Friday, May 17, 2019
Charitable Contribution Cases: An Alleged $151 Million Conservation Easement; Tens of Millions in Bogus Contributions
In Battelle Glover Investments, LLC v. Commissioner (link to petition available from Tax Analysts; subscription required), a partnership is challenging a $151 million charitable contribution deduction disallowance arising out of a conservation easement donation. According to the petition, the conservation easement was on approximately 97.8 acres of limestone mining property donated to the Southeast Regional Land Conservancy, Inc. The petition indicates the Internal Revenue Service is disallowing the deduction on multiple grounds, including that the partnership failed to satisfy all of the requirements of Internal Revenue Code section 170 and that the correct valuation of the conservation easement was zero. The IRS is also seeking to impose a 40% valuation misstatement penalty. This case is of course only the latest, high-dollar conservation easement dispute, as the IRS has brought hundreds of cases challenging charitable contribution deductions in this area, as documented by co-blogger Nancy A. McLaughlin (University of Utah).
In United States v. Meyer, the federal government successfully sought injunctive relief against an attorney who promoted the "Ultimate Tax Plan," also sometimes referred to as a "Charitable LLC" or "Charitable Limited Partnership." According to the complaint filed last year in federal district court, the scheme involved sham donations to purported charities controlled by Mr. Meyer and his advice to the participants that as a result of those donations they could take unwarranted charitable contribution deductions. The complaint stated that the total cost to the Treasury was more than $35 million in lost tax revenue. Each of the three charities involved were based in Indiana and had successfully applied for IRS recognition of exemption under Code section 501(c)(3). However, in recent years Mr. Meyer had entered into agreements with the IRS that retroactively revoked the tax-exempt status of all three charities based on either inurement grounds or their use in the alleged scheme. Mr. Meyer made money off this scheme by charging various fees related to the purported donations. The case apparently has had significant ripple effects, in that it appears to have triggered audits of many of the scheme's participants, and possibly investigations into the financial planners and CPAs to whom Mr. Meyer marketed it (and sometimes paid for referrals). Coverage: Bloomberg Tax; Forbes.
Both these cases illustrate the potential for abuse of the charitable contribution deduction, to the significant detriment of the federal treasury.
Thursday, May 16, 2019
New Jersey is the latest state to compel disclosure of significant donors in the wake of the federal government's decision to eliminate reporting to the IRS by tax-exempt organizations (other than 501(c)(3)s) of their significant donors. NJ Attorney General Gurbir S. Grewal and the NJ Division of Consumer Affairs announced a new rule earlier this week that will require both charities and social welfare organizations that have to file annual reports with the Division's Charities Registration Section to include the identities of contributors who have given $5,000 or more during the year. (Like a number of states, New Jersey apparently defines "charitable organization" broadly for state registration purposes, so as to encompass not only Internal Revenue Code section 501(c)(3) organizations but also Internal Revenue Code section 501(c)(4) social welfare organizations.) According to statements accompanying the new rule, the donor information will not be subject to public disclosure. This announcement was in the wake of New Jersey and New York suing the federal government for failing to comply with Freedom of Information Act requests submitted by those states relating to that earlier decision, and New Jersey joining a lawsuit brought by Montana challenging the decision.
Interestingly, however, last week New Jersey's governor vetoed a bill (S1500) that would have compelled donor disclosure by organizations engaged in independent political expenditures, among other measures. Governor Philip D. Murphy's 20-page explanation raised both constitutional concerns with the legislation as enacted and policy concerns that the bill did not go far enough in certain respects. The constitutional concerns included ones relating to the bill's application to legislative and regulatory advocacy, not just election-related expenditures. The policy concerns includes ones related to a failure to extend pay-to-play disclosures and to require certain disclosures from recipients of economic development subsidies.
In other disclosure news, the U.S. Court of Appeals for the Ninth Circuit rejected petitions fo rehearing en banc of the earlier three-judge panel decision in Americans for Prosperity Foundation v. Becerra, turning away an as applied challenge to the California Attorney General's requiring that the foundation provide a copy of its Form 990 Schedule B (which identifies significant donors) to that office. The rejection is notable because it was over a lengthy dissent by five judges, to which the three judges on the initial panel responded.
I think it can be safely predicted that in this era of "dark money" we will continue to see state level compelled disclosure developments, and litigation in response, for the foreseeable future.
Wednesday, May 15, 2019
Following up on previous coverage in this space, Baltimore Mayor Catherine Pugh's nonprofit-related problems led to her resignation earlier this month in the wake of FBI and IRS agents raiding her homes and mayoral office. The issue that led to her downfall: alleged self-dealing, arising from the $500,000 purchase of a book she wrote by a nonprofit on the board of which she sat. Additional coverage: Baltimore Sun (which broke the original story); CNN; Washington Post.
Other Nonprofit Scandals You May Have Missed: $37 Million Class Action Settlement; "Sham" Police Charities
In a story that appeared to attract very little attention, Gospel for Asia settled a federal class action lawsuit brought against it for $37 million (!) according to a report in a Canadian news outlet. According to that report, the charity - now known as GFA World - "had been accused of diverting donations intended for India's poor to build a lavish headquarters in Texas, personal residences, and purchase for-profit businesses, including a rubber plantation and a professional soccer team." The charity also agreed to remove the wife of the charity's founder from the board of directors, and to add the lead plaintiff in the suit to the board. It is not clear whether the Canada Revenue Agency, the Internal Revenue Service, or any other government agencies are investigating. According to a report in Christianity Today, Gospel for Asia helped found the Evangelical Council for Financial Accountability, but was expelled from that organization in 2015 "after ECFA concluded that GFA misled donors, mismanaged resources, had an ineffective board, and violated most of the accountability group’s core standards." Gospel for Asia did not acknowledge any wrongdoing as part of the settlement, as it noted in a related press release.
In other news, states continue to pursue and shut down alleged "sham" police charities. In Missouri, the St. Louis Post-Dispatch reports that the Federal Trade Commission and Missouri Attorney General Eric Schmitt forced the Disabled Police and Sheriffs Foundation Inc. to shutdown after raising close to $10 million, almost all of which went to fundraising costs or the organization's executive director. The charity and the executive director did not admit to any wrongdoing, however. And in Maryland, the Baltimore Sun reports that a retired Baltimore police sergeant "has agreed to cease soliciting money for a police charity [CopStress] that the Maryland Attorney General’s Office says misled the public about its operations." The retired police officer involved contested the accusations, however, saying he was only agreeing to shut the charity down after collecting minimal donations because otherwise he faced a $30,000 fine.
Tuesday, April 9, 2019
The Center for Public Integrity recently posted, "The Trump Tax Law Has Its Own March Madness" on its website. The article highlights many of the issues with the TCJA that we have previously discussed on this blog, but specifically puts the new excessive compensation excise tax square in the context of the NCAA Men's Basketball Tournament:
The coaches who made the final four are being paid the following this year by their universities: Tom Izzo, Michigan State University, $3.7 million; Tony Bennett, the University of Virginia, nearly $3.2 million; Chris Beard, Texas Tech University, $2.8 million; Bruce Pearl, Auburn University, $2.6 million. John Calipari, whose Kentucky team also made the Elite Eight, earned compensation of nearly $8 million in 2018-2019.
The Article goes on to highlight the fact that these coaches may all be treated differently despite having similar salaries. Because some of the coaches work at public universities, they may escape the excise tax due to the drafting issue identified by Ellen Aprill previously (and discussed on this blog here), who is quoted in the article. In addition, John Calipari particularly receives significant third party revenue that may or may not be captured by the controlled organization rules.
Friday, March 29, 2019
As the Washington Post details, the end of the Mueller investigation is far from the end of law enforcement actions relating to President Trump. Among those investigations are several tied to nonprofit organizations, specifically the continuing litigation in New York relating to the Trump Foundation and investigations into the President's inaugural committee.
Turning first to the inaugural committee, in late February the District of Columbia Attorney General's office subpoenaed the committee for documents relating to its finances according to several media reports (CNN; NY Times; Politico; Wall Street Journal; Washington Post). This followed subpoenas on the same topic from the New Jersey Attorney General's Office and from the U.S. Attorney's Office for the South District of New York, both earlier that month. The latter subpoena identified a number of possible federal crimes under investigation, including conspiracy against the United States, mail and wire fraud, money laundering, and accepting contributions from foreign nations and straw donors. The DC and NJ subpoenas are more focused on nonprofit-related matters, such as possible private benefit and whether the committee complied with laws relating to soliciting contributions.
As for the Trump Foundation litigation in New York, Courthouse News Service reports that New York Attorney General Letitia James requested judgment against the Foundation, Donald J. Trump, Donald J. Trump Jr., Ivanka Trump, and Eric F. Trump for $2.8 million in restitution and $5.6 million in penalties, as well as injunctive relief. The filing, technically a Reply Memorandum of Law in Further Support of the Verified Petition, argues that the evidence provided by the Attorney General has not been challenged by the respondents or countered by any admissible evidence provided by them, and that it demonstrates breach of fiduciary duties, wasting of charitable assets, and improper use of the foundation for political purposes. Hat tip: Nonprofit Quarterly.
Thursday, March 28, 2019
The IRS Tax Exempt & Government Entities (TE/GE) Business Operating Division recently released its Fiscal Year 2019 Program Letter, reviewing its accomplishments for both fiscal year 2018 and the first quarter of fiscal year 2019. Here is the Table of Contents:
Fiscal Year 2019 Compliance Program:
TE/GE delivers a compliance platform that is divided into six portfolio programs: Compliance Strategies; Data-Driven Approaches; Referrals, Claims, and Other Casework; Compliance Contacts; Determinations; and Voluntary Compliance and Other Technical Programs. Data is used to identify and address existing and emerging high-risk areas of non-compliance, and steers the decisions on how best to apply optimal resources.
Compliance Strategies are issues approved by TE/GE’s Compliance Governance Board to identify, prioritize and allocate resources within the TE/GE filing population. Using a web-based portal, TE/GE employees submit suggestions for consideration by the Board. Once approved, these issues are considered to be priority work. As more issues are developed and approved, those with a higher priority may potentially replace Compliance Strategies currently set forth in this document.
Data-Driven Approaches use data, models, and queries to select work based on quantitative criteria, which allows TE/GE to allocate resources that focus on issues that have the greatest impact. TE/GE is committed to integrating data into its processes and procedures, and will use return data and historical information to identify the highest risk areas of non-compliance.
Referrals, Claims, and Other Casework
Referrals allege non-compliance by a TE/GE entity and are received from sources within and outside the IRS. Claims are requests for refunds or credits of overpayments of amounts already assessed and paid; they can include tax, penalties, and interest or an adjustment of tax paid or credit not previously reported or allowed.
Compliance Units are employed to address potential noncompliance, primarily using correspondence contacts known as “compliance checks”, which allow TE/GE to establish a presence in the taxpayer community in a manner that reduces the cost to the IRS, while limiting the burden on each taxpayer contacted.
Determination letters are issued to exempt organizations on exempt status, private foundation classification, and other determinations relating to exempt organizations, and to retirement plans that satisfy the qualification requirements of Federal pension law.
Voluntary Compliance and Other Technical Programs
The Voluntary Correction Program (VCP) enables a plan sponsor (at any time before audit) to pay a fee and receive IRS approval for correction of plan failures. Knowledge Management works to ensure the quality and consistency of technical positions, provide timely assistance to employees, and preserve and share TE/GE’s knowledge base.
UPDATE: Rep. Mike Thompson, Chair of the House Ways and Means Subcommittee on Select Revenue Measures and Rep. Mike Kelly have introduced the Charitable Conservation Easement Program Integrity Act of 2019 in the House. Senator Steve Daines previously introduced a bill with the same name in the Senate.
Senators Chuck Grassley and Ron Wyden, Chairman and Ranking Member of the Senate Finance Committee, respectively, have announced an investigation into the potential abuse of syndicated conservation easement transactions. While stating general support for the availability of charitable contribution deductions for conservation easements, they cited a need to preserve the integrity of the conservation easement program by preventing "a few bad actors" from wrongly gaming the tax laws relating to conservation easements. They have requested information from fourteen named individuals relating to such transactions, drawing on a 2017 Brookings report on conservation easements.
This announcement follows a Department of Justice complaint filed in December 2018 against certain promoters of "an allegedly abusive conservation easement conservation easement syndication tax scheme" and a 2017 IRS Notice targeting such schemes by declaring them "listed transactions."
At the heart of all these actions are allegedly false valuations based on inflated appraisals that sharply increase the tax benefits from the conservation easements.
Friday, March 15, 2019
In today's Chronicle of Philanthropy, Lloyd Hitoshi Mayer (Notre Dame) authored an opinion piece questioning whether a better funded IRS could have discovered and ended sooner the college admissions scandal discussed in several prior blog entries this week (here, here and here). Here are some highlights of the opinion:
- There were certainly enough yellow flags in IRS filings of the nonprofit at the center of the scam to signal something was wrong. The Internal Revenue Service would have needed the capacity to review those filings carefully and to pursue those flags.
- In addition to more funding for the IRS oversight of nonprofits, Congress could consider possibly moving that oversight out of the IRS.
- One significant red flag: In its tax-exempt application, the Key Worldwide Foundation articulated that it would be using materials developed by a for-profit company owned by one of the organization’s directors, which also employed the foundation’s chief financial officer and treasurer.
- In its annual Form 990 returns, the Foundation reported it had three directors and none of them met the IRS’s definition of “independence,” indicating they all had financial ties to the foundation or related entities.
- The Foundation also stated in its annual returns that none of the grant recipients were tax-exempt charities. While charities can make grants to businesses and governments in limited cases, the complete lack of charity recipients raises the issue of how KWF ensured that its grants would be used only for charitable purposes.
- The Foundation's organizers and maybe some of the parents participating in the admissions scam knew that the IRS is mostly asleep at the switch with respect to audits.
- There is only so much that technology and public disclosure of information can do to uncover such misdeeds without more funding of IRS oversight.
- It is, therefore, not surprising that an apparently unrelated FBI investigation led to the discovery of this scheme instead of an IRS investigation, given this lack of resources and resulting low audit coverage.
Thursday, February 28, 2019
While the media and public understandably focused mostly on other aspects of Michael Cohen's testimony before Congress yesterday, the information he provided raised two significant issues relating to the soon-to-be-dissolved Donald J. Trump Foundation.
First, in his opening statement Cohen mentioned (on pages 3 and 12) that the Foundation had been involved in the purchase of a third portrait of Mr. Trump from a charity auction, this time through reimbursing the winning bidder the $60,000 purchase price, which portrait was then hung in one of Mr. Trump's country clubs. If these statements are true, this is a clear case of self-dealing in violation of Internal Revenue Code section 4941 (and comparable state law requirements as well), as was the case with the previously reported charity auction purchases of two other portraits that also ended up hanging in Trump business properties. It should be noted that the Foundation's annual IRS return for 2013 (available from GuideStar) does not show such a reimbursement and the only $60,000 payment it includes is to the American Cancer Society, although the Foundation has inaccurately reported distributions before. For coverage of this aspect of Cohen's testimony, see CNN, The Guardian, and this Surly Subgroup post by Ellen Aprill.
Second, he confirmed previous reports that Mr. Trump had steered a $150,000 payment from a Ukrainian billionaire, Victor Pinchuk to the Foundation in lieu of it being paid to Mr. Trump as a speaking fee. As Ellen Aprill and I discussed back in 2016, such arrangements raise a possible assignment of income issue in that depending on the exact circumstances Mr. Trump may have been required to include that fee in his gross income for both federal and state income tax purposes (although there may have been a full or partial offsetting charitable contribution deduction to reflect the transfer of those funds to the Foundation). Of course without seeing Mr. Trump's personal federal and state income tax returns, we can't be sure whether he included this amount in his income or not. For coverage of this aspect of Cohen's testimony, see Time.
Friday, February 1, 2019
The Tax-Exempt and Government Entities (TE/GE) Division of the Internal Revenue Service released its accomplishments for Fiscal Year 2018 (see here). Here are a few highlights:
- Exempt Organizations (EO) implemented several changes to better serve EO customers and assist employees with processing applications more efficiently for tax-exempt status.
- Employee Plans (EP) implemented several program and processing changes to better serve its customers and assist TE/GE’s employees with their cases.
- Indian Tribal Governments (ITG) assists Indian tribes with addressing their federal tax matters, while Tax Exempt Bonds (TEB) administers federal tax laws applicable to tax-advantaged bonds. ITG/TEB implemented several program and procedural improvements.
- TE/GE employed its Compliance Units to address potential noncompliance, primarily using correspondence contacts known as “compliance checks,” which limited the burden of each taxpayer contacted and allowed TE/GE to establish a presence in the taxpayer community in a manner that reduced the cost to the IRS.
- TE/GE made a significant hiring push in FY18, partnering with the Human Capital Office to select a total of 111 employees, including new hires, promotions, and laterals.
The letter also describes the Fiscal Year 2018 Compliance Program, which was divided into six portfolio programs:
- Compliance Strategies
- Data-Driven Approaches
- Referrals, Claims & Other Casework
- Compliance Contacts
- Voluntary Compliance & Other Technical Programs
Thursday, January 31, 2019
John Tyler (Ewing Marion Kauffman Foundation), Hillary Bounds, and Edward Diener posted to SSRN an article published in the September/October 2018 edition of Taxation of Exempts entitled Identifying and Navigating Impermissible Private Benefit in Practice. Here is the abstract:
Organizations and people from within the charitable sector are increasingly engaging in historically non-traditional activities and with other than 501(c)(3) organizations in their efforts to generate revenue and investment/donations and to more aggressively pursue their charitable mission objectives. Examples include ventures with or from other than charitable-oriented businesses and investors, combined public-private fund arrangements, pay-for-success, impact investing, opportunity zones, micro-lending for business, and other finance-oriented relationships. These efforts are changing the ways in which 501(c)(3) organizations must identify and manage against impermissible private benefit.
One aspect of many of these activities is intentional awareness that the brand and reputation of many 501(c)(3) organizations can have independent value on which others might want to trade, with or without providing commensurate value. Another area in which private benefit problems arise is within more garden-variety, day-to-day operations. Consider operation-oriented pursuits such as contracting for delivery of goods and services, which might require increased attention to the financial and non-monetary values of data collected and the tools used to collect, store, secure, and analyze that data. Finally, “new” philanthropists and social change actors are engaging in historically non-traditional activities by structuring these activities without regard to (or at least with much less regard for) the incentives of tax deductions and exemptions.
All of these implicate and require thoughtful consideration of and management to protect against impermissible private benefit while still allowing for enthusiastic pursuit of mission objectives.
Philip Hackney (Pittsburgh) posted to SSRN his Written Testimony for the Hearing on Oversight of Nonprofit Organizations: A Case Study on the Clinton Foundation (House Committee on Oversight, December 13, 2018). Here is the abstract:
This is written testimony offered to the House Committee on Oversight's Subcommittee on Government Operations on December 13, 2018: Our nation has tasked the IRS with the large and complex responsibility for regulating the nonprofit sector, but has failed to provide the IRS with resources commensurate with that task. This is important work. Nonprofits constitute a large and growing part of our economy, and they are granted a highly preferential tax status. An organization that abuses that preferential status will obtain a significant and unfair advantage over the organizations and individuals who play by the rules. If we are to grant such a substantial advantage to nonprofits, and if we are going to rely on the IRS to oversee regulation of these entities, it is essential that the IRS have the resources it needs to ensure that this preferential status is not abused.
Lloyd Mayer previously discussed the hearing on this blog (here).
Monday, January 28, 2019
Allison M. Whelan (Covington & Burling, Washington D.C), Denying Tax-Exempt Status to Discriminatory Private Adoption Agencies, 8 UC Irvine L. Rev. 711 (2018):
This Article ... argues that the established public policy at issue here is the best interests of the child, which includes the importance of ensuring that children have safe, permanent homes. In light of this established public policy, which all three branches of the federal government have recognized and support, this Article ultimately argues that, consistent with the holding in Bob Jones, private adoption agencies that refuse to facilitate adoptions by same-sex parents, thereby narrowing the pool of qualified prospective parents and reducing the number of children who are adopted, act contrary to the established public policy of acting in the best interests of the child.
This Article proceeds in five Parts. Part I first provides general information about the child welfare system, adoption, private adoption agencies, and the “best interests of the child” standard. Part II describes the emergence of state laws that allow private agencies to refuse to facilitate adoption by same-sex couples. Part III provides an overview of federal income tax exemptions and then summarizes the Supreme Court’s decision in Bob Jones University v. United States. Part IV applies the analysis and holdings of Bob Jones to private adoption agencies that discriminate against same-sex couples, and ultimately argues that such policies are contrary to the established public policy of the best interests of the child. As a result, this Article argues that the IRS should conclude that these agencies do not qualify for exemption from federal income tax. Part V concludes by offering a potential compromise and additional policies the government should consider.
(Hat tip: TaxProfBlog )
Tuesday, December 18, 2018
Earlier this month the U.S. Department of Justice announced that Actelion Pharmaceuticals US, Inc., a subsidiary of Johnson & Johnson, had "agreed to pay $360 million to resolve claims that it illegally used a [section 501(c)(3) charitable] foundation as a conduit to pay the copays of thousands of Medicare patients taking Actelion's pulmonary arterial hypertension drugs, in violation of the False Claims Act." More specifically, the DOJ alleged that Actelion only donated enough to the foundation to cover the copays of patients prescribed its drugs in an effort to generate revenue from Medicare and induce purchases of its drugs. The announcement also noted that Johnson & Johnson acquired Actelion after the alleged misconduct occurred.
An analysis by HealthLeaders states that this is the third time in the past year that a drugmaker has settled a similar claim, joining a $24 million settlement by Pfizer last April and a $210 million settlement by United Therapeutics Corp. a year ago. The same analysis identified the foundation in the Actelion case as Caring Voice Coalition, Inc. (CVC), and noted that CVC both objected to providing information requested by Actelion and ultimately withdrew from providing financial assistance for drug copays (in part because of the withdrawal of an Advisory Letter from the U.S. Department of Health and Human Services Office of Inspector General that presumably related to providing such assistance). The DOJ settlement agreement in the United Therapeutics case states that CVC was also the charity involved in that case, while the DOJ settlement agreement in the Pfizer case states it was the Patient Access Network Foundation (PANF) in that case. There is no public indication that IRS has raised any issues regarding the tax-exempt status of either CVC or PANF in the wake of these developments.
While paling in comparison to other recent developments related to President Trump, the drumbeat of negative news relating to nonprofits associated with him has also continued. The three most recent developments involve a federal investigation into the President's inaugural committee, the revelation that in "an abundance of caution" the President's foundation was reimbursed for six questionable transactions (presumably either by Mr. Trump personally or his companies), and today's announcement that President Trump has agreed with the NY Attorney General to shut down his foundation and give away its remaining money.
The Wall Street Journal broke the story that federal prosecutors are conducting a criminal investigation of the President's inaugural committee, a section 501(c)(4) nonprofit organization formally named the 58th Presidential Inaugural Committee. The investigation is out of the U.S. Attorney's office for the Southern District of New York, which not coincidentally also handled the investigation of Donald Trump's former attorney Michael Cohen; it was a recording seized as part of the Cohen investigation that triggered the investigation of the committee. The latter investigation focuses both on whether the committee misspent any of the $107 million in funds it raised and on whether any donors received improper access or policy concessions in return for their donations. While not formally part of the Mueller investigation, it may be relevant to that investigation if any foreign money flowed to the committee, which would have been illegal. The investigation of the committee is reportedly still at a relatively early stage. Additional coverage: CNN, NPR, N.Y. Times, The Hill.
As for the Donald J. Trump Foundation, its latest IRS annual return showed $271,356 in "REIMBURSEMENTS" (Part I, Line 11 and Statement 2), but the only explanation provided in the return (Statement 5) tied the reimbursement to the auction of a membership to the Trump National Golf Club in 2012. What is odd about this explanation is that the amount relating to this auction was only $158,000 (as first reported by David Fahrenthold at the Washington Post), so even with interest it should have totalled significantly less than the amount reported. The more complete explanation may instead be that there was more than just this one reimbursement: in the November 23, 2018 decision in the state case involving the Trump Foundation, the court noted that the Foundation and the other respondents "point out that the Foundation has already been reimbursed for six individual donations" and in a footnote further noted that "Respondents aver that 'in an abundance of caution,' the Foundation was reimbursed with interest for the following donations: (1) the [$100,000] Fisher House Transaction; (2) the [$158,000] Greenberg Transaction [relating to the auction]; (3) a [$5.000] 2013 DC Preservation League donation; (4) a [$25,000] 2013 "And Justice for All" payment; (5) a [$10,000] 2014 Unicorn Children's Foundation donation; and (6) a [$32,000] 2015 North American Land Trust donation." The links are to the news stories that report more details about these transactions. These amounts total more than what was reported on the 2017 IRS return, which may be because some of them were repaid either before or after 2017. Regardless, they reflect quite a trail of questionable expenditures by the Foundation.
That undoubtedly is part of what led to today's announcement by the New York Attorney General that the Trump Foundation has agreed to resolve under judicial supervision. Coverage: CNN; Washington Post.
Monday, December 3, 2018
In the first ever #AccountabilityMonday, which took place before Giving Tuesday, a group of scholars and journalists initiated a conversation (covered by Nonprofit Times) about nonprofit accountability and transparency. Using the hashtag #AccountabilityMonday, people posed questions and offered ideas on nonprofit topics ranging from DAFs to reading a Form 990. One of the most interesting exchanges was prompted by Phillip Hackney, who asked "What would you add to (or remove from) the Form 990 that charities file with the IRS to make it a more useful document for holding charities accountable?"
<blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">What would you add to (or remove from) the Form 990 that charities file with the IRS to make it a more useful document for holding charities accountable? <a href="https://twitter.com/hashtag/AccountabilityMonday?src=hash&ref_src=twsrc%5Etfw">#AccountabilityMonday</a> <a href="https://twitter.com/CountingCharity?ref_src=twsrc%5Etfw">@CountingCharity</a> <a href="https://twitter.com/BenSoskis?ref_src=twsrc%5Etfw">@BenSoskis</a> <a href="https://twitter.com/EllenAprill?ref_src=twsrc%5Etfw">@EllenAprill</a> <a href="https://twitter.com/BDGesq?ref_src=twsrc%5Etfw">@BDGesq</a> <a href="https://twitter.com/joshnathankazis?ref_src=twsrc%5Etfw">@joshnathankazis</a> <a href="https://twitter.com/JosephWMead?ref_src=twsrc%5Etfw">@JosephWMead</a></p>— Philip Hackney (@EOTaxProf) <a href="https://twitter.com/EOTaxProf/status/1067215438436884480?ref_src=twsrc%5Etfw">November 27, 2018</a></blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
Lots of great ideas in the replies. What would you like to see changed?
Monday, November 26, 2018
Earlier this month, the Department of Treasury and IRS released the 2018-2019 Priority Guidance Plan. The plan contains numerous initiatives related to the 2017 Tax Cuts and Jobs Act ("TCJA"), including the following related to exempt organizations:
- Guidance on computation of unrelated business taxable income for separate trades or businesses under new §512(a)(6), as added by section 13702 of the TCJA.
- PUBLISHED 09/04/18 in IRB 2018-36 as NOT. 2018-67 (RELEASED 08/21/18).
- Guidance on the excise tax on excess remuneration paid by “applicable tax-exempt organizations” under new §4960, as added by section 13602 of the TCJA.
- Regulations on the excise tax on net investment income of certain private colleges and universities under new §4968, as added by section 13701 of the TCJA.
- Regulations under §170 providing rules governing the availability of the charitable contribution deduction when a taxpayer receives or expects to receive a state or local tax credit.
- Guidance under §274 concerning qualified transportation fringe benefits, including the application of new § 512(a)(7).
In addition, the Priority Guidance Plan identifies the following non-TCJA initiatives for exempt organizations:
1. Final regulations on §506 as added by the PATH Act of 2015. Temporary and proposed regulations were published on 7/12/16.
2. Final regulations on §509(a)(3) supporting organizations. Proposed regulations were published on February 19, 2016.
3. Guidance under §512 regarding methods of allocating expenses relating to dual use facilities.
4. Regulations under §529A on Qualified ABLE Programs as added by section 102 of the ABLE Act of 2014. Proposed regulations were published on June 22, 2015.
5. Guidance under §4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners.
6. Guidance regarding the excise taxes on donor advised funds and fund management.
7. Guidance under §6033 on reporting donor contributions.
• PUBLISHED 07/30/18 in IRB 2018-31 as REV. PROC. 2018-38 (RELEASED 07/16/18).
8. Final regulations under §6104(c). Proposed regulations were published on March 15, 2011.
9. Final regulations designating an appropriate high-level Treasury official under §7611. Proposed regulations were published on August 5, 2009.
Friday, November 9, 2018
The Internal Revenue Service, Department of Labor, and Department of Health and Human Services issued final regulations on November 7 pertaining to the exemptions based on sincerely held religious beliefs from the Affordable Care Act's requirement that certain entities provide coverage for contraceptive services. Here is the summary:
The primary purpose of this rule is to finalize, with changes in response to public comments, the interim final regulations with requests for comments (IFCs) published in the Federal Register on October 13, 2017 (82 FR 47792), “Religious Exemptions and Accommodations for Coverage of Certain Preventive Services Under the Affordable Care Act” (the Religious IFC). The rules are necessary to expand the protections for the sincerely held religious objections of certain entities and individuals. The rules, thus, minimize the burdens imposed on their exercise of religious beliefs, with regard to the discretionary requirement that health plans cover certain contraceptive services with no cost-sharing, a requirement that was created by HHS through guidance promulgated by the Health Resources and Services Administration (HRSA) (hereinafter “Guidelines”), pursuant to authority granted by the ACA in section 2713(a)(4) of the Public Health Service Act. In addition, the rules maintain a previously created accommodation process that permits entities with certain religious objections voluntarily to continue to object while the persons covered in their plans receive contraceptive coverage or payments arranged by their health insurance issuers or third party administrators. The rules do not remove the contraceptive coverage requirement generally from HRSA's Guidelines. The changes being finalized to these rules will ensure that proper respect is afforded to sincerely held religious objections in rules governing this area of health insurance and coverage, with minimal impact on HRSA's decision to otherwise require contraceptive coverage.
The final regulations are about 95 pages (single spaced). Here is some of what the preamble says about nonprofit organizations:
F. Nonprofit Organizations (45 CFR 147.132(a)(1)(i)(B))
The exemption under previous regulations did not encompass nonprofit religious organizations beyond one that is organized and operates as a nonprofit entity and is referred to in section 6033(a)(3)(A)(i) or (iii) of the Code. The Religious IFC expanded the exemption to include plans sponsored by any other “nonprofit organization,” §147.132(a)(1)(i)(B), if it has the requisite religious objection under §147.132(a)(2) (see §147.132(a)(1)(i) introductory text). The Religious IFC also specified in §147.132(a)(1)(i)(A), as under the prior exemption, that the exemption covers “a group health plan established or maintained by … [a] church, the integrated auxiliary of a church, a convention or association of churches, or a religious order.” (Hereinafter “houses of worship and integrated auxiliaries.”) These rules finalize, without change, the text of §147.132(a)(1)(i)(A) and (B). The Departments received comments in support of, and in opposition to, this expansion. Some commenters supported the expansion of the exemptions beyond houses of worship and integrated auxiliaries to other nonprofit organizations with religious objections (referred to herein as “religious nonprofit” organizations, groups or employers). They said that religious belief and exercise in American law has not been limited to worship, that religious people engage in service and social engagement as part of their religious exercise, and, therefore, that the Departments should respect the religiosity of nonprofit groups even when they are not houses of worship and integrated auxiliaries. Some public commenters and litigants have indicated that various religious nonprofit groups possess deep religious commitments even if they are not houses of worship or their integrated auxiliaries. Other commenters did not support the expansion of exemptions to nonprofit organizations. Some of them described churches as having a special status that should not be extended to religious nonprofit groups. Some others contended that women at nonprofit religious organizations may support or wish to use contraceptives and that if the exemptions are expanded, it would deprive all or most of the employees of various religious nonprofit organizations of contraceptive coverage.
After evaluating the comments, the Departments continue to believe that an expanded exemption is the appropriate administrative response to the substantial burdens on sincere religious beliefs imposed by the contraceptive Mandate, as well as to the litigation objecting to the same. We agree with the comments that religious exercise in this country has long been understood to encompass actions outside of houses of worship and their integrated auxiliaries. The Departments' previous assertion that the exemptions were intended to respect a certain sphere of church autonomy (80 FR 41325) is not, in itself, grounds to refuse to extend the exemptions to other nonprofit entities with religious objections. Respect for churches does not preclude respect for other religious entities. Among religious nonprofit organizations, the Departments no longer adhere to our previous assertion that “[h]ouses of worship and their integrated auxiliaries that object to contraceptive coverage onreligious grounds are more likely than other employers to employ people of the same faith who share the same objection.” (78 FR 39874.) It is not clear to the Departments that the percentage of women who work at churches that oppose contraception, but who support contraception, is lower than the percentage of woman who work at nonprofit religious organizations that oppose contraception on religious grounds, but who support contraception. In addition, public comments and litigation reflect that many nonprofit religious organizations publicly describe their religiosity. Government records and those groups' websites also often reflect those groups' religious character. If a person who desires contraceptive coverage works at a nonprofit religious organization, the Departments believe it is sufficiently likely that the person would know, or would know to ask, whether the organization offers such coverage. The Departments are not aware of federal laws that would require a nonprofit religious organization that opposes contraceptive coverage to hire a person who the organization knows disagrees with the organization's view on contraceptive coverage. Instead, nonprofit organizations generally have access to a First Amendment right of expressive association and religious free exercise to choose to hire persons (or, in the case of students, to admit them) based on whether they share, or at least will be respectful of, their beliefs. In addition, it is not at all clear to the Departments that expanding the exemptions would, as some commenters asserted, remove contraceptive coverage from employees of many large religious nonprofit organizations. Many large religious nonprofit employers, including but not limited to some Catholic hospitals, notified the Department under the last Administration that they had opted into the accommodation and expressed no objections to doing so. We also received public comments from organizations of similar nonprofit employers indicating that the accommodation satisfied their religious objections. These final rules leave the accommodation in place as an optional process. Thus, it is not clear to the Departments that all or most of such large nonprofit employers will choose to use the expanded exemption instead of the accommodation. If they continue to use the accommodation, their insurers or third party administrators would continue to be required to provide contraceptive coverage to the plan sponsors' employees through such accommodation. Given the sincerely held religious beliefs of many nonprofit religious organizations, some commenters also contended that continuing to impose the contraceptive Mandate on certain nonprofit religious objectors might also undermine the Government's broader interests in ensuring health coverage by causing some entities to stop providing health coverage entirely. Although the Departments do not know the extent to which that effect would result from not extending exemptions, we wish to avoid that potential obstacle to the general expansion of health coverage.
Thursday, November 8, 2018
I had the pleasure of speaking to a reporter this morning. He wanted to know if the picture above, a sign posted on the front lawn of the Grace of God Church in New Port Richey, Florida on election day violated the 501(c)(3) prohibition against campaign intervention. The Church, by the way, was also a polling place so the Pastor who placed the sign was careful that it was not within 100 feet of the church, proper. Still, it was on the Church ground, posted on election day even, and the Pastor told the reporter that if he changed the mind of at least one voter, he would be satisfied. The sign was also posted, and then removed after voter outcry, from the Church' Facebook page.
The reporter and I spoke by phone as he told me where to look online for a picture of the sign. As I pulled it up, I couldn't help howling in laughter. We talked a bit about the Service's general reluctance to enforce the prohibition against houses of worship because of obvious First Amendment concerns but I concluded that this is probably the easiest case since Branch Ministries took out a full page advertisement in USA Today (I wish I had a picture of that advertisement) exhorting Christians not to vote for Bill Clinton. I allowed that when Pastors preach about particular issues on any given Sunday (farther in time from election day the better) and perhaps even condemn politicians who support or oppose positions implicating spiritual teachings, they can probably count on some degree of protection from the First Amendment. But the sign above is an easy case. The Pastor seems to know this now because in the aftermath of election day he has tried to explain that the sign conveys a purely spiritual message, a verbal tap dance that evoked another round of laughter from me. In a Tampa Bay Times article yesterday, the Pastor is quoted thusly: