Nonprofit Law Prof Blog

Defamation suits against Southern Poverty Law Center

When is criticism against your organization grounds for a defamation suit? In a handful of recent lawsuits filed in recent
months, groups designated as "hate groups" by the Southern Poverty Law Center have sued both SPLC (and, in one instance, charity-rater Guidestar which briefly used SPLC's designations until stopping due to pressure) for defamation. Under SPLC criteria, a hate group includes an organization that expresses "opposition to LGBT rights, often couched in rhetoric and harmful pseudoscience that demonizes LGBT people as threats to children, society and often public health." Evangelical christian groups take exception when they end up on SPLC's list.

Whether you agree with SPLC's methodology or find it flawed, SPLC discloses the rationale behind its hate group designations. Barring some yet-to-be-disclosed facts, the defamation suits against SPLC have very little chance of success... at least, in the courtroom. However, the litigation has provided the plaintiffs a good deal of press and the chance to make their case to the public at large.  

-Joseph Mead

NASCO Conference: Impact of Technology on Charities Regulation

Last week, the National Association of State Charities Officials held their annual conference on the impact of technology on charities regulation. It will be interesting to see if any new initiatives come out of this conference, but I hear a lot of interest in regulating crowdfunding and other forms of online charitable giving. To be sure, existing laws have not kept up with technology, new charitable behavior, or even constitutional law. Currently, some states regulate solicitation by telegraph but not social media or online platforms; as Hopkins & Kilpatrick (2013, p.74) note, states actively enforce laws that have been declared unconstitutional by the Supreme Court; and, as Fishman (2015) points out, most charitable registration forms sit unread and laws sit unenforced, imposing a compliance cost on charities without any clear law enforcement benefit. I hope before reflexively rushing into regulate a new area of charitable activity like crowdfunding, states pause to consider the costs of new regulations and look a bit harder at cleaning up what is already on the books.

-Joseph Mead

Audrey Hepburn Children's Fund sued for using Audrey Hepburn's Name

Sean Hepburn Ferrer, son of Audrey Hepburn, recently sued the charity bearing his mother's name over a dispute 
over the charity's use of Hepburn's name on merchandise. From Reuters:

Sean Hepburn Ferrer, who once chaired the Audrey Hepburn Children’s Fund, accused the charity of infringing trademark and other rights belonging to him and Luca Dotti, his half-brother....

In Thursday’s lawsuit, Ferrer said he resigned as chairman in 2012 amid disagreements over spending, but let the charity use his mother’s name, persona and legacy case-by-case.

He said he has granted no such rights since 2015 and that the charity’s subsequent infringements falsely suggest that he, Dotti or their mother endorsed them.

-JWM

Hackney: Prop Up the Heavenly Chorus? Labor Unions, Tax Policy, and Political Voice Equality

Philip T. Hackney (Louisiana State University Law Center) has posted his forthcoming article, Prop Up the Heavenly Chorus? Labor Unions, Tax Policy, and Political Voice Equality, St. John's Law Review, on SSRN.  Below is the abstract of Professor Hackney's article:

Labor Unions are nonprofit organizations that provide laborers a voice before their employer and before governments. They are classic interest groups. United States federal tax policy exempts labor unions from the income tax, but effectively prohibits labor union members from deducting union dues from the individual income tax. Because these two policies directly impact the political voice of laborers, I consider primarily the value of political fairness in evaluating these tax policies rather than the typical tax critique of economic fairness or efficiency. I apply a model that presumes our democracy should aim for one person, one political voice. For the model, political voice means the ability of citizens to participate in setting and discussing the political agenda and to vote on any final decision. In a modern democratic state, citizens largely depend upon organized interest groups to fulfill this role of political voice. In the Article, I demonstrate that tax policy applicable to labor unions likely modestly harms political voice equality. We allow almost all nonprofit interest groups to obtain tax exemption whether they face collective action challenges or not. This subsidizes interests that would organize without government assistance and fails to provide much support to those politically weak interests. A more neutral treatment would be to end tax exemption for both business interests and labor interests. Additionally, although the case is weak, we could maintain tax exemption for labor interests alone in order to modestly correct a political voice inequality associated with labor. Finally, we should allow union members to deduct union dues above the line to offer parity with the treatment of a businessman’s dues.

TLH

Helge: Rejecting Charity: Why the IRS Denies Tax Exemption to 501(C)(3) Applicants

Terri Lynn Helge (Texas A&M University School of Law) has published Rejecting Charity: Why the IRS Denies Tax Exemption to 501(C)(3) Applicants, 14 Pitt. Tax. Rev. 1 (2016).

New charitable organizations generally must file an application for exemption (Form 1023) and await approval from the Internal Revenue Service. Unfortunately, the criteria the Internal Revenue Service uses to evaluate applications has not always been transparent. If an application is approved, the Internal Revenue Service determination letter and the application for exemption are required to be made publicly available and can be requested from the Internal Revenue Service or the organization itself. Prior to 2004, in the case of denials, neither the application nor the Internal Revenue Service’s correspondence setting forth its rationale for the denial were made publicly available.

This project is the first of its kind. While others have commented on isolated denial letters, this study is the first to conduct a comprehensive analysis of the Internal Revenue Service denial letters issued from when they first became available in 2004 through January 31, 2017. In conducting this project, I examined 603 determination letters in which the Internal Revenue Service denied exemption to an applicant seeking recognition as charitable organizations described in Section 501(c)(3) of the Internal Revenue Code. This project looks in-depth at the basis on which the Internal Revenue Service denied exemption to these applicants.

To provide background for the basis of on which the Internal Revenue Service reviews exemption applications for charitable applicants, Part I of this article describes the requirements to obtain federal tax exemption as a charitable organization. In Part II of this article, I explain the methodology and the process by which I arrived at the data I present. Part III presents the data from my study and my analysis of the manner in which the Internal Revenue Service applies the five-part test for exemption in its review of the applicants who were denied exemption. The data pays particularly close attention to the evidence used by the Internal Revenue Service to support its denial of tax-exempt status. In Part IV of this article, I discuss the implications of my findings on the streamlined application process implemented by the Internal Revenue Service in July 2014. My data identifies concerns with the streamlined exemption process, and I suggest revisions that should be considered to the streamlined exemption process to make it more reliable.

Herzig and Brunson: Let Prophets Be (Non) Profits

David Herzig (Valpraiso School of Law) and Samuel D. Brunson (Loyola University Chicago School of Law) have posted their forthcoming article, Let Profits Be (Non) Profits, Wake Forest Law Review, on SSRN.  Below is the abstract of their article:

In this article, we take a step back and ask whether the Supreme Court’s application of the fundamental public policy rule as espoused in the Bob Jones case is the normatively correct position. In our analysis, we conclude that using fundamental public policy as a filter in granting tax exemption gets both tax and public policy wrong. Our conclusion is informed by the history of the role played by public charities espousing minority views. We believe that a legitimate space in society should exist and populated by nonprofits to both espouse popular and unpopular minority views. But it is also informed by tax policy: applying the fundamental public policy rule to qualification for tax exemption misunderstand how exemption fits into the corporate income tax. Ultimately we conclude that homogeneity of viewpoint is normatively detrimental to a robust society. Therefore, in order to allow nonconforming views, we propose that the proper sector to house those views is in an expansionist version of the nonprofit sector.

TLH

Hogg: What Regulation, Who Pays? Public Attitudes to Charity Regulation in England and Wales

Eddy Hogg's (University of Kent, UK) new article is available at Nonprofit & Voluntary Sector Quarterly. From the abstract:

Funding for England and Wales’ Charity Commission has been cut by 48% between 2007 and 2016, affecting its ability to deliver its core regulatory functions. Conversations around what charity regulation should look like and how it should be funded have, therefore, gained momentum. These debates, however, are not limited to England and Wales, and in this article, we contribute to them by exploring public attitudes to these questions, presenting the findings of four focus groups. We find that although public knowledge of charity regulation is low, people are, nonetheless, clear that charities should be regulated. There is no clear preferred method of funding a charity regulator and a significant amount of complexity and nuance in public attitudes. People trust charities, but this can be eroded if they do not have confidence in how they operate. A visibly effective regulator supporting and supported by charities is central to maintaining trust.

-JWM

Johnson Amendment: Pros and Cons

The Johnson Amendment--which prohibits 501c3 exempt organizations from engaging in partisan political activity--is under repeated attack this year. In mid-September, the U.S. House of Representatives approved an appropriations bill with a rider that prohibits the IRS from enforcing the Johnson Amendment against any "church" unless "the Commissioner of Internal Revenue consents to such determination" and the IRS provides notice to Congress. Two other bills would weaken the Johnson Amendment by allowing 501c3 nonprofits to engage in an insubstantial amount of politicking (similar to lobbying rules). An earlier Executive Order on the subject turned out to be legally meaningless. 

Thousands of nonprofits joined the National Council of Nonprofits to call for keeping the Johnson Amendment as a needed tool to preserve the sector's nonpartisanship. Many faith groups have also opposed changes that might lead to politicizing houses of worship. Recently, National Association of State Charities Officials (NASCO) penned a letter, unsurprisingly favoring more regulation over less, and thus opposing any relaxation in federal tax law. 

It's surprisingly difficult to find dispassionate, non-hyperbolic views about the Johnson Amendment and the consequences of its reform-- particularly more modest amendments such as the proposal to allow incidental political activity. I take a closer look at some of the arguments below the fold: 

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Coverage of Last Week's Ruling that Parsonage Exclusion is Unconstitutional

Forbes' contributing author Peter Reilly: "It's deja vu all over again in the United States District Court For The Western District of Wisconsin as Judge Barbara Crabb rules that Code Section 107(2) - the parsonage exclusion- is unconstitutional." Read the interesting piece here.

Sam Brunson (Loyola - Chicago) discusses implications of the ruling for religious institutions at By Common Consent.

-Joseph Mead