Nonprofit Law Prof Blog

Dept of Labor: Volunteers who Provide a Benefit to Organization Are Employees, Must Be Paid Minimum Wage

A church encourages its parishioners to volunteer for a fundraiser.  More than 100 individuals heed the call and volunteer their time: some a few hours, some much more.  The Department of Labor then sues for violations of federal labor law for failing to pay the workers—who DOL considers “employees”—a minimum wage as required by the Federal Labor Standards Act (FLSA).

Sound unlikely?  Well, this exact scenario is playing out in Ohio in the case of Perez v. Cathedral Buffet.  Ernest Angley, of televangelism infamy, runs a church and a buffet restaurant.  According to court papers, the restaurant is organized as a for-profit organization owned entirely by the church, although the restaurant does not make and has not made a profit.  Parishioners volunteer for the buffet—sometimes sporadically, sometimes regularly.  105 of the would-be employees signed affidavits indicating that they did not receive any economic advantage from volunteering, and they volunteered for the sense of community the opportunity provided.  Department of Labor has sued Cathedral Buffet and the Ernest Angley for years of failing to pay volunteers.

In response to the argument that the volunteers do not need to be paid a minimum wage, the Department of Labor has taken the following position:

But even if the volunteers did not expect compensation, they certainly did not work solely for their own purpose or pleasure, without immediate benefit to the Buffet.  Former Church member Roadman declared that she felt pressure to volunteer.  (Roadman Decl. ¶6.)  And although the Employers claim the volunteers received a “sense of community” or “satisfaction,” the benefit to them was vastly outweighed by the benefit received by the Buffet.  The Buffet actively sought out volunteers to help staff the Buffet, and Angley even admitted that the use of volunteers was a cost-saving measure.  (Angley Dep. 35:7-36:11, 50:21-25.)   And unlike in Portland Terminal, the Buffet’s workers are not being trained or otherwise working under the close scrutiny of paid employees.  

The Buffet cannot rely on the goodwill of the Church members to provide labor that would otherwise be done by paid employees and be compensable under the Act.  And the Buffet cannot pressure individuals into providing free labor, then shield itself from FLSA liability under the guise of the Church’s religious mission.

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In other words, DOL’s legal position seems to be that an organization MUST pay minimum wage to volunteers as employees if it 1) asked the individual to volunteer and 2) it receives a benefit from those volunteers. If this is the standard, then a lot of organizations are in trouble.  After all, a lot of organizations depend on appeals to religious or moral duty to convince people to volunteer.  And while some charities likely tolerate volunteers even if they don’t add value, many organizations depend on volunteers to make their operations successful.  (Earlier in the case, DOL took the position that it was impossible to "volunteer" for a for-profit enterprise, although its latest briefing appears to have abandoned this position, which had been rejected by several other courts.)

Can Labor’s position possibly be right? Well… probably not, but maybe:

Continue reading

For Purpose Law Group: Origins of Ban on Political Electioneering for 501(c)(3) Organizations

With the election season coming up (errr, well underway), the ban on 501(c)(3) tax-exempt organizations supporting or opposing a candidate for political office will no doubt be cited, critiqued, and misunderstood by countless pundits and nonprofits.  For Purpose Law Group has a blog post tracing its interesting history:

First, the total ban on political campaigning for 501(c)(3) charities was offered as a last-minute, “non-germane” amendment to the massive new Internal Revenue Code; and, second, Senator Johnson’s rationale was based on a significantly incorrect characterization of the 1934 lobbying restriction.

First, the total ban on political campaigning for 501(c)(3) charities was offered as a last-minute, “non-germane” amendment to the massive new Internal Revenue Code; and, second, Senator Johnson’s rationale was based on a significantly incorrect characterization of the 1934 lobbying restriction. - See more at: http://www.forpurposelaw.com/501c3-political-ban-history/#sthash.tO9YJwoL.dpuf

Read the rest here.

@JosephWMead

State Attorneys General Urge Caution When Donating in Response to Orlando Massacre with UPDATE

Anticipating an uptick in charitable giving, some state Attorneys General (e.g., Indiana and Ohio) urge caution before donating to charity, and supply the following tips:

• Evaluate charities using information from AG offices, IRS filings, and other resources such as Charity Navigator* (UPDATE: see below) or Guidestar
• Beware of sham charities & look-alike sites:  some appeals will use similar names to well-established nonprofits
• Be cautious of newly-formed charities:  may lack the experience to properly or effectively handle donations
• Investigate how your donation will be used:  look for destination of funds and what percentage will benefit specific charitable purpose
• Stay away from crowdfunding or peer-to-peer fundraising:  state law typically prohibits soliciting donations on behalf of a charity without charity's prior consent

It is good to be prudent, but do these consumer alerts discourage charitable giving? Are there any tips that you would add or eliminate to the list? (Note that these "tips" go beyond law and offer the Attorney Generals' views on best practices for charity, without distinguishing between law and opinion, the latter of which might not be shared by everyone.)

Editor’s note: A national organization with broad knowledge about local operations of charitable organizations privately shared that Charity Navigator only rates a small number of nonprofits but many people don’t realize this and assume that if a nonprofit is not listed, it is not recommended. Additionally, Charity Navigator has itself acknowledged the downsides of analyzing overhead ratios as a method of rating a charity’s effectiveness, but continues to use a methodology that places emphasis on administrative costs. Consequently, the national organization recommends that donors ideally should get to know the nonprofit first-hand, and learn more by reading about the nonprofit on GuideStar.org.

@JosephWMead

IRS Releases Searchable Form 990 Data

The IRS has released over one million Form 990 series returns spanning a six year time period in machine-readable format, using Amazon Web Services (AWS) as the host site for this data.  From the AWS website:

Machine-readable data from certain electronic 990 forms filed with the IRS from 2011 to present are available for anyone to use via Amazon S3.

Form 990 is the form used by the United States Internal Revenue Service to gather financial information about nonprofit organizations. Data for each 990 filing is provided in an XML file that contains structured information that represents the main 990 form, any filed forms and schedules, and other control information describing how the document was filed. Some non-disclosable information is not included in the files.

This data set includes Forms 990, 990-EZ and 990-PF which have been electronically filed with the IRS and is updated monthly in an XML format. The data can be used to perform research and analysis of organizations that have electronically filed Forms 990, 990-EZ and 990-PF. Forms 990-N (e-Postcard) are not available withing this data set. Forms 990-N can be viewed and downloaded from the IRS website.

The related IRS News Release provides:

“The publicly available information on the Form 990 series is vital to those interested in the tax-exempt community,” said IRS Commissioner John Koskinen. “The IRS appreciates the feedback we’ve received from a variety of outside partners as we’ve worked together to explore improvements to make this data more easily accessible.” 

The data includes Form 990, Form 990-EZ and Form 990-PF and related schedules with the exception of certain donor information. The IRS also redacts certain personally identifiable tax-identification numbers to prevent the data’s misuse. Data from Form 990-N (e-postcard) used by certain smaller exempt organizations is not available with this data, but it can be accessed through IRS.gov.

Over 60 percent of all Form 990 returns are electronically filed with the IRS. Both paper and electronically filed 990 returns will continue to have image files made and these files will continue to be available by DVD.

. . .

Form 990 is the IRS' primary tool for gathering information about tax-exempt organizations, educating organizations about tax law requirements and promoting compliance. Organizations also use the Form 990 to share information with the public about their programs. Additionally, most states rely on the Form 990 to perform charitable and other regulatory oversight and to satisfy state income tax filing requirements for organizations claiming exemption from state income tax.

With filed Forms 990 now available in machine-readable format, it will be easier for interested persons, including charity watchdog groups and state regulators, to search for information regarding an organization's revenues and expenditures, compensation practices, lobbying activities, related party transactions, officers and directors, and other activities required to be disclosed on Form 990.  Previously, the IRS released filed Forms 990 only in image format as PDF documents, even when the organization filed its Form 990 electronically. 

TLH

Totally OT: Your Daily Funny Courtesy of the FEC and the Business Law Prof Blog

So this is off topic, I'll admit, but it gave me a laugh this morning so I thought I'd share.   There's some law in there, somewhere.   From fellow Law Prof Blog blogger Anne Tucker at the Business Law Prof Blog, her blog post entitled Your Daily Funny Courtesy of the FEC: 

 

Keep reading only if you have 3 minutes that you don't care about being productive or relating to business law, at least not directly.

The Federal Election Committee issued a proposed draft of an advisory opinion on a question brought by Huckabee for President,  Inc.--the committee responsible for the 2016 presidential campaign of  former Arkansas Governor Mike Huckabee.  The Committee wanted to know if it can use part of a legal defense fund to pay a settlement. The FEC says yes.  This isn't an election law blog, so I won't go into the details.  The litigation arose over the campaign's use of the song "Eye of the Tiger".  The FEC,  feeling quite cheeky writes the following: 

The complaint, seeking injunctive relief and monetary damages, alleged that 21 the Committee had violated federal copyright law by playing the song “Eye of the Tiger” at a campaign event on September 8, 2015. The Committee,rising up to the challenge of its rival, incurred attorneys’ fees and other expenses in defending itself in that litigation. After briefly relishing the thrill of the fight, the parties settled the lawsuit for an undisclosed amount.

Has the political circus of the 2016 election warped the sense of decorum at the FEC or should we all want to be friends with the lawyers there?  I can't decide.  But I do know that you should (a) click on the link to the song, and (b) jam away in your office for the next 4 minutes.  

You are welcome.

-Anne Tucker

 

Enjoy having that go through your head for the rest of the day.  And if that leaves you wanting more, try this!    EWW

 

 

(P.S. It's far happier that mourning Gordie Howe with strains of Brass Bonanza, which is what was stuck in my  head previously.  God's speed, Mr. Hockey.)  

 

 

 

Chaffee, "Collaboration Theory: A Theory of the Charitable Tax Exempt Nonprofit Corporation"

Eric C. Chaffee, Professor and Associate Dean of Faculty Research & Development at the Univerity of Toledo College of Law,  presented his paper entitled "Collaboration Theory: A Theory of the Charitable Tax Exempt Nonprofit Corporation" on June 2 at the most recent Law & Society conference (Program Link here). The current draft of the paper, which is forthcoming 2016 in the U.C. Davis Law Review, is available on SSRN here - the SSRN abstract follows:

Legal scholarship regarding tax exempt nonprofit entities is meager at best. Although some excellent treatises, book chapters, and journal articles have been written, the body of scholarship relating to these entities is not nearly as healthy and robust as the scholarship relating to their for-profit companions. This is especially troubling considering that nonprofit entities help to improve our society in a myriad of different ways.

This Article seeks to fill a void in the existing scholarship by offering an essentialist theory for charitable tax exempt nonprofit corporations that helps to explain the essence of these entities. Beyond the purely academic metaphysical inquiry into what is a corporation, understanding the essential nature of these corporations is important because it helps to determine how they should interact with society, what rights they should have, and how they should be governed by the law. This discussion is especially timely because the recent opinions by the Supreme Court of the United States in Citizens United and Hobby Lobby have reinvigorated the debate over the essence of the corporation.

This Article breaks new ground by offering a new essentialist theory of the corporation, which shall be termed “collaboration theory.” The decades of debate over the essence of for-profit corporations has coalesced into three prevailing theories of the corporation, i.e., the artificial entity theory, the real entity theory, and the aggregate theory. The problem is that none of these prevailing theories fully answers the question of what is a corporation.

Collaboration theory suggests that charitable tax exempt nonprofit corporations are collaborations among the state governments, federal government, and individuals to promote the public good. Unlike the prevailing theories of the corporation, collaboration theory explains both how and why charitable tax exempt nonprofit corporations exist, which provides a fuller and more robust understanding of these corporations. Collaboration theory advances the existing scholarship by finally offering an essentialist theory for nonprofit corporations, and it shows remarkable promise for understanding the essential nature of for-profit corporations as well.

 

E.W.W.

 

 

Senate Finance Scrutiny of Private Museums Continues

According to this Chronicle of Philanthropy article (citing arts newsletter Hyperallergic), Senate Finance Committee Chair is continuing his scrutiny of private museums, now by requesting clarification from the IRS regarding its stance on private museums.    You may recall that last fall, Senator Hatch sent a letter of inquiry to a number of private museums, requesting details regarding the museum's operation - fellow blogger Nickolas Mirkay detailed those letters here.   Hyperallergic indicated that one of Hatch's primary concerns was the public availability of collections  (including limited hours and advance reservations)  and the continuing role of donor of the art collection in the management of the museums.   Much of this scrutiny may stem from a series of New York Times articles regarding private museums, including here and here.

Inquiries of this type bother me somewhat.   It seems to me that current law regarding private benefit is probably sufficient to handle many of the perceived abuses (maybe it's an enforcement issue - just throwin' it out there).   The drumbeat of the articles and the Senate inquiry may lead to additional regulation - and I suspect they will use a mallet rather than a surgical instrument to deal with the issue, if history is any guide.

EWW

 

Lamboy-Ruiz, Cannon Watanabe on Earnings Management in U. S. Hospitals

Melvin A Lamboy-Ruiz, James N. Cannon, and Olena Watanabe have posted The Influence of Ownership and Regulatory Scrutiny on Earnings Management in U. S. Hospitals on SSRN with the following abstract:

We examine accrual and real earnings manipulations in U.S. hospitals, where we expect differences in hospital ownership (nonprofit vs. for-profit) will result in varying incentives to manage earnings. First, we document that nonprofit hospitals have lower levels of income-increasing and income-decreasing earnings manipulations than for-profit hospitals. Second, when we partition nonprofit hospitals by states with community benefits laws, we find that this greater regulatory scrutiny is associated with lower income-decreasing and income-increasing earnings management. Further, under regulatory scrutiny, nonprofit hospitals provide a greater proportion of uncompensated (charity) care with respect to net revenue. By examining differences in regulatory scrutiny types (i.e. reporting only vs. provision only), we find that either requirement is associated with less severe earnings management. Turning to actual patient care provided, we document that hospitals under regulatory scrutiny provide more uncompensated care, while reporting less compensated care costs as a proportion of net revenue. Notably, the higher uncompensated care observed under regulatory scrutiny is associated with the community benefits provision only requirement, but not with the reporting only requirement. Overall, our findings suggest that reporting incentives associated with ownership and those influenced by increased regulatory scrutiny help to improve earnings quality, and that the provision requirement alone benefits stakeholders more than reporting requirement alone by incentivizing nonprofit hospitals to offer more community benefits.

--Eric C. Chaffee

Mountanos v. Commissioner—9th Circuit Affirmed Tax Court’s Denial of Conservation Easement Donation Deductions and Imposition of Penalties

Mountanos involved a landowner who donated a conservation easement with respect to undeveloped land in Lake County, California, in 2005. The landowner reported that the easement had a value of $4.69 million, claimed a federal charitable income tax deduction of $1.3 million on his 2005 income tax return, and claimed the remaining $3.39 million in the form of carryover deductions on his 2006, 2007, and 2008 returns.  

In Mountanos v. Comm’r, T.C. Memo. 2013-138 (Mountanos I), the Tax Court sustained the IRS’s disallowance of the carryover deductions, finding that the taxpayer failed to prove that the highest and best use of the land changed as a result of the donation and, thus, that the easement had any value. The statute of limitations had apparently run on the landowner’s 2005 return. The Tax Court also found that the taxpayer was liable for strict liability gross valuation misstatement penalties under IRC § 6662(h).

In Mountanos v. Comm'r, T.C. Memo. 2014-38 (Mountanos II), the Tax Court denied the taxpayer’s motions to reconsider, vacate, or revise its opinion in Mountanos I. Asking the court to consider alternative (non valuation) grounds for denying the deduction in Mountanos II was, said the Tax Court, “a calculated maneuver to avoid the accuracy-related penalty.”

In a short (just over 3-page) unpublished opinion, Mountanos v. Comm’r, No. 14-71580 (9^th Cir., June 1, 2016) (Mountanos III), the Ninth Circuit affirmed the Tax Court’s holding that the landowner (i) was not eligible for the carryover deductions claimed on his 2006, 2007, and 2008 income tax returns and (ii) was liable for a strict liability gross valuation misstatement penalty with regard to each return. The Ninth Circuit explained that, even if the Tax Court erred in failing to assign some non-zero value to the potential to subdivide the property into seven separately salable parcels, the error was harmless because the evidence indicated the easement had a value of no more than $210,000, which was far less than the $1.3 million the landowner claimed as a deduction on his 2005 return. In addition, even if the easement had a value of up to $210,000, the landowner remained subject to gross valuation misstatement penalties because the value he reported on his income tax returns for the easement ($4.69 million) was more than four times (400%) of that value. Finally, the Ninth Circuit rejected the landowner’s argument that not allowing him to raise the reasonable cause defense for his gross valuation misstatements on his 2006, 2007, and 2008 returns constituted an improper retroactive application of the strict liability penalty, which was enacted as part of the Pension Protection Act of 2006. Citing Chandler v. Comm'r, 142 T.C. 279 (2014), the Ninth Circuit explained that the landowner had "reaffirmed" his gross valuation misstatement with respect to the easement on the returns in which he claimed the carryover deductions.  

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

International Committee of the Red Cross E-Briefing: Principles Guiding Humanitarian Action

The International Committee of the Red Cross has compiled an E-Briefing on Principles Guiding Humanitarian Action.  The introduction describes the E-Briefing as follows:

The seven "Fundamental Principles of the International Red Cross and Red Crescent Movement" are the expression of a set of values and experiences distilled from over a century and a half of protecting the lives and dignity of people affected by conflict and disaster worldwide. This e-briefing is intended as a multimedia resource that traces the latest developments in the contemporary debate on these principles. Far from having being limited to reaffirming their enduring relevance and far-reaching influence, this worldwide reflection also refined our mastery of the humanitarian principles as eminently pragmatic tools that, when applied judiciously on the ground, carry the power for more humanitarian effectiveness amidst the most challenging crises of our times.

--Eric C. Chaffee