Nonprofit Law Prof Blog

Research Handbook on Not-For-Profit Law

Edward Elgar Publishing has released the Research Handbook on Not-for-Profit Law, edited by Matthew Harding of Melbourne Law School. Here is the description:

This Research Handbook provides a comprehensive overview of scholarship on not-for-profit law. The chapters, written by world leading experts, explore key ideas and debates in relation to: theories of the not-for-profit sector, the composition and scope of that sector, not-for-profit organisations and the constitution, the legal conception of charity, the tax treatment of not-for-profit organisations and the regulation of not-for-profits. The book serves to represent not-for-profit law as a field of academic inquiry, and to point the way to future research in that field.

And here is the table of contents:

Introduction
Matthew Harding

Part I Theories of the Not-for-Profit Sector
1. A Law and Economics Perspective on Nonprofit Organizations
Richard Steinberg and Brian Galle

2. A Primer on the Neo-Classical Republican Theory of the Non-Profit Sector (And the Other Three Sectors Too)
Rob Atkinson

3. A Charity Law Perspective on a Liberal Perspective on Charity Law
Adam Parachin

4. The Not-for-Profit Sector: A Roman Catholic View
Fr Brian Lucas

Part II The Composition and Scope of the Not-for-Profit Sector
5. An Overview of the Not-for-Profit Sector
Myles McGregor-Lowndes OAM

6. The Boundary between Not-for-Profits and Government
Darryn Jensen

7. The Boundary between the Not-for-Profit and Business Sectors: Social Enterprise and Hybrid Models
Benjamin M Leff

8. Donor Intention and Dialectic Legal Policy Frames
John Picton

Part III Not-for-Profit Organisations and the Constitution
9. Not-for-Profit Organisations, Public Law and Private Law
Kathryn Chan

10. Not-for-Profit Organisations and Equality Law
François du Toit

11. Charity Law and Freedom of Political Communication: the Australian Experience
Jenny Beard

12. Not-for-Profit Law and Freedom of Religion
Pauline Ridge

Part IV The Legal Conception of Charity
13. The History and Future of the Law of Charity
G E Dal Pont

14. Charity in Common Law and Civilian Jurisdictions
Michael H Lubetsky

15. The Heads of Charity in Comparative Perspective
Debra Morris

16. Public Benefit Post-Pemsel
Mary Synge

Part V The Tax Treatment of Not-for-Profit Organisations
17. Taxation and the Not-for-Profit Sector Globally: Common Issues, Different Solutions
Ann O’Connell

18. Subsidizing Charity Liberally
Miranda Perry Fleischer

19. Ways the Charitable Deduction Has Shaped the US Charitable Sector
Roger Colinvaux

20. The Major Tax Concessions Granted to Charities in Australia, New Zealand, England, the United States of America and Hong Kong: What Lessons Can We Learn?’
Fiona Martin

21. Reforming Tax Policy with Respect to Non-Profit Organisations
Evelyn Brody

Part VI The Regulation of Not-for-Profit Organisations
22. Principles of Regulation of Not-for-Profits
Jonathan Garton

23. Design and Implementation of a Charitable Regulation Regime
Brian Galle

24. Redefining the Measure of Success: A Historical and Comparative Look at Charity Regulation
Oonagh B Breen

25. A Regulator’s View
Susan Pascoe AM

Lloyd Mayer

Boris & Cordes on How the TCJA's New UBIT Provisions Will Affect Nonprofits

Elizabeth Boris and Joseph J. Cordes at the Urban Institute's Center on Nonprofits and Philanthropy have published How the TCJA's New UBIT Provisions Will Affect Nonprofits. Here is the abstract:

Changes in Unrelated Business Income Taxes (UBIT) mandated by the Tax Cuts and Jobs Act (TCJA) of 2017 will have significant costs for some nonprofit organizations. A survey of Independent Sector members and partner organizations in November 2018 reveals the costs and other implications of those changes.

Costs of New Transportation Benefits UBIT Taxes: Over 200 nonprofit organizations estimate it will cost them more than $2.1 million dollars in unrelated business income taxes (UBIT) on transportation fringe benefits they provide to employees, and for organizations that will report UBIT for the first time under that requirement, there will be estimated associated administrative expenses for filing IRS tax forms (Form 990T) of more than $200,000.

Costs of New Reporting Rules for UBIT: Required separate reporting of multiple revenue streams for purposes of UBIT is estimated to cost an additional $376,150 for affected organizations.

Lloyd Mayer

Pennsylvania AG Challenges the University of Pittsburgh Medical Center's Public Charity Status

Pennsylvania Attorney General Josh Shapiro announced yesterday that he is seeking to modify consent decrees governing the relationship between the University of Pittsburgh Medical Center (UPMC) and Highmark (a health insurer and health care provider), with the support of Highmark's leadership. According to the AG "UPMC is not fulfilling its obligation as a public charity." More specifically, in the petition his office filed he is asking the Commonwealth Court to:

• Enable open and affordable access to UPMC’s health care services and products through negotiated contracts with any health plan;
• Require last, best-offer arbitration – commonly known as “baseball arbitration” – when contract negotiations between insurers and providers fail; and
• Protect against UPMC’s unjust enrichment by prohibiting excessive and unreasonable billing practices inconsistent with its status as a non-profit charity providing healthcare to the public.

Alleged violations of UPMC's charitable obligations include "[w]ithholding access to doctors for patients in Williamsport, Pennsylvania whose employers have contracts with a competing health plan" and "[r]efusing to negotiate reasonable payment terms with self-insured employers, resulting in UPMC's unjust enrichment through excess reimbursements for the value of its services."

Press coverage: Pittsburgh Business Times; Pittsburgh Post-Gazette.

Lloyd Mayer

California AG Announces $410,000 Settlement of Overvaluing In-Kind Donations Case

California Attorney General Xavier Becerra recently announced that his office had settled a case it had brought against charity Giving Children Hope alleging that the charity had overvalued in-kind donations it had received in order to inflate the value of the contributions it received and therefore its claimed direct aid. Here is the AG's description of what the charity did:

Giving Children Hope provides international assistance in the form of food, clothing, and medical supplies. The Attorney General’s investigation revealed that between July 1, 2012 and June 30, 2016, GCH inaccurately claimed, in its public financial reporting and on its website, that 99 percent of all contributions provided direct aid. This was misleading and the result of deceptive reporting of Gift-in-Kind donations. GCH created two subsidiaries, Giving Hope International and International Clinic Aid, which purchased pharmaceuticals from a wholesaler in the Netherlands for less than $225,000. The two subsidiaries then donated the same pharmaceuticals to GCH. GCH reported the total value for these pharmaceuticals as being over $34.9 million using U.S. prices of drugs rather than the actual purchase price paid by its affiliated charity. GCH should not have reported $34.9 million in revenue and donations when the pharmaceuticals cost less than $225,000. Also since GCH failed to submit any documentation showing that the pharmaceuticals were, in fact, distributed in furtherance of Giving Children Hope’s charitable purpose, the actual value for those pharmaceuticals should have been zero.

For previous coverage of the California AG's other enforcement actions in this area, see this earlier blog post.

Lloyd Mayer

U.S. Olympic Committee Responds to Senator Grassley's Challenge to Its Tax-Exempt Status

In the wake of the recent sexual assault scandal involving Olympic athletes, Senate Finance Committee Chairman Senator Chuck Grassley sent a letter to the United States Olympic Committee asking for details regarding how the organization would comply with its congressional expanded purpose that now includes providing a safe environment in sports. He based his inquiry on the need for the organization to comply with its purpose in order to maintain its tax exempt status under Internal Revenue Code section 501(c)(3).

The USOC has now responded through the Covington & Burling law firm, detailing its planned activities, which include:

• Providing $6.2 million to fund the Center for SafeSport in 2019, double the amount of its 2018 support for the Center, and continuing to work with the Center on various initiatives.
• Surveying athletes regarding USOC's policies, programs, services, and priorities and considering other ways to increase the influence of athletes within the organization.
• Conducting a governance review focusing on USOC's relationship with the fifty national governing bodies and athletes more generally.
• Continuing with proceedings to revoke the status of USA Gymnastics as the national governing body for gymnastics, although that process is currently stayed because of the pending bankruptcy of that organization.

Lloyd Mayer

More Back Story on Big Mama Rag

I found this picture of old issues of Big Mama Rag online as I was searching for information.  Click here to get the story of Big Mama Rag from one of its reporters.

 

Darryll K. Jones

Charity Commission Relies on Big Mama Rag-type Definition of "Education" to Sanction Charity

The Charity Commission for England and Wales has reprimanded The Institute of Economic Affairs, described as a "prominent rightwing thinktank" due to "misconduct and mismanagement."  By lobbying for a hard Brexit, the charity violated the UK Charity Law because its lobbying campaign in support of BREXIT was too one-sided to be "educational."  After Big Mama Rag in the United States, Congress and the Service have essentially thrown up their hands on what is considered sufficiently "fair and balanced" so as to constitute educational.  Interestingly, the Charity Commission states "seeking to change governmental policy is only permitted in so far as doing so specifically advances education."  It then waded into analytically treacherous waters, as did the Treasury Department before Big Mama Rag:

2. Education does not need to be value free or completely neutral; however, educational charities must ensure that their research reports present balanced and neutral information allowing the reader to make up his or her own mind about the issue explored. The report in question did not invite the reader to make up his or her own mind, and instead presented one proposal for the way that Brexit should be achieved. There was no reference to or presentation of an equally prominent publication or event presenting a different view which could have provided balance in the round. We therefore do not consider the report is sufficiently balanced and neutral as required from a charity with educational purposes.

The Institute of Economic Affairs responded thusly:

A note from IEA Chairman Neil Record

In response to the Charity Commission issuing the Institute of Economic Affairs with an Official Warning, Chairman of the IEA’s Board of Trustees Neil Record said:

“The Institute of Economic Affairs is disappointed that the Charity Commission has issued us with an official warning for the publication and launch of a trade paper in September 2018.  The IEA is considering a range of options, as we believe this warning has extremely widespread and worrying implications for the whole of the think tank and educational charity sector.  A precedent is being set: research papers – and their launches – which put forward policy proposals may now fall outside the parameters of what the Charity Commission considers acceptable activity.  We will be working with the Charity Commission to address these points. Earlier this year, we asked a number of questions of the Commission relating to these regulatory matters and have yet to receive a response.  We look forward to receiving such a response shortly to help inform our future activity.”

Media coverage is here and the full text of the written reprimand and demand for remedial measures is below the fold.  

Darryll K. Jones and Easter L. Floyd-Clarke

Continue reading

Race and Gender Bias In Nonprofit Organizations

Report finds that racial and gender biases, not lack of experience or talent, blocks advancement for women of color

(New York, NY) – The Building Movement Project (BMP) today released a new report, Race to Lead: Women of Color in the Nonprofit Sector, which examines the impact of both race and gender on the career advancement and experiences of women of color working in the nonprofit sector. Based on data from more than 4,000 survey respondents, this latest report in the Race to Lead series shows that women of color encounter systemic obstacles to their advancement over and above the barriers faced by white women and men of color.

Some key findings include:

1. Racial and gender biases create barriers to advancement for women of color. Women of color report being passed over for new jobs or promotions in favor of others—including men of color, white women, and white men—with comparable or even lower credentials.
2. Education and training do not provide equity. Women of color with the advanced education were more likely than men of color, white men or white women to work in administrative roles and the least likely to hold senior leadership positions. Women of color also are paid less compared to men of color and white men and more frequently report frustrations with inadequate salaries.
3. The social landscape of organizations is fraught for women of color. Women of color who reported that their race and/or gender have been a barrier to their advancement indicated that they were sometimes left out or ignored and sometimes hyper-visible under intense scrutiny, with both conditions creating burdens.  

The report also includes a section detailing key themes from survey write-in responses by women of color and from focus groups and interviews conducted with Asian/Pacific Islander, Black, Latinx, Native American, and transgender women of color.

“In response to the Movement for Black Lives and the struggles for the rights of indigenous peoples and immigrants, nonprofit leaders have become more adept at talking about intersectionality, anti-Black racism, and de-colonization,” said Frances Kunreuther and Sean Thomas-Breitfeld, co-directors of the Building Movement Project, “but the Race to Lead data shows that nonprofit organizations need to dramatically change more than the words we use on our websites and in our grant reports. Real change means re-shaping the hierarchies and power structures in the nonprofit sector, the ways organizations behave, and how they treat their staff, particularly women of color.”

Some solutions BMP recommends include:

• Leverage the power of philanthropy. Funders should examine their own grant-making practices to support more organizations led by women of color. Funders should also encourage their grantees to embark on a race and gender equity journey by asking about the racial composition of staff and boards of organizations in grant proposals and demonstrating to organizations that the diversity information informs their strategy and funding decisions. 
• Advocate for enforcement of anti-discrimination laws. The nonprofit sector should advocate for the Equal Employment Opportunity Commission to receive more appropriations to investigate charges of discrimination—even if this means uncomfortably turning the lens on itself.
• Address internal biases. Organizations should address both conscious and so-called “unconscious” biases that affect the mentoring, feedback, evaluations and overall treatment of women of color. These steps toward equity cannot be limited to anti-bias training, which is necessary but insufficient. Nonprofit organizations also need robust and equitable HR policies and systems that will set an expectation that racism, sexism, anti-trans bias, etc. will not be tolerated, and also enforce real consequences for staff who violate those expectations.
• Pay women of color fairly and create transparency around pay scales to expose discrimination. Organizations should ensure transparency regarding pay scales to ensure that individuals with similar credentials and experiences are similarly compensated.
• Create peer support affinity groups for women of color. Peer support does not take place by happenstance: it must be intentionally structured and supported. Peer support should be understood as a supplement to—not a substitute for—in-organization mentoring opportunities provided by supervisors and other senior staff, and increased grant investments in women of color-led organizations.

Darryll K. Jones

 

House Majority Whip Renews Push to Repeal Taxation of Qualified Fringes as UBIT

House Majority Whip James Clyburn is renewing efforts to repeal the recent change to UBIT that would tax charities on the amount of qualified transportation fringes provided to employees.  From McClatchy: 

With Democrats in control of the U.S. House and Jim Clyburn wielding influence as majority whip, the S.C. congressman is pushing to repeal a law that imposes, for the first time, taxes on nonprofits — including places of worship.  How Clyburn, the third most powerful House Democrat, approaches his legislation could determine whether he is able to deliver a solution to the taxing problem.  Clyburn will have allies in some Republicans, who are coming around to reversing the nonprofit tax they included in their 2017 tax law. Still, there are worries that Clyburn, rather than work across the aisle, could introduce a more partisan bill that alienates Republicans and won’t win support in the GOP-controlled Senate.  “It’s great that they are going to introduce this bill, but this particular bill isn’t the most bipartisan way to do it,” said Galen Carey, vice president of government relations at the National Council of Evangelicals, who met Monday with members of Clyburn’s staff. “We encouraged them to think of maybe talking to (Republicans) and seeing if they can work out something bipartisan. But I don’t think that’s how it’s going to go down.”  The “Stop the Tax Hike on Charities and Places of Worship Act,” which Clyburn put forward last summer and plans to reintroduce as early as next week, would overturn a little-known provision in 2017’s “Tax Cuts and Jobs Act,” which Republicans passed without Democratic support.

Clyburn's op/ed regarding his bill appears in several newspapers and says:

It is well known that the tax bill passed last Congress with only Republican votes gave trillions of dollars in tax cuts to corporations and the wealthy on the backs of America's working families. What is not as well known is that to pay for that massive tax cut, which is still projected to raise the national debt by about $2 trillion over the next 10 years, Republicans placed a new tax on places of worship and charitable organizations.  Congress must repeal this new tax, and we should do so without adding another dime to the debt or an additional burden on America's working families. My bill, the Stop the Tax Hike on Charities and Places of Worship Act, would accomplish this goal.  Just as our country's history is steeped in volunteerism and philanthropy to aid the less fortunate, so too is our tax code, giving tax-exempt status to organizations working to improve our communities. In enacting their tax bill, Republicans turned their backs on this important principle.  The new tax forces nonprofit organizations to pay 21 percent of the value of so-called fringe benefits provided to employees. In the case of the affected nonprofit organizations, this generally means parking, other transportation and perhaps an occasional meal.  The tax threatens to cost charities and places of worship tens of thousands of dollars.

 

Darryll K. Jones

 

Read more here: https://www.mcclatchydc.com/news/politics-government/congress/article225228235.html#storylink=cpy

Read more here: https://www.mcclatchydc.com/news/politics-government/congress/article225228235.html#storylink=cpy

GuideStar and Foundation Center to Merge

 

From FastCompany Magazine:

"Two of the biggest information-sharing forces in the nonprofit sector just combined to create a new organization. It’s called, appropriately, Candid, a merger between the Foundation Center and GuideStar. For funders and nonprofits trying to better understand opportunity within the sector, the Foundation Center collects information on more than 13 million grants offered by 155,000 grant makers. For nonprofits and would-be donors trying to understand the efforts of other cause groups, GuideStar has built an open database with profiles on 2.7 million active organizations.

“The name Candid goes back to the roots of both organizations . . . and also speaks to our approach to [sharing] information,” says Bradford Smith, who will become the president of Candid after previously serving as the president at Foundation Center. All told, the groups have about 17 million users in total, although they’ve yet to sort how many overlap. Bill and Melinda Gates, Charles Stewart Mott, and the William and Flora Hewlett Foundation, among others, put up $27 million to back the merger . . . . . 

By combining, the groups will be able to join their databases, and push for more uniformity and context in how this information about nonprofits is presented. “We just think that [the merger] enables network effects that could create a kind of the integration of experience in the sector that we’ve never seen before,” says Jacob Harold, who moves from GuideStar CEO to executive vice president at Candid. “We could credibly have a common profile that was actually populating throughout the internet and also used in communities, and that can lead to all sorts of efficiencies but also new kinds of learning about the field.”

GuideStar's Blog and Foundation Center's website have more information. 

 

Darryll K. Jones

TE/GE Fiscal Year 2018 Accomplishments Letter

The Tax-Exempt and Government Entities (TE/GE) Division of the Internal Revenue Service released its accomplishments for Fiscal Year 2018 (see here).  Here are a few highlights:

• Exempt Organizations (EO) implemented several changes to better serve EO customers and assist employees with processing applications more efficiently for tax-exempt status.
• Employee Plans (EP) implemented several program and processing changes to better serve its customers and assist TE/GE’s employees with their cases.
• Indian Tribal Governments (ITG) assists Indian tribes with addressing their federal tax matters, while Tax Exempt Bonds (TEB) administers federal tax laws applicable to tax-advantaged bonds. ITG/TEB implemented several program and procedural improvements.
• TE/GE employed its Compliance Units to address potential noncompliance, primarily using correspondence contacts known as “compliance checks,” which limited the burden of each taxpayer contacted and allowed TE/GE to establish a presence in the taxpayer community in a manner that reduced the cost to the IRS.
• TE/GE made a significant hiring push in FY18, partnering with the Human Capital Office to select a total of 111 employees, including new hires, promotions, and laterals.

The letter also describes the Fiscal Year 2018 Compliance Program, which was divided into six portfolio programs:

• Compliance Strategies
• Data-Driven Approaches
• Referrals, Claims & Other Casework
• Compliance Contacts
• Determinations
• Voluntary Compliance & Other Technical Programs

 

Nicholas Mirkay

 

Philanthropic "First Loss" Investments and Private Benefit

In the world of high finance, "first loss investments" refer to the pool of equity  designated to absorb the initial losses generated by a pooled fund.  Other investors take on less risk because they are preferred relative to the first loss investors.  A preferred investor has a first line of defense against loss  -- composed of equity funding from other investors -- and as a result, might invest in a project it would otherwise pass on.   According to this Financial Times article, Private Foundations are increasingly serving as "first loss investors" to attract private money financing of public goods and services that would otherwise generate insufficient returns to attract private investors.  The article describes charitable first loss investments in a San Francisco Bay area project designed to provide affordable housing:

The idea works as follows. Investment ideas that pursue [public goods and services] — such as education, or environmental sustainability — don't usually achieve high enough returns to entice private capital. But if philanthropic capital takes the bulk of the risk, then private money will flow in. . . . For US foundations, losses themselves have a kind of value, because they count towards requirements to distribute (or "lose") 5 per cent of their holdings each year, so as to remain tax-exempt. At a high level, you can see a conceptual substitution between tax "losses" on the one hand and charitable "first losses" on the other.  The investment fund [in the San Francisco Bay area] is already lending $6.5m to the East Bay Asian Local Development Corporation. The ultimate logic is that the  [private foundation] concessionary capital (also known as "catalytic capital", also known, as above, as "first-loss capital") allows the loans provided by the fund to be cheaper than the market would provide. These loans, to developers, will allow them in turn to provide more affordable housing in developments that "also include market-rate units".  As you may have noticed, the entire principle is analogous to what a range of government subsidies aim to do. As the Impact Alpha article notes, those earning 60 per cent of the average median income are eligible for federal Low Income Housing Tax Credits. The philanthropic approach targets those who earn more, but are still struggling to find affordable housing.  

When the government provides subsidies, it potentially benefits private businesses or investors as much as it benefits the targeted political demographic which it intends to subsidise in some way. This is why private interests try to influence or capture the government's decision-making process.  The same thing is also true of charity. Or, as we should now start referring to it, "loss-absorbing capital".

Hmmmmm.  The second paragraph of the quoted passage makes me wonder whether first loss investing generates impermissible private benefit. The whole notion of "impact investing" revolves around the pairing of charitable and profit-making goals and that combination always raises private benefit concern vis-vis the charitable "subsidy."  

Darryll K. Jones