Thursday, April 30, 2015
College Fraternities and Sororities Lobby for Indirect Tax Benefit
The Washington Post reports that the Fraternal Government Relations Coalition, which represents 100 fraternities and sororities collectively owning $3.2 billion in real estate, “is lobbying Congress this week to urge legislators to pass a bill that would allow charitable donations to fund up to $1 billion in housing construction for Greek-letter houses across the country.” The story reports that lobbyists justify the tax expenditure on grounds of safety, lowering costs of student housing, spurring small business jobs, and granting “tax parity between the colleges and the Greek houses that serve the same students.”
I did a little digging, and I am finding some curiosities with the Post’s legal analysis. The Post reports that the lobbyist group is urging adoption of the Collegiate Housing and Infrastructure Act, and that the “current bill, H.R. 1718, is sponsored by Rep. Pete Sessions (R-Tex.) and has 14 bipartisan sponsors.” The story further states that the bill would amend the Internal Revenue Code “to allow donations to Greek groups for student housing to be fully tax deductible.” But according to the text of H.R. 1718, the general rule of the proposed legislation simply states as follows:
For purposes of subsection (c)(3) and sections 170(c)(2)(B), 2055(a)(2), and 2522(a)(2), an organization shall not fail to be treated as organized and operated exclusively for charitable or educational purposes solely because such organization makes collegiate housing and infrastructure grants to an organization described in subsection (c)(7) which applies the grant to its collegiate housing property.
Thus, the bill in question would only indirectly do what the story says, insofar as a section 501(c)(3) entity receiving tax-deductible contributions could use donated funds to finance the construction or refurbishing of fraternity and sorority houses owned by those section 501(c)(7) entities.
The story also mysteriously states as follows:
Under current tax rules, just 30 percent of a single donation to a Greek organization for housing is considered tax deductible. The bill would permit as much as 100 percent of the donation to be deductible, which already is allowed for donors who give directly to universities and colleges.
I have no idea why the Post reports that “30 percent of a single donation to a Greek organization for housing is considered tax deductible” under current law. Fraternities and sororities are tax-exempt as section 501(c)(7) entities, not section 501(c)(3) entities qualifying for tax-deductible donations under Code section 170(c)(2).
But my main concern is not with the misleading technical analysis of the Post. I am quite skeptical that this proposed tax expenditure is justified. The IRS long ago issued a revenue ruling that supports the deductibility of charitable contributions to universities that use the donations to build housing owned by the universities and leased to fraternities and sororities. See Rev. Rul. 60-367, 1960-2 C.B. 73. Here are the key excerpts from the ruling:
A college might properly adopt as incident to its educational activities a program to assist in the housing of all its students by providing dormitories, by providing an information or rental office to obtain accommodations for its students in private homes, by exercising control over housing for its students, by purchasing or constructing, owning and operating houses for fraternity students, or by a combination of such activities. The furnishing of housing for fraternity members would not cease to be a college activity because the college participated in or undertook plans to have the whole or a part of the cost of a fraternity house defrayed by gifts from alumni of a particular fraternity. In order, however, for the gift to be deductible as a gift to the college, it must in reality be a gift to the college and must not be a gift to the fraternity by using the college as a conduit.
The effect of designation by a donor as to the fraternity house for which his gift is to be used must not be such that his gift is for the benefit of the fraternity rather than for the benefit of the college. Therefore, the college must, as the result of the gift, have the attributes of ownership in respect of the donated property, and its rights as an owner must not, as a condition of the gift, be limited by conditions or restrictions which in effect make a private group the beneficiary of the donated property. The making and acceptance of a gift on conditions which confer substantial rights on a private group are inconsistent with a gift wholly to the college. The college should, as an owner, be free to use the property acquired with the gift as its future policy suggests or requires.
I do not believe that the proposed bill is necessary to achieve the benefits claimed by the lobbyists. Construction and renovation of university-owned housing generates just as much economic boom as that associated with privately owned housing, and it is easier for a university to ensure that frat housing is safe and affordable if the university is in charge of it than if a frat is. Further, in light of recent nationally publicized events associated with Greek life, I would modestly suggest that policies promoting greater university control of fraternity and sorority housing are not necessarily a bad idea.
So here’s an alternative idea. Keep current law in place. Universities can welcome donations of existing Greek houses to the universities, which would then lease the houses back to the section 501(c)(7) entities on terms that ensure fair student housing prices and safe conditions. And if the fraternities violate anti-hazing or anti-discrimination policies of the universities, they have breached their leases and must find new safe, affordable housing.
April 30, 2015 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)
Wednesday, April 29, 2015
Los Angeles Hospital Sued for Patient Dumping
The Los Angeles Times reports that the City of Los Angeles has sued Gardens Regional Hospital & Medical Center for “repeatedly dumping patients … without appropriate treatment or discharge plans.” According to the Times, L.A. City Attorney Mike Feuer has sued several hospitals over the past two years on similar grounds, and he is currently investigating other facilities. One example cited by the story is Glendale Adventist Medical Center, which is reported to have “paid $700,000 last year to settle dumping allegations without admitting wrongdoing.”
As to the predicament facing hospitals, the story explains as follows:
Some hospitals maintain they are hamstrung by laws that stop them from confining all but the most severely psychotic homeless people. State law requires discharge planning, but hospitals say there is nowhere for homeless patients to go — especially those with mental conditions.
But Feuer maintains that several hospitals have agreed to proper protocols. The Times cites him as saying, “In each of the cases we've resolved with a medical care facility we've not had a single problem," and that "it is possible for a healthcare facility to adopt humane and decent treatment."
April 29, 2015 in Current Affairs | Permalink | Comments (0) | TrackBack (0)
NFL Punts Tax Exemption
The National Football League has announced that it will no longer file as a tax-exempt entity, notwithstanding its long-standing status as an organization described in section 501(c)(6) of the Internal Revenue Code. As reported in Bloomberg, NFL Commissioner Roger Goodell characterized the decision as eliminating a “distraction.” The Bloomberg piece also opines on the calculus behind the tax-exemption audible:
The league’s decision pre-empts a move to revoke the tax break that had been led by former Senator Tom Coburn of Oklahoma. That effort has gained some momentum in recent years, but not enough to pass either the House or the Senate. The NFL’s action removes a point of leverage for Congress in its continuing inquiries into the league’s handling of concussions and domestic violence.
For the NFL, the costs of losing the tax break are minimal, an estimated $109 million over the next decade. There are benefits for the league, too, including the end of federal disclosure requirements that put Goodell’s salary and some other league information in the public domain.
The tax cost of the league’s foregoing federal income tax exemption is not precisely known. According to the Wall Street Journal,
The size of the NFL’s tax bill is unclear. In 2013, a report by Sen. Tom Coburn (R., Okla.) calling for the NFL and National Hockey League to give up their tax-exempt status estimated that such a move would generate $91 million annually for the federal government. But Congress’s Joint Committee on Taxation pegged the amount at just $109 million over the next 10 years.
As to the benefit of not disclosing salaries to Monday morning quarterbacks, the Washington Post makes an interesting observation:
[T]he NFL’s executives will gain cover from criticism over their paychecks. The league’s 2013 tax filing revealed that, besides Goodell’s $44 million, six other executives drew seven-figure salaries and 298 employees made $100,000 or more.
April 29, 2015 in Current Affairs | Permalink | Comments (0) | TrackBack (0)
Tuesday, April 28, 2015
India Cracks Down on Foreign-Funded Charities
As reported in the Chronicle of Philanthropy and Reuters, the home ministry of the government of India has cancelled the registration of 8,975 nonprofit associations for failing to declare details of foreign donations that they have received over a three-year period. The action reportedly followed India’s suspension of the license of Greenpeace India and the government’s placement of the Ford Foundation on a watch list. According to Reuters, “Critics have argued that the government's decision to restrict the movement of foreign funding to local charities is an attempt to stifle the voices of those who oppose Prime Minister Narendra Modi's economic agenda.”
April 28, 2015 in International | Permalink | Comments (0) | TrackBack (0)
Donating to Nonprofits Aiding Nepal Earthquake Victims
Charity Navigator has published a list of charitable nonprofits that are working to aid the victims of the tragic, enormous earthquake that struck Nepal about 50 miles from Kathmandu three days ago. According to Charity Navigator’s website, “the charities on our list have indicated that they plan to assist in the relief efforts in some way,” and they “have a 3 or 4 star Charity Navigator rating.” Donations to these charities also may be designated specifically for the relief of victims of the Nepal earthquake.
April 28, 2015 in Current Affairs | Permalink | Comments (0) | TrackBack (0)
Monday, April 27, 2015
FASB Proposes Changes Affecting Nonprofits
Accounting Today reports that the Financial Accounting Standards Board has issued a proposed accounting standards update that would modify how nonprofits must report information in their financial statements and notes thereto. Proposed changes address the reporting of restricted assets, results of operations, expenses by both nature and function, investment returns net of expenses, operating cash flows, and quantitative and qualitative information about liquidity.
April 27, 2015 in Current Affairs | Permalink | Comments (0) | TrackBack (0)
Articles on the Clinton Foundation
The Clinton Foundation is obviously making headlines these days. I hardly know anything at this point begging for this nonprofit law professor’s comment. But for those who would like a sampling of stories from the past week’s news cycle, here is coverage from the Chicago Tribune, USA Today, the New York Times, and the Washington Post.
April 27, 2015 in Current Affairs | Permalink | Comments (0) | TrackBack (0)
Tuesday, April 21, 2015
Rutledge: Derivative Actions in Nonprofit Corporations
Thomas E. Rutledge, Member of Stoll Keenon Ogden, PLLC, has authored an article entitled “Who Will Watch the Watchers?: Derivative Actions in Nonprofit Corporations” on SSRN. Rutledge argues that derivative actions may be available within organizations such as LLCs and nonprofit corporations through the judiciary’s equitable powers. Here is the abstract:
Unlike the Kentucky statutes governing business corporations, limited partnerships and statutory trusts, both the Kentucky Limited Liability Company Act and the Kentucky Nonprofit Corporation Acts are silent as to the requirements for “derivative actions” brought on behalf of the LLC or corporation by a member or other constituent thereof. Some have suggested that this absence indicates that derivative actions do not exist in those organizational forms, positing, it would seem, that it is the statute governing derivative actions that gives rise to the actions. This assessment is incorrect, and, presumably, arises out of a misunderstanding of the basis for derivative actions. In fact, the derivative action is a question of equitable standing that was later, in certain contexts, reduced to statute. It does not follow, therefore, that there are not derivative actions in LLCs and nonprofit corporations consequent to the failure of the statute to provide for them. Rather, equity will provide the rules applicable when the organizational statute does not specify the rules governing derivative actions.
April 21, 2015 | Permalink | Comments (0) | TrackBack (0)
Wednesday, April 15, 2015
Happy Tax Day 2015
Happy Tax Day all - and a special happy statute of limitations day to all of those involved in the preparation of tax returns!
In honor of Tax Day, the Obamas and Bidens released their tax returns earlier in the week. According to the Washington Post, the Obamas donated $70,712 to charity and the Bidens donated $7,380.
April 15, 2015 in Current Affairs | Permalink | Comments (0) | TrackBack (0)
Sunday, April 12, 2015
Montana Trial Court Upholds TNC’s Enforcement of a Conservation Easement
In The Nature Conservancy v. Deep Creek Grazing Ass’n, No. DV 14-015 (Mont. 9th Jud. Dist. Ct., Teton County, Mar. 31, 2015), a Montana trial court held that the owner of ranchland subject to a conservation easement had violated the easement by constructing ponds and filling a wetland area without obtaining prior approval from The Nature Conservancy (TNC), which holds the easement on behalf of the public. The court ordered the landowner to promptly restore the property to its condition prior to the violations, but declined to order the landowner to pay TNC’s attorney fees.
In March 2008, TNC purchased the conservation easement from Deep Creek Grazing Association (Deep Creek) for $3.5 million. The easement encumbers approximately 11,365 acres in Teton County, Montana.
The easement limits Deep Creek’s right to develop the property. The easement also permits Deep Creek to use the property in ways consistent with the easement, but identifies certain “consistent uses” as being subject to TNC’s prior approval. In particular, the easement provides that "construction of ponds requires prior approval from [TNC]." The easement also expressly prohibits the filling of wetlands or riparian areas.
In November 2013, during a routine monitoring visit, a TNC scientist and land manager observed that seven ponds had been constructed on the property without TNC’s prior approval. TNC sent a Notice of Violation informing Deep Creek that the pond construction violated the easement and requesting restoration of the pond sites to their preexisting conditions within 30 days as required by the easement. Due to winter conditions, however, TNC stated its willingness to accept Deep Creek’s agreement to undertake the restoration activities as soon as conditions permitted, provided the work was completed no later than May 1, 2014.
In early January 2014, during another routine monitoring visit, the same TNC scientist and land manager observed that gravel fill had been placed in a wetland area on the property. TNC sent a second Notice of Violation to Deep Creek regarding the fill.
Shortly thereafter Deep Creek sent a letter to TNC acknowledging that it undertook the pond construction activities “without recognizing or remembering” the requirements of the easement. As of April 2014, however, Deep Creek had not corrected the violations and TNC filed suit.
The Court’s Holdings
The court held that Deep Creek had clearly violated the conservation easement by constructing seven ponds on the property without obtaining prior approval from TNC as required by the easement. Despite having earlier admitted that it had violated the easement by constructing the ponds, at trial Deep Creek claimed it had not violated the easement because, according to a report it obtained from a Professor at Montana State University, the ponds were not ponds but were instead “earthen berms.” The court dismissed this argument, noting that it did “not hold water.” The court explained that (i) Deep Creek had itself repeatedly referred to the ponds as ponds, (ii) Deep Creek had filed for water rights as stock reservoirs for the ponds, and (iii) the ponds appeared to be “ordinary livestock ponds common to Montana ranches; the fact they are dry on occasion does not mean they are not ponds or that there is a factual dispute over the term.” The court further noted that Deep Creek’s post hoc attempt to have an expert opine that the ponds were “earthen berms” was not credible in the face of Deep Creek’s repeated statements to the contrary.
The court also noted that the Professor’s statements that the ponds benefited stock and wildlife were not relevant. “It is not for this Court to assess whether the ponds are a benefit to stock and wildlife,” said the court. Rather, its task was “to interpret the plain language of the easement, which requires prior notification and approval by [TNC for pond construction]."
The Filling of the Wetland
The court also held that Deep Creek had violated the conservation easement by filing a riparian or wet area on the property with material excavated from a nearby location, an action that was prohibited in four different sections of the easement. TNC was able to prove that the fill was not present at the time of the easement’s conveyance through the “baseline report,” which established the condition of the property at the time of the easement’s conveyance.
Good Faith and Fair Dealing
Deep Creek asserted that TNC breached the covenant of good faith and fair dealing that comes with every contract, presumably because TNC would not agree after the fact to allow the ponds and the fill. The court dismissed this argument, noting that Deep Creek could not claim that TNC violated the covenant of good faith and fair dealing when it was Deep Creek’s breach of the easement that led to the litigation. “Deep Creek never asked permission for its actions, which it admits were wrong,” said the court, “[r]equesting permission after the fact is not the same and violates the terms of the easement.” The court also noted that any obligations TNC might have to consider Deep Creek’s requests to construct the ponds and place fill in the wetland “were never triggered” because Deep Creek never requested prior approval from TNC as required by the easement.
The court concluded that Deep Creek had surrendered some of its real property interests when it granted the conservation easement and it was not for the court to determine whether filling the wetland served a beneficial purpose as Deep Creek suggested. Rather, said the court, its task was “to apply the plain language of the easement to the undisputed facts” and, based on those facts, the court found that TNC was entitled to summary judgment regarding the easement violations. The court also noted, however, that “[i]f Deep Creek had requested permission prior to constructing the ponds or filling wetland areas, the results in this case would undoubtedly be different.”
Citing to both the terms of the easement and a recent easement enforcement case from Maryland, McClure v. Montgomery County Planning Board, 103 A.3d 1111 (Md. App. 2014), the court found that restoration of the property to its condition prior to the unauthorized activities was an appropriate remedy.
Although the easement allows TNC to undertake the restoration, the court noted that, “cognizant of Deep Creek’s ranching operations,” it would provide Deep Creek with an opportunity to undertake the restoration. The court ordered Deep Creek to, within 20 days of the court’s order, submit a restoration plan to TNC for TNC’s approval. The order also provides that, if Deep Creek fails to submit such a plan, or if the plan does not meet the requirements for prompt restoration of the property as provided in the easement, TNC can undertake the restoration and Deep Creek would be liable for the costs.
Deep Creek was not, however, required to pay TNC’s attorney fees. According to the court, the conservation easement allows for attorney fees to be awarded to TNC if TNC files an action to correct a violation of the easement, but each party must pay its own attorney fees if the Court finds that no “material” violation has occurred. The court noted that whether Deep Creek’s actions constituted “material” violations was a question of fact the court was not required to resolve. The court explained that Deep Creek did not follow proper procedures and give TNC advance notice of its actions. Accordingly, Deep Creek was required by the easement to return the property to its prior condition regardless of the whether the violations were material. “Under these circumstances” the court found it appropriate for Deep Creek to pay TNCs court costs, but for each party to pay its own attorney fees.
Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law
April 12, 2015 | Permalink | Comments (0) | TrackBack (0)
Monday, April 6, 2015
SWF Real Estate v. Comm'r—Special Allocation of Tax Credit Generated by Conservation Easement Donation was Disguised Sale, but Easement Valuation Largely Upheld
In SWF Real Estate, LLC v. Comm'r, T.C. Memo. 2015-63, the Tax Court held that a partnership’s transfer to a 1% partner of 92% of the state tax credit generated by the partnership’s charitable contribution of a conservation easement was a taxable disguised sale under IRC § 707. The court also determined, however, that the partnership had only minimally overstated the value of the easement for federal deduction purposes.
In May 2001, John L. Lewis IV purchased a 674.65 acre parcel in Albemarle County, Virginia (Sherwood Farms), through his wholly-owned S-corporation. The S-Corporation then contributed the farm to SWF Real Estate, LLC (SWF), in exchange for 100% of the membership interests in SWF.
Virginia is one of several states that encourages donations of conservation easements within its borders by giving donors transferable state income tax credits in an amount equal to a percentage of the value of the donated easements. The credits can be used to offset the donors' state income tax liability, dollar for dollar, for a period of years, and excess credits can be sold to other Virginia taxpayers to be used to offset their state income tax liabilities.
After retaining the services of a consultant and being told that the donation of a conservation easement on Sherwood Farm could generate a federal deduction of roughly $6.7 million and a state income tax credit of roughly $3.2 million, Mr. Lewis decided to donate an easement. He also contracted with a Virginia limited liability limited partnership (Virginia Conservation) to help him sell or “allocate” the excess state tax credit generated by the donation (i.e., the amount of credit in excess of what Mr. Lewis could use to offset his own state income tax liability). The Tax Court described Virginia Conservation’s business activities as including “the acquisition and syndication of Virginia tax credits.” The consultant was paid a fee of $356,759 for its services relating to the easement donation and credit transfer transaction.
In December 2005, SWF donated a conservation easement on Sherwood Farm to the Public Recreational Facilities Authority of Albemarle County, Virginia. SWF obtained an appraisal estimating the value of the easement to be $7,398,333 and reported that amount as a charitable contribution on its 2005 federal partnership return.
In the same month, Virginia Conservation contributed approximately $1.8 million to SWF in exchange for a 1% interest, leaving Mr. Lewis with a 99% interest in SWF owned through his S-Corporation. While SWF’s operating agreement allocated partnership profits, losses, and net cash flow to the two partners in proportion to their respective percentage interests, it also provided that most of the state income tax credit generated by the easement donation would be allocated to Virginia Conservation. SWF treated this transaction as a $1.8 million capital contribution by its 1% partner (Virginia Conservation) followed by an “allocation” of roughly 92% of the state tax credit to that partner.
In holding that the alleged capital contribution transaction was, in large part, a disguised sale, the Tax Court relied on the 4th Circuit’s decision in Virginia Historic Tax Credit Fund 2001 LP v. Comm'r, 639 F.3d 129 (4th Cir. 2011), which the Tax Court found to be “squarely on point.” The Tax Court also relied on its earlier decision in Route 231, LLC v. Comm'r, T.C. Memo. 2014-30, which involved a nearly identical transaction (the same 1% partner), and was also found to be a disguised sale.
In explaining its holding, the Tax Court noted that IRC § 707 “prevents use of the partnership provisions to render nontaxable what would in substance have been a taxable exchange if it had not been ‘run through’ the partnership.” The substance of a transaction governs rather than its form, and transfers made between a partnership and a partner within a two-year period are “presumed to be a sale…unless the facts and circumstances clearly establish that the transfers do not constitute a sale.”
In applying the tests under IRC § 707, the Tax Court determined, among other things, that Virginia Conservation would not have transferred money to SWF “but for” SWF’s corresponding transfer of a portion of the tax credit to Virginia Conservation. In addition, SWF’s transfer of a portion of the credit to Virginia Conservation was not dependent upon the entrepreneurial risks associated with SWF’s partnership operations. Rather, Virginia Conservation was promised a legally enforceable, fixed rate of return in the form of a portion of the tax credit in exchange for its alleged capital contribution and it was shielded from suffering any loss through an indemnity clause. There also was no indication that Virginia Conservation reviewed SWF’s financial records pertaining to its farming business and cattle breeding operation; Virginia Conservation was solely interested in the credit transaction.
The timing of SWF’s receipt of the proceeds from the disguised sale was also at issue. SWF argued that the proceeds should be treated as income received in 2006. The Tax Court disagreed, finding that the proceeds (which remained in escrow until 2006) were irrevocably set aside for SWF’s sole benefit in 2005 and only ministerial tasks remained before distribution. Accordingly, pursuant to the “economic benefit theory,” the proceeds were income to SWF in 2005.
Mr. Lewis purchased Sherwood Farm through his S-Corporation in May 2001 for $3.45 million. Four years and seven months later, in December of 2005, he donated an easement on the farm and claimed a federal charitable income tax deduction of $7,398,333 based on an appraisal that indicated that the farm had more than tripled in value to $11,446,233. The IRS challenged SWF's claimed value for the easement.
At trial, SWF and the IRS each offered the report and testimony of a valuation expert. After careful review, the Tax Court found the report and testimony of SWF’s expert to be more credible and reliable than those of the IRS’s expert. The court found the IRS expert’s report and testimony to be “burdened by multiple errors and inconsistencies.”
SWF’s expert at trial concluded that the value of the easement was $7,350,000, or the difference between (i) his estimated before-easement value of $10,460,000 and (ii) his estimated after-easement value of $3,040,000 and a $70,000 “enhancement adjustment.” The enhancement adjustment was the amount by which he estimated that a 65.9-acre parcel located near Sherwood Farm that Mr. Lewis also owned was enhanced in value as a result of the easement donation.
The Tax Court agreed with SWF's expert and concluded that the value of the easement was $7,350,000, or only $48,333 less than what SWF originally claimed. The Tax Court thus reduced SWF's originally claimed value by less than 1%.
Technically, the value of the easement based on SWF’s expert’s report was $7,420,000 (the difference between his estimated before and after easement values). Adjustments for enhancement to nearby noncontiguous parcels owned by the donor do not reduce the value of the easement—they reduce the amount of the deduction. See Treas. Reg. § 1.170A-14(h)(3)(i) (“If the granting of a perpetual conservation restriction…has the effect of increasing the value of any other [noncontiguous] property owned by the donor…, the amount of the deduction…shall be reduced by the amount of the increase in the value of the other property.”) (emphasis added).
The taxpayer has appealed the Tax Court’s holding in Route 231, LLC to the 4th Circuit. Whether SWF will do the same with regard to the disguised sale holding in this case remains to be seen.
Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law
April 6, 2015 | Permalink | Comments (0) | TrackBack (0)
Thursday, April 2, 2015
New Rules of the Nonprofit Road?: Attorney-Charity Confidentiality in PA
The Supreme Court of Pennsylvania has decided to consider an issue that could have far-reaching consequences for the way attorneys and charities interact. The issue before the court is whether an attorney who has reason to believe that charitable assets are being diverted to private individuals may inform the Attorney General. This issue deals with Rule 1.6 of the Rules of Professional Conduct, which permits breaching attorney-client confidentiality in very limited cases, e.g., to prevent death or serious bodily harm. Not surprisingly, a cloud of secrecy has surrounded the case since late last year, and the order permitting consideration of this issue was only made public in March. A recent article explores this case and its possible implications.
Interestingly, the petitioner’s argument is not based upon Rule 1.6 but rather on the idea that counsel has a fiduciary duty to report unlawful diversions of charitable assets to the Attorney General since the general public is affected. In addition, the petitioner claims that since the charity is a tax-exempt entity supported by the public, it has waived its rights under Rule 1.6. As pointed out in the article, Rule 1.13 is also relevant. Rule 1.13 details the steps an attorney may take within an organization before going outside of it. For example, an attorney may choose to report the matter to higher-ups within the organization. As noted, attorney-client confidentiality serves an important purpose in our society. Overall, we want to promote the seeking out of legal counsel when there is a problem, and this will not happen if potential clients are afraid their confidences will be shared. As noted above, limited, dire circumstances must exist for an attorney to breach attorney-client confidentiality.
At the same time, one must ask whether the attorney-charity relationship calls for a different rule, particularly in the case of public charities. After all, these charities are accountable to the public. Also, given the recent problems associated with IRS oversight and the growing number of charities, attorneys may provide a more helpful, rather than hurting, hand in the quest to monitor an ever-increasingly large number of organizations.
April 2, 2015 in Current Affairs, State – Judicial | Permalink | Comments (0) | TrackBack (0)