Thursday, March 5, 2020

BSA and Bankruptcy

image from upload.wikimedia.orgAs 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.

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March 5, 2020 in Current Affairs | Permalink | Comments (0)

Tuesday, March 3, 2020

Updates on the .Org Domain Sale

PIR_RGBAbout 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.

Image: Official Public Interest Registry LogoCC BY-SA 4.0.

Samuel D. Brunson

March 3, 2020 in Current Affairs | Permalink | Comments (0)

Friday, January 10, 2020

TIGTA Claims Many Orgs not notifying IRS of 501(c)(4) status

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.

Philip Hackney

 

January 10, 2020 in Current Affairs, Federal – Executive | Permalink | Comments (0)

Thursday, January 9, 2020

Nonprofit "church" Parking Tax Ended by Congress: IRS Guidance on Refunds?

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. 

In P. L. 116-94 (found in section 302 at the bottom of that Act) Congress repealed the offending provision section 512(a)(7) retroactively.

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. 

Philip Hackney

 

January 9, 2020 in Church and State, Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Wednesday, January 8, 2020

Bill Gates, Philanthropist, Calls for Higher Taxes

Right before New Years day, Bill Gates issued some perhaps surprising end of the year reflections. Instead of focusing on the achievements he made with the Bill & Melinda Gates Foundation, he called for a need to raise taxes to manage increasing inequality. 

His answer to the following question I think is important even for those, such as Gates, who clearly support charitable organizations as one solution to the world's ills. When considering why he does not just give more in taxes himself, he states: "The answer is that simply leaving it up to people to give more than the government asks for is not a scalable solution." In other words, he takes the position that voluntary organizations are not a solution to societal ills.

He still sees a role for philanthropy as a place for risk taking. He states: "managing high-risk projects that governments can’t take on and corporations won’t—for example, trying out new approaches to eradicating malaria, which is something our foundation is working on. If a government tries an idea for improving global health that fails, someone wasn’t doing their job." 

Philip Hackney

 

January 8, 2020 in Current Affairs | Permalink | Comments (0)

Tuesday, December 31, 2019

Churches, Transparency, and $100 Billion

Yesterday, I wrote that this week I would be blogging about the Mormon church's $100 billion endowment.

It's worth noting here that estimating the value of the Mormon church has been something of a parlor game for the last couple decades, at least. When I was in college, Time published a story estimating the church's wealth at $30 billion. A decade and a half later, Reuters estimated that the church owned real estate worth $35 billion and received roughly $6 billion annually in donations from members in the U.S. and Canada. And now, apparently, the church receives $7 billion in contributions annually and has an investment portfolio worth $100 billion.

So why all of the estimates? Because churches in the U.S. aren't required to file the financial disclosures that other tax-exempt organizations must file. Church finances and assets, then, can be a black box. (They don't have to be a black box--nothing in the tax law prevents churches from disclosing financial data, and some churches have chosen to be transparent. More on that in a minute.)

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December 31, 2019 in Church and State, Current Affairs | Permalink | Comments (1)

Monday, December 30, 2019

$100 Billion and the LDS Church

About two weeks ago, Religion Unplugged and the Washington Post simultaneously broke a story: the Church of Jesus Christ of Latter-day Saints (which going forward I'll refer to as the Mormon or the LDS church). In brief, they reported a whistleblower complain to the IRS saying that Ensign Peak Advisers, a tax-exempt supporting organization/integrated auxiliary of the Mormon church, was sitting on investment assets worth $100 billion. Moreover, during its 32-year existence, the whistleblower alleged, it had never made any charitable distributions, to the Mormon church or any other charitable institution.

As both someone who spends a lot of time researching and writing about the intersection of tax and religion AND as a practicing Mormon, that revelation ended up taking a lot of my time. It raises interesting and ambiguous legal questions, many of which I wrote about here.

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December 30, 2019 in Church and State, Current Affairs, In the News | Permalink | Comments (1)

Wednesday, November 20, 2019

Third Sector: Debra Allcock Tyler: "'Bugger off' Charity Commission"

Tyler (Chief Executive Officer of Directory of Social Change) has this op-ed about the UK Charity Commission's urging charities to behave:

IT IS NOT THE JOB OF CHARITIES TO BEHAVE! (Yep, I’m a woman shouting!) Charities effect change by being disrupters, campaigners, advocates, activists. There wouldn’t be animal welfare laws without animal charities shouting; there wouldn’t be child protection laws without children’s charities getting angry; there wouldn’t be clean air legislation without health charities badgering politicians. So long as we’re not breaking any laws, it’s entirely up to us how we behave. And if we don’t get it right, we’ll be punished by our donors, supporters and beneficiaries. Their voices are way more important than those of a hectoring, ill-informed, populist, increasingly politicised commission. And we know them better than it does.

Read the whole thing at: https://www.thirdsector.co.uk/debra-allcock-tyler-bugger-off-charity-commission/governance/article/1666192

November 20, 2019 in Current Affairs, International | Permalink | Comments (0)

Saturday, November 9, 2019

Trump Ordered to Pay US$2 million for Misuse of Foundation - Where Can You find the Documents?

On November 7, New York Supreme Court Judge Saliann Scarpulla ordered President Trump to pay $2 million in resitution to charity for his breach of his fiduciary duties as an officer and director of the Trump Foundation. The link attached to ordered above is the Judge's actual order. Since this is written up a lot in other places, like here by David Fahrenthold who has been the best chronicler of the Foundation, I only provide resources here for digging deeper into the case.

To fully comprehend what has happened to the Trump Foundation, President Trump, and his children, you have to read more than the order. They all entered into a series of stipulations with the NY AG Letitia James. The stipulations spell out a series of significant admissions of wrongdoing made by President Trump and his three children who sat on the board. The press release issued by the NY AG does a nice job of summarizing all that has taken place. I recommend reading all three.

If interested in seeing all of the evidence held by the NY AG you can go to the NY Supreme Court and search in the case index for the index number of the case (451130/2018). That should take you here, which if it works would save you the time of searching the case index. More information can be found from CREW who did a FOIA search that yielded the Form 4720s and checks filed by the Foundation with the IRS.

I have written about the matter on The Conversation here. In that piece I try to grapple with whether there are any situations in history that place this occurrence in proper historical context. If you get a chance to look at that, and have thoughts about the choice, let me know what you think.

Philip Hackney

November 9, 2019 in Current Affairs, Federal – Executive, In the News, State – Executive, State – Judicial | Permalink | Comments (0)

Thursday, November 7, 2019

UPMC Denied Property Tax Exemption on County Hospitals

Pennsylvania bears watching on hospitals and tax exemption.

Pennsylvania's Northumberland County Board of Assessment just denied a request on October 30 for property tax exemption for some hospitals UPMC acquired a few years ago. UPMC, headquartered in Pittsburgh in the old US Steel building, bought Susquehanna’s Sunbury and Lock Haven hospitals from for-profit Quorum Health in 2016. 

Apparently no specific reason was sited for the denial. From the article:

“There was testimony during the hearing that indicated that some parcels, or portions of the parcels, were utilized for purposes that likely are not exempt. UPMC felt all of the parcels were exempt,” Mr. Garrigan wrote in an email.

“When questioned by the Board, UPMC gave an indication as to the approximate breakdown of the parcels by use, but there was little documentary evidence provided at that time to backup these percentages.”

UPMC has 30 days to appeal.

The healthcare giant recently entered into a 10 year agreement with Highmark for Highmark to be allowed to use the UPMC provider network. This came on the heels of the Pennsylvania AG bringing a complaint sounding in state charitable nonprofit law to force UPMC to enter into such a relationship with Highmark.

Philip Hackney

November 7, 2019 in Current Affairs, In the News, State – Executive | Permalink | Comments (1)

Tuesday, November 5, 2019

Salt Lake Tribune Becomes Charitable Organization

The Salt Lake Tribune, a major paper of Salt Lake City, announced recently it converted its operation into a tax exempt charitable organization. The newspaper received its determination letter from the IRS on Oct 29.

From the Tribune: "The move from a for-profit model was spurred by Tribune owner Paul Huntsman, who, in agreeing to turn Utah’s largest paper into a nonprofit, is giving up his sole ownership."

“The current business model for local newspapers is broken and beyond repair,” said Huntsman, who also serves as The Tribune’s publisher. “We needed to find a way to sustain this vital community institution well beyond my ownership, and nonprofit status will help us do that. This is truly excellent news for all Utah residents and for local news organizations across the country.”

This is not a new move. Both the Philadelphia Inquirer and apparently the Tampa Bay Times have made operational changes to be strongly associated with a nonprofit. As a result of the crash of the news industry generally, many have been long considering such a move. St. Louis Tribune thus is not new, but it is a suggestion that the trend might be getting stronger. 

Richard Schmalbeck of Duke Law School has written academically about the issue here. Sam Brunson, one of our co-bloggers, wrote comprehensively about the Salt Lake Tribune conversion and its practical tax legal implications here. This remains an issue worth following.

Philip Hackney

 

 

November 5, 2019 in Current Affairs, In the News | Permalink | Comments (0)

Wednesday, October 30, 2019

Think Tank Alert: American Idea Foundation

On Monday, former House Speaker Paul Ryan launched the American Idea Foundation. The American Idea Foundation is a nonprofit, exempt under section 501(c)(3), and plans to focus on Ryan's legislative interests from his years in Congress, including poverty, economic opportunity, and "evidence-based approach[es]" to solving other problems.

At this point, of course, there's not much to say about the American Idea Foundation. It just launched, and hasn't filed any 990s or actually done anything. And, in fact, it's not completely clear to me what the Foundation plans on doing. It doesn't look like it plans on doing its own research; rather, it plans to identify successful organizations, and maybe education policymakers about what they're doing?

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October 30, 2019 in Current Affairs | Permalink | Comments (1)

Tuesday, October 29, 2019

Using Nonprofits For Illegal Purposes

Last week, Reuters reported that two nonprofits agreed to pay $6 million to resolve allegations that they had helped pharmaceutical companies in a way that violated the False Claims Act.

Chronic Disease Fund and Patient Access Network Foundation, the two nonprofits that paid the fine, are pubic charities, exempt under section 501(c)(3). Their charitable mission? To help poor individuals with chronic diseases get the medication they need by paying their out-of-pocket costs for the medication. The allegations that they settled claim that seven pharma companies used the nonprofits as flow-throughs, essentially donating money to the nonprofits, which would then help patients pay for those drug companies' medicines.

The problem? The Anti-Kickback Statute prohibits drug companies from subsidizing copayments from patients on Medicare. Drug companies can donate to nonprofits that subsidize these out-of-pocket expenses, but the nonprofits must operate independently from their donors; here, the allegation was that CDF and PANF didn't act independently. And, while neither admitted wrongdoing, they did settle.

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October 29, 2019 in Current Affairs, In the News | Permalink | Comments (0)

Friday, October 4, 2019

Can Philanthropy Save Democracy?

In its October 1st edition, The Chronicle of Philanthropy published Can Philanthropy Save Democracy? -- an interesting read.  The number of grant organizations that are funding efforts to strengthen the democratic process is on the rise.  According to the article, "Foundation support nationwide for democracy projects jumped 34 percent in 2017, to $553 million, according to Candid, which tracks grant-maker activity. Those are the most recent figures available, but all signs suggest that spending is on the rise."  As the article points out, these efforts have no political or ideological limitations or consensus for that matter; donors are as varied as George Soros and Charles Koch. 

The bi-partisan Democracy Fund, which supports a wide assortment of democracy efforts, was created by eBay founder and philanthropist Pierre Omidyar in 2014 "to help ensure that the American people come first in  our democracy."  Its president, Joe Goldman, believes philanthropic organizations and individuals have a mandate to reverse the "weakening of important American institutions."  While large donors and foundations have traditionally steered clear of political involvement, Goldman opines that the landscape is evolving:  

Historically it was perfectly appropriate for some funders to say, "Look, my role is technocratic. My role is to stay out of politics" . . .  But there are points in time when the threats are such that we all need to stand up for our values. Our democracy has gone through many challenging periods, but we are definitely in a crisis point. People recognize we are in a bad spot. . . A lot rides on the outcome. . . 

Whether you care about the environment, housing, or the national debt, these issues are all fundamentally affected by the degree to which our political system is healthy and functioning.

As part of this uptick in funding, Omidyar has more than tripled the Democracy Fund's annual grant-making budget to $50 million.  

Believing that a "strong philanthropic response to something new and worrisome going on in America" as a result of the 2016 election cycle, Protect Democracy was created by former White House lawyers under President Obama.  Protect Democracy's website describes itself as a "nonpartisan, nonprofit organization dedicated to fighting attacks, from at home and abroad, on our right to free, fair, and fully informed self-government."  The organization's budget has grown from a meager $400,000 to over $10 million annually.  One of its co-founders, Ian Bassin, explained the need for such nonprofits as Protect Democracy:

A lot of work has gone into things like gerrymandering, voting rights, and campaign finance. . .  There hasn’t been nearly as much time thinking about how we make sure that our fundamental system of checks and balances is strong and able to withstand modern autocratic movements. We need to make sure we’re spending resources there as well.

The Ford Foundation, Carnegie Corporation of New York, and other established grantmaking organizations have stepped up their funding of efforts to strengthen democracy.  According to the article, Ford’s "democracy budget" is about $25 million a year, recently committing an additional $5 million to support accurate census efforts. Carnegie anticipates making $7 million in grants supporting voting rights and related issues in its current fiscal year, an increase of $5.2 million over the prior year. The article reports that increased funding has also focused on strengthening journalism to boost democracy; funders including The Knight Foundation, The Hewlett Foundation, The MacArthur Foundation, and Craig Newmark (founder of Craigslist).

Nicholas Mirkay

October 4, 2019 in Current Affairs, In the News | Permalink | Comments (1)

Friday, September 6, 2019

New Proposed Regulations on Donor Disclosure

Treasury just released Proposed Regulations under Code Section 6033 regarding donor disclosure (technically, it is filed but not yet published - it is scheduled to be published on September 10), which addresses the issue of what information an exempt organization must disclose about its donors.

If you are late to the story, a little recap is in order: 

  • Section 6033(b)(5) provides Section 501(c)(3) organizations must provide donor information for "substantial contributors."
  • Treasury Regulation 1.6033-2(a)(2)(ii)(f) states that any organization required to file an annual information return must provide information regarding donors who give more than $5,000 during the year.
  • On July 17, 2018, Treasury issued Revenue Procedure 2018-38, which states that, effective as of Dec. 31, 2018, exempt organizations that are not exempt under Section 501(c)(3) do not have to file the Schedule B with donor information, but they should keep the information and make it available upon IRS request.  Section 501(c)(3) organizations must still provide this information as required by Section 6033(b)(5).   See a more detailed description from KPMG here.
  • Not everyone was particularly pleased about this and, not surprisingly, litigation ensued.
  • On July 30, 2018, in Bullock v. IRS,  the U.S. District Court for Montana (Bullock being the Governor of Montana; the state of New Jersey also was a plaintiff) determined that Treasury did not follow proper procedure under the APA in issuing the Rev Proc.   The District Court held that the Rev. Proc. was really an amendment to Treasury Regulation 1.6033-2(a)(2)(ii)(f), and therefore was a "change in existing law or policy" (i.e., it was a legislative rather than interpretive rule) that required APA notice and comment.  Accordingly, it was set aside.
  • These new regs specifically respond to the Bullock v. IRS (in fact, it mentions it by name on page 10) by issuing these Proposed Regulations, which are subject to notice and comment.  

While I've not held the proposed regulations and the Rev Proc up to each other side by side quite yet, it does appear that the Proposed Regulations are essentially similar to the Rev. Proc, expect for the request for notice and comment.     Because the Proposed Regs are not yet officially published, there is no official due date for the comments, other than 90 days from the date of publication.   If they hold true to their word, it would be 90 days from Sept. 10.

Eww 

September 6, 2019 in Current Affairs, Federal – Executive, In the News | Permalink | Comments (0)

Wednesday, September 4, 2019

Of Soap, Mayonnaise, and Double Bottom Lines

In an article entitled "He Ran an Empire of Soap, and Mayonnaise.  Now He Wants to Reinvent Capitalism", today's New York Times profiles Paul Polman, the current CEO of Unilever.  Under Mr. Polman's tenure, Unilever has stopped issuing quarterly guidance, which is an interesting turn for those of you who follow corporate finance and securities law.  The interesting part for this blog, however, is that Polman stopped focusing on short term results and started looking at long term changes, including "a very bold objective to decouple [Unilever's] growth from our environmental impact."   In the article, he says "we need to decarbonize this global economy if we want to keep it livable.  We need to find an economic system that is more inclusive."   To that end, part of the reason Unilever turned down a bid from Kraft Heinz was the significant difference between the two companies on these types of issues of corporate social responsibility and double bottom line thinking.  

A few issues came to mind for me as I read this.  First, with regard to benefit corporation status, I said to myself, "Interesting that Unilever was able to go there without being a benefit corporation and under, presumably, standard fiduciary duty rules of engagement."  The answer to that is that Unilever is apparently two different organizations: Unilever NV is organized in the Netherlands and Unilever PLC is organized under the laws of England and Wales, according to their website , so they may in fact be working under different rules - I'd be curious if anyone knows what fiduciary duty standards apply in these jurisdictions.   

Of course, not all benefit corporations are B Corps, and vice versa, so just for fun, I then hit the Google with "Unilever B Corp."  My first hit was "Unilever, Multinationals, and the B Corp Movement," featuring a video from none other than ..  Paul Polman.   Apparently, Unilever will be working with B Lab to look at barriers to B Corp status for mulinationals as part of a new Multinationals and Public Markets Advisory Council.  Unilever owns a number of B Corp certified subsidiaries, including Ben & Jerry's and Sir Kensington's, an "upstart condiments maker" according to one industry blog (I'm not really sure what an upstart condiment is ... anyone had Sir Kensington's?  Looks pretty good though....)

The other connection I made harkens back to my post from yesterday, and specifically the book Winner Take All that I mentioned yesterday.   One of the themes of Winner Take All was that business elites like to talk about CSR, impact investing, double bottom lines, and all of the jargon that accompanies philanthro-capitalism because it is safe and familiar.   Everyone around them comes from a similar business background, so a lack of diversity of thought and training is reinforced.   This leads to the singular thinking that business methods can solve social problems, and there are no countervailing voices to say, "Hey, wait a minute..."   In the best case scenario, this is myopia.   In the worst case scenario, business solutions to social issues are "win-win" - at least to the business -  and forestall efforts to reallocate resources away from the business sector to governments in order to address these issues.   My problem with Winner Take All is that it was extraordinarily dismissive of those who were involved in philantho-capitalism as being entitled, self-indulgent, or greedy.  I think the picture is far more nuanced then that, and it was interesting to read the profile of Mr. Polman through that lens.

EWW

 

 

 

September 4, 2019 in Books, Current Affairs, In the News | Permalink | Comments (0)

Friday, August 23, 2019

Philadelphia Inquirer Three Years a Nonprofit. How is it Faring?

The newspaper business has been a dying business for some time now. It has been hard to make ends meet. As a result of that challenge some newspapers have considered converting to charitable entities with tax exemption. Some have made the conversion. 

The Philadelphia Inquirer, a long and storied institution, made that choice three years ago. How's it faring? NiemanLab provides a good look 

From the story: "The Inquirer was once arguably the nation’s premier metro daily, with a 700-strong newsroom, bureaus around the world, and a run of 17 Pulitzer Prizes in 18 years. But it suffered through a miserable stretch between 2006 and 2016, with five different owners (and two bankruptcy auctions). When that last owner, Gerry Lenfest, decided three years ago to donate the paper into nonprofit ownership — what would become the Lenfest Institute for Journalism — it sparked a lot of hope and excitement in a depressed industry."

The Inquirer "brought a new twist, too, a public benefit corporation model. The nonprofit Lenfest Institute is the sole owner of the for-profit Inquirer."

I recommend a review of the article. It gets fairly wonky in terms of income tax exemption rules that have been challenges for this structure.

Perhaps the bottom line though is: "Or as that memo to staff put it: “Being owned by a not-for-profit entity makes us unique among our industry peers, but it does not make us immune from the challenges facing the local newspapers across the country.”

Philip Hackney, Associate Professor of Law, University of Pittsburgh School of Law

August 23, 2019 in Current Affairs, In the News | Permalink | Comments (0)

Tuesday, August 20, 2019

For Profit Corporations with a Social Purpose?

America's CEO's came out, through the Business Roundtable, with (from my perspective) an odd new statement yesterday that shareholder primacy should no longer guide their mission as for-profit corporations. Instead, it highlights the importance of other values like: “value for customers,” “investing in employees,”  “diversity and inclusion,” “dealing fairly and ethically with suppliers,” “supporting the communities in which we work,” “the environment.”

It's odd because from a legal and practical perspective, I don't see the institution of the for-profit corporation as able to make this change. These entities are structured to first, second, third, and last maximize profit. 

Fortune Magzine wrote about the statement here.

This post is obviously not directly about nonprofits. But, I think for watchers of nonprofits and philanthropy this is an interesting moment. My sense is this is related to two different trends. The first and maybe the most important is the growing sense of inequality worldwide. This is perhaps a primary function and is there to be a PR appeaser to those types of concerns, but maybe is at least a signal that they are aware of the democratic concerns. The second though is the very real trend of new businesses choosing to form as benefit corporations. This suggests that many think it at least important for for-profit corps to be viewed as sustainable, genuinely good, and a part of the community. Whether driven by employees, consumers or the larger public this seems to be a real trend.

Why do I think this relates to nonprofits? Because these moves begin to tread on nonprofit territory. What that will mean for the nonprofit brand long term will be interesting to watch. Nonprofits have long been involved in for-profit spaces like health clubs or program related investments. The latter have been growing through things like "impact investing." Now, for-profits increasingly see a need to be mission directed like the nonprofit world.

Anyway, no major thoughts on this other than this moment is worth sticking a pin in for those in the nonprofit space as well. What it will mean remains to be seen, but I think this trend will cause an impact in the nonprofit world that we are just not able to appreciate yet.  

Philip Hackney, Associate Professor of Law, University of Pittsburgh School of Law

August 20, 2019 in Current Affairs, In the News | Permalink | Comments (0)

Monday, August 19, 2019

Pharma Charities?

The Economist had an interesting story this past week on some of our largest charities - charities associated with drugmakers.

Perhaps you have also noticed the tendency that when you go to buy an expensive brand drug that despite the fact that you have insurance, there is still an expensive co-pay involved. However, there are sometimes charities that can help you with that co-pay depending on your circumstances. You might have wondered why they do that.

Well, the Economist has investigated. 

From the story: "According to public tax filings for 2016, the last year for which data are available, total spending across 13 of the largest pharmaceutical companies operating in America was $7.4bn. The charity run by AbbVie, a drugmaker that manufactures Humira, a widely taken immuno-suppressant, is the third-largest charity in America. Its competitors are not far behind. Bristol-Myers Squibb, which makes cancer drugs, runs the fourth-largest. Johnson & Johnson, an American health conglomerate, runs the fifth-largest. Half of America’s 20 largest charities are affiliated with pharmaceutical companies.

Not everyone qualifies for their help. Unsurprisingly, pharma-affiliated charities fund co-payments only on prescriptions for drugs that they manufacture. There is often an income threshold, too, which excludes the richest Americans—though it is usually set quite high, at around five times the household poverty line. They are prohibited from funding co-payments for those on Medicaid (which helps the poor) and Medicare (which helps the elderly) by the anti-kickback statute, which prevents private companies from inducing people to use government services. Those patients can accept co-pay support from independent charities, such as the Patient Advocate Foundation."

I am a bit troubled by the idea of the IRS granting and maintaining exemption for a charity that is associated with a for-profit that only pays for drugs that the for-profit provides. I have not investigated any of these enough to come to any conclusion. However, the fact that this is now a significant part of the charitable environment, and it is associated with a major public policy suggests to me that Congress needs to give real thought to how this system fits in with charity and with prescription drugs generally. More reasoned thought is needed. The IRS needs to do its best job in assessing whether these organizations meet the requirements of charity, but given the significant policy domains this issue crosses, it's probably not the best place to answer such questions.

As it is now, it appears that Pharma has cobbled together a financial solution to a problem they faced as a business, that happens to involve "charity," rather than that Pharma is seeking to do charitable things that deserves the moniker. 

I have not personally seen any guidance or determ letters from the IRS on this matter. If anyone has one, would love to see what the IRS has concluded on the matter.

Philip Hackney, Associate Professor of Law, University of Pittsburgh School of Law

August 19, 2019 in Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (3)

Thursday, August 8, 2019

Charities' Fundraising Efforts Not Experiencing Drastic Downturns from TCJA

As published in The Chronicle of Philanthropy, a recent survey conducted by the Nonprofit Research Collaborative revealed that approximately 75% of charities surveyed achieved their 2018 fundraising goals, and 63% stated that their donations increased from the previous year.  While consistent with the results of last year's survey on 2017 fundraising, charities and fundraisers alike were prepared for potentially significant drops in fundraising dollars due to the Tax Cuts and Jobs Act of 2017 (TCJA).  Of the charities surveyed, 26% reported that the TCJA did not affect their fundraising, with 17% stating the new tax law had a negative impact on their fundraising results.

Online surveys of individual donors revealed that 56% reported that their giving in 2018 was the same as 2017, beating out pessimistic forecasts based on TCJA.  Although a recent "Giving USA" report found that charitable donations decreased 1.7% in 2018, a majority of the fundraisers (60%) in the survey referenced above were optimistic that their fundraising efforts would yield greater donations in 2019 than the prior year.

Nicholas Mirkay

 

August 8, 2019 in Current Affairs, Federal – Executive | Permalink | Comments (0)