Nonprofit Law Prof Blog

U.S. Dept. of Educ. Finds Newly Nonprofit Grand Canyon University Is Not a Nonprofit

In a significant set back for a former for-profit university, the U.S. Department of Education has decided that Grand Canyon University is not a nonprofit for the purposes of Title IV funding even though it has been recognized by the IRS as tax-exempt under Internal Revenue Code section 501(c)(3). The University had also (eventually) secured approval from its accreditor for the terms of its conversion from for-profit to nonprofit status, even given a continuing and extensive financial relationship with a for-profit company. The Department of Education found that relationship to be particularly troubling, concluding that the primary purpose of the relationship "was to drive shareholder value" for the for-profit "with GCU as its captive client - potentially in perpetuity." The University has responded with a detailed statement and a lengthy letter, signaling it plans to aggressively fight this adverse decision.

Coverage: Education Dive; Inside Higher Ed.

Lloyd Mayer

Reports, Articles, and Litigation on Charitable Contributions

The past  couple of months have been a busy time for reports, articles, and litigation relating to charitable contributions. 

With respect to reports, three studies highlighted trends in charitable giving. The CAF World Giving Index 2019 reported that levels of individual giving in the world's wealthiest countries - particularly the United States, Canada, Ireland, the Netherlands, and the United Kingdom - have declined over the past ten years since the 2008 financial crisis. In the United States, the Center for Effective Philanthropy reports that declining support from small- and medium-gift givers means that charities that rely on the $428 billion (in 2018) in donations from individual donors are increasingly dependent on major donors. Finally, the National Philanthropic Trust reports that in 2018 grants from donor-advised funds totaled $23.42 billion, or roughly 5 percent of all individual giving, with $37.12 billion flowing into DAFs. (Hat tip for all three of these reports to the Philanthropic News Digest.)

With respect to articles, the Urban Institute/Brookings Institution Tax Policy Institute published a chartbook on Tax Incentives for Charitable Contributions that "explores the implications of current-law income tax incentives for charitable donations along with several alternatives for tax deductions that are more universally available." And Eric A. Kades (William & Mary Law School; pictured here) posted The Charitable Continuum, which argues that "[g]ranting a 100% deduction only for donations to the desperately poor, along with 50%, 25%, and 0% for gifts yielding progressively fewer efficiency, fairness, pluralism, and institutional competence benefits promises to deliver a socially more desirable charitable deduction."

With respect to litigation, taxpayers continue to fight (and generally lose) substantial charitable contribution deduction cases. In Presley v. Commissioner, the U.S. Court of Appeals for the 10th Circuit affirmed the Tax Court's denial of over $300,000 in claimed charitable contribution deductions based on several failures, including trying to deduct land improvement expenses in one tax year that were actually incurred in a different tax year, failure to separately list a donated mower as required on Form 8283, and failure to obtain a qualified appraisal for a donated house. In Coal Property Holdings, LLC v. Commissioner, the Tax Court denied a claimed $155.5 million conservation easement deduction on the grounds that the conservation purpose was not protecting in perpetuity, as required by statute, because the complicated transaction that created the easement meant "the charitable grantee was not absolutely entitled to a proportionate share of the proceeds in the event the property was sold following a judicial extinguishment of the easement." Finally, another conservation easement Tax Court case currently on appeal to the 11th Circuit (Pine Mountain Preserve, LLLP v. Commissioner) has attracted interest in the form of an amicus brief filed by a number of prominent academics and practitioners (including contributors to this blog Roger Colinvaux and Nancy A. McLaughlin (pictured)), as reported by Tax Analysts and Law360 (both of which require subscriptions). For the most recent summary of the many conservation easement cases, see Trying Times: Conservation Easements and Federal Tax Law (October 2019), by Nancy A. McLaughlin (Utah). The IRS also recently announced that it is increasing its enforcement actions relating to syndicated conservation easement transactions.

Lloyd Mayer

Litigation Update: NY Disclosure Law Struck Down; Challenge to Church Form 990 Exemption Dismissed

A federal district court struck down as unconstitutional a New York state ethics law that would have required the disclosure of donors to section 501(c)(3)s that contributed more than $2,500  to a 501(c)(4) that engages in lobbying and $1,000 or more donors to section 501(c)(4)s that spent more than $10,000 on grassroots lobbying. The law had been on hold during the three years the litigation was pending. Numerous nonprofit groups challenged the law, including Americans for Prosperity, Citizens Union (joined by its affiliated foundation), Citizens United, Lawyers Alliance for New York (joined by the Nonprofit Coordinating Committee of New York), and the New York Civil Liberties Union (joined by its affiliated foundation and the ACLU Foundation),. Coverage: Law.com; National Law Review; Times Union.

In other litigation news, a federal district court dismissed the lawsuit brought by Nonbelief Relief and supported by the Freedom from Religious Foundation challenging the exemption that churches enjoy from having to file the annual Form 990 series information return with the IRS. The grounds for the dismissal are not yet available, however, nor has the time begun to run on filing an appeal, as the court has yet to issue its final order or a memorandum opinion explaining its reasoning.

Lloyd Mayer

Two More Newspapers To Become 501(c)(3) Nonprofits

A previous post described the announcement by the now nonprofit Salt Lake Tribune that it had been formally recognized by the IRS as tax-exempt under Internal Revenue Code section 501(c)(3). Now at least two other news publications have announced plans to take the same path. The Chicago Reader, an alternative weekly paper founded in 1971, announced that it will be moving to a nonprofit model in 2020 (hat tip: Nonprofit Quarterly). And Fauquier Now reported that the weekly Fauquier Times will essentially be given to the section 501(c)(3) Piedmont Journalism Foundation, along with several other publications and their related websites. 

Lloyd Mayer

Issues with Donors, Issues with Donees

Previous posts in this space discussed the fallout from Richard Epstein's donations. But just over the past week there have been a flurry of other stories relating to both donors and donees.

At MIT, which was also caught up in the Epstein furor, the Boston Globe reports that the decision to name an auditorium after donor and energy company Shell has led to a backlash from both students and environmental activists. At the University of Pennsylvania, a plan to rename the law school to honor the $125 million gift from the W.P. Carey Foundation led to objections from alumni and students, Above the Law reports (hat tip: Nonprofit Quarterly; additional coverage: Law.com). In response, the dean announced  that the law school will keep its short-form name as "Penn Law" until 2022, when it will change to "Penn Carey Law."

On the donee side, there were also several stories. Chick-Fil-A announced it would end contributions from its foundation to groups that have been criticized as anti-LGTBQ, instead limiting its 2020 donations to Covenant House International, Junior Achievement of America, and certain community food banks. This change triggered a backlash from conservatives, who issued a letter urging the company to continue its donations to The Salvation Army and the Fellowship of Christian Athletes.

Finally, two sponsors of donor-advised funds or DAFs have come under fire for recipients of their donations. Sludge reports that Fidelity Investments Charitable Gift Fund, the nation's largest charitable grantmaker (over $5 billion in 2018), in recent years distributed tens of thousands of dollars to the New Century Foundation, which is commonly described as a white supremacist group (hat tip: EO Tax Journal). On a more local level, the Charlotte Observer reports that the Foundation for the Carolinas (the sixth-largest community foundation in the United States, with $2.6 billion in assets) gave millions of dollars to prominent anti-immigration groups over the past ten years (hat tip: Nonprofit Quarterly; additional coverage: Charlotte Agenda). In both instances, the DAF sponsors appear to have only considered whether the recipients were recognized as charities by the IRS (under Internal Revenue Code section 501(c)(3)), which they are, and the Carolinas group explicitly said this was the case. But of course this begs the question of who actually controls the funds in reality.

Lloyd Mayer

CEO Compensation - Is $761,000 Too Much? How About $25.5 Million?

The Miami Herald reports that the nonprofit Florida Coalition Against Domestic Violence is stonewalling a state audit that was triggered by an earlier report that the group's chief executive office was paid over $761,000 for the fiscal year that ended on June 30, 2017. While that amount might not seem high for those familiar with the top salaries at hospitals and universities, it raised eyebrows both because the group income consists almost entirely of more than $51 million in government funding (that it distributes to 42 domestic violence center) and because the compensation only reached that level after pay raises totaling over $313,000 during a two-year period. Again to the latest report, the nonprofit has refused to provide the Florida Department of Child and Families with basic financial and governance documents, leading to the Department suggesting that it will end its contracts with the organization. However, for now the existing contract extends to June 2020.

In other compensation news, AZCentral (part of the USA Today Network) reports that the Chief Executive Officer of nonprofit Valleywise Health earned a total of $25.5 million in 2017, including a one-time $17 million retirement plan payment. That means that even without taking into account this one-time payment, which came from a Supplemental Executive Retirement Plan or SERP and so presumably was earned over multiple years, that still leaves annual compensation of $8.5 million. Concern about his compensation led to a split board vote on raising his base salary, even though even with the approved increase that base salary is only $685,000 annually (with the rest of the compensation presumably reflecting bonuses and other incentives).

Lloyd Mayer

Harvard, Harvest Bible Chapel, and NRA Scandals

The University of Maryland Medical System is not the only charity scandal with developments this month. Here is a brief update on three other prominent ones:

• The Boston Globe reported additional, extensive details regarding the alleged purchase of Harvard University admissions through "donations" to a foundation established by the then fencing coach and other business transactions, in an echo of the Varsity Blues scandal. (Harvard dismissed the fencing coach earlier this year.)

• Journalist and writer Julie Roys reported that megachurch Harvest Bible Chapel has received a financial review from the law firm of Wagenmaker & Oberly that reveals "a massive corporate governance failure apparently developed over several years at HBC." The report traces the failure primarily to now former Senior Pastor James MacDonald, and says that he "appears to have extensively misused HBC's financial resources for improper financial benefit." In response, James MacDonald has asserted his innocence.

• Finally, the NRA is facing not only complaints from its past supporters but now a lawsuit from one of them, in addition to continuing government investigations.

Lloyd Mayer

University of Maryland Medical System Scandal Leads to Plea Deal for Former Baltimore Mayor

Last week former Baltimore Mayor Catherine Pugh pled guilty to four counts of conspiracy and tax evasion relating to her self-published books series, Healthy Holly. Concerns arose about her sales of the books when it was reported that the University of Maryland Medical System had agreed to pay $500,000 to buy them when Mayor Pugh was on the UMMS board. Details of the federal charges brought against Mayor Pugh can be found in the DOJ press release announcing her indictment. The actual indictment is available here.

The Baltimore Sun has provided extensive, in-depth coverage of not only Mayor Pugh's dealings but also other apparent governance lapses at UMMS, including:

• Other transactions with board members.
• Disregard of term limits for board service.
• Complaints from state auditors that UMMS has "hindered" their investigation.

The scandal has led to the Maryland governor appointing 11 new members to the board, the resignation of four executives, and additional, state-imposed governance requirements, including public financial disclosures by board members.

Additional coverage: N.Y. Times; Washington Post.

Lloyd Mayer

Trump Ordered to Pay US$2 million for Misuse of Foundation - Where Can You find the Documents?

On November 7, New York Supreme Court Judge Saliann Scarpulla ordered President Trump to pay $2 million in resitution to charity for his breach of his fiduciary duties as an officer and director of the Trump Foundation. The link attached to ordered above is the Judge's actual order. Since this is written up a lot in other places, like here by David Fahrenthold who has been the best chronicler of the Foundation, I only provide resources here for digging deeper into the case.

To fully comprehend what has happened to the Trump Foundation, President Trump, and his children, you have to read more than the order. They all entered into a series of stipulations with the NY AG Letitia James. The stipulations spell out a series of significant admissions of wrongdoing made by President Trump and his three children who sat on the board. The press release issued by the NY AG does a nice job of summarizing all that has taken place. I recommend reading all three.

If interested in seeing all of the evidence held by the NY AG you can go to the NY Supreme Court and search in the case index for the index number of the case (451130/2018). That should take you here, which if it works would save you the time of searching the case index. More information can be found from CREW who did a FOIA search that yielded the Form 4720s and checks filed by the Foundation with the IRS.

I have written about the matter on The Conversation here. In that piece I try to grapple with whether there are any situations in history that place this occurrence in proper historical context. If you get a chance to look at that, and have thoughts about the choice, let me know what you think.

Philip Hackney

UPMC Denied Property Tax Exemption on County Hospitals

Pennsylvania bears watching on hospitals and tax exemption.

Pennsylvania's Northumberland County Board of Assessment just denied a request on October 30 for property tax exemption for some hospitals UPMC acquired a few years ago. UPMC, headquartered in Pittsburgh in the old US Steel building, bought Susquehanna’s Sunbury and Lock Haven hospitals from for-profit Quorum Health in 2016. 

Apparently no specific reason was sited for the denial. From the article:

“There was testimony during the hearing that indicated that some parcels, or portions of the parcels, were utilized for purposes that likely are not exempt. UPMC felt all of the parcels were exempt,” Mr. Garrigan wrote in an email.

“When questioned by the Board, UPMC gave an indication as to the approximate breakdown of the parcels by use, but there was little documentary evidence provided at that time to backup these percentages.”

UPMC has 30 days to appeal.

The healthcare giant recently entered into a 10 year agreement with Highmark for Highmark to be allowed to use the UPMC provider network. This came on the heels of the Pennsylvania AG bringing a complaint sounding in state charitable nonprofit law to force UPMC to enter into such a relationship with Highmark.

Philip Hackney

Salt Lake Tribune Becomes Charitable Organization

The Salt Lake Tribune, a major paper of Salt Lake City, announced recently it converted its operation into a tax exempt charitable organization. The newspaper received its determination letter from the IRS on Oct 29.

From the Tribune: "The move from a for-profit model was spurred by Tribune owner Paul Huntsman, who, in agreeing to turn Utah’s largest paper into a nonprofit, is giving up his sole ownership."

“The current business model for local newspapers is broken and beyond repair,” said Huntsman, who also serves as The Tribune’s publisher. “We needed to find a way to sustain this vital community institution well beyond my ownership, and nonprofit status will help us do that. This is truly excellent news for all Utah residents and for local news organizations across the country.”

This is not a new move. Both the Philadelphia Inquirer and apparently the Tampa Bay Times have made operational changes to be strongly associated with a nonprofit. As a result of the crash of the news industry generally, many have been long considering such a move. St. Louis Tribune thus is not new, but it is a suggestion that the trend might be getting stronger. 

Richard Schmalbeck of Duke Law School has written academically about the issue here. Sam Brunson, one of our co-bloggers, wrote comprehensively about the Salt Lake Tribune conversion and its practical tax legal implications here. This remains an issue worth following.

Philip Hackney

 

 

Using Nonprofits For Illegal Purposes

Last week, Reuters reported that two nonprofits agreed to pay $6 million to resolve allegations that they had helped pharmaceutical companies in a way that violated the False Claims Act.

Chronic Disease Fund and Patient Access Network Foundation, the two nonprofits that paid the fine, are pubic charities, exempt under section 501(c)(3). Their charitable mission? To help poor individuals with chronic diseases get the medication they need by paying their out-of-pocket costs for the medication. The allegations that they settled claim that seven pharma companies used the nonprofits as flow-throughs, essentially donating money to the nonprofits, which would then help patients pay for those drug companies' medicines.

The problem? The Anti-Kickback Statute prohibits drug companies from subsidizing copayments from patients on Medicare. Drug companies can donate to nonprofits that subsidize these out-of-pocket expenses, but the nonprofits must operate independently from their donors; here, the allegation was that CDF and PANF didn't act independently. And, while neither admitted wrongdoing, they did settle.

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Can Philanthropy Save Democracy?

In its October 1st edition, The Chronicle of Philanthropy published Can Philanthropy Save Democracy? -- an interesting read.  The number of grant organizations that are funding efforts to strengthen the democratic process is on the rise.  According to the article, "Foundation support nationwide for democracy projects jumped 34 percent in 2017, to $553 million, according to Candid, which tracks grant-maker activity. Those are the most recent figures available, but all signs suggest that spending is on the rise."  As the article points out, these efforts have no political or ideological limitations or consensus for that matter; donors are as varied as George Soros and Charles Koch. 

The bi-partisan Democracy Fund, which supports a wide assortment of democracy efforts, was created by eBay founder and philanthropist Pierre Omidyar in 2014 "to help ensure that the American people come first in  our democracy."  Its president, Joe Goldman, believes philanthropic organizations and individuals have a mandate to reverse the "weakening of important American institutions."  While large donors and foundations have traditionally steered clear of political involvement, Goldman opines that the landscape is evolving:  

Historically it was perfectly appropriate for some funders to say, "Look, my role is technocratic. My role is to stay out of politics" . . .  But there are points in time when the threats are such that we all need to stand up for our values. Our democracy has gone through many challenging periods, but we are definitely in a crisis point. People recognize we are in a bad spot. . . A lot rides on the outcome. . . 

Whether you care about the environment, housing, or the national debt, these issues are all fundamentally affected by the degree to which our political system is healthy and functioning.

As part of this uptick in funding, Omidyar has more than tripled the Democracy Fund's annual grant-making budget to $50 million.  

Believing that a "strong philanthropic response to something new and worrisome going on in America" as a result of the 2016 election cycle, Protect Democracy was created by former White House lawyers under President Obama.  Protect Democracy's website describes itself as a "nonpartisan, nonprofit organization dedicated to fighting attacks, from at home and abroad, on our right to free, fair, and fully informed self-government."  The organization's budget has grown from a meager $400,000 to over $10 million annually.  One of its co-founders, Ian Bassin, explained the need for such nonprofits as Protect Democracy:

A lot of work has gone into things like gerrymandering, voting rights, and campaign finance. . .  There hasn’t been nearly as much time thinking about how we make sure that our fundamental system of checks and balances is strong and able to withstand modern autocratic movements. We need to make sure we’re spending resources there as well.

The Ford Foundation, Carnegie Corporation of New York, and other established grantmaking organizations have stepped up their funding of efforts to strengthen democracy.  According to the article, Ford’s "democracy budget" is about $25 million a year, recently committing an additional $5 million to support accurate census efforts. Carnegie anticipates making $7 million in grants supporting voting rights and related issues in its current fiscal year, an increase of $5.2 million over the prior year. The article reports that increased funding has also focused on strengthening journalism to boost democracy; funders including The Knight Foundation, The Hewlett Foundation, The MacArthur Foundation, and Craig Newmark (founder of Craigslist).

Nicholas Mirkay

Ongoing Congressional Scrutiny of Syndicated Conservation Easements

In a follow-up to a March blog entry  regarding Congressional scrutiny of syndicated conservation easements, Senate Finance Committee Chairman Chuck Grassley and Ranking Member Ron Wyden announced in mid-September that subpoenas were issued for documents relevant to their bipartisan investigation of syndicated conservation-easement transactions.  Wyden stated in the announcement: 

As we’ve both said all along, conservation easements have very legitimate purposes. We need to protect those purposes and protect the American taxpayer. If a handful of folks can game the system for profit, then we’re all left holding the bag. We expect fulsome cooperation with our investigation, and it’s unfortunate we’ve had to resort to compulsory process. Ultimately, when Congress makes an inquiry, it needs to be answered. It’s not optional.

Timothy Lindstrom, Esq., associated with the Land Trust Alliance, provided the following explanation of syndicated easements:

Let’s say a man named John donates a conservation easement on his farm to a land trust. His appraiser valued the farm at $3 million before the easement and $2 million after the easement. Therefore, the easement is worth $1 million, which would be the amount of the tax deduction available for the donation. John doesn’t have sufficient income to use this deduction. He wants to sell the deduction to someone who can use it.

Federal tax law does not allow the donor of a conservation easement, or of any other property for that matter, to transfer the deduction generated by the donation to someone else. A federal tax deduction is personal to the donor. If the donor can use the deduction, fine; if not, it disappears. In other words, John can’t sell his deduction.

This is simple. However, some legitimate conservationists, and some not-so-legitimate tax shelter “facilitators,” are using limited liability companies and other so-called “pass-through” entities to try to “syndicate” tax deductions — in essence, to sell them — in ways that an individual, such as John, cannot accomplish. These deals are anything but “simple.”

Lindstrom acurrately points out that not all syndications are "shams," but advocates for syndications that allocate tax deductions to be scrutinized.  Syndications that fail to comply with complex allocation rules for pass-through entities and/or utilize inflated easement appraisals, according to Lindstrom, threaten "the viability of the tax benefits for conservation easements and the credibility of the voluntary land conservation effort."

Nicholas Mirkay

 

IRS Audit of the NRA's Tax-Exempt Status Requested

In a follow-up to a previous post this week The NRA and Russia:  How a Tax Exempt Organization Became a Foreign Asset, Senate Minority Leader Chuck Schumer and Senate Finance Committee ranking member Ron Wyden called for an IRS examination of the NRA's ongoing tax-exempt status in a October 2nd letter to IRS Commissioner Chuck Rettig.   The request comes on the heels of the Senate Finance Democrats' release last week of a report on the organizations's interactions with Russian nationals.  Schumer and Wyden stated in the letter:  "Given this report's concerning findings and other allegations of potential violations of tax exempt law by the NRA, it is incumbent on the IRS to fully investigate the organization's activities to determine whether the NRA's tax exemption should be disallowed."  

The NRA is a tax-exempt under section 501(c)(4) of the Internal Revenue Code as a social-welfare organization.  The organization also has affiliated entities that are tax-exempt under sections 501(c)(3) and 527 of the Code.

Schumer and Wyden assert in their letter that the findings of the report raise concerns of whether the NRA's activities violated the statutory social welfare requirements, including the use of tax-exempt resources for non-tax-exempt purposes.  "In light of the continued efforts of Russia to undermine American democracy, IRS must use its full authority to prevent foreign adversaries from again exploiting tax-exempt organizations to undermine American interests," Wyden and Schumer wrote.  The NRA and Senate Republicans take issue with the report and its findings.

As we previously blogged, the New York and District of Columbia attorneys general are conducting their own investigations about whether the NRA is complying with state tax laws. 

[Sources:  Politico, The Hill]

Nicholas Mirkay

Aprill: A Tax Lesson for Election Law

Ellen P. Aprill (Loyola LA) published A Tax Lesson for Election Law in the September 30th edition of Tax Notes.  The following are the introductory paragraphs of the article:

An August 22 deadlock by the Federal Election Commission regarding a request for an advisory opinion highlights the complicated role that tax law plays in regulating campaign finance. It underscores important differences between section 501(c)(3) and (c)(4) organizations not only under section 501(c), but also under section 527. Moreover, because the resignation of the FEC vice chair has left the commission without quorum and thus unable to act, tax regulation of campaign finance has increased importance.

On May 31 the Price for Congress committee (the Price committee) filed a request with the FEC for an advisory opinion regarding transfer of remaining campaign funds from former legislator Price’s campaign committee. The committee asked for approval to transfer some, although not all, of its remaining almost $1.8 million to a section 501(c)(4) social welfare organization (the 501(c)(4)). The request prompted passionate debate and deep division but no resolution by the FEC commissioners when it was discussed on July 25 and again on August 22.

As proposed, the 501(c)(4) would “engage in research, education, presentation, and publications with respect to health, budget, and other public policy matters.” Although unlike section 501(c)(3) organizations, a 501(c)(4) is permitted to lobby without limit and to engage in considerable campaign intervention, the request stated that this 501(c)(4) “will not attempt to influence legislation nor participate or intervene in any political campaign.” The Price committee also proposed that any transferred funds be placed in a separate account and not be commingled with other assets of the 501(c)(4). To comply with applicable election law regarding private use by former candidates, neither the transferred funds in this special account nor income generated from these funds would be used to provide Price, any members of his family, or former employees of the Price committee or of Price’s government offices with compensation, gifts, or material reimbursement, or “to influence any election.” Price, however, would serve as the organization’s president and chief executive officer, albeit without any compensation. The Price committee anticipates that he would “speak, write, publish, or otherwise make appearance to present the work” of the 501(c)(4).

Under election law, campaign funds can be contributed “to an organization described in section 170(c) of the Internal Revenue Code” as well as “for any other lawful purposes.” Under tax law, a 501(c)(4) would not be described in section 170(c) because that provision describes organizations that are eligible to receive tax-deductible charitable contributions, and a 501(c)(4), unlike a 501(c)(3), is not such an organization. 

In responding to the Price committee request, however, FEC draft advisory opinion 19-33-A, issued on July 17, did not read the reference to section 170(c) as limiting transfers to organizations eligible to receive deductible charitable contributions. The draft opinion explains that if an organization engages in educational activity and constrains itself from lobbying and campaign intervention, it is described in section 170(c) for purposes of campaign finance law, even if it is not eligible to receive tax-deductible contributions.

At the July 25 FEC meeting, Chair Ellen L. Weintraub objected strongly: “If we were to approve this advisory opinion, it would extend the ‘personal use’ exemption to 501(c)(4) organizations in a way that the commission has not done before.” Republican members disagreed, and the FEC postponed its decision. . . . 

At its meeting on August 22, however, the FEC “was unable to render an opinion by the required four affirmative votes and concluded its consideration of the request.” The Price committee will now have to decide whether to proceed without an FEC advisory opinion. The commission’s lack of sufficient commissioners for a quorum, however, prevents any possible enforcement action. 

Whatever the Price committee decides, its choice of a 501(c)(4) rather than a 501(c)(3) raises several issues under applicable tax law and its interaction with election law. In short, transfers to a 501(c)(4) rather than a 501(c)(3) offer advantages regarding IRS transaction costs and oversight, but also involve some income tax risks to the former candidate. The Price committee request also reminds us of some of the inadequacies of our regulation of campaign financing, both through tax law and election law. . . .

Nicholas Mirkay

Educational Tax-Exempt Status = Academic Freedom

In September 25 letters to the presidents of Duke, Harvard, and Villanova universities and Sarah Lawrence College, Senate Finance Committee Chair Chuck Grassley raised concerns and sought information on the current culture of academic freedom on their respective campuses.  In a recent op-ed published by the Wall Street Journal,  Grassley raised concerns about the current state of academic freedom in higher education, opining that students' demand for "safety" from "harm" is eroding academic freedom and the very point of higher education.  In each of the letters Grassley elaborated further:

Unfortunately, over the past year I have read a variety of media reports discussing incidents in higher education involving faculty suffering difficulties with or expressing concerns about teaching or researching topics that might challenge or encourage critical thinking about the conventional wisdom or a popular ideology of the day. . .  Students who can work and think critically for themselves are best equipped to tackle the most difficult challenges we face and participate fully and effectively in our democracy. 

A fundamental piece of this democracy-enabling purpose is that college and university professors should be free to teach and research – and students should be free to learn – to the best of their abilities in defiance of an undiscerning "instinct to believe what others do."  The United States’ higher education has long been the envy of the world for its ability to do just that. This letter respectfully requests information regarding the university’s commitment to creating such an educational environment in which its faculty can teach topics and take positions on matters that defy conventional wisdom and challenge orthodoxies in necessary but perhaps uncomfortable ways. . . .

With respect to tax-exempt status, Grassley quoted Bob Jones University vs. United States:  "Charitable exemptions are justified on the basis that the exempt entity confers a public benefit -- a benefit which the society or community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues."  He further agreed with a description of tax-exempt purpose as to higher education being "fundamental to fostering the productive and civic capacity of [the Nation's] citizens."

The requested responses from the four institutions are due by October 25, 2019.

[See also Tax Notes dated September 30, 2019, Tax-Exempt Higher Ed Must Allow Academic Freedom]

Nicholas Mirkay

Liberty University: Allegations of Possible Self-Dealing, Lax Board Oversight

A lengthy Politico article details numerous alleged concerns relating to Liberty University and its President, Jerry Falwell Jr. Included in the story are a number of allegations that are likely familiar to readers who have dealt with family-run nonprofits before:

• The hiring of a company started by the son of the President to manage properties owned by the University, including a shopping center.

• The promotion by University employees of a nearby hotel, in which the son of the President may be "a silent shareholder."

• University loans to friends of the Falwell family, at least one of which may not have been repaid.

• Assertions by unnamed University officials that the school's board of trustees rarely question decisions by the President, even relating to significant financial transactions.

In addition, the story reports certain facts indicating that the University may have tried to influence a poll that aided then candidate Trump, raising political campaign intervention concerns. 

It should be noted that President Falwell denies that he or the University has engaged in any wrongdoing, and called on the FBI to investigate a criminal conspiracy at the University after the Politico story was published. In the meantime, the University's accreditor is reportedly asking for more information relating to the allegations in the story.

Lloyd Mayer

CRS Updates Report to Reflect Possible Impact of 2017 Tax Changes on Charitable Contributions

The Congressional Research Service has updated its Tax Issues Relating to Charitable Contributions and Organizations report (R45922). Most notable is this passage from the Summary, reflecting the possible impact of the 2017 tax law changes:

Comparing giving levels in 2017 and 2018 provides some insight into the possible impacts of the 2017 tax revision on charitable giving and the charitable sector. Compared to 2017, 2018 contributions from individuals and bequests declined as a percentage of GDP (by 6% and 5%, respectively), while corporate contributions were virtually unchanged and foundation contributions rose by 2%. In 2017, an estimated 80% of individual contributions benefited from the tax subsidy for itemized deductions. Surveying the literature can also provide some insight regarding the effect of tax subsidies on charitable giving. Based on statistical estimates of the responsiveness of individual giving to tax subsidies, a decrease in individual giving of around 3% to 4% might be expected from the 2017 tax revision. Limitations in the data make the effect on estates difficult to estimate, but it could be a decrease of up to 8%; the small share of bequests in total giving, however, would lead even that effect to reduce overall charitable giving by less than 1%.

Lloyd Mayer

Courts Dismiss Two Lawsuits Brought By SPLC-Designated Hate Groups

While the recent House Ways and Means Oversight Subcommittee hearing focused on whether current tax benefits provided to charities also subsidize hate speech, readers may remember that a different controversy arose a couple of years ago when several groups identified as "hate groups" by the Southern Poverty Law Center (SPLC) filed lawsuits challenging that identification. Federal district courts recently dismissed two of those lawsuits, one against SPLC and the other against Amazon for using the SPLC labels.

In Center for Immigration Studies v. Cohen et al., the nonprofit Center for Immigration Studies (CIS) filed suit against two SPLC leaders, Richard Cohen (now former SPLC President) and Heidi Beirich (currently SPLC Intelligence Project Director), alleging a RICO violation. The U.S. District Court for the District of Columbia dismissed the lawsuit earlier this month, concluding that "plaintiff has
not sufficiently alleged a predicate offense or a pattern of racketeering." More specifically, the court found that while SPLC's designation of CIS as a hate group was "debatable" under the facts alleged in the complaint, it was not fraudulent and so did not constitute wire fraud, the asserted RICO predicate offense. The court also found that the complaint only alleged a single scheme, which was insufficient to constitute a pattern of racketeering.

Coverage: Yahoo! News.

In Coral Ridge Ministries Media, Inc., d/b/a James Kennedy Ministries v. Amazon.com, Inc. et al., the nonprofit (Coral Ridge) sued not only SPLC but also Amazon.com, Inc. and AmazonSmile Foundation because they allegedly excluded Coral Ridge from receiving donations through the AmazonSmile charitable-giving program because of the SPLC's "hate group" designation. The U.S. District Court for the Middle District of Alabama in a lengthy opinion dismissed the lawsuit earlier this month for several reasons. First, the court dismissed the state defamation claim and federal Lanham Act claims against SPLC because it concluded that Coral Ridge was a public figure (which Coral Ridge conceded) and given the debatable meaning of the term hate group Coral Ridge could not prove it was false as assigned to Coral Ridge, much less that the designation actually was false, or that SPLC had made the designation with actual malice, as required under the First Amendment for the claims to be sustained. (The court also rejected the Lanham Act claims on statutory grounds.) Second, the court dismissed the Civil Rights Act Title II claims of religious discrimination against the Amazon defendants. While the court found that whether the Amazon defendants were places of public accommodation within the meaning of Title II to be a difficult issue of first impression, it ultimately did not reach that issue. Instead, it concluded that even if they were places of public accommodation the denial of Coral Ridge's ability to receive donations through the AmazonSmile program was not a denial of "goods, services, facilities, privileges, advantages, [or] accommodations" within the meaning of Title II because the AmazonSmile program is not open to the public because the program is limited to certain section 501(c)(3) organizations. The court also concluded that Coral Ridge failed to plead sufficient facts to support either a claim of intentional discrimination or a claim of disparate impact on religious or Christian groups.

Coverage: AL.com; South Florida Sun Sentinel.

Lloyd Mayer