Monday, August 31, 2015

Church Takes Leading Role in Children’s Health Care Initiatives

As reported in the Pittsburgh Post-Gazette, Fox Chapel Presbyterian Church of Pittsburgh has a history of facilitating public policy initiatives centered on improving children’s health.  It all reportedly began in the midst of the 1980s downturn in the steel industry:


When [a group of former steelworkers] … showed up at the Fox Chapel Presbyterian Church in the spring of 1984, the Rev. John Galloway stopped the service and invited them to address the congregation. Their stories that day were followed by emotional meetings with church and community leaders in which they described life without medical benefits for their children, according to church records.


Charlie LaVallee, longtime executive director of the Highmark Caring Foundation and former Highmark Blue Cross Blue Shield vice president, called Fox Chapel Presbyterian the “catalyst” for the program he helped develop into state law that later served as the model for the federal Children’s Health Insurance Program.


Today, reports the Post-Gazette, the church is donating space to the Pediatric Palliative Care Coalition, formed in 2012 to assist those caring for children with life-threatening illnesses, a group of patients typically underserved by existing entities, including hospices.  Partnering with the coalition seems a natural fit for the church, which is reported to have raised $50,000 in the early 2000s, “much of it going to help palliative care at Children’s Hospital of Pittsburgh of UPMC.”  The story explains that the coalition, which includes several regional hospitals, “is currently advocating for two bills in the General Assembly involving pediatric palliative care,” and focuses on “connecting families and medical providers” and “helping educate hospices about a provision in the Affordable Care Act that requires state Medicaid programs to cover both life-sustaining treatment and hospice for qualified children under 21.”


The activities of Fox Chapel Presbyterian Church serve as a helpful reminder of how nonprofits in general, and religious nonprofits in particular, serve a vital role in both the delivery of social services in this country and the shaping of the nation’s public policy.  The story reports how the church listened to the voices of a segment of the population facing great needs that were not being met by either government or the nonprofit sector.  The church has raised money to help meet these needs.  The church has also donated physical space to aid the effort.  And the church, by helping raise public awareness of a problem, has even contributed in some ways to the enactment of law and legislative proposals that have garnered broad support.


More broadly, Fox Chapel Presbyterian Church is yet another example in our country’s rich history of nonprofits, including churches, which take seriously their mission and their duty to advance their mission by exercising their rights to participate in the intersection of the private and public spheres. What this church is doing to help promote children’s health would likely garner the applause of most of us.  Other efforts – such as promoting the health, and even the very lives, of children who have not yet made it out of their mothers’ bodies – would elicit a more varied response among the general population.  But this is the nature of a pluralistic universe of actors in a civil society that includes nonprofit entities in all of their varied stripes.  Let us not forget that, when we embrace, even support, the efforts of a nonprofit such as Fox Chapel Presbyterian Church, we are recognizing the right of every nonprofit to act similarly to advance its mission.



August 31, 2015 in Current Affairs | Permalink | Comments (0)

Tuesday, August 25, 2015

NJ Hospital Loses Property Tax Exemption

In a recent opinion, AHS Hospital Corp. v. Town of Morristown, 2015 WL 3956132, the Tax Court of New Jersey revoked the property tax exemption of a non-profit hospital. In a lengthy and wide-ranging opinion, the court surveyed the history of hospitals, finding it important that the modern hospital has changed greatly from the hospitals in existence at the time property tax exemptions were granted. The court noted that “Like their new for-profit competitors, today's non-profit hospitals have evolved into labyrinthine corporate structures, intertwined with both non-profit and for-profit subsidiaries and unaffiliated corporate entities. . . . Today's non-profit hospitals generate significant revenue and pay their professionals salaries that are competitive even by for-profit standards. Furthermore, private physicians and medical practices associated with non-profit hospitals earn and retain income generated on hospital property.” The court praised the quality of care provided by the hospital but said that it “must not succumb to emotion” in reaching its decision. In denying property tax exemption for much of the hospital property because of a for-profit use, the court observed that “If it is true that all non-profit hospitals operate like the Hospital in this case, as was the testimony here, then for purposes of the property tax exemption, modern non-profit hospitals are essentially legal fictions.” No doubt this issue will continue to reverberate in New Jersey and in many other states revisiting the policy behind property tax exemptions, for hospitals and other nonprofits. RC

August 25, 2015 | Permalink | Comments (0)

Wednesday, August 19, 2015

Fleischer on Mandatory College Endowments in the NYT

Professor Victor Fleischer from the University of San Diego has an opinion piece in today's New York Times advocating an 8% annual required payout for university endowments over $100 million.   Such a payout is more than the 5% amount required for private foundations under Section 4941, and well more than the payouts for medical research organizations and private operating foundations.  In fact, it is more than the amount set as a rebuttable presumption of unreasonableness for endowment spending under Section 4(d) of UPMIFA, which is 7%.

Fleischer's concern was prompted by his research into investment manager compensation, which indicated that that private equity fund managers received more in payouts than students at at least five universities: Harvard, Yale, Texas, Stanford and Princeton.   Much of this compensation was in the form of the dreaded carried interest, which is under scrutiny in numerous arenas, not just the nonprofit world.

It is an interesting proposition.   I am somewhat dubious of an 8% payout, wondering whether that might have an adverse impact on the risk profile of endowments, which by all accounts already have fairly aggressive asset allocations (Fleischer says that endowments this size are returning over 8% already so it won't matter).   I also wonder what rationale there is for subjecting only university endowments to such a rule, as it seems to me that there may be other exempt organizations of a similar size that might have a similar investment compensation issues (large foundations, for example, only pay 5%) that are not subject to such a high payout requirement.   Finally, isn't the issue really the investment manager compensation, so mandating a payout isn't really reaching the root of the problem?  But I may be picking around the edges on this.     Would love to hear others thoughts.




August 19, 2015 in Current Affairs, In the News | Permalink | Comments (0)

Monday, August 17, 2015

The University of Iowa Invites Applications

The University of Iowa College of Law sent to us the following request for applications for tenure, tenure track, and clinical professors:

     THE UNIVERSITY OF IOWA COLLEGE OF LAW anticipates hiring several tenured/tenure track faculty members and clinical faculty members (including a director for field placement program) over the coming year. Our goal is to find outstanding scholars and teachers who can extend the law school’s traditional strengths and intellectual breadth. We are interested in all persons of highacademic achievement and promise with outstanding credentials. Appointment and rank will be commensurate with qualifications and experience. Candidates should send resumes, references, and descriptions of areas of interest to:  Faculty Appointments Committee, College of Law, The University of Iowa, Iowa City, Iowa  52242-1113.

   THE UNIVERSITY OF IOWA is an equal opportunity/affirmative action employer. All qualified applicants are encouraged to apply and will receive consideration for employment free from discrimination on the basis of race, creed, color, national origin, age, sex, pregnancy, sexual orientation, gender identity, genetic information, religion, associational preference, status as a qualified individual with a disability, or status as a protected veteran.



August 17, 2015 in Fellowship & Job Opportunities | Permalink | Comments (0)

Saturday, August 15, 2015

Minnick v. Commissioner—9th Circuit’s Unpublished Holdings in Conservation Easement Donation Case

Minnick elk copyIn Minnick v. Commissioner, _ F.3d _ (9th Cir. 2015), the 9th Circuit affirmed the Tax Court’s holding that, to be eligible for a charitable income tax deduction for the donation of a conservation easement, any outstanding mortgages on the underlying property must be subordinated to the rights of the holder of the easement at the time of the gift. The Minnicks did not obtain a subordination agreement until five years after the date of the gift.

In an unpublished opinion issued the same day, Minnick v. Commissioner, _ Fed. Appx. _, 2015 WL 4747103 (9th Cir. 2015), the 9th Circuit addressed the remaining issues in the case, holding for the IRS on each point.

No Excuses

The Minnicks argued that their failure to timely subordinate the mortgage should be excused for three reasons.

  • So Remote As To Be Negligible. The Minnicks argued that Treasury Regulation § 1.170A-14(g)(3), which provides that a “deduction shall not be disallowed…merely because the interest which passes to…the donee organization may be defeated by the performance of some act or the happening of some event, if on the date of the gift it appears that the possibility that such act or event will occur is so remote as to be negligible,” excused their noncompliance with the subordination requirement. The Minnicks appear to have argued that the possibility that they would default on the mortgage and the easement would be extinguished was “so remote as to be negligible.” The 9th Circuit rejected this argument, noting that the so-remote-as-to-be-negligible provision does not override Treasury Regulation § 1.170A-14(g)(2)’s mortgage subordination requirement. This is consistent with the 10th Circuit’s holding in Mitchell v. Commissioner, 775 F.3d 1243 (10th Cir. 2015).
  • Intent. The Minnicks argued that their failure to obtain a timely subordination agreement should be excused because there was “verifiable evidence of original intent to enforce the easement in perpetuity” in the easement deed, which specifically stated that there were “no outstanding mortgages ... in the Property that have not been expressly subordinated to the Easement.” The 9th Circuit rejected this argument, explaining that, even if the statement in the deed evidenced an intent to subordinate, intent is irrelevant. A mortgage must be subordinated at the time of the gift.
  • Cy Pres. The Minnicks argued that Idaho’s cy pres doctrine, which “restricted the Minnicks from abandoning or otherwise encumbering the easement,” adequately ensured that the easement would continue in perpetuity and, thus, the subordination requirement was satisfied. The 9th Circuit rejected this argument, noting that the “cy pres doctrine is inapplicable here because it has no effect on the ability of the bank holding the unsubordinated mortgage to extinguish the easement by foreclosure.” Cy pres would have no effect on the ability of the bank to extinguish the easement in such event because the easement had been granted to the land trust holder subject to the mortgage and, thus, the bank’s rights had priority over those of the holder and the public.


The Minnicks argued that they suffered prejudice because they lacked notice that subordination would be an issue at trial (the Tax Court had granted the IRS permission to file an amended answer on the morning of trial). The 9th Circuit dismissed this argument, explaining that the Minnicks were aware of and prepared to argue the subordination issue at trial.


The Minnicks argued that the Tax Court improperly imposed a 20% negligence penalty on them under IRC § 6662(a). The 9th Circuit rejected this argument as well, explaining that, even if the Minnicks’ ignorance of the subordination requirement was in good faith, they did not have reasonable cause for claiming a deduction because Mr. Minnick had a law degree, and reading the Treasury Regulations would have given him notice that subordination may have been required.

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

August 15, 2015 | Permalink | Comments (0)

Thursday, August 13, 2015

White House Proposes Rules on Faith-Based Social Services

As announced Wednesday in a blog post by the head of the White House Office of Faith-based and Neighborhood Partnerships, nine federal agencies are issuing notices of proposed rulemaking (NPRMs)  that will codify recommendations made by an advisory council to the President on "strengthening the social service partnerships the government forms with nongovernmental providers, including strengthening the constitutional and legal footing of these partnerships."  The blog post further provides the overall content of the NPRMs:

The proposed rules clarify the principle that organizations offering explicitly religious activities may not subsidize those activities with direct federal financial assistance and must separate such activities in time or location from programs supported with direct federal financial assistance.  For example, if a faith-based provider offers a Bible study as well as a federally supported job training program, the Bible study must be privately funded and separated in time or location from the job training program. 

The NPRMs also propose new protections for beneficiaries or prospective beneficiaries of social service programs that are supported by direct federal financial assistance.  In the proposed rules, the agencies set forth a notice to beneficiaries and prospective beneficiaries that informs them of these protections.  These notices would make it clear, for example, that beneficiaries may not be discriminated against on the basis of religion or religious belief or be required to participate in any religious activities and advises beneficiaries that they may request an alternative provider if they object to the religious character of their current provider.

At the same time, the NPRMs assure religious providers of their equal ability to compete for government funds and of continuing protections for their religious identity like the ability of providers to use religious terms in their organizational names and to include religious references in mission statements and in other organizational documents.  The NPRMs also state that the standards in the proposed regulations apply to sub-awards as well as prime awards, and set forth definitions of “direct” and “indirect” federal financial assistance.  These areas have been sources of confusion for some providers.

The NPRMs are to be issued by the federal departments of Agriculture, Education, Health and Human Services, Homeland Security, Housing and Urban Development, Justice, Labor and Veterans Affairs as well as the U.S. Agency for International Development, and will apply to a broad range of federal programs that have involved faith-based organizations for years.  These federal agencies will be requesting interested parties to submit comments over the next 60 days, which will then be considered in issuing final regulations.  

[See also Washington PostUSA Today; The GazetteDeseret News]

Nicholas Mirkay

August 13, 2015 in Federal – Executive, In the News | Permalink | Comments (0)

IRS Advisory Committee on TE/GE Seeks Applicants

Pursuant to a notice published in the Federal Register on August 10, the IRS is seeking applicants for vacancies on the Advisory Committee on Tax Exempt and Government Entities (ACT).  The vacancies, which will occur in June 2016, include:  Two (2) Employee Plans; two (2) Exempt Organizations; one (1) Federal, State and Local Governments; and one (1) Indian Tribal Governments.  The notice states that ""[t]o ensure appropriate balance of membership, final selection of qualified candidates will be determined based on experience, qualifications and other expertise."

Nicholas Mirkay

August 13, 2015 in Federal – Executive | Permalink | Comments (0)

Tax-Exempt Status of Religious Universities & Institutions after Same-Sex Marriage Ruling

The Supreme Court ruling on same-sex marriage has yielded a lot of commentary regarding its potential effect on tax-exempt, religious organizations, including religiously-affiliated educational organizations.  The Washington Post article referenced below sets forth the IRS Commissioner's commitment to not change its stance and begin revoking the exemption of religiously-affiliated educational institutions that oppose the ruling.  The second set of blog posts looks at the issue more broadly, generally making the argument that opposition from such educational and other religious institutions results in "vibrant" and essential pluralism.

Washington Post, "IRS Commissioner Promises to Not to Revoke Tax-Exempt Status of Colleges that Oppose Gay Marriage":

After the Supreme Court’s decision on gay marriage, religious leaders feared that religious universities, nonprofits and other institutions could lose their tax-exempt status. IRS Commissioner John Koskinen has promised the Senate Judiciary Oversight Subcommittee that his agency would not go after the tax-exempt status of religious colleges and universities that oppose gay marriage.

During a hearing Wednesday conducted by the Senate Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts, Sen. Mike Lee (R-Utah) asked Koskinen whether the IRS would “not, in the absence of a directive by Congress or by the courts," take action to remove religious schools’ tax exemption.

“I can make that commitment,” Koskinen said, explaining that “we see no basis for changing our examination criteria as a result of this Supreme Court case.”

Koskinen discussed the potential for such schools’ tax exemption to go under scrutiny down the road. “If we ever did that, we would issue it for public comment. There would be no surprises,” Koskinen said. “The public would have plenty of notice and plenty of opportunity to comment, and that’s not going to happen in the next two and a half years.”  [emphasis added]

[Hat tip:  TaxProfBlog]  [see also Philanthropy News Digest; The Hill]


PrawfsBlog, "Garnett et al. on Tax-Exempt Status and Religious (and Other) Organizations" by Paul Horwitz (Alabama)::

Should government insist that all private organizations comply with its own sense of the good? Most people, I think, still agree that the answer to this question is no. However strongly they feel that those public values are the right values, and however devoutly they may hope that all people and all groups come to share them and to act accordingly, they still believe for various reasons--not least a sense that the public-private distinction, however imperfect and vulnerable to critique, represents an important value of its own--that government should not and perhaps cannot rigorously or ruthlessly enforce what Nancy Rosenblum has called a "logic of congruence" between public and private organizations. ...

Our friend and fellow Prawfs writer Rick Garnett discusses that question in a new editorial co-written with John Inazu and Michael McConnell [see below]. The title, which I gather its writers did not choose and might not be completely comfortable with, is "How to Protect Endangered Religious Groups You Admire." They argue, in brief, that we should, at a minimum, be willing to protect religious non-profits that provide significant contributions to the public good despite their now heterodox views.

Read the whole thing. Feel free to disagree. I will add two points. I agree, in sensibility at least, with a point made by Marc DeGirolami in a recent post about the editorial: "We use the language of 'exemption' when we speak of the taxable status of nonprofits, but it would be better instead to think of their nontaxable status as marking a boundary of the government's power to tax." Reasonable disagreement is available about whether "power" is an apt word here, but for those who believe that whatever the extent of state power, it ought not lightly be exercised in a way that circumscribes civil society and a vibrant pluralism, the sensibility is right. Second, it ought not be only pluralists, and certainly not only social conservatives, who support these arguments. This is an argument that liberals ought to be taking seriously now, especially as progressive thought continues to drift in a more illiberal direction.

Christianity Today op-ed:  How to Protect Endangered Religious Groups You Admire, by  Richard W. Garnett (Notre Dame), John D. Inazu (Washington University) & Michael W. McConnell (Stanford):

Today, tens of thousands of religious organizations, and tens of millions of Americans, continue to believe and teach that the proper understanding of marriage is a union of one man and one woman. But they do far more than believe and teach this and other views.

They also give food, clothing, shelter, counsel, and comfort to millions of Americans in need. They offer some of the most important and desperately needed health, educational, and social services in the country. And they provide billions of dollars and thousands of full-time workers for international relief aid that serves vulnerable migrants, refugees, and persecuted minorities. The work of religious organizations has long been and continues to be central both to religious believers’ lives and to the welfare of others. Our communities—and, indeed, communities around the globe—would be much worse off without these organizations and their faith-informed good works.

Despite the crucial role that religious organizations and individuals have long played in our country, some voices now suggest that they and their work are somehow tainted because of their beliefs about marriage and sexuality. Some argue that the time has come to push religious believers out of the public square and confine them to the quiet, private realm of personal prayer and worship. This despite the Supreme Court's recent decision in Obergefell v. Hodges, which not only required states to legally recognize same-sex marriages but also said, “the First Amendment ensures that religious organizations and persons are given proper protection as they seek to teach the principles that are so fulfilling and so central to their lives and faiths.”

Nonetheless, because of their traditional views on human sexuality, religious organizations have already been threatened with heavy-handed government action. ...

[W]ithin days of the Court’s decision in Obergefell, New York Times columnist Mark Oppenheimer wrote that the government should eliminate tax-exempt status from “organizations that dissent from settled public policy on matters of race or sexuality.”

Mr. Oppenheimer failed to acknowledge that in a pluralistic and democratic society, government routinely recognizes the tax-exempt status of organizations that differ from “settled public policy.” For example, not that long ago, the Human Rights Campaign was tax-exempt when it differed from settled policy on matters of sexuality; the same is true of organizations, like the Sierra Club, who push for changes in environmental regulation, or anti-war groups, who oppose US military policy. One of the principal purposes of civil society organizations is to challenge “settled public policy.”

Moreover, the majority opinion in the 5-4 decision in Obergefell earlier this summer made clear that “Many who deem same-sex marriage to be wrong reach that conclusion based on decent and honorable religious or philosophical premises, and neither they nor their beliefs are disparaged here.” ...

Some members of Congress have now introduced the First Amendment Defense Act (FADA) in an effort to ensure that overheated rhetoric and political opportunism do not endanger the important work of faith-based organizations. The core of FADA would require the federal government to honor its longstanding commitments to treat all such organizations with an even hand. It would prevent federal officials from attempting to strip tax-exempt status, from denying equal access to federal facilities and entitlements, or from taking adverse actions related to licensing or accreditation. ... We think the best approach is to tailor FADA to the core area of concern: religious nonprofits. That focus would serve the cause of religious freedom by making it more likely that this important legislation can move forward.

[Hat tip:  TaxProfBlog]


Nicholas Mirkay

August 13, 2015 in Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

NYC Bar Assocation: IRS Should Issue Revenue Ruling on Certain EO Entity Changes

As reported by the Daily Tax Report, the NYC Bar Association has requested that the IRS issue a revenue ruling confirming the agency's stance in two 2014 private letter rulings that the exempt organization was not required to obtain a new exemption letter upon a change of domicile or in the case of certain conversions (See PLR 201446025; PLR 201426028).

The IRS has responded that the issue will likely be addressed through a guidance project.

Nicholas Mirkay

August 13, 2015 in Federal – Executive | Permalink | Comments (0)

Wednesday, August 12, 2015

Minnick v. Commissioner – 9th Circuit Affirms Tax Court, Mortgages Must Be Subordinated When Conservation Easement is Donated


Minnick bobcat copyIn Minnick v. Commissioner, _ F.3d _ (9th Cir. 2015), the 9th Circuit Court of Appeals affirmed the Tax Court’s holding that, to be eligible for a deduction for the donation of a conservation easement under Internal Revenue Code § 170(h), any outstanding mortgages on the underlying property must be subordinated to the rights of the holder of the easement at the time of the gift. The 10th Circuit held the same in a similar case in January 2015: Mitchell v. Commissioner, 775 F.3d 1243 (10th Cir. 2015) (Mitchell III).

Citing to Mitchell III, the 9th Circuit explained that the plain language of Treasury Regulation § 1.170A–14(g)(2) (the “mortgage subordination” regulation) supports the Tax Court’s interpretation. The regulation specifies that “no deduction will be permitted … unless the mortgagee subordinates its rights in the property.” Strictly construed, said the 9th Circuit, that language makes clear that “subordination is a prerequisite to allowing a deduction.” Since there was no dispute that Minnick’s lender had not subordinated its rights in the subject property when Minnick donated the easement at issue (despite warranties in the easement deed to the contrary), under the plain meaning of the regulation no deduction is permitted.

The 9th Circuit further explained that, even if ambiguity arguably existed in the language of the regulation with respect to when subordination is required, that would not change the outcome. Under Auer v. Robbins, 519 U.S. 452 (1997), courts defer to the IRS’s reasonable interpretation of its own regulations and, said the 9th Circuit, the IRS’s interpretation is reasonable and not plainly erroneous or inconsistent with the regulation. The 9th Circuit quoted the analysis on this point in Mitchell III: “[b]ecause a conservation easement subject to a prior mortgage obligation is at risk of extinguishment upon foreclosure, requiring subordination at the time of the donation is consistent with the Code’s requirement that the conservation purpose be protected in perpetuity.” The 9th Circuit emphasized:

An easement can hardly be said to be protected ‘in perpetuity’ if it is subject to extinguishment at essentially any time by a mortgage holder who was not a party to, and indeed (as here) may not even have been aware of, the agreement between the Taxpayers and a [land] trust.

Mr. Minnick (a former member of the U.S. House of Representatives from Idaho) is suing his attorney for malpractice. The Idaho Supreme Court recently ruled that suit is not barred by the statute of limitations.

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


August 12, 2015 | Permalink | Comments (0)