Nonprofit Law Prof Blog

Aprill, Standards for Charitable Disaster Relief In the Time of Pandemic

Ellen P. Aprill has posted Standards for Charitable Disaster Relief In the Time of Pandemic, The Exempt Organization Tax Review (2020). Here is the abstract:

This short piece explains how exempt organizations currently face uncertainty about the standards for determining need for disaster relief, particularly in the time of a crisis, such as the current pandemic. The available IRS guidance is not any official document published in the Internal Revenue Bulletin, but only a Publication 3833, “Disaster Relief: Providing Assistance through Charitable Organizations.” This IRS publication states that organization must make an individualized, specific determination of need before giving such assistance. This piece argues that the IRS should issue official guidance for the COVID-19 crisis, modeled on that given in connection with the September 11 terrorist attacks. After 9/11, the IRS issued a notice permitting charities to distribute funds so long as payments were made in good faith using objective standards. The IRS should do the same now. If it does not, Congress should act, as it also did after 9/11.

Samuel D. Brunson

Paleteros and Charitable Support

This morning, my wife read  the heartwarming story of a family that bought out a Chicago paletero's ice cream on Father's Day so that he could spend the day with his family. Rosaria Del Real immigrated to the U.S. in the 1960s from Zacatecas, Mexico, working various jobs until a couple weeks ago when he hurt himself and couldn't do carpentry anymore. At that point he started selling paletas to earn money.

The family that bought his paletas started a GoFundMe to help him retire; as of right now, it has raised a little over $62,500 for him. 

I said up front that this is a heartwarming story. And in a way it is. But it also strikes me as a deeply troubling indictment of our current system. As much as I love paletas, becoming a paletero shouldn't be a retirement plan, and GoFundMe shouldn't be our social safety net.

And they don't have to be. In the first instance, government can provide a social safety net. And charities can supplement (or administer) that safety net. This morning I also read this story about California's $75 million Disaster Relief Assistance for Immigrants.

While the state is providing the aid, it has engaged 12 nonprofit organizations throughout the state to process applications and distribute the money. That strikes me as an innovative and exciting partnership between the government and the nonprofit sector, one that is more sustainable and more systemically useful than relying on GoFundMe.

Samuel D. Brunson

Image: Michelle, Priscilla y el paletero, by Gabriel. CC BY 2.0.

IRS Offers settlements for Conservation Easements

The IRS just offered time limited settlements to those invested in conservation easements.

"The Internal Revenue Service Office of Chief Counsel announced today a time-limited settlement offer to certain taxpayers with pending docketed Tax Court cases involving syndicated conservation easement transactions. Taxpayers eligible for this offer will be notified by letter with the applicable terms.

The settlement offer would bring finality to these taxpayers with respect to the syndicated conservation easement issues in their docketed U.S. Tax Court cases. The settlement requires a concession of the income tax benefits claimed by the taxpayer and imposes penalties.

"The IRS will continue to actively identify, audit and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions," said IRS Commissioner Chuck Rettig. "These abusive transactions undermine the public's trust in private land conservation and defraud the government of revenue. Ending these abusive schemes remains a top priority for the IRS."

The IRS recognizes the important role of conservation easement deductions in incentivizing land preservation for future generations. However, abusive syndicated conservation easement transactions have been of concern to the IRS for several years. In Notice 2017-10, the IRS identified certain syndicated conservation easement transactions as tax avoidance transactions and provided that such transactions (and substantially similar transactions) are listed transactions for purposes of Treasury Regulation § 1.6011-4(b)(2) and §§ 6111 and 6112 of the Internal Revenue Code. Also, in 2019, the IRS added syndicated conservation easement transactions to its annual "Dirty Dozen" list of tax scams."

Philip Hackney

TEGE Council Submits Comments on section 512(a)(6) (UBIT Siloing)

The TEGE Council has submitted comments on the proposed UBIT siloing rules under section 512(a)(6).

"We are pleased to announce that on June 23, 2020, the TEGE Exempt Organizations Council submitted comments to the IRS and Treasury in response to proposed regulations under Section 512(a)(6), commonly known as the UBIT Silo regulations. The comments were 101 pages, with exhibits, and represent a herculean effort on the part of the group below to spot issues, identify potential solutions, propose examples, and collaborate, coordinate, draft, and edit—all within the short window of time to submit comments for official consideration. Thanks to the committee for the generous gift of time, thought, and leadership.  Thanks also to Alexander L. Reid (Regulatory Affairs Chair) and Chelsea Rubin for their leadership."

Here are some of the bottom line comments from the executive summary describing the 101 pages of comments:

"This section provides an outline of our recommendations, each of which is further explained below.

1. Taxpayers should be allowed to identify separate trades or businesses based on all applicable facts and circumstances, consistent with the other aspects of tax-exempt organization tax law. The NAICS codes should operate as a safe harbor for purposes of identifying separate trades or businesses.

2. Taxpayers should be permitted to change the identification of a trade or business (i.e. change the NAICS code assigned to its “silo”) within the first two years of operating a new trade or business regardless of the presence of any mistake in identifying the most appropriate NAICS code. There should be additional flexibility in revising the use of  DB1/ 114583248.3 3 NAICS codes that, due to further experience with the rules and accounting for the activities, become better defined over time.

3. Investment activity is not an unrelated trade or business and should not be treated as an unrelated trade or business subject to 512(a)(6).

4. If the IRS and Treasury treat investment activity as an unrelated trade or business, then we recommend the following to make the regulations more administrable and less burdensome:   a. Jettison the de minimis and control tests outlined in the proposed regulations for
purposes of determining when a partnership is an investment or an operating business and use applicable accounting standards instead.  b. ERISA-covered trusts should be permitted to aggregate all unrelated trade or business activities together, including UBTI arising from a partnership, because ERISA oversight rules ensure that such plans do not engage in a trade or business through partnership activity.
c. Investments managed by registered investment advisors should be treated as qualifying investment activities that may be aggregated together." 

There are 13 total executive summary points.

Philip Hackney

WaPo Article in the Style Section on DAFs

The Washington Post published an article on donor advised funds yesterday entitled Zombie philanthropy: The rich have stashed billions in donor-advised charities — but it’s not reaching those in need

It's honestly an interesting article though on some matters I had to scratch my head. For instance: "Known in the industry as DAFs (rhymes with calves) — and criticized by some insiders as “zombie philanthropy”.

To my experience, and I consider myself something of an insider to the industry from a regulatory and an observer point of view, I have never heard it pronounced to rhyme with calves -- calf maybe -- but not calves. Additionally, I have never heard it referred to as zombie philanthropy, and I am not sure that this is really apt. 

It raises the fact that fairly large resources that they estimate at $120 billion rest within DAF solution while charities themselves are hemorrhaging money and support, resulting in some significant animosity in the charitable world. 

The author a little strangely, but interestingly, discusses the thoughts of Norman Sugarman, who passed away long ago but was quite the exempt organization's attorney in his time. 

"To Norman Sugarman, a former IRS attorney in Cleveland, this created both concern and opportunity. Sugarman represented community foundations fearful the new law would scare off donors.

“For him, it was important that, no questions asked, these [community foundations] were public charities,” said Lila Corwin Berman, a history professor at Temple University who has written about Sugarman’s role in the popularization of DAFs. “He believed most social problems could be better solved by charity than government, and that individuals should have more control over what their wealth could do for society.”

After successfully convincing the IRS that community foundations deserved public charity status, Sugarman also won an important concession: “philanthropic funds,” an innovative way his clients raised money, would also have all the tax benefits of giving directly to a working charity."

For the particular moment we find ourselves in with a pandemic and a worldwide economic collapse resulting from that Pandemic, I thought the concluding paragraphs were the most interesting:

"When asked about the #HalfMyDaf challenge, Fidelity Charitable President Norley said she and her colleagues had been encouraging their clients to give more since the beginning of the crisis.

“I don’t think you need to set a percentage on this. If somebody wants to donate their entire DAF, that’s great,” she said.

A reporter then presented Norley with a hypothetical: If she learned tomorrow that all of Fidelity’s fund-holders had decided to spend at least half of their DAFs this year, causing her charity’s assets to plummet from more than $21 billion to about $10 billion, would she be happy or dismayed?

“I have no comment on that,” she said."

Philip Hackney

 

ABA Tax Section submits comments on 512(a)(6) UBIT Siloing

The ABA Tax section just submitted its comments on section 512(a)(6) colloquially known as the UBIT siloing provision.  From the comments:

"These Comments respond to Prop. Treas. Reg. § 1.512(a)(6) (“Proposed Regulations”) issued by the Department of Treasury (“Treasury”) and the Internal Revenue Service (the “Service”) under section 512(a)(6) of the Code.

These Comments supplement our comment letter dated June 21, 20182 (the “June 2018 Comments”) and our comment letter dated
December 4, 20183 (the “December 2018 Comments”). We submitted the June 2018 comments in response to the Second Quarter Update of the Treasury and IRS Priority Guidance Plan4 and the December 2018 comments in response to Notice 2018-67.5 Prior to the enactment of section 512(a)(6) as part of the 2017 tax act6 (the “Act”), exempt organizations were permitted to aggregate their losses and gains from all unrelated business activities in order to report and pay taxes on the net unrelated business taxable income (“UBTI”), if any. New section 512(a)(6), which has colloquially been referred to as the “silo” rule, requires, beginning for tax years starting in 2018, that “[i]n the case of any organization with more than 1 unrelated trade or business . . . unrelated business taxable income, including for purposes of determining any net operating loss deduction, shall be computed separately with respect to each such trade or business.”

In these Comments, we respond to issues addressed in the Proposed Regulations. We summarize our recommendations and comments below; we note that the more detailed discussions of many of the recommendations include examples."

IRS Announces Significant Compliance Project Looking at Private Foundations

Around the time I left the IRS Chief Counsel's Office in 2011, the IRS was engaged in a project to target high net worth families by looking at all aspects of their wealth. It lasted a little while and then fizzled out a few years later without much to show for itself. It seems the IRS is taking another cut at this issue. It recently announced that it will be conducting audits of over 1,000 private foundations connected to of course high net worth individuals.

Interestingly they are placing the audit effort in the hands of its Large Business and International division rather than in its Tax Exempt Government Entities division. 

From the article: "On June 18, at the New York University Tax Controversy Forum, LB&I Division Commissioner Douglas O’Donnell announced that as soon as the IRS reopens on July 15, the IRS will open several hundred new audits involving high-income individuals, and letters will go out through September. The audits will focus on high-income individuals who have a connection with at least one pass-through entity such as a partnership or S-Corporation, or a connection with a private foundation. The IRS is using data analytics and cooperation across divisions to make these audits as effective as possible. The announcement calls to mind the IRS “Wealth Squad,” a group of examiners focused on conducting audits of high income earners, but this time they will be coordinating across departments.

And speaking of private foundations, the IRS is working to increase those audits on their own as well. IRS Tax-Exempt and Government Entities Division commissioner Tamera Ripperda has identified over 1,000 cases of private foundations that are connected to high income or high net worth individuals. The IRS is particularly interested in auditing whether those private foundations have engaged in prohibited “self-dealing,” such as making loans to a disqualified person."

Philip Hackney

Ellen Aprill: Trump Donated His Salary To HHS. Is That Kosher?

Back in March I missed this article in HistPhil by Ellen Aprill related to her work looking at federal charities that I think would be of interest to our readers. It is entitled Trump Donated His Salary to HHS. Is that Kosher?

"On March 3, President Trump’s Press Secretary, Stephanie Grisham, announced on Twitter that, consistent with his commitment to donate his salary while in office, President Trump was giving his 2019 fourth quarter salary to the Department of Health and Human Services “to support efforts being undertaken to confront, contain, and combat #Coronavirus.” The announcement prompted questions about whether such an earmarked donation to a federal agency is possible. The answer in this case is yes, but getting to that answer requires several statutory steps and implicates a set of issues I just happened to have begun to research."

For taxpayers who itemize rather than take the standard deduction, section 170(c)(1) of the Internal Revenue Code permits a charitable contribution deduction for “a contribution or gift to or for the use of . . . the United States or the District of Columbia . . . if the contribution or gift is made for exclusively public purposes.” In general, gifts to the federal government must go to the general fund of the Treasury; agencies cannot augment Congressional appropriations. To that end, the miscellaneous receipts statute provides that “an official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury as soon as practicable without deduction for any charge or claim.” Governmental agencies, however, can be given specific statutory authority to accept and retain donations. It turns out that the Department of Health and Human Services is one of the federal agencies with statutory authority to accept gifts for its benefit “or for carrying out any of its functions.” Thus, Trump’s gift is kosher."

I also recommend HistPhil to our readers.

Philip Hackney

AALS Nonprofit & Philanthropy Law Call for papers

Hereby encouraging folks to submit papers they are working on on Nonprofit or Philanthropy law to be presented at the AALS 2021. 

CALL FOR PAPERS

AALS SECTION ON NONPROFIT AND PHILANTHROPY LAW

SESSION 2021 ANNUAL MEETING

JANUARY 5-9

San Francisco, CA

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 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. We are interested in all states of article development though more developed papers will be given a priority.

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

Due Date: Sunday, August 30, 2020

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 to [email protected] "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: Presenters are responsible for their own expenses associated with the conference. If you have any questions, please contact the chair Philip Hackney at [email protected].

By: Philip Hackney

Debates in Charity Law (Picton & Sigafoos, editors)

Hart Publishing has released Debates in Charity Law, edited by John Picton and Jennifer Sigafoos (both Liverpool). Here is the description:

Charitable organisations occupy a central place in society across much of the world, accounting for billions of pounds in revenue. As society changes, so does the law which regulates nonprofit organisations. From independent schools to foodbanks, they occupy a broad policy space. Not immune to scandals, sometimes nonprofits are in the news for all the wrong reasons and so, when they are in the public eye, regulators must respond to high profile cases.

In this book, a team of internationally recognised charity law experts offers a modern take on a fast-changing policy field. Through the concept of policy debates it moves the field forward, providing an important reference point for developing scholarship in charity law and policy. Each chapter explores a policy debate, setting out the fault-lines in play, and often offering proposals for reform.

Two important themes are explored in this edited collection. First, there is a policy tension in charity law between its largely conservative history and the need to keep up-to-date with social change. This pressure is felt acutely along key fault-lines, such as the extent to which a body of law which developed before the advent of legislated human rights is able to adapt to a rights-based world, and the extent to which independent schools – historically so closely linked with charity – might deserve their generous tax-breaks. The second theme explores the law from the perspective of a good-faith regulator, concerned to maximise the usefulness of charities. From the need to reform old organisations, to the need to ensure that charities enjoy the right amount of regulatory freedom in a world of payment-by-result contracts, the book critically charts the policy justifications for regulatory intervention, as well as the costs that such intervention might bring.

Debates in Charity Law will be of interest to both academic researchers and students of the non-profit sector, looking to understand the links between law, social change and regulation. It will also help and guide nonprofit employees and volunteers, showing how their sector is shaped and moulded by the law.

And here is the Table of Contents:

1. Fault Lines in Charity Law
John Picton and Jennifer Sigafoos
2. Independence and Accountability in the Charity Sector
Matthew Harding
3. Debating the Extent of Party/State Control Over Overseas Nonprofit Organisations: Charity Law Debates in China
Mark Sidel
4. Regulating Egoism in Perpetuity
John Picton
5. Deploying Communitarianism Bankruptcy Theory to Rescue Insolvent Charities and Maintain Charitable Purposes
John Tribe
6. When Should Charities be Allowed to Discriminate? The Case of Single-Sex Services and Transgender People
Jennifer Sigafoos
7. Regulating Charitable Activities through the Requirement for Charitable Purposes: Square Peg Meets Round Hole
Adam Parachin
8. Redefining the Regulatory Space? Th e First Forays of the Irish Charities Regulatory Authority
Oonagh B Breen
9. Independent Schools in Scotland: Should they be Charities?
Patrick Ford
10. Licking their Own Lollipops: What do Charities and the Public Think about the Regulation of Charitable Activities?
Eddy Hogg
11. Commissioning of Services by Charities in the Third Decade of the Contract Culture: Lessons Learned (or Not Yet)
Debra Morris
12. Regulating the Digital (Currency) Revolution: Unravelling the Technological Challenge Faced by Charities
Matthew Robert Shillito
13. Social Housing – Charities and Vulnerable Groups
Warren Barr
14. Charity Law and Policy: Looking Forward
Jennifer Sigafoos and John Picton

Lloyd Mayer

Crawford, Taxation as a Site of Memory: Exemptions, Universities, and the Legacy of Slavery

Bridget J. Crawford (Pace) has posted Taxation as a Site of Memory: Exemptions, Universities, and the Legacy of Slavery, SMU Law Review (forthcoming 2020). Here is the abstract:

Many universities around the United States are attempting to grapple with their direct and indirect involvement with the institution of slavery. Lolita Buckner Inniss’s book The Princeton Fugitive Slave: the Trials of James Collins Johnson (2019) enters directly into the conversation taking place on university campuses and nation-wide about what responsibilities institutions have to acknowledge their past and to create racially inclusive campuses in the twenty-first century. Because most universities are tax-exempt, it is important to understand that their activities are indirectly subsidized by local, state and federal governments. The lens of tax law facilitates better understanding of universities’ unique historic role in American economic activity as well as contemporary arguments about their obligations to workers and community constituents during the COVID-19 crisis.

Lloyd Mayer

Hackney, Political Justice and Tax Policy: The Social Welfare Organization Case

Fellow blogger Philip Hackney (Pittsburgh) has posted Political Justice and Tax Policy: The Social Welfare Organization Case, Texas A&M Law Review (forthcoming 2021). Here is the abstract:

In addition to valuing whether a tax policy is equitable, efficient, and administrable, I argue we should ask if a tax policy is politically just. Others have made a similar case for valuing political justice as democracy in implementing just tax policy. I join that call and highlight why it matters in one arena – tax exemption. I argue that politically just tax policy does the least harm to the democratic functioning of our government and may ideally enhance it. I argue that our right to an equal voice in collective decision making is the most fundamental value of political justice. To test this case, I evaluate our choice to exempt ‘social welfare organizations’ from the U.S. income tax. In addition to efficiency and equity, I also ask whether the policy is politically just in a democratic sense. I examine three models of democratic justice: liberal, republican, and deliberative. In making the democratic case I try to find commonalities among the three in order to further what an agreed upon notion of democratic justice might look like in the tax context. I contend that the notion of democratic justice must exist at the substantive level of Code. This Code level application demonstrates that the typical criteria of efficiency and fairness do not provide sufficient criteria to evaluate the justice of tax-exempt policy. There are likely significant other parts of income tax policy that need to be considered from the value of political justice as democracy as well.

Lloyd Mayer

mair, Social Entrepreneurship: Research as Disciplined Exploration

johanna mair (Stanford Hertie School of Governance) has posted Social Entrepreneurship: Research as Disciplined Exploration. Here is the abstract:

Social enterprises address social problem by means of markets. Over the last two decades they have become increasingly popular across geographies. During this time open contestation and ideological debates over the promise, intention and meaning of social entrepreneurship have dominated public discourse but also inhibited the development of a solid knowledge base on social enterprises as a form of organizing in the spectrum of private action for public purpose.

The dominant way of seeing social enterprises as pursuing dual – commercial and social – goals and as ideal sites to study the battle of logics confines our way of looking and limit the theorizing potential around social enterprise. In this chapter I advocate for disciplined exploration approach to study social enterprises to expose this potential. I draw from a collaborative research project involving 1,045 social enterprises across nine countries and show patterns and common features of social enterprises regarding their choice of legal form, their participation in the market for public purpose, their social footprint, and their role in changing local institutional arrangements. I argue that embracing rather than taming the diversity of social enterprises opens opportunities for developing new but more importantly for recasting, refining and connecting existing theories.

Lloyd Mayer

McMillan, Noncharitable Nonprofit Organizations and Tax Policy

Lori A. McMillan (Washburn) has published Noncharitable Nonprofit Organizations and Tax Policy: Working Toward a Public Benefit Theory in the Washburn Law Journal. Here is the introduction (without footnotes):

Noncharitable nonprofit organizations' in Canada enjoy virtually complete exemption from income taxation for almost all sources and types of income. Such an organization is exempt, regardless of whether its income is from an active or passive business, property, donations, or government funding. The organizational form likewise does not matter; a "club, society, or association" can avail itself of the provision, and the judicial interpretations of this phrase have recognized corporations as a type of association, such that there is almost no conceivable entity form that would be unable to take advantage of this provision. The problem is that there has been no assessment of this provision to ensure that it achieves certain goals, or provides a benefit to society that would justify its existence from either an economics or policy perspective. This provision must be examined against the backdrop of the costs to the government in having it, contrasted against the costs to society of not having it. This article will explore what the purpose of this exemption is, to enable a determination of whether it achieves its goal, and if not, what changes need to be made to reach its goal. Public support through tax exemption for the nonprofit sector as a whole, and the noncharitable subsector as a part, is not challenged per se in this article, but rather if support is to be given (as assumed), then the question arises if it is being done appropriately.

Lloyd Mayer

Ryznar, Extending the Charitable Deduction Beyond the COVID-19 Pandemic

Margaret Ryznar (Indiana) has published Extending the Charitable Deduction Beyond the COVID-19 Pandemic in Tax Notes Federal. Here is the abstract:

While the importance of the charitable deduction decreased in the 2017 tax reform, it has returned during the COVID-19 pandemic with the CARES Act. This Article lays out the reasons that the limited above-the-line charitable deduction authorized by Congress during the coronavirus pandemic should remain a permanent feature of U.S. tax law.

Lloyd Mayer

Spires, Regulation as Political Control: China's First Charity Law and Its Implications for Civil Society

Anthony J. Spires (University of Melbourne) has published Regulation as Political Control: China's First Charity Law and Its Implications for Civil Society in the Nonprofit and Voluntary Sector Quarterly. I missed this article when it first came out, but given the importance of its topic it is still worth highlighting. Here is the abstract:

With the passage of a nationwide Charity Law in March 2016, Chinese nongovernmental organizations (NGOs) entered a new and unprecedented era of legal regulation, one that dramatically transformed the formal rules governing state–civil society relations. This article highlights problems experienced under earlier regulations and outlines the major features of the new law. Drawing on multiple focus groups and interviews with grassroots NGOs around China, the article highlights gaps between NGO leaders’ understandings of their work and several of the law’s key provisions, revealing civil society’s skepticism and pessimism about prospects for change. It concludes by considering the law’s likely implications for civil society development in China and lessons for other authoritarian states, suggesting that regulation in such regimes should be seen more properly as a tool of political control.

Lloyd Mayer

Updating Previous Posts: .ORG Domain Sale, Florida Coalition Against Domestic Violence

There have been new developments in two matters previously covered in this space, specifically the proposed sale of the .ORG domain - virtual home to most nonprofit organizations - to a private equity firm and the ongoing controversy regarding the compensation paid to the CEO of the Florida Coalition Against Domestic Violence.

With respect to the .ORG domain sale, the California Attorney General issued a lengthy letter urging the Internet Corporation for Assigned Names and Numbers (ICAAN) to reject the sale by the Internet Society of the .ORG domain (technically, a "registry") to Ethos Capital, a private equity firm. In the wake of that letter and appeals from a number of prominent nonprofit organizations, including the Electronic Freedom Foundation and the National Council of Nonprofits, ICANN vetoed the $1.1 billion deal. Coverage: N.Y. Times, Reuters.

With respect to the Florida Coalition Against Domestic Violence, the Miami Herald reports that a state court judge ordered the dissolution of the nonprofit at the request of the Florida Attorney General and placed the organization's assets under the supervision of a bankruptcy expert. The dissolution came in the wake of the discovery that the nonprofit had paid its chief executive officer more than $7.5 million over three years as compensation. It is not clear whether the nonprofit's board knew about and approved the compensation, or simply allowed itself to remain ignorant of the financial arrangements with the CEO. State and federal investigations are continuing. The Tampa Bay Times also reports that the same receiver now has been given control by the courts over the assets of the separate foundation that existed to support the Coalition.

Lloyd Mayer

State Enforcement Efforts and Federal Charitable Contribution Cases

One helpful service that government agencies can provide is issuing reports summarizing their activities, saving researchers and practitioners the work of gathering such information piecemeal based on reviewing every pronouncement and ruling that is issued. Two recently issued summaries relating to nonprofit law are particularly helpful in this regard, one relating to state enforcement efforts and the other to federal charitable contribution deduction disputes.

First, the National Association of State Charity Officials (NASCO) has issued a report detailing the activities of state officials with respect to charities from January 2019 to March 2020. From the introduction:

The contents of this report are a representative sample of cases and other initiatives from January 2019 to March 2020 in the areas of: I. Deceptive Solicitation; II. Governance and Breach of Fiduciary Duties; III. Trust & Estate Issues; IV. Health Care; and V. Other, including Registration, Legislation, and Guidance. Descriptions were provided by the relevant state, and questions regarding particular cases should be directed to that state. Contact information for state regulators can be found at www.nasconet.org.

Second, the Office of Chief Counsel, Internal Revenue Service has released an internal memorandum (CCA 202020002) that summarizes the issues and holdings in 121 federal court decisions from 2012 through mid-April 2020 relating to the charitable contribution deduction under Internal Revenue Code Section 170.

Lloyd Mayer

The NCAA, Antitrust, and Paying Student-Athletes for Use of Names, Images, and Likenesses

There have been two recent major developments with respect to the NCAA and student-athletes.

First, the NCAA's Board of Governors announced that it supports "rule changes to allow student-athletes to receive compensation for third-party endorsements both related to and separate from athletics" and directed its divisions to begin developing such rules. This change in position is driven primarily by state and federal legislative efforts (see for example, this recently enacted California law)  to require the NCAA to permit such compensation. At the same time, the Board stated that any such rules must follow certain guidelines, specifically:

• Ensuring student-athletes are treated similarly to nonathlete students unless a compelling reason exists to differentiate. 
• Maintaining the priorities of education and the collegiate experience to provide opportunities for student-athlete success. 
• Ensuring rules are transparent, focused and enforceable, and facilitating fair and balanced competition. 
• Making clear the distinction between collegiate and professional opportunities. 
• Making clear that compensation for athletics performance or participation is impermissible. 
• Reaffirming that student-athletes are students first and not employees of the university. 
• Enhancing principles of diversity, inclusion and gender equity. 
• Protecting the recruiting environment and prohibiting inducements to select, remain at or transfer to a specific institution.

Second, the NCAA lost its appeal of a federal district court decision that enjoined the NCAA from enforcing its rules restricting the education-related benefits its members may offer students who play Football Bowl Subdivision football and Division 1 basketball. In In re NCAA Grant-in-Aid Cap Antitrust Litigation, the U.S. Court of Appeals for the Ninth Circuit held that the rules were unlawful restraints on trade under section 1 of the Sherman Act (15 U.S.C. section 1). This decision follows the NCAA's previous loss at the Ninth Circuit in O'Bannon v. NCAA, 802 F.3d 1049 (2015).

What exactly this developments will mean for student-athletes, college athletics, and the NCAA remains to be seen. For more coverage, see Marc Edelman at Forbes, Politico, Sports Illustrated, and The Wall Street Journal.

Lloyd Mayer

IRS Update: Executive Compensation Tax Proposed Regs, Donor Disclosure Final Regs, Silos & NOLs FAQs, and Group Exemptions

A combination of end-of-term responsibilities and coronavirus fatigue have led to slow blogging recently, so here is the first in a series of updates to catch us up.

First is the Internal Revenue Service, which over the past month or so has been relatively productive even given remote working and COVID-19 related responsibilities:

• IRC 4960 (Tax on Excess Tax-Exempt Organization Executive Compensation) Proposed Regulations: Earlier this month the Service issued much-anticipated proposed regulations relating to this new tax. enacted by Congress in 2017. For the most part the regulations are consistent with earlier Notice 2019-19 that provided interim guidance for this section. This includes with respect to the tax not reaching many government-related entities, including most notably public universities and colleges, as Ellen Aprill has detailed. The most significant aspect of the proposed regulations is that they create a couple of exceptions to help related taxable organizations avoid being subject to the tax if their employees provide limited services to a covered tax-exempt organization but without any compensation being paid, directly or indirectly, by the tax-exempt organization. For more coverage, see The National Law Review  and the numerous accounting and law firm summaries that can be found through a Google search.

• IRC 6033 Donor Disclosure Final Regulations: To probably no one's surprise, late last month the IRS issued final regulations relating to disclosure to the IRS of donor identifying information on Schedule B to the Form 990 & 990-EZ with no substantive changes from the proposed regulations. While the regulations address a variety of disclosure issues, the most (only) controversial issue was the elimination of the requirement that tax-exempt organizations other than 501(c)(3) and 527 entities report the names and addresses of their substantial donors to the IRS. For more coverage, see The Hill, The National Law Review, and The NonProfit Times.

• IRC 512(a)(6) Silos and Net Operating Losses FAQs: The CARES Act provision that temporarily allows the carrying back of net operating losses (NOLs) to earlier tax years raised a question for tax-exempt organizations with NOLs from their unrelated business activities - how does this provision interact with the siloing requirement of Section 512(a)(6), which going forward limits the use of NOLs generated in one unrelated business silo to future taxable income generated in that silo? The IRS has now answered the question in a series of FAQs: carried back NOLs can be applied against aggregate unrelated business taxable income (UBTI) in taxable years beginning before January 1, 2018, but for later years can only be applied against UBTI from the same silo that generated the NOL.

• Group Exemptions Proposed Revenue Procedure: In Notice 2020-36, the IRS provided a proposed revenue procedure that would modify and supersede Revenue Procedure 80-27 (as modified by Revenue Procedure 96-40 with respect to where group annual reports should be filed). The new revenue procedure is intended to be a comprehensive resource for the more than 440,000 organizations currently subject to the more than 4,000 outstanding group exemption letters, as well as future central and subordinate organizations. It reflects recent statutory changes, specifically the automatic revocation requirement for failure to file required annual returns and the section 501(c)(4) organization notice requirement. It also adds a number of new requirements, including that a new group exemption letter will be issued only if there are a least five subordinate organizations and will be maintained only if there is at least one subordinate organization, that subordinate organizations must both all be under the same 501(c) paragraph (which can be different from the central organization's classification) and if 501(c)(3)s must all be public charities, not private foundations, and that subordinate organizations must have both the same or similar purposes and a uniform governing instrument. Some of these requirements will not apply to existing subordinate organizations, but will apply to any future ones (including under existing group exemption letters). Comments are due by August 16, 2020.

Lloyd Mayer