Wednesday, July 8, 2020
Wednesday, July 1, 2020
This week, the Supreme Court released a couple opinions of interest in the nonprofit world. The first was Agency for International Development.
Background on the case: in 2003, Congress allocated billions of dollars to U.S. and foreign NGOs to combat HIV/AIDS abroad. That money was conditioned, however, on an organization having an explicit policy opposing prostitution and sex trafficking.
Some organizations that would otherwise qualify for these grants have found that a neutral stance toward prostitution is more helpful in their work, and oppose the policy requirement. Some U.S. NGOs filed suit and, in 2013, the Supreme Court held that the requiring that an organization have an explicit policy against prostitution to qualify for grant money violated the First Amendment. As a result, U.S. NGOs do not have to have an explicit policy opposing prostitution and sex trafficking.
But that left foreign NGOs. And it's worth noting that at least some of the foreign NGOs pursing this grant money are affiliated with U.S. NGOs that aren't subject to the policy requirement
In Agency for International Development, the Supreme Court held that the policy requirement is valid with respect to non-U.S. organizations. It based that conclusion on two grounds:
Monday, June 29, 2020
This morning, my wife read the heartwarming story of a family that bought out a Chicago paletero's ice cream on Father's Day so that he could spend the day with his family. Rosaria Del Real immigrated to the U.S. in the 1960s from Zacatecas, Mexico, working various jobs until a couple weeks ago when he hurt himself and couldn't do carpentry anymore. At that point he started selling paletas to earn money.
The family that bought his paletas started a GoFundMe to help him retire; as of right now, it has raised a little over $62,500 for him.
I said up front that this is a heartwarming story. And in a way it is. But it also strikes me as a deeply troubling indictment of our current system. As much as I love paletas, becoming a paletero shouldn't be a retirement plan, and GoFundMe shouldn't be our social safety net.
And they don't have to be. In the first instance, government can provide a social safety net. And charities can supplement (or administer) that safety net. This morning I also read this story about California's $75 million Disaster Relief Assistance for Immigrants.
While the state is providing the aid, it has engaged 12 nonprofit organizations throughout the state to process applications and distribute the money. That strikes me as an innovative and exciting partnership between the government and the nonprofit sector, one that is more sustainable and more systemically useful than relying on GoFundMe.
Samuel D. Brunson
Friday, June 26, 2020
The TEGE Council has submitted comments on the proposed UBIT siloing rules under section 512(a)(6).
"We are pleased to announce that on June 23, 2020, the TEGE Exempt Organizations Council submitted comments to the IRS and Treasury in response to proposed regulations under Section 512(a)(6), commonly known as the UBIT Silo regulations. The comments were 101 pages, with exhibits, and represent a herculean effort on the part of the group below to spot issues, identify potential solutions, propose examples, and collaborate, coordinate, draft, and edit—all within the short window of time to submit comments for official consideration. Thanks to the committee for the generous gift of time, thought, and leadership. Thanks also to Alexander L. Reid (Regulatory Affairs Chair) and Chelsea Rubin for their leadership."
Here are some of the bottom line comments from the executive summary describing the 101 pages of comments:
"This section provides an outline of our recommendations, each of which is further explained below.
1. Taxpayers should be allowed to identify separate trades or businesses based on all applicable facts and circumstances, consistent with the other aspects of tax-exempt organization tax law. The NAICS codes should operate as a safe harbor for purposes of identifying separate trades or businesses.
2. Taxpayers should be permitted to change the identification of a trade or business (i.e. change the NAICS code assigned to its “silo”) within the first two years of operating a new trade or business regardless of the presence of any mistake in identifying the most appropriate NAICS code. There should be additional flexibility in revising the use of DB1/ 114583248.3 3 NAICS codes that, due to further experience with the rules and accounting for the activities, become better defined over time.
3. Investment activity is not an unrelated trade or business and should not be treated as an unrelated trade or business subject to 512(a)(6).
4. If the IRS and Treasury treat investment activity as an unrelated trade or business, then we recommend the following to make the regulations more administrable and less burdensome: a. Jettison the de minimis and control tests outlined in the proposed regulations for
purposes of determining when a partnership is an investment or an operating business and use applicable accounting standards instead. b. ERISA-covered trusts should be permitted to aggregate all unrelated trade or business activities together, including UBTI arising from a partnership, because ERISA oversight rules ensure that such plans do not engage in a trade or business through partnership activity.
c. Investments managed by registered investment advisors should be treated as qualifying investment activities that may be aggregated together."
There are 13 total executive summary points.
Thursday, June 25, 2020
The Washington Post published an article on donor advised funds yesterday entitled Zombie philanthropy: The rich have stashed billions in donor-advised charities — but it’s not reaching those in need
It's honestly an interesting article though on some matters I had to scratch my head. For instance: "Known in the industry as DAFs (rhymes with calves) — and criticized by some insiders as “zombie philanthropy”.
To my experience, and I consider myself something of an insider to the industry from a regulatory and an observer point of view, I have never heard it pronounced to rhyme with calves -- calf maybe -- but not calves. Additionally, I have never heard it referred to as zombie philanthropy, and I am not sure that this is really apt.
It raises the fact that fairly large resources that they estimate at $120 billion rest within DAF solution while charities themselves are hemorrhaging money and support, resulting in some significant animosity in the charitable world.
The author a little strangely, but interestingly, discusses the thoughts of Norman Sugarman, who passed away long ago but was quite the exempt organization's attorney in his time.
"To Norman Sugarman, a former IRS attorney in Cleveland, this created both concern and opportunity. Sugarman represented community foundations fearful the new law would scare off donors.
“For him, it was important that, no questions asked, these [community foundations] were public charities,” said Lila Corwin Berman, a history professor at Temple University who has written about Sugarman’s role in the popularization of DAFs. “He believed most social problems could be better solved by charity than government, and that individuals should have more control over what their wealth could do for society.”
After successfully convincing the IRS that community foundations deserved public charity status, Sugarman also won an important concession: “philanthropic funds,” an innovative way his clients raised money, would also have all the tax benefits of giving directly to a working charity."
For the particular moment we find ourselves in with a pandemic and a worldwide economic collapse resulting from that Pandemic, I thought the concluding paragraphs were the most interesting:
"When asked about the #HalfMyDaf challenge, Fidelity Charitable President Norley said she and her colleagues had been encouraging their clients to give more since the beginning of the crisis.
“I don’t think you need to set a percentage on this. If somebody wants to donate their entire DAF, that’s great,” she said.
A reporter then presented Norley with a hypothetical: If she learned tomorrow that all of Fidelity’s fund-holders had decided to spend at least half of their DAFs this year, causing her charity’s assets to plummet from more than $21 billion to about $10 billion, would she be happy or dismayed?
“I have no comment on that,” she said."
Thursday, May 14, 2020
According to a study of more than 200 grant makers released by the Center for Effective Philanthropy on Wednesday, nine in 10 foundation leaders say their foundations seek to influence public policy through their grant making and other activities. Not only that, but almost 75% of those foundations have increased their policy efforts during the past three years, most frequently at the state and local levels.
Foundation leaders apparently find nothing wrong with the practice. The study relates that "These efforts are not new, but have increased in recent years." Moreover, "most foundation leaders view efforts to influence public policy as an important way to achieve their goals."
The study published a sample of views held by some foundation leaders:
- "Good public policy helps our grants go further, and bad public policy undermines our grant making."
- "Public policy can have significantly more impact on the issues we care about than our grant dollars alone can."
- "One cannot be serious about, for example, the health of the environment and ignore the importance of policy action on climate change."
The report maintains that "The primary way foundations pursue their policy agenda is through grant making. Almost three-fourths of foundations that engage in policy work support grantees’ policy efforts."
Yet, the survey found that many foundation leaders run into internal resistance to their policy work. According to the report, "Foundation leaders face some common challenges, particularly when it comes to building board support."
Monday, May 11, 2020
Writing in today's Chronicle of Philanthropy, Susan N. Dreyfus and John MacIntosh opine that during the current COVID-19 crisis and its aftermath, many medium-sized nonprofit organizations will not survive unless the federal government provides them more much-needed support. Dreyfus is CEO of the Alliance for Strong Families and Communities; MacIntosh is managing partner of SeaChange Capital Partners, an organization that helps nonprofits facing complex financial challenges. In their thought-provoking article in today's Chronicle, they argue that while
[n]onprofits of all kinds provide critical help to communities across the United States, . . . it is the medium-sized ones that make a critical difference — those with at least 500 employees. Their workers operate food pantries, and homeless and domestic-violence shelters. They manage and staff residential facilities for young people with mental illnesses. They offer in-home and residential services for older Americans and people with disabilities. During the Covid-19 pandemic, their work is more urgent than ever.
Yet, the authors state, even as these organizations face various challenges -- challenges as daunting as those faced by their smaller counterparts -- they "are not receiving the government support they need to survive." For example, the "federal Paycheck Protection Program excludes nonprofits with more that 500 employees from obtaining the forgivable loans that would allow them to retain and compensate their employees and continue to deliver essential services during this public-health crisis."
What, then, can we do? As the article points out, at "a time when many nonprofits are at a breaking point, we [cannot] afford to leave those with more than 500 employees out of support programs that are keeping smaller organizations afloat."
According to the article,
A new analysis of New York City’s larger nonprofits found that under normal circumstances, most have just two weeks of cash on hand. Without immediate assistance, the report projects that some won’t survive through May and that few, if any, will be in a position to continue services during the Covid-19 crisis and its aftermath. Most of these organizations lack meaningful endowments and have limited access to credit. Their operating margins are razor thin (an average of 1 percent), even before taking into account the reduction in revenue and increase in expenses associated with the pandemic. Most importantly, their philanthropy, which covers less than 5 percent of expenses, cannot make up for a reduction in funding and contracts during the health crisis.
The article continues:
This situation is not unique to New York. A 2018 report on the financial stability of community-based human-services organizations found that 40 percent of the larger nonprofits had less than one month of cash reserves. Those providing housing and shelter-related services faced significantly greater financial stress.
Critics may be quick to argue that the challenges confronting these nonprofits are the result of their own inefficiency and poor management. Not so, argue Dreyfus and MacIntosh. They specifically state that:
The challenges confronting these nonprofits are not the result of inefficiency or poor management. Most government funding and philanthropy traditionally does not cover the full cost of providing services. Government contracts for essential services also create cash-flow problems since, unlike with grants, payments are not made until after the work is completed and can be subject to long and unpredictable delays. Cash, as a consequence, is an ongoing issue. But unlike large for-profits, these organizations do not have access to capital markets, cannot easily unlock illiquid assets, and are unable to use bankruptcy to restructure while continuing to deliver services. Any increase in costs, reduction in revenue, or delay in cash receipts could put some of them permanently over the edge.
So just what is the solution? The authors call for Congressional action:
Friday, May 1, 2020
The Washington Post took a look at the age old battle of whether Foundations should dip into their endowments during a deep recession. They feature an ongoing battle at George Soros' Open Society Foundation where employees are angered that the Foundation is apparently not dipping into its endowment but using messaging to sound like it is.
From the Post: "The dispute between staff and leadership at Soros’s foundation touches on a broader discussion in America’s philanthropic community, where some industry leaders are calling for foundations with large endowments to ramp up spending in response to the covid-19 crisis. IRS rules require foundations to spend at least 5 percent of their assets annually, and many foundations hover around that spending figure, opting to preserve savings and endowment money.
On April 2, nine philanthropic membership and advocacy organizations published a joint statement urging foundations to boost spending this year and use endowment money if necessary.
“What nonprofits need most right now is more money. . . . Unprecedented challenges require unprecedented responses,” wrote the leaders of organizations including the Council on Foundations, the Center for Effective Philanthropy, and the National Committee for Responsive Philanthropy."
Thursday, April 30, 2020
The Independent Sector in an April 29, 2020 letter asked Congress to suspend the UBIT silo rule under section 512(a)(6) for 2019 and 2020. They estimate it would provide an average of $15,000 per impacted nonprofit.
"6. Suspend the “Siloing” Requirement for Unrelated Business Income for 2019 and 2020. Nonprofit organizations currently are struggling to comply with new, artificially strict accounting rules that prevent them from off-setting income with business losses. The CARES Act made it significantly easier for many for-profit businesses to reduce their taxes with losses while doing nothing to mitigate this unfair treatment of nonprofits. Suspending this provision will free-up an average of $15,000 per year in flexible funding that impacted nonprofits desperately need to keep their doors open and meet rising community needs."
In section 2203 of the CARES Act Congress suspended limits on net operating losses that it had imposed in the 2017 Tax Act. That has freed up capital for many wealthy individuals and businesses in a way that has been criticized in the popular press. Nonprofits too can take advantage of this relaxation to seek refunds from prior years where they were limited in taking NOLs against unrelated business taxable income. However, there is some difficulty in figuring out how to apply the UBIT siloing rules in this situation. Suspending those rules would give clarity to that problem and free up more dollars consistent with what Congress presumably intended in relaxing this rule for businesses.
Though it's not clear to me that this would free up money where it is desperately needed, because I was not a fan of the provision to begin with, I am inclined to think Congress ought to do this. It was not an essential addition to the taxation of exempt organizations, and it might free some money up that allows some nonprofits to make it to the other side of this health and financial crisis.
Still, I think the most important thing Congress can do is to get dollars to nonprofits through either the PPP or directly through grants where the nonprofits are carrying out important activities in helping Americans through this Pandemic.
They also urge Congress to increase the temporary universal charitable contribution deduction that Congress included in the CARES Act from $300 per taxpayer to $4,000 for single and $8,000 for married filing jointly above the line charitable contribution deduction. I am skeptical of these universal charitable contribution deductions. I fear the efficiency here is small. A Penn Wharton analysis of the $300 deduction suggested it would enhance charitable giving by only 5 cents on every tax dollar. Additionally, the IRS is not set up to police fraud. Though it might get some needed dollars to charitable institutions, I fear the extra deduction would be abused in way taxpayers would know and would undermine American belief in the honesty and fairness of our system.
The Independent Sector letter was similar but different than one put out by the National Council of Nonprofits signed by a broad group of nonprofits. Broadly though there is national agreement that nonprofits need the help of the federal government.
Wednesday, April 29, 2020
Thought today I would go over the unemployment provisions of the CARES Act. Though not necessarily focused on nonprofit organizations, some aspects open these provisions up to use by the nonprofit community. Additionally, like any business nonprofit leaders need to inform themselves of all the different sources of money out there to help patch us through this unprecedented crisis.
Most significantly for the nonprofit community Congress created Pandemic Unemployment Assistance in section 2102 of the Act. It is available to those not eligible for regular UI, such as the self-employed, the gig-economy, contract work or those who have already used up unemployment eligibility. It is available for 39 weeks, ending December 31, 2020.
This provision is important to the nonprofit community because charitable nonprofits, for instance, are exempt from the unemployment insurance system and often do not pay into the system. One that some have worried would not be covered include churches and clergy. But the Department of Labor seems to indicate clergy are covered.
The Department of Labor has stated: The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways. The CARES Act includes a provision of temporary benefits for individuals who have exhausted their entitlement to regular unemployment compensation (UC) as well as coverage for individuals who are not eligible for regular UC (such as individuals who are self-employed or who have limited recent work history). These individuals may also include certain gig economy workers, clergy and those working for religious organizations who are not covered by regular unemployment compensation, and other workers who may not be covered by the regular UC [unemployment compensation] program under some state laws. To access this benefit, the individual needs to show some Covid-19 impact on their work history.
Ultimately though you will have to check with your state as to whether your nonprofit's situation is covered.
The other major change that makes the unemployment provision particularly useful at building a bridge to when we can get back to work is that the weekly benefit has been increased by $600. This is on top of whatever amount the state already paid. This increase as currently scheduled runs from as early as March 29th through July 31, 2020. Some Democrats are working on getting that end date extended. Note that the start date of these new benefits is dependent upon your state.
Also, significantly, the CARES Act extends unemployment insurance for 13 weeks. In most states this makes unemployment run 39 weeks - 26 weeks for regular + 13 extra weeks.
The CARES act also provides federal funds to support work-sharing arrangements.
If you are interested in looking further, I have looked at a lot of online descriptions of the unemployment provisions, I found this document by the Jewish Federations of North America to be particularly useful.
Monday, April 27, 2020
Because the new universal charitable contribution (above the line) deduction of $300 is per eligible individual, defined in Section 62(f) of the Code as an individual who does not elect to itemize deductions, some have suggested that married individuals might be able to deduct $600 rather than just $300. One of our longtime readers, NYU Professor Harvey P. Dale, pointed out there is strong reason to believe legislators did not intend that, and that the IRS and the Treasury Department will not likely interpret the Internal Revenue Code that way.
The Staff of the Joint Committee on Taxation released its “Description of the Tax Provisions of Public Law 116-136, the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act,” JCX-12R-20 (April 23, 2020). Footnote 76, on page 22, reads as follows: “The $300 limit applies to the tax-filing unit. Thus, for example, married taxpayers who file a joint return and do not elect to itemize deductions are allowed to deduct up to a total of $300 in qualified charitable contributions on the joint return.” In the text it also states that the universal deduction is only available in 2020. While neither of these statements is an ultimate legal authority, the Joint Committee description is a highly persuasive authority for the IRS and the Treasury Department. [N.B. I believe the temporary nature of the universal charitable contribution deduction is well textually supported as has been noted on here before because it is only available for tax years beginning in 2020.]
Also worth noting that in one study by the Penn Wharton Budget Model, very little of the tax dollars given up here are expected to spur charitable giving. They estimate that though the deduction will cost $2 billion, it will induce only an extra $110 million in charitable giving.
Friday, April 24, 2020
I'm going to end the week where I started it: with the Paycheck Protection Program.
Remember, the CARES Act created the PPP, which expands the SBA's loan program. Under the PPP the government can make or guarantee forgivable loans to small businesses--and, in an expansion or its previous mandate, small nonprofit organizations--provided those organizations use the funds for permissible purposes, including critically, for compensation.
The president signed the CARES Act into law on March 27. One week later, the SBA issued a FAQ dealing with the PPP and faith-based organizations. In essence, the FAQ clarified that the PPP was available to faith-based organizations under essentially the same terms as it was to any other nonprofit. That is, as long as the faith-based organization met the size limitations and used the money for purposes, it could participate in the PPP.
(It turns out that the SBA differentiated faith-based organizations from other nonprofits in one critical manner: while the law applies the same affiliation rules to nonprofits as it does to for-profit borrowers, the SBA announced that it will not look at the relationship between faith-based organizations where that relationship is based on religious teachings or other religious commitments. In regulations, the SBA went on to explain that applying the affiliation rules to religions that had doctrinal reasons for affiliating would impose a substantial burden on the organizations' free exercise, raising First Amendment and RFRA questions. Thus, the SBA said, it would take faith-based organizations at their word if they claimed their affiliation was based on religious requirements.)Ariz
Interestingly, in its April 3 FAQ, the SBA explicitly states that "loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions" (emphasis mine).
Wednesday, April 22, 2020
And the pandemic has been devastating to the arts world, a world that quite frequently relies on public performance both to raise revenue and to encourage donors. The novel coronavirus has devastated the jazz world (which is my love), killing jazz legends and shutting down performance spaces.
And then there's dance, an art form perhaps less-well-known and less appreciated than jazz. In Illinois alone, dance companies expect to lose $4.5 million in revenue through April 30, and more if (as is likely) the shutdown lasts longer. Hubbard Street Dance Company, for instance, ended up cancelling the last week of its Decadence tour in Italy in February and then, hours before it opened the performance in Chicago, Gov. Pritzker ordered closed gatherings of more than 1,000 people, closing the performance before it opened.
So how do arts organizations survive? Fortunately, the federal government has provided some help, including the Paycheck Protection Program and $75 million to be distributed by the National Endowment for the Arts.
State and local governments have been stepping up too. Chicago and Illinois have joined together with the Arts for Illinois Relief Fund, which provides grants to artists and arts organizations. The Fund is funded by the city, the state, and private philanthropy (of both the wealthy and the ordinary person type).
Still, the ability of arts organizations to weather this storm, while backstopped by state and philanthropic money, is, at best, tenuous. Once we get past the current crisis, arts organizations may need to rethink their funding models.
In the meantime, while I'm familiar with the steps Chicago and Illinois are taking to protect nonprofit arts organizations, I am less aware of what other cities and states are doing. Does anybody have examples of COVID-19-related support that their city or state is undertaking to protect and shore up the arts?
Samuel D. Brunson
Monday, April 20, 2020
Last week, Lloyd mentioned three sections of the CARES Act of particular interest to the nonprofit community. One of those three sections is the Paycheck Protection Program, created under section 1102 of the Act.
Broadly speaking, the PPP expands the Small Business Administration's authority to make loans to small businesses either directly or indirectly. Under the PPP, essentially, the SBA guarantees 100% of covered loans. A borrower can only use these loans for specific purposes, including (among other things) payroll costs, mortgage interest, rent, and utilities.
Critically, to the extent a borrower spends the borrowed money in qualifying ways (payroll costs, mortgage interest, rent, and utilities), the loan will be forgiven.
And, while the SBA loan program traditionally applied only to small for-profit businesses, the PPP explicitly includes nonprofits.
However, qualifying nonprofits face the same requirements as for-profit businesses, including a cap on the number of employees. Like a small business, a nonprofit only qualifies if it employs 500 or fewer people. And, like, a small business, nonprofits are subject to the SBA's affiliation rules.
Because SBA loans have historically only been available to for-profit entities, the affiliation rules focus largely on ownership and control (especially of stock). This is, at best, an imperfect match for nonprofits, which generally lack equity owners.
Presumably, in looking at affiliation in nonprofits, the SBA will look at the final two criteria: affiliation based on management or on identity of interest.
I'm hesitant to be too critical of a program thrown together quickly to deal with a worldwide pandemic. It inevitably is going to face unexpected problems, and grafting nonprofits onto a for-profit loan program seems almost built to raise those problems. As a result, I'll be interested in seeing how it ends up applying the affiliation rules to nonprofits. Still, this loan program will provide a lifeline to small nonprofits, making it easier for them to keep their employees and keep their physical spaces.
Samuel D. Brunson
Friday, March 13, 2020
With the challenges we will all face from the CoronaVirus Pandemic, I thought it would be useful to have the IRS Disaster Relief publication handy.
"This publication is for people interested in assisting victims of disasters or those in
emergency hardship situations through tax-exempt charities. Charitable organizations
have traditionally been involved in assisting victims of disasters such as floods, fires, riots,
storms or similar large-scale events. Charities also play an important role in helping those
in need because of a sudden illness, death, accident, violent crime or other emergency
hardship. This publication includes:
advice about helping to provide relief through an existing charitable organization,
information about establishing a new charitable organization,
guidance about how charitable organizations can help victims,
documentation and reporting requirements,
guidance about employer-sponsored assistance programs,
information about tax treatment of disaster relief payments,
information about gifts and charitable contribution rules, and
reference materials and taxpayer assistance resources.
By using this publication as you begin to plan your relief efforts, you will be able to ensure
that your program will assist victims in ways that are consistent with the federal tax rules
that apply to charities."
Monday, March 9, 2020
"I am no fan of billionaire philanthropy - I think it skews our democratic project in problematic ways - this on its face though seems like an excellent use of that money all the same."
In effect, I think of billionaire philanthropy as a problem as a synonym for the idea that we have enormous income and wealth inequality in the United States. The problem has nothing to do with the billionaires themselves as individuals. Instead, because some people have vastly greater resources than most other people, those individuals arbitrarily wield much greater power than the rest of us in deciding what the group is going to do. This political voice imbalance harms the democratic order that would ideally give each of us an equal voice in group decisions.
We also provide incentives to these wealthy individuals to make more efficient tax use (some might say take advantage of) contributions they make to charitable organizations. When they then use those tax-subsidized dollars to wield greater power, we might be doubly troubled.
For instance, the Gates Foundation invested an enormous amount into changing the way we conduct education in the United States. Though there are many community activists around the country that have a great depth of knowledge in how to best arrange our educational institutions, their voices have been likely crowded out by the Gate's Foundation effort. Today, even Bill and Melinda Gates agree their effort did not have a good effect.
The interesting thing to me in the current potential pandemic we face is that even with all the resources of an institution like the Gate's Foundation, their resources are still puny compared to the need to fight a potential pandemic. They cannot close down a country's borders or support all the people who have to go without income as a result of the crisis. They are puny in comparison to the worldwide need.
To fight such a gargantuan problem, we really need a coordinated governmental effort ideally along international lines. But we in the United States do not have that government capable of such an effort right now. So, in steps the Gates Foundation, with what I think has to be a good use of its dollars, providing the funds to develop a test for home use to end reliance on having to go to the doctor to both test (for containment) and keep people out of doctors’ offices and hospitals (to deal with overwhelmed health professionals).
All the same, I can't help but think the existence of billionaire philanthropy (and perhaps a certain reliance upon billionaire philanthropy) may be a symptom/cause of our current malaise. This is not to say I don't think philanthropy has a role to play in this crisis. I clearly think it does. I hope to look at this question the rest of the week while I blog on Nonprofit Law Prof Blog.
Thursday, March 5, 2020
As I'm sure you've heard by now, on February 18, 2020, Boy Scouts of America filed a petition for Chapter 11 bankruptcy.
This is a really big deal. BSA is one of the largest youth organizations in the country. It is not only a nonprofit and tax-exempt organization, but it (like the Girl Scouts, interestingly enough) is a federally-chartered organization.
Its bankruptcy was largely triggered by the risk of litigation over sexual abuse claims. It turns out that, while the national organization (the one that declared bankruptcy) has about $1.4 billion in assets, the local councils (that is, the entities that your sons--and sometimes daughters--join) hold a little more than twice that. In bankruptcy, the BSA is purportedly attempting not only to reorganize, but to shield local councils' assets from litigation claims.
Tuesday, March 3, 2020
About a month ago, Lloyd Mayer blogged about the potential sale of of the .org domain to Ethos Capital, a private equity firm. As of Lloyd's post, ICANN had agreed to make a final decision by February 17.
February 17th has come and gone without a decision. It turns out that the sale of the .org domain to a private equity company has proven, well, controversial. Among other things, people are concerned that the cost of charities' website will skyrocket. These concerns have prompted the California Attorney General to intervene, requesting information about the proposed sale and ultimately delaying its consummation.. At the same time, Ethos has made a number of commitments to assuage the concerns that have prompted concern.
As we wait to see how this plays out, there's an underlying issue for those of us interested in the details of the transaction: technically, to acquire the .org domain, Ethos will purchase Public Interest Registry. Public Interest Registry is a section 501(c)(3) organization operated to maintain the .org domain registry. So can ISOC sell a section 501(c)(3) organization to a for-profit buyer?
Obviously not. But, as Benjamin Leff explains, they can structure the transaction in such a way that Public Interest Registry becomes a for-profit entity, as long as its charitable assets remain in charitable solution. And how can they do that? Ben lays it out in excellent--and accessible--detail here. You should give it a look.
Samuel D. Brunson
Friday, January 10, 2020
The Treasury Inspector for Tax Administration issued a report on January 6, 2020 raising concerns that organizations are not properly filing notice with the IRS of their plans to operate as a section 501(c)(4) social welfare organization. TIGTA said as many as 9,774 organizations should have filed this notice but did not. The IRS disputes the problem is as significant as alleged by TIGTA, and generally did not believe it ought to pursue TIGTA's remedy of the IRS working with states to find out organizations that needed to file.
Congress promulgated new law in 2015 under section 506 of the Internal Revenue Code that requires a section 501(c)(4) organization to notify the IRS within 60 days after it has been established. Organizations must file a Form 8726 to give this notice.
A number of outlets have discussed this report so I don't want to spend much time on this. But it's hard to read these reports without thinking about TIGTA reports past. TIGTA tells IRS where it is failing. IRS admits to some, but disagrees with much, including some complex solutions that it could not possibly carry out. This is because the underlying failure has to do with a vastly underfunded IRS. The IRS must make terrible choices about where to utilize its resources. The budget simply does not allow it to operate at anywhere near an ideal level. TIGTA is an important organization, but it has blinders put on it that make it impossible for it to identify the true culprit - a Congress that will not provide the IRS the funds it needs to fairly enforce the tax laws.
Thursday, January 9, 2020
In a tax package agreed to on December 17, 2019, last year, Congress repealed a provision of the code widely known as the church parking tax. I wrote about it on Surly Sub Group when it was enacted in 2017 concerned about its massive probably unintended effect on nonprofits. It caused massive havoc in that world, and nonprofits, led by churches mounted a massive effort to get the provision repealed. It took two years, but they were successful.
Thus, even though the IRS spent significant time providing guidance on how to comply, and presumably large nonprofits around the country adjusted their parking situation dramatically, nonprofits and the IRS must now act as if none of that ever happened. Many nonprofits like universities and hospitals likely paid large 21% rate taxes on parking fringe benefits that they continued to provide to their employees.
What now? IRS needs to figure out how to expeditiously issue refunds.
Congress members just issued a letter to the IRS asking it to issue guidance as quickly as possible to let nonprofits know how to obtain these refunds.