Monday, November 21, 2022

Steve Bannon Associate Convicted For We Build The Wall Fraud

WBTWx_8235eThe N.Y. Times reports that a federal jury has convicted Timothy Shea, who was charged along with former advisor to President Trump Stephen K. Bannon (since pardoned) and two others for federal crimes relating to raising funds for the section 501(c)(4) We Build the Wall, Inc. Mr. Bannon currently faces state charges, not forestalled by the pardon, relating to the same facts. The other two defendants pled guilty to federal crimes.

According to the original federal indictment, the crimes stemmed from the defendants' promises to donors not to use any funds raised for salary or compensation. Instead, they promised that all of the millions of dollars raised would be used for private efforts to build a border wall. These promises were made as part of an effort to convince donors to an initial crowdfunding effort to permit their donations to be redirected to the new nonprofit, once it became clear the crowdfunding campaign was not legally allowed to donate the funds raised to the U.S. government for construction of a border wall. But the defendants allegedly instead directed hundreds of thousands of dollars in donor funds toward compensation of themselves and personal expenses. 

Lloyd Mayer

November 21, 2022 in Federal – Judicial, In the News, State – Judicial | Permalink | Comments (0)

Tax Court Conservation Easement Setbacks for IRS

Download (1)The IRS suffered two significant partial defeats this month in the U.S. Tax Court relating to conservation easements.

First, the court in Green Valley Investors, LLC v. Commissioner held that the listing notice (Notice 2017-10) for syndicated conservation easements was invalid because of the failure of the IRS to comply with procedures required by the Administrative Procedure Act (APA). Coverage: Bloomberg (subscription required); Forbes; JDSupra; National Law Review.

Second, the court in four cases denied government motions for partial summary judgment on the grounds that the regulation relied upon by the IRS had been found invalid (you guessed it - on APA grounds) by the relevant circuit court and because "partial summary judgment would neither expedite resolution of this case nor make trial unnecessary" with respect to a Form 8283 issue raised by the government. The relevant, essentially identical orders are in Baker's Farm Nature Reserve LLC v. CommissionerEast Village Reserve LLC v. Commissioner, Jack's Creek Reserve LLC v. Commisioner, and Rock Cliff Reserve LLC v. Commissioner

Lloyd Mayer

November 21, 2022 in Federal – Judicial, In the News | Permalink | Comments (0)

Monday, October 10, 2022

Nonprofits In the News (Not in a Good Way): Brett Favre; J.D. Vance; Hershel Walker; Indictments in Minnesota

6a00d8341bfae553ef0278806cd3f2200d-320wiSometimes it seems every scandal has a nonprofit involved, and every politician has a questionable nonprofit connection.

For example, the continuing revelations about Brett Favre and alleged misuse of government welfare funds include both a nonprofit that was in the middle of that misuse and also new allegations about Favre's own foundation and its grants to support college athletes (and possibly the volleyball facility at the heart of the welfare funds scandal), even given the foundation's purported purposes being limited to helping children and cancer patients. (Favre's foundation is, despite the name, a public charity that appears to receive much of its contributions from people other than the former NFL football player.)

As for politicians, the N.Y. Times published an article over the weekend titled "J.D. Vance’s First Attempt to Renew Ohio Crumbled Quickly. In 2017, the Republican candidate for Senate started a nonprofit group to tackle the social ills he had written about in his 'Hillbilly Elegy' memoir. It fell apart within two years." And it earlier published an article titled "Herschel Walker’s Company Said It Donated Profits, but Evidence Is Scant," reporting that of the four charities that supposedly received 15 percent of the profits from Walker's company, "one declined to comment and the other three said they had no record or recollection of any gifts from the company in the last decade."

And in Minnesota, the other shoe dropped for the Feeding Our Future scandal, with a U.S. Department of Justice press release stating "U.S. Attorney Announces Federal Charges Against 47 Defendants in $250 Million Feeding Our Future Fraud Scheme." In addition, a federal court has denied the request of another nonprofit, Partners in Nutrition, to be reinstated to the child nutrition program given its ties to some of the alleged participants in the fraud.

Lloyd Mayer

October 10, 2022 in Federal – Executive, Federal – Judicial, In the News | Permalink | Comments (0)

Tuesday, October 4, 2022

Bankruptcy Court Grants Final Approval to Boy Scouts Reorganization Plan; Appeals Now Filed

Download (1)Reuters reports that after several changes to the reorganization plan for the Boy Scouts of America (BSA), the U.S. Bankruptcy Court for the District of Delaware last month issued a final approval of that plan. The changes included removing a $250 million settlement payment from the Church of Jesus Christ of Latter-Day saints from the plan, which the judge in the case refused to approve because the claims against the Church were only loosely connected to scouting activities. The plan had received support from 86% of claimants who voted on it and from the two largest insurers for the BSA. It provides $2.46 billion to settle sex abuse claims against BSA. Reuters later reported that other insurers and sexual abuse victims have filed appeals challenging the plan. 

Additional coverage: CNN; Insurance Journal; Law360.

October 4, 2022 in Federal – Judicial, In the News | Permalink | Comments (1)

Ninth Circuit Finds That DAF Donor Lacked Standing to Pursue Alleged Fiduciary Duties Breach

DownloadIn Pinkert v. Schwab Charitable Fund, the U.S. Court of Appeals for the Ninth Circuit found that the contributor to a donor advised fund (DAF) lacked standing to sue the DAF sponsoring organization, Schwab Charitable Fund, for allegedly breaching its fiduciary duties, including by deducting excessive fees from the contributor's DAF. The contributor alleged that the excessive fees arose because of the Fund partnering with Schwab & Co. for brokerage, custodial, and administrative services. The contributor, who sought to pursue his claims individually, on behalf of a class of similarly situated individuals, and on behalf of the general public, asserted that "although he donated the funds to Schwab Charitable for some purposes, he retained a property right to direct the funds to charities, and the excessive fees and Schwab Charitable’s related mismanagement of the funds impair his ability to exercise that property right." The contributor also asserted claims based on reputational and expressive harm, as well as having to make additional contributions to the DAF to compensate for the alleged excessive fees.

With respect to his property-rights argument, the court found that the documents relating to the contribution established that he did not retain any right to direct where the funds would be invested or donated, but only retained the ability to provide non-binding advice regarding investing and donating. As for whether that ability constituted a property right, the court concluded:

Pinkert does not cite any authority establishing that his right to provide non-binding recommendations to Schwab Charitable is a property right. But whether that right is properly characterized as a property right, a contractual right, or something else does not matter for present purposes because Pinkert has not alleged that Schwab Charitable refused to listen to his advice. In fact, he acknowledges that Schwab Charitable has followed his advice in the past by donating funds from his DAF to charities he supports. 

The court also noted that the written documents disclosed that the DAF would be subject to various fees. 

As for the reputational, expressive, and additional contribution claims, the court disposed of them based on its conclusion that the contributor had failed to allege he had actually experienced or would experiences any of these specific injuries. A concurring judge would have concluded that the contributor also lacked standing to pursue those claims given that he had irrevocably relinquished the contributed amounts.

Lloyd Mayer

October 4, 2022 in Federal – Judicial | Permalink | Comments (0)

Tax Court Denies Charitable Contribution Deductions for Crops Donated to CRATs, After Initial Grant By IRS Examining Agent

DownloadIn Furrer v. Commissioner, the U.S. Tax Court denied an attempt by taxpayers to partially deduct as charitable contributions the value of crops donated to charitable remainder annuity trusts (CRATs). Interestingly, the taxpayers only asserted the deductions during examination but the examining agent had granted them. The IRS, which changed its position with the court's position in an amended answer, therefore had the burden of proof.

The court found that the claimed deductions failed for two reasons. First, the taxpayers had not satisfied the substantiation requirements for noncash charitable contributions with a value in excess of $5,000, having neither sought a qualified appraisal nor attached a Form 8283 substantiating the gifts to their returns nor maintaining the required written records. Second, the donated crops were ordinary income property of the taxpayers, who were engaged in the farming business, and the conceded basis in the crops was zero as the taxpayers had fully expensed all the costs of growing the crops.

The result is not a surprise given these well known requirements, but it is surprising the examining agent initially allowed the deductions.

Lloyd Mayer

October 4, 2022 in Federal – Judicial | Permalink | Comments (0)

SBA OIG Finds $684 million in PPP Loans to Potentially Ineligible Nonprofits; Grand Jury Indicts Nonprofit Leaders for Allegedly Fraudulent COVID Relief Loans

E0e199acd15b2c54a17de6be507cf7f7The Office of Inspector General (OIG) for the U.S. Small Business Administration (SBA) issued a review of Paycheck Protection Program (PPP) eligibility for nonprofit organizations. Here is its summary:

The U.S. Small Business Administration (SBA) Office of Inspector General (OIG) conducted this review to assess Paycheck Protection Program (PPP) eligibility for nonprofit organizations. Based on data analysis, we identified 179 PPP loans, totaling approximately $684 million, made to potentially ineligible nonprofits that may have exceeded SBA’s requirements for business size, known as size standards, at the time of application.

We also reviewed PPP loans for three large nonprofits, including Planned Parenthood of Illinois that received over $3.8 million, Goodwill of Southwestern Pennsylvania that received over $6 million, and YMCA of the Rockies that received over $3.5 million. OIG included a Planned Parenthood organization to address concerns from some members of the U.S. Senate Committee on Small Business and Entrepreneurship. We determined that the Planned Parenthood organization met PPP loan eligibility requirements. The Goodwill organization was not eligible for a PPP loan at the time of application but subsequently became eligible for forgiveness due to updated PPP guidance. The YMCA organization we reviewed did not meet eligibility requirements because they exceeded the applicable size standard of no more than 500 employees at the time of application and forgiveness.

We also reviewed the three national organizations associated with the PPP loans to the aforementioned Planned Parenthood, Goodwill, and YMCA for potential affiliation with the PPP loan recipients. We found no affiliation between the national organizations and the loan recipients.

We recommend SBA review the 179 PPP loans, totaling approximately $684 million, to ensure eligibility requirements were met and seek remedy or repayment for all loans deemed ineligible, and seek remedy or repayment of the PPP loan we reviewed for YMCA totaling $3.5 million. SBA management partially agreed with recommendation 1 and agreed with recommendation 2.

Separately, the Lexington Herald Leader reports that a federal grand jury has indicated two individuals associated with nonprofit entities, including a church, who allegedly fraudulently applied for more than $350,000 in coronavirus relief loans.

Lloyd Mayer


October 4, 2022 in Federal – Executive, Federal – Judicial | Permalink | Comments (0)

Thursday, August 18, 2022

Federal District Court Denies Motions to Dismiss in Elite Universities Financial Aid Antitrust Case

Download (1)Earlier this week, the U.S. District Court for the Northern District of Illinois denied motions to dismiss filed by various universities relating to antitrust claims brought against them. The antitrust claims relate to the schools' participation the "568 Presidents Group" and, through that group, the use of the "Consensus Approach," which the court described as "a set of common standards for determining a family's ability to pay for college." (Full disclosure: one of the defendant universities is my employer, the University of Notre Dame.)

In Carbone v. Brown University, the court found that the defendant schools did not fall within the Improving America's Schools Act of 1994 section 568 antitrust exception because the plaintiffs had plausibly alleged that the defendants do not admit all students on a need-blind basis, particularly waitlisted and transfer students and, for some schools, children of wealthy past or potential future donors. The court also found that the plaintiffs' alleged "Market for Elite, Private Universities" based on U.S. World & News Report rankings and excluding public universities and liberal colleges was sufficient to state a claim under section 1 of the Sherman Act. The court also rejected arguments for dismissal based on an asserted lack of sufficiently alleged antitrust injury and standing and based on the statute of limitations and, for some schools, based on other grounds.

Lloyd Mayer

August 18, 2022 in Federal – Judicial | Permalink | Comments (0)

Two Federal District Courts Hold That Tax Exemption = Federal Financial Assistance Under Title IX

DownloadIn two separate decisions last month, U.S. District Courts in California and Maryland separately held that private high schools were subject to Title IX (of the Education Amendment Act of 1972) because their federal tax exemption under IRC section 501(c)(3) constituted "federal financial assistance" for purposes of Title IX.

In E.H. v. Valley Christian Academy, the minor plaintiff brought suit under Title IX (among other claims) based on the defendant school's alleged refusal to play football against the school she attended if she played on her school's team, for which she had successfully tried out. The defendant school moved to dismiss the Title IX claim on various grounds, including that it did not receive "federal financial assistance" as required to be covered by Title IX. The U.S. District Court for the Central District of California denied the motion to dismiss in this respect, concluding that the defendant school did in fact receive federal financial assistance both through receiving a federal paycheck protection program (PPP) loan and through its tax-exempt status. Here is the relevant section of the decision on the latter point:

In addition, E.H. alleges that Valley Christian's tax-exempt status is a form of federal financial assistance that would subject the institution to Title IX. FAC ¶ 32. Defendants respond that it is not “enough for [E.H.] to add that, as tax-exempt entities, First Baptist and Valley Christian derive financial assistance ... from ... the United States government.” Mot. at 8 (internal quotations omitted). The Ninth Circuit has not yet addressed whether tax-exempt status confers “federal financial assistance” under Title IX. The parties provide conflicting case law from other circuits in support of their contentions. See Johnny's Icehouse, Inc. v. Amateur Hockey Ass'n,134 F.Supp.2d 965, 972 (N.D. Ill. 2001) (holding that “tax exempt status, without more, is . . . insufficient to subject it to the antidiscrimination requirements of Title IX”); compare with McGlotten v. Connally, 338 F.Supp. 448, 461 (D.D.C. 1972) (finding tax exemption constitutes federal financial assistance in the context of Title VI litigation); Fulani v. League of Women Voters Educ. Fund, 684 F.Supp. 1185, 1192 (S.D.N.Y. 1988) (concluding that defendant received “Federal financial assistance” within the meaning of both Title VI and Title IX because it received both direct grants and tax-exempt status). Absent any controlling precedent nor “strong legislative history to the contrary,” the Court finds that “the plain purpose of the statute is controlling. Here that purpose is clearly to eliminate discrimination in programs or activities benefitting from federal financial assistance. Distinctions as to the method of distribution of federal funds or their equivalent seem beside the point, as the regulations issued by the various agencies make apparent.” McGlotten, 338 F.Supp. at 461. Accordingly, the Court holds that Valley Christian's tax-exempt status confers a federal financial benefit that obligates compliance with Title IX.

E.H. v. Valley Christian Acad., 2:21-cv-07574-MEMF (GJSx), 9-10 (C.D. Cal. Jul. 25, 2022)

In Buettner-Hartsoe v. Baltimore Lutheran High School Association, five former students of the defendant school brought suit under Title IX (among other claims) based on the alleged failure of school officials to adequately address allegations of sexual assault and verbal sexual harassment of the plaintiffs by male students. The defendant school moved to dismiss the Title IX claim, or in the alternative for summary judgment in its favor on that claim, on the grounds that it did not receive federal financial assistance. The U.S. District Court for the District of Maryland denied the motion, concluding that the defendant school received federal financial assistance by virtue of its tax-exempt status, stating: "In light of the Supreme Court's holdings in Regan, Grove City College, Smith, and Cannon, as discussed supra, this Court holds that § 501(c)(3) tax exemption constitutes federal financial assistance for the purposes of Title IX. Enforcing the mandates of Title IX in schools with 501(c)(3) status aligns with and protects the principal objectives of Title IX: 'to avoid the use of federal resources to support discriminatory practices' and 'to provide individual citizens effective protection against those practices.' Cannon, 441 U.S. at 704." Buettner-Hartsoe v. Balt. Lutheran High Sch. Ass'n, No. RDB-20-3229, 11 (D. Md. Jul. 21, 2022). The court also noted that the defendant school had received a PPP loan, but not until 2020, while most if not all of the allegations related to behavior occurring before 2020.

Lloyd Mayer

August 18, 2022 in Federal – Judicial | Permalink | Comments (0)

Wednesday, June 29, 2022

RNS: In Defiance of US Bishops, Nancy Pelosi Receives Communion at the Vatican

Last week's Supreme Court decision in Dobbs v. Jackson Women's Health Organization has left the American public very divided. Many are angry; many are happy. The debate over the right to an abortion and women's rights to make their own decisions about their bodies has heated up. In the midst of this heated atmosphere, RNS reported today that in defiance of some U.S. Roman Catholic bishops, Speaker of the House Nancy Pelosi received Communion during a Mass presided over by Pope Francis on Wednesday (June 29) for the celebration of the feast of Sts. Peter and Paul.

Back in Speaker Pelosi's home diocese of San Francisco, California, Archbishop Salvatore Cordileone announced on June 1 that the Catholic congresswoman is banned from receiving Communion due to her abortion rights stance. Since then, she has been barred from receiving the sacrament in four other dioceses

Pelosi called the Supreme Court's decision in Dobbs an “outrageous and heart-wrenching” decision. The US Catholic Bishops lauded the court's decision, which they said overturned “an unjust law that has permitted some to decide whether others can live or die.”

But earlier today, Wednesday, Speaker Pelosi met with Pope Francis before the service and received a blessing, according to one of the Mass attendees. 

Sitting in the VIP section during the traditional Mass at St. Peter’s to celebrate the patron saints of Rome, Pelosi listened to Pope Francis’ homily before receiving Communion from one of the many priests in the basilica, according to eyewitnesses. Francis has rarely distributed Communion, citing precisely the desire to prevent politicization of the sacrament.

In his homily, Francis urged the faithful to “Go to the crossroads and bring everyone: blind, deaf, lame, sick, righteous, sinful, everyone, everyone! This word of the Lord must resound, resound in the mind and heart: everyone! In the church there is room for everyone!” He added that “many times we become a church with open doors but to dismiss people, to condemn people.”

The RNS article concludes by noting that

Last year, Pope Francis told reporters on his return flight from Central Europe that he has never denied Communion to anyone and criticized bishops who didn’t act as shepherds and “aligned themselves with political life, on political problems.” The Vatican’s doctrinal department, in a letter in May of last year, urged the U.S. bishops to engage in dialogue among themselves and with Catholic politicians before reaching any decision.

Well, in this, as in an increasing number of philosophies, there appears to be a great divide between these United States of America and the Rest of the World!

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

June 29, 2022 in Church and State, Current Affairs, Federal – Judicial, In the News, Religion | Permalink | Comments (0)

Friday, June 24, 2022

Nonprofits and Dobbs v. Jackson Women's Health Organization

    Today, the Supreme Court overturned Roe v. Wade in Dobbs v. Jackson Women's Health Organization, a historic decision holding there is no longer a federal constitutional right to an abortion.  While the nation reacts in various ways to the decision, it is undeniable that nonprofits played a major role.  Since there are restrictions on the political activity of 501(c)(3) organizations, 501(c)(4) organizations also known as “social welfare organizations” featured heavily.  For a brief summary of advocacy groups and respective restrictions, including 501(c)(3) organizations, 501(c)(4) organizations, and political action committees,  see the website of the non-partisan 501(c)(3) Open Secrets.  

    The anti-abortion group Susan B. Anthony List was created in the 1990s after the formation of Emily’s List, a political action committee (PAC) designed to support abortion rights candidates.  Susan B. Anthony List’s 501(c)(4) is permitted to engage in some lobbying and political activity as long as they do not eclipse its primary purpose.  Susan B. Anthony List’s 501(c)(3) called the Susan B. Anthony Education Fund is subject to lobbying restrictions but can disseminate the group’s anti-abortion message. Here is further reading about Susan B. Anthony's List and today’s decision. 

June 24, 2022 in Federal – Judicial, In the News, State – Legislative | Permalink

Thursday, June 23, 2022

Should Private Schools Proven to Discriminate Intentionally Receive Government Aid?

    In thinking about the recent Supreme Court decision in Carson v. Makin, No. 20-1088, which deals with private religious schools and state tuition programs, I raised the question of whether government aid should be awarded to private schools at all.  One reason I raised this issue is because private schools are not subject to the same civil rights laws as public schools.  Almost one year ago to the day, I blogged about how historically private schools have not been subject to federal civil rights laws because they did not receive federal funds.  I also noted that perhaps unknowingly, by virtue of receiving P.P.P. loans during the pandemic, private schools became subject to such laws, including Title VI of the Civil Rights Act of 1964 (“Title VI”), which prohibits discrimination on the basis of race, color, or national origin.  In other words, private schools with P.P.P. loans cannot engage in racial discrimination against employees, students, parents, or other participants.  This includes in terms of employment, admissions, enrollment, and other treatment. 

    One must consider the compelling question whether private schools (which in the absence of a P.P.P. loan or other federal funding) are permitted to run afoul of civil rights laws, should be able to receive government aid under a state tuition program, which appears to be the case with the Maine law.  Granted, private schools (non-religious and religious) are subject to nondiscrimination requirements by virtue of their 501(c)(3) status, which they must attest to annually either by filing Form 990 or a statement with the IRS, respectively.  Nevertheless, it is important to consider that Title VI imposes prohibitions against racial discrimination not covered by section 501(c)(3).  One definite difference is that private schools who become subject to federal civil rights laws, e.g., those who receive P.P.P. loans, may have to pay compensatory damages to individuals who prove intentional discrimination in lawsuits against the schools.  In addition, injunctive relief may be awarded to such individuals.  In other words, these private schools are no longer shielded from causes of action from individuals and families who have faced racial discrimination at their hands.

    In the opinion, Chief Justice Roberts himself acknowledged the distinction between public schools and private schools in this regard:  “[T]o start with the most obvious, private schools are different by definition because they do not have to accept all students…”  Given that private schools (who have not received federal funds) largely are shielded from damages or injunctions for intentional discrimination which can be proven, should they be allowed to receive government aid?  This is the larger question that must be answered.


Khrista McCarden

Hoffman Fuller Professor of Tax Law

Tulane Law School

June 23, 2022 in Church and State, Current Affairs, Federal – Judicial, In the News, Religion | Permalink

Tuesday, June 21, 2022

Supreme Court Rules Maine Cannot Exclude Religious Private Schools from Aid - The Larger Question

    Today in Carson v. Makin, No. 20-1088, the Supreme Court ruled that Maine cannot exclude religious private schools from a state tuition program.   According to NBC News, under the state tuition program in Maine, taxpayer money is made available to families in remote areas that lack public high schools.  Under the state law, these families could use taxpayer money to send their children to public or private schools in other communities, as long as the schools were not “sectarian,” i.e., did not promote a particular belief or faith system and teach “through the lens of this faith.”  It was a 6 to 3 vote against the Maine law led by a conservative majority.  Chief Justice John G. Roberts Jr. wrote for the majority and stated the ruling does not require states to support religion.  He notes that it requires states that choose to subsidize private schools not to discriminate against religious ones.  In separate dissents, Justice Sonia Sotomayor and Justice Stephen G. Breyer strongly objected on separation of church and state grounds.  A full copy of the decision may be found here

    One of the lawyers for the families who challenged the Maine law summed up the decision as “a major step for religious schools to receive the same kind of government aid as other private schools.”  Even if one agrees that religious private schools should not be treated differently than non-religious private schools, an important and long-standing threshold question remains:  Should taxpayer money be made available for private school tuition at all?  


Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law

Tulane Law School

June 21, 2022 in Church and State, Federal – Judicial, In the News | Permalink

Wednesday, June 15, 2022

Equal Protection and Title IX Apply to Charter School Appeals Court Holds

In Peltier v. Charter Day School, the United States Court of Appeals for the 4th Circuit, sitting en banc, held a charter school in North Carolina to be a state actor for purposes of Section 1983 (for an Fourtheenth Amendment Equal Protection claim) and for purposes of Title IX. This meant that the charter could not apply its traditional rules and require girls to wear skirts.

Like most charters, Charter Day School is a nonprofit that is recognized by the IRS as a charitable organization exempt from tax under section 501(a) because described in Section 501(c)(3). Charter Day School and its management company argued that as a private entity it was not a state actor.

"CDS, a public charter school in Brunswick County, North Carolina, educates male and female students in kindergarten through the eighth grade. The founder of the school, Baker A. Mitchell, Jr., incorporated defendant Charter Day School, Inc. in 1999. The following year, he obtained a charter from the state of North Carolina, pursuant to the North Carolina Charter Schools Act of 1996, N.C. Gen. Stat. § 115C-218 et seq. CDS’ policies are established by the volunteer members of its Board of Trustees (the Board). Mitchell initially served as the Board’s chairman and now serves as its non-voting secretary."

For those interested in conflict of interest and for profit charter management companies, Charter Day School entered into a charter management contract with Roger A Bacon, Inc. This is a for profit company owned and managed by Mitchell the founder of the Charter Day School who also sits on the board of Charter Day School.

The Court concluded as follows:

"In sum, we hold that CDS, a public school under North Carolina law, is a state actor for purposes of Section 1983 and the Equal Protection Clause. By implementing the skirts requirement based on blatant gender stereotypes about the “proper place” for girls and women in society, CDS has acted in clear violation of the Equal Protection Clause. We further hold that sex-based dress codes like the skirts requirement, when imposed by covered entities, are subject to review under the anti-discrimination provisions of Title IX. We therefore affirm the district court’s award of summary judgment to the plaintiffs on their Equal Protection claim against CDS and affirm the court’s award of summary judgment to RBA on that claim. We vacate the district court’s judgment on the Title IX claim and remand for an evidentiary hearing on that claim asserted against all defendants."

In concluding that Charter Day School is a state actor the Court focused particularly upon the fact that the North Carolina Constitution committed to providing free, universal elementary and secondary schooling to the state’s residents and that charters were ensconced as a part of state law to providing that public education. 

Notably though, the for profit management company was not found to be a state actor. This will continue to be an interesting area to watch given that states allow charters to not have to follow many state laws required of public schools.

Philip Hackney  

June 15, 2022 in Current Affairs, Federal – Judicial, In the News | Permalink | Comments (0)

Saturday, May 21, 2022

10th Circuit Upholds Denial of Exemption Under 501(c)(15) for Small Captive Insurance Company

UPDATE: The IRS celebrated its victory in this case by publicly stating the case "upholds its long-standing position regarding abusive microcaptive insurance transactions. Taxpayers should be alert to these schemes, normally peddled by promoters, as they will ultimately cost them." It encouraged parties to such transactions to seek professional tax advice.

In Reserve Mechanical Corp. v. Commissioner, the U.S. Court of Appeals for the Tenth Circuit upheld the Tax Court's decision affirming the IRS' decision that the company did not qualify as tax-exempt status under section 501(c)(15). Here is the court's summary of the decision:

Reserve Mechanical Corp. appeals the decision of the Tax Court affirming the decision of the Commissioner of Internal Revenue that it did not qualify for an exemption from income tax as a small insurance company and that the purported insurance premiums it received must therefore be taxed at a 30% rate under I.R.C. § 881(a). We hold that the record supports the Tax Court’s decision that the company was not engaged in the business of insurance. The court had two grounds for deciding that Reserve was not an insurance company. First, it determined that Reserve had not adequately distributed risk among a large number of independent insureds—a hallmark of any true insurance company. Virtually all the insured risk was that of one insured, a company that had the same ownership as Reserve itself. To appear to distribute risk, Reserve entered into an insurance pool with other purported insurance companies, each owned by an affiliate of its insured, but the arrangement lacked substance and the pool itself did not distribute risk. Second, the Tax Court determined that the policies issued by Reserve were not insurance in the commonly accepted sense. For example, the premiums were not the result of arm’s-length transactions and were not reasonable, and Reserve was not operated in the way legitimate insurance companies operate. In addition, Reserve argues that if it was not an insurance company, the premiums it received must be treated as nontaxable capital contributions. We also reject that argument.

The decision is significant in part because there are number of other, similar cases, on appeal involving other companies, and the possibility of more IRS action in this area with this victory for the government to support them. For a detailed analysis, see this Forbes article.

Lloyd Mayer

May 21, 2022 in Federal – Judicial, In the News | Permalink | Comments (1)

Tuesday, May 10, 2022

SCOTUS opines on charitable solicitation laws in Austin v. Reagan

The recent Supreme Court ruling in Austin v. Reagan National Advertising was about billboard signs, but the majority had a lot to stay about regulation of charitable solicitation. image from www.scenic.orgThe case here was about whether a law that distinguished between on-premises and off-premises advertising was content-based or content-neutral. Applying the Court’s decision in Reed v. Gilbert, the Fifth Circuit held the distinction was content-based—and thus subject to strict scrutiny—because it required the reader to determine who the speaker was and what the speaker was saying. The Supreme Court reversed, saying the key question is whether the government’s restriction is based on “substantive” content, and a location-based distinction doesn’t qualify.  Thus, the Court held that the distinction was content-neutral and subject only to intermediate scrutiny. Read more for what the Court said -- and didn't say -- about regulation of charitable solicitation.

Continue reading

May 10, 2022 in Federal – Judicial | Permalink | Comments (0)

Friday, April 15, 2022

Charity Scandals: AME Church Suspends Pensions; Finance Director Stole $4.7 Million from WV Charity; Update on Minnesota's Feeding the Future

DownloadIt sadly has become difficult to keep up with all of the news reports about charity insiders misusing funds - maybe it is time to update the 2003 paper by Marion R. Fremont-Smith and Andras Kosaras on Wrongdoing By Officers and Directors of Charities: A Survey of Press Reports 1995-2002, 42 Exempt Organization Tax Review 25. So I am going to limit my reporting here to several recent reports involving millions of dollars each:

  • AME Church: The Wall Street Journal reports (subscription required) that the African Methodist Episcopal Church "has suspended retirement payments and discussed steep cuts to the savings of its ministers amid an investigation into missing funds." The church further said that there is an ongoing investigation, including by federal law enforcement, of a possible financial crime. The pension fund, which reportedly had about $120 million in assets as of 2017, serves about 5,000 retired clergy and church workers. Additional coverage: Religious News Service.
  • River Valley Child Development Services (West Virginia): MarketWatch reports that a court has ordered the former director of business and finance of this charity to repay $4.7 million that she stole in the wake of her guilty plea and sentencing to seven years in prison. The article goes on to note that as part of her restitution agreement she has agreed to forfeit six airplanes apparently from a small aircraft charter and aviation services company she owned, the proceeds from the sale of three houses, and two cars.
  • Feeding the Future (Minnesota) Update: I previously reported on the apparent diversion of tens of millions of dollars from federal funds provided to this charity. The Star Tribune reports that a judge will now oversee the closure of the charity after a request from the Minnesota Attorney General's office and the charity's board voting to voluntarily dissolve it. The court has begun the process of obtaining financial documentation and a complete inventory of the charity's assets. To date no charges have been filed, but federal and state investigations are ongoing. Extensive additional coverage: N.Y. Times.

Lloyd Mayer

April 15, 2022 in Federal – Executive, Federal – Judicial, In the News, Religion, State – Executive, State – Judicial | Permalink | Comments (0)

Thursday, April 14, 2022

Conservation Easements Update: Circuit Split, DOJ Indictment, Biden Administration Proposal, IRS Exam Guidance, Recent Articles

DownloadConservation easements continue to be a hot topic for the federal courts, the executive branch, and scholars. Here are some recent developments:

  • The U.S. Court of Appeals for the Sixth Circuit in Oakbrook Land Holdings, LLC v. Commissioner (March 14, 2022) upheld regulation 26 C.F.R. section 1.170A-14(g)(6) relating to when a conversation purposes for an easement is deemed protected in perpetuity even if some external event frustrates the conservation goals, affirming the Tax Court's holding on this point. This creates a circuit split with the Eleventh Circuit, which held in Hewitt v. Commissioner that a portion of the regulation is procedurally invalid under the Administrative Procedure Act. Possible next stop: the Supreme Court of the United States.
  • The U.S. Department of Justice announced that a federal grand jury returned a superseding indictment charging seven individuals with federal crimes arising out of fraudulent tax shelters involving conservation easements, including one individual who had been previously charged. The DOJ's press release identifies three of the charged individuals as CPAs and two as licensed appraisers.
  • The Biden Administration proposed a limit on the deduction available to partners from certain syndicated conservation transactions in its Budget for Fiscal Year 2023 (see p. 132). As detailed in the related General Explanations document (pp. 56-57), the proposal would "provide that a contribution by a partnership . . . is not treated as a qualified conservation contribution (and thus, the deduction for the contribution is disallowed) if the amount of such contribution exceeds two and a half times the sum of each partner’s relevant basis in such partnership." Certain exceptions apply, including if a three-year holding period requirement is satisfied. As proposed, this limit would be effective for taxable years ending after December 23, 2016 (December 31, 2018 for contributions to preserve a certified historic structure).
  •  The Internal Revenue Service has issued a memorandum addressed to IRS employees assigned to syndicated conservation easement examinations. It provides interim guidance updating certain procedures relating to these exams when the statute of limitations period is growing short.

Have you ever considered how tax law impacts the environment? It certainly does. A simple, tax-based conservation program enacted in the next farm bill can solve two major issues that are rapidly destroying the environment and the world’s food supply.

The first of these issues is the loss of natural lands due to the rapid outward expansion of urban cities, permanently damaging the environment. Once concrete is poured and skyscrapers are built, the land below that once fostered carbon sequestering plants and soil will never be recovered. Properties that provide natural land, open space, critical habitat, and contribute to the world’s food supply are falling victim to continuous population growth and industrialization around the nation.

The second issue is the federal estate tax inhibiting agricultural landowners from passing their land on to the next generation, resulting in forced land sales. The federal estate tax burden is causing owners of natural land and productive farmland to have no choice but to sell their property, resulting in more land being developed and industrialized. However, it is not too late to shape the future of land conservation on a large scale.

President Biden’s goal of conserving thirty percent of America’s lands and waters by 2030 can be met through the enactment of a new farm bill program with a twist on conservation easements to create a new, voluntary conservation tool that maintains land values and property rights. This proposed conservation program includes innovative tax incentives that better pair the needs of landowners with the goals of the government.

Family farms are becoming an endangered species. This Article proposes a farm bill conservation program that addresses not only land loss and estate tax issues, but also addresses various hardships that are consuming the agricultural industry such as changes in landowner demographics, falling commodity prices, misinformation, and rural economies’ dependence on the agriculture industry. This proposed conservation program should be enacted in the 2023 Farm Bill in order to yield the best results for environmental conservation, food supply, and rural economies.

Lloyd Mayer

April 14, 2022 in Federal – Executive, Federal – Judicial, Publications – Articles | Permalink | Comments (0)

Wednesday, March 23, 2022

Judge Jackson and Tax-Exempt Opinions

Today is Day 3 of Judge Ketanji Brown Jackson's confirmation hearings for the Supreme Court and, since I'm blogging this week, I thought it might be worth seeing if she had ruled any cases dealing with tax exemption during her time as a district court judge. With nearly 600 opinions, it seemed at least plausible.

And it turns out she has at least one.[fn1]

In 2009, Z Street was incorporated as a Pennsylvania nonprofit. Its original purpose was to " educat[e] the public about Zionism; about the facts relating to the Middle East and to the existence of Israel as a Jewish State; and about Israel's right to refuse to negotiate with, make concessions to, or appease terrorists.” But when Z Street applied for federal tax exemption the following year, it was informed that the IRS carefully scrutinized 501(c)(3) applications related to Israel to make sure their activities didn't contradict Administration policies.

Z Street sued the IRS claiming that this special scrutiny constituted constitutionally-prohibited viewpoint discrimination. The IRS moved to dismiss based on the Anti-Injunction Act (which prohibits taxpayers from filing suits that would interfere with the collection of taxes), the Declaratory Judgments Act (which allows declaratory judgments except in the case of taxes), and sovereign immunity.

I'm not going to summarize all of the facts here, though I do recommend reading Judge Jackson's opinion here (or, if you'd prefer, Law360's summary of the opinion here). Ultimately, though, she denied the government's motion to dismiss. She read the AIA's prohibition on suits for the collection of revenue narrowly; here, she said, the suit wasn't a tax claim "couched [] in constitutional terms." Rather, it was a constitutional claim that didn't implicate the collection of taxes. Likewise, the DJA didn't prevent the suit. (As for sovereign immunity, she held that the APA waived sovereign immunity for claims like Z Street's.)

Ultimately, the D.C. Circuit affirmed her decision. And in 2018, the DOJ settled with Z Street.


[fn1] She may have more, but this is a busy week for me and I don't have time to do an exhaustive review of her opinions.

Samuel D. Brunson

March 23, 2022 in Current Affairs, Federal – Judicial, In the News | Permalink | Comments (0)

Friday, February 25, 2022

AFPF v. Bonta Follow Up: New York Proposed Regulation; Enjoining of Connecticut Paid Solicitor Law

DownloadLast summer's Supreme Court decision in Americans for Prosperity Foundation v. Bonta, striking down California's requirement that charities submit their Form 990 Schedule Bs to the state attorney general, has led to two recent legal developments of interest to nonprofits. 

First, as reported by The NonProfit Times, New York has proposed (see pages 21-23) amending its rules relating to annual financial reports filed by charities required to register with the state to conform with the Supreme Court's decision. More specifically, the proposed rule would provide the following regarding submission of IRS forms:

(a) a copy of the complete IRS form 990, 990-EZ or 990-PF with all required schedules including a Schedule B, unless exempt from such filing pursuant to subsection (b), and

(b) public charities required to submit Schedule B to the IRS must file either (i) a redacted Schedule B with the Charities Bureau, without the names and street addresses of the donors but including the amounts of donations and the states from which those donations were received during the reporting period, or (ii) a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in New York (see section C(1)), and

(c) a copy of the complete IRS form 990-T, if applicable.

Comments were due by January 30th. On February 1st, at the ABA Tax Section Meeting, James Sheehan, the Chief of the Charities Bureau at the the New York State Department of Law, said only two comments were received by the deadline. According to Sheehan, one comment said essentially "about time," and the other comment did not apparently relate to the donor disclosure issue at the heart of the Supreme Court's decision.

Second, the U.S. District Court for the District of Connecticut preliminary enjoined several rules applicable to paid solicitors in Kissell v. Seagull, including one requiring paid solicitors to disclosure the names and addresses of donors to the state Department of Consumer Protection upon request (see paragraph 4 of the order, copied below). The court in its opinion supporting the order based the last holding in part on the AFPF decision. More specifically, the court stated:

    The Commissioner cannot meaningfully distinguish Americans for Prosperity Foundation. To the contrary, as noted above, Kissel’s First Amendment claim is stronger than the First Amendment claim in Americans for Prosperity Foundation because it rests not only on the First Amendment right to association but also on the First Amendment right to free speech that is burdened by a content-based law that applies to him as a paid solicitor and that independently triggers strict scrutiny apart from any associational rights.

The court then concluded that the donor record-keeping and inspection requirement was not narrowly tailored to serve a compelling purpose. However, in the actual follow-up order, the court limited the injunction to the inspection requirement while not enjoining the record-keeping requirement:

4. The requirement in Conn. Gen. Stat. § 21a-190f(k) that paid solicitors must disclose the names and addresses of donors to DCP upon request violates the First Amendment in its current form, and Defendant is enjoined from seeking to inspect such information under that provision. Nothing in this judgment and order shall impact or obviate a paid solicitor’s obligation to maintain records about any of the information contemplated by § 21a-190f(k), including but not limited to the names and addresses of donors, if known to the solicitor, or to disclose to DCP upon request any of the information contemplated by that provision other than donor names and addresses.

Lloyd Mayer

February 25, 2022 in Federal – Judicial, State – Executive | Permalink | Comments (0)