Nonprofit Law Prof Blog

IRS Charities Providing Disaster Relief Publication

With the challenges we will all face from the CoronaVirus Pandemic, I thought it would be useful to have the IRS Disaster Relief publication handy.

"This publication is for people interested in assisting victims of disasters or those in
emergency hardship situations through tax-exempt charities. Charitable organizations
have traditionally been involved in assisting victims of disasters such as floods, fires, riots,
storms or similar large-scale events. Charities also play an important role in helping those
in need because of a sudden illness, death, accident, violent crime or other emergency
hardship. This publication includes:

 advice about helping to provide relief through an existing charitable organization,
 information about establishing a new charitable organization,
 guidance about how charitable organizations can help victims,
 documentation and reporting requirements,
 guidance about employer-sponsored assistance programs,
 information about tax treatment of disaster relief payments,
 information about gifts and charitable contribution rules, and
 reference materials and taxpayer assistance resources.

By using this publication as you begin to plan your relief efforts, you will be able to ensure
that your program will assist victims in ways that are consistent with the federal tax rules
that apply to charities."

Philip Hackney

Letter - Nonprofits Must Be Included in Economic Stimulus Package

Two days ago 29 major nonprofits, such as Council on Foundations and United Way, wrote to Congress demanding that they be a part of any relief and economic stimulus package that arises amidst the CoronaVirus crisis.

"Nonprofits employ 12.3 million people (the third largest workforce – tied with manufacturing), with
payrolls exceeding those of most other U.S. industries, including construction, transportation, and
finance. A substantial portion of the nearly $2 trillion nonprofits spend annually is the more than
$826 billion they spend on salaries, benefits, and payroll taxes every year.ii Yet, in multiple disaster
relief laws in the past, Congress has ignored this core economic fact and approved employment related tax credits that left nonprofit employers and employees out of the provisions."

"Most nonprofits are relatively small: 97 percent of nonprofits have budgets of less than $5 million
annually, 92 percent operate with less than $1 million a year, and 88 percent spend less than
$500,000 annually for their work. Thus, the “typical” nonprofit is community-based, serving local
needs. Also, relatively few nonprofits have an endowment and most have limited reserves — about
50 percent have less than one month of cash reserves."

"No one doubts that hospitals, community health centers, and senior living communities will continue
to be hit hard by the coronavirus. Most of those organizations are charitable nonprofits. And many
other nonprofits are responding to the outbreak, such as local Meals on Wheels which are serving
their normal community of elderly people and a growing number of individuals under quarantine. The
list goes on to include nonprofit food banks, shelters, domestic violence services, houses of worship,
early care and education centers, after-school facilities, and more that are being called on to feed,
house, and care for people whose lives have been disrupted by closures, job loss, and sickness."

Philip Hackney

Nonprofits Dealing with the Corona Virus

I saw a tweet the other day from Al Cantor:

"The COVID-19 pandemic is likely to expose one of the myths of 21st-c. America: that the nonprofit sector adequately provides services in an emergency. No. Nonprofits are a web of underfunded, independent orgs. We need gov't coordination, funding, + leadership. We don't have that."

Having lived in Louisiana many years and lived through many hurricanes I can attest strongly to this statement. When Katrina hit New Orleans, nonprofits played important roles, but the government was critical to handling the immediate crisis and providing the long range services to allow people to recover from that traumatic event. 

Thought I would take a look in this blog post at what the media is reporting about the nonprofit situation at this moment in the crisis. 

This Washington Post story considers the confusion and distress that the Washington DC nonprofit sector is experiencing as it tries to figure out how it might help, but also how the nonprofits and their employees will make it through the crisis and not go bankrupt. As it notes, these nonprofits are typically making it on a "razor-thin margin." A brief shutdown of operations can cause them to miss a rent payment, or miss payroll for staff. But they also are involved in feeding hungry people. Thus these nonprofits are facing both need from the community, need to maintain operations, but also a need to shut down so that they don't participate in spreading the virus.

This Boston story describes how the crisis is already harming the fundraising of nonprofits. "“This situation is unprecedented,” said Paul Medeiros, the president and CEO of Easter Seals Massachusetts. He’s concerned about the organization’s bottom line. That’s because they’ve had to cancel the Evening of Empowerment, Easter Seals’ biggest fundraiser. “That event can bring in as much as $250,000 to the organization, which is over a quarter of our fundraising in a year,” he explained."

New York City is offering loans to some businesses including nonprofits to weather the storm. "The city is offering small businesses with fewer than 5 employees a grant to cover 40 percent of payroll costs for two months (an average of $6,000) to help retain employees. Businesses with fewer than 100 employers who have seen their sales decrease by 25 percent or more will also be eligible for zero-interest loans of up to $75,000 to help mitigate profit losses."

This story contains some helpful information for nonprofits as they consider how to manage the crisis. Like many universities, also large number of which are nonprofits, around the country, including now mine at University of Pittsburgh, nonprofits ought to be considering closing down in person meetings. Anyone who can work from home ought to be doing so to slow the spread of the virus. This story in Medium does the best job I have found of explaining the problem of the virus's exponential growth and the intense stress that will put on any country's health care system.

As we go forward in this crisis, lets remember that nonprofits like hospitals and universities and food banks will be working hard to alleviate the deep challenges we will face, those nonprofits are going to be facing deep challenges themselves. They really need the full force of federal state and local government backing their efforts and supporting them when they begin to fall. 

Philip Hackney

Gates Foundation Funds Covid-19 Testing Project in Seattle: Good Billionaire Philanthropy?

Yesterday I noticed that the Gates Foundation would be providing the funds to back a program to provide at home testing in the Seattle area for Covid-19  I tweeted the following:

"I am no fan of billionaire philanthropy - I think it skews our democratic project in problematic ways - this on its face though seems like an excellent use of that money all the same."

In effect, I think of billionaire philanthropy as a problem as a synonym for the idea that we have enormous income and wealth inequality in the United States. The problem has nothing to do with the billionaires themselves as individuals. Instead, because some people have vastly greater resources than most other people, those individuals arbitrarily wield much greater power than the rest of us in deciding what the group is going to do. This political voice imbalance harms the democratic order that would ideally give each of us an equal voice in group decisions.

We also provide incentives to these wealthy individuals to make more efficient tax use (some might say take advantage of) contributions they make to charitable organizations. When they then use those tax-subsidized dollars to wield greater power, we might be doubly troubled.

For instance, the Gates Foundation invested an enormous amount into changing the way we conduct education in the United States. Though there are many community activists around the country that have a great depth of knowledge in how to best arrange our educational institutions, their voices have been likely crowded out by the Gate's Foundation effort. Today, even Bill and Melinda Gates agree their effort did not have a good effect.

The interesting thing to me in the current potential pandemic we face is that even with all the resources of an institution like the Gate's Foundation, their resources are still puny compared to the need to fight a potential pandemic. They cannot close down a country's borders or support all the people who have to go without income as a result of the crisis.  They are puny in comparison to the worldwide need.

To fight such a gargantuan problem, we really need a coordinated governmental effort ideally along international lines. But we in the United States do not have that government capable of such an effort right now. So, in steps the Gates Foundation, with what I think has to be a good use of its dollars, providing the funds to develop a test for home use to end reliance on having to go to the doctor to both test (for containment) and keep people out of doctors’ offices and hospitals (to deal with overwhelmed health professionals). 

All the same, I can't help but think the existence of billionaire philanthropy (and perhaps a certain reliance upon billionaire philanthropy) may be a symptom/cause of our current malaise. This is not to say I don't think philanthropy has a role to play in this crisis. I clearly think it does. I hope to look at this question the rest of the week while I blog on Nonprofit Law Prof Blog.

Philip Hackney

 

 

Brody, Pause Play

Yesterday I got an email from Eveyln Brody (Professor Emeritus, Chicago-Kent). I'm sure everybody reading this knows what an important voice she has been in the world of nonprofit and tax law. But did you know that she's an amazing artist?

A year and a half ago or so, I went to see an exhibition of her pastels at the Leslie Wolf Gallery in Chicago. And now, for the next two months, she's back with a new show of seven of her large pastels entitled "Pause Play." The show will be at the NUPOC Gallery in downtown Chicago during all of March and April.

Evelyn's paintings capture apparently unremarkable moments in time--my favorite are when she paints people riding public transportation, but she also does amazing things with people in museums. And other things. Somehow, the moments she captures manage to be both perfectly ordinary and somehow transcendent.

If you're in Chicago during the next two months, I'd highly recommend checking out the second career of a tremendously talented law professor; maybe I'll see you there.

The exhibition is free and open to the public. It's located inn Suite 1100 at 680 N. Lake Shore Drive.  Public hours are 9:00-4:45, Monday-Friday.

Samuel D. Brunson

BSA and Bankruptcy

As I'm sure you've heard by now, on February 18, 2020, Boy Scouts of America filed a petition for Chapter 11 bankruptcy. 

This is a really big deal. BSA is one of the largest youth organizations in the country. It is not only a nonprofit and tax-exempt organization, but it (like the Girl Scouts, interestingly enough) is a federally-chartered organization.

Its bankruptcy was largely triggered by the risk of litigation over sexual abuse claims. It turns out that, while the national organization (the one that declared bankruptcy) has about $1.4 billion in assets, the local councils (that is, the entities that your sons--and sometimes daughters--join) hold a little more than twice that. In bankruptcy, the BSA is purportedly attempting not only to reorganize, but to shield local councils' assets from litigation claims.

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Mayer & Pohlman, What Is Caesar's, What Is God's: Fundamental Public Policy for Churches

Lloyd Hitoshi Mayer (Notre Dame) and Zachary B. Pohlman (JD Candidate, Notre Dame) have posted What Is Caesar's, What Is God's: Fundamental Public Policy for Churches. Before I post the abstract, just let me say: I saw this on Twitter about a week ago. While the topic has been addressed before, this is a pretty comprehensive look at at least one theory for exempting churches and what that theory has to say about the prohibition on churches endorsing or opposing candidates. I've written notes all over my copy. And here's the abstract:

Bob Jones University v. United States is both a highly debated Supreme Court decision and a rarely applied one. Its recognition of a contrary to fundamental public policy doctrine that could cause an otherwise tax-exempt organization to lose its favorable federal tax status remains highly controversial, although the Court has shown no inclination to revisit the case and Congress has shown no desire to change the underlying statutes to alter the case’s result. That lack of action may be in part because the IRS applies the decision in relatively rare and narrow circumstances.

The mention of the decision during oral argument in Obergefell v. Hodges raised the specter of more vigorous and broader application of the doctrine, however. It renewed debate about what public policies other than racial discrimination in education might qualify and fundamental and also whether and to what extent the doctrine should apply to churches, as opposed to the religious schools involved in the original case. The IRS has taken the position that churches are no different than any other tax-exempt organizations in this context, although it has only denied or revoked the tax-exempt status of a handful of churches based on this doctrine.

The emergence of the Bob Jones University decision in the Obergefell oral argument, along with developments over the past several decades both with respect to the legal status of churches and what arguably could be considered fundamental policy, render consideration of these issues particularly timely. This Article therefore explores whether there are emerging conflicts between a significant number of churches and what could be considered fundamental public policy, not only with respect to sexual orientation discrimination but also with respect to sex discrimination, sanctuary churches, and other areas. Finding that there are several current or likely future such conflicts, it then explores whether there are philosophical and legal grounds for treating churches differently from other tax-exempt organizations for purposes of applying the contrary to fundamental policy doctrine and the related illegality doctrine. Drawing on both the longstanding concept of “sphere sovereignty” and emerging work in the area of First Amendment institutions, the Article concludes that churches should not be subject to the former doctrine while still being subject to loss of their tax benefits if they engage in or encourage significant criminal illegal activity. The Article then concludes by applying this conclusion to the identified areas of current or likely future conflict to demonstrate how the IRS and the courts should apply the Bob Jones University decision to churches.

Samuel D. Brunson

 

Updates on the .Org Domain Sale

About a month ago, Lloyd Mayer blogged about the potential sale of of the .org domain to Ethos Capital, a private equity firm. As of Lloyd's post, ICANN had agreed to make a final decision by February 17.

February 17th has come and gone without a decision. It turns out that the sale of the .org domain to a private equity company has proven, well, controversial. Among other things, people are concerned that the cost of charities' website will skyrocket. These concerns have prompted the California Attorney General to intervene, requesting information about the proposed sale and ultimately delaying its consummation.. At the same time, Ethos has made a number of commitments to assuage the concerns that have prompted concern.

As we wait to see how this plays out, there's an underlying issue for those of us interested in the details of the transaction: technically, to acquire the .org domain, Ethos will purchase Public Interest Registry. Public Interest Registry is a section 501(c)(3) organization operated to maintain the .org domain registry. So can ISOC sell a section 501(c)(3) organization to a for-profit buyer?

Obviously not. But, as Benjamin Leff explains, they can structure the transaction in such a way that Public Interest Registry becomes a for-profit entity, as long as its charitable assets remain in charitable solution. And how can they do that? Ben lays it out in excellent--and accessible--detail here.  You should give it a look.

Image: Official Public Interest Registry Logo. CC BY-SA 4.0.

Samuel D. Brunson

Brunson, God Is My Roommate?

Happy March! To start my week here at the Nonprofit Law Prof Blog, I'm going to do some shameless self-promotion. I recently posted God Is My Roommate? Tax Exemptions for Parsonages Yesterday, Today, and (if Constitutional) Tomorrow to SSRN. I'll copy the abstract below, but a little non-abstract information first:

I wrote this in response to the Seventh Circuit's decision in Gaylor v. Mnuchin. In that case, the court held that section 107(2), which allows "ministers of the gospel" to receive a tax-free housing allowance, did not violate the Establishment Clause. It based its ruling on two tests: the Lemon test and, in the alternative, what it called the "historical significance test." The second of these tests, it said, essentially provides that if something was accepted at the time of the Framers and has continuously been accepted since, it doesn't violate the Establishment Clause.

The big problem? Well, the income tax hasn't been around nearly that long. The court held that the property tax exemption for parsonages had no substantive difference (n.b.: the two differ substantially, both substantively and constitutionally), and instead looked at that. Or, rather, looked at a caricature of the history of property tax exemptions for parsonages.

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