Nonprofit Law Prof Blog

Nonprofits in Constitutional Litigation

Today the Supreme Court hears arguments in Dobbs v. Jackson Women’s Health Organization, a case that will consider the constitutionality of a Mississippi law that entirely bans abortions after fifteen weeks of pregnancy.

The case is important and momentous. Important and momentous enough that more than 140 amicus briefs were filed with the Court. And a not-insignificant percentage of those briefs were filed by tax-exempt organizations. Those amici ran a relatively broad gamut of types of tax-exempts, views on the Mississippi law, and approaches toward the law. And I'm not going to pull out every single tax-exempt, but I'm going to highlight a handful. (I didn't read every amicus brief because SCOTUSblog did it so that I didn't have to! I'm not going to link to the org's briefs, but they're all linked on the SCOTUSblog post.) (I'll highlight which of the organizations that I list aren't 501(c)(3)s; if I don't list the section an org is exempt under, it is a 501(c)(3).)

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Horwitz Named Inaugural Faculty Director of New UCLA Program on Philanthropy and Nonprofits

Jill Horwitz (UCLA) has been named the inaugural faculty director of the Program on Philanthropy and Nonprofits at the UCLA School of Law, residing within the law school's Lowell Milken Institute for Business Law and Policy. The Program's initial three main goals are:

1. Become a research center that develops and shares scholarship and knowledge on issues relating to nonprofits, including tax policy, governance, and the role of nonprofits in developing and promoting social policies. This goal will provide resources to a wide range of participants in the nonprofit sector, including policymakers, regulators, lawyers, and senior managers of nonprofits.
    
2. Develop and expand education at UCLA Law for students, lawyers, directors, and senior managers of nonprofits on issues that are central to nonprofit operations, financial management, and governance.
    
3. Support thought leadership on legal issues material to nonprofits so that the program serves as an important resource for the operation and governance of nonprofits and as a venue to bring together practitioners, scholars, and regulators.

The Program is now seeing its first Director, with applications due by November 30th. Here is the position posting.

Lloyd Mayer

DAFs, Private Foundations, and Payout Rates

While the Accelerating Charitable Efforts (ACE) Act appears to be stuck in the Senate Finance Committee, at least for now, that has not slowed the publication of studies focusing on donor advised funds, private foundations, and payout rates. This includes reports from Giving USA, the National Philanthropic Trust, and the American Enterprise Institute, along with the latest case study of a wealth individual's private foundation.

Giving USA released this week a special report titled Donor-Advised Funds: New Insights. Here is the description:

This new special report analyzes $74 billion in grant funds going to over 240,000 organizations, answering important questions like:

1. What types of organizations receive grants from DAFs?
2. How have DAF trends changed over time?
3. How do trends differ among various types of DAF sponsoring organizations – for example, how might granting patterns at community foundations differ from grants at other types of DAF-sponsoring organizations such as national funds or single-issue charities?

Unfortunately it is only available on a paid basis, either as part of the paid annual subscription to Giving USA or separately.

The National Philanthropic Trust also just released The 2021 DAF Report. Key findings include:

• DAF donors granted at historic levels. Grants from DAFs to qualified charities totaled an estimated $34.67 billion, representing a 27.0 percent increase compared to 2019 and a new high-water mark. This is the highest DAF grant increase in a decade.
• The DAF payout rate was 23.8 percent, one of the highest payouts on record. Payout has remained above 20 percent for every year on record, reflecting the consistent charitable support that DAF donors provide.
• Other key metrics, like contributions and charitable assets, also increased. These increases demonstrate that DAF donors are committed to supporting charities now and in the future.

And Howard Husock at the American Enterprise Institute has published America’s largest foundations: Examining payout rates and perpetuity. Here are its key points:

• An examination of payout rates of the largest American philanthropic foundations reveals that the growth of their financial assets is significantly greater than the percentage of increased wealth distributed as grants. Foundation payout rates are also significantly lower than those of the individual charitable accounts known as donor-advised funds (DAFs), a growing philanthropic financial vehicle.
• DAFs, their relatively high payout rates notwithstanding, have been targeted by proposed legislation aimed at increasing those rates. Large foundations, despite controlling far more wealth and distributing a lower percentage of assets, have not been singled out. The substantial increase in the assets and extent of US private charitable foundations over the past 10 years suggest that foundation payout rates might be increased in light of substantial asset growth. Ideally, America’s largest private foundations would do this voluntarily.
• Foundations should, as best practice, seek to align grant payouts with asset growth, rather than settling for adhering to the 5 percent minimum.  In doing so, they could both better fulfill their mission and preempt what could be potential regulatory demands.  At the same time, asset growth should be the occasion for foundations to reflect on the perpetuity issue—and regulation should call for explicit indication as to whether foundations choose perpetuity and, if so, why.

Finally, in case anyone needs another real life example of how the wealthy use private foundations in their giving, the Institute for Policy Studies has posted an article (Phil Knight’s Billion-Dollar Philanthropy: Generosity or Self-Service?) based on a Bloomberg piece that is behind a paywall. The article focuses on "Nike founder and billionaire Phil Knight’s strategies to avoid estate tax and maximize transfers to his heirs and charitable foundations."

Lloyd Mayer

Can the Influence of Major Donors to Charities or Governments Go Too Far?

Social media has been filled recently with criticism of the University of California at Santa Barbara and billionaire Charlie Munger for plans to build a massive dorm at the University following detailed plans provided by amateur architect Munger and paid for with a $200 million donation from him. A Washington Post headline summarizes the criticisms (Two doors, few windows, and 4,500 students: Architect quits over billionaire's mega dorm). Of course questions about the possible undue influence of major donors are not new, although usually they involve less prominent projects. For example, earlier this fall the N.Y. Times reported Leader of Prestigious Yale Program Resigns, Citing Donor Pressure (additional coverage: The Economist).

What is perhaps new, or at least newly prominent, are similar controversies relating to donations to governments. For example, over the summer NPR reported A GOP Donor is Funding South Dakota National Guard Troops In Texas, and this fall the Texas Tribune reported Texas has raised $54 million in private donations for its border wall plan. Almost all of it came from this one billionaire. But the biggest such recent gift was detailed in The Chronicle of Philanthropy: Should Philanthropy Fund Government? A $400 Million Gift Settles That Question in Kalamazoo, Mich., for Years to Come (subscription required, but also available from U.S. News/AP). The anonymous gift is almost double the city's annual budget.

Donations to governments raises additional issues, including whether they risk distorting government priorities that otherwise would be decided through the political process and whether they shift power to executive branch officials who solicit such donations and away from the legislatures that normally control government spending. Of course not all government agencies can accept donations. For example, GoFundMe shut down a campaign to raise funds for the federal government's border wall in part because it would have required congressional approval for the government to have accepted the funds. So it is unclear how widespread such donor influence can be on government actions, absent legislative action.

Lloyd Mayer

The Nonprofit News Trend Continues in Baltimore and Cleveland

We have covered shifts of news outlets toward nonprofit status or ownership by nonprofits in a variety of locations, including Philadelphia, Salt Lake City, and Texas. Here are two more recent developments in this area:

• The N.Y. Times reports that having failed to buy The Baltimore Sun, Steven Bainum is now pivoting to launching The Baltimore Banner, a nonprofit digital news outlet, a story first reported by The Atlantic (see end of article). The Washington Post further reports that Bainum has committed $50 million to this new venture, which has hired Kimi Yoshino (pictured), formerly managing editor with the L.A. Times, to help launch it.

• And Cleveland.com reports that a coalition of Cleveland-based organizations have raised more than $5.8 in partnership with the American Journalism Project to launch a nonprofit newsroom there in 2022. The eventual goal is to open newsrooms across Ohio as part of the Ohio Local News Initiative.

That these developments are part of a larger trend in the United States is documented by recent data from the Institute for Nonprofit News. Findings included:

• A total of 33 nonprofit local news outlets launched in 2018-2020, with at least 92 total such outlets as of the end of 2020.
• As of 2020, there were 60 state and 21 regional nonprofit news outlets. 
• Also as of 2020, there were 47 national and 23 global nonprofit news outlets.
• There are at least 50 nonprofit news outlets that primarily serve communities of color.

Lloyd Mayer

Nonprofits & Politics: VP Harris & Virginia Churches, The Left & Dark Money, Liberty University

Perhaps driven by the sharpness of our current political divides, even the relatively few elections this year generated a steady stream of stories about nonprofits, politics, and possible violations of the federal tax laws. Here are some highlights:

• A video message from Vice President Kamala Harris that reportedly was played in more than 300 black churches in Virginia strongly supported gubernatorial candidate Terry McAuliffe and so appears to have violated the Internal Revenue Code section 501(c)(3) prohibition on tax-exempt charities, including churches, intervening in political campaigns. Demonstrating its consistent opposition to such activities, whether favoring Republican or Democratic candidates, the Freedom from Religion Foundation promptly filed a complaint with the IRS about churches airing the video and other pro-McAuliffe activities in Virginia churches.

• The Atlantic published a lengthy interview titled The Massive Progressive Dark-Money Group You've Never Head Of. The interview is with Sampriti Ganguli, the CEO of little known business-services group Arabella Advisors, which the interviewer asserts has played a major role in helping left-leaning "dark money" groups quietly pull ahead of right-leaning groups in total spending. Relatedly, OpenSecrets last spring published a report titled 'Dark money' topped $1 billion in 2020, largely boosting Democrats. Such groups are section 501(c)(4)s or other non-charities that are permitted to engage in a limited amount of political campaign intervention, so their activities may be in compliance with their federal tax status.

• Politico reported late last month that the new president of Liberty University said in a recorded phone call that one of the main goals so the University's Standing for Freedom Center is "getting people elected". In response to concerns that doing so would be problematic under Internal Revenue Code section 501(c)(3), President Jerry Prevo responded "I know how to work 50c3". The University official who raised the concerns was fired earlier last month, which he asserts was in part in retaliation for him doing so. Additional coverage: Forbes, Salon.

Lloyd Mayer

Minnesota AG Forces Charity to Restructure & Replace Leadership

Minnesota Attorney General Keith Ellison announced in early September that his office had agreed to a settlement with the nonprofit BFW Institute of Education & Research that requires the organization to replace its directors and officers and restructure its operations to end alleged self-dealing transactions. While allegations of self-dealing are unfortunately all to common with nonprofits, the complexity of the alleged scheme here is interesting.

From the AG's press release:

BFW issues grants for pain-relief care to veterans, first responders, law enforcement personnel, and their family members. The court order that the Attorney General’s Office filed today alleges that, under prior leadership, BFW approved only its related pain-relief provider, Ultimate Wellness Center (“UWC”) for grantees to seek care.  BFW’s relationship with UWC — which is wholly owned by BFW’s founder — had never been competitively evaluated, appropriately documented, or negotiated at arm’s length. 

BFW’s structural issues also contributed to unchecked conflicted decision-making. These conflicts took several forms, including:  

• Four of BFW’s five directors had a financial interest in or were otherwise affiliated with UWC or in the two entities subcontracted to provide patient care at the clinic. 
• None of BFW’s “approved provider” relationships, financial transactions, or other conflicted director arrangements were disclosed to or discussed by the Board of Directors when it entered into transactions, renewed agreements, or elected directors to the Board. 
• Save for one, none of BFW’s board members signed required annual statements disclosing potential conflicts. 
• BFW gave its founder and its Treasurer the authority to borrow money on behalf of the corporation and did not require the Board to approve loans—even those taken from BFW’s founder. 

As a result, BFW became heavily indebted to its founder and his related entities. BFW started borrowing money from its founder and his businesses as far back as FYE 2012, when it owed $88k. As of FYE 2020, BFW owed $712k to its founder individually and $1k to one of his businesses. The loans were not board-approved, had no written agreement, and some were not disclosed on BFW’s tax returns as insider loans. The loans were ostensibly taken out to fund veteran care, but grantee checks were to be redeemed only at insiders’ for-profit care providers. From 2016 through 2019, BFW made $2,020,607 in grants for care that were to be redeemed at those insider-owned providers. 

Coverage: Minnesota Star Tribune; Sun Post.

Lloyd Mayer

Feds Indict Alleged Scam PAC Operators

Politico reports that an indictment unsealed today reveals federal prosecutors have charged three individuals with conspiracy to commit wire fraud and lying to the Federal Election Commission. The allegations relate to the raising of approximately $3.5 million during the 2016 election, with almost none of those funds going to any political cause. Instead a large portion of the funds allegedly went to organizers personally. The two PACs involved were bipartisan - one claimed to raise funds to support Donald Trump, and the other claimed to raise funds to support Hillary Clinton.

While the indictment relates to activities back in 2016, the Daily Beast and OpenSecrets have been investigating a network of alleged scam PACs that has been operating since then, as detailed in this report from last month. The latest twist appears to involve organizations that register as section 527 political organizations with the IRS but not as political committees with the FEC, presumably in order to take advantage of the harder to access IRS-collected data and lesser IRS enforcement resources. The FBI views these activities as serious enough to warrant a public warning last April.

Additional Coverage: N.Y. Times; SFist.

Lloyd Mayer

Where Did the Billions in Federal COVID-19 Funds to Schools Go?

In prior scholarship, I have addressed how the specific metrics used in the impact investing sector may be used to measure and report social good in the charitable sector to increase transparency and accountability about how donated funds are used.  The issue of incomplete reporting in the nonprofit sector is highlighted in a recent ProPublica article about the shortcomings of reports by state school districts on how they have used federal aid funds disbursed to remedy educational fallout from the pandemic.  Specifically, the ProPublica article addresses the gap between federal governmental aid to schools during the pandemic and measurable results from state school districts.  According to the article, the federal government gave around $190 billion in aid to help schools reopen and to address the effects of the pandemic.  In the year and a half since school doors were closed to millions of children, the Education Department has done only limited tracking to determine how the funds were used.  As a result, Washington, D.C. is in the dark about the effectiveness of the aid, especially in terms of those communities that have struggled the most during the pandemic.  

State education agencies were required to submit provisional annual reports to the federal government.  However, their reports only utilized six very broad categories, including technology and sanitation, to disclose how funds were used.  ProPublica analyzed more than 16,000 of such reports for the period March 2020 to September 2020 and found that billions of dollars were categorized as funding “Other.”  For example, some of the largest school districts in the country categorized all of their aid under the “Other” category, including Los Angeles Unified, which spent $49.5 million, and New York City’s schools, which spent $111.5 million.

ProPublica points out that since there is not a centralized and detailed federal tracking system, monitoring of how the relief funds given to over 13,000 school districts has been up to individual states.  Some school districts have expended the funds in a way that it is not at all consistent with the federal aid program, such as by using the funds for track and field facilities and bleachers.  The article cited both a school district in Iowa (Creston Community School District) and one in Pulaski County, Kentucky as engaging in such spending.

Importantly, the federal aid program delineated at least one very clear goal.  The funds were to be used to re-open schools to maximize in-person learning.  Broadly speaking, the funds were to be used to address the impact of the pandemic.  There have been numerous articles that have detailed the educational and emotional fallout from remote learning.  It is surprising to learn that there have not been directed efforts to help students make a smooth transition back to in-person learning and to recover from any lapses in their educational and/or social, emotional development as a result of the pandemic.  Instead, for example, in Texas, the McAllen Independent School District spent $4 million of its relief funds to build a 5-acre outdoor learning environment associated with a local nature and birding center owned by the city.  Although the concept may be a good one in theory, it fails to address  “the urgent learning needs of children who have been directly impacted by the pandemic.”  Critics have pointed out that the outdoor area will not even be completed before 2024, so half of the children there will not benefit from the outdoor center at all. 

Perhaps it is not too late for school districts to make the right choices in terms of spending federal aid.  Although most of the aid was dispensed from March 2020 to March 2021, the school districts have until 2024 to budget how the funds will be utilized.  Given the federal government has started to request basic information from states about how their school districts have used their funds, hopefully, the school districts will re-calibrate their spending and set forth goals consistent with the overall aim of the relief program. 

Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law, Tulane Law School

Requiring Private Schools to Have More Diverse Boards

In prior posts, I have examined the problem of racial discrimination in private schools and how tax-exempt law might address this systemic problem.  Today, I wanted to explore race issues that are present in tax-exempt law more broadly.  Ideally, examining the issue from a broader perspective will produce creative ways of addressing racial discrimination in private schools.

A great primer on race issues and tax-exempt law is the 2004 article entitled Race and Equality Across the Law School Curriculum: The Law of Tax Exemption by David A. Brennen.  As Brennen observes, race bias in terms of tax-exempt law is focused on the justice or injustice in regard to blacks of the statutory requirements to gain and keep tax-exemption.  One of the main advantages of pursuing an activity through a tax-exempt organization is that such activity may be funded through public and governmental financial support, namely through tax expenditures.  In other words, tax-exempt organizations receive a financial subsidy or financial benefit from the government by virtue of their tax-exempt status.  Brennen asks a poignant question: “How should the government allow tax-exempt organizations to use this indirect, but admittedly financial government/public benefit?”  Accordingly, he next turns directly to an examination of the Bob Jones University public policy doctrine and its implications for racial preferences of tax-exempt charities. 

At the same time, Brennen raises at least two distinct issues aside from the public policy doctrine that are relevant to tax-exempt private schools.  First, he queries whether a charity (such as a private school) should be required to have a racially diverse board of directors if indeed it is to represent the broad community that it claims it serves.  This makes sense because one of the conditions for receiving tax-exempt status is to show that the organization will benefit the public broadly, rather than a group of pre-selected individuals.  Second, Brennen considers whether the prohibition on tax-exempt social clubs’ engaging in racial discrimination should be expanded or revised.   (As an aside, a third interesting point that Brennen raises is how restrictions on political activity might affect tax-exempt charities that have historically served as a meeting ground and voice for the black community, such as black churches).   One must conclude as Brennen does that it is important to examine how certain laws are affecting different racial groups with an eye to possible correction.   His solution of requiring board diversity in the context of tax-exempt private schools is one worth noting.

 

Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law, Tulane Law School

Study: Attendance Hemorrhaging at Small and Midsize US Congregations

An article in today's Religion News Service reports that the most recent round of the Faith Communities Today survey (FACT), found a median decline in worship attendance of 7% between 2015 and 2020. What is also quite interesting is that the survey period ended before the onset of the COVID-19 pandemic.

The new survey of 15,278 religious congregations across the United States confirms trends sociologists have documented for several decades: Congregational life across the country is shrinking.

According to RNS, 

The survey, fielded just before the coronavirus lockdown, finds that half of the country’s estimated 350,000 religious congregations had 65 or fewer people in attendance on any given weekend. That’s a drop of more than half from a median attendance level of 137 people in 2000, the first year the FACT survey gathered data.

Scott Thurman, director of the Hartford Institute for Religion Research and the survey’s author, had this to say: “The dramatically increasing number of congregations below 65 attendees with a continued rate of decline should be cause for concern among religious communities.”

Produced by the Hartford Institute for Religion Research, the FACT survey consists of self-reported questionnaires sent out to congregational leaders every five years since 2000 — mostly through 20 collaborating denominations and faith traditions. According to RNS, the most recent survey found that mainline Protestants suffered the greatest decline over the past five years (12.5%), with a median of 50 people attending worship in 2020. Evangelical congregations declined at a slower rate (5.4%) over the same five-year period and had a median attendance of 65 people at worship. Catholic and Orthodox Christian churches declined by 9%. The only groups to boost attendance over the past five years were non-Christian congregations: Muslim, Baha’i and Jewish. 

The survey found that half of the nation’s congregations were in the South, even though only 38% of the U.S. population lives there. It also suggested that small congregations in rural areas and small towns may be unsustainable. Nearly half of the country’s congregations are in rural areas (25%) or small towns (22%), while the 2020 census found that only 6% of Americans live in rural areas and 8% in small towns.

One bright spot in the study is this: Congregations are becoming more racially diverse. In 2000 only 12% of congregations were multiracial. In the latest survey, the figure climbed to 25%.

The survey defined multiracial congregations as those where 20% or more of participants are not part of the dominant racial group.

Many researchers are now investigating if racial diversity also equals integration in relationships — or if people are simply attending church together. Previous research has also found increased diversity is one-directional.

“It’s still in the direction of predominantly white churches becoming less predominantly white, said Chaves. “It’s very little in the other direction. There’s not a big increase in diversity in predominantly Black churches.”

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

 

Nonprofits Struggling to Meet Service and Organizational Demands During Pandemic

A special report published in yesterday's NonProfit Times revealed that more than half (53%) of nonprofits have had greater demand for their services during the COVID-19 pandemic, and one-third are experiencing higher operating costs. Indeed, four in 10 nonprofits have cut operating costs, and one-third have pared back programs or services. 

The Times' report cites to the 2021 Nonprofit Leadership Survey Report from Grassi Advisors & Accountants. According to the report, cutbacks hit smaller nonprofits harder than larger ones, with 48% of those having costs less than $5 million experiencing cutbacks, compared with 37% of those with expenses in the $5 to $25 million range and 36% with costs greater than $25 million.

Nonprofits have explored a variety of cost-cutting and revenue-supplementing activities. Slightly fewer than one-quarter (23%) have renegotiated leases and other contractual financial obligations. Some 7% have terminated automatic payments and 15% have increased their draws on their endowments. And, 5% merged with another nonprofit during the past year.

Human capital is also being affected. Nearly one-third of nonprofits had layoffs and furloughs, while 12% reduced employee benefits. Two in 10 are operating under a hiring freeze.

Nonprofits are experiencing great difficulty in locating volunteers to make up for their lost employee time. According to the report, 22% report challenges recruiting and managing volunteers. Given COVID concerns, this is not surprising. More than two-thirds (68%) of nonprofits have at least some staff that work in close physical contact with the populations they serve. Officials at nearly that many (63%) said the outbreaks had been at least somewhat of a problem for them.

In more bad news, notwithstanding their cost cutbacks, nonprofits are not on steady financial footing: A mere 2% report having at least 12 months of liquidity, with officials at roughly one-third indicating they have fewer than three months, between four and six months or between seven and twelve months of liquidity.

The Times continues:

[W]hile fewer than half (47%) report drops in funding, that level is likely due to Paycheck Protection Program loans and other federal relief programs. Another quarter said their funding had remained steady, while only 26% reported funding increases.

Working capital lines of credit offer only finite hope for nonprofits. Overall, 63% have access to this resource while one-third do not. And of those with this resource, 27% have availed themselves of it during the past 12 months.

Nonprofits aren’t being static in the face of COVID-related challenges. More than seven in 10 (71%) implemented new technologies during the past year, although many of these likely were in support of remote or home-based staff. Another 42% created new programs and services, while 36% launched new collaborations with other organizations.

Nonprofit managers also used the pandemic as a time for organizational self-reflection: 22% began to target and serve new client populations, 22% renewed their mission statements and 12% changed their mission.

Looking to the future, The Times -- and the report from Grassi Advisors & Accountants -- opine that to be successful, nonprofits will need

Funding, funding, funding. While 60% said their top priority was attracting [and] retaining qualified people, the next three priorities bunched revenue concerns, with 56% seeking improved fundraising, 55% indicating a pressing need for more funding for overhead costs, and 54% citing the need to stabilized revenue and cash flow.

For many, however, the future will look different. Currently 43% are considering working collaborations with other organizations to deliver their services, and 21% are mulling a merger. Two percent say closure is a possibility, and barely over half – 54% – indicated none of these options are on the table.

Things certainly look different for the future.

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

 

  

 

 

Religious Organizations Prepare for 'Potential Onslaught' of Evictions

Writing for today's edition of Religion News Service (RNS) news, Kathryn Post states that the Supreme Court’s August 26 decision to end the federal eviction moratorium brings new challenges for religious leaders and organizations working to aid those at risk for homelessness. Post cites to recent data from the U.S. Census Bureau indicating that more than 3.6 million Americans say they could face eviction in the next two months.

This startling statistic has brought the following response from Sarah Abramson, vice president of strategy and impact at Combined Jewish Philanthropies in Boston: "We’re very, very nervous. There is already a tremendous housing shortage in Boston. And we know from our data, and from the experience of our partners who do this work, just how difficult it was for somebody who has been evicted in the past to get housing.”

Jerrel T. Gilliam, executive director of Light of Life Rescue Mission in Pittsburgh, also shared concerns: “We are going to need to be very creative, and to think outside the box in order to prepare for what could be a potential onslaught of people needing assistance in a short amount of time.” 

In its August 26 decision, the Court ruled that the Centers for Disease Control and Prevention lacked the authority to establish a federal eviction moratorium. According to the Court, such a moratorium requires congressional approval. The decision comes as renters and landlords face a backlog of promised funds. According to Census Bureau data, the government has thus far distributed only about $5.1 billion of the $46.5 billion in federal rental assistance funds intended to prevent eviction.

“We definitely have to work hard to make sure that money reaches people,” said Shams DaBaron, a New York activist who also goes by “Da Homeless Hero.” “We have to cover both sides: these small landlords that need it, and those who are extremely poor.”

DaBaron is currently living in an apartment with the support of a voucher program, but he says the city is behind on three months of rent. An eviction moratorium is one measure that can help buy more time while such funds face bureaucratic delays.

DaBaron gained national attention as unofficial spokesperson for the residents of the Lucerne, a hotel-turned-shelter during the pandemic in Manhattan’s Upper West Side that became the center of New York’s “homeless hotel” debate. When he was not advocating for his fellow residents, DaBaron partnered with local group Open Hearts to develop a program called Soulful Walk and Talks. The program provided hotel shelter residents the opportunity to walk to the nearby Riverside Park with local faith leaders from a range of religious traditions who provided a safe space for spiritual reflection.

“We didn’t want to make it a religious thing, but we understand the value of spirit, of soul, of that deep essence within everybody,” said DaBaron. “One of the things that came out of it, from talking to many of the faith leaders, is that many of them were transformed, just as many of us were transformed.”

“It was definitely very impactful,” said Rabbi Lauren Herrmann of the Society for the Advancement of Judaism, who joined in the Walk and Talks and organized other clergy participants. “For one thing, I really understood for the first time in my life the issues surrounding the shelter system, and why people choose to be on the streets instead of being in shelters. … The shelter system is deeply broken, and some of the stories I heard were deeply upsetting.”

Herrmann and DaBaron see the Soulful Walk and Talks as tending to the essential spiritual needs of those facing homelessness. They hope to continue and expand the program as the federal eviction moratorium lifts. Yet, DaBaron and Herrmann also pointed to structural changes that need to take place. New York state implemented a new eviction moratorium on Sept. 1 that extends until January 2022. However, the moratorium does not address the city’s lack of affordable housing, the income cliffs that foster dependence on government programs and the health and safety risks facing those in congregate shelters, where many former Lucerne residents are finding themselves since the hotel shelter closed this summer.

In Pittsburgh, Light of Life Rescue Mission takes a multifaceted approach to homelessness by providing a range of services including case management, education, unemployment services and accommodations for those facing housing insecurity.

Gilliam, the Christian organization’s executive director, is concerned the end of the eviction moratorium will mean a sudden, sharp increase in the number of residents facing evictions. At one point during the pandemic, evictions in Pittsburgh slowed to a complete halt — in a typical year, according to Gilliam, Pittsburgh sees 14,000 evictions.

Gilliam suggested implementing preventive measures that would allow landlords to receive rent payments while enabling those at risk for evictions to find suitable housing.

“We’re pleading with everyone,” said Gilliam. “Let’s try to get people help while they’re still in the home and help the landlord have another month or two of rent, so that we can find a place for them without them having to pass through homelessness to get assistance.”

The pandemic has not been as kind to all religious organizations working to serve those facing housing insecurity. Chaplain Asma Inge-Hanif, founder and executive director of Muslimat Al Nisaa, has been serving the Baltimore community for 30 years. The organization provides health, education and social services to all, regardless of their ability to pay, and its Home Shelter is especially designed to meet the needs of Muslim women. She says her organization has served thousands of people over the years.

In the last year and a half, Inge-Hanif almost died from COVID-19 and lost her organization’s signature location. “I couldn’t pay the rent anymore, even though they claim there was an eviction moratorium,” she said. Now, Inge-Hanif is working to keep the shelter open on a small scale so she can help meet housing needs, especially those of people arriving from Afghanistan.

“I’m getting so many requests all the time from people who are getting evicted,” she said. “It’s often people who have no status and people of color. Everyday I get seven to 10 requests for shelter and housing. And I can’t help them.”

As the federal eviction moratorium ends, Inge-Hanif is hoping to raise money for an apartment building so she can house more people. She also says governments need to make rental assistance and other services more accessible.

“That’s why people are being evicted. They can’t get through the paperwork,” said Inge-Hanif. “The people who need the help are not in a position to maneuver through all the red tape. … The way the system is set up prevents the people who are most in need from actualizing success and being self-sufficient.”

That, indeed, appears to be the sad truth.

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

IRS to No Longer Issue Letter Rulings on Certain Activities of Private Foundations

In Revenue Procedure 2021-40, 2021-38, IRB (due for publication on September 20, 2021), the Internal Revenue Service is set to announce that it will no longer issue letter rulings on whether certain transactions are self-dealing within the meaning of section 4941(d) of the Internal Revenue Code.  In making the announcement in a recent Guidewire release, the Service stated that specifically, it "will not issue rulings on whether an act of self-dealing occurs when a private foundation (or other entity subject to section 4941) owns or receives an interest in a limited liability company or other entity that owns a promissory note issued by a disqualified person." This approach amplifies Rev. Proc. 2021-3, 2021-1 IRB 140, which sets forth areas of the Internal Revenue Code relating to issues on which the Internal Revenue Service will not issue letter rulings or determination letters.

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

 

Adediran: Disclosures for Equity

Atinuke O. Adediran (Fordham) has posted Disclosures for Equity on SSRN (122 Columbia Law Review forthcoming 2022): Here is the abstract:

While one might expect that the nonprofit sector is an equitable space where generosity and social justice are the norms, the sector suffers from funding inequalities. Despite corporations’ and private foundations’ pledges to fund nonprofit organizations that are led by members of, or that serve, communities of color, there are racial disparities in nonprofit funding. Research reveals that in comparison to White-led nonprofit organizations, organizations led by or serving communities of color are chronically underfunded. These disparities in funding mean that organizations that serve communities of color are more likely to go defunct or lack resources. Increased funding for minority-led or serving organizations can have a profound positive impact on the criminal justice system, healthcare, environmental justice, housing, labor, and employment. Indeed, it would be difficult to fight mass incarceration without the work of nonprofit charities like Bryan Stevenson’s preeminent organization, Equal Justice Initiative.

This Article proposes two novel remedies to address this issue. The first is for charities to publicly disclose their institutional donors in Schedule B of Internal Revenue Service (“IRS”) Form 990. The second is for IRS Form 990 to include information on the race and ethnicity of top managers, directors, and the communities an organization serves. Mandating these disclosures would allow the public to assess whether pledges to support racial justice come with funding rather than empty promises. While the Supreme Court’s recent case, Americans for Prosperity Foundation v. Bonta (“AFPF”) struck down California’s donor disclosure requirements, this Article makes an important distinction between individual and institutional donors that the AFPF case ignores. As the disclosures would only apply to institutional donors and would include an opt out provision for controversial organizations, they would protect the right to freedom of association while promoting transparency in nonprofit funding and racial justice. By using mandatory disclosures to address racial inequities in not-for-profit law, the nonprofit sector might finally contend with persistent racial disparities in funding that leave communities of color underserved.

The article is particularly timely given a recent Washington Post analysis (Corporate America's $50 billion promise) that raises questions about corporate support for efforts to address racial inequality, noting that "more than 90 percent of that amount — $45.2 billion — is allocated as loans or investments they could stand to profit from, more than half in the form of mortgages" and that only about $70 million "went to organizations focused specifically on criminal justice reform."

Lloyd Mayer

Cryptocurrency and Nonprofits

Peter Howson (Northumbria University, UK) has published Crypto-giving and surveillance philanthropy: Exploring the trade-offs in blockchain innovation for nonprofits in Nonprofit Management and Leadership. Here is the abstract:

A blockchain is a smart electronic database, distributed to all users, immutably tracking every transaction that has ever taken place between nodes on a network. The technology is being used by some nonprofits to address various operational challenges, including attaching automated conditions to charitable donations facilitated by programmable “crypto-giving” platforms. Drawing from analysis of technical documents provided by active crypto-giving projects, this review considers how these platforms enable radical shifts in sectoral power relations through “surveillance philanthropy”. This algorithmic surveillance ensures project funding fully reflects the interests of donors, while potentially restricting nonprofits in meeting the dynamic and complex needs of project beneficiaries. The paper considers the benefit trade-offs from crypto-giving platforms in three areas of utilization: (a) new forms of donor engagement and fundraising, (b) new tools for organizational governance, and (c) novel provision of development assistance. Despite the possible efficiency and transparency benefits of crypto-giving platforms, more research and practitioner engagement is required to ensure the sector's funding is secure and sustainable, without entailing significant risks for proposed beneficiaries.

For additional coverage of cryptocurrency and nonprofit issues, see Philip Hackney & Brian Mittendorf, Charities are taking digital money — but there are risks (Salon), Crypto, Meet Donor-Advised Funds: a New Way of Giving (The Chronicle of Philanthropy), Nonprofits Get a New Type of Donation: Cryptocurrency (N.Y. Times).  

Lloyd Mayer

Donors Battle GFA World (formerly Gospel for Asia) in Toronto Courtroom

MinistryWatch, a watchdog organization focusing on religious nonprofits, recently reported on the continuing legal dispute between former donors and GFA World (formally Gospel for Asia). The most recent developments may have been missed by U.S. nonprofit observers because they are happening in a Toronto courtroom, unlike an earlier class action suit against the organization that was brought in Arkansas and settled in 2019. 

According to the report, the Canadian lawsuit alleges that GFA World misused more than $100 million in donations. The allegations are based in part on asserted discrepancies between documents filed by GFA World, specifically Canadian tax forms reporting millions of dollars going to India and Indian forms showing no transfers from Canada to India. The donors bringing the suit are seeking class action status. GFA World has denied any wrongdoing.

Lloyd Mayer

University of Louisville Settles Legal Dispute with ex-President for $800,000 Paid by Insurance Company

The Associated Press and The Courier Journal report that afters years of litigation and spending more than $6 million in taxpayer funds, the University of Louisville and its affiliated foundation have agreed to resolve their legal dispute with ex-President James Ramsey for $800,000 paid under the foundation's directors and officers insurance policy. President Ramsey served for 14 years, but his tenure ended in turmoil after allegations arose relating to improper spending by both the university and the foundation, including allegedly excessive compensation paid to Ramsey and his then chief of staff. The original complaint filed by the University and the foundation can be found here.

An earlier news report stated that the IRS was auditing the foundation, presumably based at least in part on the public allegations of wrongdoing. The most recent report states that the foundation has released its tax claims against Ramsey as part of the settlement. But it is unclear to me how that agreement could prevent the IRS from imposing self-dealing or other excise tax penalties, if it chooses to do so.

Lloyd Mayer

Sackler Settlement Includes Releasing Control of Two Foundations and Temporarily Not Seeking Naming Rights

Tbis week a bankruptcy court approved a settlement with the Sackler family, which has faced allegations that it bore responsibility for the deadly opioid crisis. In-depth Coverage: NPR, N.Y. Times, Wall Street Journal. Several states have already announced they will appeal the ruling, and it remains to be seen whether the U.S. Department of Justice will join that appeal.

An earlier MarketWatch report on the settlement highlights two nonprofit-related provisions. First, the family has agreed to surrender control of two foundations to parties appointed by the bankruptcy court or to the trustees of the National Opioid Abatement Trust. Here is the relevant provision from the settlement:

In addition, the individual trustees of NOAT, or such other qualified party or parties as shall be selected by the Bankruptcy Court, will, subject to receipt of necessary approvals, become the controlling members of the Raymond and Beverly Sackler Foundation and the Raymond and Beverly Sackler Fund for the Arts and Sciences, which shall have an aggregate value of at least $175 million, and will be required to limit the purposes of the Foundations to purposes consistent with philanthropic and charitable efforts to ameliorate the opioid crisis.

Second, the Sackler familly will be barred from putting their names on buildings or institutions to which they donate money until they complete the agreed-upon payment of $4.5 billion (over nine years) and are no longer involved in the opioid business. Here is the relevant provision from the settlement:

A prohibition with regard to the Sackler family’s naming rights related to charitable contributions until they have fully paid all obligations owed by them under the terms of the contemplated settlement and exited, worldwide, all businesses that engage in the manufacturing or sale of opioids.

The settlement does not prevent the family from making charitable donations, and it does not require the removal of the Sackler name from existing buildings and institutions, although the report notes some charities have already done so and others are considering doing so.

Lloyd Mayer

Former CEO of Florida Coalition Against Domestic Violence Agrees to Repay $2.1 Million

Florida officials annnounced last week that the former chief executive officer of nonprofit Florida Coalition Against Domestic Violence has agreed to repay $2.1 million in alleged excess compensation paid to her, the Miami Herald reported. In addition, the nonprofit's insurer agreed to pay an additional $1.7 million to the Department of Children and Families and a court-appointed receiver, and two other former officers agreed to pay $60,000. The nonprofit will be dissolved.

As previously covered in this space, the settlement grew out of a state audit triggered by the reported $761,000 paid to the CEO for the fiscal year that ended on June 30, 2017. The nonprofit received almost of its funding from the state of Florida, which it would then distribute to domestic violence centers throughout the state. It eventually came out that the CEO had in fact been paid more than $7.5 million over three years. According to the most recent news report, the state alleges that the board compensation committee worked with the CEO to conceal the high level of compensation that she received. But the CEO's attorney pushed back on the assertion that the amount of compensation paid was improper or excessive.

Lloyd Mayer