Friday, December 21, 2018

Science: Private Research Funders Court Controversy with Billions in Secretive Investments

ScienceScience just published an article highlighting how the grantmaking priorities of some research funders may be undermined by the investments those same funders make. It focuses especially on offshore investments, including those revealed by leaked confidential documents. Organizations discussed include the Wellcome Trust, the Howard Hughes Medical Institute, and the Robert Wood Johnson Foundation, among others. This article reflects a larger trend of questioning whether large scale philanthropic efforts may be counterproductive, in that they tend to reinforce existing socioeconomic structures and systems as opposed to challenging them; for the most prominent recent example of this work, see Anand Giridharadas' Winners Take All: The Elite Charade of Changing the World book.

Lloyd Mayer

December 21, 2018 | Permalink | Comments (0)

The News Keeps Getting Worse for Southwest Key, a Charity That Houses Detained Immigrant Children

Download (1)The N.Y. Times has done a series of stories about Southwest Key, a leading migrant shelter provider. It led off with a lengthy article about the charity and a number of questionable financial arrangements, followed up with an article about the charity's promise to conduct an internal inquiry, and just yesterday reported that the Department of Justice is now investigating. Given the attention that the federal government's immigration policies, particularly with respect to children, is attracting, it will be interesting to see how this story develops.

Lloyd Mayer

December 21, 2018 in In the News | Permalink | Comments (0)

NPQ: Wreaths Across America: Is a Nonprofit Built on Conflict of Interest Still A Nonprofit?

DownloadThe Nonprofit Quarterly recently had an interesting story - based on reporting by the Times Record of Maine - about the charity Wreaths Across America. On its face, it is a worthy endeavor, laying wreaths at the graves of veterans. The issue is that the family controlling the nonprofit also owns a for-profit company that, you guessed it, supplies wreaths. Indeed, 75 to 80 percent of the for-profit company's business is with the nonprofit. Take a look at the story for more details, including the charity's defense of this arrangement.

Lloyd Mayer

December 21, 2018 in In the News | Permalink | Comments (0)

Thursday, December 20, 2018

EO Nuggets from the JCT's TCJA Explanation, Including Needed Technical Corrections

UntitledJust in time for Christmas, the Joint Committee on Taxation released its General Explanation of Public Law 115-97 (commonly known as the Tax Cuts and Jobs Act). Here are some gleanings from the provisions particularly applicable to tax-exempt organizations. Note that the Explanation, uncharacteristically, is missing "Reasons for Change" sections throughout; perhaps JCT found trying to read the collectively mind of Congress too difficult this time around.

  • Clarification re Application of Section 170 Increased Percentage Limit for Cash Contributions: The Explanation clarifies that the new, higher limit is applied after (and reduced by) the amount of noncash contributions, and provides this example:

For example, assume an individual with a contribution base of $100,000 for taxable year 2018 makes two contributions to public charities: unappreciated property with a fair market value of $50,000 and $10,000 in cash. The individual makes no other charitable contributions in 2018 and has no charitable contribution carryforwards from a prior year. The cash contribution limit under new section 170(b)(1)(G) is determined after accounting for noncash contributions. Thus, the $50,000 contribution of unappreciated property is accounted for first, using up the individual’s entire 50- percent contribution limit under section 170(b)(1)(A) (50 percent of the individual’s $100,000 contribution base), and leaving $10,000 in allowable cash contributions under the 60-percent limit ($60,000 (60 percent of $100,000) reduced by the $50,000 in noncash contributions allowed under section 170(b)(1)(A)).

  • "Technical Correction" May Be Needed to Reach State Colleges & Universities Under New Section 4960 Excise Tax on Excess Executive Compensation: The Explanation states "Applicable tax-exempt organizations are intended to include State colleges and universities." but then drops a footnote saying "A technical correction may be necessary to reflect this intent." For more on this topic, see this previous post citing an article by Ellen Aprill (Loyola L.A.).
  • New Section 4968 Excise Tax on Investment Income of Private Colleges & Universities: Nothing surprising in the Explanation for this provision.
  • Investments & New Section 512(a)(6) Siloing Provision: The Explanation provides that "it is intended that the Secretary consider whether it would be appropriate in certain cases to permit an organization that maintains an investment portfolio to treat multiple investment activities as one unrelated trade or business."
  • Charitable Contributions & New Section 512(a)(6) Siloing Provision: A footnote addresses an issue I have not seen raised before: "An exempt organization that makes charitable contributions generally is permitted to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with an unrelated trade or business. It is not intended that an exempt organization that has more than one unrelated trade or business be required to allocate its deductible charitable contributions among its various unrelated trades or businesses." The limit on corporate charitable contribution deductions (usually 10% of a modified version of unrelated business taxable income) would apply, however.
  • "Technical Correction" May Be Needed to Ensure New Section 512(a)(7) is Consistent with Section 274: The Explanation provides that "The determination of unrelated business taxable income associated with providing qualified transportation fringes, including parking facilities used in connection with qualified parking, is intended to be consistent with the determination of the deduction disallowance under section 274." but then drops the following footnote that states in part: "A technical correction may be needed to reflect this intent." I am not sure what the possible inconsistency is that is referred to here, although it may be buried in the recent IRS Notice relating to section 512(a)(7).

Lloyd Mayer

December 20, 2018 in Federal – Legislative | Permalink | Comments (0)

Wednesday, December 19, 2018

California AG's Ongoing Litigation Alleging Overvaluation of Contributions

6a00d8341bfae553ef0224df2faab6200b-120wiI previously mentioned California Attorney General Xavier Becerra's cease and desist orders against three charities for allegedly overvaluing donated pharmaceuticals they received. Now Jim Ulvog, CPA at the Nonprofit Update blog has obtained the numerous and lengthy court filings in this case and begun reviewing them. So far he has posted some preliminary thoughts and also some details relating to discovery disputes. Apparently the three defendant charities have seriously lawyered up (ten attorneys named so far) and also hired impressive (and presumably expensive) expert witnesses. At last report (on December 4th), the case was in its sixth day of hearings out of fifteen scheduled days before an Administrative Law Judge. It will be interesting to see if it results in a public decision or instead a set of quiet settlements, with both sides claiming victory.

Lloyd Mayer

December 19, 2018 in State – Executive, State – Judicial | Permalink | Comments (0)

NY AG Annual "Pennies for Charity" Report on Professional Fundraisers

UntitledNew York Attorney General Barbara D. Underwood has issued her office's annual Pennies for Charity report, detailing the activities of professional fundraisers in that state. From the report:

This year’s Pennies for Charity report includes data from the 964 fundraising campaigns conducted all or in part in 2017 by professional fundraisers in New York. The campaigns raised over $1 billion. Key findings include:

• Over $372 million (31%) of funds raised were paid to fundraisers to cover the costs of conducting the charitable campaigns. Charities received $812+ million overall.

• In 313 campaigns (32%), charities retained less than 50% of funds raised.

• In 156 campaigns (16%), fundraising expenses exceeded charitable revenue. In 2017, this loss totaled over $10 million dollars.

The New York AG's office also provides a database with detailed information for campaigns, searchable by charity or fundraiser name.

Lloyd Mayer

December 19, 2018 in State – Executive, Studies and Reports | Permalink | Comments (0)

Tuesday, December 18, 2018

Congress Lives Up to "Lame Duck" Label: Failed Attempt to Reverse Schedule B Change & Clinton/Trump Foundation Hearing

DownloadWhile Congress may actually keep the government funded during the current lame duck session, its efforts relating to nonprofits appear doomed to amount to nothing. First, with much fanfare the Senate narrowly passed legislation to reverse the IRS decision to no longer require reporting of contributor information for tax-exempt organizations other than 501(c)(3)s and 527s, but that legislation is almost certain not to advance in the House (or survive a trip to the White House, if it came to that). Second, the House Subcommittee on Government Oversight held a hearing on the Clinton Foundation (and, at the insistence of Democratic members, the Trump Foundation). I have not watched the C-SPAN recording, but by all accounts it was a last gasp attack on Hillary Clinton, with even the Washington Examiner calling it "a fiasco" as Republicans clashed with their own witnesses. The only relative bright spot was the testimony of Professor Philip Hackney (Pittsburgh), who used the platform to highlight the congressionally created resource constraints hindering the ability of the IRS to effectively oversee tax-exempt organizations.

There is also the lame duck tax bill (H.R. 88, the Retirement, Savings, and Other Tax Relief Act of 2018), which in its latest iteration would repeal new section 512(a)(7) (includes the costs of certain fringe benefits, most notably parking provided to employees, in unrelated business taxable income), modify the section 4943 rules for excess business holdings with respect to certain purchases of employee-owned stock, relax the Johnson Amendment by not applying it to statements "made in the ordinary course of the [501(c)(3)] organization's regular and customary activities in carrying out its exempt purpose" that do not result in more than de minimis incremental expenses, permit section 501(3) organizations to make collegiate housing and infrastructure grants, and relax some of the section 170 limitations with respect to disaster relief. But it seems that passage of that bill is unlikely.

Lloyd Mayer

December 18, 2018 in Current Affairs, Federal – Legislative, In the News | Permalink | Comments (0)

Johnson & Johnson Subsidiary Pays $360 Million Fine for Misuse of 501(c)(3) (third such settlement)

Actelion_logo--whiteEarlier this month the U.S. Department of Justice announced that Actelion Pharmaceuticals US, Inc., a subsidiary of Johnson & Johnson, had "agreed to pay $360 million to resolve claims that it illegally used a [section 501(c)(3) charitable] foundation as a conduit to pay the copays of thousands of Medicare patients taking Actelion's pulmonary arterial hypertension drugs, in violation of the False Claims Act." More specifically, the DOJ alleged that Actelion only donated enough to the foundation to cover the copays of patients prescribed its drugs in an effort to generate revenue from Medicare and induce purchases of its drugs. The announcement also noted that Johnson & Johnson acquired Actelion after the alleged misconduct occurred.

An analysis by HealthLeaders states that this is the third time in the past year that a drugmaker has settled a similar claim, joining a $24 million settlement by Pfizer last April and a $210 million settlement by United Therapeutics Corp. a year ago. The same analysis identified the foundation in the Actelion case as Caring Voice Coalition, Inc. (CVC), and noted that CVC both objected to providing information requested by Actelion and ultimately withdrew from providing financial assistance for drug copays (in part because of the withdrawal of an Advisory Letter from the U.S. Department of Health and Human Services Office of Inspector General that presumably related to providing such assistance). The DOJ settlement agreement in the United Therapeutics case states that CVC was also the charity involved in that case, while the DOJ settlement agreement in the Pfizer case states it was the Patient Access Network Foundation (PANF) in that case. There is no public indication that IRS has raised any issues regarding the tax-exempt status of either CVC or PANF in the wake of these developments.

Lloyd Mayer

December 18, 2018 in Federal – Executive, In the News | Permalink | Comments (0)

Michigan Senate Bill 1176, "Personal Privacy Protection Act," Seeks to Shore Up Donor Privacy


My father used to say, "things ain't like they used to be . . . and never were!"  In the less partisan, relatively more innocent days of nonprofit organizations, everyone agreed that donor privacy was always a good thing.  And NAACP v. Alabama was always seen as a case upholding a bedrock American right indispensable to a just society -- the right to associate, primarily through collective donor supported speech, with a legal cause without fear of majoritarian or government retaliation.  But in the world since Citizens United, concerns regarding "donor disclosure vs. donor privacy" are increasingly about who is influencing political electives in potentially nefarious ways.  The so called "dark money" threat evokes suspicion; perhaps its the world we live in, a world where everyone has the right to fund speech and voters have the right to not ask questions  -- to be intellectually lazy and maintain ignorance!  So today, when 501(c)(3) organizations talk about protecting donor privacy, they are usually concerned with a donor's legitimate, sometimes purely altruistic desire to make anonymous gifts for nonpolitical charitable causes -- and perhaps not being hounded by other groups seeking donations or simply not wanting to disclose their personal wealth.  When (c)(4) organizations talk about donor privacy, its a safe bet that their concerns are entirely different.  We recently posted about "Donors, Disclosures, and Politics," shortly after Revenue Procedure 2018-38.   Linda Sugin has a really good article on donor disclosure vs. donor privacy in a relatively recent issue of the Chicago-Kent Law Review.  In her article, Sugin notes that at the state level, California and New York came down on the side of disclosure, particularly for organizations engaged in political activity.  Last month, though,a bill introduced in the Michigan Legislature, SB 1176, takes the opposite view in favor of donor privacy.  The bill would completely exempt donor identification from the state's public records law and prevent state agencies from requiring the release of those names.  Whenever I see a bill like this, I tend to believe there is a lobbying group behind that is advocating adoption of the legislation in as many states as possible.  Of course, there is nothing wrong with that.  I just can't help noticing the irony in right leaning groups suddenly supporting what has traditionally been viewed as a favorite cause of the left, or vice versa for that matter.  Politics does indeed make for strange bedfellows.  I should mention, though, that there are some who can rightly be described as "purists," and whose opinions are consistent regardless of who it is arguing for donor privacy.  Sean Parnell, VP of Public Policy for the Philanthropy Roundtable (and the author of the first linked article in this post) has always advocated for donor privacy, even while acknowledging the "dark money" concerns that, in his view, threaten donor privacy for those with nonpolitical motives.  His op/ed piece in Sunday's Detroit News explains:

Anonymous donations to charities and other nonprofits are a deeply ingrained part of our nation’s culture of giving, stemming from reasons as varied as religious obligation, a sense of humility, a desire to avoid future solicitations, limiting family strife, and countless others.   Over the next few weeks of the Christmas season residents of Michigan and around the nation can expect to hear news reports of anonymous donors dropping gold Krugerrands into the iconic red kettles of the Salvation Army, as has happened every year at this time for decades.

Unfortunately not everyone respects the longstanding norm of privacy for nonprofit givers, in particular politicians and activists seeking to target those who disagree with them. In response to this threat, Michigan’s Legislature should take the lead in protecting nonprofit donors by passing Senate Bill 1176, the Personal Privacy Protection Act.  The bill would do nothing to roll back Michigan’s laws mandating disclosure of campaign contributions or inhibit investigations of fraudulent practices by nonprofits. The only thing the Personal Privacy Protection Act does is prevent state and local officials from abusing their power by demanding the donor lists of charities and other nonprofits, as well as prohibit disclosure of personal information connected to a nonprofit that may come into government possession.To see how important the protections offered by the Personal Privacy Protection Act are, imagine a nonprofit that is working for criminal justice reform by educating the public, holding rallies, and conducting original research on the issue. While many might applaud this group and want to give to it, it’s also bound to find itself in conflict with those who either support the status quo or have harshly different views on the topic.

The Personal Privacy Protection Act would ensure that politicians couldn’t impede the group by, for example, demanding to know its donors before it allows the organization’s experts to testify at legislative hearings, or deny government contracts to the group’s financial supporters. The law would also prevent a state officer from releasing donor names to the public in an effort to encourage intimidation and other forms of retribution against a nonprofit’s supporters.

There is a long history of people using donor information to have people fired, their businesses boycotted, and worse. This was why the Supreme Court in 1958 ruled in a landmark First Amendment case that the state of Alabama could not require the NAACP turn over its membership lists. Given the current political climate it should hardly come as a surprise that many donors will hesitate to give to a group that others see as controversial if their donation will be made public – and it seems everything is controversial to someone these days.

Michiganians are no stranger to anonymous giving, whether it’s the tens of millions of dollars given to support the Kalamazoo Promise or the numerous small anonymous gifts made through sites like The Personal Privacy Protection Act ensures these and countless other acts of kindness can remain private if the giver wishes, while doing nothing to undermine Michigan’s laws regarding disclosure of campaign donations or punishing fraud by nonprofits. If Michigan wants to continue to encourage philanthropic giving, passage of this bill should be a priority.



December 18, 2018 | Permalink | Comments (0)

Trump (Nonprofit) Trouble: Foundation to Dissolve and More

DownloadWhile paling in comparison to other recent developments related to President Trump, the drumbeat of negative news relating to nonprofits associated with him has also continued. The three most recent developments involve a federal investigation into the President's inaugural committee, the revelation that in "an abundance of caution" the President's foundation was reimbursed for six questionable transactions (presumably either by Mr. Trump personally or his companies), and today's announcement that President Trump has agreed with the NY Attorney General to shut down his foundation and give away its remaining money.

The Wall Street Journal broke the story that federal prosecutors are conducting a criminal investigation of the President's inaugural committee, a section 501(c)(4) nonprofit organization formally named the 58th Presidential Inaugural Committee. The investigation is out of the U.S. Attorney's office for the Southern District of New York, which not coincidentally also handled the investigation of Donald Trump's former attorney Michael Cohen; it was a recording seized as part of the Cohen investigation that triggered the investigation of the committee. The latter investigation focuses both on whether the committee misspent any of the $107 million in funds it raised and on whether any donors received improper access or policy concessions in return for their donations. While not formally part of the Mueller investigation, it may be relevant to that investigation if any foreign money flowed to the committee, which would have been illegal. The investigation of the committee is reportedly still at a relatively early stage. Additional coverage: CNN, NPR, N.Y. Times, The Hill.

As for the Donald J. Trump Foundation, its latest IRS annual return showed $271,356 in "REIMBURSEMENTS" (Part I, Line 11 and Statement 2), but the only explanation provided in the return (Statement 5) tied the reimbursement to the auction of a membership to the Trump National Golf Club in 2012. What is odd about this explanation is that the amount relating to this auction was only $158,000 (as first reported by David Fahrenthold at the Washington Post), so even with interest it should have totalled significantly less than the amount reported. The more complete explanation may instead be that there was more than just this one reimbursement: in the November 23, 2018 decision in the state case involving the Trump Foundation, the court noted that the Foundation and the other respondents "point out that the Foundation has already been reimbursed for six individual donations" and in a footnote further noted that "Respondents aver that 'in an abundance of caution,' the Foundation was reimbursed with interest for the following donations: (1) the [$100,000] Fisher House Transaction; (2) the [$158,000] Greenberg Transaction [relating to the auction]; (3) a [$5.000] 2013 DC Preservation League donation; (4) a [$25,000] 2013 "And Justice for All" payment; (5) a [$10,000] 2014 Unicorn Children's Foundation donation; and (6) a [$32,000] 2015 North American Land Trust donation." The links are to the news stories that report more details about these transactions. These amounts total more than what was reported on the 2017 IRS return, which may be because some of them were repaid either before or after 2017. Regardless, they reflect quite a trail of questionable expenditures by the Foundation.

That undoubtedly is part of what led to today's announcement by the New York Attorney General that the Trump Foundation has agreed to resolve under judicial supervision. Coverage: CNN; Washington Post.

Lloyd Mayer

December 18, 2018 in Federal – Executive, In the News, State – Judicial | Permalink | Comments (0)

Wednesday, December 12, 2018

David Pozen, "The Tax-Code Shift That's Changing Liberal Activism"


David Pozen has an interesting piece in The Atlantic regarding social justice organizations' increasing embrace of 501(c)(4) status over (c)(3) status.  Here is an excerpt:

Many groups gravitated to section 501(c)(3) because public charities enjoy unique tax benefits—most notably, they can receive deductible donations—and tend to be favored by wealthy foundation funders. But these perks come at a price. Public charities are required by law to keep their legislative lobbying to a minimum and to forgo politicking altogether. Taking a stand for or against a candidate for elective office is strictly prohibited. The 501(c)(3) form fit snugly into the postwar theory of legal liberalism, in which the federal courts were seen as the key agents of social reform and professionally managed nonprofits as their partners in that effort.  

This model had been fraying long before the Trump presidency. Labor unions, under sustained attack from the right, suffered a steep decline in membership and clout over the latter half of the 20th century. Public charities continued to proliferate, but as progress on racial integration stalled out and levels of economic inequality and partisan polarization crept up and up, many on the left began to question whether a court-centric approach was capable of producing lasting social change.

The 2016 election pushed these concerns past the breaking point. Thousands upon thousands of well-established public charities, after all, didn’t translate into robust voter turnout. Nor did they halt the ascent of a demagogue. And with Brett Kavanaugh’s recent confirmation, whatever remained of the left’s faith in the Supreme Court as an engine of justice has crumbled. While lawsuits may be crucial for challenging certain flagrant abuses of power, many resistance groups feel compelled to participate directly in the rough-and-tumble of electoral politics.

And so they have turned to … section 501(c)(4) of the Internal Revenue Code. Many of the key groups founded to resist Trump, including Indivisible Project, Onward Together, Our Revolution, Sixteen Thirty Fund, Stand Up America, and Women’s March, are abandoning the 501(c)(3) public-charity route and incorporating as 501(c)(4) “social welfare” organizations instead. Social-welfare organizations are also exempt from federal income tax, but they have fewer fiscal privileges. Donations to them are not deductible. Yet unlike public charities, they may lobby as much as they wish, and they may engage in partisan political work—from asking candidates to sign pledges to registering like-minded voters to endorsing specific pieces of legislation—as long as that work is not their “primary” purpose or activity (a requirement so hard to define and enforce that, in the words of one leading nonprofit tax scholar [John Colombo], it “virtually invites wholesale noncompliance”). Since this past summer, social-welfare organizations have also been allowed to withhold the names of their donors from the Internal Revenue Service.

. . . 

Federal tax law allows social-welfare organizations to be affiliated with public charities as well as with pacs. So while anti-Trump start-ups are setting up shop as 501(c)(4)s, long-standing civil-liberties and civil-rights groups are reallocating resources to (c)(4) arms. In fiscal year 2017, for example, total assets of the American Civil Liberties Union’s (c)(3) grew 17 percent. Total assets of its (c)(4), on the other hand, grew 89 percent. This past June, the Southern Poverty Law Center spun off a (c)(4), the SPLC Action Fund. The NAACP went further and transformed itself entirely last year from a 501(c)(3) into a 501(c)(4). This restructuring was necessary, the incoming president explained, for the NAACP to “have the collective voice and impact that a civil-rights organization in 2017 and forward should have.”

Hat Tip:  Nonprofit Law Blog


December 12, 2018 in Current Affairs | Permalink | Comments (0)

Tuesday, December 11, 2018

Treasury Issues Interim Guidance (and Request for Comments) on Calculation of UBTI from Qualified Transportation Fringe Benefits.

In Notice 2018-99, issued yesterday, Treasury issued interim guidance on how to calculate the increase in unrelated business taxable income resulting from an exempt organization's provision of qualified transportation fringe benefits under newly enacted 512(a)(7).  The notice states that Treasury intends to issue proposed regulations on the topic, but "until such guidance is issued . . . tax-exempt organizations that own or lease parking facilities where their employees park may use any reasonable method . . . to determine the amount of the increase in UBTI under 512(a)(7)."   Rather significantly, the Notice allows an organization to use a net loss from an actual unrelated trade or business to offset the increase in UBTI under 512(a)(7) if the organization has only one real unrelated trade or business (i.e., one unrelated business without regard to 512(a)(7)).  There is a lot of aggravating detail in the Notice relating to one such "reasonable method," but fortunately the Notice includes helpful examples.  

For interesting commentary on 512(a)(7) and the interim guidance, mostly unfavorable, see this article in Accounting Today.  Public Comments are solicited with regard to the Notice and should be submitted by February 22, 2019.  


December 11, 2018 | Permalink | Comments (0)

Treasury Issues One Time Waiver of Penalty for Failure to Pay Estimated Tax Related to UBIT on Nondeductible Qualified Transportation Fringe Benefits


In Notice 2018-100, issued yesterday, the Treasury Department, "in the interest of sound tax administration" provides a waiver of penalties for exempt organizations that would not have been required to file a UBIT return (990-T) for 2017.  Recall that new 512(a)(7) makes the amount of qualified transportation fringe benefits taxable as unrelated business taxable income.  This new tax means that many organizations that would not have had to make estimated tax payments in 2018 under IRC 6655 in the absence of 512()(7) could be subject to an additional tax for failure to make estimated taxes in 2018 (because they suddenly had "phantom" UBTI by providing QTFBs).  The Notice waives the additional tax for those tax exempt organizations so that organizations can have "additional time to develop the knowledge and processes to comply with the estimated income tax requirements."  



December 11, 2018 | Permalink | Comments (0)

Executive Pay at Private and Public Colleges


The Chronicle of Higher Education has released its survey of Executive Compensation at Private and Public Colleges.  



December 11, 2018 | Permalink | Comments (0)

Monday, December 10, 2018

Massachusetts Town Considers Seeking Voluntary Patron Payments in Lieu of PILOTS


From The Berkshire Eagle, a newspaper serving Western Massachusetts:  

Are the town's numerous nonprofit businesses, ranging in size from Tanglewood to Chesterwood, willing to ask patrons for a voluntary surcharge on their ticket prices?  That's one of the questions that the town's PILOT Program Committee will present when it sends out a survey to the organizations, committee Chairman Tom Stokes told the Select Board on Monday.  The committee's mission is to find out whether the nonprofit groups, exempt from property taxes, can contribute toward the town's expenses, he said. The group was set up by the Select Board this year to consider a policy for voluntary payments in lieu of taxes.  Recommendations for setting up the PILOT program will be submitted to the Select Board for consideration, Stokes said. If approved, the proposal would appear as an article on the annual town meeting warrant for next May, seeking support from registered voters through a nonbinding resolution, preceded by another public forum.  The questionnaire includes the following points:

- Would nonprofit groups that charge admission be open to a voluntary surcharge on tickets purchased by the public, instead of a PILOT payment to the town?

- What town services do the nonprofit groups use, and how much are they aware of the benefits of those services?

- What type of in-kind services might be offered to the town, which could cut in half the amount of a voluntary contribution based on 25 percent of the taxes that would be due if the property were a commercial venture? Examples of in-kind services include the value of discounted or free tickets for residents or public forums on mental health offered by Austen Riggs, Stokes said.

- Other than in-kind services, what are some ways a nonprofit agency could contribute to the town?

- What's your feeling about a voluntary PILOT program — is it a worthy effort or are you against it?

I imagine nonprofits that make payments in lieu of taxes (PILOTS) already implicitly pass the cost along to patrons or benefactors, but this is the first I have heard of an explicit sort of voluntary sales tax on nonprofit patrons.  Presumably, the voluntary "surcharge" would be in addition to whatever sales or use taxes the nonprofit collects from patrons on the sale of even its charitable goods and services.   Massachusetts, Pennsylvania, and, surprisingly, New Hampshire, are the states containing the most cities and towns collecting PILOTS, according to this article from the Lincoln Land Institute.



December 10, 2018 | Permalink | Comments (0)

Indian Tribes Sue Wisconsin Claiming Exemption from Property Tax

From Wisconsin Public Radio:

Four northern Wisconsin tribes have filed a federal lawsuit against Gov. Scott Walker, the state and town officials over the taxation of reservation lands. The tribes argue the state and towns don’t have the right to tax reservation lands.  The complaint was filed Friday, Nov. 30, in the U.S. District Court for the Western District Court of Wisconsin by the Red Cliff, Bad River, Lac du Flambeau and Lac Courte Oreilles tribes. They contend the Wisconsin Department of Revenue, 11 towns and their assessors have been taxing fee simple lands on reservations in violation of the Treaty of 1854 between the United States government and Lake Superior Chippewa. Fee simple lands mean that the owner of the property can do whatever they want with the land, without being subject to limitations or conditions.  "The 1854 Treaty does not authorize the imposition of state taxes of any kind on the property of the tribes located within the reservations created therein," the complaint reads. "None of the historical documents relating to the negotiation of the 1854 Treaty indicate that the Indians were told that the lands reserved for them by the 1854 Treaty would be subject to state property taxes."

Wisconsin tribes


The Plaintiffs are represented by the Colette Routel of the Indian Law Litigation Clinic at Mitchell Hamline School of Law in St. Paul Minnesota.  The full complaint, particularly starting at paragraph 37, makes for very interesting and instructive reading regarding tax exemption of tribal lands.  


December 10, 2018 | Permalink | Comments (0)

Friday, December 7, 2018

Aprill Adds More Light to IRC 4960


Following up on my post regarding [Questionable] Strategies to Avoid IRC 4960.  Professor Ellen Aprill's excellent article earlier this year provides needed clarity:

New section 4960 imposes a 21% excise tax on certain organizations not subject to income tax, including organizations exempt under section 501(c)(3) and those for which income is excluded from taxation under section 115(1), if any of their five highest paid employees have annual compensation above $1 million. (It also imposes the tax on “excess parachute payments,” as defined in the statute.) In December, 2017, I wrote a blog post on “Medium: Whatever Source Derived,” arguing that, whatever the Congressional intent, the language of the statute did not reach states, their political subdivisions or integral parts of either.

In particular, the post contrasted the basis of income tax exemption for states and their political subdivision to entities that fall under section 115(1). Section 115(1) excludes from gross income “income derived from...the exercise of essential governmental function and accruing to a state or any political subdivision thereof.” This provision, however, is not the basis for exempting from income tax the income of states and their political subdivisions. The IRS has long exempted states and their political subdivisions from income tax under a doctrine of implied statutory immunity, not under section 115(1). For many decades, the IRS has interpreted section 115(1) not refer to states and their political subdivisions, but only to organizations that are organized separately from a state or political subdivision and meet certain other requirements. The blog post is reprinted here as Part I of this piece.

Professor Douglas Kahn of University of Michigan took issue with my position on the basis that the new section does apply to section 501(c)(3) organizations and that state universities are educational institutions. I responded to him in an article originally published in Tax Notes that constitutes Part II of this piece. It corrects an error in my earlier piece by acknowledging that some state universities have indeed received recognition under section 501(c)(3) from the IRS. Not all, however, have done so. Thus, I assert again my position that new section 4960 does not by its terms apply to entities free of income tax by virtue of their status as a state, political subdivision, or an integral part of either. Moreover, as the piece explains, those state universities that have received a section 501(c)(3) determination can, if they choose, relinquish their section 501(c)(3) status. The piece discusses the various options available to tax authorities and public universities confronting this new excise tax.

Since publication of these pieces, Treasury and the Joint Committee of Taxation have acknowledged that a technical correction is need in order for section 4960 to apply to all governmental entities, as Congress intended. Technical corrections, however, are not anticipated any time soon. Even though not all public universities and other governmental entities are subject to the strictures of section 4960, guidance could specify that its excise tax applies to those that have sought section 501(c)(3) status. On the other hand, until there is a technical correction, out of considerations of federal-state comity and to avoid differential treatment of various state universities and other governmental entities, Treasury and the IRS could decide that such governmental entities with 501(c)(3) status are to be treated as exempt from this excise tax, on the model of the special treatment they currently receive in being exempt from the Form 990 filing requirement and from the intermediate sanctions excise tax regime. I do not envy Treasury and the IRS in having to make this difficult choice.

I think state universities still have a problem because most of their football coaches' compensation is typically paid not by the University itself, but through related foundations that are exempt under 501(c)(3).   See  


December 7, 2018 in Publications – Articles | Permalink | Comments (0)

Wednesday, December 5, 2018

"A Thousand Points of Light:" Volunteerism in 2018 and Beyond


In honor of President George H.W. Bush's passing, I thought I would post his speech in which he called for greater volunteerism, painting a picture of a thousand points of light.  We live, of course, in cynical and mean times (and yes, the Willie Horton advertisement didn't help).  But there is still reason to believe in the "kindler and gentler" mantra the President talked about after the campaign was over.  Here is what the UN's 2018 Report, "The Thread that Binds:  Volunteerism and Community Resilience" says about the spirit of volunteerism and its impact on communities:

Resilient communities allow for dynamic interactions between people facing threats and their environments. Understanding how such interactions occur is essential for supporting people-led approaches to peace and development. Volunteerism enables individuals to work together, shaping collective opportunities for dealing with risk and connecting individuals and communities with wider systems of support. Volunteerism as a universal social behaviour is therefore a critical resource for community resilience.  At the same time, communities around the world are changing, often in response to an increased frequency and intensity of shocks and stresses. Little is known about how this influences volunteerism and its manifestations across different contexts. In light of these changing patterns of risk, it is important to understand if and how individuals and groups are continuing to organize and connect and whether collective responses within communities are ultimately reinforcing or challenging the wider social, political and economic inequalities that exacerbate the vulnerability of marginalized groups.  This 2018 State of the World’s Volunteerism Report (SWVR), The thread that binds, looks at how volunteerism and community resilience interact across diverse contexts. It explores the strengths and limitations of community responses to a range of shocks and stresses, and it examines how external actors can build on  communities’ self-organization in a complementary way, nurturing the most beneficial characteristics of volunteerism while mitigating against potential harms to the most vulnerable. In doing so, the report provides an important contribution to the evidence base on inclusive, citizen-led approaches to resilience-building.

Voluntary, nongovernmental organizations are still indispensable to societies of all sorts.  Some protest, some build, some seek to tear down the old order.  Whatever the case, tax and non-tax laws should be continually scrutinized to ensure those laws do not dim the thousand points of light.




December 5, 2018 | Permalink | Comments (0)

Tuesday, December 4, 2018

UK's Cabinet Office Urges Charities to Speak Out about Public Grants

Apparently in response to increasing use of "gagging clauses" in grants that forbid public commentary on public grants, the United Kingdom's Cabinet Office recently urged charities to report improper behavior and wasteful government grants "without fear of consequences." From the full story at Third Sector, "The new rules have been prompted by concerns in the media that charities working on the Department for Work and Pensions’ universal credit programme were unable to speak about their concerns with how the programme was being delivered because of clauses in government contracts."

It will be interesting to see if this move actually emboldens charity whistleblowing, or if more concrete protections are needed.


December 4, 2018 in In the News, International | Permalink | Comments (0)

Monday, December 3, 2018


In the first ever #AccountabilityMonday, which took place before Giving Tuesday, a group of scholars and journalists initiated a conversation (covered by Nonprofit Times) about nonprofit accountability and transparency. Using the hashtag #AccountabilityMonday, people posed questions and offered ideas on nonprofit topics ranging from DAFs to reading a Form 990. One of the most interesting exchanges was prompted by Phillip Hackney, who asked "What would you add to (or remove from) the Form 990 that charities file with the IRS to make it a more useful document for holding charities accountable?"

<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">What would you add to (or remove from) the Form 990 that charities file with the IRS to make it a more useful document for holding charities accountable? <a href=";ref_src=twsrc%5Etfw">#AccountabilityMonday</a> <a href="">@CountingCharity</a> <a href="">@BenSoskis</a> <a href="">@EllenAprill</a> <a href="">@BDGesq</a> <a href="">@joshnathankazis</a> <a href="">@JosephWMead</a></p>&mdash; Philip Hackney (@EOTaxProf) <a href="">November 27, 2018</a></blockquote>
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Lots of great ideas in the replies. What would you like to see changed?


December 3, 2018 in Current Affairs, Federal – Executive | Permalink | Comments (0)