Tuesday, October 15, 2024

ABC No Rio

29528986171_d9735b6597_cLast week, the New York Times published a story on ABC No Rio. And what was ABC No Rio? It was, according to the Times, an indie art collective, one part anarchist group, one part punk, one part performance art. In the late 1970s, its founders cut the lock on an abandoned building on the Lower East Side and held an art exhibit. The city then offered them the use of a different building, a building that, by all accounts, was falling apart, with massive leaks, rat problems, and drug users upstairs.

The collective hosted art, then hardcore punk shows and 'zines, and all sorts of Lower East Side cultural stuff that is almost exactly the opposite of my personal aesthetic. (My downtown arts scene is the avant-garde jazz and dance scenes.)

Over time, the organization became more respectable (or, at least, less disreputable), until today it is having a four-story building constructed, paid for by NYC's Department of Cultural Affairs.

It's an interesting story, but it left out the part I'm most interested in: in 1992, ABC No Rio became a 501(c)(3) tax-exempt organization. The Times story doesn't mention that, and doesn't lay out exactly what was going on at the time--it seems to have just recently started hosting punk shows, and a year later the people who ran the punk shows took over leadership of the organization. They apparently aligned it with the squatter and anarchist movements, which doesn't feel like the kind of leadership that would file a Form 1023.

So I'm curious about how, in 1992, ABC No Rio decided to become ABC No Rio, Inc., a 501(c)(3) tax-exempt organization that had $81,000 of revenue and assets worth a little under $14 million. 

Samuel D. Brunson

Photo by Eden, Janine and Jim. CC BY 2.0

October 15, 2024 in Current Affairs | Permalink | Comments (0)

Wednesday, September 25, 2024

The Ghost of Loper Bright and the FTC’s Jurisdiction over Nonprofits

FTC Blog Post

I have an abiding interest in a particular type of nonprofit: higher education institutions. Call it an occupational hazard. I'm also interested in the Federal Trade Commission’s (FTC) enforcement mechanisms. Chalk this one up to being a policy wonk. So, I have been following a case rather closely involving both of these interests.

In a recent ruling, a federal district court in Arizona has significantly narrowed the FTC's ability to bring enforcement actions against nonprofit organizations. The case involved Grand Canyon University (GCU), which the FTC alleged had made deceptive claims about its nonprofit status and doctoral programs. This decision is notable because it constrains the FTC’s reach over nonprofit institutions and raises important questions about the scope of the FTC's authority under the FTC Act.

The FTC’s Claims Against GCU

GCU, originally a for-profit higher education institution, became a nonprofit in 2014 after being purchased and rechartered by Grand Canyon Education, Inc. (GCE). Although GCE operates GCU under a master services agreement, GCU is recognized as a nonprofit entity. The FTC, however, argued that GCU operated as a for-profit institution in substance, even though it held nonprofit status on paper. The agency claimed that GCU’s financial and operational ties to GCE meant it was still engaged in profit-driven activities, and therefore subject to FTC oversight under Section 5 of the FTC Act.

The crux of the case centered on whether GCU could be considered a “corporation” under the FTC Act. The FTC Act allows the FTC to prosecute “persons, partnerships, or corporations,” defining a corporation as an entity organized for its own profit or the profit of its members. The FTC contended that GCU’s formal corporate structure was less important than its operational reality, suggesting that GCU acted like a for-profit entity due to its GCE parentage.

The Court’s Ruling

The court sided with GCU, holding that the FTC could not apply the definition of a “corporation” to GCU under the plain language of the FTC Act. The key issue was that GCU’s sole member is the Grand Canyon Foundation, not GCU itself or any individuals benefitting from its operations. So, the court concluded that GCU did not fall under the category of an entity organized for its own profit or the profit of its members as defined by the FTC Act.

Citing to the Supreme Court’s recent decision in Loper Bright, which curbed the power of federal agencies by limiting judicial deference to agency interpretations of statutes, the court rejected the FTC’s broader interpretation of its jurisdiction. The court emphasized that the FTC’s authority extends only to entities explicitly organized for profit, as defined by the statute. While the court acknowledged potential policy reasons for why nonprofits benefiting insiders or related businesses should fall under the FTC’s purview, it maintained that the statutory language did not support the agency’s claims.

Implications for Nonprofits

This ruling limits the FTC’s ability to pursue enforcement actions against nonprofit organizations unless the agency can demonstrate that these entities are organized for profit. The decision could have far-reaching implications. If nonprofits are anything like their for-profit cousins, one could expect them to behave strategically in the wake of this ruling. For instance, nonprofits with for-profit parentage could reexamine their organizational structures to ensure they fall outside the FTC’s jurisdiction. Likewise, the decision could encourage more nonprofits to enter into relationships with for-profit entities, knowing that they may still be shielded from FTC scrutiny.

The decision is expected to be appealed. But should this ruling stand, it could set a high bar for the FTC to prove jurisdiction over nonprofits.

 

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law

September 25, 2024 in Current Affairs, Federal – Judicial, In the News | Permalink | Comments (0)

Tuesday, September 24, 2024

The Corporate Transparency Act (CTA) and Tax-Exempt Organizations

CTA Blog Post

This year, a new congressional act has drawn a good deal of attention in the corporate world: the Corporate Transparency Act (CTA). But what does it have to do with tax-exempt organizations? Potentially, a lot. After all, many nonprofits are organized as LLCs or corporations—just the do-good kind. :) In this post, I’ll attempt to explain what the CTA is and what it may require of nonprofits.

Effective from January 1, 2024, the CTA introduces new beneficial ownership reporting requirements aimed at increasing transparency in the corporate landscape. The legislation primarily targets entities at risk for financial crimes. While the CTA predominantly applies to for-profit entities, tax-exempt organizations are subject to nuanced exemptions that require careful attention.

Exemptions for Tax-Exempt Entities

Tax-exempt organizations are generally exempt from CTA reporting requirements—and exemption which applies to entities recognized under Section 501(c) of the Internal Revenue Code—provided they maintain their tax-exempt status. Notably, it appears that tax-exempt entities do not need to report to FinCEN that they qualify for an exemption if they have always been exempt, reducing administrative burdens for longstanding tax-exempt organizations. However, tax-exempt entities that lose their exempt status after January 1, 2024, must file beneficial ownership information (BOI) reports with FinCEN if they do not regain their tax-exempt status within 180 days. This creates a narrow window for organizations to restore their exempt status before they are subject to reporting obligations.

Implications for Newly Formed Tax-Exempt Entities

Organizations formed after the January 1, 2024, effective date of the CTA face different challenges. These newly established entities typically do not receive recognition of tax-exempt status from the IRS within the 90-day window that FinCEN grants for submitting an initial BOI report. All this to say that newly formed entities pursuing tax-exempt status potentially may be subject to BOI reporting requirements before receiving an IRS determination letter.

Subsidiaries of Tax-Exempt Entities

Subsidiaries wholly controlled by tax-exempt organizations are also exempt from BOI reporting requirements under FinCEN’s guidance and the statute. This exemption applies to subsidiaries wholly owned by tax-exempt entities, such as a C corporation or an LLC where the tax-exempt entity is the sole shareholder or member.

However, FinCEN’s guidance on what constitutes "control" of a subsidiary is somewhat limited. FinCEN adds the term “wholly” to modify “control” in its guidance, but that modifier isn’t present in the statute. From this, one could reason that the tax-exempt parent must entirely control the ownership interests in the subsidiary. But it raises questions in joint ventures where ownership is shared between a tax-exempt entity and a for-profit entity. Whether these partially owned entities qualify for an exemption from the reporting requirements—and what proportion of ownership must be met to exempt it—is not entirely clear.

In Summary

While many tax-exempt entities are potentially shielded from the reporting obligations, maintaining exempt status is crucial to avoid falling into the purview of the CTA’s BOI requirements. Even though current legal challenges as to the constitutionality of the CTA could impact the viability of the act, organizations should still implement careful monitoring processes to stay compliant, particularly if their status changes or they enter into joint ventures. For more detailed information on the CTA's requirements, visit FinCEN's BOI FAQ page.

 

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law

September 24, 2024 in Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink

Monday, September 23, 2024

Information Costs, Section 179D, and the Slow Uptake of “Greening” Nonprofit Buildings

179D Blog Post Image
The Inflation Reduction Act brought about a host of incentives aimed at catalyzing a shift to renewable energy. Yet, the response from nonprofits to retrofit their physical spaces to accommodate renewable energy sources appears to be lagging other sectors. So, why aren’t more nonprofits taking advantage of incentives to turn their physical spaces “green”? Amy Turner (Columbia) has an excellent and informative blog post on the Climate Law Blog in which Section 179D is framed as the culprit. Here’s a snippet:

“Under the IRA, clean electricity technologies like distributed solar and wind, battery storage, and geothermal energy, along with electric vehicles and charging stations, are the subject of tax credits that cover between 30 and 70 percent of eligible project costs. In contrast, the IRA’s main tax tool for building decarbonization is a tax deduction that nontaxable entities can transfer to a limited set of other parties but cannot use directly. Section 179D offers a $0.50 to $5.00 per square foot tax deduction (inflation-adjusted) for whole-building energy efficiency retrofits that achieve a 25 to 50 percent reduction in energy costs as compared to the ASHRAE 90.1 Reference Standard or a 25 to 50 percent reduction in building energy use intensity (a measure of energy use per square foot) as compared to the building’s own baseline. In either case, the deduction is capped at the cost of qualifying equipment and retrofits: interior lighting systems, HVAC and water heating equipment, and improvements to the building envelope.

Though the 179D deduction is not eligible for elective pay, it is available to local governments and other nontaxable entities in that a public or nonprofit building owner can transfer the deduction to the designer (specifically an architect, engineer, contractor, or subcontractor) of the building improvements underlying the deduction. Thus, they can offer the deduction to a designer in the hopes of negotiating down the designer’s price. In this way, Congress allowed for the broad applicability of the 179D deduction in the public and nonprofit sectors, but these sectors face significant practical challenges in taking advantage of it.

In particular, nontaxable entities are acting with imperfect information when transferring the 179D deduction, as the project designer will almost certainly balk at disclosing the sensitive business information – taxable income and tax rate – that would help the parties properly value the deduction and use it to negotiate price. The transaction costs associated with negotiating the value of the deduction can be significant, with the municipal representative or nonprofit building owner either using internal capacity or hiring outside advisors to assess the value of the deduction and ensure that qualifying costs are spent in connection with whole-building energy reductions – a more difficult endeavor than a simple percentage or set deduction amount with no performance requirement.”

In other words, the business realities of passing on the deduction could create frictions for nonprofits in simply trying to avail themselves of the incentives Congress intended them to use. Information costs, a particularly pernicious transaction cost, are getting in the way. So, what can be done? Turner observes:

“In an ideal scenario for nontaxable entities, Congress would enact a building decarbonization tax credit payable directly to nontaxable entities via elective pay. Absent such a solution, support will be needed help nontaxable entities value their 179D deductions, negotiate with designer counterparties, document their agreements in contract and ensure designers are properly reporting 179D transfers with the IRS. As the elective pay process for tax credits begins to hit its stride, 179D is a natural place for the IRS, technical assistance providers, and advocates to next turn their attention.”

Hear, hear!

 

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law

September 23, 2024 in Current Affairs, Federal – Legislative, In the News, Weblogs | Permalink

Thursday, September 12, 2024

Study: Some Nonprofit Workers Live in Poverty, Struggle Financially

Writing in TheNonProfitTimes, Paul Clolery reports on a 2022 study conducted by United For Alice and Independent Sector. United For Alice is a U.S. research organization, led by United Way of Northern New Jersey, that drives innovation, research and action to improve life across the country for ALICE(R) (Asset Limited, Income Constrained, Employed) and for all. Independent Sector is a coalition of nonprofit organizations, foundations and corporate giving programs in the United States. Founded in 1980, it is the first organization to combine the grant seekers and grantees. The study, titled “ALICE in the Nonprofit Workforce: A Study of Financial Hardship,” reveals that more than one in five nonprofit employees (22%) live in poverty and struggle financially. 

According to the study's findings:

Among nonprofit workers in 2022, 5% were below the official U.S. poverty level, and another 17% qualified in the category of ALICE®. ALICE nonprofit employees live in households that earn more than the federal poverty level, but less than what it costs to survive in the counties where they live. They cannot afford the basics: housing, childcare, food, transportation, healthcare, technology and taxes.

ALICE households include those employed by nonprofits and otherwise. Those in poverty represented 42% of all households across the United States in 2022. For example, the federal definition for poverty is $18,310. The ALICE Household Survival Budget gives three distinct examples of costs for a two-person household (a single adult and a school-age child) in three counties. These examples illustrate the cost of basics below the national average (El Paso County, Texas, $40,032), near the average (Franklin County, Ohio, which includes Columbus, $46,932), and above the average (Alexandria City, Virginia ($71,436).

To determine a nonprofit worker’s financial status, the Household Survival Budget for that worker’s county is compared to the worker’s total household income as reported in the U.S. Census Bureau’s American Community Survey’s Public Use Microdata Sample.  

Commenting on the study's findings, Independent Sector President and CEO Akilah Watkins, Ph.D., stated: “The nonprofit sector is fundamental to American society, delivering vital services and resources to those who need them most. Yet it is deeply troubling that so many of our own nonprofit workers – those who dedicate their lives to supporting others – are themselves facing financial hardship." Dr. Watkins continued: "This groundbreaking study gives us both a starting point and a call to action. We must find data-informed solutions, whether through policy or practice, to meet the needs of nonprofit workers who are struggling financially. Investing in the health of our workforce is essential, because it takes a thriving and well-equipped workforce to drive meaningful and sustained change in our communities and our nation.”

According to the study:

Among the 13.9 million nonprofit workers, there were substantial differences in financial hardship by industry sector. The largest industry sector in 2022 was healthcare, with 4.9 million nonprofit employees. Most industry sectors had fewer than 400,000 nonprofit employees. Among the nine largest industry sectors, rates of financial hardship for nonprofit employees varied from 16% in both the healthcare and the finance and insurance industry sectors to 42% in retail trade.

“Nonprofit workers in the social services sector take care of our most vulnerable citizens, including seniors and children. Yet, one-third (32%) of social service workers cannot make ends meet and take care of their families. That stress and uncertainty impacts the health and well-being of our communities and economy overall,” said Kiran Handa Gaudioso, CEO of the United Way of Northern New Jersey and president of United For ALICE.

The study reveals that in 2022, almost half (45%) of the nonprofit workforce was aged 25 to 44, followed by 38% aged 45 to 64. These two groups, in their prime working years, had the lowest rates of hardship: 23% of workers aged 25 to 44 lived in households with income below the ALICE threshold, as did 17% of workers aged 45 to 64. The youngest nonprofit workers, younger than age 25, had the highest rate of financial hardship at 37%. Nonprofit workers aged 65 and older made up 9% of the workforce with 22% below the ALICE threshold.

Of those 65 and older, 2% were considered in poverty based on salary and benefits; 19% were within the ALICE threshold. Stephanie Hoopes, Ph.D., national director, United For ALICE and chief research and impact officer of United Way of Northern New Jersey, stated: “The ALICE analysis is only of current workers; volunteers are not included. The lower percent of 65+ workers (5% for the overall population) below the ALICE threshold is likely because they are receiving social security benefits. But interestingly, even with their nonprofit salary it was not enough to get 19% above the ALICE threshold."

Surely, this is a chilling revelation of the plight of nonprofit workers, people who take care of our most vulnerable citizens, including seniors and children.  

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

  

September 12, 2024 in Current Affairs, In the News, Studies and Reports | Permalink | Comments (0)

Monday, September 9, 2024

AmeriCorps Opens Federal Grants Competition

AmeriCorps, the federal agency for service and volunteerism, has announced that the 2025 State and National Grants Competition is now open for applications from organizations who wish to host AmeriCorps members beginning in the summer of 2025.

In announcing the competitive grants, AmeriCorps stated that

For this funding opportunity, AmeriCorps will prioritize consideration from organizations that:

Serve Communities

  • Serve communities with concentrated poverty, rural communities, tribal communities, and historically underrepresented and underserved individuals. These may include people of color, immigrants, refugees, people with disabilities, LGBTQIA+ individuals, people with arrest or conviction records, religious minorities, etc.;
  • Implement programs for or expand access to high-quality youth mental health and substance use recovery services and prepare AmeriCorps members to enter behavioral health careers. These may include individuals with lived experience with substance use and mental health challenges to support youth mental health efforts and continued AmeriCorps work on the opioid epidemic;
  • Focus on improving the quality of life for veterans, active-duty members of the Armed Forces, and their families by recruiting veterans, military spouses, and their older children into national service; 
  • Promote environmental stewardship to help communities (especially underserved households and communities) to be more resilient by reducing greenhouse gas emissions, conserving land and water, increasing renewable energy use and improving at-risk ecosystems; and
  • Support civic bridgebuilding programs and projects to reduce polarization and community divisions; and providing training in civic bridgebuilding skills and techniques to AmeriCorps members.

Benefit AmeriCorps Members

  • Provide benefits to AmeriCorps members aimed at enhancing member experience and bolstering member recruitment and retention such as paying more than the minimum living allowance, transportation, housing, food, etc.;
  • Create workforce pathways for AmeriCorps members, including deliberate training, certifications, and hiring preferences or support;
  • Enhance and expand services to second chance youth and/or engage those youth as AmeriCorps members; and
  • Develop and train the next generation of diverse public health leaders through service while addressing pressing community health challenges. Review Public Health AmeriCorps Priority in the Mandatory Supplemental Information for eligibility information.

Use Evidence

  • Utilize reports from the AmeriCorps Evidence Exchange on programs assessed as having Moderate or Strong evidence to scale, replicate, or adapt the intervention.

Faith-Based

  • Organizations that are faith-based.

American Climate Corps 

Applicants may propose projects to be affiliated with the American Climate Corps (ACC), which is a federal government national service and workforce development initiative focused on training young people for the clean energy and climate resilience workforce.

Applicants who are interested must demonstrate that their project funds ACC eligible positions meeting the following criteria:

  • The position has verifiable climate or environmental impact.
  • The position is temporary (term-limited), and the term length is at least 300 hours.
  • The position includes skills-based training as part of the program and provides a pathway to employment.
  • The position must receive a living allowance and, in some cases, may receive additional member benefits.

To receive priority consideration, applicants must show the priority area is a significant part of the program focus and intended outcomes. Priority consideration does not guarantee funding.

The application deadline is 5 p.m., Thursday, January 23, 2025. Successful applicants will likely be notified by mid-April 2025. Funding will be released in July.

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

 

September 9, 2024 in Current Affairs, In the News | Permalink | Comments (0)

National Catholic Reporter Names Wall Street Journal's James Grimaldi as Executive Editor

Today's edition of Religion News Service (RNS) is reporting that after being without a top editor for more than a year, the National Catholic Reporter, the 60-year-old, left-leaning Catholic media outlet, announced that James V. Grimaldi, a senior writer at The Wall Street Journal, has been named executive editor. 

According to RNS:

Grimaldi, 62, is set to begin work Sept. 16, filling a position that has been vacant since August of 2023, when Heidi Schlumpf stepped down after four years in the role, becoming a senior correspondent. Grimaldi will report directly to Joe Ferullo, the newspaper’s CEO and publisher.

In an arrangement in step with the technology-aided dislocations of modern journalism, Grimaldi will oversee the editorial operation of NCR, which is headquartered in Kansas City, from Washington, where the newspaper has offices in the historic Methodist Building on Capitol Hill. Ferullo, a retired television executive, works from Los Angeles. 

RNS reports that in a statement about Grimaldi's appointment, Ferullo stated:

James is dedicated to NCR’s mission; he will elevate and expand NCR’s excellent journalism at a pivotal moment in the history of the Catholic Church. All of us at NCR — including our readers — look forward to his extraordinary editorial leadership in this exciting and decisive time.

What do we know about Grimaldi? RNS has this to share:

In a long career that began at the San Diego Tribune, Grimaldi has become known for his accountability and investigative reporting. In more than two decades covering politics and governmental affairs at the Washington Post and the Journal, he reported on corruption by federal judges and government officials.

Grimaldi has received three Pulitzer Prizes for his investigative work. In 1996, he contributed to a Pulitzer win for the Orange County Register, reporting on unethical fertility practices by a research university. In 2006, he received a Pulitzer with two colleagues for an investigation of the Jack Abramoff lobbying scandal. In 2023, while at the Journal, he won another for exposing conflicts of interest among several federal employees.

RNS also shares the following information about NCR:

With a staff of 40, NCR draws a million readers to its website monthly and publishes 26 print issues each year. Catholics’ options for reading about their faith and its institutions have shrunk in recent years. Diocesan newspapers, once considered essential guides to the thinking of local bishops and the national church, have in many places disappeared. In late 2022, the U.S. Conference of Catholic Bishops shuttered domestic operations of its Catholic News Service, which now maintains only its Vatican bureau. 

NCR has been a supporter of Pope Francis, and under Schlumpf was known to criticize U.S. Catholic bishops for what the paper’s editors regarded as politically motivated decisions on topics such as denying Communion to pro-choice Democratic politicians.

From the 1980s onward, the paper was pivotal in leading the Catholic Church to confront the sexual abuse scandal, first reporting not only on abusive priests but on the U.S. bishops’ cover-up in June 1985. The news outlet has also covered mismanagement of diocesan funds and the impact of conservative donors on the U.S. church.

With the 2024 Presidential Election a few weeks away, we wonder what impact Grimaldi's appointment to the position of executive editor will have on NCR and on Roman Catholic voters. Time will tell. 

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

 

September 9, 2024 in Church and State, Current Affairs, In the News | Permalink | Comments (0)

Friday, August 9, 2024

Local Regulation of Nonprofits


First things first: this story is a little frustrating. Apparently a bill has been introduced in Suffolk County, NY, that would attempt to cap nonprofit pay, but Newsday, which reported the bill, doesn't link to it. And, after spending a little time on the Suffolk County legislative website, I gave up all hope of finding it there. So this is all based off of the news story. (For real, journalists: if you write about a bill, a law, a legal filing, or other public legal documents, please please please link to or embed them!)

According to the Newsday story, Suffolk County is skeptical of nonprofits that pay their employees more than the governor of New York earns (which is currently $250,000). Naturally, the county can't actually cap the salaries of nonprofit employees, but the bill's sponsors "find it unfair" for "Suffolk County taxpayers to fund these exorbitant salaries."

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August 9, 2024 in Current Affairs, State – Legislative | Permalink | Comments (1)

Tuesday, August 6, 2024

Musk v. Altman, Take 2

I previously wrote (including here and here) about a suit Elon Musk filed against Sam Altman and OpenAI; in large part, he claimed that Altman had converted OpenAI from a nonprofit to a for-profit, in violation of its early plans. 

In June, he withdrew the suit.

Then yesterday, he revived it with a new complaint. (Because so many new sites absolutely refuse to link to or host the legal documents they write about, you can find it here.)

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August 6, 2024 in Current Affairs | Permalink | Comments (0)

Monday, August 5, 2024

Bill Gates, Warren Buffet, and the Future of Huge Foundations(?)

7352545150_81e45c7088_kI woke up this morning, opened my phone, and discovered that Bill Gates is in the news again.

And so is the Bill and Melinda Gates Foundation, albeit for unrelated reasons. There's no indication that Mr. Gates couldn't be alone with interns at the Foundation (in fact, there may not even be interns at the Foundation), but the Foundation may be facing an existential crisis: Warren Buffet and his heirs have made clear that after his death, none of Buffet's assets will go to the Gates Foundation. This pulling back isn't, apparently, related to the misdeeds of Bill Gates. Instead, reportedly, Mr. Buffet objects to the inefficiencies and bloat in the Gates Foundation.

But this is bad for the Gates Foundation, for a couple reasons. One is, Buffet was likely the largest donor to the Gates Foundation--his donations (roughly $39 billion) at least matched the donations by Bill and Melinda French Gates; some years, the Gates donated less than half a billion dollars. (That is, I realize, a crazy sentence--as charitable as I want to be, over my lifetime I will never half half a billion dollars to donate, much less in a single year!)

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August 5, 2024 in Current Affairs, In the News | Permalink | Comments (0)

Friday, July 26, 2024

While I Wait for Women’s Single Sculls Repechages…. Exemption and the Olympics!

So … I never thought I’d see a concert lineup that included the metal band Gojira (complete with bloody severed heads in the background- BOLD!), Lady Gaga doing the can-can, and Celine Dion.   But here we are…. The 2024 Paris Summer Olympics opening ceremony.  And I’m down for it.  All of it.

I am an Olympics nerd. I have already watched Norway v. Sweden in Women’s Team Handball.  I’m disappointed I can’t find the Archery ranking rounds that happened yesterday streaming on Peacock.  I will wake up at 5 am to watch doubles badminton tomorrow.  I’m that person.

So, it seems only appropriate to do a little review of the tax-exempt status of the Olympics for the blog today, because there are no other competitions to watch on opening ceremony day and I’ve already watched all the available Rugby 7s replays (five stars – will watch again.)  So here’s a deep dive (pun intended) into the Olympics.

Section 501(c)(3) and Section 501(j)

If you are reading the Nonprofit Law Prof Blog, you probably already know that Section 501(c)(3) describes organizations that “foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment)…”   If, however, you are a “qualified amateur sports organization” under Section 501(j), you are exempt from the prohibition on providing athletic equipment.

Prior to 1976, the IRS would grant exempt status to athletic organizations if they could show that they were charitable or educational.   But those were pretty narrow buckets.   The amateur sports language was added to Section 501(c)(3) in 1976, but the IRS apparently took the provision of equipment provisions seriously – From a 1987 EO CPE Text

For example, an organization which, as part of its coaching program, made videotapes of athletes for the purpose of analyzing their performance could not be granted exemption as an amateur athletic organization under IRC 501(c)(3), since the use of videotape equipment was considered the provision of equipment.

As we all know from watching Cool Runnings, bobsleds are really expensive, so this simply could not stand. Section 501(j) wasn’t added until 1982.  While the definitions of a “qualified amateur sports organization” and the general 501c3 language are close, they aren’t completely co-terminus.  But it is clearly intended to cover Olympic-type organizations.   See e.g., GCM 39459, finding as exempt the organization for USA women’s bowling even though they supplied uniforms and equipment.

Bowling is not an Olympic sport but recognized by the US Olympic Committee and eligible for the Pan Am games, which is enough.  Apparently, bowling was a demonstration sport at the 1988 Seoul Summer Olympics and has lobbied to be added, making the short list for the 2020 Tokyo Summer Olympics but missing the cut to surfing, skateboarding, and sport climbing.  BUT I DIGRESS.

Your organization needs to be organized primarily to cater to serious athletes, so hosting running events open to all levels and not at Olympic distances didn’t get exempt status – it was deemed more recreational in nature. 

US Olympic & Paralympic Committee

So the USOPC is recognized by the International Olympic Committee as the National Olympic Committee for United States.  According to its website, it’s a “federally chartered nonprofit corporation” – you might remember my Veterans’ Day post on the USO, which is the same thing.  It’s a 501c3 and a public charity under 170(b)(1)(a)(vi) - the USOPC’s most recent Form 990 is in fact available on its website. It lists itself as a corporation formed in 1950 with a legal domicile in Washington DC but an HQ in Colorado Springs, Colorado.  A really interesting supplemental note on its Schedule D – wasn’t able to find a lot on this, does anyone have any details???

INSTALLMENTS FOR THE BROADCAST MEDIA RIGHTS, FOR THE OLYMPIC AND WINTER OLYMPIC GAMES, ARE HELD BY USOPC IN TRUST. THESE PAYMENTS ARE RECORDED ON THE STATEMENT OF FINANCIAL POSITION AS ASSETS HELD ON BEHALF OF OTHERS UNTIL THE GAMES OCCUR AND CERTAIN REQUIREMENTS ARE MET, THEN THE CASH WILL BE RELEASED AND THE AMOUNT WILL BE RECORDED AS REVENUE.

As a final note on related entities, there is a US Olympic and Paralympic Foundation, which “generates philanthropic support to empower Team USA athletes to achieve sustained competitive excellence and well-being.”  It appears that the USOPC doesn’t support athletes directly; athlete support comes from the USOP Foundation.  Formed in 2013 out of Colorado, it lists itself as a 170(b)(1)(A)(vi) on its Form 990.  The Foundation reports a management agreement with the USOPC on its Part VI and Schedule R.

National Governing Bodies.

If you look on the lists of grants made by the USPOC, it includes the national governing bodies for the various sports.  The list includes, USA Artistic Swimming,  the United States Curling Association (which is so much fun – try it if you can) and the Unites States Amateur Confederation of Roller Skating (OMG can we have roller derby in the Olympics?  I mean this year, breaking is an Olympic sport, so why not?  It does make me feel bad for bowling…) They are all listed as separate Section 501c3 organizations.

Because I had to, obviously, I did check out the US Amateur Confederation of Roller Skating, which is d/b/a USA Roller Sports (way better) and headquartered in that hotbed of roller sports, Nebraska (why Nebraska?  Any roller skaters out there know?)  Its 990s are also available, although curiously they report that they are a 509(a)(2) public charity.  

Apparently, rink hockey played on skates was a demonstration sport in the Olympic Games in Barcelona in 1992.  They tried for the 2016 Rio Summer Olympics but lost out to rugby 7s (I see why though – super fun) and golf.  BUT I DIGRESS.

International Olympic Committee. 

I would be remiss if I didn’t mention them.  It is an association under Swiss law, but many international organizations get exempt status from the IRS if they are worried about US source income – so I figure I’d check on the IRS’ website.  Et Voila!!!! And here’s its Form 990.  Interestingly, the list themselves as a Section 501(c)(4) organization, formed in 1894.  I immediately wondered if there is a US Friends of the IOC, or something like that, to take US-based charitable contributions (since 170 deductions are limited to domestic gifts… and they are a 501(c)(4) anyway). 

A quick check of the IOC’s website didn’t show anything that looks like a US fundraising arm, so if anyone has an info, let me know.   I’d keep looking, but it’s getting kind of late and I need to get some sleep before doubles badminton qualifying rounds at 5 am.

Frenziedly, eww

July 26, 2024 in Current Affairs, Federal – Executive, In the News, International, Other, Sports, Television | Permalink | Comments (0)

Thursday, July 25, 2024

The Trust for Civic Life and Reflections on Rural Philanthropy

The Chronicle of Philanthropy had an article on the new Trust for Civic Life back on June 17, 2024 – it came to my attention today as U.S. News had an article published a shorter version, (via the Associated Press) today. The article focus on a a new initiative by larger grant makers to focus on rural philanthropy – seeing “small, local groups as instruments of change.”  According to the article, The Trust for Civic Life was established as a collaborative of 15 grantmakers. The Trust’s first round of funding consisted of $8.0 million in grants focused on “rural, often high-poverty towns, regions, and tribal areas.” The Trust’s website indicates that they are focusing on the Black belt, Central Appalachia, Tribal Lands, the Southwest border, and “communities in transition in the rural U.S.” Apparently, the first round of grants are “between $300,000 and $425,000 in general-operating support over three years.” 

The US News article doesn’t list all fifteen of the funders (the Chronicle does), but notes that they come from organizations from different ends of the ideological spectrum, including the Ford Foundation, the Rockefeller Brothers Fund, the Walmart Foundation, Stand Together (aka Charles Koch’s foundation) are listed in the article.   The others can be found on the Trust’s website, and include notables such as the Omidyar Network, the MacArthur Foundation, the Packard Foundation, and the Knight Foundation, among others.   As a technical matter, according to the Trust’s website, it is a “sponsored project” of Rockefeller Philanthropy Advisors, which introduced the project earlier this year.

I really welcome a renewed attention to rural philanthropic structures.    I went to school in Boston; I practiced in NYC, Chicago, and Indianapolis.   As a result, my views on philanthropy were somewhat skewed, to be honest, by my experience in these very large, urban markets.   I didn’t really appreciate the differences in the philanthropic experience of rural areas until I moved here to West Virginia, especially the impact of isolation from the lack of infrastructure (general and philanthropic).  In that regard, I’m happy to see that the West Virginia Community Development Hub was one of the first of the Trust’s grantees

On a broader level, however, I thought about a recent post here on the Blog entitled “The Great DAF Debate” by my colleague Ben Leff.   As a re-read that post, I note that so much of the discussion about DAFs, and endowments generally, doesn’t think about the impact on smaller communities.    In small, rural communities, a community foundation may be the only philanthropic infrastructure available.   Unlike Boston or New York, a mandatory spend down requirement might not be a problem, as philanthropic dollars might flow in continually to replace that which is spent.  In smaller communities, DAF/endowments might be the lifeblood of social services in the area - if there is no endowment, there may be no critical funds for the community center, no emergency clinic, no low-cost day care.   The flow of charitable money is sporadic – the expectation that the coffers will refill in due time may not be true.   This thought of a paper has been floating around in my head (and my scholarship agenda) for some bit.  I hope that this perspective isn’t lost in the grand DAF/endowment debate, and I’m happy to see the Trust for Civic Life taking up the change and will be interested to see how things develop. 

Hopefully, eww

 

July 25, 2024 in Current Affairs, In the News | Permalink | Comments (0)

Wednesday, July 24, 2024

Another Report from AMT/EITC… A Late Addition: Nonprofits' Role in Protecting and/or Promoting Speech

Hi all – a quick hit for you all late on this Wednesday night.   As you might recall, I did a number of posts back at the end of May/beginning of June reporting on the charitable presentations at the AMT/EITC scholarship conference held at the beginning of the summer.   You can find those reports here, and here, and here.

My May/June blogging week ended, and I had one more report to go… so in the category of “better late than never,” I do want to talk about Miranda Perry Fleisher’s presentation, tentatively titled A Space for Dissent, because I think it is so critical at this moment in time.   In it, she explores the role of the nonprofit community in protecting and promoting speech, especially when that speech is challenging to the community and/or establishment (to the extent that those are different things.)   Her hope is to address these issues looking critically and thoughtfully at “long-standing First Amendment principles, the value of free speech in a democracy, and the role of the non-profit sector as a forum for dissent.”   I won’t give away the ending … no spoilers here on the Nonprofit Law Prof Blog.   So, keep an eye out for a law review near you!

In all seriousness… at the time, I remember thinking that this is an incredibly important project, at a time when nonprofits are getting called before Congress!!! to discuss their own speech and the speech that happens around them. The world events, international and domestic, that have occurred since my first few postings about the conference just reinforce my thinking of how important Miranda’s project will be.

Anticipatorily, eww

July 24, 2024 in Conferences, Current Affairs, In the News, Paper Presentations and Seminars | Permalink | Comments (0)

Thursday, June 20, 2024

BAM Is Back(?)

512px-Brooklyn_Academy_of_Music_(BAM)_(48228024996)Covid marked a real inflection point for performing art nonprofits. Without the ability to perform to live audiences, they struggled to keep their doors open and to pay their artists. There was significant turnover among the managerial ranks. And even when various lockdown orders were lifted and people got comfortable in crowds again, the sector has bounced back slowly, if at all.

Case in point: the Brooklyn Academy of Music. Last I had heard, it was struggling with layoffs and reduced audiences.

Now, a confession: I've never been to BAM, even when I lived in New York. The closest I came was in 2003, when Merce Cunningham celebrated his 50th anniversary with a dance concert featuring live music by Radiohead and Sigur Ros. Cunningham was one of my wife's favorite choreographers, and the piece seemed intriguing. At this point, I don't remember if we didn't go because tickets went quickly, because we had other plans, because it was all the way out somewhere in Brooklyn, or because we were both still students, with the cash flow constraints being students entails.

So this morning I saw a New York Times piece about BAM's upcoming season. Its Next Wave Festival this year will be larger than the last couple years (though not quite as extensive as it was pre-Covid). Its interim artistic director has become its artistic director. And it looks like it's in a stronger position than it was.

Is this indicative that performing arts nonprofits in general are getting back to where they were? Probably not. BAM is unique in many ways. But with luck, it's at least a signal that some of the clouds are starting to lift.

Samuel D. Brunson

 

Photo by Ajay Suresh from New York, NY, USA, CC BY 2.0, via Wikimedia Commons

June 20, 2024 in Current Affairs, Music | Permalink | Comments (0)

Monday, June 17, 2024

Nonprofit Theater and the Tonys

24533631708_45dd5cc5cb_cLast week, Darryll mentioned a Wall Street Journal article about the outsized representation of plays created or produced by nonprofit theaters in the Tony nominations this year.

Last night the Tonys happened. (Full disclosure: I didn't watch, though this morning I did watch the Alicia Keys/Jay-Z performance from the show.) As Darryll underscored, financially, nonprofit theater is struggling. Artistically, though? By my (quick, casual count), at least 19 of the 26 awards went to the shows with their roots in the nonprofit world.

I've been thinking about why and how we differentiate tax-exempt art from for-profit art (especially in the world of jazz and classical music vs. popular music). I don't have any firm conclusions--I'm still trying to decide how to think about it--but I will say that I think losing the art produced in the nonprofit world would be a net loss to society.

But can it only be produced by the nonprofit sector? Or can it best be produced by the nonprofit sector? That's a fair question.

Samuel D. Brunson

Photo by David. CC BY 2.0

June 17, 2024 in Current Affairs, In the News | Permalink | Comments (0)

Monday, June 3, 2024

Reports from AMT/EITC Continued - All.The.Politics.

Or should I say, electioneering....

It's a unique and polarizing election year and we have a very active Supreme Court on a variety of First Amendment topics,  so it's no suprise that we had two important presentations on the Johnson Amendment's prohibition on the politicial campaign intervention. 

Ben Leff presented a project that he is working on with Sam Brunson are working on some public interest litigation in this space.   As many of you may know, and as blogged about most recently here just a couple of days ago,  SAFE SPACE v. Commissioner s a test case in the works challenging the Johnson Amendment, a project that Ilya Shapiro had a hand in.   SAFE SPACE takes an all-or-nothing approach to the problems, clearly stating that the organization intends to do both electioneering and lobbying directly.

Ben and Sam intend to do something similar, in that they are filing with the intent of developing a test case.  Ben discussed their project on the blog previously - see here.  With the latest report that SAFE SPACE has been dismissed and returned to the administrative stage to develop additional facts,  Ben and Sam's project may be able to catch up procedurally.   Their project is very different from SAFE SPACE, however, as it will continued to utilized an affiliate organizations in their structure:

This Article describes the actions that Sam and I plan to take to create our own nonprofit organizations to endorse candidates in November 2024 using our
“alternate means” strategy that is explicitly distinguished from the marginal cost paradigm advanced by SAFE SPACE.  While it is likely that noting will happen to our application prior to the 2024 election, we believe that engaging in Constitutional self-help using an alternate means strategy is urgent given the existence of SAFE SPACE and its case pending in Tax Court.

The paper walked its way throught the Constitutional analysis of Branch Ministries and Taxation Without Representation, and why their alternative structure works to address the First Amendment speech issues while also protecing the charitable sector from being overrun.  Look for more updates on all of this - I'm sure Nonprofit Law Prof Blog will have the scoop, since both Ben and Sam are contributors here.

Phil Hackney, yet another of our bloggers and one who has been very active on this issue, presented his paper "The Political in Taxation."   Phil says that the motiviation for the article was "the House Ways and Means recent suggestion that spending on voter registration and get out the vote efforts ought to be prohibited."  It takes a wider view of how the tax code view political (again, in the electioneering sense) expenditures.   The article is a wonderful take on the artifical and overlapping distinctions among electionerring, lobbying, issue advocacy, and straight up personal consumptions that we deal with regularly in the Code.    As nonprofit types, we are used to these silos, but the are really artificial to the rest of the world.   Phil's project is really important as we try to think through an issue that threatens the legitimacy of our sector.

Speaking of Phil... he takes over blogging this week so be sure to ask him about it!

Thoughtfully, eww

 

 

 

June 3, 2024 in Conferences, Current Affairs, Federal – Judicial, Federal – Legislative, In the News, Paper Presentations and Seminars | Permalink | Comments (0)

Friday, May 31, 2024

ABA Nonprofit Organizations Committee Outstanding Nonprofit Lawyer Awards for 2024

The ABA Nonprofit Organizations Committee has announced the 2024 awardees.    

Vanguard Award – for distinguished lifetime achievement in the nonprofit sector:
Karin Kunstler Goldman
Deputy Chief, Charities Bureau, Office of the New York Attorney General

Outstanding Attorney Award – for distinguished service as outside counsel to nonprofit organizations:
Morgen Cheshire, Managing Attorney, Cheshire Law Group

Outstanding In-House Counsel Award – for distinguished service by a nonprofit in-house counsel:
Nishka Chandrasoma,  Vice President, Chief Legal Officer, and Secretary, Ford Foundation

Outstanding Academic Award – for distinguished academic achievement in the nonprofit sector:
Roger Colinvaux, Professor Catholic University of America, Columbus School of Law  (Nonprofit Law Prof Blog's own...!)

Outstanding Young Lawyer Award – for distinguished service by an attorney in the nonprofit sector who is under the age of 35 or
has been in practice less than 10 years:
Elizabeth Leiserson, Project Director, Legal Aid Society of Middle Tennessee and the Cumberlands

Congratulations and well earned to all the recipients - to read more about their accomplishments, please see the Committee web page at https://www.americanbar.org/content/dam/aba/administrative/business_law/awards/2024-nonprofit-lawyer-award-winners.pdf

eww

May 31, 2024 in Current Affairs, In the News, Other | Permalink | Comments (0)

Wednesday, May 29, 2024

Greetings from Chicago and the AMT/EITC Conference!

Hi all from near the campus of the Northwestern Pritzker School of Law, which is hosting the AMT/EITC Conference - a workshop for mid and senior level tax profs.   Some of the ideas being presented are fully baked - mine is only half baked but I am looking forward to getting some wonderful feedback.

I'm super excited for this conference becuase many of the superstars of Nonprofit Law Prof World are here, including Sam Brunson, Ben Leff, Miranda Perry Fleisher, Brian Galle, David Walker, and Phil Hackney.  So many really great discussions about to happen about the tax-exempt world!  I'm going to try to catch up with some of my fellow profs and get permission to talk about their projects in the works.  Since I have my own permission, I can tell you a bit about my work in progress, which we will discuss tomorrow.

You may have heard about the Trust-Based Philanthropy Project - you can find the project's website here: www.trustbasedphilanthropy.org.    They describe themselves as follows:

The Trust-Based Philanthropy Project is a five-year, peer-to-peer funder initiative to address the inherent power imbalances between foundations and nonprofits. At its core, trust-based philanthropy is about redistributing power—systemically, organizationally, and interpersonally—in service of a healthier and more equitable nonprofit sector. On a practical level, this includes multi-year unrestricted funding, streamlined applications and reporting, and a commitment to building relationships based on transparency, dialogue, and mutual learning.

Having worked with many private foundations over the years, the first thing that immediately came to mind as I explored the Project is "What about 4945?  and 4942??"   Typical tax lawyer, I know.   But the reality is that the private foundation excise taxes are rooted in distrust... a deep, deep Congressional distrust of private foundations, their donors, and their governing bodies.  One need only take a spin through the transcript of the Patman Hearings to know that Code Section 4945 does not come from a place of partnership and equity.   The sad fact is that distrust is baked into private foundation grant-making through the tax code.  Can we look at all of the private foundation excise taxes, but especially 4945, through the lens of trust based philanthropy and see if we can't make some changes for the better?  That's my goal in this project.

Coming to a law review near you... TBD!

Hopefully, more reporting from on the ground tomorrow!

Excitedly, eww

 

 

 

May 29, 2024 in Conferences, Current Affairs, Federal – Legislative, Paper Presentations and Seminars, Publications – Articles | Permalink | Comments (0)

Monday, May 27, 2024

On this Memorial Day: An Introduction to the USO

As I sat to write a blog post on this Memorial Day, I was Googling recommendations for charities that support current service members, veterans, and their families.  As the USO repeatedly appeared as the first entry on a numbers of searches, I realized that I actually know very little about it.  I think we’ve all probably seen pictures of movie stars and famous singers visiting the troops out in the field from time to time (there’s a great collection of vintage photos here), but I never really thought about the organization that made that happen.

Until now. 

“USO” stands for the United Service Organizations, which reflects its origins as a collaboration among a variety of existing charities that were serving military members and families during World War II.  The USO is not part of the Department of Defense; rather it is one of a handful of federally chartered corporations in existence (see 36 USC 2201 et. seq.) – although its statute provides “the Corporation shall maintain its status as a corporation incorporated under the laws of New York, another State, or the District of Columbia.”  The 2022 Form 990 reports its state of legal domicile as the District of Columbia.

Per its organizing statute, the USO was designed, in party, to   

accept the cooperation of, and provide an organization and means through which, the National Board of Young Men's Christian Associations, the National Board of Young Women's Christian Associations, the National Catholic Community Service, the Salvation Army, the National Jewish Welfare Board, the Travelers Aid-International Social Service of America, and other civilian agencies experienced in specialized types of related work, which may be needed adequately to meet the particular needs of the members of the Armed Forces, may carry on their historic work of serving the religious, spiritual, social, welfare, educational, and entertainment needs of men and women in the Armed Forces and be afforded an appropriate means of participation and financial assistance,

According to its 2022 Form 990, the USO is a private organization that is tax-exempt under Code Section 501(c)(3) and a public charity under Code Section 170(b)(1)(a)(vi).

By statute, the USO is a membership organization overseen by a Board of Governors.  The Board consists of six members appointed by the President, the Secretary of Defense (or designed), and representatives of the organizations listed above (or the public at large) that have the power to appoint the board of directors.  It is a membership organization, but the voting members are the six appointees of the President. According to its 2022 Form 990, it has a 38-person board, of which 37 are reported as independent (the one person who is not independent is the current President & CEO – he is also the only compensated member of the Board of Directors).

It’s hard to summarize all that the USO does for our military service members and their families. In addition to the well-known entertainment tours, the organization provides care packages for service members, transition services for soldiers re-entering private life, and various support services for military spouses, among other things.  It operates in a number of foreign countries as well in order to provide services to our military service members stationed overseas.   I strongly recommend visiting its website or, for the tax nerds among us, reading the details of its program services on Form 990 Schedule O.

There is a separate USO Foundation, which the USO lists on its Form 990 as a directly controlled entity within the meaning of Code Section 512(b)(13).  It was formed in 2007 as a fundraising arm.  The USO Foundation’s Form 990 indicates that it is a Type I supporting organization of the USO and covered under the USO’s group exemption letter.

If you wish to read more: uso.org

To review the USO’s Forms 990 and financial statements, see here:  https://www.uso.org/about/financial-statements

If you wish to donate, link is here.

Thankfully and in remembrance,

eww

May 27, 2024 in Current Affairs, Federal – Executive, In the News | Permalink | Comments (0)

Tuesday, April 30, 2024

ICNL: 10 Legal Threats to U.S. Civil Society

From the International Center for Not-For-Profit Law comes a new report: 10 Legal Threats to U.S. Civil SocietyICNLThe report documents what it describes as "[a] growing array of legal threats makes it harder for nonprofit organizations and activists in the U.S. to do their work. The 2024 elections may further restrict civic space in a deeply polarized country." The list includes criminalization of basic social services, new restrictions on protests, and politicized investigations of nonprofits. Worth a read for everyone interested in the vibrant nonprofit sector.

-Joseph W. Mead

 

April 30, 2024 in Current Affairs | Permalink | Comments (0)