Nonprofit Law Prof Blog

Nonprofits Praise President's Call for Foundations' Support of Children, African-American Men

Writing in today's Chronicle of Philanthropy, Alex Daniels reports that the nonprofit community is praising President Obama's pitch in last night's State of the Union address seeking to get foundations more involved in supporting education for young children and increased economic opportunities for young African-American men.

However, nonprofit leaders are maintaining that charities cannot be expected to solve those problems alone.  Rather, they claim, Congress must follow through with increased spending in those areas. 

Diana Aviv, president of Independent Sector (a national nonprofit asociation), stated: "The sector's capacity and resources are dwarfed by the might of the federal government.  The best we can do is fill in the gaps."

According to Ms. Aviv, the president's push for an increased minimum wage, pay equality for women, and early-childhood education should be welcomed by nonprofit groups that work in those causes.

The Chronicle's report continues:

In the speech, Obama called for foundations’ assistance to work on a plan to “help more young men of color facing tough odds stay on track and reach their full potential.”

The W.K. Kellogg Foundation welcomed that focus and said it was working with 25 community foundations in Mississippi to promote help young black men complete their education and find jobs.

Mr. Obama also said he would convene a coalition of philanthropists, elected officials, and business leaders to develop strategies to improve early-childhood education.

The prospect of such a coalition was “pretty exciting,” according to Kris Perry, executive director at the First Five Years Fund, which supports pre-kindergarten education, but she said she needed to learn more about how it would work.

Ms. Perry noted that it was the second straight year Obama has pushed for a greater emphasis on the subject in his State of the Union address. Last year, his call for increased funding for programs like Head Start that provide schooling for young children fell victim to across-the-board budget cuts that reduced the program’s budget by 5.3 percent.

“Even though there was a commitment on [Obama’s] part, the government came to a grinding halt,” Ms. Perry said.

Ms. Perry is confident that President Obama’s emphasis on early-childhood education can result in additional funding, even in an era of tight budgets and political gridlock.

“Early-childhood education is on the top, top, top of everybody’s must-do policy list,” she said. “It’s a wonderful opportunity for the parties to come together and agree on something.”

I agree with the nonprofit leaders.  While the nonprofits will play their part, Congress must step up to the plate and provide more funding for these initiatives.

VEJ

 

Kellogg Foundation Commits $40 Million to Rescuing Detroit

Both the Detroit Free Press and the Detroit News are reporting that the W.K. Kellogg Foundation on Tuesday committed $40 million to a philanthropic fund to help resolve Detroit's bankruptcy.  Kellogg thus joins nine other national and local foundations in the unprecedented municipal rescue effort. 

Kellog's pledge is the third-largest to the now-$370 million fund aimed at shrinking Detroit's multibillion-dollar pension liability and shileding masterpieces at the Detroit Institute of Arts from possible sale to satisfy creditors.  The Ford and Kresge foundations have promised $125 million and $100 million, respectively.

 

VEJ

Nonprofits Eye State of the Union Address

With tonight's State of the Union address just a few hours away, nonprofit organizations are wondering what news -- good or bad -- they will receive from President Obama.  Writing in today's Nonprofit Quarterly, Rick Cohen reviews the already-delivered State of State speeches of 2014 and ponders whether "these state addresses presage anything that nonprofits might hear in President Obama's State of the Union."

Meanwhile, the Miami Herald is reporting that the nonprofit group, One Miami, is organizing a watch party for the president's address.  The event will be attended by nonprofit groups in South Florida.  The groups are hoping President Obama will address immigration reform and the minimum wage in his speech.  They also hope to find out what the president will propose to deal with the nation's growing income gap.

VEJ

 

 

California Historical Society Accepting Proposals for 2014 Book Award

The California Historical Society is accepting nominations for the 2014 California Historical Society Book Award.

According to today's Philanthropy News Digest, the Society will award a cash prize of $5,000  

to a book-length manuscript that makes an important contribution to California historical scholarship and adheres to high scholarly standards while being lively and engaging to general readers.  In addition to conventional works of historical scholarship, other works eligible for consideration include biographies, collections of letters or essays, photographic or artistic studies, creative nonfiction, and other ways of informing the mind and engaging the imagination in an understanding of California’s past.

The winning manuscript will be published in both print and e-book format, and the society will pay for an awards ceremony, promotion, and an author’s tour.

Eligibility and application guidelines are available at the California Historical Society Website.

VEJ

Why the ASA Exemption Challenge Likely Is Going Nowhere

Several blogs, including Paul Caron's Tax Prof Blog, reported earlier in January about Cornell professor William A. Jacobsen filing a complaint with the IRS challenging the tax-exempt status of the American Studies Association for its decision to join a boycott of certain Israeli academic organizations.  You can read all about Professor Jacobsen's rationale and his complaint at his own blog, Legal Insurrection.

While ASA's boycott action is not in accord with my own beliefs regarding academic exchange, I also think Prof. Jacobsen's complaint is going nowhere.   The complaint appears to rest on two grounds.  The first is that ASA's boycott is not an "educational activity" and therefore violates the organizational and operational tests for exemption.  The second is that the boycott essentially violates the "public policy" limitation on exemption created by the Bob Jones University case.

Neither argument, in my view, should be sustained.   As to the first, even if one believes that the boycott action by ASA is not "educational," the law is quite clear that a charitable organization can engage in some ("insubstantial") amount of non-charitable activity.   See Treasury Regs. 1.501(c)(3)-1(c)(1).  Of course, we could argue about whether ASA's action is "insubstantial" - this is a word that the IRS has failed to define over the 50+ years it has been part of the regulations - but ASA continues to carry on a very real and substantial charitable program apart from its boycott action.  The boycott is hardly the "only" thing ASA does, or arguably even a very large part of it; a visit to the ASA web site will show that the organization carries on a very active program of academic conferences and exchange. 

Second, it is not nearly as clear as Professor Jacobsen seems to believe that the boycott itself is not an "educational" activity within the meaning of the IRS regulations.  The regs. state that "educational" involves both "training of the individual" and "The instruction of the public on subjects useful to the individual and beneficial to the community."  Regs. 1.501(c)(3)-1(d)(3).  The latter phrase encompasses all sorts of activities designed to inform the population; a planetarium, a zoo, a symphony orchestra - all are organizations that are "educational" because they provide useful information to the public.  The boycott by ASA, whether you agree with it or not, arguably is bringing information to the public about the treatment of Palestinians by Israel; it is a technique to shed light on certain information.  Boycotts have long been used "to get a point across."  Do we really want the IRS to make value judgments regarding when boycotts are "good" and therefore educational and when they are "bad" and therefore not educational?  I sure don't.  Boycotts serve an information-dissemination purpose.  In my view, that is "educational" even if I find the purpose distasteful, stupid, or both.  

Professor Jacobsen's second argument is that the boycott violates the "public policy" limitation on exemption by violating U.S. public policy against boycotting Israel and by violating public policy against discrimination on the basis of national origin.  This, too, is unlikely.  In the Bob Jones University case (461 U.S. 574), the Supreme Court found that discrimination on the basis of race, even if not illegal, was nevertheless a violation of such a fundamental public policy that it should result in revocation of exemption.  Much has been written about the scope of Bob Jones - including excellent analyses by fellow blog contributors David Brennan and Johnny Rex Buckles - but suffice it to say that the IRS has never expanded the holding of Bob Jones beyond the proposition that discrimination against a minority class on the basis of race in the educational context is grounds for revoking exemption.  Not gender discrimination; not religious discrimination; not sexual orientation discrimination; not national origin discrimination; not a public policy against boycotting Israel; not a host of other things.   Again, we all can legitimately argue about what the scope of the public policy limitation ought to be, but under current IRS doctrine, the ASA boycott simply isn't a public policy violation.  And I very seriously doubt that the IRS will take this opportunity to dramatically expand its reading of Bob Jones.

So I'm going to go out on a limb here and make a prediction: Professor Jacobsen's complaint has had its 15 minutes of fame and you won't be hearing any more about it, at least not from the IRS.

And for the record, I think the ASA's boycott is really dumb.

John Colombo

 

Property Tax Exemption of Charitable Organizations' Conservation Lands in Question

On January 6, 2014, the Massachusetts Supreme Judicial Court heard arguments in an appeal from a Massachusetts Appellate Tax Board opinion upholding a town’s refusal to exempt from property taxation forestland that the New England Forestry Foundation (NEFF) owns in fee. NEFF is a charitable organization whose mission is to “conserve New England’s working forests through conservation and ecologically sound management of privately owned forestlands.” The property at issue is a 120-acre parcel of forestland, bordered on two sides by state forest, on which NEFF conducts sustainable forestry practices. Between 2000 and 2009, NEFF collected about $24,000 from the sale of timber products from the property. 

NEFF contends that its ownership and management of the property provides many benefits to the general public, including recreational and scenic opportunities (the property is open to the public), improved water and air quality, protection of habitat for a variety of wildlife, and education of private landowners and the public regarding sustainable forestry practices.

The town contends that NEFF’s dominant purpose with respect to the land is forestry, and that any educational activities it provides are minimal and, at best, ancillary to that dominant purpose. The town also contends that NEFF has done little to encourage public use of the land, alleging a lack of sufficient signage alerting the public to the property’s availability for public use, NEFF’s failure to disseminate information about the parcel to the public on any wide scale, and the public’s limited access to the property because the property is situated at the end of a dirt road that appears to be a private driveway.

In its January 2013 opinion in New England Forestry Foundation v. Board of Assessors of the Town of Hawley, the Massachusetts Appellate Tax Board ruled that NEFF failed to meet its burden of proving that it occupied and used the subject property in furtherance of a traditional or an otherwise accepted charitable purpose within the meaning of the state statute governing property tax exemptions. The Board dismissed NEFF’s argument that the property should be exempt because it provides an environmental benefit in the form of preservation of a habitat for diverse species. Citing to a tax exemption case decided in 1966, the Board noted that

while the preservation of nature may be a laudable goal, "simply keeping land open and allowing its natural habitat to flourish is not sufficiently charitable. Appellant must demonstrate 'an active appropriation to the immediate uses of the charitable cause for which the owner was organized.'"

The Board also noted that “[T]he absence of public access to land has consistently proven fatal to a landowner’s claim of charitable exemption.”

The Appellate Tax Board’s reliance on a 1966 court opinion for the proposition that “simply keeping land open and allowing its natural habitat to flourish is not sufficiently charitable” was misplaced. What constitutes a valid charitable purpose evolves over time as the needs of society change, new discoveries are made, and the conditions, characters, and needs of different communities evolve. In the almost 50 years since the 1966 decision was handed down there have been significant advances in our understanding of ecological processes and environmental science. We now recognize that many public benefits in the form of ecosystem services flow from protecting land in its undeveloped state, including the maintenance of biodiversity, the purification of air and water, the mitigation of floods and droughts, the detoxification and decomposition of wastes, the generation and renewal of soil and soil fertility, the pollination of crops and natural vegetation, and the dispersal of seeds and translocation of nutrients. Accordingly, it is not surprising that § 28 of the Restatement (Third) of Trusts, published in 2003, specifically recognizes the promotion of “environmental quality” as a valid charitable purpose that falls within the intentionally broad and evolving category of “purposes beneficial to the community.”

Moreover, providing public access to conserved lands could in some cases be detrimental to the protection of important conservation values, such as habitat for sensitive species. Providing public access also involves costs to the charitable organization owning the land, as it generally entails the maintenance of liability insurance as well as trail maintenance, maintenance of appropriate signage, monitoring, waste management and clean up, and repairs for vandalism. Domestic dogs and off-road vehicles can be particularly vexing problems, as they can negatively impact both the protection of conservation values and public enjoyment and safety.

A 2013 opinion of the New Mexico Court of Appeals reflects an understanding of the evolving definition of charitable purposes and the varied public benefits that can be provided through the conservation of land. In Pecos River Open Spaces v. County of San Miguel, the New Mexico Court of Appeals held that a 60-acre parcel of conservation land owned by a charitable conservation organization was “used for…charitable purposes” and therefore properly exempt from property taxation. The court explained that “there can be little question that conservation of land in its natural and undeveloped state generally benefits the public” and “the way conservation [of land] benefits the public is through maintaining the Property for the public's benefit in its natural, pristine state without any particular human activities or construction.” The court noted, however, that not every parcel of conserved land is “inherently suitable to be classified as substantially beneficial to the public, and thus charitable”—rather, a case-by-case analysis of the public benefits provided is required. The court found that conservation of the 60-acre parcel at issue provided substantial benefits to the public because of the land’s location near the Pecos River, its natural and undisturbed quality, and its contribution to environmental preservation and the beautification of San Miguel County and the State. “This use,” said the court, “provides a benefit of real worth and importance to the public.”

Whether the Massachusetts Supreme Judicial Court will follow the lead of the New Mexico Court of Appeals in considering whether conserved lands are being used for a charitable purpose is uncertain. However, in light of our current understanding of the many public benefits that can flow from conserved lands, as well as the economic and environmental costs that can be associated with providing public access to such lands, conditioning property tax exempion of conserved lands on public access would seem not only inappropriate but also unwise. A more nuanced approach is called for—one that takes into account the variety of public benefits that we now know can flow from the conservation of land.

Court filings in the case, including five amicus briefs, can be found here.

Boston Globe coverage of the case can be found here.

Additional property tax exemptoin battlegrounds include Universities, colleges, and upscale retirement complexes.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law