Nonprofit Law Prof Blog

Troubles with For-Profit Microfinance

Social Enterprise enthusiasts sometimespoint to Muhammad Yunus' founding of the Grameen Bank as the start of the movement, or at least as an important catalyst.  Micro-loans were seen as a means of harnessing market forces to make sustainable improvements in the lives of the very poor.  Because micro-loans, if administered correctly, could not only produce socially beneficial outcomes but turn a profit, it should not have been surprising that for-profit actors moved into that territory.  (And this should not have been particularly controversial among Social Enterprise aficionados, who tend to be comfortable blurring the lines between sectors.) One of the most promintent (and controversial) for-profit actorswas SKS Microfinance. 

Now the New York Times reports that the founder of SKS, Vikram Akula, is admitting that there are serious problems with the for-profit approach to micro-lending.  One of those problems is that in order to turn a tidy profit the companies must be extremely aggressive about collecting loan payments, and that an uncomfortably large number of borrowers in India committed suicide when they could not make their payments.

Finally, Lady Gaga Enters Our Realm

I don't watch a lot of television -- and I'm old -- so I don't know much about Lady Gaga other than that she sings and that she's known for having worn a "meat dress" during a performance.  But I do know that she's very, very famous, and that the Chronicle of Philanthropy reports that she is in the process of forming a foundation, the Born This Way Foundation, that will focus on fighting bullying and inspiring bravery among young people. 

What's more interesting is the fact that her philanthropic venture is being backed by the MacArthur Foundation and the California Endowment.  I am from the east coast and so I do not know much about the latter, but having MacArthur on board (not to mention advice from Harvard's Berkman Center) adds a certain gravitas that I doubt she would be able to achieve on her own.

The Chronicle reports that her mother, a business woman who has worked in telecommunications, will run the foundation.  That strikes me as an early misstep.

TAK

Penn Joins Suit Against Head of Sloan-Kettering

The New York Times is today reporting that the University of Pennsylvania has joined a lawsuit accusing Dr. Craig B. Thompson, president of the Memorial Sloan-Kettering Cancer Center, of "walking off with the fruits of university research" to start his own company, Agios Pharmaceuticals.

According to the Times, Dr. Thompson was sued in December by his former workplace, a cancer research institute located at the University of Pennsylvania, which claimed that he had concealed his involvement with the company.  The Times further reports that

Penn seemed to distance itself from the lawsuit, pointing out that the institute — the Leonard and Madlyn Abramson Family Cancer Research Institute— was a separate legal entity from the university. And people close to Dr. Thompson pointed to the university’s noninvolvement as a sign the accusations were without merit.

That changed yesterday when Penn filed its own complaint against Dr. Thompson in Federal District Court in New York City.  The Times continues:

The Penn complaint contains details not included in the initial complaint by the Abramson research institute. It says that Dr. Thompson was a co-author of one scientific paper and the lead author on another related to an enzyme called IDH1 that is a focus of Agios’s research into new ways to treat cancer.

The suit says that before the papers were published in late 2009 and early 2010, Agios filed provisional patent applications based on the research.

After the second paper was published, Penn’s technology transfer office told Dr. Thompson in an e-mail that the work could constitute “a significant patentable invention.” Dr. Thomson told the technology transfer office that there was nothing patentable in the research, even though he already knew that Agios had begun filing for patents on the same work, the lawsuit says.

We'll see how this all turns out.

VEJ

 

 

 

A Roman Catholic Writes of Lent in a Time of a Catholic Culture War

I just came across this interesting commentary by Kevin Clarke, an associate editor at America Magazine, a weekly Jesuit publication.  The commentary was posted on the Washington Post's Website this morning.

VEJ

Scout Organizations Put on Notice

The Nonprofit Times yesterday reported that both the Boy Scouts and the Girl Scouts had an "interesting Presidents Day weekend."  According to the Times, a California judge has "ordered the Boy Scouts of America (BSA) to turn over confidential files on volunteers as part of a molestation case brought against the organization by a victim’s family."

The Santa Barbara County Superior Court judge has ordered the Texas-based BSA to turn over 20 years’ worth of files to the court by February 24 after reviewing some of the files in January. The victims’ names will be removed from the files and the files will not be made public.

Meanwhile, the Times reports, the Girl Scouts of the USA (GSUSA) were the subject of a diatribe by Indiana lawmaker Bob Morris (R-Fort Wayne), who claimed the Girl Scouts promote homosexuality and “have entered into a close strategic affiliation with Planned Parenthood.”

The verbal attack came after Indiana state representatives were asked to sign a resolution honoring the centennial anniversary of the GSUSA.

Morris refused to do so, instead sending a letter dated February 18 to fellow lawmakers denouncing the organization for its policies toward gay and transgendered scouts, as well as accusing the Girl Scouts of being in league with Planned Parenthood. Morris is the only representative not to sign the resolution, and said he plans to remove his two daughters from the Girl Scouts.

 VEJ

Hazen Article on Director Duties

Each year in my Nonprofit Law class we have an unsettling and unsatisfying discussion about the fiduciary duties of nonprofit directors.  The hard part comes when someone inevitably asks about enforcement.  Who ensures that nonprofit directors satisfy their legal obligations?  My stock answer is "newspaper reporters," at least in my home state of North Carolina.

Tom Hazen and Lisa Hazen recently authored an article,now posted on SSRN in draft form, that attempts to chart out fiduciary duties and the enforcement of those duties under North Carolina law.  It's worth a look, partly because it is an example of a scholarly project intended to provide helpful guidance -- for lawyers and laypeople -- through a murky area of nonprofit law.

TAK

New York Attorney General Proposes Plan for Nonprofits

Last Monday, we blogged about problems that had surfaced in New York's charity care system.  Today we note that the New York Times is reporting that New York's Attorney General, Eric T. Schneiderman, has proposed a plan to overhaul the way nonprofit groups operate in that state.  According to the Times, the proposal "is as much an aid package for nonprofit groups as an attempt to hold the line on runaway compensation and other abuses."

Among other things, the proposal calls for state-backed, zero-interest loans for struggling nonprofits and changes to state laws and regulations to make them more friendly to nonprofits in general.  Mr. Schneiderman's plan also proposes "some steps to bolster self-policing by nonprofit groups, including the use of independent directors to monitor compensation."   

VEJ

Proposal to Eliminate Charitable Deductions for Golf Course Easements

Several years ago the IRS suffered a major defeat when the Tax Court blessed a $28.6 million charitable income tax deduction for the donation of a conservation easement encumbering the Kiva Dunes golf course, which is located on the gulf coast in Baldwin County, Alabama. Kiva Dunes Conservation, LLC v. Comm’r, T.C. Memo. 2009-145. After trial in the Tax Court, the IRS conceded that the donation of the easement constituted a qualified conservation contribution eligible for a charitable deduction under IRC § 170(h). Accordingly, the Tax Court’s opinion focused solely on the question of the value of the easement and, thus, the amount of the deduction.

The case involved a classic “battle of the experts” and the Tax Court found the easement donor’s valuation expert to be more credible and persuasive than the IRS’s expert. The court ultimately accepted the before and after values asserted by the donor’s expert, with modest adjustments, and concluded that the conservation easement had a value of $28.6 million, which was very close to the donor’s claimed value of $30.5 million.

Following the Tax Court’s decision in Kiva Dunes, IRS representatives indicated informally that no one should look to the case as a green light for golf course easements and the agency intended to continue to litigate such cases. Another way to deal with the problem, of course, is to seek legislative change. Accordingly, it perhaps should come as no surprise to see elimination of the charitable deduction for contributions of conservation easements on golf courses included in the Obama administration’s fiscal 2013 revenue proposals. In its “green book” explanation of those proposals, which was released on February 13, 2012, the Treasury Department explains:

Current Law

A deduction is generally available for charitable contributions of cash and property. This deduction is limited -- or disallowed entirely -- for certain types of hard-to-value property. In general, no charitable deduction is allowed for a contribution of a partial interest in property. An exception to this rule provides that a donor may deduct the value of a conservation easement (a partial interest) that is donated to a qualified charitable organization exclusively for conservation purposes. The value of the deduction for any contribution that produces a return benefit to the donor must be reduced by the value of the benefit received.

Reasons for Change

Recent court decisions have upheld large deductions taken for contributions of easements preserving recreational amenities, including golf courses, surrounded by upscale, private home sites. These contributions have raised concerns both that the deduction amounts claimed for such easements (often by the developers of the private home sites) are excessive, and also that the conservation easement deduction is not narrowly tailored to promote only bona fide conservation activities, as opposed to the private interests of donors. These concerns are particularly strong in the case of the deduction for contributions of easements on golf courses. The benefit of an easement on a private golf course, especially one that is part of a luxury housing development, may accrue to a limited number of users such as members of the course club or the owners of the surrounding homes, not the general public, and the construction and operation of the course may even result in environmental degradation. Easements on golf courses are particularly susceptible to overvaluation, as private interests often profit from the contribution of the easement. Because of the difficulty determining both the value of the easement and the value of the return benefits provided to the donor -- including indirect benefits, such as the increase in the value of home sites surrounding the golf course -- it is difficult and costly for the IRS to challenge inflated golf course easement deductions. Thus, to promote the kinds of public benefits intended by the charitable deduction provision and to prevent abuses, no charitable deduction should be allowed for contributions of easements on golf courses.

Proposal

The proposal would amend the charitable contribution deduction provision to prohibit a deduction for any contribution of property that is, or is intended to be, used as a golf course.

The proposal would be effective as of the date of enactment.

NAMcL

IRS's 2012 "Dirty Dozen" Tax Scams Includes Use of Charitable Organizations

The IRS released its “Dirty Dozen” tax scams, notifying taxpayers of schemes they should be aware of during the tax season.  One of the scams for 2012 involves "Abuse of Charitable Organizations and Deductions:" 

IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating schemes that involve the donation of non-cash assets –– including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals.

NAM

Greenberg: A Public Press?

Brad A. Greenberg (J.D. 2012, UCLA) has posted, "A Public Press?  Evaluating the Viability of Government Subsidies for the Newspaper Industry," to SSRN.  Here is the abstract of the article:

The press plays a crucial role in American democratic society and, despite the availability of information from online news organizations and new media outlets, remains the primary contributor of new content to the marketplace of information and ideas - integral in setting the agenda for public discourse, connecting readers with their communities, reducing the costs of citizen oversight on elected officials and producing investigative and local news reports. But the press’s role is increasingly threatened by unprecedented struggles in newspaper economics that have sparked massive reductions in editorial operations. The strong public interest in preserving the newspaper industry should compel Congress to stabilize the press. Journalists, politicians and legal scholars have discussed many possible solutions.

This Comment focuses on the viability of direct and indirect government subsidies, evaluating the practical and constitutional questions raised by two potential public subsidy programs - direct funding from government patronage and indirect support by facilitating newspaper conversion to nonprofit status - and whether such programs could be administered without jeopardizing the Fourth Estate’s independence. This Comment concludes that, if Congress chooses subsidies as a vehicle for stabilizing the press, the best program would be one combining direct funding and tax-based incentives into a hybrid similar to that utilized by public radio.

NAM

Ray Charles Foundation Demands Return of University Gifts

In what will undoubtedly make a great teaching example with respect to the legal right of donors and their successors to enforce gifts, The Washington Post reports on a dispute between the Ray Charles Foundation and the Albany State University in Georgia.  The Foundation is requesting that the University return $3 million in donations ($1 million in 2001 and $2 million in 2002) made purportedly to build a performing arts center.  The University contends that the gift was unrestricted and that the school is still fundraising to build the center, the cost of which is estimated to total at least $23 million.  The $1 million donation is still held by the University in an account, but the $2 million gift was distributed to 125 students selected to be "Ray Charles Presidential Scholars."

As reported in the Post article, a letter from the University's legal counsel to the Foundation states that “When Mr. Charles made the two separate gifts to the University, he did so without restrictions.  The University does believe that a Fine Arts Building named after Mr. Charles, with a theatre named in honor of Mr. Charles’ mother, Mrs. Aretha Robinson, is one of the ways to do ‘the right thing.’ The University has been working tirelessly towards that goal.”

NAM

The Restorative Power of Individuals and Nonprofits

Although I try to only blog on issues that "legally" affect nonprofits or at the very least have some legal aspect to them, I was nevertheless moved by a recent article in the Boston Globe, "Missouri tragedy inspires career shifts toward public aid."  As a former Missouri resident and firm believer in the impact that people can have through collaboration and commitment (via nonprofits), I thought this article was a great example of why most of us contributing to, and reading, this blog teach and work in the area of nonprofits.  The article discusses how young professionals, witnessing firsthand the destruction of their community, abandon their professions and jobs and join nonprofits to dedicate themselves to their town's and its citizens' long-term recovery.

NAM

Nonprofits Respond to Obama's 2013 Budget

A recent Chronicle of Philanthropy article, "Nonprofits Oppose Obama Plan on Limiting Charity Write-Offs," details the nonprofit sector's reaction to the President's 2013 budget proposing limitations on the charitable contributions deduction for wealthier Americans, as previously blogged herein.  Diana Aviv, chief executive of Independent Sector, is among the nonprofit leaders criticizing the proposal due to their belief that it will ultimately reduce charitable contributions, thereby negatively affecting the fiscal health of nonprofit organizations. Although the 2013 budget also contains a proposal to increase the estate tax rate from 35% to 45% and reduce the lifetime exemption to $3.5 million, which arguably will induce donors to make lifetime donations that will reduce the assets that will be subject to this higher rate of tax, nonprofits are nevertheless concerned that the deduction limitations on charitable contributions will result in less charitable giving.

NAM

This is why I hate fiscal sponsorships.

From today's Los Angeles Times comes this story about a fiscal sponsorship organization going under - it will be interesting to watch this saga unfold as the California AG takes a look at what occurred. To be sure, a properly-run fiscal sponsorship organization (such as the Tides Foundation) can be a good and useful thing and a welcome alternative to the proliferation of small and probably unsustainable charities. Too many times, in my experience anyway, the sponsored projects don't really understand the terms of the agreement - that in a properly structured sponsorship, it really isn't their money and the agency does have oversight responsibility and control. If it's not properly structured (that is, it was a fiscal agency or some other ... thing), then it wasn't really accomplishing the goals for which it was set up in the first place. The scary thing, of course, is that there is no such term "fiscal agency" or "fiscal sponsorship" anywhere in the tax code, nor as far as I know in any state staute (I think Washington was considering legislation at one point, although I don't know what happened to that). And yet, for something that is really so undefined, fiscal sponsorships and/or agencies are everywhere and commonly used - appropriately and inappropriately. I really think that this is an area ripe for some study and some educational outreach to the nonprofit sector.

EWW

Obama's 2013 Budget Calls for Limiting Charitable Contribution Deduction

The Chronicle of Philanthropy reports that the President's recently released 2013 budget proposes limiting the itemized deduction for contributions to eligible charities to 28% for married couples filing jointly with combined incomes of $250,000 or greater, and for single taxpayers with incomes of $200,000 or more.  The proposal reportedly helps reduce the budget deficit by $584 billion over 10 years.  As previously blogged, this proposal has been considered recently by Congress, including as part of the 2012 budget. 

The 2013 budget also contains the often-phrased "Buffett rule," whereby households with greater than $1 million in annual income would pay at least 30 percent of their income in federal income taxes.  The Chronicle opines that this could "dampen" the amounts that wealthier Americans donate to charities annually.  However, an earlier Chronicle article highlighted the President's "pledge" to restructure the Internal Revenue Code in a manner that would not "disadvantage individuals who make large charitable contributions."

NAM

Exposed Problems with NY's Charity Care Law

The New York Times reports on a recent study showing that New York's charity care system has significant problems that are not being acknowledged nor addressed by the state government.  The complicated system, which is partially financed by an 8.95% surcharge on hospital bills, is criticized by some patient advocates as ineffective in improving patient access and care.  The study found that some hospitals failed to provide patients with elibility information on discounted care as required by NY state law, did not provide patients with financial aid applications, and made impermissible demands for unnecessary documents.   While providing limited to no financial aid and utilizing aggressive bill collection practices (including liens against patients' homes), hospitals continued to collect, without questions or audits, from the state charity care pool that distributes more than $1 billion a year.  Patient advocates and hospital administrators are reportedly being assembled to overhaul a better system. 

NAM

Breaking News: President Announces Compromise on the Affordable Care Act and Birth Control

In this week’s blog we have been following the controversy over the Affordable Care Act’s requirement that most employers, including church-affiliated nonprofits, provide coverage for contraceptives to their employees.  Early this afternoon, the President addressed the public and explained the administration’s solution to the controversy in the CBS Special Report: President Obama Announces Compromise On Contraception.

JRB

James and O’Boyle Post Charitable Bequest Decision-Making Paper on SSRN

Russell N. James III  (Associate Professor, Personal Financial Planning, Texas Tech University) and Michael W. O'Boyle (Professor, Human Development and Family Studies, Texas Tech University) have posted Charitable Estate Planning as Visualized Autobiography: An fMRI Study of its Neural Correlates on SSRN.  Here is the abstract:

This first ever functional magnetic resonance imaging (fMRI) analysis of charitable bequest decision-making found increased activation in the precuneus and lingual gyrus of the brain compared to charitable giving and volunteering decisions. Greater lingual gyrus activation was also associated with increased propensity to make a charitable bequest. Previous studies have shown that activation of these brain regions is related to taking an outside perspective of one’s self, recalling the recent death of a loved one, and recalling vivid autobiographical memories across one’s life. We propose that bequest decision-making is analogous to visualizing the final chapter in one’s autobiography and that fundraisers may do well to emphasize donors’ autobiographical connections with the charity. Due to inherent mortality salience, people may resist creating this final chapter, but once engaged may seek to leave an enduring legacy.

JRB

Hospitals Pay Millions to Settle Claims of Medicare Fraud

In 4 Adventist Hospitals to Pay $4M in Medicare Fraud Settlement, the Orlando Sentinel reports that the United States Department of Justice has announced that four hospitals in Central Florida will pay $3.9 million to the U.S. government to settle allegations that they submitted false claims to Medicare.  The four hospitals named in the story are Florida Hospital Orlando, Florida Hospital-Oceanside, Florida Hospital Fish Memorial and Florida Hospital Heartland Medical Center. 

The Florida hospitals are apparently not alone.  The story explains the national scope of the settlement: 

The settlement includes a total of 14 hospitals in seven states, which collectively will pay more than $12 million to the government, according to a justice department statement. More than a third of that tab belongs to Florida facilities. …

Other hospitals involved in the settlement include two health-care facilities in New York, and hospitals in Mississippi, North Carolina, Washington, Indiana and Missouri. …

The settlements resolve allegations that these hospitals overcharged Medicare between 2000 and 2008 when performing kyphoplasty, a minimally invasive procedure used to treat certain spinal fractures that often are due to osteoporosis.

The article states that the hospitals were defendants in “a whistleblower lawsuit brought under the False Claims Act, which permits private citizens to bring lawsuits on behalf of the United States and receive a portion of the proceeds.”  Reportedly, two former employees of a consulting firm/supplier of spinal surgery equipment “blew the whistle” and stand to gain in excess of $2 million from the settlements.

JRB

Churches, Other Nonprofits, Lead Efforts to Combat Modern Slavery in Georgia

In House Approves Sex Trafficking Study, the Atlanta Journal-Constitution reports that the Georgia House of Representatives has voted to form a 13-member commission to study “[t]rafficking in sex workers and laborers -- modern slavery.”  The commission must also be approved by the state senate.  The role of nonprofits in this process reportedly is significant: 

Rep. Buzz Brockway, R-Lawrenceville, who sponsored House Resolution 1151, said he hopes the commission will look at what other states are doing and copy practices that seem to be working.  He praised nonprofits and church groups, who have pushed the Legislature for better laws and founded services to help the victims get out of the trade and re-establish their lives.

JRB