Nonprofit Law Prof Blog

White House Announces New Religions Affairs Leaders, Including First Islamic Religious Freedom Ambassador

The White House announced Friday (July 30) a slate of nominations and appointments for top religious affairs roles, including the first Muslim American nominated to be the U.S. Ambassador-at-Large for International Religious Freedom.

According to a report by the Religious News Service (RNS), President Biden will select Rashad Hussain as his nominee for that post, filling a State Department slot vacant since former Kansas governor and U.S. Senator Sam Brownback left at the close of the Trump administration. Hussain, who would need to be confirmed by the Senate, currently works as director for Partnerships and Global Engagement at the National Security Council.

Mr. Hussain previously served as White House counsel under President Barack Obama, as well as U.S. special envoy to the Organization of Islamic Cooperation and U.S. special envoy for the Center for Strategic Counterterrorism Communications, among other roles.

Commenting on the upcoming nomination, Saeed Khan, an expert on American Muslim communities at Wayne State University, stated: “Rashad’s appointment demonstrates not only the importance the Biden administration places on religious freedom, it also shows the importance of the Muslim world to the administration both in terms of combatting Islamophobia and also promoting religious freedom in Muslim majority countries. Rashad’s background will allow him to have a frank discussion with Muslim majority countries about religious freedom.”

Anila Ali, a co-founder of the American Muslims and Multifaith Women’s Empowerment Council Iftar who has worked with Hussain in the past, also celebrated his nomination. “As AMMWEC, and as a woman leader, I look forward to working with him because women play an important role in peace-making,” Ali said. “He has worked with Muslim communities during the Obama period and we hope his relevant experience is going to make him a voice for all of us.”

According to the RNS report, President Biden is also expected to nominate Deborah Lipstadt as the next U.S. special envoy to monitor and combat antisemitism. Lipstadt is a professor at Emory University in Atlanta and a prominent Holocaust historian. She is the author of Antisemitism: Here and Now and is known for successfully defeating a libel suit brought against her by Holocaust denier David Irving.

Commenting on the expected nomination of Prof. Lipstadt, Mark (Moishe) Bane, president of the Orthodox Union, had this to say:  “She is a leader with great moral courage; her dedicated work, clear voice in fighting Holocaust denial and preserving the memory of the attempted destruction of the Jewish people make her an exemplary choice for this role.”

In addition, President Biden plans to appoint two new commissioners to the United States Commission on International Religious Freedom: Khizr Khan and Rabbi Sharon Kleinbaum. 

Khan became famous in 2016 when he and his wife, Ghazala, spoke during the Democratic National Convention as “Gold Star” parents, discussing their son, Humayun, a U.S. Army captain who died in Iraq in 2004. Mr. Khan, the founder of the Constitution Literacy and National Unity Project, runs his own law practice and has authored three books, including This is Our Constitution: Discover America with a Gold Star Father.

Kleinbaum, for her part, already served as a USCIRF commissioner in 2020 and leads the Congregation Beit Simchat Torah in New York City, a community that centers LGBTQ people. A human rights advocate, she also sits on Mayor de Blasio’s Faith Based Advisory Council and serves on New York City’s Commission on Human Rights. In addition, she is a board member of the New York Jewish Agenda and the New Israel Fund.

Prof. Vaughn E. James, Texas Tech University School of Law

Kalamazoo Foundation for Excellence Receives $400 Million Gift

As we enter the weekend, here is some news that makes the heart glad:

The City of Kalamazoo, Michigan, has announced a $400 million endowment gift to the Kalamazoo Foundation for Excellence (FFE) from longtime residents who wish to remain anonymous.

Created in 2017 by the city commission to stabilize the city's budget, lower property taxes, and address poverty, the foundation aimed to raise a total of $500 million by 2019. The new commitment, to be funded over a ten-year period, will establish a $500 million endowment and enable the city to balance its budget, maintain the 2017 property tax decrease for home and business owners, and support projects that address intergenerational poverty, economic development, parks improvements, youth development, affordable housing, and neighborhood infrastructure.

Speaking upon the announcement of commitment, Kalamazoo city manager and FFE co-founder and board president, Jim Ritsema, stated:  "This remarkable gift is like none other. This is to our knowledge the largest gift in history to support a municipality."

"It is my hope," said Kalamazoo mayor, David Anderson, "that FFE can serve as a model to transform how we live together in community in a way that gives all of us more hope for the future."

FFE was launched with an initial donation of $70.3 million from William Johnston, head of the Greenleaf Cos., and William Parfet, retired chairman and CEO of MPI Research Co. The foundation has since received gifts including $57 million and $28.2 million from the Stryker Johnston Foundation. To date, the foundation has invested more than $120 million in support of efforts to address needs and projects identified by residents.

Prof. Vaughn E. James, Texas Tech University School of Law 

Study: Household Charitable Giving Continues to Plunge

The Giving Environment: Understanding Prepandemic Trends in Charitable Giving, a new study by the Indiana University Lilly Family School of Philanthropy at IUPUI, examines giving patterns across the past two decades from five nationally representative studies and concludes that giving to charity by U.S. households has been on the decline not only since the Great Recession but since the turn of the century: One out of two American households donated to charity in 2018 compared with two out of three in 2000.

The report, based on research funded by the Bill & Melinda Gates Foundation, noted that 66.2% of American households gave charitable contributions in 2000, a figure that dropped by 17% to 49.6% in 2018, the latest year for which data is available. It is the first time that giving has dipped below 50% of U.S. households since the studies began tracking this information. 

It is also the first time since the Philanthropy Panel Study (PPS) began tracking the share of American households that donated to charity in a given year that the participation rate dropped to half.

Commenting on the study's conclusions, Una Osili, Ph.D., associate dean for research and international programs at the Lilly School, stated, “The new research offers clear evidence of a substantial decline in formal charitable giving rates prior to the unprecedented challenges of 2020.” With an eye on crowdfunding and impact investing as additional means of charitable giving, Dr. Osili further stated, “It’s also important to acknowledge the many additional ways individuals are participating in philanthropy today.”

According to a report in the NonProfitTimes which analyzed the study:

Data is not yet available to show whether the decline in participation continued in 2020. The study analyzed the latest data from the PPS, a module of the University of Michigan’s Panel Study of Income Dynamics. The study follows more than 9,000 households over time and provides the most comprehensive data available on giving trends by U.S. households.

Giving participation rates decreased for members of all racial and ethnic groups studied between 2000 and 2019. While giving to religious groups began its decline before the Great Recession in 2008-09 — 46% between 2000 and 2004 to 29% in 2018 — giving to secular causes didn’t begin to dip until after the economic downturn of 2008-09. In 2008, about 57% of households donated to secular causes, down to 52% in 2010, and a low of 42% by 2018. The decline in average amount donated to religious causes ($1,107 in 2000 to $771 in 2018) has outpaced the decline in average amount given to secular causes ($684 in 2000 to $509 in 2018).

The Times continues:

The largest drops in giving participation were found among Hispanic households, from 44% in 2000 to 25.5% in 2018, about 18.5%. During the same period, giving by Black households declined from almost 49% to less than 33% (16%) while participation by White households dropped from 71% to 58% (13%).

About one-third of the decrease in participation from 2000-16 can be directly attributed to shifts in income, wealth, and homeownership, according to the report’s authors, suggesting that factors like interpersonal trust, empathy and compassion, among others, also may play a role.

The General Social Survey (GSS), which includes questions about interpersonal trust, was another study examined for the report. It indicated that trust and giving participation rates declined simultaneously between 2002 and 2014:

The drop was more severe among Americans 30 and younger than among those older than 30. Younger Americans in 2002 reported giving participation of 84.5% with a 24.7% trust rate, compared with 78.9% and 18.6%, respectively, in 2014. Although the correlation does not mean that the decline in trust helped cause the decline in giving participation, it suggests there may be a relationship, according to researchers.

Now, that is something to think about.

Prof. Vaughn E. James, Texas Tech University School of Law

 

 

More Recent Articles of Interest

A couple more recent papers of note in the nonprofit sphere:

Andrew Hayashi & Justin Hopkins

The Charitable Tax Deduction and Civic Engagement

In an era characterized by inequalities of income and influence, political polarization, and the segregation of social spaces, the income tax deduction for charitable contributions would appear to abet some of our worst social ills because it allows wealthy individuals to steer public funds to their preferred charities. But we argue that now is the time to expand and refocus—not abolish—the tax subsidy for charitable giving. Previous assessments of the charitable deduction have focused on how it helps charities but ignored an essential benefit of giving: its effect on the donor. We show that the charitable deduction increases volunteerism along with financial giving, and we report new evidence that volunteerism is associated with broader civic and political engagement, including engagement with people of different cultures, races, and ethnicities. Since people tend to undervalue the social and relational goods that flow from civic participation, the charitable deduction is a helpful corrective. We also report evidence that civic engagement is unequally distributed and propose a new refundable tax credit that turns low- and middleincome households from clients of charities to donors, which can both empower them and help remedy inequalities in civic and political participation.

Daniel Figueroa

Economic Opportunity & Resilience: Opportunity Zones & Equity

The Tax Cuts and Jobs Act provided the most comprehensive update to the tax code in two decades. Born of it was the federal opportunity zone legislation that facilitates economic development in historically distressed areas by offering tax incentives. But does this “catalyst of economic growth” provide the needed relief and opportunity to the communities which it’s aimed to serve? This piece is an analysis of opportunity zones—the good, the bad, and the yet to be defined and their effect on actually curbing (or accelerating) gentrification. By considering the TCJA in general, this work evaluates stipulations regarding “Opportunity Zones,” and the concept of geographically-targeted tax policy. First, an analogization of supply-side tax policy and place-based incentivization programs; following the analysis of supply-side economics and its influence on a rising inequality; and a two-fold assessment of the factors most germane to this analysis: a historical overview of the ideological, legislative, and social factors most pivotal to the passage of TCJA, reforms are shown to have culminated not only in sky-high levels of wealth and income inequality in the U.S., but also an increasing distance and isolation between the wealthy ‘investor class’ targeted by ‘Opportunity Zone’ legislation, and the economically-distressed communities which such tax-based legislative incentives were designed to bring relief. Notably, this work will consider the impact of such legislation upon poor areas, both in terms of the apparent impact it has had upon local development and with respect to the phenomenon known as gentrification. After examining the shortfalls of the legislation, this paper offers recommendations on a robust, comprehensive response toward equitable growth for the communities intended to be served.

Philip Hackney

 

SCOTUS NCAA v Alston And Its Potential Impact on Tax Exemption

Thought I'd provide some quick reflections on the NCAA v. Alston a SCOTUS case handed down a month ago on June 21. 

First a personal reflection. When I joined the IRS in the mid 2000s, I was told only somewhat in jest: there are two iron clad rules in exempt organizations -- preachers and college athletics ("hook em horns") always win. This latest case suggests that this iron clad rule may be beginning to subside in part at least.

Justice Gorsuch, writing for a unanimous Court affirmed the US 9th Circuit Court of Appeals in finding that the NCAA rules restricting educational benefits offered by colleges and universities to student athletes violated the Sherman Antitrust Act.

The Court affirmed the 9th Circuit that found that the NCAA limits on educational compensation violated the Antitrust Act only insofar as they involved educational benefits rather than other forms of compensation.

Probably the most significant aspect of the case that may have impact on other places for the NCAA and college athletics is that SCOTUS rejected the idea that the NCAA ought be treated differently because it deals with amateurs and is engaged in education rather than commercial activity.

This case does not change anything for how to think about universities and college athletics qualifying as charitable organizations under section 501(c)(3). John Colombo wrote an article The NCAA, Tax Exemption and College Athletics that is still relevant to this question today.

First, I would not expect this decision to effect college athletics entities like the NCAA or the university athletic activities to be found to be not charitable. This is because Congress amended the Code to provide that promoting amateur athletics is a purpose that meets the charitable requirement of section 501(c)(3). Perhaps, if universities start paying athletes and their amateurism is called into question, this would become an issue, but as of now, I do not see it threatening college athletics on the tax exemption angle.

Secondly, this ruling does not immediately impact the unrelated business income tax and college athletics either. The IRS and Courts have generally been favorable to college athletics. Just as Colombo concluded in his article some years ago, I think it still unlikely for that favorability to end because of the Alston holding.

However, as in the first matter, should the veneer of amateur begin to fall, and college athletics begin to compensate athletes, then the question of unrelated business income tax could become a real issue again for college athletics. The most dangerous possibility for college athletics and its expected tax treatment at least was raised in a concurrence by Justice Kavanaugh who suggested he would find the limitations on all forms of compensation to violate the Antitrust Act.

Philip Hackney

Recent Articles of Interest

Here are a few recent articles or writings of interest to the nonprofit world.

Ellen Aprill, Americans for Prosperity and the Future of Schedule B,  Letter to the Editor in Tax Notes

"Before the July 1 decision of the Supreme Court in Americans for Prosperity,¹ the California Attorney General had for a number of years required all section 501(c)(3) organizations operating in the state to file with it a full copy of its federal Form 990, the annual information return for exempt organizations. The required filing included an unredacted Schedule B, listing the donations, with names and addresses, of substantial contributors. The Supreme Court held California’s requirement to be facially unconstitutional. The Court determined that the California requirement failed an exacting scrutiny standard of review under which, to avoid violating the First Amendment, any compelled disclosure to government must be “narrowly tailored” to an asserted and substantial government interest. The Court concluded that California’s asserted need for an unredacted Schedule B in order to investigate fraud did not meet this standard."

Jennifer Bird-Pollan, Taxing the Ivory Tower, Pepperdine Law Review

The Tax Cuts and Jobs Act of 2017 introduced the first ever excise tax imposed on the investment income of university endowments. While it is a relatively small tax, this new law is a first step towards the exploration of taxing non-profit entities on the vast sums of wealth they hold in their endowments. In this Essay I take the new tax as a starting place for investigating the justification for tax exemption for universities and thinking through the consequences of changing our approach, both in the form of the new excise tax and possible alternatives. There remain reasons to be skeptical both about the design of the current tax and its ability to withstand the political efforts of the powerful set of universities who will be subject to it. Nonetheless, this new tax opens the door to a discussion of whether it is time to treat universities’ endowments more like the private equity funds they increasingly resemble.

Beckett Cantley, Ground Zero: The IRS Attack on Syndicated Conservation Easements, William & Mary Law & Policy Review

On June 25, 2020, the Internal Revenue Service (“IRS”) announced a settlement initiative (“SI”) to certain taxpayers with pending docketed cases involving syndicated conservation easement (“SCE”) transactions. The SI is the current culmination of a long series of attacks by the IRS against SCE transactions. The IRS has recently found success in the Tax Court against SCEs, but the agency’s overall legal position may be over- stated. It is possible that the recent SI is merely an attempt to capitalize on leverage while the IRS has it. Regardless, the current state of the law surrounding SCEs is murky at best. Whether a taxpayer is contemplating the settlement offer, is currently involved in an unaudited SCE trans- action, or is considering involvement in an SCE transaction in the future, the road ahead is foggy and potentially treacherous.

This Article attempts to shed light on the obstacles that face SCE transactions. This Article: (1) provides an overview of SCE transactions and the main attacks against them; (2) analyzes each of the IRS’s main attacks and the relevant issues that arise; (3) illustrates the relevant pro-taxpayer and anti-taxpayer cases on each issue; (4) discusses the subsequent considerations that taxpayers need to take into account and the future outlook of SCE; and (5) concludes with a summary of the Article’s findings.

J. Haskell Murray, The History and Hope of Social Enterprise Forms, Tennessee Journal of Business Law

This Article sketches the history of social enterprise legal forms in the United States and provides suggestions regarding their continued evolution. Social enterprises—companies that blend profit and social purpose—have a long history in the United States, but not until 2008 did a state pass a social enterprise specific statute. In that year, Vermont passed a statute allowing for formation of L3Cs, low-profit limited liability companies. The L3C was aimed primarily at funding issues for social enterprises and attempted to unlock program related investments (PRIs) for that purpose. Following the L3C form were a number of variations on a corporation-based social enterprise: social purpose corporations, benefit corporations, and public benefit corporations. These forms evolved over the past decade to address the issues of corporate purpose and social accountability. Lastly, a small handful of states passed benefit limited liability company (BLLC) statutes for companies that desired a form similar to the benefit corporation but built on an LLC framework.

 

Philip Hackney

 

2021 Outstanding Nonprofit Academic Award Recipient: Professor Priya Baskaran (American University)

I have been slow in getting to this, but last month the Nonprofit Organizations Committee of the ABA Business Law Section announced its 2021 Outstanding Nonprofit Lawyer Award recipients. While most of the recipients are practicing lawyers, each year the Committee awards an Outstanding Academic Award, This year's award went to Assistant Professor Priya Baskaran at American University's Washington College of Law. Here is her bio from the award announcement:

Priya Baskaran is an Assistant Professor of Law and Director of the Entrepreneurship Law Clinic (ELC) at American University Washington College of Law. Professor Baskaran is the founder and current director of the ELC, which provides free transactional legal services to organizations dedicated to economic justice and revitalization in greater Washington, D.C. Prior to joining the faculty at American University Washington College of Law, Professor Baskaran was an Associate Professor at West Virginia University College of Law where she taught in the Business Law curriculum and served as the Director of the Entrepreneurship & Innovation Law Clinic (EILC). Professor Baskaran has dedicated her teaching career to furthering economic justice in both urban and rural communities through transactional law. In West Virginia, she launched a novel program to address access to justice barriers faced by nonprofits and community organizations. Professor Baskaran partnered with Legal Aid of West Virginia to train transactional pro-bono attorneys and expand legal services across the state. As part of this collaboration Professor Baskaran provided ongoing training for Legal Aid attorneys on nonprofit organizations and relevant tax regulations. She also served as co-counsel for cases, assisting Legal Aid attorneys in more complex representations. In addition to her work with rural communities, Professor Baskaran also taught in the Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center where she was a Visiting Professor and Supervising Attorney. Professor Baskaran previously worked as a Staff Attorney for the Community and Economic Development Clinic at the University of Michigan Law School, where she provided transactional legal services to community-based organizations, non-profits, and small businesses in the City of Detroit.

Professor Baskaran’s publication and advocacy record reflects her passion for pursuing economic justice through transactional lawyering. She has written extensively on using transactional law and social enterprise to further economic justice. She has also worked closely with nonprofit organizations advocating for economic enfranchisement of returning citizens, including testifying before the West Virginia State Advisory Committee for the U.S. Commission on Civil Rights. As a teacher, Professor Baskaran encourages her students to embrace opportunities to facilitate change and support the public interest through transactional lawyering. She reminds students that such opportunities are not just limited to public interest careers, but through meaningful pro-bono engagements available to all attorneys—including those in traditional corporate practice.

Professor Baskaran is a graduate of New York University and the University of Michigan Law School.

Lloyd Mayer

Accelerating Charitable Efforts Act, a Michigan DAFs Study, and DAF-Critical Media Pieces

The past month has seen a number of significant developments relating to donor advised funds, including the introduction of the Accelerating Charitable Efforts Act ("ACE Act") in Congress, a study of Michigan community foundation DAFs, and media criticism of various uses of DAFs.

Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) announced the introduction of the ACE Act in early June. The legislation aligned with the priorities and some of the proposals by the Initiative to Accelerate Charitable Giving. Some organizations quickly expressed strong opposition, including the Council on Foundations and the Philanthropy Roundtable. Others reserved judgment, awaiting further study and input from their members, including Independent Sector and the United Philanthropy Forum, although they joined a letter from some critics expressing concerns about the Act. Coverage: Devex; MarketWatch.

Also last month, the Council of Michigan Foundations released a study titled "Analysis of Donor Advised Funds from a Community Foundation Perspective." Here are its Key Findings:

• DAFs compose a considerably smaller percentage of endowments of Michigan community foundations compared to community foundations nationwide. The median community foundation in the United States holds roughly one in four dollars of its endowment on behalf of a DAF — compared to one in ten for Michigan’s community foundations.

• The median Michigan DAF experienced investment returns consistent with the median Michigan community foundation. DAF gains were slightly higher, and losses slightly greater, than the median community foundation’s results — suggesting that the median DAF accepts more risk with the opportunity for higher return.

• The median payout rate of all Michigan DAFs during 2017–2020 is 2% lower than the median Michigan private or community foundation. However, when only including DAFs that made a payout during a given year, the median DAF payout rate moves to 2% or more higher than the median private or community foundation payout rate.

• In any given year included in this study (2017–2020): 
  • One in ten Michigan DAFs received inbound contributions but made no outbound distributions (grants).
  • More Michigan DAFs made a distribution (more than 60%) than received an inbound contribution (roughly 40%).
  • Although an average of one in four Michigan DAFs was quiet (inactive) in any single year, across the four study years less than 10% of all Michigan DAFs were quiet in every year. These quiet DAFs hold less than 5% of total DAF assets in the state.
  • DAFs that were active in every year 2017 through 2020 — with a contribution, distribution, or both — comprised the majority of Michigan’s DAFs (59%), received nearly all of the contributions (96%), made nearly all of the distributions (88%), and held nearly all of the assets (82%).

• In 2020 (the most recent year available), just under half (43%) of Michigan’s DAFs paid out 5% or more of their balance, and almost a third (32%) paid out 9% or more.

• Looking at the type of DAF:
  • Michigan’s DAFs are nearly evenly divided in both number and total assets between endowed and spendable DAFs, with endowed DAFs holding just over 50% of all assets. However, spendable DAFs comprise nearly three-quarters of all contributions and distributions.
  • One-quarter of Michigan’s spendable DAFs distribute nearly half of their balance in any given year, and one in every ten spendable DAFs distributes almost all of the available balance (80% or more) in any given year. 

• Out of the approximately 2,600 DAFs housed at Michigan’s community foundations, only 2% were established by a private foundation. Balances, contributions, and distributions were also all in single digit percentages. Therefore, private foundation-established DAFs are rare within Michigan’s DAF universe.

• There is evidence that DAFs responded to the crises in 2020.
  • Two-thirds of all DAFs made distributions in both 2019 and 2020, with just over one-third (35%) increasing both the dollars distributed and the payout rate in 2020 compared to 2019.
  • Nearly one in five distributed dollars in 2020 came from DAFs that made no distributions during 2019.
  • The median distribution from a Michigan DAF rose from $8,500 in 2019 to $9,750 in 2020.

Finally, there have been several news stories and opinion pieces including criticism of DAFs. These included a N.Y. Times story "How Long Should It Take to Give Away Millions?",  an L.A. Times  editorial "Charitable donations are a form of influence-peddling. And they should be stopped" (use of DAFs to avoid California's legally required public disclosure of the sources for donations requested by politicians), and  a Daily Beast story "Christian Billionaires Are Funding a Push to Kill the Equality Act" (focusing on donations from the DAF sponsor National Christian Charitable Foundation).

Lloyd Mayer

New IRS Exempt Organizations Data for 2020

The IRS recently released two sets of statistical information about exempt organizations, in the most recent edition of the IRS Data Book and in spreadsheets from the Statistics of of Income program.

The recently released 2020 IRS Data Book (for the fiscal year ending 9/30/20) contains the usual high-level statistics for exempt organizations, including:

• Number of tax-exempt organizations and certain trusts (1,907,711) (Table 14), with most (1,753,824) tax-exempt organizations under section 501(c), including 1,404,170 under section 501(c)(3).

• Applications for tax-exempt status closed (95,864) (Table 12), with 85,509 approved, 94 disapproved, and 10,261 resolved in other ways (withdrawn, lacked required information, otherwise incomplete applications, etc.). Most (89,477) of the applications were under section 501(c)(3).

• Notices of intent to operate under section 501(c)(4) (3,219) (Table 13), with 2,796 acknowledged and 423 rejected (because, for example, not required as the organization filed a Form 990 series return before 7/8/16, already exempt under another IRC provision, or the IRS was unable to confirm the submitted employer identification number).

• Number of returns and other forms filed by tax-exempt organizations (1,360,719) (Table 2), down from fiscal year 2019 as were returns and other forms filed by most other types of entities, which likely reflects delayed processing of returns and other forms caused by the pandemic. Of the returns and other forms filed by tax-exempt organizations, 1,138,931 were filed electronically (Table 4).

• Examinations of tax-exempt organizations (Table 21), including
  • 1,417 Forms 990, 990-EZ, and 990-N;
  • 178 Forms 990-PF, 1041-A, 1120-POL, and 5227;
  • 427 Forms 990-T; and
  • 356 Forms 4720.

In addition, the Statistics of Income program recently released its Annual Extract of Tax-Exempt Organization Data for calendar year 2020, drawn from Form 990, Form 990-EZ, and Form 990-PF. It provides granular data from these returns; for example, the Form 990 extract has 273,972 rows (one for each employer identification number) and 220 columns.

Lloyd 

Boy Scouts File Fourth Plan Amended Chapter 11 Plan

Last week the Boy Scouts of America filed their fourth amended Chapter 11 plan. The PDF of their filing is almost 500 pages and, since I am not a bankruptcy person, I'm not going to go through all of it.

But the AP has a story raising some highlights of the filing. It looks like the big resolutions are that local councils have agreed to contribute $600 million to a fund for victims, which doubles their previous offer, in exchange for release from liability.

There are still some sticking points but, according to the AP, those sticking points are largely between the victims of sexual abuse and the Boy Scouts's insurers.

As I've said before, given both the size of the Boy Scouts and the size of the potential settlement, this is one of the biggest nonprofit stories in a long time. It's worth continuing to keep an eye on.

Samuel D. Brunson

Mayer: Justices Open The Door Wider For Donor Info Law Challenges

I have written a detailed analysis of last week's Supreme Court donor disclosure decision, Americans for Prosperity Foundation v. Bonta. It is available at Law360. Here are the first several paragraphs:

On July 1, the U.S. Supreme Court issued its opinion in Americans for Prosperity Foundation v. Bonta, striking down as unconstitutional California's requirement that charities registered in that state submit Schedule B to Form 990/990-EZ/990-PF, the federal tax schedule with identifying information for major donors, to the state on a confidential basis.

The decision not only prevents California from requiring all charities registered in that state to provide this information but also has implications for other donor disclosure requirements. Such requirements include ones imposed by a handful of other states as part of their regulation of charities, the federal tax law requirement that charities exempt under Internal Revenue Code Section 501(c)(3) and political organizations exempt under Section 527 disclose their donors to the Internal Revenue Service and, for private foundations and political organizations, also to the public, and federal and state donor disclosure laws relating to elections.

My read of the opinion is that it contains two significant holdings that will both encourage future constitutional challenges to these requirements and give those challenges a better chance of succeeding than they had under prior rulings.

Lloyd Mayer

Winner-Take-All Philanthropy

About two weeks ago, I read a New York Times article about the latest round of MacKenzie Scott's philanthropy. The article caught my eye for two reasons: first, a $2.7 billion round of donations is massive. And second, a lot of the money was going to arts organizations (and, as the article noted, dance organizations).

At this point, I kind of have a long history of attending dance performances. I'd been to very few before I moved to New York and met my now-wife. I'm more of a music person, personally, but my wife is a dancer and a dance teacher. So I'm familiar with several of the names on this latest round of funding.

And what was interesting to me was the framing. The donations were framed as being made to "organizations[] which are themselves historically underfunded." Which is hugely laudable and maybe not entirely accurate. Two names especially caught my eye: Alvin Ailey ($20 million) and Jazz at Lincoln Center (some amount that I can't find online in a quick search).

Continue reading

David Geffen, Yale, and Naming Rights

One June 30, Yale announced that its drama school had received a $150 million gift from David Geffen. With that gift, Yale has eliminated tuition for its drama students. It explained that his gift has "remov[ed] financial barriers to access."

According to the school, the $150 million donation is the largest in the history of American theater. And when you make the largest gift in the history of American theater, you get some benefits. Geffen's benefit? The Yale drama school has renamed itself--it is now the David Geffen School of Drama at Yale.

This isn't the first time a wealthy donor has gotten their name put on something they donated to, of course. It's not even the first time David Geffen has gotten his name on something: Lincoln Center's Avery Fisher Hall has been David Geffen Hall since he gave $100 million to Lincoln Center in the mid-2010s (or at least since Lincoln Center bought back the naming rights from the Fisher family).

Continue reading

Summary of today's Americans for Prosperity Foundation v. Bonta decision

It’s rare we get a Supreme Court decision that falls squarely within the realm of “nonprofit law,” but today’s the day! The Court decided Americans for Prosperity Foundation versus Bonta. 501(c)(3)-exempt organizations challenged, on First Amendment grounds, a California law that required disclosure to the state of major donors to the organizations. Largely as expected, the Court vacated the 9th Circuit and struck down California’s donor disclosure requirements. Here’s my quick take, although I suspect other bloggers will be writing about this case as well.

No Threshold Chilling Showing is Required. One of the biggest divides between the majority and the dissent is whether the plaintiffs must first make a threshold showing that the disclosure requirement is meaningfully chilling its speech or its associational interests. As long as there is a “risk” of such a chill, the majority immediately places the burden on the government to show that the disclosure is justified. The dissent, in contrast, would first require "plaintiffs [to] plead and prove that disclosure will likely expose them to objective harms, such as threats, harassment, or reprisals."

Standard of review. The biggest thing we needed from the Court was clarification about what the standard of review was. And we didn’t get that. Instead, we have this breakdown:

Chief Justice (plurality in part II-1-B): "Regardless of the type of association, compelled disclosure requirements are reviewed under exacting scrutiny."

Thomas: Apply strict scrutiny: "Laws directly burdening the right to associate anonymously, including compelled disclosure laws, should be subject to the same scrutiny as lawsdirectly burdening other First Amendment rights."

Alito + Gorsuch: don't need to decide between strict and exacting scrutiny because California's law fails both (and "[t]he question is not even close.")

We fortunately did get some clarification on what exacting scrutiny means, at least in this context: “Where exacting scrutiny applies, the challenged requirement must be narrowly tailored to the interest it promotes, even if it is not the least restrictive means of achieving that end.” So the government must show more than a “substantial relation” between its goals and its ends, but need not show that it is the least restrictive. We’ll see how that turns out in practice.

Applying the standard.

The majority agrees "that California has an important interest in preventing wrongdoing by charitable organizations." However, the Court perceives a mismatch between amount of info disclosed (tens of thousands of charities) and the number of cases where that information is used/investigated (tiny). The Court describes the State's interest in broad proactive disclosure as "less in investigating fraud and more in ease of administration." Via Twitter, Phillip Hackney (@EOTaxProf) argues that this downplays the State's interests: first as a deterrent to those who might misuse the laws, and second to know who might be misusing a charity for fraudulent purposes. Without that information regulators are in the dark and unable to see fraudulent patterns." But the Court does not discuss this.

It's also significant that the district court made factual findings following a bench trial that rejected many of the state's asserted interests. The majority's ability to cite deference to the district court's findings allowed it to avoid a fact-intensive application of the standard.

Tax-Exemption. The Court left open the possibility that such disclosure requirements could be validly imposed through "revenue collection efforts and conferral of tax-exempt status." Recall that the California rules were implicated not by a charity's tax exempt status but merely operating in the state/soliciting donations. As the Court's citation to Regan v. Taxation with Representation confirms, the government has more latitude to impose restrictions as a condition of tax-exempt status (which is considered a government benefit) than it does when limiting/restricting/impeding on a constitutional right. Therefore, there's nothing about the opinion's logic that would call into doubt the constitutionality of the disclosure requirements in federal tax law.

Optics. One final note from me is that I worry about the way that this decision has been described in public discourse. This is ultimately a case about disclosure requirements for nonprofits that are not engaged in electioneering. The plaintiffs had support from a range of nonprofit ideologies -- such as the ACLU and the NAACP. This was not simply a case about campaign finance, or about conservative dark money. The news clips and commentary that reduce the case along political lines may be more dramatic and may fit in with some broader narrative, but they elide the actual dynamics of what is going on in the case.

That's my quick take. Look forward to reading others' views!

-Joseph Mead