Monday, August 19, 2019

Pharma Charities?

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

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

Well, the Economist has investigated. 

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

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

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

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

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

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

August 19, 2019 in Current Affairs, Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (2)

Wednesday, August 14, 2019

Sticky Law: No One Likes the Parking Tax, But We Are Still Stuck With It

DownloadWe all know how hard it can be for the federal government to enact new laws. It appears to be equally hard to repeal existing law, even when no one now thinks it is a good idea. The current example in the exempt organizations world is Internal Revenue Code section 512(a)(7), a/k/a the parking tax. By my count (and the JCT's) six bills have been introduced in the current Congress that specifically target this provision for repeal, three in each chamber, with sponsors ranging across the political spectrum from Representative James Clyburn to Senator Ted Cruz. (H.R. 513, H.R. 1223, H.R. 1545, S. 501, S. 632, and S. 1282).  All six bills are currently in the respective tax writing committees. These bills are in addition to activity in the last Congress, which included to five bills plus a manager's amendment that would have also repealed the provision and was part of a bill that passed the House but not the Senate. The Joint Committee on Taxation also issued a report specifically on this provision earlier this summer. 

To be fair, I exaggerate when I say no one likes the parking tax. At least the Tax Foundation supports it for bringing parity between exempt organizations and for-profit businesses, although that reasoning ignores the disparate administrative burden created by many exempt organizations now having to newly file a additional tax form (Form 990-T) and adopt administrative procedures they did not have previously in order to comply with their obligations under the new tax.

Previous 2019 blog coverage of this topic includes: Ways and Means Channels Its Inner Emily Litella on Parking: Never Mind; Much Ado About Parking (House Committee hearing); Renewed Calls to Repeal "Nonprofit Parking Tax"; IRS Issues Guidance Aimed at Limiting Impact on Nonprofits' Parking Expenses; House Majority Whip Renews Push to Repeal Taxation of Qualified Fringes as UBIT.

Lloyd Mayer

August 14, 2019 in Federal – Legislative | Permalink | Comments (0)

Monday, August 12, 2019

Congressional and Academic Scrutiny of Conservation Easements Continues

We have previously blogged about congressional, DOJ, and IRS scrutiny of conservation easement donations, as well as academic coverage of this topic led by our contributing editor, Nancy A. McLaughlin (Utah). This scrutiny shows no signs of abating, with the following developments just in the past couple of months:

  • Senators Chuck Grassley and Ron Wyden, Chair and ranking member of the Senate Finance Committee, sent three letters in June asking for further answers to their questions relating to syndicated conservation easements. Hat tip: Tax Analysts (Fred Stokeld) (subscription required).
  • That followed a June report (revised slightly in July) from the Congressional Research Service describing the concerns regarding abuse of conservation easement tax breaks.

With organizations that support appropriate tax breaks for legitimate conservation easements, such as the Land Trust Alliance, trying to avoid having Congress throw the baby out with the bath water, while DOJ and the IRS battle promoters and contributors of allegedly abusive conservation easement donations in the courts, it will be interesting to see how this issue ultimately shakes out both legislatively and in litigation.

Lloyd Mayer

August 12, 2019 in Federal – Executive, Federal – Legislative, Publications – Articles, Studies and Reports | Permalink | Comments (1)

Friday, August 9, 2019

Aprill: Revisiting Federal Tax Treatment of States, Political Subdivisions, and their Affiliates

Aprill-Ellen-faculty-profile-2000pxEllen Aprill (Loyola LA Law) posted Revisiting Federal Tax Treatment of States, Political Subdivisions, and their Affiliates to SSRN (Florida Tax Review, forthcoming).  Here is the abstract:

Several provisions of the 2017 tax legislation, known as Tax Cuts and Jobs Act (TCJA), focused attention on federal taxation of states, their political subdivisions and their affiliates. Most prominently, TCJA limited the federal income tax deduction for state and local taxes to $10,000. States have sued and attempted work-arounds. Another provision, which imposes an excise tax of 21% on “excessive compensation” paid by certain entities not subject to income tax, inadvertently failed to subject to tax entities that are integral parts of states or political subdivisions or are themselves political subdivisions. Calls for a technical correction have so far gone unheeded.

More than twenty years ago, I wrote two articles about federal taxation of state governments, political subdivisions, and their affiliates. The Teacher’s Manual to a leading casebook on nonprofit organizations describes these two articles as “as much as anyone knows about this confusing patchwork and its ramifications.” The passage of time, changes in my own thinking and new developments call for my returning to this topic. I do so here. Moreover, far more than in my earlier work, I examine the applicable rules regarding charitable contribution deductions to these entities as well as discuss the special rules applicable to governmental charities and the category of charities that lessen the burdens of government. 

In light of the 2017 tax legislation, I not only renew recommendations made long ago, but also extend them to the criteria for exempting entities that lessen the burdens of government, a category that has received little scholarly attention. I also call for establishing a system by which states, political subdivisions, and their affiliates could receive determination letters, like those issued to section 501(c) organizations and thus familiar to potential donors. Such an approach would avoid the distortion of the rules applicable to section 501(c)(3) that arises from the current special treatment of governmental charities. Treating governmental entities as a distinct category under the Internal Revenue Code, with their own criteria and their own determination letter, would also acknowledge and honor their role in our federalist system.

 

Nicholas Mirkay

 

August 9, 2019 in Federal – Legislative, Publications – Articles | Permalink | Comments (0)

Thursday, August 8, 2019

Quinn: Wealth Accumulation at Elite Colleges, Endowment Taxation

Mae Quinn (Florida-Levin College of Law) posted Wealth Accumulation at Elite Colleges, Endowment Taxation, and the Unlikely Story of How Donald Trump Got One Thing Right to SSRN (Wake Forest Law Review, forthcoming).  Here is the abstract:

President Donald Trump has declared war on immigrants, diversity, and those who dare to dissent. Rooted in resentments about who people are, where they were born, and what they believe, these executive-led assaults are dangerous developments in the modern era. However, in the course of Trump's many retrograde tirades, he has somehow managed to get one thing right-too many elite private colleges in the United States, considered nonprofit entities, have amassed way too much wealth.

This Article recounts this unlikely story, including how the Trump Administration's 2017 endowment tax could work to advance diversity. The new endowment tax penalizes private colleges for stockpiling assets. In response, potentially impacted universities have argued they are victims of an unfair conservative conspiracy intended to target liberal ideology. But the data demonstrates that this is not true. And concerns about rich colleges hoarding their resources have come from both the right and the left.

Moreover, Trump's endowment tax could be seen as an opportunity and invitation to increase egalitarianism and equity in this country. If rich colleges simply utilize more of their massive savings to further social justice, impact poverty, and enhance public good-particularly in their own at-risk communities-they will not only avoid federal taxation but also begin to address critiques about their elitism and greed. In doing so such universities would not only thwart Trump and his tax but stand with vulnerable groups who are the true victims of the Trump Administration's ever-expanding conservative attacks. 

Nicholas Mirkay

August 8, 2019 in Federal – Executive, Federal – Legislative, Publications – Articles | Permalink | Comments (1)

Monday, July 8, 2019

Ways and Means Channels Its Inner Emily Litella on Parking: Never Mind.

Emily LitellaEmily Litella (played by Gilda Ratner) was cranky old woman who always showed up to complain about something on the Weekend Update in the early years of Saturday Night Live. In every case, she was complaining about something she failed to hear correctly – she couldn’t understand, for example, why everyone was so upset about violins on television.  When informed that people were, in fact, upset about violence on television, she would pause and then just say, “Oh, Never Mind.”

Congress clearly didn’t hear all the complaints about the parking tax way back when (or about any other part of the TCJA for that matter: “The Games They Will Play,” anyone?)  Now in the face of complaints from the nonprofit sector, the House Ways and Means Committee had a “Never Mind” moment with the parking tax in the extenders package that passed out of committee at the end of June.  According to The Hill, the bill retroactively repeals the parking tax and extends some other tax provisions, notably the EITC, the child tax credit. and the dependent care credit.

For those of you not following the parking tax in excruciating detail, Section 132(f) excludes qualified transportation fringes (QTFs) from income for an employee BUT new Section 274(a)(4) prohibits a Section 162 deduction for “the expense of providing” a QTF, regardless of the fair market value of the fringe.   Because nonprofits don’t care about deductions, new Section 512(a)(7) imposes the UBIT on non-deductible expenses under Section 274.  (Which totally puts nonprofits and for-profits on the same footing, right?  Right?)

Probably the most common QTF is the qualified parking fringe under Section 132(f)(1)(C). The cost of providing a parking QTF is relatively simple if you are paying a third-party vendor for a parking space for an employee. But for a hospital that runs a parking garage, it isn’t so easy. For a university that has many different parking facilities, some of which are open to the public, it’s even more difficult. A quick perusal of Notice 2018-99 demonstrates just how much of an administrative nightmare it can be; my sister, who is a tax accountant for a state university, backs that up anecdotally. And that’s the tale for large organizations that have the accounting resources to deal with such things – consider the burden for a small organization with a part-time bookkeeper and a pro bono accountant.

Although The Hill reports that Republicans support the parking tax repeal, they opposed the other tax provisions, citing the uncertainty to taxpayers.  In addition, the bill seems to be short on revenue offsets, which may cause political issues with a variety of legislator, so the future of this bill may be uncertain. 

EWW

 

July 8, 2019 in Federal – Legislative, In the News | Permalink | Comments (0)

Friday, June 28, 2019

Tennessee Nonprofit Hospital in Propublica Expose

Propublica has been doing great investigative work where they team up with local reporters to do some in depth reporting. They provide a nice recent look at Methodist Le Bonheur Healthcare, a nonprofit tax-exempt hospital, in Memphis Tennessee. 

The story documents the collection practices that Senator Grassley might be interested in as he starts up an investigation into nonprofit hospitals again.

The story states: "From 2014 through 2018, the hospital system affiliated with the United Methodist Church has filed more than 8,300 lawsuits against patients, including its own workers. After winning judgments, it has sought to garnish the wages of more than 160 Methodist workers and has actually done so in more than 70 instances over that time, according to an MLK50-ProPublica analysis of Shelby County General Sessions Court records, online docket reports and case files."

The primary focus of the story seems to be on the hospital's efforts to collect from its own employees: "It’s not uncommon for hospitals to sue patients over unpaid debts, but what is striking at Methodist, the largest hospital system in the Memphis region, is how many of those patients end up being its own employees. Hardly a week goes by in which Methodist workers aren’t on the court docket fighting debt lawsuits filed by their employer."

Furthermore, they look at the hospital's financial assistance policies. It's not clear whether they meet the Internal Revenue Code CHNA rules in section 501(r) applicable to nonprofit hospitals after the Affordable Care Act: "Methodist’s financial assistance policy stands out from peers in Memphis and across the country, MLK50 and ProPublica found. The policy offers no assistance for patients with any form of health insurance, no matter their out-of-pocket costs. Under Methodist’s insurance plan, employees are responsible for a $750 individual deductible and then 20% of inpatient and outpatient costs, up to a maximum out-of-pocket cost of $4,100 per year."

Philip Hackney

 

June 28, 2019 in Current Affairs, Federal – Legislative, In the News | Permalink | Comments (0)

Thursday, June 27, 2019

President Trump "jokes" about enforcing "Johnson Amendment" against his opponents

President Trump talked about the so called "Johnson Amendment" again the other day. The Johnson Amendment, as probably most of the readers of this blog know, is the language contained in section 501(c)(3) of the Internal Revenue Code that prohibits a charity hoping to maintain its status as exempt from federal income tax from intervening in any political campaign. I say so called as it was not called that on its entry to the Code, though this article does suggest it was LBJ who was the author of the language added to the Code in 1954.

The President, speaking before the Faith and Freedom Coalition conference in Washington stated: “Our pastors, our ministers, our priests, our rabbis . . . [are] allowed to speak again . . . allowed to talk without having to lose your tax exemption, your tax status, and being punished for speaking."  He then apparently jokingly cautioned that if a pastor spoke against him “we’ll bring back that Johnson Amendment so fast,” the president said to laughter, adding, “I’m only kidding.”

President Trump signed an executive order back in May. The law of course is still found within section 501(c)(3) and thus is a duly enforceable law. In my opinion, the executive order did not do anything to change the actual state of affairs of the meaning of the law or its interaction with other laws, such as the Religious Freedom Restoration Act, or constitutional rights. If anything, the current state of the law should work to protect those he jokingly threatened to use the state of the law against. 

The news article I cite to above unfortunately wrongly states the following: "The president has not undone the law, like he sometimes claims he has, but rather told the Treasury Department it can enforce at its own discretion — leaving the possibility that the Trump administration could only penalize churches that oppose the president."

Although the President has not undone the law, as the article correctly states, I say wrongly in two senses: (1) he has not told the Treasury Department that it can enforce at its own discretion - he only directs Treasury to apply the law with due regard to allowing individuals and organizations to speak when speaking from a religious perspective "where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign", and (2) it would be unlawful for the administration to penalize churches that oppose the president, and his executive order did not create that possibility of such unlawful action. If you have interest in more detail on the (obvious) legal problems associated with (2), I wrote about the legal reasons why it would be unlawful for the IRS to unequally enforce the law in such a way in a longer scholarly article here considering the claims that the IRS violated conservative organizations rights when it specifically used names of groups like the Tea Party in managing its application system.

Philip Hackney

June 27, 2019 in Church and State, Federal – Executive, Federal – Legislative, In the News, Religion | Permalink | Comments (0)

Wednesday, June 19, 2019

Form 990 Electronic Filing About to Become Mandatory, Along with Release in Machine Readable Form

DataCongress has passed the Taxpayer First Act (H.R. 3151), and President Trump is expected to sign the bill. Almost at the very end of the bill, after numerous other improvements to tax procedures, is a section that will require tax-exempt organizations to electronically file their Form 990 series returns and the IRS to publicly release the data from these returns in machine readable format "as soon as practicable." The Secretary of the Treasury, or his delegate, may delay the mandatory electronic filing for up to two years for financially smaller organizations if not doing so would cause an undue burden. The bill also requires the government to notify organizations that fail to file a required annual return for two years in a row, if a third consecutive missed filing will lead to automatic revocation of the group's tax-exempt status.

As detailed in (shameless plug) my article on Big Data and nonprofits, these changes will provide researchers, journalists, and other members of the public with an enormous amount of information about tax-exempt organizations. While these data will require a significant amount of work to be usable, there is already a Nonprofit Open Data Collective in place to do this work. The much easier access to this information that this legislation will provide holds the promise of greatly expanding the ability to research most organizations in the nonprofit sector.

Lloyd Mayer

June 19, 2019 in Federal – Executive, Federal – Legislative, In the News, Publications – Articles | Permalink | Comments (0)

Wednesday, June 12, 2019

Federal Tax Policy and Individual Charitable Giving

The Independent Sector recently released research on the relationship between federal tax policy and individual charitable giving. The study attempts to quantify the lost individual charitable revenue from the 2017 tax changes, and the effect that these five new policies would have on charitable giving:

  1. Deduction identical to itemizers’ tax incentive;
  2. Deduction with a cap in which gifts over $4,000 or $8,000 do not receive an incentive;
  3. Deduction with a modified 1% floor, in which donors can deduct half the value of their gift if it is below 1% of their income and the full amount of the donation above 1%;
  4. Non-refundable 25% tax credit; and
  5. Enhanced deduction that provides additional incentives for low- and middle-income taxpayers

The study concludes that "all five policies could bring in more donor households and four of the five policies could bring in more charitable dollars than could be lost due to recent tax changes[, and f]our of the five tax policies could generate more giving than cost to the government."

-Joseph Mead

June 12, 2019 in Federal – Legislative, Publications – Articles | Permalink | Comments (1)

Wednesday, May 15, 2019

Two Way Too Early Lessons from the Mess at the NRA

Nraorg_logoDetails continue to emerge about the ongoing crisis at the National Rifle Association and government investigations are just starting to build up steam, so it is way too early to try to comprehensively identify nonprofit law lessons arising from this situation. That said, here are two early takes.

Boards Matter (Eventually). The NRA has a huge Board of Directors, with more than 70 members. While presumably its members are strong supporters of the NRA's agenda, they also have a legal role that gives them both access to information and credibility when making criticisms. While details about the NRA's recent problems emerged in a mid-April New Yorker story, they were given added visibility when they became the apparent basis for a leadership challenge by a faction of board members, including then-President Oliver North. That challenge failed, as did apparently earlier, quieter attempts by board members to rein in possibly problematic behavior, as explored in the New Yorker story. But that may not be the end, as the N.Y. Times reported yesterday that board member and former congressman Allen B. West has now publicly called for NRA Chief Executive Officer and Executive Vice President Wayne La Pierre to resign. One of the many board members may also have been the source of recently leaked internal memos that support many of the concerns now coming to light.

Success Does Not Excuse All Wrongdoing. Wayne LaPierre has been with the NRA since 1977, and been its head since 1991, during which time he has led the NRA to increasing prominence and influence. But despite that success, he now appears vulnerable. Indeed, in an apparent pattern that many who work with nonprofits will recognize, that success and long tenure may have led him to engage in the very transactions that could prove to be his undoing. For example, while far from the most significant questionable transaction financially or probably legally, his alleged spending of more than $200,000 for wardrobe purchases charged to an NRA vendor is, if true, a classic example of an unnecessary, self-inflicted wound (and possible excess benefit transaction for federal tax purposes). For the rank-and-file NRA member, paying him over a million dollars in compensation annually presumably can be justified by the organization's success; but then he should buy his own clothes (and who spends over $200,000 on clothes?).

With the continuing New York Attorney General, congressional, and possibly Internal Revenue Service interest, we will hopefully learn much more about how the crisis developed in the coming months. And of course this is on top of previous congressional interest in alleged Russian ties to the NRA in the time leading up to the 2016 election.

Lloyd Mayer

May 15, 2019 in Federal – Legislative, In the News, State – Executive | Permalink | Comments (0)

Tuesday, April 9, 2019

March Madness: Tax Edition

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.   

EWW

 

April 9, 2019 in Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Thursday, March 28, 2019

Grassley, Wyden, and DOJ Scrutinize Syndicated Conservation Easement Transactions

Download (1)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. 

Media coverage: Accounting Today; Law360; Wall Street Journal.

Lloyd Mayer

March 28, 2019 in Federal – Executive, Federal – Legislative, In the News, Studies and Reports | Permalink | Comments (0)

Friday, March 15, 2019

Mayer: Could a More Robust IRS Have Nipped the Varsity Blues Scandal in the Bud?

Lloyd_mayer

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.

 

Nicholas Mirkay

March 15, 2019 in Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (1)

Tuesday, March 12, 2019

Effect of TCJA on Charitable Giving: "Sluggish" Growth in 2018

As reported by The Washington Post and other news outlets, the Fundraising Effectiveness Project's most recent report announced an unimpressive 1.6 percent increase in charitable giving for calendar year 2018.  Donations from general donors (gifts under $250) and mid-level donors (gifts between $250 and $999) each dropped by 4 percent from the prior year.  On the other hand, donations from major donors (gifts of $1,000 and more) rose by 2.6 percent.  The report also revealed that the number of donors decreased by 4.5 percent from the prior year.  Although not conclusive evidence, the report does lend some credence to the conclusion that the TCJA and the resulting decrease in taxpayers itemizing their deductions (which includes the charitable contributions deduction) has negatively affected charitable giving. 

 

Nicholas Mirkay

March 12, 2019 in Current Affairs, Federal – Legislative, In the News | Permalink | Comments (1)

Thursday, February 28, 2019

Trump Foundation Redux: Cohen Testimony Raises Self-Dealing and Assignment of Income Issues

DownloadWhile 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.

Lloyd Mayer

 

February 28, 2019 in Federal – Executive, Federal – Legislative, In the News | Permalink | Comments (0)

Friday, February 15, 2019

Ellen Aprill's Review of Hamburger's "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech"

Ellen Aprill (Loyola-LA) recently posted a review of Professor Philip Hamburger's (Columbia) "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech" at HistPhil.org.     HistPhil, which is "a web publication on the history of the philanthropic and nonprofit sectors, with a particular emphasis on how history can shed light on contemporary philanthropic issues and practice."   Prof. Hamburger's book argues that, as a constitutional law matter,

    

...  theopolitical fears about the political speech of churches and related organizations underlay the adoption, in 1934 and 1954, of section 501(c)(3)’s speech limits. He thereby shows that the speech restrictions have been part of a broad majority assault on minority rights and that they are grossly unconstitutional. Ellen Aprill
 
Prof. Aprill bring a tax lens to this issue, highlighting the history of the Johnson Amendment.   The review introduces readers who might not be familiar with the public subsidy theory of exemption to a different approach to the Constitutionality issues and highlights much of the tax-focused scholarship in the area.
 
EWW

February 15, 2019 in Books, Church and State, Federal – Legislative, Publications – Books, Weblogs | Permalink | Comments (1)

Thursday, February 7, 2019

U.S. Olympic Committee Responds to Senator Grassley's Challenge to Its Tax-Exempt Status

TeamUSA_MobileIn the wake of the recent sexual assault scandal involving Olympic athletes, Senate Finance Committee Chairman Senator Chuck Grassley sent a letter to the United States Olympic Committee asking for details regarding how the organization would comply with its congressional expanded purpose that now includes providing a safe environment in sports. He based his inquiry on the need for the organization to comply with its purpose in order to maintain its tax exempt status under Internal Revenue Code section 501(c)(3).

The USOC has now responded through the Covington & Burling law firm, detailing its planned activities, which include:

  • Providing $6.2 million to fund the Center for SafeSport in 2019, double the amount of its 2018 support for the Center, and continuing to work with the Center on various initiatives.
  • Surveying athletes regarding USOC's policies, programs, services, and priorities and considering other ways to increase the influence of athletes within the organization.
  • Conducting a governance review focusing on USOC's relationship with the fifty national governing bodies and athletes more generally.
  • Continuing with proceedings to revoke the status of USA Gymnastics as the national governing body for gymnastics, although that process is currently stayed because of the pending bankruptcy of that organization.

Lloyd Mayer

February 7, 2019 in Federal – Legislative, In the News | Permalink | Comments (0)

Thursday, January 31, 2019

Hackney: Testimony for Hearing on Oversight of Nonprofit Organizations

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).

Nicholas Mirkay

January 31, 2019 in Current Affairs, Federal – Executive, Federal – Legislative | Permalink | Comments (0)

Thursday, December 20, 2018

EO Nuggets from the JCT's TCJA Explanation, Including Needed Technical Corrections

UntitledJust in time for Christmas, the Joint Committee on Taxation released its General Explanation of Public Law 115-97 (commonly known as the Tax Cuts and Jobs Act). Here are some gleanings from the provisions particularly applicable to tax-exempt organizations. Note that the Explanation, uncharacteristically, is missing "Reasons for Change" sections throughout; perhaps JCT found trying to read the collectively mind of Congress too difficult this time around.

  • Clarification re Application of Section 170 Increased Percentage Limit for Cash Contributions: The Explanation clarifies that the new, higher limit is applied after (and reduced by) the amount of noncash contributions, and provides this example:

For example, assume an individual with a contribution base of $100,000 for taxable year 2018 makes two contributions to public charities: unappreciated property with a fair market value of $50,000 and $10,000 in cash. The individual makes no other charitable contributions in 2018 and has no charitable contribution carryforwards from a prior year. The cash contribution limit under new section 170(b)(1)(G) is determined after accounting for noncash contributions. Thus, the $50,000 contribution of unappreciated property is accounted for first, using up the individual’s entire 50- percent contribution limit under section 170(b)(1)(A) (50 percent of the individual’s $100,000 contribution base), and leaving $10,000 in allowable cash contributions under the 60-percent limit ($60,000 (60 percent of $100,000) reduced by the $50,000 in noncash contributions allowed under section 170(b)(1)(A)).

  • "Technical Correction" May Be Needed to Reach State Colleges & Universities Under New Section 4960 Excise Tax on Excess Executive Compensation: The Explanation states "Applicable tax-exempt organizations are intended to include State colleges and universities." but then drops a footnote saying "A technical correction may be necessary to reflect this intent." For more on this topic, see this previous post citing an article by Ellen Aprill (Loyola L.A.).
  • New Section 4968 Excise Tax on Investment Income of Private Colleges & Universities: Nothing surprising in the Explanation for this provision.
  • Investments & New Section 512(a)(6) Siloing Provision: The Explanation provides that "it is intended that the Secretary consider whether it would be appropriate in certain cases to permit an organization that maintains an investment portfolio to treat multiple investment activities as one unrelated trade or business."
  • Charitable Contributions & New Section 512(a)(6) Siloing Provision: A footnote addresses an issue I have not seen raised before: "An exempt organization that makes charitable contributions generally is permitted to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with an unrelated trade or business. It is not intended that an exempt organization that has more than one unrelated trade or business be required to allocate its deductible charitable contributions among its various unrelated trades or businesses." The limit on corporate charitable contribution deductions (usually 10% of a modified version of unrelated business taxable income) would apply, however.
  • "Technical Correction" May Be Needed to Ensure New Section 512(a)(7) is Consistent with Section 274: The Explanation provides that "The determination of unrelated business taxable income associated with providing qualified transportation fringes, including parking facilities used in connection with qualified parking, is intended to be consistent with the determination of the deduction disallowance under section 274." but then drops the following footnote that states in part: "A technical correction may be needed to reflect this intent." I am not sure what the possible inconsistency is that is referred to here, although it may be buried in the recent IRS Notice relating to section 512(a)(7).

Lloyd Mayer

December 20, 2018 in Federal – Legislative | Permalink | Comments (0)