Monday, January 17, 2022
New Article: Who’s Afraid of Bob Jones?: 'Fundamental National Public Policy' and Critical Race Theory in a Delicate Democracy
Professor Lynn Lu has a new interesting article forthcoming in CUNY L. Rev. looking at the broader impact of Bob Jones all these years later entitled Who's Afraid of Bob Jones?: 'Fundamental National Policy' and Critical Race theory in a Delicate Democracy. Here is the abstract:
In Summer of 2021, Republican legislators across the United States introduced a host of bills to prohibit government funding for schools or agencies that teach critical race theory (“CRT”), described by the American Association of Law Schools not as a single doctrine but a set of “frameworks” to “explain and illustrate how structural racism produces racial inequity within our social, economic, political, legal, and educational systems[,] even absent individual racist intent.” Characterizing such an explicitly race-conscious analysis of legal and social institutions as “divisive,” opponents of CRT, such as former Vice President Mike Pence, labeled it “nothing short of state-sponsored and state-sanctioned racism.”
The political campaign to “Stop CRT,” as articulated by strategist Christopher Rufo, seeks to redirect the time-honored civil-rights strategy of defunding racially discriminatory social institutions for use against race-conscious efforts to remedy the ongoing disparate racial, economic, and other social effects perpetuated by the same institutions. The movement to Stop CRT thus seeks to freeze civil rights progress where it stood decades ago, as when the Supreme Court acknowledged a “fundamental national public policy” against racial segregation in its 1983 decision in the notorious case of Bob Jones University v. United States, while leaving unresolved vital questions about whether and how to allocate public resources affirmatively to foster diversity, equity, inclusion, and accessibility in democratic society.
In Bob Jones, the Court upheld the federal taxation of private schools that excluded Black students because their religious beliefs allegedly mandated “racial separation.” Specifically, the Court ruled that the Internal Revenue Service (IRS) properly withheld federal tax-exempt status to otherwise qualifying entities to enforce “fundamental national public policy” (“FNPP”), as expressed by all three branches of the federal government, against racial segregation in schools, and deemed desegregation a compelling government interest that outweighed any burden on religion. As a private tax dispute, Bob Jones stands alongside legions of other complaints brought by taxpayers aggrieved by IRS actions. But as a case involving an educational institution raising a religious liberty claim against antidiscrimination regulation, Bob Jones raised broader public law issues involving constitutional and federal statutory interpretation, as well as judicial review of administrative action.
This article assesses the legal and symbolic influence of Bob Jones not to relitigate the case or to rewrite history, but to highlight the case’s lasting symbolic impact and lessons for future civil rights advocacy, especially as informed by CRTs that developed alongside the federal courts’ retreat from enforcing existing antidiscrimination norms. Part I examines the case of Bob Jones to show how its political and legal context shaped its unique posture and path to the Supreme Court. Part II examines the afterlife of Bob Jones and its symbolic importance to conservatives motivated to prevent its expansion, even as the decision limits its own impact by leaving crucial substantive questions unresolved: namely, the role of pluralism in enforcing civil rights against First Amendment claims, the viability of race-conscious remedies for racial discrimination, and the visibility of redistributive economic justice concerns. Finally, Part III shows how CRT’s insistence on confronting those same questions reveals persistent inequities sustained by U.S. social and legal institutions, drawing the fire of efforts to Stop CRT. Part III assesses the prospects for moving the difficult questions left unresolved in Bob Jones back to the center of analysis, even with the current Supreme Court in a polarized and partisan political climate. The Article ultimately concludes that the legal reorientation demanded by Bob Jones and initiated by critical theorists, whatever their fate in the Court’s jurisprudence in the near term, remains crucial for identifying and challenging ongoing power disparities in and through every level of democratic government and society.
Friday, January 7, 2022
There has been a constant stream of news stories relating to the involvement of nonprofits in the January 6th attack and promulgation of the lie that former President Trump won the 2020 election. (Photo credit: Eric Lee / Bloomberg.) Here are some highlights:
- False Incorporation Papers?: The Guardian reported that a federal grand jury has "uncovered evidence that [Trump former lawyer Sidney] Powell filed false incorporation papers with the state of Texas for a non-profit she heads." The papers, submitted in December 2020, listed two individuals as members of the board of directors for Defending the Republic, neither of whom apparently had agreed to serve in this role.
- Diversion of Funds?: The above report also states that the grand jury is looking into whether Ms. Powell used funds from the same nonprofit that had been given to finance lawsuits challenging the 2020 election results to instead defend herself in defamation cases. Going into more detail, the Washington Post reported that the nonprofit and a Florida successor entity with the same name raised more than $14 million, with the use of most of the funds still unclear.
- Liability for Groups Involved in Insurrection?: The Washington Post also reported that the D.C. Attorney General has filed a lawsuit against the Proud Boys and Oath Keepers, seeking stiff financial penalties from the groups for their role in the January 6th violence. According to the complaint, the first group is a Texas limited liability company (and it is not clear if it is a nonprofit), while the second group is a Nevada nonprofit corporation. Neither group appears to have federal tax-exempt status based on the IRS Tax Exempt Organization Search feature. Additional coverage: NPR; Reuters; Vanity Fair.
Earlier this week, the IRS Tax Exempt & Government Entities Division issued is FY2021 Accomplishments Letter. While most of the issues highlighted are described in a relatively vague fashion, at least three exempt organizations items stand out:
- Examinations Remain Low: "EO completed examinations of 3,249 filings in fiscal year 2021, including the Form 990 series (990, 990-EZ, 990-PF, 990-N, 990-T) and their associated employment and excise tax returns. Overall, 82% of closed examinations resulted in a tax change (change percentage) and 34% of the examinations were “picked-up” from a related examination (pick-up percentage). We proposed revocations (agreed and unagreed without protest) for 94 tax-exempt entities as a result of these examinations."
- Applications Increase: Exempt Organizations received approximately 110,000 applications, an increase over the approximately 100,000 applications in FY20, and the less than 100,000 applications in FY19, while closing close to 95,000 applications (of which it approved close to 82,000).
- Increased Hiring, But Also Attrition: "Hired 120 individuals through fiscal year 2021 and conducted 245 interviews to fill 132 additional revenue agent positions. We prepared for a larger hiring campaign in fiscal year 2022." But even so TE/GE reported that the 1,521 employees represented "a nearly 5.1% loss when coupled with rate of attrition from the end of the prior year." Between 500 and 550 of those employees work in the Exempt Organizations area.
Wednesday, January 5, 2022
Annual IRS Revenue Procedures Include No-Determination for 501(c)(5)s Relating to Controlled Substances
With the start of a new year comes the updated versions of the IRS annual Revenue Procedures relating to letter rulings and information letters, technical advice memorandum, no ruling areas, and determination letters. See Internal Revenue Bulletin 2022-1 (Jan. 3, 2022). While most changes are minor or reflect previously announced changes, Paul Streckfus at the EO Tax Journal spotted an interesting change to Revenue Procedure 2022-5, relating to Exempt Organizations determination letters:
Section 3.02 was amended to include that the Service will not issue a determination letter when the request concerns an organization seeking to qualify under § 501(c)(5) whose purpose is directed to the betterment of conditions of those engaged in the pursuits of labor, agriculture, or horticulture, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act, 21 USC § 801 et seq.) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.
Without having done any research, my guess is that this change was made to foreclose consideration of exemption applications from marijuana-related organizations seeking section 501(c)(5) status. (For discussion of the tax issues faced by marijuana dealers operating legally under state, but not federal, law, see, for example, Ben Leff, Tax Planning for Marijuana Dealers, 99 Iowa L. Rev. 523 (2014).) And it is unclear to me how this change can prevent such an organization from pursuing a declaratory judgment in court under section 7428 if the IRS refuses to rule on such an application.
In recent Internal Revenue Bulletins, the IRS has been listing a number of past revocations of its determination that organizations qualified under section 501(c)(3) and section 170(c)(2) that apparently have not been previously publicly announced. See Announcement 2021-15 (Dec. 6, 2021) (IRB 2021-49, p. 846) (15 revocations effective from 2014 through 2017) and Announcement 2021-17 (Dec. 20, 2021) (IRB 2021-51, pp. 889-90) (31 revocations effective from 2014 through 2017). As noted in the EO Tax Journal, these announcements coincide with the release of a number of old revocation cases (with identifying information redacted; search for "501" to reduce the list to written determinations involving section 501) that may match some of the identified revocations. At this point it is unclear why it has taken so long for this information to become available, given that at least some of the revocation cases bear dates from 2020 and earlier.
As of the start of this year, the IRS is making data from electronically filed Forms 990 series available in machine-readable format available solely on its Tax Exempt Organization Search webpage. In doing so, it ends its previous practice of making those data available through Amazon Web Services. The IRS also makes compiled versions of these data available on its Tax Exempt Organization Search Bulk Data Downloads webpage in various formats.
This week the IRS announced that it has revised Form 1024, Application for Recognition of Exemption of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code, to allow electronic filing. Given this change, the IRS began requiring electronic filing as of January 3, 2022, although it provided a 90-day grace period during which it will also accept paper versions of the form (last revised as of January 2018). Form 1024 is used by organizations seeking IRS recognition of tax-exempt status under section 501(a) or section 521 (relating to farmers' cooperatives), except for organizations described in section 501(c)(3) (which file Form 1023 or 1023-EZ) or section 501(c)(4) (which file Form 1024-A). Form 1024 generally is not required for these types of entities to claim tax-exempt status, but organizations may choose to file it to receive confirmation from the IRS that they in fact qualify for exemption.
Thursday, December 9, 2021
In November, the IRS issued an Action on Decision in the case of Mayo Clinic v. United States, 997 F.3d 789 (8th Cir. 2021),
rev’g, 412 F.Supp.3d 1038 (D. Minn. 2019). They will follow the precedent in the 8th Circuit, but refuse to accept the interpretation of the 8th Circuit reading out the Treasury regulation requiring formal instruction to be a primary function of an educational organization under section 170(b)(1)(a)(ii). I previously wrote about this case here.
It involves whether Mayo Clinic may use an exception to the unrelated business income tax provided to educational organizations under section 514(c)(9)(C)(i). Mayo Clinic claims to be "an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on." The IRS, relying upon Treasury regulations, that require that an educational organization must have as "its primary function . . . the presentation of formal instruction," did not allow Mayo the exception.
The district court held that the primary function test was not a legitimate interpretation of the statute. While the Appeals court disagreed in part, it held that the IRS was wrong in its application of a primary function test. It remanded the case to the district court with instructions to ensure that Mayo Clinic primarily promotes education.
I expressed concern regarding the case because I think it provides an easy path to public charity status for any organization that is primarily educational by normally having 1 faculty and some students. I did not expect the IRS to appeal, but thought they may choose to fight the case in other circuits. They have expressly taken this latter path.
In supporting its reasons the IRS stated: "We disagree with the Eighth Circuit’s invalidation of the long-standing regulatory requirement that the primary function of an educational organization described in section 170(b)(1)(A)(ii) must be formal instruction (the formal instruction requirement). First, in concluding that the formal instruction requirement “has no long history of congressional acceptance,” the Eighth Circuit did not consider the numerous times Congress has amended section 170(b), increasing the percentage of the allowable deduction and adding to the categories of organizations eligible for the preferential allowable deduction, since the regulations under section 170(b)(1)(A)(ii) were published in 1958, which is persuasive evidence of Congressional acceptance of such regulations. See, e.g., CFTC v. Schor, 478 U.S. 833, 846 (1986) (“It is well established that when Congress revisits a statute giving rise to a longstanding administrative interpretation without pertinent change, the ‘congressional failure to revise or repeal the agency’s interpretation is persuasive evidence that the interpretation is the one intended by Congress.’”). Second, the Eighth Circuit did not consider that the faculty-curriculum student-place requirement provides a statutory basis for the formal instruction requirement in the regulations. Finally, the Eighth Circuit did not consider the Government’s arguments regarding over one dozen Code sections cross-referencing section 170(b)(1)(A)(ii) (many of which predated the regulation’s 1958 publication), which further support the position that the purpose of the formal instruction requirement is to ensure that section 170(b)(1)(A)(ii) “could not reach very far, if at all, beyond schools, colleges, and universities in its coverage.” Brundage v. Commissioner, 54 T.C. 1468, 1474 (1970)."
Wednesday, November 17, 2021
Bloomberg Law is reporting on a number of nonprofit Christian schools, churches, and seminaries that are launching legal challenges to the OSHA test-or-vaccinate rules. (To add nonprofit on top of nonprofit, at least a handful of the cases are being handled by the nonprofit Alliance Defending Freedom.)
Essentially, the ADF's suit (and, I imagine, many of the others) assert that the OSHA mandate overreaches and represents a "serious intrusion on religious autonomy and free exercise that cannot withstand scrutiny under the First Amendment and the Religious Freedom Restoration Act."
I'm not a Religion Clauses scholar but I know enough to know that Religion Clause jurisprudence is kind of a mess. Enough of a mess that I wouldn't put money down on how these challenges turn out. Still, because the religious organizations challenging the test-or-vaccine mandate fit into the world of nonprofits, it's worth keeping an eye on how these challenges turn out.
Friday, November 12, 2021
Social media has been filled recently with criticism of the University of California at Santa Barbara and billionaire Charlie Munger for plans to build a massive dorm at the University following detailed plans provided by amateur architect Munger and paid for with a $200 million donation from him. A Washington Post headline summarizes the criticisms (Two doors, few windows, and 4,500 students: Architect quits over billionaire's mega dorm). Of course questions about the possible undue influence of major donors are not new, although usually they involve less prominent projects. For example, earlier this fall the N.Y. Times reported Leader of Prestigious Yale Program Resigns, Citing Donor Pressure (additional coverage: The Economist).
What is perhaps new, or at least newly prominent, are similar controversies relating to donations to governments. For example, over the summer NPR reported A GOP Donor is Funding South Dakota National Guard Troops In Texas, and this fall the Texas Tribune reported Texas has raised $54 million in private donations for its border wall plan. Almost all of it came from this one billionaire. But the biggest such recent gift was detailed in The Chronicle of Philanthropy: Should Philanthropy Fund Government? A $400 Million Gift Settles That Question in Kalamazoo, Mich., for Years to Come (subscription required, but also available from U.S. News/AP). The anonymous gift is almost double the city's annual budget.
Donations to governments raises additional issues, including whether they risk distorting government priorities that otherwise would be decided through the political process and whether they shift power to executive branch officials who solicit such donations and away from the legislatures that normally control government spending. Of course not all government agencies can accept donations. For example, GoFundMe shut down a campaign to raise funds for the federal government's border wall in part because it would have required congressional approval for the government to have accepted the funds. So it is unclear how widespread such donor influence can be on government actions, absent legislative action.
Perhaps driven by the sharpness of our current political divides, even the relatively few elections this year generated a steady stream of stories about nonprofits, politics, and possible violations of the federal tax laws. Here are some highlights:
- A video message from Vice President Kamala Harris that reportedly was played in more than 300 black churches in Virginia strongly supported gubernatorial candidate Terry McAuliffe and so appears to have violated the Internal Revenue Code section 501(c)(3) prohibition on tax-exempt charities, including churches, intervening in political campaigns. Demonstrating its consistent opposition to such activities, whether favoring Republican or Democratic candidates, the Freedom from Religion Foundation promptly filed a complaint with the IRS about churches airing the video and other pro-McAuliffe activities in Virginia churches.
- The Atlantic published a lengthy interview titled The Massive Progressive Dark-Money Group You've Never Head Of. The interview is with Sampriti Ganguli, the CEO of little known business-services group Arabella Advisors, which the interviewer asserts has played a major role in helping left-leaning "dark money" groups quietly pull ahead of right-leaning groups in total spending. Relatedly, OpenSecrets last spring published a report titled 'Dark money' topped $1 billion in 2020, largely boosting Democrats. Such groups are section 501(c)(4)s or other non-charities that are permitted to engage in a limited amount of political campaign intervention, so their activities may be in compliance with their federal tax status.
- Politico reported late last month that the new president of Liberty University said in a recorded phone call that one of the main goals so the University's Standing for Freedom Center is "getting people elected". In response to concerns that doing so would be problematic under Internal Revenue Code section 501(c)(3), President Jerry Prevo responded "I know how to work 50c3". The University official who raised the concerns was fired earlier last month, which he asserts was in part in retaliation for him doing so. Additional coverage: Forbes, Salon.
Wednesday, November 10, 2021
Politico reports that an indictment unsealed today reveals federal prosecutors have charged three individuals with conspiracy to commit wire fraud and lying to the Federal Election Commission. The allegations relate to the raising of approximately $3.5 million during the 2016 election, with almost none of those funds going to any political cause. Instead a large portion of the funds allegedly went to organizers personally. The two PACs involved were bipartisan - one claimed to raise funds to support Donald Trump, and the other claimed to raise funds to support Hillary Clinton.
While the indictment relates to activities back in 2016, the Daily Beast and OpenSecrets have been investigating a network of alleged scam PACs that has been operating since then, as detailed in this report from last month. The latest twist appears to involve organizations that register as section 527 political organizations with the IRS but not as political committees with the FEC, presumably in order to take advantage of the harder to access IRS-collected data and lesser IRS enforcement resources. The FBI views these activities as serious enough to warrant a public warning last April.
Tuesday, November 9, 2021
We have been slow in blogging about the Treasury Department's 2021-2022 Priority Guidance Plan and the latest Tax Exempt & Government Entities Program Letter, in part because neither document tells us anything new. Given the pandemic-related backlog of returns and other matters the IRS is currently trying to resolve, this is not surprising. Nevertheless, it is to be hoped that future years will be more productive, especially if more funding is provided to the IRS.
Starting with the Priority Guidance Plan, for Exempt Organizations (page 7) it only repeats items from previous plans, some of which are getting quite dated:
- Guidance revising Rev. Proc. 80-27 regarding group exemption letters. Notice 2020-36 was published on May 18, 2020.
- Guidance on circumstances under which an LLC can qualify for recognition under §501(c)(3). [Now provided in Notice 2021-56.]
- Final regulations on §509(a)(3) supporting organizations. Proposed regulations were published on February 19, 2016.
- Regulations under §512 regarding the allocation of expenses in computing unrelated business taxable income and addressing how changes made to §172 net operating losses by section 2303(b) of the CARES Act apply for purposes of §512(a)(6).
- Guidance under §4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners.
- Regulations regarding the excise taxes on donor advised funds and fund management.
- Regulations under §6104(c). Proposed regulations were published on March 15, 2011.
- Regulations designating an appropriate high-level Treasury official under §7611. Proposed regulations were published on August 5, 2009.
Exempt organizations items in other sections include guidance under section 501(c)(9) relating to welfare benefit funds, final regulations relating to the fractions rule under section 514(c)(9)(E), and partnership loss regulations relating to charitable contributions under section 704(d).
Similarly, most if not all of the priorities listed in the Program Letter (page 2) appear to repeat previously announced priorities or are obvious needs (e.g., the "Develop Our Workforce" priorities). Perhaps the most significant development mentioned is the hiring of a Chief Taxpayer Experience Officer and the opening of a Taxpayer Experience Office, but that is an agency-wide development and so probably will have limited (if any) impact on TE/GE operations.
Last month the IRS issued Notice 2021-56, providing the first formal guidance regarding under what conditions limited liability companies can qualify for tax exemption under section 501(a) because they are described in section 501(c)(3). The guidance is generally consistent with previous, informal guidance, found in now twenty year old continuing professional education articles (first published in the 2000 EO CPE text and updated in the 2001 EO CPE text).
More specifically, the Notice imposes the following requirements:
3.02 Required provisions of LLC articles of organization and operating agreement
Except as set forth in section 3.04 of this notice, the IRS will issue a determination letter recognizing an LLC as exempt from tax and described in section 501(c)(3) only if both the LLC’s articles of organization and its operating agreement each include:
(1) Provisions requiring that each member of the LLC be either (i) an organization described in section 501(c)(3) and exempt from taxation under section 501(a) or (ii) a governmental unit described in section 170(c)(1) (or wholly-owned instrumentality of such a governmental unit).
(2) Express charitable purposes and charitable dissolution provisions in compliance with § 1.501(c)(3)-1(b)(1) and (4).
(3) The express chapter 42 compliance provisions described in section 508(e)(1), if the LLC is a private foundation.
(4) An acceptable contingency plan (such as suspension of its membership rights until a member regains recognition of its section 501(c)(3) status) in the event that one or more members cease to be section 501(c)(3) organizations or governmental units (or wholly-owned instrumentalities thereof).
3.03 Representation on enforceability
The LLC must represent that all provisions in its articles of organization and operating agreement are consistent with applicable state LLC law and are legally enforceable.
3.04 States with limitations on articles provisions
If an LLC is formed under a state LLC law that prohibits the addition of provisions to articles of organization other than certain specific provisions required by the state LLC law, the requirements of section 3.02 of this notice will be deemed satisfied if the LLC’s operating agreement includes the provisions set forth in section 3.02 of this notice and if the articles of organization and operating agreement do not include any inconsistent provisions.
The Notice also asks for public comments on a variety of issues, mostly relating to the effects of variations in state laws relating to limited liability companies. The deadline for comments in February 6, 2022.
The Notice does not address what conditions would apply to an LLC seeking to qualify for exemption by being described in other paragraphs of section 501(c).
Sunday, October 24, 2021
In prior scholarship, I have addressed how the specific metrics used in the impact investing sector may be used to measure and report social good in the charitable sector to increase transparency and accountability about how donated funds are used. The issue of incomplete reporting in the nonprofit sector is highlighted in a recent ProPublica article about the shortcomings of reports by state school districts on how they have used federal aid funds disbursed to remedy educational fallout from the pandemic. Specifically, the ProPublica article addresses the gap between federal governmental aid to schools during the pandemic and measurable results from state school districts. According to the article, the federal government gave around $190 billion in aid to help schools reopen and to address the effects of the pandemic. In the year and a half since school doors were closed to millions of children, the Education Department has done only limited tracking to determine how the funds were used. As a result, Washington, D.C. is in the dark about the effectiveness of the aid, especially in terms of those communities that have struggled the most during the pandemic.
State education agencies were required to submit provisional annual reports to the federal government. However, their reports only utilized six very broad categories, including technology and sanitation, to disclose how funds were used. ProPublica analyzed more than 16,000 of such reports for the period March 2020 to September 2020 and found that billions of dollars were categorized as funding “Other.” For example, some of the largest school districts in the country categorized all of their aid under the “Other” category, including Los Angeles Unified, which spent $49.5 million, and New York City’s schools, which spent $111.5 million.
ProPublica points out that since there is not a centralized and detailed federal tracking system, monitoring of how the relief funds given to over 13,000 school districts has been up to individual states. Some school districts have expended the funds in a way that it is not at all consistent with the federal aid program, such as by using the funds for track and field facilities and bleachers. The article cited both a school district in Iowa (Creston Community School District) and one in Pulaski County, Kentucky as engaging in such spending.
Importantly, the federal aid program delineated at least one very clear goal. The funds were to be used to re-open schools to maximize in-person learning. Broadly speaking, the funds were to be used to address the impact of the pandemic. There have been numerous articles that have detailed the educational and emotional fallout from remote learning. It is surprising to learn that there have not been directed efforts to help students make a smooth transition back to in-person learning and to recover from any lapses in their educational and/or social, emotional development as a result of the pandemic. Instead, for example, in Texas, the McAllen Independent School District spent $4 million of its relief funds to build a 5-acre outdoor learning environment associated with a local nature and birding center owned by the city. Although the concept may be a good one in theory, it fails to address “the urgent learning needs of children who have been directly impacted by the pandemic.” Critics have pointed out that the outdoor area will not even be completed before 2024, so half of the children there will not benefit from the outdoor center at all.
Perhaps it is not too late for school districts to make the right choices in terms of spending federal aid. Although most of the aid was dispensed from March 2020 to March 2021, the school districts have until 2024 to budget how the funds will be utilized. Given the federal government has started to request basic information from states about how their school districts have used their funds, hopefully, the school districts will re-calibrate their spending and set forth goals consistent with the overall aim of the relief program.
Hoffman Fuller Associate Professor of Tax Law, Tulane Law School
Friday, September 3, 2021
University of Louisville Settles Legal Dispute with ex-President for $800,000 Paid by Insurance Company
The Associated Press and The Courier Journal report that afters years of litigation and spending more than $6 million in taxpayer funds, the University of Louisville and its affiliated foundation have agreed to resolve their legal dispute with ex-President James Ramsey for $800,000 paid under the foundation's directors and officers insurance policy. President Ramsey served for 14 years, but his tenure ended in turmoil after allegations arose relating to improper spending by both the university and the foundation, including allegedly excessive compensation paid to Ramsey and his then chief of staff. The original complaint filed by the University and the foundation can be found here.
An earlier news report stated that the IRS was auditing the foundation, presumably based at least in part on the public allegations of wrongdoing. The most recent report states that the foundation has released its tax claims against Ramsey as part of the settlement. But it is unclear to me how that agreement could prevent the IRS from imposing self-dealing or other excise tax penalties, if it chooses to do so.
Wednesday, September 1, 2021
- The 11th Circuit upheld the denial of a conservation easement deduction and imposition of accuracy-related penalties in TOT Property Holdings, LLC v. Commissioner. For an analysis of the decision, see Peter J. Reilly, TOT Property Holdings Highlights Fundamental Flaw In Conservation Syndications.
- In Hancock County Land Acquisitions v. United States, 2021 U.S. Dist. LEXIS 143312, 2021 WL 3197336 (N.D. Ga. July 7, 2021) (all Internet-accessible copies of the decision appear to be behind a paywall, including I assume PACER), a Federal district court rejected an attempt by a partnership and its tax matters partner to require the IRS Appeals Office to consider its conservation easement deduction dispute before forcing them to pursue litigation, even though the IRS had already issued a Final Partnership Administrative Adjustment (FPAA) notice. The court found that given the procedural poster of the case, it had to grant the government's motion to dismiss because it lacked federal subject matter jurisdiction. The dispute therefore will instead proceed in U.S. Tax Court, where the partnership and its tax maters partner have already filed a petition for readjustment of the FPAA.
- In perhaps the most ominous development for individuals involved with these claimed deductions, the Department of Justice announced the First Federal Indictment in Cases Involving Syndicated Conservation Easements. The first paragraph of the June 9, 2021 press release states:
A federal grand jury sitting in Atlanta, Georgia, returned an indictment today charging an Atlanta certified public accountant with one count of conspiracy to defraud the United States; 24 counts of wire fraud; 32 counts of aiding or assisting in the preparation of false federal tax returns; and five counts of filing false federal tax returns relating to a wide-ranging, abusive tax shelter scheme.
Tuesday, August 31, 2021
IRS Requires Division Counsel Consultation for Some Public Charity Status Claims in Wake of Mayo Clinic Decision
The IRS has issued a memorandum providing "Interim Guidance on Processing a Request for Public Charity Classification under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii) when Applicant’s Primary Function is not the Presentation of Formal Instruction". The guidance comes in the wake of the Eighth Circuit's Mayo Clinic decision relating to the definition of "educational organization". As provided in the memo:
Because of ongoing litigation in the Eighth Circuit Court of Appeals regarding Treasury Regulation Section 1.170A-9(c)(1), the specialist must coordinate with TEGE Division Counsel when:
- An applicant is seeking classification or reclassification of public charity status as an educational organization under IRC Sections 509(a)(1) and 170(b)(1)(A)(ii), and
- The applicant’s primary function is not the presentation of formal instruction.
Of course the most interesting but unanswered question is to what extent the IRS will choose to follow that appellate court decision in making these determinations, including outside of the Eighth Circuit.
Hat tip: EO Tax Journal
The IRS Statistics of Income program has reported on its Domestic Private Foundation and Charitable Trust Statistics webpage the calendar year 2020 excise taxes reported by charities of all types on Form 4720, not just private foundations and trusts.. The largest amount by far is for the section 4960 tax on excess executive compensation, totaling more than $96 million. That figure represents almost 90 percent of all excise taxes reported, which totaled slightly more than $107 million. While more entities (524 versus 302) reported the section 4942 excise tax on private foundation undistributed income, the total amount of that tax reported was only a little over $5 million.
Interestingly, the section 4968 tax on the net investment income of private colleges and universities was paid by so few entities, and was such a small amount, that it is not separately listed but instead aggregated with three other excise taxes to prevent disclosure of specific taxpayer data. Only 9 entities reported any of those four excise taxes, which also included the tax on taxable distributions of sponsoring organizations, the tax on failure by hospitals to meet the section 501(r) requirements, and the tax on premiums paid on personal benefit contracts. The total tax reported for all four taxes was only a little over $3 million. While college and university endowments struggled in the fiscal year ending in June 2020, they still experienced positive returns. I wonder whether most colleges and universities with large endowments potentially exposed to this tax have found ways to minimize the investment income subject to tax or to avoid the tax entirely.
Friday, July 30, 2021
White House Announces New Religions Affairs Leaders, Including First Islamic Religious Freedom Ambassador
The White House announced Friday (July 30) a slate of nominations and appointments for top religious affairs roles, including the first Muslim American nominated to be the U.S. Ambassador-at-Large for International Religious Freedom.
According to a report by the Religious News Service (RNS), President Biden will select Rashad Hussain as his nominee for that post, filling a State Department slot vacant since former Kansas governor and U.S. Senator Sam Brownback left at the close of the Trump administration. Hussain, who would need to be confirmed by the Senate, currently works as director for Partnerships and Global Engagement at the National Security Council.
Mr. Hussain previously served as White House counsel under President Barack Obama, as well as U.S. special envoy to the Organization of Islamic Cooperation and U.S. special envoy for the Center for Strategic Counterterrorism Communications, among other roles.
Commenting on the upcoming nomination, Saeed Khan, an expert on American Muslim communities at Wayne State University, stated: “Rashad’s appointment demonstrates not only the importance the Biden administration places on religious freedom, it also shows the importance of the Muslim world to the administration both in terms of combatting Islamophobia and also promoting religious freedom in Muslim majority countries. Rashad’s background will allow him to have a frank discussion with Muslim majority countries about religious freedom.”
Anila Ali, a co-founder of the American Muslims and Multifaith Women’s Empowerment Council Iftar who has worked with Hussain in the past, also celebrated his nomination. “As AMMWEC, and as a woman leader, I look forward to working with him because women play an important role in peace-making,” Ali said. “He has worked with Muslim communities during the Obama period and we hope his relevant experience is going to make him a voice for all of us.”
According to the RNS report, President Biden is also expected to nominate Deborah Lipstadt as the next U.S. special envoy to monitor and combat antisemitism. Lipstadt is a professor at Emory University in Atlanta and a prominent Holocaust historian. She is the author of Antisemitism: Here and Now and is known for successfully defeating a libel suit brought against her by Holocaust denier David Irving.
Commenting on the expected nomination of Prof. Lipstadt, Mark (Moishe) Bane, president of the Orthodox Union, had this to say: “She is a leader with great moral courage; her dedicated work, clear voice in fighting Holocaust denial and preserving the memory of the attempted destruction of the Jewish people make her an exemplary choice for this role.”
In addition, President Biden plans to appoint two new commissioners to the United States Commission on International Religious Freedom: Khizr Khan and Rabbi Sharon Kleinbaum.
Khan became famous in 2016 when he and his wife, Ghazala, spoke during the Democratic National Convention as “Gold Star” parents, discussing their son, Humayun, a U.S. Army captain who died in Iraq in 2004. Mr. Khan, the founder of the Constitution Literacy and National Unity Project, runs his own law practice and has authored three books, including This is Our Constitution: Discover America with a Gold Star Father.
Kleinbaum, for her part, already served as a USCIRF commissioner in 2020 and leads the Congregation Beit Simchat Torah in New York City, a community that centers LGBTQ people. A human rights advocate, she also sits on Mayor de Blasio’s Faith Based Advisory Council and serves on New York City’s Commission on Human Rights. In addition, she is a board member of the New York Jewish Agenda and the New Israel Fund.
Prof. Vaughn E. James, Texas Tech University School of Law