Nonprofit Law Prof Blog

Study: Churches' Ministry to Those Hurt by Pandemic Shows Monumental Growth

Today's Religion News Service (RNS) is reporting that according to a survey conducted by the Hartford Institute for Religion Research, more than half of Christian congregations say they have started a new ministry or expanded an existing one during the COVID-19 pandemic. On average, in fact, these Christian houses of worship began or broadened more than three of their outreach activities in response to the pandemic. 

The Hartford Institute's report is the second installment in a five-year project that began earlier this year called “Exploring the Pandemic Impact on Congregations,” based on a collaboration among 13 denominations from the Faith Communities Today cooperative partnership and institute staffers. If their findings are representative of the roughly 320,000 Christian congregations in the country, the institute said, the researchers estimate that nearly 175,000 churches launched or expanded ministries, funds and supplies in response to the pandemic over the past two years. Overall, almost three-quarters (74%) of churches have offered social support during the pandemic and close to two-thirds of congregations say they have been involved in new ministries.

According to the RNS report,

The new findings, a November survey drawn from 820 responses from representatives of 38 Christian denominational groups, showed significant changes in congregations’ attitudes toward change, particularly increasing diversity. Less than three-quarters (73%) agreed in 2020 that their congregations were willing to change to meet new challenges. That increased to 86% in November.

There also seemed to be greater interest in striving to be diverse, with 38% describing themselves as doing so in November compared with 28% in summer of 2021 and 26% before the pandemic and before the majority of the 2020 protests spurred by the murder of George Floyd, a Black man who died under the knee of a white Minneapolis police officer.

But even as congregations considered new ways of operating, an increasing number are concerned about their future, with 23% saying they are worried about their ability to continue, compared to 16% in the summer.

This worry may well be the result of a grim reality: the institute’s researchers estimated that some 200,000 church members have lost their lives due to COVID-19. The percentage of churches reporting deaths within their membership increased from 17% in the summer to 28% in November, when the second survey was conducted. The average number of deaths among those reporting losses in their congregation was 2.3, up slightly from 2 in the summer.

In response, Allison Norton, co-investigator of the study, told RNS in an email, “This is a sobering picture; however, we would have expected an even greater loss, given the aging population of regular churchgoers.” 

The project’s first report, based on responses from summer 2021, showed that about a third of congregations had increased requests for food. About a quarter received more requests for financial assistance during the pandemic. The November survey found that 22% said they had added or increased food distribution and 21% had enhanced or begun financial assistance for their community.

It is good to see churches functioning in society as they should.

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

 

Colinvaux: Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform

Roger Colinvaux, Professor at Catholic University of America, Columbus School of Law, posted a new article on donor advised funds entitled Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform.

 Here is the abstract:

"Charitable giving incentives are failing to achieve their purposes. Currently $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations, a massive accumulation of wealth under the effective control of the wealthiest in society. Gifts to these charitable intermediaries inherently frustrate the purpose of the charitable giving incentives. Until the funds are released from the intermediary, no working charity is able to benefit from the donation. Congress recognized this delay in benefit problem with respect to private foundations in landmark legislation in 1969, but has never addressed the problem for DAFs, and the rules for foundations are now too easy to avoid. Recent bi-partisan legislation introduced in Congress would address these issues. The Accelerating Charitable Efforts (ACE) Act would impose a time limit on advisory privileges for DAF contributions and close loopholes in the private foundation payout rules, among other reforms. While the ACE Act has many supporters, there is organized opposition in favor of the status quo. The article explains the case for change and addresses the various arguments made against reform, including that current payout levels are sufficient, that reform would harm charitable giving and introduce costly new burdens on charities, that the timing of grants within a DAF does not matter and so should not be regulated, and that to limit advisory privileges is to target DAFs and to attack philanthropic freedom. Finding none of these arguments persuasive, the article also considers whether there should be an exception to reform for community foundation and other mission-driven DAF sponsors, and whether an alternative would be to impose a five percent payout rule on DAF accounts. The article concludes that reform of charitable intermediaries is essential for the legitimacy of the charitable giving incentives and to counter growing charitable wealth accumulations. The ACE Act however should be strengthened to apply to existing DAF accounts and to study the effectiveness of incentives to improve private foundation payout and the extent to which DAFs at mission-driven sponsors further their mission."

Philip Hackney

IRS Issues Action on Decision in Mayo

In November, the IRS issued an Action on Decision in the case of Mayo Clinic v. United States, 997 F.3d 789 (8th Cir. 2021),
rev’g, 412 F.Supp.3d 1038 (D. Minn. 2019). They will follow the precedent in the 8th Circuit, but refuse to accept the interpretation of the 8th Circuit reading out the Treasury regulation requiring formal instruction to be a primary function of an educational organization under section 170(b)(1)(a)(ii). I previously wrote about this case here.

It involves whether Mayo Clinic may use an exception to the unrelated business income tax provided to educational organizations under section 514(c)(9)(C)(i). Mayo Clinic claims to be "an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on." The IRS, relying upon Treasury regulations, that require that an educational organization must have as "its primary function . . . the presentation of formal instruction," did not allow Mayo the exception.

The district court held that the primary function test was not a legitimate interpretation of the statute. While the Appeals court disagreed in part, it held that the IRS was wrong in its application of a primary function test. It remanded the case to the district court with instructions to ensure that Mayo Clinic primarily promotes education. 

I expressed concern regarding the case because I think it provides an easy path to public charity status for any organization that is primarily educational by normally having 1 faculty and some students. I did not expect the IRS to appeal, but thought they may choose to fight the case in other circuits. They have expressly taken this latter path.

In supporting its reasons the IRS stated: "We disagree with the Eighth Circuit’s invalidation of the long-standing regulatory requirement that the primary function of an educational organization described in section 170(b)(1)(A)(ii) must be formal instruction (the formal instruction requirement). First, in concluding that the formal instruction requirement “has no long history of congressional acceptance,” the Eighth Circuit did not consider the numerous times Congress has amended section 170(b), increasing the percentage of the allowable deduction and adding to the categories of organizations eligible for the preferential allowable deduction, since the regulations under section 170(b)(1)(A)(ii) were published in 1958, which is persuasive evidence of Congressional acceptance of such regulations. See, e.g., CFTC v. Schor, 478 U.S. 833, 846 (1986) (“It is well established that when Congress revisits a statute giving rise to a longstanding administrative interpretation without pertinent change, the ‘congressional failure to revise or repeal the agency’s interpretation is persuasive evidence that the interpretation is the one intended by Congress.’”). Second, the Eighth Circuit did not consider that the faculty-curriculum student-place requirement provides a statutory basis for the formal instruction requirement in the regulations. Finally, the Eighth Circuit did not consider the Government’s arguments regarding over one dozen Code sections cross-referencing section 170(b)(1)(A)(ii) (many of which predated the regulation’s 1958 publication), which further support the position that the purpose of the formal instruction requirement is to ensure that section 170(b)(1)(A)(ii) “could not reach very far, if at all, beyond schools, colleges, and universities in its coverage.” Brundage v. Commissioner, 54 T.C. 1468, 1474 (1970)."

Philip Hackney

One Last Charitable DAO Post

As I've discovered in the last week, charitable DAOs are a hard problem to crack. A big part of the problem is that they seem, to this point, to be a purely theoretical construct, so we don't know what they would look like in practice. But their decentralized management combined with their uncertain entity form produces a whole lot of uncertainty.

And a whole lot of interest! I got an email from the inimitable Professor Ellen Aprill with a couple thoughts on the question. (She wanted me to make clear that they were off the top of her head, not deeply considered, but they're unsurprisingly interesting and insightful.)

Before I get to her thoughts, on the entity question: like Professor Reyes, I suspect that for-profit DAOs are generally partnerships for state law purposes. (She argues that the joint and several liability that comes with partnerships is bad for DAOs and that they should, instead, look to the business trust form, an interesting idea that is beyond the scope of this blog post.)

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Nonprofits in Constitutional Litigation

Today the Supreme Court hears arguments in Dobbs v. Jackson Women’s Health Organization, a case that will consider the constitutionality of a Mississippi law that entirely bans abortions after fifteen weeks of pregnancy.

The case is important and momentous. Important and momentous enough that more than 140 amicus briefs were filed with the Court. And a not-insignificant percentage of those briefs were filed by tax-exempt organizations. Those amici ran a relatively broad gamut of types of tax-exempts, views on the Mississippi law, and approaches toward the law. And I'm not going to pull out every single tax-exempt, but I'm going to highlight a handful. (I didn't read every amicus brief because SCOTUSblog did it so that I didn't have to! I'm not going to link to the org's briefs, but they're all linked on the SCOTUSblog post.) (I'll highlight which of the organizations that I list aren't 501(c)(3)s; if I don't list the section an org is exempt under, it is a 501(c)(3).)

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