Wednesday, July 8, 2020
Thursday, June 25, 2020
The Washington Post published an article on donor advised funds yesterday entitled Zombie philanthropy: The rich have stashed billions in donor-advised charities — but it’s not reaching those in need
It's honestly an interesting article though on some matters I had to scratch my head. For instance: "Known in the industry as DAFs (rhymes with calves) — and criticized by some insiders as “zombie philanthropy”.
To my experience, and I consider myself something of an insider to the industry from a regulatory and an observer point of view, I have never heard it pronounced to rhyme with calves -- calf maybe -- but not calves. Additionally, I have never heard it referred to as zombie philanthropy, and I am not sure that this is really apt.
It raises the fact that fairly large resources that they estimate at $120 billion rest within DAF solution while charities themselves are hemorrhaging money and support, resulting in some significant animosity in the charitable world.
The author a little strangely, but interestingly, discusses the thoughts of Norman Sugarman, who passed away long ago but was quite the exempt organization's attorney in his time.
"To Norman Sugarman, a former IRS attorney in Cleveland, this created both concern and opportunity. Sugarman represented community foundations fearful the new law would scare off donors.
“For him, it was important that, no questions asked, these [community foundations] were public charities,” said Lila Corwin Berman, a history professor at Temple University who has written about Sugarman’s role in the popularization of DAFs. “He believed most social problems could be better solved by charity than government, and that individuals should have more control over what their wealth could do for society.”
After successfully convincing the IRS that community foundations deserved public charity status, Sugarman also won an important concession: “philanthropic funds,” an innovative way his clients raised money, would also have all the tax benefits of giving directly to a working charity."
For the particular moment we find ourselves in with a pandemic and a worldwide economic collapse resulting from that Pandemic, I thought the concluding paragraphs were the most interesting:
"When asked about the #HalfMyDaf challenge, Fidelity Charitable President Norley said she and her colleagues had been encouraging their clients to give more since the beginning of the crisis.
“I don’t think you need to set a percentage on this. If somebody wants to donate their entire DAF, that’s great,” she said.
A reporter then presented Norley with a hypothetical: If she learned tomorrow that all of Fidelity’s fund-holders had decided to spend at least half of their DAFs this year, causing her charity’s assets to plummet from more than $21 billion to about $10 billion, would she be happy or dismayed?
“I have no comment on that,” she said."
Tuesday, June 23, 2020
Back in March I missed this article in HistPhil by Ellen Aprill related to her work looking at federal charities that I think would be of interest to our readers. It is entitled Trump Donated His Salary to HHS. Is that Kosher?
"On March 3, President Trump’s Press Secretary, Stephanie Grisham, announced on Twitter that, consistent with his commitment to donate his salary while in office, President Trump was giving his 2019 fourth quarter salary to the Department of Health and Human Services “to support efforts being undertaken to confront, contain, and combat #Coronavirus.” The announcement prompted questions about whether such an earmarked donation to a federal agency is possible. The answer in this case is yes, but getting to that answer requires several statutory steps and implicates a set of issues I just happened to have begun to research."
For taxpayers who itemize rather than take the standard deduction, section 170(c)(1) of the Internal Revenue Code permits a charitable contribution deduction for “a contribution or gift to or for the use of . . . the United States or the District of Columbia . . . if the contribution or gift is made for exclusively public purposes.” In general, gifts to the federal government must go to the general fund of the Treasury; agencies cannot augment Congressional appropriations. To that end, the miscellaneous receipts statute provides that “an official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury as soon as practicable without deduction for any charge or claim.” Governmental agencies, however, can be given specific statutory authority to accept and retain donations. It turns out that the Department of Health and Human Services is one of the federal agencies with statutory authority to accept gifts for its benefit “or for carrying out any of its functions.” Thus, Trump’s gift is kosher."
I also recommend HistPhil to our readers.
Friday, June 12, 2020
There have been new developments in two matters previously covered in this space, specifically the proposed sale of the .ORG domain - virtual home to most nonprofit organizations - to a private equity firm and the ongoing controversy regarding the compensation paid to the CEO of the Florida Coalition Against Domestic Violence.
With respect to the .ORG domain sale, the California Attorney General issued a lengthy letter urging the Internet Corporation for Assigned Names and Numbers (ICAAN) to reject the sale by the Internet Society of the .ORG domain (technically, a "registry") to Ethos Capital, a private equity firm. In the wake of that letter and appeals from a number of prominent nonprofit organizations, including the Electronic Freedom Foundation and the National Council of Nonprofits, ICANN vetoed the $1.1 billion deal. Coverage: N.Y. Times, Reuters.
With respect to the Florida Coalition Against Domestic Violence, the Miami Herald reports that a state court judge ordered the dissolution of the nonprofit at the request of the Florida Attorney General and placed the organization's assets under the supervision of a bankruptcy expert. The dissolution came in the wake of the discovery that the nonprofit had paid its chief executive officer more than $7.5 million over three years as compensation. It is not clear whether the nonprofit's board knew about and approved the compensation, or simply allowed itself to remain ignorant of the financial arrangements with the CEO. State and federal investigations are continuing. The Tampa Bay Times also reports that the same receiver now has been given control by the courts over the assets of the separate foundation that existed to support the Coalition.
First, the NCAA's Board of Governors announced that it supports "rule changes to allow student-athletes to receive compensation for third-party endorsements both related to and separate from athletics" and directed its divisions to begin developing such rules. This change in position is driven primarily by state and federal legislative efforts (see for example, this recently enacted California law) to require the NCAA to permit such compensation. At the same time, the Board stated that any such rules must follow certain guidelines, specifically:
- Ensuring student-athletes are treated similarly to nonathlete students unless a compelling reason exists to differentiate.
- Maintaining the priorities of education and the collegiate experience to provide opportunities for student-athlete success.
- Ensuring rules are transparent, focused and enforceable, and facilitating fair and balanced competition.
- Making clear the distinction between collegiate and professional opportunities.
- Making clear that compensation for athletics performance or participation is impermissible.
- Reaffirming that student-athletes are students first and not employees of the university.
- Enhancing principles of diversity, inclusion and gender equity.
- Protecting the recruiting environment and prohibiting inducements to select, remain at or transfer to a specific institution.
Second, the NCAA lost its appeal of a federal district court decision that enjoined the NCAA from enforcing its rules restricting the education-related benefits its members may offer students who play Football Bowl Subdivision football and Division 1 basketball. In In re NCAA Grant-in-Aid Cap Antitrust Litigation, the U.S. Court of Appeals for the Ninth Circuit held that the rules were unlawful restraints on trade under section 1 of the Sherman Act (15 U.S.C. section 1). This decision follows the NCAA's previous loss at the Ninth Circuit in O'Bannon v. NCAA, 802 F.3d 1049 (2015).
What exactly this developments will mean for student-athletes, college athletics, and the NCAA remains to be seen. For more coverage, see Marc Edelman at Forbes, Politico, Sports Illustrated, and The Wall Street Journal.
Thursday, May 14, 2020
According to a study of more than 200 grant makers released by the Center for Effective Philanthropy on Wednesday, nine in 10 foundation leaders say their foundations seek to influence public policy through their grant making and other activities. Not only that, but almost 75% of those foundations have increased their policy efforts during the past three years, most frequently at the state and local levels.
Foundation leaders apparently find nothing wrong with the practice. The study relates that "These efforts are not new, but have increased in recent years." Moreover, "most foundation leaders view efforts to influence public policy as an important way to achieve their goals."
The study published a sample of views held by some foundation leaders:
- "Good public policy helps our grants go further, and bad public policy undermines our grant making."
- "Public policy can have significantly more impact on the issues we care about than our grant dollars alone can."
- "One cannot be serious about, for example, the health of the environment and ignore the importance of policy action on climate change."
The report maintains that "The primary way foundations pursue their policy agenda is through grant making. Almost three-fourths of foundations that engage in policy work support grantees’ policy efforts."
Yet, the survey found that many foundation leaders run into internal resistance to their policy work. According to the report, "Foundation leaders face some common challenges, particularly when it comes to building board support."
Monday, May 11, 2020
Writing in today's Chronicle of Philanthropy, Susan N. Dreyfus and John MacIntosh opine that during the current COVID-19 crisis and its aftermath, many medium-sized nonprofit organizations will not survive unless the federal government provides them more much-needed support. Dreyfus is CEO of the Alliance for Strong Families and Communities; MacIntosh is managing partner of SeaChange Capital Partners, an organization that helps nonprofits facing complex financial challenges. In their thought-provoking article in today's Chronicle, they argue that while
[n]onprofits of all kinds provide critical help to communities across the United States, . . . it is the medium-sized ones that make a critical difference — those with at least 500 employees. Their workers operate food pantries, and homeless and domestic-violence shelters. They manage and staff residential facilities for young people with mental illnesses. They offer in-home and residential services for older Americans and people with disabilities. During the Covid-19 pandemic, their work is more urgent than ever.
Yet, the authors state, even as these organizations face various challenges -- challenges as daunting as those faced by their smaller counterparts -- they "are not receiving the government support they need to survive." For example, the "federal Paycheck Protection Program excludes nonprofits with more that 500 employees from obtaining the forgivable loans that would allow them to retain and compensate their employees and continue to deliver essential services during this public-health crisis."
What, then, can we do? As the article points out, at "a time when many nonprofits are at a breaking point, we [cannot] afford to leave those with more than 500 employees out of support programs that are keeping smaller organizations afloat."
According to the article,
A new analysis of New York City’s larger nonprofits found that under normal circumstances, most have just two weeks of cash on hand. Without immediate assistance, the report projects that some won’t survive through May and that few, if any, will be in a position to continue services during the Covid-19 crisis and its aftermath. Most of these organizations lack meaningful endowments and have limited access to credit. Their operating margins are razor thin (an average of 1 percent), even before taking into account the reduction in revenue and increase in expenses associated with the pandemic. Most importantly, their philanthropy, which covers less than 5 percent of expenses, cannot make up for a reduction in funding and contracts during the health crisis.
The article continues:
This situation is not unique to New York. A 2018 report on the financial stability of community-based human-services organizations found that 40 percent of the larger nonprofits had less than one month of cash reserves. Those providing housing and shelter-related services faced significantly greater financial stress.
Critics may be quick to argue that the challenges confronting these nonprofits are the result of their own inefficiency and poor management. Not so, argue Dreyfus and MacIntosh. They specifically state that:
The challenges confronting these nonprofits are not the result of inefficiency or poor management. Most government funding and philanthropy traditionally does not cover the full cost of providing services. Government contracts for essential services also create cash-flow problems since, unlike with grants, payments are not made until after the work is completed and can be subject to long and unpredictable delays. Cash, as a consequence, is an ongoing issue. But unlike large for-profits, these organizations do not have access to capital markets, cannot easily unlock illiquid assets, and are unable to use bankruptcy to restructure while continuing to deliver services. Any increase in costs, reduction in revenue, or delay in cash receipts could put some of them permanently over the edge.
So just what is the solution? The authors call for Congressional action:
Thursday, April 30, 2020
The Independent Sector in an April 29, 2020 letter asked Congress to suspend the UBIT silo rule under section 512(a)(6) for 2019 and 2020. They estimate it would provide an average of $15,000 per impacted nonprofit.
"6. Suspend the “Siloing” Requirement for Unrelated Business Income for 2019 and 2020. Nonprofit organizations currently are struggling to comply with new, artificially strict accounting rules that prevent them from off-setting income with business losses. The CARES Act made it significantly easier for many for-profit businesses to reduce their taxes with losses while doing nothing to mitigate this unfair treatment of nonprofits. Suspending this provision will free-up an average of $15,000 per year in flexible funding that impacted nonprofits desperately need to keep their doors open and meet rising community needs."
In section 2203 of the CARES Act Congress suspended limits on net operating losses that it had imposed in the 2017 Tax Act. That has freed up capital for many wealthy individuals and businesses in a way that has been criticized in the popular press. Nonprofits too can take advantage of this relaxation to seek refunds from prior years where they were limited in taking NOLs against unrelated business taxable income. However, there is some difficulty in figuring out how to apply the UBIT siloing rules in this situation. Suspending those rules would give clarity to that problem and free up more dollars consistent with what Congress presumably intended in relaxing this rule for businesses.
Though it's not clear to me that this would free up money where it is desperately needed, because I was not a fan of the provision to begin with, I am inclined to think Congress ought to do this. It was not an essential addition to the taxation of exempt organizations, and it might free some money up that allows some nonprofits to make it to the other side of this health and financial crisis.
Still, I think the most important thing Congress can do is to get dollars to nonprofits through either the PPP or directly through grants where the nonprofits are carrying out important activities in helping Americans through this Pandemic.
They also urge Congress to increase the temporary universal charitable contribution deduction that Congress included in the CARES Act from $300 per taxpayer to $4,000 for single and $8,000 for married filing jointly above the line charitable contribution deduction. I am skeptical of these universal charitable contribution deductions. I fear the efficiency here is small. A Penn Wharton analysis of the $300 deduction suggested it would enhance charitable giving by only 5 cents on every tax dollar. Additionally, the IRS is not set up to police fraud. Though it might get some needed dollars to charitable institutions, I fear the extra deduction would be abused in way taxpayers would know and would undermine American belief in the honesty and fairness of our system.
The Independent Sector letter was similar but different than one put out by the National Council of Nonprofits signed by a broad group of nonprofits. Broadly though there is national agreement that nonprofits need the help of the federal government.
Friday, April 24, 2020
I'm going to end the week where I started it: with the Paycheck Protection Program.
Remember, the CARES Act created the PPP, which expands the SBA's loan program. Under the PPP the government can make or guarantee forgivable loans to small businesses--and, in an expansion or its previous mandate, small nonprofit organizations--provided those organizations use the funds for permissible purposes, including critically, for compensation.
The president signed the CARES Act into law on March 27. One week later, the SBA issued a FAQ dealing with the PPP and faith-based organizations. In essence, the FAQ clarified that the PPP was available to faith-based organizations under essentially the same terms as it was to any other nonprofit. That is, as long as the faith-based organization met the size limitations and used the money for purposes, it could participate in the PPP.
(It turns out that the SBA differentiated faith-based organizations from other nonprofits in one critical manner: while the law applies the same affiliation rules to nonprofits as it does to for-profit borrowers, the SBA announced that it will not look at the relationship between faith-based organizations where that relationship is based on religious teachings or other religious commitments. In regulations, the SBA went on to explain that applying the affiliation rules to religions that had doctrinal reasons for affiliating would impose a substantial burden on the organizations' free exercise, raising First Amendment and RFRA questions. Thus, the SBA said, it would take faith-based organizations at their word if they claimed their affiliation was based on religious requirements.)Ariz
Interestingly, in its April 3 FAQ, the SBA explicitly states that "loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions" (emphasis mine).
Tuesday, April 21, 2020
Yesterday I blogged about the Paycheck Protection Program. In short, as part of the CARES Act, Congress expanded the SBA's loan-making authority. The SBA could, under the CARES Act, guarantee loans made to small businesses, loans that, if used for appropriate purposes, could potentially be forgiven. In addition, the CARES Act expanded the scope of borrowers to include not only small businesses, but also small nonprofit organizations.
Yesterday's discussion was largely academic, though. It turns out that in a short 13 days, borrowers had exhausted the full $349 billion Congress allocated to the PPP. With no money left, borrowers (for- or nonprofit) were out of luck.
But maybe they're not out of luck after all: The Hill is reporting that Congress and the president have reached a deal to provide more money to the PPP. While we don't have details yet, but expectations are that it will include another $310 billion, available to small businesses and nonprofits. That number will apparently include $75 billion for hospitals (and I'll be interested in seeing if there's any specific amount allocated to nonprofit hospitals, or if the $75 billion is for all hospitals).
Anyway, it's all questions for now, but this is good news for small nonprofits that hadn't yet gotten a PPP loan.
Samuel D. Brunson
Thursday, April 16, 2020
Coronavirus Nonprofit Law Additional Roundup: Chronicle on Philanthropy Coverage; JCT Scoring; DAFs & Private Foundations; State Guidance
Chronicle of Philanthropy Coverage: The Chronicle of Philanthropy is providing a series of articles to help nonprofits deal with the coronavirus crisis. Notable entries relating to legal topics include:
- How the New $300 "Universal" Deduction Works (flagging not only the uncertainty about how long the deduction is available but also whether a married couple filing jointly can claim a $600 deduction)
JCT Scoring of CARES Act: See the numbers below for the projected revenue effects of the CARES Act charitable contribution deduction provisions from Joint Committee of Taxation publication JCX-11-20. Perhaps most importantly, and as flagged by a commentator on my initial roundup, JCT takes the position that the $300, above-the-line charitable contribution deduction sunsets on 12/31/2020, although I still have not found statutory language to this effect.
Provision Effective 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020-25 2020-30
4. Allowance of partial above
the line deduction for charitable tyba 12/31/19 -310 -1,241 --- --- --- --- --- --- --- --- --- -1,551 -1,551
contributions (sunset 12/31/20)
5. Modification of limitations
on charitable contributions tyea 12/31/19 -1,080 -3,748 2,403 741 367 45 179 --- --- --- --- -1,272 -1,093
[Millions of Dollars; Years are Fiscal Years; tyba = taxable years beginning after; tyea = taxable years ending after]
DAFs and Private Foundations: As many nonprofits and particularly charities brace for a sharp downturn in donations, numerous commentators are calling on advisers and sponsoring organizations for donor-advised funds and management for private foundations and other funders to increase and modify their giving. Examples from the Chronicle of Philanthropy include:
- David Biemesderfer, Grantmakers Must Put Equity at the Forefront of the Coronavirus Response
- Alan Cantor, Save Lives Now, Grant Makers and Donors
- Terry Mazany, The Coronavirus Outbreak Could Prove Why Donor-Advised Funds Serve Society
- Lauren Smith, How to Help the Most Vulnerable Through the Pandemic
State Guidance: The New York Attorney General's Charities Bureau has issued Guidance for Charitable Nonprofit Organizations Facing the Challenges of the COVID-19 Pandemic. Topics covered include:
- How the Charities Bureau Can Help
- Registration with the Attorney General's Charities Bureau
- Additional Extensions of Times to File
- IRS Extended IRS Form 990 Filing Date
- Reserves, Restricted Assets, and Use of Endowment Funds
- Filing a Complaint with the Charities Bureau
- Resources for Charities
Wednesday, April 15, 2020
This blog has been on hiatus as its contributors have dealt with moving their courses to online delivery, supporting students facing many stressful situations, and of course dealing with the personal impacts on us and our families of the pandemic. It therefore seems appropriate to start with an initial roundup of nonprofit law-related coronavirus topics before turning to other recent nonprofit law developments.
CARES Act: Many provisions of the CARES Act (Pub. Law No. 116-136) could be relevant to most nonprofits, but three provisions stand out in particular:
- Partial Charitable Contribution Deduction for Individual, Non-Itemizers (section 2204): Modifies Internal Revenue Code section 62 by adding paragraph (a)(22) and subsection (f) to allow individuals who do not itemize their deductions to deduct, above-the-line, cash charitable contributions (as defined in section 170(c)) of up to $300 total made in taxable years beginning after December 31, 2019. Supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.
- Temporary Elimination or Increase of Limits on Certain Charitable Contribution Deductions (section 2205): Modifies IRC section 170 by eliminating the contribution base percentage limit on charitable contributions by individuals and increasing the taxable income percentage limit on charitable contributions by corporations from 10 percent to 25 percent for cash contributions made during the 2020 calendar year. Again, supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.
- Small Business Administration Loans: Section 501(c)(3) organizations, including religious ones, are eligible to participate in the Paycheck Protection Program (sections 1101-1106) if they satisfy number of employee (usually 500 or less) and other requirements, and all private nonprofits are eligible to participate in the Emergency Economic Injury Grants program (section 1110) if they satisfy that program's number of employee (usually 500 or less) and other requirements. For more details about these programs, see the SBA website; there is also an informative webinar on the Pittsburgh Foundation's website (dated April 10th) on this topic, as well as additional webinars on other coronavirus, nonprofit-related topics.
Coverage: Independent Sector; National Council of Nonprofits. Interestingly, these summaries state that the above-the-line deduction provision applies to contributions made in 2020, but the statutory language appears to make this provision permanent in that it applies "to taxable years beginning after December 31, 2019" without any expiration date and so it should be available for cash contributions made after 2020 as well. An analysis by the University of Pennsylvania's Wharton School, which states the above-the-line deduction is only available for contributions made in 2020 (I believe incorrectly), predicts that deduction will cost $2 billion but will only increase charitable contributions in 2020 by $110 million.
Extended IRS and State Filing Deadlines: In Notice 2020-23, the IRS explicitly extended to July 15, 2020 the deadline for filing (and paying any related tax owed) Form 990-PF, Form 990-T, Form 990W, and Form 4920 if they otherwise would have been due on or after April 1, 2020 and before July 15, 2020. In addition, by cross-reference to Revenue Procedure 2018-58 (see Section 10) the IRS also also extended to July 15, 2020 the deadline for filing a wide range of forms relating to tax-exempt organizations, including Form 990, Form 990-EZ, Form 990-N, Form 1023, Form 8871, Form 8872, and Form 8976 if they otherwise would been due during the same time period. For an analysis of this cross-reference, see this post by Laura J. Kenney of Blum Shapiro. Hat Tip: EO Tax Journal.
The IRS has also announced in a memorandum that it is permitting examination agents and managers to use "an increased reasonable application of business judgment" when applying the otherwise applicable deadlines for responding to information document requests and follow-ups during enforcement actions. This "temporary deviation" from the otherwise applicable requirements for enforcing such deadlines is in effect through July 15, 2020.
Finally, states are extending deadlines for required filings by nonprofits. For example, the New York Attorney General's Charities Bureau has announced it will grant an automatic six-month extension for annual financial reports originally due after February 15, 2020.
More updates to follow. Stay safe.
Friday, March 13, 2020
With the challenges we will all face from the CoronaVirus Pandemic, I thought it would be useful to have the IRS Disaster Relief publication handy.
"This publication is for people interested in assisting victims of disasters or those in
emergency hardship situations through tax-exempt charities. Charitable organizations
have traditionally been involved in assisting victims of disasters such as floods, fires, riots,
storms or similar large-scale events. Charities also play an important role in helping those
in need because of a sudden illness, death, accident, violent crime or other emergency
hardship. This publication includes:
advice about helping to provide relief through an existing charitable organization,
information about establishing a new charitable organization,
guidance about how charitable organizations can help victims,
documentation and reporting requirements,
guidance about employer-sponsored assistance programs,
information about tax treatment of disaster relief payments,
information about gifts and charitable contribution rules, and
reference materials and taxpayer assistance resources.
By using this publication as you begin to plan your relief efforts, you will be able to ensure
that your program will assist victims in ways that are consistent with the federal tax rules
that apply to charities."
Monday, March 9, 2020
"I am no fan of billionaire philanthropy - I think it skews our democratic project in problematic ways - this on its face though seems like an excellent use of that money all the same."
In effect, I think of billionaire philanthropy as a problem as a synonym for the idea that we have enormous income and wealth inequality in the United States. The problem has nothing to do with the billionaires themselves as individuals. Instead, because some people have vastly greater resources than most other people, those individuals arbitrarily wield much greater power than the rest of us in deciding what the group is going to do. This political voice imbalance harms the democratic order that would ideally give each of us an equal voice in group decisions.
We also provide incentives to these wealthy individuals to make more efficient tax use (some might say take advantage of) contributions they make to charitable organizations. When they then use those tax-subsidized dollars to wield greater power, we might be doubly troubled.
For instance, the Gates Foundation invested an enormous amount into changing the way we conduct education in the United States. Though there are many community activists around the country that have a great depth of knowledge in how to best arrange our educational institutions, their voices have been likely crowded out by the Gate's Foundation effort. Today, even Bill and Melinda Gates agree their effort did not have a good effect.
The interesting thing to me in the current potential pandemic we face is that even with all the resources of an institution like the Gate's Foundation, their resources are still puny compared to the need to fight a potential pandemic. They cannot close down a country's borders or support all the people who have to go without income as a result of the crisis. They are puny in comparison to the worldwide need.
To fight such a gargantuan problem, we really need a coordinated governmental effort ideally along international lines. But we in the United States do not have that government capable of such an effort right now. So, in steps the Gates Foundation, with what I think has to be a good use of its dollars, providing the funds to develop a test for home use to end reliance on having to go to the doctor to both test (for containment) and keep people out of doctors’ offices and hospitals (to deal with overwhelmed health professionals).
All the same, I can't help but think the existence of billionaire philanthropy (and perhaps a certain reliance upon billionaire philanthropy) may be a symptom/cause of our current malaise. This is not to say I don't think philanthropy has a role to play in this crisis. I clearly think it does. I hope to look at this question the rest of the week while I blog on Nonprofit Law Prof Blog.
Friday, February 7, 2020
Stories are starting to hit the mainstream media about the controversy brewing over ownership of the .org domain that is home to the websites of many nonprofit organizations. An opinion piece in the N.Y. Times (The Shaky Future of .org Domains) came in the wake of an ABC News story (Coalition of NGOs battling private equity firm trying to buy ".org" domain). I do not claim to understand all of the nuances here, but the main concern appears to be that not only has a private equity firm agreed to buy the domain (from the Internet Society), but the Internet Corporation of Assigned Names and Numbers (ICANN) has removed any price caps on what that firm can charge nonprofits to maintain their .org websites. See this National Council on Nonprofits article. The National Association of State Charity Officials (NASCO) has also expressed concern. The current state of play is that ICANN is still considering whether to approve the sale, but has agreed to make a decision by February 17th. (The agreement refers to the Public Interest Registry, which is apparently the technical name for the .org domain.) For a response from the firm proposing to purchase the domain, see here.
Less controversially, the Nonprofit Organizations Committee of the ABA's Business Law Section has made available for comment an exposure draft of the next, 4th edition of the Model Nonprofit Corporation Act. The timing for preparation of this new edition is curious, given there has not been a lot of state interest in adopting the 2008 3rd edition (last I checked only DC had done so). I have not had a chance to review the draft, so I do not know how significantly it departs from previous editions. Here is a list of the Task Force members who are working on the new edition: Chair Lawrence J. Beaser (BlankRome), Reporter William H. Clark, Jr. (Faegre Drinker), Associate Reporter Matthew H. Gaul (Carmody Torrance Sandak Hennessey), Willard L. Boyd III (Nyemaster Goode), William M. Klimon (Caplin & Drysdale), Kimberly Lowe (Avisen Legal), Lisa A. Runquist (Lisa A. Runquist, Attorney-at-Law), and Myron Steeves (Church Law Center).
There has recently been an eclectic set of stories about churches and their federal tax status. In its January/February 2020 issue, Christianity Today's cover story was The Hidden Cost of Tax Exemption (subscription required) with the sub-title "Churches may someday lose their tax-exempt status. Would that be as bad as it sounds?" The story concludes:
It might not be such a bad thing to lose tax-exempt status. We should consider, at the very least, the cost of maintaining this kind of cultural privilege. The true church of God, after all, is not reliant on its special status in the tax code. We can walk by faith and not by government largess.
At the other end of the spectrum, the Washington Post had a recent story titled Major evangelical nonprofits are trying a new strategy with the IRS that allows them to hide their salaries. The story cited several religious organizations, including the Billy Graham Evangelistic Association and Focus on Family, that had successful sought church status from the IRS. The implication of the story was that they sought this status not for the tax benefits (which they already enjoyed) but for the ability to hide financial details, and particularly salary information, from government and public scrutiny because of the church exemption from filing the Form 990 series annual information returns. The religious charity rating organization MinistryWatch has also been critical of this trend.
Relatedly, the U.S. District Court for the District of Columbia has now released its reasons for dismissing the lawsuit brought by a section 501(c)(3) organization associated with the Freedom from Religion Foundation that challenged the church exemption from Form 990 filings. Perhaps not surprisingly, the court found standing to be a problem (citations omitted):
NonBelief Relief alleges in its proposed amended complaint that “[t]he Defendant’s unequal treatment of the Plaintiff is ongoing and will continue as long as churches continue to be exempted from the information filing requirements of § 6033.” The Court disagrees. The injury it alleges occurred when it had to file a Form 990, a requirement from which churches and religious organizations are exempt. But as discussed above, this alleged unequal treatment is not ongoing or imminent because NonBelief Relief faces no current or future prospect of having to fill out a Form 990. See And while it is true that the loss of its tax-exempt status is, in a sense, ongoing, NonBelief Relief has not based its standing argument on that loss, and for good reason. The relief it seeks—a declaration that the church exemption is unlawful and an injunction prohibiting the Commissioner from enforcing it—will not redress that loss. And as explained above, in any event, the Anti-Injunction Act and Declaratory Judgment Act deprive the Court of jurisdiction to reinstate NonBelief Relief’s tax-exempt status.
The Freedom from Religion Foundation has promised to continue challenging the church exemption from Form 990 filing, presumably by having NonBelief Relief pay some taxes, file a claim for refund, and then going to court when the IRS refuses to grant that claim (an option described by the court in its decision).
Finally, there is some interesting pressure on classification as a church from a different. non-tax direction. The N.Y. Times had a story late last year titled Inside the War for California's Cannabis Churches (hat tip: TaxProf Blog). The story highlights the emerging conflict between such churches and California authorities seeking to enforce the various rules regulating marijuana dispensaries in that state. The key issue is whether enforcement of those rules discriminates on the basis of religion, assuming that the members of these churches can demonstrate that they beliefs relating to use of marijuana are sincerely held.
Speakers List For Today's Hearing on Eliminating Schedule B Identification of Donors for Non-Charitable 501(c)s
Today is the public hearing on the proposed regulations (REG-102508-16) that would eliminate the requirement that non-charitable section 501(c) organizations provide certain identifying information annually to the IRS on Schedule B to the Form 990/990-EZ for significant donors. The hearing is scheduled to be held in the IRS Auditorium at 1111 Constitution Avenue NW in DC, starting at 10:00 a.m. The second link provided above is to the regulations.gov website that includes not only the text of the proposed regulations but also all of the 8,387 comments received to date on them. Finally, here is the list of speakers from the agenda for the hearing:
- Noah Wall, Freedom Works Inc.
- Allen Dickerson, Institute for Free Speech
- Hans A. von Spakovsky, The Heritage Foundation
- Jenny Beth Martin, Tea Party Patriots Action
- James Bopp, Jr., James Madison Center for Free Speech
- Ryan Mulvey, Americans for Prosperity
- Carol Platt Liebau, Yankee Institute for Public Policy
- Catherine Suvari, State of New York Office of the Attorney General
- Brendan Fischer, Campaign Legal Center
- Scott Walter, Capital Research Center
- Eric Peterson, Pelican Institute for Public Policy
- Ann Stillman, Church Alliance
- G. Daniel Miller, Conner & Winters, LLP
- Mark Brnovich, Office of the Arizona Attorney General
- Ashley Varner, Freedom Foundation
- Robert Alt The Buckeye Institute
Thursday, February 6, 2020
Giving Issues: Recent Trends, More Bad Publicity for DAFs, and Greater Transparency for the PayPal Charitable Gift Fund
Starting with giving trends, in a lengthy Nonprofit Quarterly article Patrick Rooney (IUPUI Lilly School of Philanthropy) documents in great detail "the continued decline of the small donor and the growth of megadonors," with the former trend possibly accelerating because of the 2017 federal tax changes. That said, the effects of these trends likely will not affect all charities equally - a CNBC report indicates that while the largest, well-known organizations are still seeing increasing giving, many smaller, local charities are facing giving declines even in the midst of a a growing economy. And according to a study by Wealth-X, younger "ultrawealthy" donors tend to focus on one or two causes, which may further skew changes in giving levels. That said, a report from Cygnus Applied Research (executive summary requires free registration; full report must be purchased) found that most donors planned to maintain their giving amount in 2019 as compared to 2018, with 29% planning to give more and only 10% planning to give less.
The Rooney article includes a section on donor advised funds, finding that they are both continuing to grow significantly and "remain largely the realm of large donors." That growth is despite continuing bad publicity for DAFs, including news stories that both Google's Larry Page (through $400 million in grants from the Carl Victor Page Memorial Foundation) and Facebook's Sheryl Sandberg ($230 million in Facebook stock) had used giving to DAFs to, respectively, satisfy the private foundation payout rate and (presumably) generate substantial charitable contribution deductions without having to transfer funds to actual operating charities. To be fair, the funds may have eventually ended up at operating charities; there is just no way to know for sure. At the same time, the Chronicle of Philanthropy reports (subscription required) almost half of nonprofits surveyed said that DAFs hamper their ability to build relationships with donors. But there is not a complete lack of regulation of DAFs, as Tax Notes reports (subscription required) that the National Outreach Foundation has been forced to go to court to challenge the IRS' revocation of its tax-exempt status for allegedly using its role as a DAF sponsor to facilitate a tax avoidance scheme similar to one flagged by the IRS in Notice 2004-30.
Finally, the NonProfit Times reports that last month nearly two dozen states and the District of Columbia settled a dispute with the PayPal Charitable Gift Fund, Inc., the charitable arm of PayPal. According to a press release from the New York Attorney General (which also provides a link to the actual agreement), the Fund agreed to make sure donors know they are giving to the Fund, the timeframe for the selected ultimate charitable recipient to receive the donated funds, the difference between "enrolled" and "unenrolled" charities on the platform, and whether the donor's gift has been diverted to a different charity than the one the donor designated. The Fund also agreed to pay $200,000 to the National Association of Attorneys General, to be used to defray investigation and litigation costs relating to charities and to provide training and education for charity regulators.
Even though President Trump appears to have finally settled the legal issues arising out of his private foundation with the payment of the $2 million in damages owed late last year, other charity-related issues have arisen for organizations and individuals associated with him. These include renewed allegations that one of the President's impeachment lawyers and his family improperly benefitted from a network of charities to the tune of $65 million, a lawsuit by the District of Columbia Attorney General against the section 501(c)(4) 58th Presidential Inaugural Committee and for-profit entities owned by Mr. Trump and his family for alleged private inurement, reports that a section 501(c)(3) charity is giving away amounts totaling tens of thousands of dollars to hoped-for African American Trump supporters, which may not be a charitable activity, and a megachurch hosting a Trump political rally, raising questions about whether doing so violated the section 501(c)(3) prohibition on political campaign intervention.
But President Trump and those around him are far from the only political actors to engage in allegedly questionable behavior when it comes to charities, as Jack Siegel documented more than 10 years ago in The Wild, The Innocent, and the K Street Shuffle: The Tax System's Role in Policing Interactions Between Charities and Politicians (subscription required). Here is an undoubtedly incomplete list of such stories from across the political spectrum:
- As Florida House Starts Investigating Domestic Violence Nonprofit, Exec Has No Answers (Miami Herald): This investigation grew out of earlier reports questioning the high compensation paid to the CEO of this politically connected charity, which state law requires be contracted with by the Florida Department of Children and Families.
- Lawmaker Accused of Theft From Charity Announces Resignation (U.S. News/AP): A Pennsylvania state representative stepped down in the wake of the state Attorney General filing criminal charges against her, alleging that she stole more than $500,000 from a charity she operated.
- Minnesota Attorney General's Suit Accuses Former Ramsey County Commissioner of Mismanaging Charity's Funds (Star Tribune): The lawsuit alleges that the former Commissioner and others at a now-defunct veterans charity had mismanaged government funds, including through engaging in self-interested, related party transactions.
- Sloppy Accounting, Funding Debts: A Look at Maya Rockeymoore Cummings's Charity (Washington Post): This story documents a close financial relationship between a charity run by the widow of Elijah Cummings (and now candidate for his congressional seat) and her for-profit consulting firm, a relationship that was apparently not fully reported on the charity's IRS returns.
- State AG Probes Lawmakers' Charity Over Failed Minority Student Scholarships (N.Y. Post): The New York Attorney General's office has reportedly launched an investigation into whether a charity associated with a number of state lawmakers failed to pursue its stated mission of providing scholarships to needy minority students, instead focusing on events for its lawmaker members and other activities.
Wednesday, February 5, 2020
One almost certainly unintended casualty of the cap on state and local tax (SALT) deductions contained in the 2017 tax reform legislation were the numerous pre-existing state and local tax credit programs designed to favor a number of initiatives, but primarily school choice efforts (as identified in this paper). While Treasury and the IRS have taken certain steps to limit the impact of the cap on these programs, as detailed in the background and explanation of the most recent set of proposed regulations implementing the cap, the relief provided has been far from complete.
Which brings us to last night's State of the Union address. In it, President Trump touted a proposal long-supported by Education Secretary Betsy DeVos: establishing a program to allow states to provide federal tax credits to individuals and businesses that contribute to K-12 scholarship organizations. (See U.S. News coverage.) As proposed in the Education Freedom Scholarships and Opportunity Act, donations to state-identified scholarship-granting section 501(c)(3) organizations that satisfy certain requirements would give the donor a federal tax credit equal to the amount of their donation, up to 10% of their adjusted gross income for individuals and up to 5% of taxable income for corporations.
While the chance of Congress enacting this proposal during the current session, especially given the Democratic control of the House, is almost certainly negligible, the high profile support of this measure appears to be at least in part an attempt to mollify the school-choice supporters who were blindsided by the effect of the SALT cap. And of course a future Congress could enact a tax credit along these lines.