Nonprofit Law Prof Blog

Ukraine Update: Crowdfunding's Key Role; IRS Notice on Employee-Leave Donations

Two recent news stories underline the importance of crowdfunding for supporting Ukraine and Ukrainians. The N.Y. Times reports that Ukrainian appeals to private individuals and companies have led to contributions of numerous items that have military applications, including drones, night vision scopes, body armor, rifles, and ammunition. The Chronicle of Philanthropy reports that the Ukrainian government is enhancing its crowdfunding efforts to keep support flowing even as the Russian invasion of Ukraine passes the three-month mark.

And even the incredibly busy IRS has taken the time to ease ways of supporting Ukraine. Notice 2022-28 provides guidance on how employers can adopt leave-based donation programs to aid citizens and residents or Ukraine, individuals presently in Ukraine, or refugees from Ukraine. Importantly it states:

Employer leave-based donation payments made by an employer before January 1, 2023, to section 170(c) organizations to aid victims of the further Russian invasion of Ukraine (qualified employer leave-based donation payments) will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Similarly, employees electing or with an opportunity to elect to forgo leave that funds the qualified employer leave-based donation payments will not be treated as having constructively received gross income or wages (or compensation, as applicable). 

Lloyd Mayer

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

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

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

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

Lloyd Mayer

Bremer Trust Decision: One Trustee Removed, Two Retained; Trust Allowed to Consider Sale of Bank

The Minnesota Star Tribune reports that a state court judge has order the removal of one of the trustees for the Otto Bremer Trust, but has also refused the Minnesota Attorney General's request to remove two other trustees. The judge also held the trustees acted properly by considering whether sell the bank Bremer Financial (commonly known as Bremer Bank). The story provides a copy of the 103-page opinion. 

I have not had a chance to review the opinion - busy grading exams this week - but here is a helpful analysis from the law firm of Nilan Johnson Lewis.

Lloyd Mayer

 

Trump Organization & Donald Trump's Presidential Inaugural Committee Pay $750,000 to DC

District of Columbia Attorney General Karl A. Racine announced earlier this month that "the Trump Organization and Donald Trump’s Presidential Inaugural Committee (PIC) will be required to pay $750,000 to the District to resolve allegations that the PIC, the Trump International Hotel, and the Trump Organization illegally misused nonprofit funds to enrich the Trump family. Those funds will then be redirected to two nonpartisan nonprofit organizations – Mikva Challenge DC and DC Action – that promote civic engagement of youth in the District."

The payment settles a lawsuit filed by the AG alleging that Inaugural Committee provided improper benefits to the Trump Organization and Trump family members in a variety of ways, including by overpaying for event space, throwing a private party, and repaying a Trump Organization debt. The Consent Motion for the settlement includes language common to such docuoments stating that the resolution is made "without it being in any way deemed or construed as an admission of wrongdoing, unlawful conduct, or liability on the part of Defendants." 

Coverage: NPR, Reuters, Washington Post.

Lloyd Mayer

BLM Global Foundation Under a Microscope as It Releases Form 990

The BLM Global Foundation has recently attracted a steady stream of stories raising questions about its finances and transparency, especially after New York Magazine reported it had bought a $6 million house. The organization has now released its first Form 990 since obtaining IRS recognition under section 501(c)(3) and separating from its fiscal sponsor, which it first shared exclusively with the Associated Press. Numerous other news outlets have reported on the filing, including New York Magazine, the N.Y. Times, and the Times of London.

The filing reveals that BLM Global Foundation raised almost $80 million and spent a little under $38 million, including $26 million in grants mostly to other section 501(c)(3) organizations. Besides the house, it held the rest of its almost $42 million in assets in publicly traded securities ($32 million) and cash. It only had two employees during calendar year 2020 and only one voting member of its board of directors as of the end of its fiscal year on June 30, 2021. The above news reports state it now has three directors, which still is relatively small for a public charity with tens of millions of dollars in revenues, expenses, and assets, as well as a very high public profile. 

Not surprising given these small numbers of employees and board members, the Foundation paid numerous outside organizations for services. But as the above news reports detail, many of the organizations were owned and run by people with close ties to Foundation insiders, including over $2.1 million paid to a consulting firm owned by a now board member, almost $1 million paid to a limited liability company owned by the father of the founder and former executive director's child, and over $800,000 paid to a security firm owned by the brother of the founder and former executive director. While the Form 990 says a conflict of interest policy is in place, the Foundation would be well advised to also institute a bidding process for selecting vendors to ensure that ones with connections to insiders are not unduly favored (and improve the optics of these relationships).

The press coverage has attracted scrutiny from two state Attorneys General. In Indiana, the Indianapolis Star and other outlets report that AG Todd Rokita has sued the Foundation for allegedly failing to responding to requests for information. In Ohio, the above AP story reports that AG Dave Yost has also opened an investigation.

Lloyd Mayer

2022 Outstanding Nonprofit Lawyer Awards

The ABA Nonprofit Organizations Committee has announced its annual Outstanding Nonprofit Lawyer Award recipients.  They are:

Vanguard Award: Beth Kinglsey

Outstanding Lawyer Award: Samuel Maizel

Outstanding In-House Counsel Award: Lisa Johnsen

Outstanding Young Lawyer Award: Judith Kim

Outstanding Young Lawyer Award: Jason Qu

Congratulations to all of the recipients! You can read more about the awards and recipients here.

Samuel D. Brunson

Nonprofits in a Post-Roe World

In the aftermath of the Dobbs leak, there has been a lot of discussion about what a post-Roe world would look like. Understandably, the vast majority of that discussion has surrounded women's autonomy and reproductive rights, and what other rights we might lose under Alito's reasoning.

It may be worth taking a look at who would be shaping a post-Roe world. And at least one major player, it seems, might be the Foundation to Abolish Abortion, a Texas-based 501(c)(3).

FAA seems to be a fairly new organization; it received its exemption in 2020. And for 2019 and 2020, it reported less than $50,000 in gross receipts.  It hasn't provided any significant amount of information to Guidestar or Propublica, but as best I can tell, it is exempt as an educational organization. (If anybody has a copy of FAA's Form 1023, I'd love to see it! I tried to submit a request, but I'm not clear on whether the request went through or not.)

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Charter Schools, Race, and Polygamy

Yesterday, Fox 13 in Utah ran an exposé of Vanguard Academy, a public charter school in West Valley City, UT (which seems to be a suburb of Salt Lake City). The charter school is run by the Kingston family, a Mormon fundamentalist group.

(As a quick aside, Mormon fundamentalism has become a popular culture thing again, largely because of Hulu's "Under the Banner of Heaven." While this blog post is basically not at all about Fundamentalist Mormonism, it's worth noting that there isn't a single fundamentalism; there are disparate groups. Moreover, it's a distinctly modern thing---fundamentalism arose as aa direct response to modernism. Finally, though the polygamy aspects of Mormon fundamentalism swamp discussion of other aspects, honestly, the economic system many of these groups adopt is at least as interesting.)

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Art Museum Deaccessions to Diversify

For some reason the issue of a nonprofit art museum selling some of its collection off resonates at a high level for me. Sometimes, they sell off in order to generate working capital. Probably never really a good idea because you are not solving the long term problem of a sustainable future for the museum. 

The Toledo Museum of Art in Ohio just announced it is selling off a number of Impressionist works in order to diversify it's collection. Of course the fascinating question remains how do you best diversify - by the folks who come to your museum and are included, or by the story your art works tell? I'm not sure of the answer and it is probably a bit of both, but it's a fascinating and important question to ask. Obviously a Museum needs to grow and change over the years and so curating its collection is key.

From the story in Hyperallergenic: 

"The Toledo Museum of Art (TMA) will send three works by Paul Cézanne, Henri Matisse, and Pierre-Auguste Renoir to auction next month. Proceeds from the sale, an estimated $60 million, will be used to build a more diverse collection with the goal of “broadening the narrative of art history,” the museum said in a statement.

The TMA will deaccession Renoir’s “Nu s’essuyant (The Bather)” (1912), Cézanne’s “Clairière (The Glade)” (c. 1895), and Matisse’s “Fleurs ou Fleurs devant un portrait” (1923). The works will be offered as part of Sotheby’s Modern Evening Auction on May 17."

Museum leaders say its collection is already strong in that area and this opens up resources to expand its collection in other ways.

Philip Hackney

  

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

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

• AME Church: The Wall Street Journal reports (subscription required) that the African Methodist Episcopal Church "has suspended retirement payments and discussed steep cuts to the savings of its ministers amid an investigation into missing funds." The church further said that there is an ongoing investigation, including by federal law enforcement, of a possible financial crime. The pension fund, which reportedly had about $120 million in assets as of 2017, serves about 5,000 retired clergy and church workers. Additional coverage: Religious News Service.

• River Valley Child Development Services (West Virginia): MarketWatch reports that a court has ordered the former director of business and finance of this charity to repay $4.7 million that she stole in the wake of her guilty plea and sentencing to seven years in prison. The article goes on to note that as part of her restitution agreement she has agreed to forfeit six airplanes apparently from a small aircraft charter and aviation services company she owned, the proceeds from the sale of three houses, and two cars.

• Feeding the Future (Minnesota) Update: I previously reported on the apparent diversion of tens of millions of dollars from federal funds provided to this charity. The Star Tribune reports that a judge will now oversee the closure of the charity after a request from the Minnesota Attorney General's office and the charity's board voting to voluntarily dissolve it. The court has begun the process of obtaining financial documentation and a complete inventory of the charity's assets. To date no charges have been filed, but federal and state investigations are ongoing. Extensive additional coverage: N.Y. Times.

Lloyd Mayer

Ukraine Donations Update: Billions of Dollars, Millions of Volunteers, Airbnb, Crypto, Tax Research Scholarships

Donations to help Ukrainians and stories about them continue to promulgate, even as Russia's invasion of Ukraine continues. Here are some highlights:

• Candid is tracking the philanthropic response to the war in Ukraine, including reporting almost 600 grants totaling over $700 million and another 137 pledges worth over $660 million. It also reported on a survey from Fidelity Charitable that found a quarter of Americans have donated to support Ukraine.

• Global Citizen reports that the Stand Up for Ukraine event in Warsaw resulted in pledges totaling over $10 billion to support the millions who have had to flee their homes in Ukraine. This is in addition to numerous grassroots volunteer efforts, as detailed by Elizabeth Cullen Dunn (Indiana University) at The Conversation.

• Airbnb's much publicized efforts to help Ukrainian refugees have at times created frustrating situations for those refugees, according to a recent MarketWatch report.

• Crypto donations are also part of the effort, in part because Ukraine aid groups are actively seeking them according to this Chronicle of Philanthropy article (subscription required). The L.A. Times also reports that over $59 million in crypto assets have been received by the National Bank of Ukraine and other recipients that support the Ukrainian military.

• Tax Research Scholarships: Three European and international tax organizations (EATLP, IBFD, and IFA) have joined together to offer research grants to graduate students and others pursuing tax research that have had their careers disputed by the war in Ukraine. The deadline for applying for the the grants of up to EUR 3000 per month for up to one year is April 30, 2022.

Lloyd Mayer

 

DAF Update: Biden Administration Tips Toe In; Studies and More Studies

Cherry picking an issue flagged by the IRS in 2017 (Notice 2017-73) and addressed by one provision of the pending ACE Act (section 5), the Biden Administration's FY2023 Budget includes a provision (see page 132) that would bar private foundations from counting distributions to donor advised funds toward their minimum payout requirement under IRC 4942, except in limited circumstances (for more details, see pages 58-59 of the General Explanations of the Administration's revenue proposals). While passage of this provision is of course uncertain, it is important because it indicates that the Administration is at least tipping its toe into the DAF reform area. At the same time, 12 bipartisan members of the 43-member Ways and Means Committee issued a letter supporting DAFs and opposing recent DAF reform proposals. (Hat tip: Chronicle of Philanthropy (but incorrectly identifying the signers as all Republicans, when 7 of the 12 are Democrats)).

At the same time studies of DAFs continue to accumulate. The Institute of Policy Studies recently issued the results from two studies:

• Private Foundation Giving to Commercial Donor-Advised Funds based on the IRS returns of private foundations that filed electronically from 2016 to 2018 and a list of the 45 largest commercial DAF sponsors, with the following findings: 
  • Private foundation giving to these commercial DAFs averaged $737 million per year from 2016 to 2018.
  • From 2016 to 2018, gifts from DAF-giving private foundations to these commercial DAFs averaged about $605,000 each, while their gifts to other recipients averaged just under $119,000 each.
  • 229 foundations gave $1 million or more to these commercial DAFs from 2016 to 2018.
  • Grants to these commercial DAFs made up one hundred percent of all charitable distributions for 157 foundations from 2016 to 2018.

• Larger Community Foundations Have Become Heavily Reliant on Donor-Advised Funds based on the electronically filed IRS returns of 206 community foundations that participated in Candid's 2019 Columbus Survey, with the following findings:
  • DAFs accounted for a median 24 percent of assets.
  • A median 41 percent of all incoming contributions consisted of contributions to DAFs.
  • A median 42 percent of all outgoing grants were grants from DAFs.
  • Larger community foundations tend to be much more heavily reliant on DAFs for their incoming revenue streams; DAFs account for a much larger proportion of their outgoing grants; and DAFs make up a much larger proportion of their total assets.

The Donor Advised Fund Research Collaborative also recently made available the result of this study:

• Donor-Advised Fund Account Patterns and Trends (2017-2020) based on 13,000 DAF accounts from 2017 to 2020 at 21 community foundations and religiously-affiliated DAF sponsors in the United States (but not including national, commercial DAFs), with findings including:
  • While 11% of DAFs had over $1 million in assets, the typical DAF is equally likely to be a small-sized DAF with assets under $50,000 or a medium-sized DAF with assets between $50,000 and $1 million.
  • The median four-year average payout rate among all accounts was 11%; among spendable DAFs, the median payout rate was 13%.
  • Large accounts over $1 million were 11% of all accounts and represented at least 85% of the assets in the DAFRC sample.
  • The majority of DAF contributions were received in the fourth quarter, including approximately 55% of dollars contributed and 42% of contribution transactions.

The Chronicle of Philanthropy also reported that giving from two of the largest sponsors of donor-advised funds grew slower in 2021 than in 2020.

Lloyd Mayer

 

Hospitals in Illinois, Ohio, and Washington Face Criticism Over Insufficient Charity Care

In recent weeks there have been at least three separate news stories about nonprofit hospitals failing to provide sufficient charity care.

In Illinois, the Chicago Tribune reports that a study by the Massachusetts-based Lown Institute found that Advocate Aurora Health and Northwestern Medicine were among the bottom 25 hospital systems in the country when it comes to spending as much on charitable care and their communities as compared to the savings they receive from tax exemptions. The article provide the following summary of the report:

The Lown Institute produced the rankings by looking at how much money 275 private, nonprofit hospital systems reported spending on charity care and community investments. The institute then looked into whether that number matched 5.9% of a system’s overall spending, which, based on research, would likely be about the amount a hospital system is saving through tax exemptions. But the report counted only certain activities toward the amount spent on charity care and community investment while excluding others.

As noted in the article, both hospital systems criticized the report as flawed. The American Hospital Association has also criticized the report.

In Ohio, an opinion piece published on Cincinnati.com relies on a study by the Pacific Research Institute that focuses on how charity care provided by two Ohio hospitals (Good Samaritan Hospital and Miami Valley Hospital) compares to savings the hospitals enjoyed because of the federal government's drug discount program for nonprofit hospitals. According to the author of the piece, "[b]oth hospitals generated hundreds of millions in net patient revenue over the two recent years that the study covered, but gave away tiny amounts of this revenue (0.66% and 1.36% respectively) to charity care."

And in Washington, HeraldNet reports that the state Attorney General has filed a lawsuit against the Providence health care system for allegedly deceiving low-income patients who were eligible for free or discounted hospital care under a longstanding state charity care law. The complaint alleges that the system "engages in practices that obscure the availability of charity care and that convey the deceptive net impression that patients have no option but to pay for their care regardless of their income level." As noted in the article, the system is contesting these allegations.

Lloyd Mayer

NRA Update: Court Take Dissolution Off Table, But NY AG Case Can Still Proceed

As reported in numerous media outlets, the New York trial court hearing New York Attorney General Letitia James' lawsuit against the National Rifle Association and four of its current and former officers has dismissed the AG's attempt to dissolve the NRA. At the same time, the court sustained most of the remaining claims based on alleged violations under New York state law. Here is the court's summary of its decision (footnote omitted):

    The Attorney General’s claims to dissolve the NRA are dismissed. Her allegations concern primarily private harm to the NRA and its members and donors, which if proven can be addressed by the targeted, less intrusive relief she seeks through other claims in her Complaint. The Complaint does not allege that any financial misconduct benefited the NRA, or that the NRA exists primarily to carry out such activity, or that the NRA is incapable of continuing its legitimate activities on behalf of its millions of members. In short, the Complaint does not allege the type of public harm that is the legal linchpin for imposing the “corporate death penalty.” Moreover, dissolving the NRA could impinge, at least indirectly, on the free speech and assembly rights of its millions of members. While that alone would not preclude statutory dissolution if circumstances otherwise clearly warranted it, the Court believes it is a relevant factor that counsels against State-imposed dissolution, which should be the last option, not the first.

    The Attorney General’s remaining claims against the NRA and the Individual Defendants for violations of the Not-For-Profit Corporations Law (“N-PCL”), the Estates Powers and Trusts Law (“EPTL”), and the Executive Law are sustained. Two other claims – common law unjust enrichment and violation of the Prudent Management of Institutional Funds Act, which seek essentially the same financial relief as other claims – are dismissed on statutory grounds.

Lloyd Mayer

Ohio AG Questions Plan by Hebrew Union College to End Training Rabbinical Students in Cincinnati

The Jewish Telegraphic Agency reports that Hebrew Union College's board of governors has voted to end training rabbinical students at its campus in Cincinnati, over objections from some HUC faculty, staff, and alumni, and questions from Ohio Attorney General Dave Yost about whether this move violates a 1950 merger agreement with the Jewish Institute in New York. HUC plans to continue to maintain the Klau Library, Skirball Museum, and American Jewish Archives in Cincinnati. Going forward, the rabbinical training will occur at the New York and Los Angeles campuses of HUC.

The news stories do not provide a link to the letter sent by the Ohio AG, but provide this summary of the letter's content:

In a letter sent to top HUC administration this week and obtained by Cincinnati’s WCPO, Yost’s office suggested that HUC could be in violation of its 1950 merger agreement with the Jewish Institute of Religion in New York. In that agreement, HUC had assured donors that the combined institution would “permanently maintain rabbinical schools” in both cities.

The state’s Charitable Law Section chief Daniel Fausey wrote in the letter that the attorney general’s interest in the case was in “ensuring that charities honor the intent of benefactors and serve the interest of intended beneficiaries.”

Additional coverage: WCPO; Cincinnati.com.

Lloyd Mayer

 

Minnesota AG Applies Charity Law to Crowdfunding Campaign and Obtains Repayment of $120,000

Minnesota Attorney General Keith Ellison announced a settlement agreement with an individual who organized an online crowdfunding campaign to honor a deceased public school worker by pay down students' lunch debts. The campaign began as a class service project for a course that the individual, then a college professor, taught. The AG alleged that of $200,000 eventually raised, $120,000 had been accounted for. The individual, while not admitting any wrongdoing, agreed to repay this $120,000 amount to the AG, to be distributed to St. Paul Public Schools for retiring students' lunch debts.

The most notable aspect of this matter is that as detailed in the announcement the Minnesota AG is taking the position that Minnesota law relating to charitable solicitations and charitable assets extends to crowdfunding and other campaigns that raise funds for any charitable purpose, even if neither the person raising the funds nor the intended recipient is a charity. This contrasts with some other states, such as Michigan, where state law explicitly does not reach crowdfunding to benefit specific individuals but instead only reaches crowdfunding done by or for the benefit of a charity. Of course, state (and federal) fraud laws apply to crowdfunding if the organizer lies about the use of the funds donated, regardless of the nature of the organizer or beneficiary.

Coverage: Pioneer Press; N.Y. Times.

For more details about state regulation of charitable crowdfunding, see my paper on the topic (Indiana Law Journal, forthcoming 2022).

Lloyd Mayer

California AG Forces Fiscal Sponsor to Dissolve and Pay Over $460,000

Last week California Attorney General Rob Bonta announced a stipulated judgment against fiscal sponsor ZeroDivide and its directors and officers. According to the AG's press release, ZeroDivide operated two program for which it received restricted donations. But when ZeroDivide had difficulty raising sufficient unrestricted funds to pay for its operating costs, it began to use the restricted funds for those expenses to the alleged tune of over $600,000 without informing the relevant donors, much less receiving their consent. ZeroDivide's board of directors was aware of this misconduct and failed to stop it.

As a result of the stipulated judgment:

• ZeroDivid and its directors and officers are required to pay over $460,000 in damages, penalties, late filing fees, and attorney's fees.

• ZeroDivide's directors will dissolve the nonprofit and distribute its assets to pay the damages amount, with any remaining assets going to another fiscal sponsor currently hosting one of the projects.

• Two of ZeroDivide's officers are prohibited for three years from leading a a charitable organization in California or engaging in certain other activities relating to charitable fundraising and assets in California.

Coverage: Chronicle of Philanthropy.

Hat tip: Nonprofit Law Blog

Lloyd Mayer

Private Foundations and Crypto

Yesterday, Axios reported that Katie Haun has raised $1.5 billion for a couple crypto-based venture capital funds that she started.

The story is interesting partly because of the sheer amount of money and partly because that sheer amount of money was raised by a woman in a field unfortunately dominated by men. Neither of those has much to do with this blog though.

Her massive fundraising is relevant to our world though because Axios reports that institutional investors, including college endowments and private foundations, are using venture capital funds like Haun's to get exposure to cryptocurrencies.

I'm not going to weigh in on the wisdom of tax-exempt organizations investing in crypto. It's probably an, if not necessary, at least plausible, asset class for a diversified investor to hold, though financial journalist Felix Salmon is skeptical of the wisdom of tax-exempts locking up their assets in these VC funds:

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Judge Jackson and Tax-Exempt Opinions

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

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

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

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

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

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

---

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

Samuel D. Brunson

Wyden and Crapo On Charitable Giving

Last week, the Senate Committee on Finance held a hearing on trends in charitable giving; the Committee heard from four witnesses. And over the next couple days I plan to look at (and, of course, blog about) what those witnesses said. But I thought the opening statements of Sen. Wyden, the Chair of the Committee, and Sen. Crapo, the Ranking Member, were interesting and worth a quick glance.

Both highlighted the work that nonprofits during the pandemic. Sen. Crapo praised nonprofits for "adapt[ing] to the COVID-19 situation incredibly well, often fulfilling their missions with fewer resources and volunteers or even cancelled events, all while ensuring the communities they serve were being helped." And Sen. Wyden found that "Americans stepped up when their neighbors needed help. Charitable giving reached new highs."

Both Senators set the stage for the government helping the charitable sector--from the Senators' introductions, it does not look like this was at all a critical hearing. Both Senators said that supporting the nonprofit sector has the bipartisan support of the whole committee. Sen. Crapo explained that his goals include using the tax policies to encourage giving while looking forward at new challenges (including crypto and crowdfunding).

And Sen. Wyden mentioned the fact that the doubling of the standard deduction had eliminated the tax benefits of charitable giving for a substantial portion of taxpayers. He seems to want to focus on extending the small above-the-line charitable deduction as well as provide direct aid to help nonprofit organizations keep their doors open.

It will be interesting to see what the witnesses said and where the federal government goes from here.

Samuel D. Brunson