moved to show up to the business meeting and express his/her opinion in any given month, and where corporate actions will only be taken when the congregation arrives at "consensus," which is defined vaguely.  As nonprofit law folks can imagine, this led to a close analysis of the North Carolina General Statutes on nonprofit governance and to some interesting and precise custom language in the organization's bylaws.  Rather than describe the solution we devised, I will leave it up to you imagination. 

(The tax folks in the crowd may be interested to hear that the same congregation was renting parking spaces for weekend football games and was completely unaware that UBIT might apply.  A clinic student, upon discovering this, correctly pointed out that these exact facts are one of the examples in the IRS UBIT regs.)

Another project involves a group of nuns who wish to establish a 501(c)(3) nunnery.  At first blush, the legal issues looked straight-forward, but as we dug in, we realized that we had a potential private inurement/benefit issue.  The problem is that the nunnery would be formed by, and would initially house, a small group of nuns.  To avoid the inurement issue, we advised that they populate the board with people who will not participate in or benefit from the nunnery's programs.  This proved difficult, however, because their religious principles require that organizational decisions be made only by ordained (not sure that's the correct term) nuns, and they are the only ones in the region.  Resolving that problem required significant creative, collaborative work between the students and the nuns.  The private benefit issue was easier, since the client had no problem making its benefits available to an indefinite class.

TAK

IRS Issues Notice on E-Filing and Hospital Reporting

The IRS issued Notice 2012-4 today advising tax-exempts about its two-month suspension of its Modernized E-file (MEF) operations for 990 filers.  The MEF system will not be available from January 1, 2012 through February 29, 2012 for electronic filing of Forms 990, 990-EZ, 990-PF and 1120-POL information returns due to the implementation of changes to IRS programs and systems for the 2011 tax year. The 990-N e-postcard filing system will not be affected by the temporary suspension of the MEF system.  Because of this suspension on electronic filing, the IRS is granting an extension of time to file to March 30, 2012 to organizations whose due date or first extended due date for returns is January 17, 2012 or February 15, 2012.

The notice also addresses tax-exempt hospitals and filing requirements.  The IRS released a draft version of the 2011 Form 990, Schedule H, Hospitals and its instructions.  Input is sought on how to improve the Schedule.  Nonprofit hospitals required to file Form 990 and Schedule H must complete all parts and sections of Schedule H for the 2011 tax year except for lines one through seven of Part V, Section B which relate to community health needs assessments. These lines will remain optional for tax year 2011 and are required only for tax years beginning after March 23, 2012. Hospital organizations must also attach a copy of their most recent audited financial statements to their tax year 2011 Form 990.

NAM

IRS Issues Release on Year-End Giving; Expiration of IRA Rollover

The IRS issued IR 2011-118 reminding taxpayers of new charitable giving provisions that have taken effect in the last several years - rules for clothing and household items, substantiation rules for monetary gifts, and special contribution rules for individual retirement account (IRA) holders.  The provision offering IRA owners a tax-free transfer of up $100,000 to an eligible charity expires at the end of 2011.  This provision is available to taxpayers regardless of whether they itemize or take the standard deduction.  The IRA funds must be contributed directly by the IRA trustee to the eligible charity; because the transfer amount is not taxable under the IRA distribution rules, no deduction is available for the transfer.  Not all charitable organizations are eligible recipients; donor-advised funds and supporting organizations do not qualify.  The amount(s) transferred pursuant to this provision are counted in determining whether the IRA owner has met the required minimum distribution rules.

NAM

Public University Increases Financial Aid as State Funds Decrease

We previously blogged over 3 years ago about predominantly private universities increasing their financial aid as a result of criticism over large, unspent endowments.  The financial landscape has changed significantly since then, effectively ending discussion (raised by Senator Grassley in a Senate Finance Committee hearing) about a possible mandatory annual payout of large university endowments to make education more affordable to more students.

Yesterday, the University of California, Berkeley, announced that it would provide more financial aid to students from middle-class families beginning next fall.  Families earning up to $140,000 a year will be expected to contribute a maximum of 15% of their annual income.  The New York Times article cited experts as stating that this was "the most significant such move by a public institution."  As we have discussed in prior blog posts, the article mentioned Harvard, Princeton and Yale offering similar aid to families with incomes up to $200,000.  The article discusses creative assistance programs being generated by universities throughout the country to meet the increasing challenge of families to finance education.

NAM

More Strain on Relationship Between State Governments and Nonprofits

Continued Decreases in State Funding of Social Programs

The Chronicle of Philanthropy reports that nonprofits should expect to see continued decreases in funding and additional increases in demand for services through 2013 as state governments' budgets continue to deal with decreasing revenues.  A new report, issued by Changing Our World, a philanthropy consulting firm, does a historical review of the economic crisis, calculates its negative effects on state budgets, and assesses whether charitable giving can stave off the decrease in government spending on social programs.  Because 44 states have greatly reduced their spending and used federal stimulus money to make up the difference, the loss of that stimulus money will mean further cuts in social programs during the next two fiscal years.  In order for nonprofits to meet the resulting increase in demand for such services in some of the most affected states, the report estimates that charitable giving would need to increase by 30 percent in 2011 and 60 percent in 2012, which the report refers to as “historically unprecedented.”

Taxation of Nonprofits' Real Estate

We continuously blog about state and local governments looking to nonprofits as additional revenue sources.  In another such development, The Nonprofit Quarterly reports that Pennsylvania State Senator Wayne Fontana introduced in October Senate Bill 1281, which would grant local governments the ability to tax the assessed value of nonprofits' land.  The Senator stated that specific exemptions would be enacted to protect "small" nonprofits, such as Boys and Girls Clubs and churches.  The bill as introduced specifically exempts properties owned by local, state, and federal governments, and by “police, fire, including volunteer fire and relief, public works or emergency services.”  According to the article, although there is no mention of small nonprofits, the asserted "small" nonprofit carveout is likely the proposed exemption of the first $200,000 of aggregate land value. The tax would only be imposed on the value of the underlying land, not any improvements on it.  The specified intent of the Bill reads:  “It is necessary and proper for local governments to have the option to ensure the continued viability of certain essential services it provides or causes to be provided by requiring a contribution from owners of tax-exempt properties toward the cost of the services.”  The Senator explained:  “There are nonprofit organizations out there that are sitting on high-valued, tax-free real estate. If they sold this land, these nonprofits would make a handsome profit.”

NAM 

Additional Issues Raised by Sandusky's Charity

As previously blogged, Second Mile, the youth charity founded by former Penn State Football coach Jerry Sandusky, and its activities continue to raise issues both in the nonprofit sector as well as the community at large.  In a recent Washington Post article, a nonprofit practitioner questions the structure of the charity's operations and board of directors.  He first questions the various, and purportedly conflicting, roles of Sandusky as founder, an officer, and chair of the board.  He also questions the large size of the charity's board (36 members).  As discussed in the previous blog entry referenced herein, until there are more facts and information, there should be no rush to judgment regarding the board's historical actions or inactions leading up to the revelation of the current scandal. 

The Nonprofit Quarterly reports that a California assemblyman has introduced legislation that would revoke a nonprofit's tax-exempt status if it is found that the organization fostered or concealed the sexual abuse of children.  The article further discusses calls by some lawmakers to have such changes instituted at both the state and federal levels.

NAM

Nonprofits & Business: NYT on PRIs; WSJ on "Should Philanthropies Operate Like Businesses?"

The issue of how separate charities and businesses should be continues to be discussed.  Here are two recent examples:

The NY Times reports that the Bill & Melinda Gates Foundation and a growing number of other private foundations are making program-related investments in businesses that advance their missions.  These investments range from shares in a vaccine-delivery biotech company (Gates) to investments and loans in Armenian businesses (Gerard Cafesjian's family foundation) to microfinance (Omidyar Network).  The question the article raises is whether such investments threaten to blur the line between charities and businesses, presumably leading to charitable assets that are supposed to be resulting in public benefit (since PRIs can be counted toward the annual required payout for private foundations) instead being used primarily to provide investment returns.  Of course, the PRI rules are designed to avoid exactly this result, and the article does not cite any obvious abuses.

The Wall Street Journal provides a point-counterpoint debate on "Should Philanthropies Operate Like Businesses?", with Charles R. Bronfman of the Andrea and Charles Bronfman Philanthropies in the affirmative and Michael Edwards from Demos in the negative.  The debate was part of larger report on philanthropy, links to which are available on the debate's webpage.  The WSJ also published a number of letters responding to the debate.

LHM

 

IRS, Halperin, and McLaughlin on Conservation Easements

The IRS also recently released its revised (as of 9/30/11) Conservation Easement Audit Technique Guide.  For other recent conservation easement developments and discussions, see Incentives for Conservation Easements: The Charitable Deduction or a Better Way (74 Law & Contemporary Problems 29 (2011)) by Daniel Halperin (Harvard) and Tax Court Protects Public Investment in Consevation Easements (Emerging Issues (forthcoming 2011)) by Nancy McLaughlin (Utah).  Here are the abstracts of those articles.

Halperin

Therefore, to give greater assurance that the public benefit of the gift will be consistent with the claimed deduction, the donee should be required to certify that it has selected the easement consistent with its mission and it has both the resources to manage and enforce the restriction and a commitment to do so. Moreover, it is inappropriate to measure the charitable deduction by the supposed loss in value to the donor from the imposition of the easement. The focus should be on actual benefit to charity. Therefore, eligibility for a charitable deduction for a conservation easement should be contingent on certification – by a public agency or, possibly, an IRS-accredited land trust – that the public benefit from the contribution is equivalent to the claimed deduction. 

In fact, the recent changes to various tax-expenditure programs – placing caps on the expenditures and requiring the participation of expert agencies – indicates that Congress is less enamored than it once was with open-ended tax expenditures administered solely by the Treasury Department. This suggests a cap on tax credits for the contribution of conservation easements. Even if the program is open-ended, Congress should mandate participation of an expert agency such as the Bureau of Land Management, which is more capable of evaluating the public value of an easement.

McLaughlin

In two recent decisions, the Tax Court held that the conservation purpose of a conservation easement will be "protected in perpetuity" as required by IRC § 170(h) only if the holder is given an absolute right to a share of post-extinguishment proceeds. This short article discusses the import of this holding, as well as the court's approach to penalties and the deductibility of required cash payments to the donee.

LHM

IRS and College UBIT

Bloomberg reports that more than 30 universities have had their treatment of possible unrelated trade or businesses reviewed by the IRS, including private schools such as Harvard and Notre Dame and public schools such as Purdue and the University of Texas at Austin.  Probably not coincidentially, I noticed in reviewing Notre Dame's latest Form 990-T as part of teaching Not-for-Profit Organizations this term that the amount and sources of unrelated business taxable income had increased significantly since I had last taught the class (did I mention how much I like having tenure?). 

 LHM