Nonprofit Law Prof Blog

Add Morgantown, West Virginia to the PILOT list

Big news from Monongalia County, West Virginia  (and I don't mean its party school ranking of number 2... ), but add West Virginia University to the list of charitable institutions making PILOT (payment in lieu of taxes) payments.  WVU has done a significant amount of development in downtown Morgantown (yes, we have a downtown...) through private-public partnerships.   As a result, a good deal of private property has gone off the tax rolls in this standard issue university town. 

Of course, the issue of PILOTs has received a significant amount of discussion as of late (including on this website), as strapped state and local communities look for alternative sources of revenue.  For more information, I strongly recommend starting with the Urban Institute website, which has a number of studies on PILOT issues (many of which are authored or co-authored by Evelyn Brody.)  In that regard, this really shouldn't be much in the way of new ground... but...

(I am totally dating myself here...)

What I find interesting is that WVU is a public university.   I've been searching on the interwebz (to no avail) for more information on how many public institutions - presumably, universities and hospitals - have agreed to PILOTs.  (Anyone have any info?  I found this helpful article by Langley, Kenyon and Bailin from the Lincoln Institute of Land Policy, circa 2012, that has a number of appendices - a very quick review doesn't seem to show any public institutions.)   Part of the rationale for a private nonprofit to enter into a PILOT agreement and voluntarily pay not-taxes is that the alternative could be much, much worse.  If a government changes the applicable laws granting nonprofit property tax exemption, the nonprofit will have little control over what happens next, so the devil you know and negotiate is probably better than what is behind Door Number 2.  

I would think that with a public university, that calculus would be much, much different.   After all, a public university is branch of government, it seems as if it would be much more difficult to muck with the property tax exemption for the University itself - both legally and politically.  According to the press release from WVU, its 50 year payment agreement applies only to "private commercial establishments operating on University property for activities that are not a critical part of or integral to serving the academic needs of students."  Therefore, while there may be limits on the ability to change the University's tax exemption, query how much play actually exists with attacking the property tax exemption for the University's leased property?   (see section 10 versus sections 14 or 17, for example).

 

EWW

 

Betsy Schmidt publishes second edition of "Nonprofit Law: The Life Cycle of a Charitable Organization"

Betsy Schmidt has published the second edition of her helpful and well-received "Nonprofit Law:  The Life Cycle of a Charitable Organization."  From the publisher's website . . .   

In a concise and readable format, Nonprofit Law, 2nd Edition provides up-to-date information about the legal issues that can arise at every turn—from inception to termination—of a Section 501(c)(3) organization. This second edition continues and builds upon the comprehensive features of the first edition, including:

• A reader-friendly presentation that does not assume earlier background with tax, trusts, or corporations
• A balanced treatment between theory and practical reality
• Cradle-to-grave organization of topics
• Notes, questions, and problems in each chapter that add context to the text
• All relevant statutes and regulations within the text
• Optional exercises for creating a virtual nonprofit, which become the basis for further hypothetical questions.

Highlights of the second edition include:

• Examples of familiar organizations, from Catholic Dioceses to the American Red Cross, grappling with critical issues
• Consideration of for-profit social enterprises as alternatives to nonprofits
• Thorough exploration of the policy implications of nonprofit regulation
• An explanation of the controversies surrounding nonprofits’ entrance into politics and the IRS’ response.

Professors can get a desk here.  Teacher's manual here.  

 

dkj

 

Choike on Nonprofit Art Organizations

Anne Choike has posted Examining Gallery-Supported Art Exhibitions on SSRN with the following abstract:

For-profit art galleries are making news for the donations they provide to nonprofit art organizations to support exhibitions of artists represented by such galleries. Yet nonprofit art organizations are committed to advancing art for the public interest, not for private profit. This Article examines whether there are any meaningful limits on gallery donations that support art exhibitions at nonprofit arts organizations, focusing on the legal framework governing federal tax-exempt status, as well as the self-regulatory rules and informal norms of the art industry. Does the existing regime allow gallery-supported art exhibitions or are they activities that do not further nonprofit art organizations’ missions? What short-term and long-term solutions are available and appropriate in light of the causes and context of gallery-supported art exhibitions? These questions are animated by the broader dialogue about equitable access to publicly funded resources, with the answers having important implications for what it means to promote art that is representative of American society.

--Eric C. Chaffee

Penalver, Spitz, Brundige & Cisneros on U.S. Nonprofit Activity in Cuba

Eduardo M. Penalver, Laura Spitz, Elizabeth Brundige and Lucia Domínguez Cisneros have posted U.S. Nonprofit Activity in Cuba: The Cuban Context on SSRN with the following abstract:

The thaw of U.S.-Cuba relations and the reestablishment of diplomatic ties between the United States and Cuba present an opportunity for nonprofit organizations based in the United States seeking to increase their engagement with Cuba. U.S. regulatory restrictions on nonprofit activity have decreased dramatically over the past two years. As a result, interest in undertaking projects in Cuba among U.S. nonprofits has increased significantly. Although the scope of potential opportunities is as yet unknown, this paper seeks to advance the conversation by answering the following questions: What is the current state of U.S. and non-U.S. nonprofit activity within Cuba? What are the Cuban legal and other constraints that affect nonprofit activity in the country? What recommendations might we offer for U.S. nonprofits that are interested in pursuing work in Cuba, in light of the constraints identified above? And finally, what legal, policy or other measures in Cuba might help address these constraints and facilitate increased nonprofit engagement?

--Eric C. Chaffee

Tan, Lu & Tan on Charitable Giving

Xue Tan, Yingda Lu and Yong Tan have posted Why Should I Donate? Examining the Effects of Reputation, Peer Influence, and Popularity on Charitable Giving Over Social Media Platforms on SSRN with the following abstract:

With the growing popularity of social media, social networking sites have become an important channel for online donor engagement and charitable fundraising. Many crowd-based donation platforms have integrated social functions to encourage donors to announce their donations in social media. Some social networking sites, like Facebook, initiate their own charitable campaigns by collaborating with nonprofit organizations. Despite the great theoretical and practical values, social media users’ motivations for charitable giving are underexplored. Using individual-level data from a microblogging platform where a donation service is embedded, we investigate how individual donation decisions are influenced by reputation incentive design, peer effects, and popularity effects. We find that despite the platform designer’s desire to improve fundraising performance, higher visibility of donors’ contributions may have negative impact on fundraising. Peer effects are found to be positive and, hence, provide a potential solution to the free-rider problem. Finally, it is observed that while most users crowd to popular projects, a group of users who exhibit leadership features crowd out from popular projects. Investing more fundraising effort on this crowding-out group may alleviate the rich-get-richer problem.

-- Eric C. Chaffee

OneOrlando Fund to Disburse $23M

Yesterday's NonProfitTimes reported that the OneOrlando Fund has begun accepting claims from victims and families of victims of the June 12 Pulse nightclub shooting that left 49 dead and dozens more injured. According to fund administrator, Kenneth Feinberg, the entirety of the fund -- estimated at $23 million -- will be disbursed. According to the OneOrlando website, to be eligible, claims must be postmarked by September 12. Claim forms can be found on the site.

 

Vaughn E. James

Restructuring Coming for Wounded Warrior Project

In 2003, four men came together to form Wounded Warrior Project, a nonprofit 501(c) organization that offers a variety of programs, services and events for wounded veterans of the military actions following September 11, 2001. The organization's website boasts that this charity and veteran service organization "provides free programs and services focused on the physical, mental, and long-term financial well-being of this generation of injured veterans, their families and caregivers." The charity urges its supporters to donate to its causes, assuring them that their tax deductible donations enable the organization to "help thousands of injured warriors returning home from the current conflicts and to provide assistance to their families." The website goes on to state that "[a]s the number of wounded [veterans] steadily increases, it is easy to see how the needs of these brave individuals also increase."

In March, CBS News reported that while Americans were donating hundreds of millions of dollars each year to the charity, Wounded Warrior Project was spending 40 to 50 percent of these donations on overhead, including extravagant parties. By comparison, CBS News reported, other veterans charities have overhead costs of only 10 to 15 percent.

Shortly afterwards, the organization's Board of Directors fired Chief Executive Officer, Steven Nardizzi, and Chief Operating Officer, Al Giordano.

Yesterday's NonProfitTimes reported on the next step for the organization: a restructuring plan, According to the Times, details of the restructuring plan are expected to be announced next month. But some details can already be gleaned from the organization's recently-released IRS Form 990 and consolidated financial statements  for the fiscal year ended September 30, 2015. In notes to the consolidated financial statements, the organization states: 

Negative media stories in January 2016 regarding the Organization prompted inquiries and requests for documents from Senator Grassley on behalf of the Committee on the Judiciary and from other parties. The Organization responded to these inquiries and requests, and management does not believe they will have a material adverse effect on the organization’s financial position, results of operations or cash flows.

The Organization is in the process of evaluating programs and services to ensure that they are delivered with even greater efficiency, as well as assessing its organizational structure to ensure that it maximizes all resources available. Management anticipates that certain roles will be eliminated as a result of this assessment and details of the restructuring will be announced in September 2016. Management does not believe the restructuring will have a material adverse impact on the accompanying consolidated financial statements.

The Times also reports that in recent weeks, new CEO Michael Linnington, has made reference during interviews to anticipated pay and staff cuts.

September will soon be here; we shall discover then just what Wounded Warriors Project will do to recover its image, stature and standing.

Vaughn E. James  

 

 

 

 

 

 

 

College Students Taking Credit for Volunteer Work

An op-ed in last Saturday's New York Times caught my eye and has me thinking deeply. In To Get to Harvard, Go to Haiti?, Frank Bruni discusses "the persistent vogue among secondary-school students for so-called service that's sometimes about little more than  a faraway adventure and a few lines or paragraphs on their applications to selective colleges."

Bruni is here discussing the growing trend among American college applicants to claim on their college applications for admission that they have done volunteer work or gone on mission trips to Central America and Africa when in reality all they have done is spent as little as a week -- if all that -- "helping to repair some village's crumbling school or library, [only] to return to their comfortable homes and quite possibly write a college-application essay about how transformed they are."  

Bruni argues that this troubling trend "turns developing-world hardship into a prose-ready opportunity for growth, empathy into an extracurricular activity." Moreover, Bruni contends that this trend

reflects a broader gaming of the admissions process that concerns [him] just as much, because of its potential to create strange habits and values in the students who go through it, telling them that success is a matter of superficial packaging and checking off the right boxes at the right time.

Like Bruni, I am appalled at this growing trend among students. I am equally appalled at the trend among church-going people who come to me asking for my help in funding their mission trips to Central and South America, Africa and the Caribbean. I question them closely about these trips. Thus far, in answer to my question, "Where will you live during your stay?", every budding missionary has responded, "In a hotel." My check book has remained closed to these wonderful missionaries.

Vaughn E. James 

Breen: European Non-Profit Oversight

Oonagh Breen (Dublin) has posted European Non-Profit Oversight: The Case for Regulating from the Outside In, 91 Chicago-Kent Law Review (forthcoming 2016). Here is the abstract:

When it comes to the regulation of non-profits, the European Commission experiences many of the same pressures and constraints faced by national charity regulators. It suffers, however, from an added disadvantage in that, arguably, it lacks jurisdictional competence to regulate non-profits qua non-profits. This article explores the consequences of the Commission’s unsuccessful attempt to secure the passage of its proposal for a European Foundation Statute (‘EFS’). Notwithstanding the European Council’s inability to muster the necessary Member State unanimity required to pass the proposal and its subsequent demise, the Commission is still dogged by the problems it identified as giving rise to the need for the EFS in the first instance. Against this background, Part I reviews the rationale for the EFS proposal, the political concerns that left it vulnerable to veto and the structural challenges faced by the Commission in legislating for non-profits at a European level. The argument is advanced that extant a purely functional approach, European regulation of nonprofits from ‘the inside out’ is difficult in the absence of a valid treaty basis.

Part II proceeds to examine recent NGO attempts to influence the Financial Action Task Force (‘FATF’) reform process (supported by the European Commission) and to demand a fairer process under FATF Recommendation 8 for dealing with NGOs. The European Commission’s role in assisting NGOs to bring pressure on the FATF to be more accountable and transparent in its dealings presents an interesting vignette of one regulator laying siege to another for the greater good of better non-profit oversight. Arguably, the Commission’s attempts at ‘regulating from the outside in’ has led to it demanding a higher level of transparency of the FATF than it has been willing to provide to NGOs itself in the past, while simultaneously enhancing Commission-NGO relations. The article concludes that it is now timely for the European Commission to be alert to the possibilities of regulating from the outside in on occasions when it may not be so possible to regulate from the inside out.

Lloyd Mayer

Buckles: The Sexual Integrity of Religious Schools and Tax Exemption

Johnny Rex Buckles (Houston) has posted The Sexual Integrity of Religious Schools and Tax Exemption on SSRN. Here is the abstract:

Many private universities and other schools adhere to religiously grounded codes of conduct that embrace heterosexual monogamy as the sole moral context for sexual relationships. The federal income tax exemption of these schools has been questioned following the recent Supreme Court opinion of Obergefell v. Hodges. In Obergefell, the Supreme Court held that the right to marry is a fundamental constitutional right that same-sex couples may exercise. The relevance of this decision to the federal tax status of private religious schools arises from another Supreme Court decision, Bob Jones University v. United States. The Court in Bob Jones held that two schools with racially discriminatory policies as to students were not entitled to exemption from federal income tax because the policies violate established public policy. The issue now is whether the sexual conduct policies of private religious schools violate the established public policy of the United States following Obergefell. After reviewing Bob Jones and surveying the application of the public policy doctrine by the IRS and the courts, this article argues that, regardless of the factual context of a controversy in which the IRS seeks to invoke Bob Jones to deny or revoke federal income tax exemption, the public policy doctrine should be narrowly construed. Applying a suggested framework for limiting the public policy doctrine coherently, this Article argues that schools maintaining sexual conduct policies that prohibit sexual activity inconsistent with their religiously informed, traditional view of marriage remain tax-exempt after Obergefell. Apart from the proposed framework, this Article further explains why Obergefell’s analytical approach, language and tone are inconsistent with applying Bob Jones to the disadvantage of religious schools that maintain sexual conduct policies.

Lloyd Mayer

Galle: Corporate Compliance without Enforcement?

Brian Galle (Georgetown) has posted Corporate Compliance without Enforcement?: Private Foundations and the Uniform Prudent Management of Institutional Funds Act on SSRN. Here is the abstract:

I examine the determinants of nonprofit corporate compliance with law using a large panel of over one million firm-years. Despite the almost total absence of any credible enforcement threat, I find widespread compliance. I exploit rolling state adoption of the Uniform Prudent Management of Institutional Funds Acts, which lifted some existing limits on firm spending, but which applied to some but not all firms within each state. This allows the use of triple-difference estimates that control for changes in local norms and economic conditions. Interacting the triple-difference factors with other predictors of compliance, I find no correlation between compliance and enforcement intensity, but some evidence that compliance is correlated with firm culture and reliance on accountants. I argue that my findings are among the first to discover compliance in the absence of a meaningful formal deterrence mechanism. Further, my findings have important implications for the governance of charitable organizations.

Lloyd Mayer

 

Górski: The Case for Research on Regulatory Neutrality Toward Various Shades of Social Entrepreneurship

Jędrzej Górski (The Chinese University of Hong Kong) has posted The Case for Research on Regulatory Neutrality Toward Various Shades of Social Entrepreneurship on SSRN. Here is the abstract:

This working paper discusses the case for research on regulatory policy toward social entrepreneurship and specifically pertains to regulatory policy toward social ventures. The main theme of this working paper is the regulatory neutrality toward various shades of social entrepreneurship and its secondary subject is the convergence of policies toward THE private and public sectors. As such, this working paper touches upon company law, tax law and commercial aspects of the regulation of activities conducted by charities, NGOs, etc.

In recent decades, the charitable landscape worldwide has undergone a significant transformation first with respect to using business methods in support of social missions (social enterprises) and, second, with regard to combining social missions with make-money paradigm (social ventures). The austerity measures in the Western hemisphere, commercialisation/privatisation of state-owned enterprises in post-communist countries and an economic slowdown in Asian “tiger” nations all necessitated a rise of private charity self-supported by social entrepreneurship as a substitute for governmental action. Social ventures have been proliferating in this environment, yet have suffered from public-policies (fiscal environment, inflexibility of the design of business organisations) confined to not-for-profit social enterprises, and lawmakers everywhere have largely failed to address this problem.

The time is therefore ripe for revisiting representative policy models, and to defend the claim that efficient regulatory policies can be neutral toward various shades of social entrepreneurship and well integrate social ventures to the overall benefit of society. A dogma (that not-for-profit social enterprises can better substitute for governmental action than their for-profit counterparts because only the former can enjoy specific governmental supports and receive private donations) shall be dispelled by offering a number of flexible mechanism allowing rewarding private mission-driven business organisations according to the scope of their mission and regardless of their not-for-profit status.

Such research essentially demands perusal of policy and legislative documents produced roughly in the post-2005 period in a number of jurisdictions (mostly Anglo-Saxon like the UK, Vermont followed by other states, British Columbia, but also South Korea) where lawmakers took on the issue of social ventures but, all as one, adopted only fragmentary solutions which did not disenchant the for-profit or not-for profit binary mindset. Identified problems (definition of charity, limits of the scope of business operations of social enterprises, non-distribution constraint etc. on the side of not-for-profits and non-deductibility of mission-related expenses etc. by for-profits) need to be deconstructed one by one toward a complex system reflecting the entire spectrum of social entrepreneurs and based on the principle that the more mission the more governmental privileges, yet more supervision.

Such a complex system would include a number of novel solutions. The commonly accepted general profit-tax exemption for not-for-profits shall be discarded in favour of wider deductibility of charitable expenses combined with exemption of donations (including charitable price premiums in excess of market prices paid by donors for commercial goods or services). The non-distribution constraint (banning dividends or equity rights in dissolution) shall strictly reflect paid-in donations thereby balancing the interests of investors and donors. Finally, a simplistic supervision system requiring periodical reporting to public authorities shall be discarded in favour of a system balancing interests of public and private (donors) stakeholders in the fashion of corporate governance in public companies.

Such solutions could be universally applicable and could be used not only for private social entrepreneurship but also for preserving the social functions of gradually privatised state-owned enterprises.

Lloyd Mayer

 

McGiverin-Bohan et al.: Local Officials' Support for PILOTs/SILOTs

Kellie McGiverin-Bohan, Kirsten Grønbjerg, Lauren Dula, and Rachel Miller (all affiliated with the Indiana University School of Public and Environmental Affairs) have published Local Officials' Support for PILOTs/SILOTs: Nonprofit Engagement, Economic Stress, and Politics, Public Administration Review (forthcoming 2016). Here is the abstract:

Nonprofit property tax exemption has become a major policy issue as the collapse of the housing market, the Great Recession, and property tax caps have threatened local tax collections. Consequently, many local governments have sought to obtain payments in lieu of taxes (PILOTs) from charities that are formally exempt from property taxes. Using a 2010 survey of local government officials in Indiana, this article examines whether support for PILOT policies is related to officials’ personal involvement with nonprofits, their views on government–nonprofit relationships, the type of position they hold, the level of economic distress in the county, local political conditions, and local nonprofit wealth. The findings support most of these hypotheses but also show that attitudes toward PILOTs appear to be shaped by somewhat different concerns than attitudes toward services in lieu of taxes (SILOTs).

Lloyd Mayer

Sugin: Rhetoric and Reality in the Tax Law of Charity

Linda Sugin (Fordham) has published Rhetoric and Reality in the Tax Law of Charity, 84 Fordham L. Rev. 2607 (2016). Here is the abstract (from SSRN):

The rhetoric of public purposes in charity law has created the mistaken impression that charity is public and fulfills public goals, when the reality is that charity is private and cannot be expected to solve the problems that governments can solve. The rhetoric arises from a combination of charity-law history and tax expenditure analysis. The reality follows the money and control of charitable organizations. On account of the mismatch of rhetoric and reality, the tax law of charity endorses an entitlement to pre-tax income and (ironically) creates a bias against taxation. This article reorients the project of defining public and private in the tax law by starting from a normative theory of government responsibility. It challenges the conventional economic justifications for the charitable deduction and exemption, arguing for a more philosophical approach that makes affirmative demands on government to distribute the returns to social cooperation. Under this approach, the appropriate role of private organizations is residual; they must achieve what governments cannot. The article concludes by arguing that current law’s tax benefits for charity are easily justified in this new understanding.

Lloyd Mayer

Nonprofit Policy Forum Publishes June 2016 Issue

The Nonprofit Policy Forum has published its June 2016 issue (Volume 7, Issue 2). Here is the table of contents:

Special Issue on International Comparative Nonprofit Public Policy, Guest Editor: Michal Bar

Editorial

Special issue of Nonprofit Policy Forum on “Policy towards Nonprofits in International Perspective: Current Trends and Their Implications for Theory and Practice”, Almog-Bar, Michal / Young, Dennis R.

Articles

From Partnership to the Big Society: The Third Sector Policy Regime in the UK, Alcock, Pete

Government and the Nonprofit Sector in Latin America, Appe, Susan M. / Layton, Michael Dennis

Governing Civil Society in Nigeria and Zimbabwe: A Question of Policy Process and Non-State Actors’ Involvement, Chikoto-Schultz, Grace / Uzochukwu, Kelechi

Current Trends in Australian Nonprofit Policy, Onyx, Jenny / Cham, Liz / Dalton, Bronwen

NGO Policy in Pre- and Post-Mubarak Egypt: Effects on NGOs’ Roles in Democracy Promotion, Herrold, Catherine E.

Fundraising Policy Reform and its Impact on Nonprofits in China: A View from the Trenches, Hu, Ming / Guo, Chao

Policy Initiatives towards the Nonprofit Sector: Insights from the Israeli Case, Almog-Bar, Michal

Making Public Policy toward the Nonprofit Sector in the U.S.: How and Why Broad, “Sector” Interests Are Advanced – Or Not – in Federal Policymaking, Abramson, Alan J.

Book Review

Myles McGregor-Lowndes: The Nonprofit World – Civil Society and the Rise of the Nonprofit Sector by John Casey, Kumarian Press, 2016, Myles, McGregor-Lowndes

Lloyd Mayer

Nonprofit and Voluntary Sector Quarterly Publishes August 2016 Issue

The Nonprofit and Voluntary Sector Quarterly has published its August 2016 issue. Here is the table of contents:

Editorial

• From the Editors’ Desk, Femida Handy, Jeffrey L. Brudney, and Lucas C. P. M. Meijs 

Articles

• Managing Identity Conflicts in Organizations: A Case Study of One Welfare Nonprofit Organization, Robert H. Chenhall, Matthew Hall, and David Smith

• Volunteer Management: Responding to the Uniqueness of Volunteers, Sibylle Studer

• Why So Many Measures of Nonprofit Financial Performance? Analyzing and Improving the Use of Financial Measures in Nonprofit Research, Christopher R. Prentice

• Exploring Gender Differences in Charitable Giving: The Dutch Case, Arjen De Wit and René Bekkers 

• Does Motivation Matter for Employer Choices? A Discrete-Choice Analysis of Medical Students’ Decisions Among Public, Nonprofit, and For-Profit Hospitals, Vera Winter and Julia Thaler 

• Donor Reaction to Salient Disclosures of Nonprofit Executive Pay: A Regression-Discontinuity Approach, Brian Galle and David I. Walker 

• Nascent Nonprofit Entrepreneurship: Exploring the Formative Stage of Emerging Nonprofit Organizations, Fredrik O. Andersson

• Modern Portfolio Theory and Nonprofit Arts Organizations: Identifying the Efficient Frontier, Nathan J. Grasse, Kayla M. Whaley, and Douglas M. Ihrke 

• Transparency in Reporting on Charities’ Efficiency: A Framework for Analysis, Noel Hyndman and Danielle McConville 

Book Reviews

• Book Review: Volunteering in Australia by M. Oppenheimer and J. Warburton (Eds.), Richard Lynch

• Book Review: Governing Cross-Sector Collaboration by J. Forrer, J. Kee, and E. Boyer, Stuart C. Mendel
   
• Book Review: Mobilizing Communities: Asset Building as a Community Development Strategy by G. P. Green and A. Goetting (Eds.), Anne Namatsi Lutomia
   
• Book Review: Giving to Help, Helping to Give: The Context and Politics of African Philanthropy by T. A. Aina, and B. Moyo (Eds.) and The Handbook of Civil Society in Africa by E. Obadare (Ed.), Mary Kay Gugerty

Lloyd Mayer

Political Conventions and Charitable Status

One of the odd side stories of this crazy election season was the decision by the IRS to deny the application of the Democratic National Convention host committee for tax-exempt status under section 501(c)(3) even though it had earlier granted the application of the Republican National Convention host committee under the same section. (Coverage: Philadelphia Inquirer.) While according to the news stories the DNC quickly had a workaround available for those donors interested in a charitable contribution deduction, the disparity in treatment was notable, particularly since the denial was apparently based on some committee activities being too political under section 501(c)(3) even though the two host committees reportedly had very similar applications. Apparently the IRS forgot its statement 10 years ago to the Campaign Finance Institute that it would monitor future host committee applications for consistent treatment (see last sentence of last bullet point).

The IRS made that statement in the context of research by the Campaign Finance Institute into the financing of the political party conventions, which focused on the 2004 and 2008 conventions. That research led CFI in 2005 to call on the IRS to revisit the tax status of host committees under either section 501(c)(3) or section 501(c)(6) in light of the apparently pervasive political activity of those committees. Perhaps inadvertently, the IRS appears to have begun that reconsideration.

(Full disclosure: I am on the Board of Academic Advisors for the Campaign Finance Institute.)

Lloyd Mayer

Amateur Athletes and Professional Coaches & Executives

This week would not be complete without an Olympics-related post. Just before the opening ceremonies, the Washington Post ran a story titled "Olympic executives cash in on a 'Movement" that keeps athletes poor." It draws a sharp contrast between the actual athletes, who absent a rare endorsement deal or a sport with a lucrative professional league are generally scrounging funds from family and friends to support their training, and the employees and "volunteer" board members of the numerous national and international sports federations and Olympic Committees who often make hundreds of thousands of dollars annually or enjoy generous perks such as first-class air travel. This not to say all athletes are uncompensated; the article details the complicated baseline pay and bonus systems in place for many US athletes, but the amounts available to athletes vary enormously depending on the sport and the potential for medalling. 

Such disparities are also not unique to the Olympics. Many have pointed to the college sports system, particularly FBS football and Division 1 basketball programs, as exhibiting the same disparities between the (student) athletes, few of whom make it to the lucrative professional level, and coaches & administrators. Such disparities also exist even in youth sports, where, for example, the President & CEO of Little League Baseball Incorporated received compensation of close to $500,000 from all related entities according to the group's 2014 Form 990, although that amount seems relatively reasonable once it is acknowledged that he is responsible for running an almost $30 million a year organization (including over $8 million in broadcasting rights payments) that has over 400 employees and involves millions of children. And, as John Colombo (Illinois) has discussed in this space, both the college programs and the U.S. Olympic Committee continue to enjoy favorable tax treatment despite the increasing commerciality of their activities because of "analytical inertia" that has let the law of charities stagnant while the world moved on.

Lloyd Mayer

The IRS Continues to Take a Beating Even as It Implements the New 501(c)(4) Notice Requirement

The "Tea Party" application controversy continues to take a toll on the IRS, even as the Service implements the congressionally enacted notice requirement for section 501(c)(4) social welfare organizations. First, the IRS suffered setbacks in two of the cases pending against it that grew out of the controversy:

• In Freedom Path, Inc. v. Lerner, the U.S. District Court for the Northern District of Texas rejected the government's motion to dismiss a First Amendment claim against the IRS, finding that the plaintiff's concerns regarding future curtailment of speech was sufficient to establish injury and that the case still presented a live controversy despite changes in the Service's processing of applications. Coverage: Bloomberg BNA Daily Tax Report.

• In True the Vote, Inc. v. IRS and Linchpins of Liberty v. United States, decided together although argued separately, the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court's dismissal of actions for injunctive and declaratory relief as against the government, concluding that those claims were not moot. (The appellate court did, however, affirm the lower court's dismissal of Bivens actions and statutory claims against individual government officials and the Service.) Coverage: Wall Street Journal. For blog posts discussing the opinion, see The Surly Subgroup (Philip Hackney) and The Volokh Conspiracy (Eugene Volokh).

Second, many Republicans in the House of Representatives continue to call for the impeachment of IRS Commissioner John Koskinen, not satisfied with his earlier censure by the House Oversight and Government Reform Committee on a party-line vote. (Coverage: The Hill; Politico; Roll Call.) Third, new documents relating to the controversy continue to trickle out from various sources, at a minimum providing an excuse to reassert claims against the Service and its (mostly now gone) officials. For example, see this Judicial Watch press release in the wake of it gaining access to approximately 300 pages of FBI documents relating to the FBI's investigation of the controversy.

And yet life still goes on, which in this instance means implementation of the new section 506 notice requirement for section 501(c)(4) organizations. That implementation has taken the form of Revenue Procedure 2016-41 and related final and temporary regulations (T.D. 9775). These documents detail how the notice requirement applies both to new section 501(c)(4) organizations formed after December 18, 2015 (the date of enactment for section 506) and to previously existing section 501(c)(4) organizations that had not yet either filed an application for recognition of exemption or an annual return. The required form is Form 8976, which can be submitted electronically here.

Lloyd Mayer

Charities & the Risk of Supporting Terrorism: One Step Forward, One Step Back

Since 9/11 the relationships between charities and government anti-terrorism agencies have been strained, with government officials wary that the cross-border movements of money and people that many charities facilitate were vulnerable to being used as vehicles for the support of terrorist activity. Charities have responded with efforts to both tighten controls over such movements and to educate government officials regarding how charities can and do minimize the risk of such diversions. Earlier this summer those efforts bore fruit with the decision by the global Financial Action Task Force to change its guidance regarding charities (known as Recommendation Eight) to clarify that they are not inherently at risk of terrorist abuse, as reported by Third Sector (UK). The revised Recommendation Eight now reads:

Countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including:

    (a) by terrorist organisations posing as legitimate entities;

    (b) by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and

    (c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.

Unfortunately, just last week the news broke that Israel has charged the manager of World Vision's Gaza branch with infiltrating the charity on behalf of Hamas and diverting tens of millions of dollars to Hamas' military wing. (Coverage: NPR; NY Times; Washington Post/AP.) While Israeli officials emphasized that there was no evidence that World Vision was aware of the diversion, and World Vision is still reviewing the charges and the evidence supporting them and has expressed skepticism about the alleged amount at issue, the situation casts a cloud over the international work of the well-known charity.

Lloyd Mayer