Tuesday, February 19, 2019
There was an interesting article in yesterday's L.A. Times regarding something the left coasters call "behested payments." On the right coast, the practice is probably more often referred to as "pay to play." Anyway, yesterday's L.A. Times article described left coast politicians' habit and history of soliciting charitable donations to their favored causes. Sounds ok so far. "These payments are not considered campaign contributions or gifts," the state's political watchdog explains, "but are payments made at the 'behest' of elected officials to be used for legislative, governmental or charitable purposes." The more sinister implication is that the donors are doing two bad things. First, they are avoiding campaign donation limitations by steering campaign contributions to a candidate's favorite charity, through which the candidate receives some sort of implicit benefit associated with the donation. Secondly, the donor is buying access to city hall. Los Angeles Councilman Mitchell Englander has caused many a donor to contribute, at Councilman Englander's "behest," to a charity at whose well attended events Councilman Englander is a frequent and featured guest speaker. For federal tax purposes the implication is that in exchange for benefitting from a politician's fundraising prowess, charities are providing focused and featured face-time and feel good associations for the candidate. In other words, the candidate who can steer donations to a charity by sending out personal "behests' [sic], is treated as the charity's favorite son or daughter, though the charity never implicitly tells its stakeholders to "vote for so and so because he supports us." A 2017 article graphically illustrated the potential in this graphic regarding behested payments solicited by Mayor Eric Garcetti:
Mayor Garcetti has raised a boat load of money mostly for the Mayor's Fund of Los Angeles, a 501(c)(3) he set up himself and which generally does its good works in partnership with L.A. city government, especially the incumbent Mayor. One commentator describes Garcetti's success with behested payments thusly:
Garcetti has raised more than twice as much in behested payments as California Gov. Jerry Brown and more than 40 times the amount of Lt. Gov. Gavin Newsom over the same time period, according to a KPCC analysis of reports filed by the politicians. Most of the donations Garcetti raised went to a charity he helped create after his election, the Mayor's Fund for Los Angeles, according to reports he filed with the Los Angeles City Ethics Commission. Other contributions given at his request benefited other efforts, including two that are dear to his heart: L.A.'s Olympic bid and The GRYD Foundation, which runs a summertime park program Garcetti has supported for years. “It strikes me that he’s taking advantage of the law more than anybody else has ever done,” said Bob Stern, a former California Fair Political Practices Commission general counsel who helped write the state's 1974 Political Reform Act.
California has disclosure rules that require politicians to disclose "behested payments." I suppose transparency in politics is a good thing so I don't have a philosophical bent against campaign disclosure laws. But what exactly is the public to conclude from, for example, the disclosure that a political incumbent has generated -- "behested" -- millions of dollars for a charity whose glow benefits everybody with whom the charity associates, including its political incumbent rainmaker? The answer to that question begs the question what exactly is the politician purchasing from the charity who benefits from behested payments and what implication does that expectation have for charitable organizations prohibited from campaign intervention. I will talk about that in my next post.
Darryll K. Jones
Friday, February 8, 2019
Pennsylvania Attorney General Josh Shapiro announced yesterday that he is seeking to modify consent decrees governing the relationship between the University of Pittsburgh Medical Center (UPMC) and Highmark (a health insurer and health care provider), with the support of Highmark's leadership. According to the AG "UPMC is not fulfilling its obligation as a public charity." More specifically, in the petition his office filed he is asking the Commonwealth Court to:
- Enable open and affordable access to UPMC’s health care services and products through negotiated contracts with any health plan;
- Require last, best-offer arbitration – commonly known as “baseball arbitration” – when contract negotiations between insurers and providers fail; and
- Protect against UPMC’s unjust enrichment by prohibiting excessive and unreasonable billing practices inconsistent with its status as a non-profit charity providing healthcare to the public.
Alleged violations of UPMC's charitable obligations include "[w]ithholding access to doctors for patients in Williamsport, Pennsylvania whose employers have contracts with a competing health plan" and "[r]efusing to negotiate reasonable payment terms with self-insured employers, resulting in UPMC's unjust enrichment through excess reimbursements for the value of its services."
Thursday, February 7, 2019
California Attorney General Xavier Becerra recently announced that his office had settled a case it had brought against charity Giving Children Hope alleging that the charity had overvalued in-kind donations it had received in order to inflate the value of the contributions it received and therefore its claimed direct aid. Here is the AG's description of what the charity did:
Giving Children Hope provides international assistance in the form of food, clothing, and medical supplies. The Attorney General’s investigation revealed that between July 1, 2012 and June 30, 2016, GCH inaccurately claimed, in its public financial reporting and on its website, that 99 percent of all contributions provided direct aid. This was misleading and the result of deceptive reporting of Gift-in-Kind donations. GCH created two subsidiaries, Giving Hope International and International Clinic Aid, which purchased pharmaceuticals from a wholesaler in the Netherlands for less than $225,000. The two subsidiaries then donated the same pharmaceuticals to GCH. GCH reported the total value for these pharmaceuticals as being over $34.9 million using U.S. prices of drugs rather than the actual purchase price paid by its affiliated charity. GCH should not have reported $34.9 million in revenue and donations when the pharmaceuticals cost less than $225,000. Also since GCH failed to submit any documentation showing that the pharmaceuticals were, in fact, distributed in furtherance of Giving Children Hope’s charitable purpose, the actual value for those pharmaceuticals should have been zero.
For previous coverage of the California AG's other enforcement actions in this area, see this earlier blog post.
In 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.
Thursday, January 3, 2019
Private Benefit at Memorial Sloan Kettering Cancer Center: The Exempt Purpose, Sponsored Research and Tech Transfer
The private benefit doctrine has always been about "when is one person or entity getting too rich from a tax exempt organization?" It is axiomatic that for everyone to benefit generally, somebody must benefit particularly. So, for example, a University has to provide a private benefit to a student if the public is to benefit. Likewise, a hospital has to provide benefits to a patient to achieve public benefit. Technology transfer is perhaps the hardest arena in which to apply the private benefit doctrine. Some research is so expensive that even government funding is insufficient. Yet it is so potentially lucrative that private investment is inevitable even if engaged in by a relatively few very wealthy investors (usually venture capital firms or big pharmacy). Somehow, we are bothered by a few people getting very very rich from an exempt organization's research work product. Without tax exemption, a lot of research would go undone. On the other hand, without the profit potential, "donors" ["philanthropic investors" is probably a better label] might not donate/invest in the otherwise nonprofit research vital to public benefit. Applying private benefit analysis to nonprofit research and technology transfer is so difficult, in fact, that perhaps the only specific direct regulatory application of the private benefit doctrine pertains to sponsored research and technology transfer. Treasury Regulation 1.501(c)(3)-1(d)(5), at least in my judgment, wholly exempts sponsored research and technology transfer from the concerns that somebody is getting way too rich from tax subsidized nonprofit research and technology. 1.501(c)(3)-1(d)(5)(iv)(b) allows a tax exempt research organization to grant a monopoly in its research product "if granting of such exclusive right is the only practicable maner in which the patent, copyright, process, or formula can be utilized to benefit the public . . . Scientific research described in this subdivision will be regarded as carried on in the public interest even though such research is performed pursuant to a contract or agreement under which the sponsor or sponsors of the research have the right to obtain ownership or control of any patents, copyrights, processes, or formulae resulting from such research." Like I said, sometimes somebody's gotta get paid if we want everybody to benefit.
A recent case in point: An identity crisis is brewing at Memorial Sloan Kettering Cancer Center, one of the nation's top nonprofit cancer research centers, according to a series of articles published by ProPublica and the New York Times. The latest article, published December 31, 2018, discusses rank and file stakeholders' increasing anguish regarding the nonprofit's increasing coziness with profit makers seeking to exploit the Center's research and discovered technology:
Hundreds of doctors packed an auditorium at Memorial Sloan Kettering Cancer Center on Oct. 1, deeply angered by revelations that the hospital’s top medical officer and other leaders had cultivated lucrative relationships with for-profit companies. One by one, they stood up to challenge the stewardship of their beloved institution, often to emotional applause. Some speakers accused their leaders of letting the quest to make more money undermine the hospital’s mission. Others bemoaned a rigid, hierarchical management that had left them feeling they had no real voice in the hospital’s direction. “Slowly, I’ve seen more and more of the higher-up meetings happening with people who are dressed up in suits as opposed to white coats,” said Dr. Viviane Tabar, chairwoman of the neurosurgery department. "The corporatization of this institution is clear to many of us who have been here a long time,” said Dr. Carol L. Brown, a gynecologic cancer surgeon, according to an audio recording of the meeting.
. . .
Closer ties between nonprofit research centers like Memorial Sloan Kettering and corporations are being fueled by a rush of potentially breakthrough cancer treatments. Venture capital firms and drug companies have looked to cash in on the scientific discoveries, said Brad Loncar, the founder of an investment fund that focuses on cancer. “Money follows success,” he said, and Memorial Sloan Kettering has been a focus “because they conduct terrific science there.” In recent years, the hospital, like its competitors, has struck increasingly sophisticated deals to commercialize its discoveries, in some cases receiving equity stakes in startups rather than simply collecting royalties.
The "crisis" actually began when ProPublica and the NY Times published an expose, of sorts, that resulted in the Chief Medical Officer's forced resignation due to his failure to disclose millions of dollars in payments from for-profit health care and pharmaceutical companies. Apparently, the CMO wrote almost 200 articles in medical journals touting new drugs and technologies in which for profit drug-makers and biotech start-ups had financial interests. Eighty seven percent of the articles involved topics of interest to profit makers with whom the CMO had financial connections or from whom he had received compensation.
The private benefit concerns cut both ways, incidentally. A private for-profit entity's exclusive rights to commercialize an exempt research organization's work product makes it relevant to ask whether the exempt organization is operating for private benefit. But the more nuanced analysis recognizes that even great wealth generating private benefit is sometimes required to generate the sometimes monumental public benefit from medical and pharmaceutical research:
Even as Memorial Sloan Kettering leaders have promised greater transparency, they have engaged a public affairs firm, SKDKnickerbocker, to manage their message and have aggressively pushed back against the idea that the hospital’s leaders are too close to industry. “I can see how someone might think that business relationships are problematic,” said Dr. Lisa DeAngelis, who has stepped into [the former CMO’s] former position at Memorial Sloan Kettering on an acting basis. “But I’m telling you, as someone who works with patients, and I’ve worked with patients throughout my entire career here, that working with industry has helped me save lives.”
The regulations linked above support this contention. On the other hand, an insider's exploitation of his control over that entity's operations, or his or her implicit or explicit, compensated endorsement, especially when undisclosed, of research favoring the compensating entity's financial interests raises the question whether the insider is operating the entity for his or her own private benefit. The regulation linked above does not condone this occurrence. The latter occurrence ought to be strictly prohibited and that is what seems the problem described by ProPublica and the NY Times.
Darryll K. Jones
Friday, December 21, 2018
The N.Y. Times has done a series of stories about Southwest Key, a leading migrant shelter provider. It led off with a lengthy article about the charity and a number of questionable financial arrangements, followed up with an article about the charity's promise to conduct an internal inquiry, and just yesterday reported that the Department of Justice is now investigating. Given the attention that the federal government's immigration policies, particularly with respect to children, is attracting, it will be interesting to see how this story develops.
The Nonprofit Quarterly recently had an interesting story - based on reporting by the Times Record of Maine - about the charity Wreaths Across America. On its face, it is a worthy endeavor, laying wreaths at the graves of veterans. The issue is that the family controlling the nonprofit also owns a for-profit company that, you guessed it, supplies wreaths. Indeed, 75 to 80 percent of the for-profit company's business is with the nonprofit. Take a look at the story for more details, including the charity's defense of this arrangement.
Tuesday, December 18, 2018
Congress Lives Up to "Lame Duck" Label: Failed Attempt to Reverse Schedule B Change & Clinton/Trump Foundation Hearing
While Congress may actually keep the government funded during the current lame duck session, its efforts relating to nonprofits appear doomed to amount to nothing. First, with much fanfare the Senate narrowly passed legislation to reverse the IRS decision to no longer require reporting of contributor information for tax-exempt organizations other than 501(c)(3)s and 527s, but that legislation is almost certain not to advance in the House (or survive a trip to the White House, if it came to that). Second, the House Subcommittee on Government Oversight held a hearing on the Clinton Foundation (and, at the insistence of Democratic members, the Trump Foundation). I have not watched the C-SPAN recording, but by all accounts it was a last gasp attack on Hillary Clinton, with even the Washington Examiner calling it "a fiasco" as Republicans clashed with their own witnesses. The only relative bright spot was the testimony of Professor Philip Hackney (Pittsburgh), who used the platform to highlight the congressionally created resource constraints hindering the ability of the IRS to effectively oversee tax-exempt organizations.
There is also the lame duck tax bill (H.R. 88, the Retirement, Savings, and Other Tax Relief Act of 2018), which in its latest iteration would repeal new section 512(a)(7) (includes the costs of certain fringe benefits, most notably parking provided to employees, in unrelated business taxable income), modify the section 4943 rules for excess business holdings with respect to certain purchases of employee-owned stock, relax the Johnson Amendment by not applying it to statements "made in the ordinary course of the [501(c)(3)] organization's regular and customary activities in carrying out its exempt purpose" that do not result in more than de minimis incremental expenses, permit section 501(3) organizations to make collegiate housing and infrastructure grants, and relax some of the section 170 limitations with respect to disaster relief. But it seems that passage of that bill is unlikely.
Earlier this month the U.S. Department of Justice announced that Actelion Pharmaceuticals US, Inc., a subsidiary of Johnson & Johnson, had "agreed to pay $360 million to resolve claims that it illegally used a [section 501(c)(3) charitable] foundation as a conduit to pay the copays of thousands of Medicare patients taking Actelion's pulmonary arterial hypertension drugs, in violation of the False Claims Act." More specifically, the DOJ alleged that Actelion only donated enough to the foundation to cover the copays of patients prescribed its drugs in an effort to generate revenue from Medicare and induce purchases of its drugs. The announcement also noted that Johnson & Johnson acquired Actelion after the alleged misconduct occurred.
An analysis by HealthLeaders states that this is the third time in the past year that a drugmaker has settled a similar claim, joining a $24 million settlement by Pfizer last April and a $210 million settlement by United Therapeutics Corp. a year ago. The same analysis identified the foundation in the Actelion case as Caring Voice Coalition, Inc. (CVC), and noted that CVC both objected to providing information requested by Actelion and ultimately withdrew from providing financial assistance for drug copays (in part because of the withdrawal of an Advisory Letter from the U.S. Department of Health and Human Services Office of Inspector General that presumably related to providing such assistance). The DOJ settlement agreement in the United Therapeutics case states that CVC was also the charity involved in that case, while the DOJ settlement agreement in the Pfizer case states it was the Patient Access Network Foundation (PANF) in that case. There is no public indication that IRS has raised any issues regarding the tax-exempt status of either CVC or PANF in the wake of these developments.
While paling in comparison to other recent developments related to President Trump, the drumbeat of negative news relating to nonprofits associated with him has also continued. The three most recent developments involve a federal investigation into the President's inaugural committee, the revelation that in "an abundance of caution" the President's foundation was reimbursed for six questionable transactions (presumably either by Mr. Trump personally or his companies), and today's announcement that President Trump has agreed with the NY Attorney General to shut down his foundation and give away its remaining money.
The Wall Street Journal broke the story that federal prosecutors are conducting a criminal investigation of the President's inaugural committee, a section 501(c)(4) nonprofit organization formally named the 58th Presidential Inaugural Committee. The investigation is out of the U.S. Attorney's office for the Southern District of New York, which not coincidentally also handled the investigation of Donald Trump's former attorney Michael Cohen; it was a recording seized as part of the Cohen investigation that triggered the investigation of the committee. The latter investigation focuses both on whether the committee misspent any of the $107 million in funds it raised and on whether any donors received improper access or policy concessions in return for their donations. While not formally part of the Mueller investigation, it may be relevant to that investigation if any foreign money flowed to the committee, which would have been illegal. The investigation of the committee is reportedly still at a relatively early stage. Additional coverage: CNN, NPR, N.Y. Times, The Hill.
As for the Donald J. Trump Foundation, its latest IRS annual return showed $271,356 in "REIMBURSEMENTS" (Part I, Line 11 and Statement 2), but the only explanation provided in the return (Statement 5) tied the reimbursement to the auction of a membership to the Trump National Golf Club in 2012. What is odd about this explanation is that the amount relating to this auction was only $158,000 (as first reported by David Fahrenthold at the Washington Post), so even with interest it should have totalled significantly less than the amount reported. The more complete explanation may instead be that there was more than just this one reimbursement: in the November 23, 2018 decision in the state case involving the Trump Foundation, the court noted that the Foundation and the other respondents "point out that the Foundation has already been reimbursed for six individual donations" and in a footnote further noted that "Respondents aver that 'in an abundance of caution,' the Foundation was reimbursed with interest for the following donations: (1) the [$100,000] Fisher House Transaction; (2) the [$158,000] Greenberg Transaction [relating to the auction]; (3) a [$5.000] 2013 DC Preservation League donation; (4) a [$25,000] 2013 "And Justice for All" payment; (5) a [$10,000] 2014 Unicorn Children's Foundation donation; and (6) a [$32,000] 2015 North American Land Trust donation." The links are to the news stories that report more details about these transactions. These amounts total more than what was reported on the 2017 IRS return, which may be because some of them were repaid either before or after 2017. Regardless, they reflect quite a trail of questionable expenditures by the Foundation.
That undoubtedly is part of what led to today's announcement by the New York Attorney General that the Trump Foundation has agreed to resolve under judicial supervision. Coverage: CNN; Washington Post.
Tuesday, December 4, 2018
Apparently in response to increasing use of "gagging clauses" in grants that forbid public commentary on public grants, the United Kingdom's Cabinet Office recently urged charities to report improper behavior and wasteful government grants "without fear of consequences." From the full story at Third Sector, "The new rules have been prompted by concerns in the media that charities working on the Department for Work and Pensions’ universal credit programme were unable to speak about their concerns with how the programme was being delivered because of clauses in government contracts."
It will be interesting to see if this move actually emboldens charity whistleblowing, or if more concrete protections are needed.
Thursday, November 29, 2018
I am feeling a little like Ebenezer Scrooge today so I thought I would raise an objection to tax exempt status for a group of very friendly people who, nevertheless, seem to have no real charitable raison d’etre, and yet have been granted 501(c)(3) status. I’m talking about a delightful little organization called People for Urban Progress. I will say right up front that nobody's getting rich here and there is no secret political slush fund. Its just that some people are having fun doing something worthwhile, just like the folks at Louis Vuitton, Gucci, or Michael Kors, and not paying taxes. This is a complete outrage! According to their Mission description in Part III, question 4a, of the 2016 Form 990:
“People for Urban Progress [PUP] is an Indianapolis-based 501c3 non-profit organization that advances connectivity, environmental awareness, and good design, rescues discarded materials, redesigning them for public benefit. These locally-designed goods fund projects and big ideas that improve indianopolis’ urban spaces. Simply put, we make goods for Indy’s Good. We turn useless into useful. We’re the not-for-profit that turned the RCA Dome roof into wallets, messenger bags and shade structures. We turned bush stadium seats into bus stops. We fund projects and ideas that enhance the city’s quality of life, connectedness and design culture.
In other words, PUP gathers up old leather from public and private companies and uses the materials to create handbags and stuff. Then they sell that stuff via their website at regular retail prices. Bravo and humbug, I say! But most prominent on PUP’s website is its catalog of handbags, wallets, sports bags, totes, and bookbags, all made from recycled leather from Amtrack train seats. Here is a picture of some their very fine products:
As far as tax exemption, "Bah Humbug!" Here is how PUP describes its start-up:
Sometimes, a great idea takes time to become a reality. Sometimes, you just say yes and figure out the rest. Sometimes it really works and turns out better than you ever imagined. That’s what I like to think happened when we said yes to Amtrak earlier this year. This one is a long time coming. Years ago, a fan of PUP happened to be working with Amtrak and started mentioning our name and our work in reuse. In early 2017, we were sent a wool train seat cover to prototype into a bag. The conversation resurfaced this year and we made friends with Kara from Amtrak’s Office of Sustainability. She was asking how we could collaborate as they updated 100 train cars from the Acela Express. The Acela Express line featured leather seat covers. We’ve been wanting to work with leather for a while now and this seemed like a great opportunity to collaborate with a company that was just as dedicated to transit, sustainability and connectivity as PUP.
This is the start of something new, this is an opportunity for PUP’s greater work to reach a national audience. We have a chance to prove to the whole world that material reuse can be practical, well designed, socially responsible and beautiful. We said yes, we took our first delivery of material, figured it out and here we are. It’s what we do - ta da - used into usable!
I’d like to say this was an easy process and as straightforward as I just made it sound, but, that’s just not the case. This was a tough one. We received the seats, and they were dirty. Like, they had seen some gum, some coffee and a few ice cream sandwiches. We had to clean these babies before we could start. We tried all kinds of things and finally settled on dry cleaning them with a company that uses an eco-friendly process. Once they were cleaned, we unleashed our designers. They prototyped and prototyped and prototyped. I’ve been amazed by the creativity and ingenuity of our team. They took bits and pieces of leather and transformed them. The results are beautifully designed bags meant to take your next journey to a whole new level.
Over the next 10-12 months, we are on track to create approximately 2,500 bags that will roll out in small-batch releases of 150 as we repurpose the seat coverings. Products in our Amtrak Collection retail from $75 to $750 dollars. We expect to release more new designs during that time, as well, so stay tuned and we’ll let you know when the next train (or product) arrives at the station. Our hope is that you’re just as excited about this new product launch as we are! We look forward to seeing where this takes us!
PUP is creating a smarter, more sustainable and more resilient world by combining good design with existing resources. For us, it’s important to show the public that things can have a life beyond their original purpose. This project serves as an example for how that can be done in a sophisticated and innovative way.
The bags sell for what seem like the same prices you can buy bags at moderate to high end stores that sell handbags and such. Some bags are kinda pricey. Like the “Agent Backpack” which sells for $385.00 or another Amtrack leather bag that’ll run you $750. Granted this is a small organization with gross receipts of slightly less than $300,000 and net assets of about $70,000. The currently reported gross receipts are slightly higher than during the receipts in annual periods from 2012 (gross receipts of $151,000) to 2016 (gross receipts of $197,020). Still, it’s Christmas, and well . . . dammit people can’t just stop working to run a nonprofit with no charitable goal! According to their 2016 Form 990, the only two compensated employees are husband and wife who, together earn about $50,000. So no, nobody is getting rich . . . but still! Here is what Amtrack said in its press release when it announced that the PUP will start marketing handbags made from old Amtrack leather:
(October 16, 2018 – INDIANAPOLIS, Ind) – People for Urban Progress (PUP), an Indianapolis-based nonprofit specializing in advancing good design and civic sustainability, announced today a partnership with Amtrak to repurpose leather seat covers from 20 refreshed Amtrak Acela Express train sets and save those materials from landfills by transforming them into luxury bags. The partnership is a direct result of how both companies fully embrace sustainability as a fundamental part of their businesses. This landmark project is PUP’s first national endeavor, and a new initiative for Amtrak as well.
The limited-edition launch of the Amtrak Collection includes handmade accessories from Amtrak’s flagship Acela Express. The first launch of the slate blue luxury leather bags includes totes, backpacks and dopp kit. Approximately 2,500 bags are expected to roll out in small-batch releases during the next 10 to 12 months as the seat coverings are repurposed. All designs are developed and hand-made by the designers at PUP, who also developed the process of repurposing the seats. This includes separating the leather from the foam seat, dry cleaning the leather utilizing an environmentally friendly process and then cutting the leather and sewing it together to create each product.
“This is an exciting opportunity to showcase the work we do to remake waste and create change through the creation of our products,” said Andrea Cowley, Executive Director at People for Urban Progress. “Collaborations like this allow us to continue to advance the idea of taking careful consideration of how we recycle our cities’ resources. We make the used into useful through great design which, in turn, allows us to address civic sustainability.”
“One of the main objectives of this Upcycling Project is to divert as much waste from landfills as possible,” said Senior Sustainability Manager Kara Angotti. “We have set a corporate recycling target of 20 percent by 2020 and this project will help us advance closer to achieving that goal. This is a unique opportunity to explore the extended value in our trash and to focus on ensuring we consider what happens to our materials at the end of their useful life.”
Amtrak’s Acela Express service, best known for transporting business commuters is a high-speed train operating between Washington D.C. and Boston with stops in Baltimore, Philadelphia, New York City, Providence and more. Amtrak is refreshing the interiors of its current Acela trainsets before the next-generation Acela fleet becomes active in 2021. These seat materials from the current Acelatrainsets, which are being donated, were retired after approximately 10 years of service.
PUP is known for repurposing dated infrastructure through design and fabrication projects. In 2008, they upcycled the roof of the RCA Dome, previously the home of the Indianapolis Colts. Materials from the dome were used to design wallets, handbags, office bins and more, saving 13 acres’ worth of material from the landfill. Promotional banners and materials from Gen Con, the longest running gaming convention in the world, were fashioned into messenger bags and wallets. Baseball stadium seats were transformed into bus stops and public seating around the city of Indianapolis, still giving residents something to cheer about. The Amtrak collaboration offers a unique national opportunity to expand PUP’s mission and vision.
The full line of the Amtrak Collection will retail between $75 to $750 dollars. In addition to the new Amtrak collection, PUP sells a variety of bags and wallets made from arena roofing materials, event banners, reclaimed seatbelts and more, ranging in price between $12 and $172.
Ok, so in that press release is perhaps a slight hook. The press release states that PUP seeks to “divert as much waste from landfills as possible.” I suppose that could be a charitable purpose, something that helps the environment and lessens the burden of government. But even if those are charitable goals, they seem minimal relative to the selling of leather totes and such, particularly at high end prices and as seemingly the primary activity (according to the website). At a minimum, the regular and continuous sales of “luxury leather bags” is a substantial non-exempt activity and we all know what Better Business Bureau says about that! "[T]he presence of a single non-[exempt] purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly [charitable] purposes." The revenue from that activity is UBIT, at best, and a complete disqualifier at worst.
Now everybody get back to work. This ain't Christmas!
Thursday, November 8, 2018
I had the pleasure of speaking to a reporter this morning. He wanted to know if the picture above, a sign posted on the front lawn of the Grace of God Church in New Port Richey, Florida on election day violated the 501(c)(3) prohibition against campaign intervention. The Church, by the way, was also a polling place so the Pastor who placed the sign was careful that it was not within 100 feet of the church, proper. Still, it was on the Church ground, posted on election day even, and the Pastor told the reporter that if he changed the mind of at least one voter, he would be satisfied. The sign was also posted, and then removed after voter outcry, from the Church' Facebook page.
The reporter and I spoke by phone as he told me where to look online for a picture of the sign. As I pulled it up, I couldn't help howling in laughter. We talked a bit about the Service's general reluctance to enforce the prohibition against houses of worship because of obvious First Amendment concerns but I concluded that this is probably the easiest case since Branch Ministries took out a full page advertisement in USA Today (I wish I had a picture of that advertisement) exhorting Christians not to vote for Bill Clinton. I allowed that when Pastors preach about particular issues on any given Sunday (farther in time from election day the better) and perhaps even condemn politicians who support or oppose positions implicating spiritual teachings, they can probably count on some degree of protection from the First Amendment. But the sign above is an easy case. The Pastor seems to know this now because in the aftermath of election day he has tried to explain that the sign conveys a purely spiritual message, a verbal tap dance that evoked another round of laughter from me. In a Tampa Bay Times article yesterday, the Pastor is quoted thusly:
Wednesday, November 7, 2018
Thanks to my co-bloggers Lloyd Mayer and Darryl Jones for the excellent posts yesterday on Election Day related material. Reading their posts got me thinking about yesterday’s results, and specifically how they might impact charities. Clearly, I think we will see some impact on the tax side of the charitable world. With the new Democratic majority in the House of Representatives, it appears that Richard Neal of Massachusetts will take over as the Chairman of the House Ways & Means Committee. In addition, apparently a number of Republicans who were on the Committee who wrote the TCJA either retired or were defeated, which should result in significant turn over on the Committee.
Most news coverage this morning is centering on whether the House will now request President Trump’s tax returns, but it is easy to forget that Tax Reform 2.0 is pending, as well as the potential for additional middle-class centered tax cuts. For example, it appeared that the House was strongly considering making permanent some of the individual tax cuts that sunset in 2026 under the TCJA – specifically including the changes to the standard deduction, the personal exemption, and the SALT cap – that potentially impacted the tax incentives for charitable giving. One guess is that the SALT cap (see my brief post on this from Monday) might be ripe for change and politically popular, even among some Republicans. My gut tells me there probably won’t be changes to the executive compensation excise tax, but maybe to the college and university endowment tax – those may be a matter of making the numbers work. And finally, although it didn’t make it into the TCJA, I also wonder if this stops any momentum to change the Johnson Amendment. I’ll be curious to see if some of the recent language that has made it into the annual budget acts limiting IRS authority with regard to enforcing the Johnson Amendment will remain in future acts.
But these are just my Wednesday random musings over my first (and second) cups of coffee (and of course, your results may vary and these are my own thoughts, etc. etc.) – I’m wondering if anyone see the potential for any other, especially non-tax, impacts.
Tuesday, November 6, 2018
It's appropriate on Election Day to provide some updates on recent FEC and IRS actions relating to political activity, as well as new about reduced NRA political spending and a CREW complaint against a politically active 501(c)(4).
On the election law/FEC side of things, in the wake of a federal District Court order vacating a disclosure regulation (and higher courts not staying the decision), the FEC has issued guidance providing that entities making independent expenditures (i.e., express advocacy not coordinated with a candidate or political party) after Sept. 18, 2018 must publicly disclosure the identities of donors who contributed more than $200 in the calendar year (in aggregate) if the contributions were received after August 4, 2018 and were made for the purpose of furthering any independent expenditure. For more details, see the published guidance. Coverage: Washington Post.
On the tax law/IRS side of things, the Chief Counsel to the IRS concluded that an Internal Revenue Code section 501(c)(4) social welfare organization that made admitted making expenditures in support of a candidate for elective public office was a "political party" under section 271 and so a taxpayer who made a loan to the 501(c)(4) that was not repaid was unable to take a worthless debt deduction under section 166. The taxpayer loaned money to the 501(c)(4) in one year, only to have the 501(c)(4) dissolve in the next year without repaying the loan. The 501(c)(4) reported on its annual information return that it was engaged in political campaign activity in connection with a certain candidate, which Chief Counsel held was sufficient to make the organization a "political party" within the meaning of section 271 (regardless of the organization's classification under any other Code section). Coverage: Thomson Reuters.
In other news about loans to 501(c)(4)s, Bloomberg reports that the NRA is facing a cash crunch that has led to both reduced political spending this election cycle and borrowing funds from numerous sources, including $5 million from its section 501(c)(3) charitable affiliate (at a presumably market interest rate of seven percent).
And in a complaint filed with the IRS, CREW asserts that section 501(c)(4) America's Renewable Future, Inc. failed to file annual information returns (Form 990) for 2015 and 2016 even though it filed such a return for 2014 and had extensive issue advocacy activities in both later years. This is only the latest CREW complaint along these lines, as it has previously filed such complaints against other 501(c)(4)s, including the American Policy Coalition and Freedom Frontier. Hat tip: EO Tax Journal.
Monday, November 5, 2018
The SALT/170 Proposed Regulations issued on August 27, 2018 had their day in the court of public opinion today – that being the public hearing held at 10:00 A.M. today at the IRS. I am still trying to find video or a transcript of the hearing (I will update the post with a link should I find one or if any kind reader passes one my way.)
If you aren’t familiar with these Regulations, they were described in this post (which includes many, many links to commentary by lots of smart people). An additional post highlights further commentary by Andy Grewal regarding the significant flaws in the Proposed Regulations (both posts by my co-blogger, Lloyd Mayer.)
Richard Rubin of the Wall Street Journal did live tweet the hearing (his Twitter feed can be found here, which you should follow anyway if you are tax type.) According to him, there were 24 speakers signed up, including an 8th grader talking about the benefits of private school. From Rubin's description, many of the speakers were specifically objecting to the treatment of state level education credit programs. In addition, it appears that 7,749 comments were received on the www.regulations.gov website.
Rubin noted that at the end of the hearings, Scott Dinwiddie of the IRS was quoted as saying, “We have our work cut out for us.” If you believe the underlying theory advanced by the IRS, then I’m not sure what work needs to be done, as they did take a pretty straightforward stance on it all. I’ll be curious to see what direction the final regs take…
UPDATE: Thanks to Mr. Linville in the comments, who provided a link for the hearing transcript, so please see below.
Friday, November 2, 2018
According to BBC News, early last month the Pakistani government ordered eighteen international nongovernmental organizations to end their operations and leave the country within 60 days. Among those charities are ActionAid UK, a development organization that works with women and girls living in poverty, and Plan International USA, a development organization that focuses on communities. While previous attempts to force ActionAid and other organizations to leave Pakistan failed in the face of diplomatic pressure from Western government, the most recent report indicates that this attempt is still proceeding.
Thursday, October 25, 2018
A recent Forbes article encapsulated the nearly 10-month discussion of how the Tax Cuts & Jobs Act of 2017 (TCJA) will affect charitable giving and thus the finances of nonprofit entities. Although the TCJA did not make major changes to the tax law regarding charitable contributions, the increase in the standard deduction is estimated to significantly reduce the number of households that itemize deductions. The article references the Tax Policy Center's forecast at the beginning of the year that the TCJA could reduce donations by approximately 5 percent, and reduce the number of households taking an itemized deduction for charitable contributions from 21 percent in 2017 to 8 percent in 2018. The article summarizes the concerns of various players in the nonprofit sector (organizations, researchers, government officials):
- The TCJA likely will accelerate a growing shift from low- and moderate-income contributors to a relatively small number of mega-donors, a trend that makes many in the non-profit sector very uncomfortable.
- That shift will create winners and losers among non-profits. Religious and social service agencies may see contributions drop while bigger colleges, hospitals, and high-end arts organizations are largely unscathed.
- The benefits of the charitable giving deduction may go well beyond its ability to reduce the after-tax cost of giving. The signal it sends—that charitable giving is a good thing—may be as important as the dollars donors save.
- There is a lot unknown about what motivates givers, especially younger donors.
Friday, October 19, 2018
This week, the Institute for Justice sued on behalf of an Akron, Ohio, nonprofit that has established an encampment for people experiencing homelessness. (See also this New York Times article about the suit.)
The Homeless Charity and Village has been providing shelter for people without anywhere else to go for more than a year. The organization's logic is that, while camping in a tent is not ideal, an encampment is much better/safer than the likely alternatives, which is either dispersed camping or sleeping "rough." The lawsuit contends that denying the nonprofit the right to use its property in this way, under the circumstances of the case, is an irrational restriction on property rights. (Disclosure: I authored and co-signed a letter in support of the nonprofit on behalf of other local nonprofits and faculty over the summer.) The City of Akron, in contrast, argues that a campground is not an appropriate land use under its zoning code.
In an unrelated case, also filed this week, a Cincinnati church is seeking a writ of mandamus to abrogate a injunction that prohibits people from seeking or offering shelter in a tent on public or private land. (Disclosure: I am counsel of record in this case). The injunction was entered in a nuisance lawsuit brought by Hamilton County against the City of Cincinnati at the City's request. The church, which offers its land as a refuge to people experiencing homelessness, argues that the injunction was not properly issued and cannot apply to non-parties who were not part of the underlying case.
Akron and Cincinnati are certainly not the first or only cities to clash with nonprofits over their land use. Many cities use zoning laws to restrict or exclude houses of worship (often triggering RLUIPA), group homes, schools for kids with disabilities, or other service providers. Some cities establish extensive business districts that expressly exclude nonprofit uses, either because they prioritize the value that businesses provide, or are concerned about the lack of revenue that a tax-exempt use would cause to the city. Although there hasn't yet been a lot of study of local control over nonprofit service delivery, that may change as city versus nonprofit disputes spill over into the courts.
Saturday, September 29, 2018
The long-planned Single Portal for state charity registration just went live for the first two pilot states, Connecticut and Georgia. A second cohort of at least five states is expected to join them by January 2019, according to the website's FAQs. The site is operated by the Multistate Registration and Filing Portal, Inc., which is described as a section 501(c)(3) organization that is also an instrumentality of government formed by state charity officials. I assume not coincidentally, the site went live just before this year's National Association of Attorneys General/National Associate of State Charity Officials conference in Baltimore, scheduled for October 1st thru 3rd. The agenda for Monday, which is open to the public, is available here.