Nonprofit Law Prof Blog

Private Foundations and Crypto

Yesterday, Axios reported that Katie Haun has raised $1.5 billion for a couple crypto-based venture capital funds that she started.

The story is interesting partly because of the sheer amount of money and partly because that sheer amount of money was raised by a woman in a field unfortunately dominated by men. Neither of those has much to do with this blog though.

Her massive fundraising is relevant to our world though because Axios reports that institutional investors, including college endowments and private foundations, are using venture capital funds like Haun's to get exposure to cryptocurrencies.

I'm not going to weigh in on the wisdom of tax-exempt organizations investing in crypto. It's probably an, if not necessary, at least plausible, asset class for a diversified investor to hold, though financial journalist Felix Salmon is skeptical of the wisdom of tax-exempts locking up their assets in these VC funds:

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Judge Jackson and Tax-Exempt Opinions

Today is Day 3 of Judge Ketanji Brown Jackson's confirmation hearings for the Supreme Court and, since I'm blogging this week, I thought it might be worth seeing if she had ruled any cases dealing with tax exemption during her time as a district court judge. With nearly 600 opinions, it seemed at least plausible.

And it turns out she has at least one.[fn1]

In 2009, Z Street was incorporated as a Pennsylvania nonprofit. Its original purpose was to " educat[e] the public about Zionism; about the facts relating to the Middle East and to the existence of Israel as a Jewish State; and about Israel's right to refuse to negotiate with, make concessions to, or appease terrorists.” But when Z Street applied for federal tax exemption the following year, it was informed that the IRS carefully scrutinized 501(c)(3) applications related to Israel to make sure their activities didn't contradict Administration policies.

Z Street sued the IRS claiming that this special scrutiny constituted constitutionally-prohibited viewpoint discrimination. The IRS moved to dismiss based on the Anti-Injunction Act (which prohibits taxpayers from filing suits that would interfere with the collection of taxes), the Declaratory Judgments Act (which allows declaratory judgments except in the case of taxes), and sovereign immunity.

I'm not going to summarize all of the facts here, though I do recommend reading Judge Jackson's opinion here (or, if you'd prefer, Law360's summary of the opinion here). Ultimately, though, she denied the government's motion to dismiss. She read the AIA's prohibition on suits for the collection of revenue narrowly; here, she said, the suit wasn't a tax claim "couched [] in constitutional terms." Rather, it was a constitutional claim that didn't implicate the collection of taxes. Likewise, the DJA didn't prevent the suit. (As for sovereign immunity, she held that the APA waived sovereign immunity for claims like Z Street's.)

Ultimately, the D.C. Circuit affirmed her decision. And in 2018, the DOJ settled with Z Street.

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[fn1] She may have more, but this is a busy week for me and I don't have time to do an exhaustive review of her opinions.

Samuel D. Brunson

Wyden and Crapo On Charitable Giving

Last week, the Senate Committee on Finance held a hearing on trends in charitable giving; the Committee heard from four witnesses. And over the next couple days I plan to look at (and, of course, blog about) what those witnesses said. But I thought the opening statements of Sen. Wyden, the Chair of the Committee, and Sen. Crapo, the Ranking Member, were interesting and worth a quick glance.

Both highlighted the work that nonprofits during the pandemic. Sen. Crapo praised nonprofits for "adapt[ing] to the COVID-19 situation incredibly well, often fulfilling their missions with fewer resources and volunteers or even cancelled events, all while ensuring the communities they serve were being helped." And Sen. Wyden found that "Americans stepped up when their neighbors needed help. Charitable giving reached new highs."

Both Senators set the stage for the government helping the charitable sector--from the Senators' introductions, it does not look like this was at all a critical hearing. Both Senators said that supporting the nonprofit sector has the bipartisan support of the whole committee. Sen. Crapo explained that his goals include using the tax policies to encourage giving while looking forward at new challenges (including crypto and crowdfunding).

And Sen. Wyden mentioned the fact that the doubling of the standard deduction had eliminated the tax benefits of charitable giving for a substantial portion of taxpayers. He seems to want to focus on extending the small above-the-line charitable deduction as well as provide direct aid to help nonprofit organizations keep their doors open.

It will be interesting to see what the witnesses said and where the federal government goes from here.

Samuel D. Brunson

The Underground Museum, Closed

Last night, as I was getting ready for bed, I took one last scroll through Twitter. And a New York Times article caught my eye: the Underground Museum was closing.

I'm not super familiar with the Underground Museum; it is, after all, in LA while I've been in Chicago for the last almost decade and a half. Still, I love art museums and was curious about what had happened.

And the answer is, it's not clear. The museum, founded by artists Karon and Noah Davis in 2012, had become both a vehicle for Noah's legacy and one of the premier venues for Black art. But last week, after its post-pandemic reopening and hiring a new co-director, the museum announced that directors were no longer with the museum and it was closing indefinitely.

I don't know either what happened or what will happen going forward; the loss of the museum strikes me as a real loss (glancing through the website, it has some really great art). It will be interesting to watch the next steps. Will the museum reopen in its same form? in a different form? If it doesn't, what will it do with its art and other assets? Will other museums step up or spring up to take over its curation of Black art and artists?

I never love learning about cool institutions as a result of their closing. But I'll be watching what happens with interest (and, if it reopens, I have plans for next time I'm in LA).

Samuel D. Brunson

Russian Orthodox Parishes in Europe in Uproar as War Rages in Ukraine

Religion News Service (RNS) is today reporting that the war in Ukraine has split Russian Orthodox parishes across Europe, forcing believers outside Russia to either stay loyal to the church leadership in Moscow despite its support for the invasion, leave the church in protest or seek a messy middle ground.

Writing for today's edition of RNS, Tom Heneghan states:

While public opinion in Europe has almost unanimously denounced the war Russian President Vladimir Putin has unleashed, the small communities of Russian Orthodox faithful to the Moscow Patriarchate are in a bind because its head, Patriarch Kirill, has come out solidly in its favor.

Many of these believers are Western-born descendants of earlier emigres who have few links to today’s Russia but a faith anchored in the Russian tradition. Some belong to other Orthodox churches but happen to frequent a Russian church. 

Meanwhile, in Paris, Metropolitan John of Dubna, Archbishop of the Russian Orthodox Churches in Western Europe, in an open letter to Patriarch Kirill on March 9, struck a typical note by declaring solidarity with Ukraine and calling the war “monstrous and senseless.” While denouncing Kirill’s support of the war and asking for his intervention, Dubna stopped short of taking action that might signal a formal break.

Others stopped commemorating the patriarch in their liturgies -- an act which ranks as a serious protest in Orthodox churches -- but otherwise kept their dissent discreet. Only more attentive parishioners would notice at a Sunday service that the patriarch was not mentioned in normal commemorative prayers.

The Parish of Saint Nicholas of Myra in Amsterdam, where several hundred worshippers from about 20 nations attend weekly services in Dutch, Russian or English, has learned how complicated this choice can be. Probably the first Western Orthodox church to break ties with Moscow over the Russian invasion of Ukraine, St. Nicholas went from loyal criticism of Moscow’s decision to switching its allegiance to the rival Ecumenical Patriarchate in Istanbul.

“There are many traditions within Russian Orthodoxy,” Archimandrite Meletios Webber, head of the parish, told the congregation earlier today, Monday, March 14.

The London-born archimandrite — a monsignor in Roman Catholic terminology — spoke in a clipped English accent at his church near central Amsterdam. Another Orthodox priest translated his remarks into Russian.

“This tradition cannot be attached to any organization or any thought which promotes violence and warfare,” said Meletios, born an Anglican but converted during his studies at Oxford by the influential British Orthodox theologian, Bishop Kallistos Ware.

Heneghan tells the story leading to this announcement in lively and interesting detail:

Horrified by the ferocious fighting in Ukraine, the four priests of St. Nicholas first signed a petition in early March asking Patriarch Kirill to urge Russian authorities to end the war. But Kirill, doubling down like his ally Putin, came out in favor of the war, prompting a petition from Orthodox priests in Russia against the violence. Even the head of the Ukrainian Orthodox Church loyal to Moscow, Patriarch Onufry, appealed to Putin for “an immediate end to the fratricidal war.”

The priests in Amsterdam decided they could no longer commemorate Kirill at their divine liturgies and informed their superior, Archbishop Elisey of the Moscow Patriarchate in The Hague.

On March 6, Archbishop Elisey turned up unannounced just before their Sunday service. He took over the celebration and made sure a deacon from outside the parish commemorated Kirill.

“His visit was like a spiritual tank sent to our parish,” one parishioner complained afterwards to the Dutch daily Nederlands Dagblad.

The archbishop, who came in a car from the Russian embassy, warned the priests that both the Moscow Patriarchate and the Russian Foreign Ministry were closely following developments in the parish.

The priests saw Archbishop Elisey’s warning as a threat but loyally mentioned his name during the service. “Then we started making contact with other hierarchs,” Meletios said.

“We have not left the Moscow Patriarchate,” the priests wrote on the parish website last week in an initial report about the archbishop’s unexpected visit. They listed examples from the past when dropping a patriarch’s name from a liturgy was not considered a schism.

But by Tuesday, March 8, a “Z” — the symbol widely used in support of Moscow’s intervention in Ukraine — was daubed on the church’s gates. During the week, the parish received enough other threats that it decided to close down until further notice.

It was “no longer possible to function within the Moscow Patriarchate and provide a spiritually safe environment for their believers,” they concluded in another report on Saturday.

“We cannot go back on our decision to distance ourselves from Patriarch Kirill. Our consciences will not allow that,” they said. “So we see ourselves forced to link with the Ecumenical Patriarchate.”

The priests have now asked Archbishop Elisey to officially dismiss them from his diocese and asked Metropolitan Athenagoras, the top cleric of the Ecumenical Patriarchate in the Benelux countries, to take them under his wing.

According to the priests, they took this "very difficult step with pain in [their] hearts." As far as they are concerned, they and their parish "are concerned with the kingdom of Heaven and not with any political movement of any kind of kingdom here on Earth.”

As an ordained minister of religion myself, I stand in solidarity with these priests who have chosen to speak truth to power. I wish them well.

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

 

Postal Reform Around the Corner -- Along with Higher Prices

Today's NonProfitTimes reminded us that postal reform legislation gained U.S. Senate approval by a wide margin last week, setting up President Joe Biden to quickly sign the measure.

The Postal Service Reform Act of 2022 (H.R. 3076) passed last month by a vote of 342-92 in the House of Representatives. Sponsored by Carolyn Maloney (D-N.Y.), the measure gained approval from all 222 Democrats and 120 Republicans. Following House approval of the postal reform bill in February, Sen. Rick Scott (R-Fla.) objected, blocking the bill because of an apparent technicality.

Last Tuesday, however, the Senate approved its version of the legislation (S. 1720), by a vote of 79-19. The Senate’s 48 Democrats were joined by the two Independents and 29 Republicans in voting for the measure, sponsored by Chairman Gary Peters (D-Mich.), chairman of the Homeland Security and Government Affairs Committee.

So what is the legislation all about?

According to the Times,

The Postal Service Reform Act is expected to save USPS $22.6 billion over 10 years by requiring new postal retirees to use Medicare as their primary insurance. Another $27 billion would be saved by the repeal of a pre-funding requirement for projected retiree healthcare costs that was included in the 2006 Postal Enhance and Accountability Act (PAEA). In addition to bipartisan support, the legislation had the backing of the National Association of Letter Carriers (NALC).

The new legislation comes with some costs for consumers:

New Consumer Price Index (CPI) data released last week is likely to push mailing rates higher than first envisioned. The Alliance of Nonprofit Mailers (ANM) estimates the average caps for each class of mail will increase between 6.789% and 8.789%. Actual increases will vary according to how USPS distributes the increase across rate cells and an organization’s mix of mail, according to Stephen Kearney, ANM’s executive director. 

“If USPS uses all the authority, it will lead to a second round of increases in less than a year,” Kearney said in an email to members on Friday. The ANM is advocating that the USPS defer at least some of the authorized rate increases given that it has $24 billion in cash, received a $10 billion grant for COVID relief last year, and will benefit from $107 billion in relief from the Postal Reform Act of 2022.

According to Kearney, USPS is expected to file in April with the Postal Regulatory Commission (PRC) no later than the next CPI release on April 12, and plans to use six months of CPI authority to raise rates again in January.

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

 

Rules Preventing Rules Regarding Nonprofits in Omnibus Spending Bill of 2022

We are seeing some familiar foolish provisions prohibiting the IRS and the SEC from engaging in rulemaking in Congress's Consolidated Appropriations Act of 2022. The Senate passed the $1.5 Trillion dollar spending bill last night for the fiscal year that started about 5 months ago. It is good to have an appropriations bill done, and these provisions were probably not worth fighting over to ensure the government has the money and certainty it needs to act.

In Div E, Title I, sec. 123 (p. 498) of the Act, Congress prohibits the IRS and Treasury Department from issuing rules about section 501(c)(4) organizations. I guess recognizing that there is some problem with this provision, because of the fact that the IRS continues to have to make judgments about these organizations on determination and audit, which surely could be construed as rules, provides that the law after the Act will be based upon the "standard and definitions as in effect on January 1, 2010, which are used to make such determinations . . . for purposes of determining status under section 501(c)(4) of such Code of organizations created on, before, or after" the Act.

Div E Title I sec. 610 prohibits the President's office from requesting a determination regarding an organization described in section 501(c). I am not certain why that is in the bill. Have not seen this one before, so appreciate anyone who has knowledge as to why this got added. 

Div E, Title VI, sec 633 (p. 602) prohibits the SEC from issuing rules regarding the disclosure of political contributions to tax exempt organizations. 

Philip Hackney

March 11, 2022

University of Oregon Nonprofit Clinic Director Search

The University of Oregon School of Law is searching for a Nonprofit Clinic Director. The description of the position and the instructions to apply can be found here.

"Position Summary

The Director will be responsible for managing all aspects of the Nonprofit Clinic, including outreach across the university campus and the Oregon nonprofit community. In addition, because the Clinic is part of the law school's nationally recognized Business Law Program, the Director will work closely with other faculty affiliated with the Program.

The Director’s core instructional duties consist of teaching the interdisciplinary Spring course and developing and teaching a new Fall semester law course. The Fall course will provide legal assistance on a range of legal matters for nonprofits.

The Nonprofit Clinic Director is a 9-month, funding contingent, career non-tenure track Assistant Clinical Professor position reporting to the Director of Experiential Education. An additional month of summer salary will be offered to finalize Spring projects and prepare for Fall.

The Director will work closely with faculty who are part of the law school’s nationally recognized Business Law Program. The Clinic is one of the Program’s experiential learning offerings."

How Donations Are Flowing to Ukraine, Through Both Charities and Other Channels

UPDATE: Beth Gazley (Indiana University), who studies nonprofits and particularly giving during disasters, has a good piece at The Conversation with pointers for giving wisely to help Ukrainians (How to responsibly donate to Ukrainian causes). And the Charity Commission for England and Wales has issued a Statement on Ukraine crisis and its implications for charities with both similar advice and issues relating to Russian charities in light of financial sanctions.

The speed with which events have moved in Ukraine, the firehose of information about the Russian invasion, and the fog of war make it difficult to get an even close to complete understanding of how donations are flowing to help Ukrainians and the role of charities in providing assistance. Nevertheless, some data points are emerging.

The deluge of media and social media attention appears to be generating a strong stream of  donations. As reported by the Chronicle of Philanthropy (‘It’s Not Like Anything I’ve Ever Seen': Aid Groups Report Overwhelming Donor Response for Ukraine), charities with experience and ties to Ukraine are seeing a surge in donations that at least initially is much higher than what occurred with other recent humanitarian crises. Several charities reported inflows to help Ukrainians in the millions of dollars just over the first six days since the invasion began on February 24th. The Washington Post reports (What people are donating to Ukraine and its refugees: Crypto, ammo, pet food and cash) that not only cash but also goods ranging from flour to pet food to ammunition are flowing to Ukrainians. And these private efforts are on top of the supplies and funds coming from governments, including an expected $6.4 billion in emergency aid for the region from the United States.

Thanks to the Internet and especially social media, donors can quickly identify the established charities that are most involved in helping Ukrainians. As early as February 25th, NPR reported (Want to support the people in Ukraine? Here's how you can help) on charities with programs already in place to help Ukrainians. See also this list from the Washington Post. And GoFundMe has established the Ukraine Humanitarian Fund that makes grants to charities identified in cooperation with the U.S. Department of State, GlobalGiving, and others.

Ukrainians are also themselves establishing avenues for individuals and businesses to provide support. These range from funding humanitarian supplies for the Armed Forces of Ukraine through the National Bank of Ukraine, a GoFundMe campaign to support the Ukrainian media, and English-language campaigns by individual institutions such as the Ukrainian Catholic University.

Businesses are being creative in how they can provide support to Ukrainians. The above Washington Post story includes accounts of a Polish optician provided free eyeglasses and an Italian watch dealer giving the proceeds from the auction of a vintage Russian timepiece. In addition, Airbnb announced it will offer free, short-term housing for up to 100,000 Ukrainian refugees. And of course this support is on top of businesses reconsidering their ties to Russia and Belarus, and particularly to state-owned enterprises and wealthy allies of Vladimir Putin.

Individuals are also being creative in how they get support to Ukrainians. For example, some individuals are renting Ukrainian Airbnbs that they have no intention of ever staying in to get funds quickly to their Ukrainian owners. Coverage: The Guardian; Today Show; USA Today. As this Twitter feed about this effort demonstrates, this method of donating is creating direct connections to individual Ukrainians that giving to charities, no matter how worthy, mostly lack.

Lloyd Mayer