Nonprofit Law Prof Blog

H-1B Visa Program Facing Unclear Future

The NonProfit Times reports that the new year and new administration brings uncertainty to the future of the H-1B visa program. “The H-1B visa is a non-immigrant visa that allows for-profit companies and nonprofits to employ people in graduate level fields that require expertise in areas such as science, technology, engineering and mathematics (STEM).”

The program is a vital way in which universities attract and retain the best and brightest minds across the globe. In 2016, 29,227 H-1B applications were approved for non-profits, with almost 27,000 of those being universities. Commentators are concerned that a change in the program could hinder both the quantity and quality of research in American universities.

While President Trump has not taken an official stance on the H-1B program, his insistence on immigration reform leaves the future of the program less than certain. Some of President Trump’s appointees have openly opposed H-1B visas, leading to further speculation of the program’s prospects.

Anita Drummond, a non-profit attorney, stated that the United States higher education sector “prides itself on being a global citizen, bringing together perspectives and the best of the best.” Hopefully the new administration can build on this pride, offering our students a place where they may thrive.

 

David A. Brennen

Accumulating Digital Assets for Non-Profits

A recent article from Non-Profit Quarterly speaks to the ability of not-for-profits to accumulate valuable assets, that is, social media capital. Although not appearing on the balance sheet, a solid social media presence can help non-profits reach their target audience both more efficiently and effectively.

While many non-profit managers may assume that spending valuable resources on a social media presence may be frivolous, in the end it may be a more economical way to solicit donations and spread the organizational mission to others. On the flip side, having immediate access and accessibility to these organizations changes the competitive landscape of non-profits.

The article brings to light an outline of how to both understand social media capital, and leverage it to your organization’s benefit. Although there are currently no accounting methods to account for social media assets, with the growing importance of social media coupled with the massive value associated with these presences, it is not impossible to envision a time in the coming years where these assets appear on the balance sheet, fundamentally changing how non-profits operate.

 In a digital age it is of the utmost importance of all those involved in the management of a non-profit to understand how their organizations can build a sustainable advantage, lowering their operating costs while maximizing their potential reach.

David A. Brennen

Has Illinois Offered an Unconstitutional Tax-Exemption to Hospitals?

The Supreme Court of Illinois is hearing arguments to determine the constitutionality of a 2012 law which exempts not-for-profit hospitals from paying property taxes, as long as their charity provided is at least equal to their property tax liability.

Some Illinois municipalities believe the hospitals are in fact making a profit, and should be held accountable for their fair share of property taxes. These municipalities believe the exemption may only be constitutionally granted if the property is used exclusively for charitable purposes.

The hospitals under review, however, argue that under the constitution the “exclusive use for charitable purposes” standard may be met as long as the hospital is “made available to all who need it regardless of ability to pay.”

Clearly this ruling will carry important policy implications that will impact the landscape of the health care industry. 156 of Illinois’ approximately 200 hospitals carry a not-for-profit status. Further, a report furnished for this case indicates that 47 Chicago area non-profit hospitals received property tax exemptions worth $279 million.

David A. Brennen

Is Protest Travel Tax-Deductible?

More than a million people attended protests and marches over the weekend, including half a million in Washington DC.  Protests and social movements are obviously an important part of civil society, but are rarely the focus of nonprofit scholars (aside: why is this?).  But can one deduct the out-of-pocket expenses for traveling to participate in a protest/march?

Maybe.  The tax code allows an itemized deduction for contributions made to a recognized 501(c)(3) nonprofit, which includes out-of-pocket expenses (such as travel) incurred while performing volunteer services for a nonprofit.  Under some circumstances, traveling to a demonstration could meet this standard.

Continue reading

H/T to the Business Law Prof Blog: Alexander on Benefit Corporations

Haskell Murray, one of our co-conspirators over at the Business Law Prof Blog,  recently wrote about a recent post by Rick Alexander, the head of Legal Policy at B Lab (of B Corp certification fame) on Benefit Corporations.   Here's Prof. Murray's post:

Over at the Harvard Law School Forum on Corporate Governance and Financial Regulation, Rick Alexander has a post on benefit corporations. I plan to post some comments on Rick's post next week, when I have a bit more time, but for now, I will just bring our readers' attention to the post and include a small portion of his post below:

Benefit corporations dovetail with the movement to require corporations to act more sustainably. However, the sustainability movement often treats the symptom (irresponsible behavior), not the root cause—the focus on individual corporate financial performance. Proponents of corporate responsibility often emphasize “responsible” actions that increase share value, by protecting reputation or decreasing costs. Enlightened self-interest is an excellent idea, but it is not enough. As long as investment managers and corporate executives are rewarded for maximizing the share value of individual companies, they will have incentives to impose costs and risks on everyone else.

Personally, I would argue that part of the root cause is that corporate financial performance is not required to appropriate take into account societal externalities, such as pollution - the true root cause.    Nothing is going to make a corporation be a good citizen if it doesn't want to do so, even if it could under a benefit corporation structure.   But that's just me.   I am really looking forward to Prof. Murray's thoughts, and will try to post them when I see them.

EWW

 

 

Article: Alina S. Ball, "Social Enterprise Governance"

By Professor Alina S. Ball, UC Hastings - from the SSRN Abstract: 

 

The social enterprise movement has ushered in a promising new wave of companies using market-based strategies to advance social and environmental change. The
longevity and growth of social enterprises will be determined by their ability to balance the complex and often competing interests within these unique business entities. The established corporate governance regime, which predominately addresses the characteristics of public companies, does not provide adequate oversight for promoting good corporate governance within the social enterprise sector. This Article argues that the benefit reporting requirements in hybrid-corporation statutes offer an innovative mechanism for encouraging and maintaining good social enterprise governance. Using the benefit reporting requirements within hybrid-corporation statutes as a model, this Article provides a normative framework and establishes the implementation principles for social enterprise governance across various legal entities. By counseling social enterprises on how to promote participatory democracy and increase the company’s capacity to detect and address problems, corporate lawyers serve a critical function in developing social enterprise governance. Using an approach guided by corporate lawyers and informed by social enterprise practitioners would build on the traditional corporate governance paradigm to develop narrowly tailored mechanisms that facilitate a more resilient social enterprise sector.

 

Suggested Citation: Ball, Alina S, Social Enterprise Governance (August 22, 2016). 18 U. PA. J. BUS. L. 919 (2016); UC Hastings Research Paper No. 179. Available at SSRN: https://ssrn.com/abstract=2827913.  

 

EWW

Lecy, Van Lyke and Yoon: "What Do We Know About Nonprofit Entrepreneurs?: Results from a Large-Scale Survey"

Jesse Lecy, David Van Slyke, and Nara Yoon (all affiliated with Syracuse University) recently posted to SSRN an article detailing the results of a survey of the motivations behind the creation of new tax-exempt organizations.  The SSRN abstract reads as follows:

While the academic fields of entrepreneurship and social entrepreneurship have grown rapidly, nonprofit entrepreneurship has remained a minor field of inquiry, even though 50,000 nonprofits are started each year. Using a survey of 7,000 nonprofit founders, we provide baseline data on key dimensions of nonprofit entrepreneurship. We find that typical nonprofit entrepreneurs are distinct from for-profit entrepreneurs in several ways; they have bigger founding teams, are wealthier, older, more educated, and are less driven by self-employment. These differences inform a research agenda for the field. This study represents the first large-scale empirical analysis of entrepreneurship in the nonprofit sector.

Suggested Citation: Lecy, Jesse D. and Van Slyke, David M. and Yoon, Nara, What Do We Know About Nonprofit Entrepreneurs?: Results from a Large-Scale Survey (December 01, 2016). Available at SSRN: https://ssrn.com/abstract=2890231

From a legal perspective, I found two items immediately interesting: (1) the high number of new organizations that were "spin-offs" of projects that were housed elsewhere or had been operating informally, and (2) the barriers to entry created by paperwork (and knowledge thereof).    It reinforces my personal concerns about the  "informal" charitable economy, which simultaneously accomplishes many great things off-the-grid, and yet raises issues for me of inefficiency and diversion in limited charitable resources.   An interesting read!

EWW

 

Philanthropy Roundtable's Amicus Brief on Donor Interest in Privacy

Philanthropy Roundtable (represented by Morgan Lewis & Brockius) filed an amicus brief in the Supreme Court in support of a challenge to an aspect of McCain-Feingold/Bipartisan Campaign Reform Act that requires disclosure of certain large donors to 501(c)(3) nonprofits if the nonprofit engages in election-related speech.  The brief argues that donors to 501(c)(3) organizations have an interest in anonymity for three principal reasons:

1. Religious or moral reasons for not wanting to have one's charitable contributions made public
2. Concerns about public abuse or even government retaliation, and
3. Practical concerns about finding oneself placed on additional mailing lists

For more information about the case, see the FEC's litigation page.  Among the plaintiff's arguments is that the government's interest in mandating disclosure of information on donors to 501(c)(3) organizations is less than to 501(c)(4) organizations, distinguishing Citizens United on that basis.  Because this is a direct appeal from a three-judge district court panel under a special review provision, the usual certiorari procedures do not apply.

Hat tip Election Law Blog/Rick Hasen.  Who else?

@JosephWMead

Happy New Year!

Happy New Year nonprofit champions and scholars!  It's time for the obligatory predictions-about-new-year post:  What legal and policy issues will be among the hottest in the new year?  With the caveat that I'm particularly bad at predicting the future (me, 2006: "texting will never catch on"), I'll throw out a few USA-specific possibilities:

• Changing government funding environment, with potential for sharp decreases in both federal and state funding of health and social services
• Even more diminished role for IRS in charity oversight, shifting power to state attorneys general
• Additional attempts by to withhold government funding from nonprofits based on ideological disagreements (e.g., Planned Parenthood, anti-BDS laws)
• Debate over the extent of funding houses of worship and religious programming (e.g., the upcoming Trinity Lutheran case in the Supreme Court)
• Increased state disclosure mandates for politically active nonprofits (e.g., New York)

What else?  What do you think will be the biggest issues facing the nonprofit sector this year?

@JosephWMead

Colorado AG Proposes New Charity Oversight Unit

According to an article in Nonprofit Quarterly, at least one state is taking steps to increase its oversight of charitable organizations: 

In the face of a massive 200-percent expansion of registered Colorado nonprofits over the past 11 years, and following a model active in 13 other states, Colorado Attorney General Cynthia Coffman says she wants $350,000 to fund a new charity oversight unit and that nonprofit infrastructure groups have given the proposal some support.

Read the full article here.  The author closes with the prediction that other states may also consider forming or strengthening charitable enforcement units in 2017.

-jwm

Charitable Status for "Hate Groups"?

A recent Chronicle of Philanthropy study reports that over 50 "hate groups" have  been granted tax exemption as 501(c)(3) charitable organizations:

The federal government has granted tax-exempt status to more than 60 controversial nonprofits branded by critics as "hate groups," including anti-immigrant and anti-gay-rights organizations, white nationalists, and Holocaust deniers, according to a Chronicle of Philanthropy analysis.

The issue is a thorny one for the Internal Revenue Service, which must balance First Amendment rights against concerns that it is essentially granting government subsidies to groups holding views that millions of Americans may find abhorrent. Complicating matters, the IRS is already under fire from critics who say the agency has discriminated against conservative political organizations.

The Southern Poverty Law Center has compiled a list of nearly 900 so-called hate groups, most of them on the far right (although the roster also includes radical Islamists, black separatists, and other fringe groups) and many with deceptively innocuous-sounding names. The Chronicle analysis found that 55 of those organizations are registered as charities and eight are 501(c)(4) "social welfare" groups, which also enjoy tax exemptions.

Many groups on the list vehemently dispute the "hate" designation and say the Southern Poverty Law Center — known as SPLC and itself a tax-exempt organization — is a left-wing attack group.

For commentary on this issue, see Philip Hackney (LSU), "White Nationalists Groups are Charitable? Apparently so According to IRS"(The Surly Subgroup), and Eugene Volokh (UCLA), "No, the IRS may not deny tax exemptions on the grounds that a group is a supposed ‘hate group’" (The Washington Post op-ed).

TLH

 

Franklin: Philanthrocapitalism: Exacerbating the Antidemocratic, Paternalistic, and Amateuristic Nature of Philanthropy

Eric Franklin (UNLV) posted Philanthrocapitalism: Exacerbating the Antidemocratic, Paternalistic, and Amateuristic Nature of Philanthropy to SSRN.  The article's abstract is:

The recent announcement by Mark Zuckerberg and Dr. Priscilla Chan to pledge Facebook stock worth $45 billion to various philanthropic efforts was met with more skepticism than praise. Most of the criticism concerned the couple’s decision to organize the CZI as a for-profit limited liability company (LLC), rather than the more traditional tax-exempt private foundation. Despite the tax benefits of private foundations, Zuckerberg and Chan were attracted to the fact that LLCs may freely engage in political activity, fund any type of entity, and participate in policy debates.

This begs the question: why should we care how Zuckerberg and Chan engage in charitable activity? The Facebook stock is, after all, their property, and the general public does not generally have any say in how the wealthy dispose of their property. This Article argues that the criticisms are warranted. The reason the public does (and should) care, is that the decision presents troubling questions about the role of philanthropy in our society and the consequences of philanthropists using for-profit vehicles to engage in charitable work.

For more than a century, sociologists have criticized philanthropy as antidemocratic, paternalistic, and amateuristic. However, the regulatory mechanisms governing private foundations ensure that the entities actually engage in publicly-blessed charitable activity, require numerous disclosures to increase accountability, and restrict certain political and lobbying activities. Although these mechanisms do not eliminate the negatives of philanthropy, they do limit their negative effect. As such, there is a convincing argument that philanthropy is worth these costs. The hope is that the mechanisms regulating private foundations result in a palatable balance between philanthropy’s negative and positive aspects.

However, the recent trend of conducting charity through for-profit vehicles throws that balance off. The regulatory bulwarks designed to encourage the positive aspects of philanthropy do not exist in the for-profit realm. As such, philanthropy conducted through for-profit vehicles encourages entities to engage in matters of public concern free from meaningful regulation and limitations.

This Article discusses each of the traditional critiques of philanthropy and explores how they are exacerbated when philanthropic efforts are conducted through a for-profit vehicles, such as LLCs.

TLH

Aprill:Charitable Class, Disaster Relief, and First Responders

Ellen P. Aprill (Loyola - Los Angeles) published Charitable Class, Disaster Relief, and First Responders in Tax Notes, vol. 153, no. 7 (2016).  The article's abstract is:

The notion of charitable class bedevils tax law. The IRS has issued no precedential guidance regarding its scope or application. After the 9/11 terrorist attack, Congress enacted special provisions applicable only to victims of that disaster. In response to statements in the legislative history of those provisions, the IRS has changed several of its positions regarding the doctrine of charitable class, changes announced only in a publication on disaster relief. Nonetheless, disaster relief continues to raise difficult issues involving charitable class for Congress as well as the IRS. In the 15 years since 9/11, Congress has enacted special legislation to permit a small group of California firefighters and two New York police offers to be treated as satisfying the charitable class requirements.

This article reviews the use of charitable class in tax law, including its relationship to trust law, with particular attention on establishing new charitable purposes and classes. It then discusses disaster relief, both in the case of the 1995 Oklahoma City bombing and September 11, 2001 terrorist attack. This discussion includes consideration of the roles that crowdfunding and exemption based on lessening the burden of government play in addressing disasters. The next section of the article examines the special legislation that Congress has enacted for two small groups of first responders. The piece concludes by recommending that the IRS both undertake a study of charitable class in general and issue precedential guidance regarding charitable class in the context of disaster relief. It also urges Congress to consider holding hearings and enacting special legislation for first responders.

TLH