Nonprofit Law Prof Blog

Tennessee Nonprofit Hospital in Propublica Expose

Propublica has been doing great investigative work where they team up with local reporters to do some in depth reporting. They provide a nice recent look at Methodist Le Bonheur Healthcare, a nonprofit tax-exempt hospital, in Memphis Tennessee. 

The story documents the collection practices that Senator Grassley might be interested in as he starts up an investigation into nonprofit hospitals again.

The story states: "From 2014 through 2018, the hospital system affiliated with the United Methodist Church has filed more than 8,300 lawsuits against patients, including its own workers. After winning judgments, it has sought to garnish the wages of more than 160 Methodist workers and has actually done so in more than 70 instances over that time, according to an MLK50-ProPublica analysis of Shelby County General Sessions Court records, online docket reports and case files."

The primary focus of the story seems to be on the hospital's efforts to collect from its own employees: "It’s not uncommon for hospitals to sue patients over unpaid debts, but what is striking at Methodist, the largest hospital system in the Memphis region, is how many of those patients end up being its own employees. Hardly a week goes by in which Methodist workers aren’t on the court docket fighting debt lawsuits filed by their employer."

Furthermore, they look at the hospital's financial assistance policies. It's not clear whether they meet the Internal Revenue Code CHNA rules in section 501(r) applicable to nonprofit hospitals after the Affordable Care Act: "Methodist’s financial assistance policy stands out from peers in Memphis and across the country, MLK50 and ProPublica found. The policy offers no assistance for patients with any form of health insurance, no matter their out-of-pocket costs. Under Methodist’s insurance plan, employees are responsible for a $750 individual deductible and then 20% of inpatient and outpatient costs, up to a maximum out-of-pocket cost of $4,100 per year."

Philip Hackney

 

President Trump "jokes" about enforcing "Johnson Amendment" against his opponents

President Trump talked about the so called "Johnson Amendment" again the other day. The Johnson Amendment, as probably most of the readers of this blog know, is the language contained in section 501(c)(3) of the Internal Revenue Code that prohibits a charity hoping to maintain its status as exempt from federal income tax from intervening in any political campaign. I say so called as it was not called that on its entry to the Code, though this article does suggest it was LBJ who was the author of the language added to the Code in 1954.

The President, speaking before the Faith and Freedom Coalition conference in Washington stated: “Our pastors, our ministers, our priests, our rabbis . . . [are] allowed to speak again . . . allowed to talk without having to lose your tax exemption, your tax status, and being punished for speaking."  He then apparently jokingly cautioned that if a pastor spoke against him “we’ll bring back that Johnson Amendment so fast,” the president said to laughter, adding, “I’m only kidding.”

President Trump signed an executive order back in May. The law of course is still found within section 501(c)(3) and thus is a duly enforceable law. In my opinion, the executive order did not do anything to change the actual state of affairs of the meaning of the law or its interaction with other laws, such as the Religious Freedom Restoration Act, or constitutional rights. If anything, the current state of the law should work to protect those he jokingly threatened to use the state of the law against. 

The news article I cite to above unfortunately wrongly states the following: "The president has not undone the law, like he sometimes claims he has, but rather told the Treasury Department it can enforce at its own discretion — leaving the possibility that the Trump administration could only penalize churches that oppose the president."

Although the President has not undone the law, as the article correctly states, I say wrongly in two senses: (1) he has not told the Treasury Department that it can enforce at its own discretion - he only directs Treasury to apply the law with due regard to allowing individuals and organizations to speak when speaking from a religious perspective "where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign", and (2) it would be unlawful for the administration to penalize churches that oppose the president, and his executive order did not create that possibility of such unlawful action. If you have interest in more detail on the (obvious) legal problems associated with (2), I wrote about the legal reasons why it would be unlawful for the IRS to unequally enforce the law in such a way in a longer scholarly article here considering the claims that the IRS violated conservative organizations rights when it specifically used names of groups like the Tea Party in managing its application system.

Philip Hackney

Ellen Aprill, 2019 Overview of Tax Issues for Synagogues and other Religious Congregations

Ellen Aprill of Loyola Los Angeles Law School has updated her guide for synagogues and religious congregations on managing common legal matters that such organizations face. It's a great service. I encourage you to check it out. It is called: 2019 Overview of Tax Issues for Synagogues and other Religious Congregations. Here is the abstract:

"The attached revises the guides for synagogues and other religions congregations that I posted in 2010. These new versions reflect applicable law as of June, 2019. They summarize the rules I have been most often asked in the many years I have given advice on these matters, primarily with the Jewish community. One guide is directed specifically at synagogues; the other to religious congregations generally. (I use the term “religious congregations” rather than “churches” to be more inclusive.)

In addition to an overview, each guide discusses: (a) requirements for setting compensation; (b) lobbying and campaign; (c) substantiation of charitable contributions; (d) charitable fundraising; (e) payroll taxes and withholding for clergy; (f) parsonage and housing allowances; and (g) discretionary funds.

These summaries of applicable rules is designed to help lay leaders and congregational staff, whether volunteer or professional. Given their purposes, they do not include citations to the applicable provisions of the Internal Revenue Code or tax regulations. Each topic appears on a single page, so that a particular page or particular pages can be easily distributed as needed. Readers have my permission to distribute these guides in whole or in part."

Philip Hackney

Philip Hackney Introductory Post

As this is my first post on Nonprofit Law Prof Blog, I thought I would do an introductory post. Excited to be blogging here. My name is Philip Hackney, and I am an Associate Professor of Law at the University of Pittsburgh School of Law. I primarily teach tax law related courses and my scholarship focuses on nonprofit organizations, tax-exemption, tax law, and the IRS. You can see my scholarship here and you can see some articles I have written for more popular press here. 

I worked for five years at the Office of the Chief Counsel of the IRS in Washington DC regulating the nonprofit sector. That work very much influences my research and scholarship and likely what I will blog about here. For instance, I will likely speak about stories like the Taxpayer Advocate Service ("TAS") criticizing the IRS on its new Form 1023-EZ. I note this story because in TAS's 2020 Objectives Report to Congress, TAS again criticizes the IRS's management of its tax-exempt application system. The Form 1023 EZ is a relatively new cursory form that allows small nonprofits to quickly qualify with the IRS as tax exempt organizations. The form was a response to chronic backups at the IRS for approval of routine applications for tax-exemption. TAS is not wrong about the problems raised by the adoption of Form 1023 EZ, a form that will be abused. Charities that should not get tax benefits will be approved by the IRS as a result of the cursory form. The IRS is not doing the kind of audit work that will ensure those organizations are caught. But the reality is that the IRS does not have the resources to do the oversight of the nonprofit sector to the extent many people seem to want. I don't want to get deeply into this issue here, other than to highlight a perspective that I try to bring to the table, which is that as we think about the nonprofit community it is important to be realistic about the resources we are willing to dedicate to their oversight -- not much -- and then work from there.

I will also blog about the role of nonprofits in our democracy. Values of democracy deeply inform my scholarship, and I will work to highlight the democratic role, or often lack thereof, of nonprofit entities in the US, states, and local governments. Because I believe the well-working of our nonprofit community in its democratic role is critical to the governance fabric of our nation, I think thoughtful laws and well operated oversight of the sector matters greatly. I hope to talk about that.

My wife, who is an artist, and I are deeply engaged in the arts community. I have taken an interest in art law as a result and will likely blog about art law matters as well, particularly as they intersect with nonprofits.

Look forward to interacting with this community. 

Philip Hackney

Legal Barriers to Cross-Border Philanthropy in Europe Event

I am off to Basel, Switzerland next week for an event focusing on Legal Barriers to Cross-Border Philanthropy in Europe.  (I know, the hard life of an academic.) I helped organize the event along with Oonagh Breen (University College Dublin) and Hanna Surmatz (European Foundation Centre (EFC)). The event will be held the afternoon before the biennial European Research Network on Philanthropy (ERNOP) conference at the University of Basel. It is particularly timely because of two significant European philanthropy developments earlier this year: the release by the European Economic and Social Committee of an opinion titled European Philanthropy: An Untapped Potential; and the publication by EFC and the Donors and Foundations Networks in Europe (DAFNE) of a European Philanthropy Manifesto. These two developments reportedly have created new momentum among policymakers to address the barriers to philanthropy in Europe, including philanthropy across borders.

Here is the current program for the event:

13:00-14:15: Session One: European Regulatory Measures
Oonagh B. Breen, UCD Sutherland School of Law (moderator)
Dominque Jakob, Universität Zürich
Wino Van Veen, Vrije Universiteit Amsterdam

14:30-15:45: Session Two: Taxation
Lloyd Hitoshi Mayer, University of Notre Dame (moderator)
Anne-Laure Paquot, Transnational Giving Europe
Giedre Lideikyte-Huber, Université de Genève
Hanna Surmatz, European Foundation Centre

16:00-17:15: Session Three: Emerging Issues
Hanna Surmatz, European Foundation Centre (moderator)
Francesca Fanucci, European Center for Not-for-Profit Law
Isabel Peñalosa-Esteban, Spanish Association of Foundations

Lloyd Mayer

SCOTUS: Nonprofits, State Action, and the First Amendment

In a relatively unnoticed decision earlier this week, the Supreme Court of the United States reached a decision that could provide an additional reason for governments to outsource activities to nonprofits. Manhattan Community Access Corp. v. Halleck involved whether a nonprofit organization was a state actor subject to the First Amendment when New York City delegated the operation of public access cable channels to it. In a 5-4 decision, the Court concluded that it was not because managing public access channels is not "a traditional, exclusive public function." (The City also did not compel the nonprofit to take the alleged action at issue or act jointly with the nonprofit, either of which could have been alternate grounds for finding the nonprofit was a state actor for these purposes.) The majority held that very few functions are traditional, exclusive public functions, and the function at issue was not one of those few. The dissent's very different take was that the public access channels are a public forum and the City could not avoid the First Amendment's application to the forum by delegating management of it to a private entity, here the nonprofit. 

This decision creates an additional incentive for governments to delegate the management of activities to private entities, including nonprofits. If the activity is speech-related, and the government is careful not to direct the nonprofit regarding its speech-related decisions, those decisions may often not be subject to First Amendment limits. Presumably if the government delegated that management to a private entity with a known, speech-related bias with the intent of seeing that bias implemented even though the First Amendment would prevent the government from doing so directly, that would be problematic. But of course proving intent along these lines could often be very difficult, even if it exists. 

Additional Coverage: PrawfsBlawg; SCOTUSblog.

Lloyd Mayer 

From Bad to Worse?: The NRA and University of Maryland Medical System Scandals

The drip-drip of bad news about the National Rifle Association and the University of Maryland Medical System continues. For the NRA, the newest revelation was that 18 members of the NRA's 76-member board had direct or indirect financial transactions with the organization at some point during the past three years even though board members are not compensated for their service. Transactions with board members of tax-exempt nonprofit organizations are generally allowed if the terms, including the amounts paid, are reasonable in light of what the organization receives in return, and particularly if they are vetted through a conflict of interest policy (which policy the NRA has). Nevertheless, the number of board members involved and the amounts - ranging from tens thousands of dollars to in one case over $3 million in purchases - raises the question of whether the judgment of those board members might be affected by the transactions, particularly when it comes to evaluating the performance of the executives who control such transactions. As Mother Jones reports, however, the IRS is unlikely to try to revoke the tax-exempt status of the NRA even given these recent revelations. The more potent threat to the organization is instead the ongoing New York Attorney General investigation, as the NRA is incorporated in New York.

Meanwhile, similar governance issues continue to come to come to light at the University of Maryland Medical System, but with somewhat different results. These issues include longstanding financial relationships with a number of board members, including a former state Senator, and disregard for the two consecutive five-year terms limit on board service. Unlike the situation with the NRA, these revelations have also claimed a number of leadership casualties, most recently four top executives (including the system's primary lawyer) who resigned earlier this month. Given the ongoing federal and state investigations and legislative calls to force all current board members to step down, more leadership changes are probably likely.

Lloyd Mayer

 

Churches & Disclosure: Time for a 990-CH?

This month brought us the spectacle of a televangelist awkwardly trying to explain why he has to fly in a private jet and a report that a Catholic bishop gave hundreds of thousands of dollars in gifts to fellow clergymen, with his diocese increasing his compensation to cover the value of the gifts. The latter story came from a leaked draft confidential report to the Vatican that led to the Bishop's resignation last fall. And the latter story also led to a call in the Washington Examiner from the head of the Center for a Free Economy for an IRS audit of the Catholic Church and in the Washington Post for churches to have to file Form 990, the IRS annual information return that almost all other tax-exempt organizations are required to file (although for financially smaller organizations shorter versions of the form are usually sufficient).

This raises a perennial issue that understandably never gains any political traction - should churches have to file some version of the Form 990, say a Form 990-CH, to allow the IRS and the public to see whether they continue to qualify for the tax benefits they enjoy? It seems unlikely that the occasional financial scandal or lavish spending by a church leader will be enough to change the political calculation that pursuing this idea legislatively is a fast way for a member of Congress to alienate many of their constituents. Nor is it obvious that the arguably rare incidents along these lines should be the basis for this change and the encroachment on church internal affairs that it would represent. However, as the proportion of Americans who associate with a formal religious organization continues to decline - including not just the "nones" but also people who consider themselves religious but do not engage with the institutional church - it should not be taken for granted that this exemption from the annual return requirement will always be invulnerable to attack. And of course there is the little matter of the Freedom from Religion Foundation's lawsuit challenging the exemption, although I would not give the lawsuit much chance of success, in part for the reasons provided by fellow blogger Sam Brunson.

Lloyd Mayer

Giving USA 2019 Reports Decline in Giving by Individuals and (When Inflation-Adjusted) Overall

The annual Giving USA report provides what is generally recognized as the most comprehensive report on charitable giving in the United States. It is therefore not surprising that this year's edition is garnering headlines for its report that total giving in 2018 only increased by 0.7% over 2017, and declined by 1.7% when adjusted for inflation, despite the continuing strong economy. Giving by individuals also declined, both in current dollar (-1.1%) and inflation-adjusted (-3.4%) terms, but was partially offset by increased foundation and corporation giving. A variety of reasons may have caused the declines, including the recent tax law changes, as noted in the press release that accompanied the report:

A number of competing factors in the economic and public policy environments may have affected donors’ decisions in 2018, shifting some previous giving patterns. Many economic variables that shape giving, such as personal income, had relatively strong growth, while the stock market decline in late 2018 may have had a dampening effect. The policy environment also likely influenced some donors’ behavior. One important shift in the 2018 giving landscape is the drop in the number of individuals and households who itemize various types of deductions on their tax returns. This shift came in response to the federal tax policy change that doubled the standard deduction. More than 45 million households itemized deductions in 2016. Numerous studies suggest that number may have dropped to approximately 16 to 20 million households in 2018, reducing an incentive for charitable giving.

“The complexity of the charitable giving climate in 2018 contributed to uneven growth among different segments of the philanthropic sector. Growth in total giving was virtually flat. Contributions from individuals and their bequests were not as strong as in 2017, while giving by foundations and corporations experienced healthy growth,” said Amir Pasic, Ph.D., the Eugene Tempel Dean of the Lilly Family School of Philanthropy. “Charitable giving is multi- dimensional, however, and it is challenging to disentangle the degree to which each factor may have had an impact. With many donors experiencing new circumstances for their giving, it may be some time before the philanthropic sector can more fully understand how donor behavior changed in response to these forces and timing.”

It remains to be seen if these trends continue in future years, particularly as individuals and households continue to adjust to the 2017 federal tax law changes.

Media Coverage: Chronicle of Philanthropy; Wall Street Journal; Washington Post.

Lloyd Mayer

Form 990 Electronic Filing About to Become Mandatory, Along with Release in Machine Readable Form

Congress has passed the Taxpayer First Act (H.R. 3151), and President Trump is expected to sign the bill. Almost at the very end of the bill, after numerous other improvements to tax procedures, is a section that will require tax-exempt organizations to electronically file their Form 990 series returns and the IRS to publicly release the data from these returns in machine readable format "as soon as practicable." The Secretary of the Treasury, or his delegate, may delay the mandatory electronic filing for up to two years for financially smaller organizations if not doing so would cause an undue burden. The bill also requires the government to notify organizations that fail to file a required annual return for two years in a row, if a third consecutive missed filing will lead to automatic revocation of the group's tax-exempt status.

As detailed in (shameless plug) my article on Big Data and nonprofits, these changes will provide researchers, journalists, and other members of the public with an enormous amount of information about tax-exempt organizations. While these data will require a significant amount of work to be usable, there is already a Nonprofit Open Data Collective in place to do this work. The much easier access to this information that this legislation will provide holds the promise of greatly expanding the ability to research most organizations in the nonprofit sector.

Lloyd Mayer

New Jersey "Dark Money" Disclosure Bill Poised to Become Law

New Jersey Governor Phil Murphy has reversed course, announcing last week that he will sign bill S1500 after initially vetoing it conditionally because of constitutional and policy concerns. Assuming he follows through on his commitment, any group that is tax-exempt under either section 501(c)(4) (social welfare organizations) or section 527 (political organizations) of the Internal Revenue Code that engages in certain activities will have to publicly disclose donors who contribute $10,000 or more. The triggering activities are raising or spending $3,000 or more for the purpose of "influencing or attempting to influence the outcome of any election or the nomination, election, or defeat of any person to any State or local elective public office, or the passage or defeat of any public question, legislation, or regulation, or in providing political information on any candidate or public question, legislation, or regulation." Groups that engage in these activities will also have to report details of their relevant expenditures. The bill will become law despite opposition from the New Jersey chapters of both the ACLU and American for Prosperity.

So far it appears that state-level expansions of required public disclosures by politically active nonprofits have been limited to a handful of Democratic-controlled states, although significant ones in terms of their size (California, New Jersey, and New York). It remains to be seen whether disclosure legislation introduced in many other states becomes law (see the end of this Ballotpedia News story for a nationwide update on such legislation).

Lloyd Mayer

TIGTA Reports on Compensation Excise Tax Implementation & Lack of Noncompliance Strategy

The Treasury Inspector General for Tax Administration (TIGTA) issued a report earlier this month detailing the steps the IRS and Chief Counsel have taken to implement new Internal Revenue Code section 4960. This section impose a 21 percent excise tax on applicable tax-exempt organizations that pay more than $1 million in compensation to any covered employee for taxable years beginning after December 31, 2017. (The excise tax also applies to any excess parachute payment paid to a covered employee.) The report is an interesting look into how much has to be done behind the scenes to implement a new Code section. For example, tax forms, instructions, and computer programming had to be updated, needed guidance had to be issued, and tax-exempt organizations, their advisors, and IRS employees had to be informed about the new provision. TIGTA estimated that a couple thousand employees of tax-exempt employees received wages over the $1 million threshold, and the IRS estimated that 2,700 organizations would be affected by the tax in tax year 2018.

TIGTA found that generally the IRS and Chief Counsel successfully completed the necessary implementation steps in a timely fashion. These steps included having available by December 31, 2018 a revised Form 4720 (including new Schedule N) and related instructions, a (slightly) revised Form 990 and Form 990-PF (and related instructions) so that each form now includes a line item identifying if the filing organization has to pay the tax, and proposed regulations and interim guidance. (Treasury and the IRS released the final regulations on April 9, 2019, which cover procedural issues relating to paying the tax; the interim guidance still applies for substantive issues.)  However, the one gap that TIGTA found was the lack of a completed strategy to identify and address noncompliance after organizations file their returns, as required by the Government Accountability Office's Standards for Internal Control in the Federal Government (known as the Green Book).

Previous Blog Coverage: Aprill on the Reach of Section 4960; Questionable Strategies to Avoid Section 4960. 

Lloyd Mayer

Final SALT 170 Regulations Hold the Course; Notice Provides Safe Harbor for Taxpayers With SALT Below SALT Deduction Limit

The Treasury Department and IRS just issued the final regulations under Internal Revenue Code section 170 relating to the effect of state and local tax (SALT) credits on charitable contribution deductions (T.D. 9864). The final regulations generally track the proposed regulations, in that they require taxpayers to reduce the amount of their deduction by any SALT credits received or expected to be received because such credits constitute a return benefit to the taxpayer. They also retain an exception for credits that do not exceed 15 percent of the taxpayer's payment (or the fair market value of property transferred), and continue to not apply to SALT deductions unless the deduction exceeds the payment (or the fair market value of property contributed). While most of the over 7,700 comments supported finalizing the proposed regulations without change, some comments questioned various aspects of the proposed regulations, including the position that SALT credits are return benefits that should reduce the charitable contribution deduction in this instance, but for the most part Treasury and the IRS did not follow these critical comments. This included rejecting calls to push back the effective date of August 27, 2018 contained in the proposed regulations.

At the same time, the IRS issued Notice 2019-12. It states that Treasury and the IRS intend to issue a proposed regulation creating a safe harbor under Code section 164 that would allow certain taxpayers to treat as a SALT payment the disallowed portion of the charitable contribution deduction. This safe harbor would be available for taxpayers who itemize deductions for federal income tax purposes and have state and local tax liability under the $10,000 limit on SALT deductions. Those taxpayers would be permitted to deduct under section 164 the amount of SALT offset by the credits, until they reach the SALT deduction limit. This safe harbor join the Revenue Procedure 2019-12 safe harbor for business taxpayers who make business-related payments to charities or government entities and receive SALT credits in return; that safe harbor allows those taxpayers to still deduct the full amount of those payments as business expenses under Code section 162.

Previous Blog Coverage: Grewal on Why the Proposed Regulations May Be Doomed; Proposed Regulations Hearing; Rev. Proc. 2019-12.

Lloyd Mayer

Federal Tax Policy and Individual Charitable Giving

The Independent Sector recently released research on the relationship between federal tax policy and individual charitable giving. The study attempts to quantify the lost individual charitable revenue from the 2017 tax changes, and the effect that these five new policies would have on charitable giving:

1. Deduction identical to itemizers’ tax incentive;
2. Deduction with a cap in which gifts over $4,000 or $8,000 do not receive an incentive;
3. Deduction with a modified 1% floor, in which donors can deduct half the value of their gift if it is below 1% of their income and the full amount of the donation above 1%;
4. Non-refundable 25% tax credit; and
5. Enhanced deduction that provides additional incentives for low- and middle-income taxpayers

The study concludes that "all five policies could bring in more donor households and four of the five policies could bring in more charitable dollars than could be lost due to recent tax changes[, and f]our of the five tax policies could generate more giving than cost to the government."

-Joseph Mead

University of Alabama returns $21.5 Million Gift, Citing Attempts to Improperly Influence Academic Decisions

On June 7, the University of Alabama voted to return more than $20 million in donations from Hugh Culverhouse, Jr. Culverhouse initially claimed that the refund was retaliation for his comments on Alabama's recent abortion legislation. In response, the University recently released emails from the donor in which he repeatedly cited his large donations as entitling him to influence administrative appointments, faculty hiring and firing, decisions about student admissions, and other issues. In one passage, he writes:

You seem to think the quid pro quo is I give you the largest sum and commitment in the school's history and you have no return consideration as your end of the transaction."Thanks for the money--Good-Bye."

Other places, he insults the dean of the law school, describes applicants for a chair position as "mediocre" and unacceptable, and demands free rein to wander the law school and attend classes without restriction.

Joe Patrice at Above the Law offers a different take, suggesting that the University's decision was simply because it had a philosophical disagreement about what constitutes quality education, implying that the law school has chosen a path towards mediocrity. Patrice suggests that the University "interpreted [everything Culverhouse wrote] through a sinister lens." Patrice concludes: "At least the school seemingly wasn’t trying to cut him out over his opposition to the Alabama abortion law. Too bad they were actually trying to kick him to the curb for other ill-considered reasons."

-Joseph Mead

New HistPhil Post: "Fairbairn v. Fidelity: The Lawsuit That Reflects Rising Concerns About The DAF Boom"

Samuel Brunson posted a week ago about an interesting new lawsuit against Fidelity Charitable and DAFs. Today, Brian Mittendorf has this interesting post in HistPhil blog:

The lawsuit features a philanthropic twist: the complaint centers not around how their own money was invested but rather around how the money they donated to charity was handled. This twist provides a window into the evolving and rapidly expanding use of once-niche giving vehicles – donor-advised funds – and in doing so highlights the philanthropic minefield they present.

Read the rest here.

-Joseph Mead

Searchable 990s!

I had a substantive post I was going to write today about a recent PLR. It was going to be fascinating, and I was going to raise a question about why the IRS drafted the PLR the way it did.

And then I opened Twitter. And saw this:

New: Search the full text of nearly 3 million nonprofit IRS filings, including investments and grants given to other nonprofits.https://t.co/LyCBYe6evq

— ProPublica (@propublica) June 6, 2019

And there went my productivity for the day.

I love GuideStar. I love the access it gives to tax-exempt organizations' 990s, and all the information I can get from that. The one thing that has always kind of annoyed me, though, was that the 990s weren't searchable. And that wasn't Guidestar's fault--it merely posted the 990s it received, which, I assume, the organizations didn't provide in an OCR manner.

But now, ProPublica has provided a searchable database of 990s, going back as far as 2011. (Full-text search is here; advanced search is here.) I don't know the best way to use the database, but I did do a search for "Loyola University Chicago" to see whose 990s we show up in. Turns out about 304 990s mention us. (I say about because the search isn't perfect: I couldn't find Loyola mentioned in the DePaul Schedule I that came up in the search.) A lot of the mentions are from private foundations, or from matching grants. There's even a mention in the 2010 Form 990 for the Charles Koch Foundation, though there the university is giving back about $1,200 in unused funds from a 2009 grant.

Samuel D. Brunson

 

MacKenzie Bezos and the Giving Pledge

About a week and a half ago, MacKenzie Bezos signed the Giving Pledge, promising to give away at least half of her almost $37 billion wealth either over the course of her life or in her will. With her signature, she's joined more than 200 other people, from around the world, in making this promise.

In the first instance, I think this commitment to philanthropy is tremendously laudable. She recognizes that she has a disproportionate share of assets, and that she has a moral obligation to share those assets with those who don't have her fortune:

We each come by the gifts we have to offer by an infinite series of influences and lucky breaks we can never fully understand. In addition to whatever assets life has nurtured in me, I have a disproportionate amount of money to share. My approach to philanthropy will continue to be thoughtful. It will take time and effort and care. But I won’t wait. And I will keep at it until the safe is empty.

Still, I have a couple questions. The first is, as a practical matter, how she'll give. After all, the bulk of her wealth is in Amazon stock. And she gave her ex-husband voting control over her Amazon stock. I don't know exactly what that looks like, but I imagine there are some limitations on her ability to liquidate (or donate) that stock.

The second is, how quickly will she give? Half of $37 billion is $18.5 billion. If she donates to a private foundation, she can only deduct up to 30% of her contribution base (which is, roughly, her adjusted gross income). If she gives directly to a public charity, she can still only deduct up to 50% of her contribution base (or 60% if she gives cash before 2026). In other words, to fully deduct her charitable contributions, she would have to earn at least roughly roughly $37 billion.

Now, it absolutely may be that she's not worried about fully deducting her contributions. (Facebook founder Zuckerberg and Priscilla Chan certainly don't seem to be.) Or maybe she'll wait until her death, when charitable donations are excluded from her estate, to fully make her contributions. (Of course, actuarial tables put her expected death about 34 years in the future, so that would be charity delayed.)

Which brings us, briefly, to yesterday's Chronicle of Philanthropy, which reports that the Giving Pledge has not, contrary to its original expectations, turbocharged charitable giving. While more than 200 people have signed, the vast majority of the wealthy have not. Nor has it inspired increased generosity by non-wealthy Americans. Charitable giving stood at about 2% of GDP before the introduction of the Giving Pledge, and it has continued there since.

That's not to say, of course, that Bezos's pledge is insincere, that she's not actually planning on giving away more than half her money, or that she won't do it during her lifetime. It is to say that, while the Giving Pledge is theoretically nice, though, if we want to increase charitable giving, or if we want to reduce income inequality, the Giving Pledge isn't the solution.

Samuel D. Brunson

When Charitable Deductions are Made by Carried Interest Holders

Forbes Magazine has a short but interesting piece on how fund managers get an even bigger tax break when they use income from a carried interest to make a charitable contribution.  Here is an excerpt:

Imagine a private equity investment fund with a standard “two and twenty” arrangement whereby the manager receives an annual fee equal to 2.0% of the capital plus a "carried interest" equal to 20% of the profits. Most funds—even those with mediocre overall results—usually have at least a few very successful investments into private companies that are later listed on the stock market. For the sake of illustration, let’s assume that the fund invested into a private company—call it “HomeRun” Inc.—that is later listed on the stock market at a valuation many multiples of the fund’s initial investment.

In this case, the manager would likely receive some of his (the vast majority of private equity partners are men) carried interest in HomeRun shares rather than cash. (In private equity speak, he would receive a “distribution” of HomeRun shares.) While the manager still pays tax (at the 20% capital gains rate) on the carried interest he receives in HomeRun shares, it is only due when he sells the shares. This leaves him the option of giving them away instead.  

Let’s say it’s the 25^th anniversary of his b-school graduation and he wants to give $1.0 million to his alma mater. Were he a normal, working person (e.g., a doctor), the $1.0 million gift would come out of his ordinary income with the associated charitable deduction offsetting the taxes he would otherwise have to pay. (Based on a top marginal federal tax rate of 37%, the deduction would reduce his taxes by $370,000 making the public a de facto 37% partner in his gift.) In order words, the public has agreed—through the tax code—not to tax him on the income he gives away.

The private equity manager can do much better. Instead of cash, he gives his alma mater $1.0 million in HomeRun shares. Because he gives the shares away without selling them, he never has to pay the 20% tax ($200,000) that would otherwise have been due. (His college doesn’t pay the tax either since it’s a nonprofit.) At this point, the private equity manager is no different from the doctor; he has made a gift without paying the tax (in his case, at 20%) making the public a de facto 20% partner in his gift. But here’s the rub: he also gets to claim the $1.0 million gift as a deduction against his income.  

Assuming a federal rate of 37%, this deduction is worth a further $370,000 making the public a $570,000 de facto contributor to his $1.0 million gift. The public is a silent, unwitting, 57% partner in his giving. (This is just the federal analysis; the public contribution would likely be more after considering state-level taxes). Said another way, for every $1.00 he gives away, the public—through the tax code— waives the taxes and gives him a further $0.37 bonus.

This is not a theoretical exercise. Everyone who receives carried-interest in the form of low-basis stock knows how the math works and so do their financial advisors. In fact, much of the giving by wealthy people with carried interest income is likely made through gifts of stock.

I question whether the fund manager can avoid all tax by "giving the stock away" instead of selling it (the bold and italicized sentences in the quote above).  I have not looked at the Subchapter K rules in awhile, and don't have time now, but it seems to me that donating the stock ought to constitute a recognition event.  Still, even if the donation triggers tax, the fact that the stock is taxed at capital gains rates to the fund manager, and then used to offset ordinary income, to the extent of the stock's fair market value, is just insult to injury for the rest of us.  

Darryll K. Jones

AALS Section on Nonprofit and Philanthropy Law Call for Papers

CALL FOR PAPERS

AALS SECTION ON NONPROFIT AND PHILANTHROPY LAW

SESSION 2020 ANNUAL MEETING

JANUARY 2-5

WASHINGTON DC

 

Nonprofits & Philanthropy

The AALS Section on Nonprofit and Philanthropy Law announces a call for papers to be presented as works-in-progress in our committee session at the 2020 AALS Annual Meeting in Washington DC from January 2-5, 2020. The panel will be held on Sunday, January 5^th, 2020 from 10:30-12:00.

The Section seeks submissions on a variety of topics and methodological approaches related to Nonprofit and Philanthropy Law. We are especially interested in receiving submissions from new and junior academics or scholars who have not previously written in the field.

Eligibility: Scholars teaching at AALS member or nonmember fee-paid schools

Due Date: Friday, August 24, 2019

Form and Content of Submission: Submissions may range from early drafts to articles that have been submitted for publication, but not articles that will have already been published by January 6, 2020.

Submission Method: please submit papers electronically in Microsoft Word format to leslie@yu.edu "AALS Nonprofit and Philanthropy Law Submission" in the email subject line.

Submission Review: Papers will be selected for inclusion in the program after review by members of the AALS Nonprofit and Philanthropy Law.

Additional Information: Unfortunately, the section is not able to provide any funding to presenters, who will be responsible for their own expenses. If you have any questions, please contact Melanie Leslie at Leslie@yu.edu.

TLH