Nonprofit Law Prof Blog

DAFs Add a New Twist to Politicians & Nonprofits

Politicians have long taken advantage of close ties with nonprofits in a number of ways. For example, just in the past couple of weeks there have been news stories about a 501(c)(4) nonprofit chartering a flight on which the Michigan governor purchased a seat for a trip to see her father (see also this story), and "How a top New York mayoral candidate used a charity to boost his profile". But in a new twist, the L.A Times has now run two stories about how charities associated with California politicians have used donor advised funds to obscure the original sources of donations.

One story was titled "How a $1-million donation on behalf of Newsom was hidden in plain sight". As required by California law, California Governor Gavin Newson repotted the gift as given on his behalf. But he did not apparently have to report who arranged for the gift because it came from a donor advised fund at the Silicon Valley Community Foundation. This allowed the original source of the funds- and who advised that the gift be made - to be hidden even though according to the story "[u]nder California law, when an elected official or someone acting on their behalf asks that a donation of $5,000 or more in cash or services be directed to a nonprofit or government agency, that contribution is considered a behested payment and must be reported to the [California Fair Political Practices Commission]." 

And the L.A. Times also reported this week that "Donors gave millions to Garcetti nonprofit but kept their identities secret, Times analysis finds". The story focuses on a charity founded by Los Angeles Mayor Eric Garcetti that has raised over $60 million, including at least $3.8 million from donor advised funds. The Mayor is subject to the same law mentioned above, but has refused to reveal the original source of the funds or who advised that the various donations be made.

Lloyd Mayer

Will the NRA's "Course Correction" Succeed?

The Bankruptcy Court trial and the resulting decision dismissing the National Rifle Association's bankruptcy case revealed some interesting information about the NRA and its governance and financial situation. First, and as media coverage highlighted, the decision to file the bankruptcy case was made with little involvement of the board or senior officers beyond chief executive officer Wayne LaPierre (formal title: executive vice president) and "not . . . in good faith but instead . . . as an effort to gain an unfair litigation advantage in the NY AG Enforcement Action and as an effort to avoid a regulatory scheme." Second, testimony during the trial revealed a host of facts relating to governance and financial misconduct that even the NRA's counsel acknowledged were cringeworthy. But what may prove to be most important in the long run even though it garnered much less coverage was the court found that what the NRA has labeled a "course correction" has resolved a number of governance and financial concerns, perhaps enough to save the NRA from dissolution in the NY AG proceeding and from the financial hole it has dug for itself.

On the first point, the court stated:

What concerns the Court most though is the surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA. Excluding so many people from the process of deciding to file for bankruptcy, including the vast majority of the board of directors, the chief financial officer, and the general counsel, is nothing less than shocking.

As for the filing motivation, after lengthy consideration of the various reasons asserted and testimony on this point, including particularly from Mr. LaPierre, the court stated:

The Court finds, based on the totality of the circumstances, that the NRA’s bankruptcy petition was not filed in good faith but instead was filed as an effort to gain an unfair litigation advantage in the NYAG Enforcement Action and as an effort to avoid a regulatory scheme. This constitutes cause for dismissal under section 1112(b)(1) of the Bankruptcy Code.

On the second point, others have documented how trial testimony revealed numerous governance and financial failures. For a detailed if not unbiased summary, see this opinion piece from the Washington Post. These failures included details of LaPierre's personal and family expenses paid for by the NRA, and attempts to conceal those payments. 

But there is another point that may ultimately turn out to be the most significant, even though it has garnered the least coverage. In rejecting the appointment of a trustee or examiner, the court said the following (citations omitted):

While there is evidence of the NRA’s past and present misconduct, the NRA has made progress since 2017 with its course correction. Whether it is yet complete or not, there has been more disclosure and self-reporting since 2017. Both Ms. Rowling and Mr. Erstling, the NRA’s Director of Budget and Financial Analysis, testified that the concerns they expressed in the 2017 Whistleblower Memo are no longer concerns. Mr. Frazer testified regarding the compliance training program that the NRA now has for employees. Mr. Spray testified credibly that the change that has occurred within the NRA over the past few years could not have occurred without the active support of Mr. LaPierre. It is also an encouraging fact that Ms. Rowling has risen in the ranks of the NRA to become the acting chief financial officer, both because of her former status as a whistleblower and because of the Court’s impression of her from her testimony as a champion of compliance.

 

In short, the testimony of Ms. Rowling and several others suggests that the NRA now
understands the importance of compliance

Of course even if the NRA manages to eventually put its legal problems behind it, it will still have to deal with a slow burn financial crisis. As Brian Mittendorf detailed in 2019, the NRA has for years spent more than it brought in, creating a potential financial crisis. And that crisis is exacerbated by a point that came out during the trial and that Mittendorf highlighted on Twitter: of the NRA's approximately 5 million members, 2 million or 40% are life members who apparently have already paid all of the dues they will ever owe to the NRA. Whether course correction will be sufficient to right both the legal and financial aspects of the NRA remains to be seen.

Lloyd Mayer

Trump Supporters, Nonprofits, and the Law

In 2016, the rise of Donald J. Trump turned a spotlight on his purported charitable activities and made "self-dealing" and similar legal terms headline news. With his departure from office (and the dissolution of his family foundation in the face of a New York Attorney General lawsuit), it might be expected that such topics would once again return to news obscurity. But legal issues raised by the involvement of some of his supporters with nonprofits continue to garner new headlines.

Just in the past month, three prominent supporters have had that spotlight shine on them and their nonprofit-related activities. As reported by the Washington Post, federal authorities have indicated Brian Kolfage, who worked with Trump-advisor Stephen K. Bannon on the "We Build the Wall" crowdfunding campaign and then 501(c)(4) nonprofit, with filing a false tax return for allegedly failing to report hundreds of thousands of dollars he received from that effort and other sources.  And as reported by the Associated Press, former Trump campaign lawyer Sidney Powell now faces accusations in the lawsuit brought against her by Dominion Voting Systems that she used Defending the Republic, which claims to be a 501(c)(4) nonprofit, to pay for her personal legal expenses, an accusation she denies. And the fallout for Jerry Falwell, Jr. continues as Liberty University has now sued him for breach of contract and breach of fiduciary duties based on his alleged cover up of a personal scandal that led to his resignation as president and chancellor of the university.

Finally, congressional democrats continue to push for more information about possible tax-exempt nonprofit organization involvement in the January 6th attack on the Capital. As reported by Tax Analysts (subscription required), at this past week's ABA Tax Section virtual meeting a senior advisor to the Senate Finance Committee noted that Chair Ron Wyden remains interested in ensuring the IRS looks into which tax-exempt organizations helped plan the riots and whether any of them incited violence, thereby undermining their tax-exempt status.

Lloyd Mayer

A Thoughtful Consideration of Divorce (Yes, That One) and Philanthropy

Beth Breeze (University of Kent) and Genevieve Shaker (IUPUI Lilly Family School of Philanthropy) have a thoughtful post at The Conversation about the divorce of Bill and Melinda Gates and media speculation about its ramifications for philanthropy titled Bill and Melinda Gates: philanthropy caught in the crosshairs of society’s obsession with celebrity. It is worth reading the entire post, but the conclusion is particularly telling:

Clearly, Bill Gates and Melinda French Gates are extremely recognisable “people of interest”, but interest in, and reaction to, the end of their marriage says more about their celebrity status than the future of their philanthropy.

Lloyd Mayer

NRA Bankruptcy Case Dismissal Quick Takes & Media Coverage

Here is a round up of quick takes on the dismissal of the National Rifle Association's bankruptcy case and what it means for the ongoing lawsuit by New York Attorney General Letitia James seeking dissolution of the NRA:

• NY AG Press Release
• Law & Crime
• The Trace
• Vox

And here is a sampling of the extensive media coverage:

• AP
• Bloomberg
• CNN
• MSN
• NPR
• N.Y. Times
• Politico
• Reuters
• Washington Post
• WSJ

Lloyd Mayer

SCOTUS Donor Disclosure Case: California Likely to Lose, But Big Question is How

The Supreme Court held oral argument this morning in Americans for Prosperity Foundation v. Bonta (renamed once again to reflect the newly confirmed California Attorney General). Here is my quick take on the argument.

A majority of the Supreme Court appears poised to strike down the California Attorney General's requirement that charities provide identifying information about major donors to that office on a confidential basis. What remains unclear is how broad that decision will be, including whether it will affect the constitutional standard that governs donor disclosure requirements in other contexts, including elections.

 

During today's oral argument, Justices Alito, Barrett, Gorsuch, Kavanaugh, and Thomas in their questions indicated that the requirement places a substantial burden on the First Amendment rights of donors to the petitioning nonprofits. They also appeared skeptical that California's interest in regulating charities is closely enough served by the requirement to justify this burden. At the same time, Justices Barrett, Kavanaugh, and Thomas (along with Justice Breyer) appeared interested in considering how the donor disclosure requirement imposed on charities by Congress under the federal tax laws might be distinguishable and so possibly less vulnerable to constitutional challenge.

 

The same five Justices also appeared from their questions to not be comfortable with limiting the decision to upholding an as applied challenge to the requirement that would protect the petitioning nonprofits but leave the requirement in place for other nonprofits absent their own as applied claims. In addition, Chief Justice Roberts expressed concerns about how future as applied challenges could be pursued, further indicating that if the Court rules in favor of petitioners it likely will strike down the requirement as unconstitutional on its face. So while Justices Kagan raised the as applied approach in her questions as a possible alternative, it appears unlikely her view on this point will prevail.

 

At the same time, while several of the Justices asked about the appropriate constitutional standard to apply to donor disclosure requirements, including Justice Sotomayor who clearly had concerns about the effect of any change, it was less clear whether a majority of the Justices support revisiting that standard. Indeed, Chief Justice Roberts opened the questioning of counsel for Americans for Prosperity Foundation by challenging petitioners' position that the standard should be tighter than the existing exacting scrutiny standard, which requires a government to demonstrate a substantial relation to a sufficiently important governmental interest. And given the past confidentiality breaches by the California Attorney General, the Attorney General's limited use of donor information to further its charity regulator role, and the fact that 46 states do not require the filing of such information by charities, there appears to be sufficient grounds to strike down California's requirement on its face without tightening the constitutional standard for government compelled disclosure of donor information.

 

For an insightful analysis of the oral argument focused more on the possible election-related ramifications of the decision, see this blog post by Rick Hasen.

 

Lloyd Mayer

Nonprofits React to Conviction of Derek Chauvin

Yesterday's NonProfitTimes reported that the rapid conviction by a criminal court jury in Minneapolis of former police officer Derek Chauvin in the death of George Floyd last year brought swift reactions from leaders across the nonprofit sector. According to the Times, the leaders not only backed the verdict, but many also voiced support for the George Floyd Justice in Policing Act of 2021 pending in Congress which would put federal law behind blocking tactics such as no-knock warrants and chokeholds when detaining a suspect.

Among the nonprofit leaders issuing statements in favor of the verdict were: Jody Levison-Johnson, president and CEO of The Alliance for Strong Families and Communities/Council on Accreditation; Tim Delaney, President & CEO of the National Council of Nonprofits; Daniel J. Cardinali, president and CEO, The Independent Sector; Derrick Johnson, President & CEO, The NAACP; Jason Williamson, deputy director of the ACLU’s Criminal Law Reform Project; and Matthew Melmed, Executive Director, ZERO TO THREE.

Among the many statements issued and comments made, this paragraph from the statement issued by The Alliance for Strong Families is noteworthy:

This verdict reflects the fact that our national reckoning on systemic racism in America is long overdue. Watching the Derek Chauvin trial unfold has been difficult for all Americans, and for people of color who have lost another father, mother, son, or daughter at the hands of law enforcement, this tragedy, played out daily on our television screens, has been especially hard to bear. Systemic racism and implicit bias are infused across too many of the systems that should support people, resulting too often in harm to those they are meant to protect. While we recognize the work that has taken place thus far to expand equity, diversity and inclusion, we must continue to build on it, and acknowledge that the road ahead of us is long, and that true systemic change is needed and required. We hope this verdict puts us on a path toward bringing about that needed change. …”

This hope lives deep within my heart. 

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

Seattle Pacific University Faculty Vote No Confidence in Board Over LGBTQ Exclusion

The faculty of Seattle Pacific University, a Christian school associated with the Free Methodist Church, has taken a vote of no confidence in its board of trustees after members of the board declined to change its policy prohibiting the hiring of LGBTQ people.

The no-confidence vote, approved by 72% of the faculty Monday (April 20), was the latest in a series of escalating clashes between faculty, students and the school’s governing board. Faculty and students also want the school to drop its statement on human sexuality, which declares marriage between a man and a woman as the only permitted expression of human sexuality. A total of 213 out of 236 qualified faculty voted no confidence on an online form.

The board of trustees responded to the no-confidence vote Tuesday with a statement saying it would not change its employment hiring policy, which excludes LGBTQ people from full-time positions.

The statement read in part:

The board recognizes that fellow Christians and other community members disagree in good faith on issues relating to human sexuality, and that these convictions are deeply and sincerely held,” read the statement. “We pray that as we live within the tension of this issue, we can be in dialogue with the SPU community.

The board also indicated it was taking its stand because it wanted to continue to maintain its ties to the Free Methodist Church, a small denomination of about 70,000 in the United States and 1 million around the world. The Free Methodist Church has eight affiliated educational institutions including Azusa Pacific, Spring Arbor and Greenville universities.

Kevin Neuhouser, a professor of sociology at Seattle Pacific who is also the faculty advisor for HAVEN, the student club for LGBTQ students on campus, opined that “Right now the board is the last remaining group that has not yet come to recognize that LGBTQ individuals can be faithful Christians, and as faculty and staff they would play positive roles on our campus, if we can hire them.” According to Neuhousser, the school was engaged in a larger discussion of trying to discern what it means to follow Jesus. But, he asked, “Is it being faithful to include or exclude?”

Nationwide, a group of students and former students of Christian institutions are seeking an answer to that question. Last month, 33 LGBTQ students or former students at federally funded Christian colleges and universities filed a class-action lawsuit against the U.S. Department of Education alleging widespread discrimination at 25 Christian colleges and universities.

We shall follow closely as this case winds its way through the court system. 

 

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

 

 

April 8th: Charitable Crowdfunding: Who Give, to What, and Why? (Lilly Family School of Philanthropy)

I am very much looking forward to participating in a presentation with Amy Sample Ward and Una Osili on new research from the Lilly Family School of Philanthropy about charitable crowdfunding. Free registration is available. Here are the details:

Charitable Crowdfunding: Who Gives, to What, and Why?

Thursday, April 8, 2021
2:00-3:15 p.m. ET
Cost: Free

Featuring:

• Amy Sample Ward, CEO, NTEN
• Lloyd Hitoshi Mayer, J.D., Associate Professor of Law, Notre Dame
• Una Osili, Ph.D., Associate Dean for Research and International Programs, IU Lilly Family School of Philanthropy

During these unprecedented times, crowdfunding has taken on a significant role in philanthropic giving and fundraising. 

New research from the Indiana University Lilly Family School of Philanthropy reveals perceptions of crowdfunding, how awareness of crowdfunding compares with giving via crowdfunding projects, what motivates donors who give this way, what they support, how they differ from other donors, and where crowdfunding fits in the philanthropic landscape.

Join the Lilly Family School of Philanthropy and NTEN for a webinar that blends research and practitioner perspectives on this timely topic. We will present research highlights, discuss trends and implications for crowdfunding for nonprofits, and field questions from participants. This opportunity was made possible with funding from Facebook.

Lloyd Mayer

FATF Announces New Project to Mitigate Unintended Consequences of Its Standards, Especially on Nonprofits

The Financial Action Task Force (FATF) has announced that in February of this year it launched "a new project to study and mitigate the unintended consequences resulting from the incorrect implementation of the FATF Standards." Those standards guide countries in implementing legal rules and processes to combat money laundering, terrorist financing, and other illegal, international financial activity. Nonprofits have long complained that countries have used the standards as cover for improperly cracking down on cross-border philanthropy, particularly philanthropy supporting disfavored nonprofits.

Here is the full announcement:

In February 2021, the Financial Action Task Force (FATF) launched a new project to study and mitigate the unintended consequences resulting from the incorrect implementation of the FATF Standards.

The project will focus on four main areas:

• De-risking, or the loss or limitation of access to financial services. This practice has affected non-profit organisations (NPOs), money value transfer service providers, and correspondent banking relationships, in particular;
• Financial exclusion, a phenomenon whereby individuals are excluded from the formal financial system and denied access to basic financial services;
• Suppression of NPOs or the NPO sector as a whole through non-implementation of the FATF’s risk-based approach;
• Threats to fundamental human rights stemming from the misuse of the FATF Standards or AML/CFT assessment processes to enact, justify, or implement laws, which may violate rights such as due process or the right to a fair trial.

The FATF will conduct the project in two phases:

Phase One: research and engagement. The project team will analyse these unintended consequences resulting from the misuse of the FATF’s Standards on preventing and combating money laundering and the financing of terrorism. This work will draw on the knowledge and experiences of members of the FATF’s Global Network of 205 jurisdictions, its observers, and outside stakeholders.

Phase Two: solutions. The second phase will develop options the FATF could consider to prevent and mitigate these unintended consequences.

The FATF welcomes input to inform this project, including, for example: scholarly research; industry and civil society perspectives; and documented instances of unintended consequences. Information may be sent to pscf@fatf-gafi.org. While contributions are welcome for the duration of the project, they would be most relevant for Phase One if submitted on or before 20 April 2021.

This is not an investigative endeavour, but an opportunity to study trends and propose solutions. Any information provided to the FATF Secretariat will be shared with the project team and the source will be identified. Depending on the volume of input, we may not be able to follow up on each suggestion for engagement, nor are we able to provide feedback about how, or if, information received is used. 

Lloyd Mayer

Articles on Conservation Easements, As DOJ and IRS Enforcement Efforts Continue

A number of commentators have recently posted articles addressing conservation easement deductions. Several of these articles were originally published in 2020 in a Tax Notes publication, but for readers who may not have access to Tax Notes publications they are now available on SSRN and so I am including them in this list:

• Jessica Jay, Down the Rabbit Hole with the IRS' Challenge to Perpetual Conservation Easements, Part Two, in the Environmental Law Reporter.

• Nancy Ortmeyer Kuhn, The Eleventh Circuit Court of Appeals: The Current Focus for Conservation Easements, in Bloomberg Tax.

• Douglas L. Longhofer and Katherine Jordan, Eroding Conservation, Preserving Abuse — A Flawed IRS Strategy, originally published in Tax Notes Federal.

• Nancy A. McLaughlin, Amendment Clauses in Easements: Ensuring Protection in Perpetuity, originally published in Tax Notes.

• Nancy A. McLaughlin and Ann Taylor Schwing, Conservation Easements and Development Rights: Law and Policy, originally published in Tax Notes.

In addition, the only exempt organizations issue that appears to have been raised by the National Taxpayer Advocate in her latest report to Congress focused on conservation easements. The report identified syndicated conservation easements as being at the center of the "most significant cases" involving a charitable contribution deduction issue, which was in turn identified as the ninth most litigated issue. The report notes that perpetuity, as opposed to valuation, has become the focus of recent conservation easement cases. See pages 216-219 of the report for more details.

Finally, Tax Notes reports that the DOJ has reached a settlement with a consultant who was one of the targets of the DOJ's investigation of syndicated conservation easements. Without admitting any wrongdoing, the consultant agreed to be permanently enjoined from promoting or arranging a qualified conservation easement contribution in the future (and to pay an amount that was not specific in the court filing).

UPDATE: Tax Notes reports that taxpayers involved in syndicated conservation easement deals have now filed a class action lawsuit against promoters of those deals.

Lloyd Mayer

DAF Debate Heats Up, New Data Emerges

Recent weeks have seen a flurry of pieces relating to changing the legal rules for donor advised funds or DAFs. Notable contributions include:

• Craig Kennedy and William Schambra published Conservatives Should Applaud — Not Fight — Efforts to Change Philanthropic Giving Rules in The Chronicle of Philanthropy, criticizing opposition to the Initiative to Accelerate Charitable Giving's proposed reforms.

• Dan Petegorsky published DAF Numbers Obscure Who’s Giving and How Much in InsidePhilanthropy, also criticizing opposition to the proposed reforms.

• Edward Zelinsky (Cardozo) published A Response to the Initiative to Accelerate Charitable Giving in Tax Notes, "agreeing with much (but not all) of its perspective and arguing that the rules applied to private foundations should also govern donor-advised funds."

At the same time, data about DAF contributions and donations continues to emerge (some from sources with a stake in the reform debate), including:

• AEI and The Philanthropy Roundtable released a new paper titled Appreciation in Donor-Advised Funds: An Analysis of Major Sponsors, describing how DAFs "have become the fastest-growing vehicle for charitable giving in recent years."

• The Community Foundation Public Awareness Initiative reported that For Every Dollar Contributed to Community Foundation DAFs in 2019, Donors Granted $1.08 in 2020, with the $6.7 billion donated by community foundation DAFs to nonprofits in 2020 representing an increase of 41 percent over 2019 donations.

• The National Philanthropic Trust published its 14th annual Donor-Advised Fund Report, reporting continued rapid growth of contributions to DAFs and donations from DAFs to charities through 2019.

• The Nonprofit Quarterly published COVID-19 and Donor-Advised Funds in 2020: What Do the Numbers Tell Us?, reporting data regarding disbursements by DAFs in 2019 and 2020.

• The Nonprofit Times reported that the largest DAF sponsor organizations reported significant increases in distributions from DAFs to charities in 2020, including a 24% increase at Fidelity Charitable, a 171% increase at the National Philanthropic Trust, and a 35% increase at Schwab Charitable.

Despite this debate and new information, it is unclear at this point whether there is any interest in Congress for changing the rules for DAFs. And the IRS is still considering comments it received in response to Notice 2017-73 relating to various issues involving DAFs.

Lloyd Mayer

Solicitation Update: States & FTC Crack Down on Fraud; Crowdfunding Grows; Donors Test Their Influence

There has been a steady drumbeat of news stories reporting that state authorities and, on occasion, the FTC continue to scrutinize and prosecute individuals who allegedly engage in fraudulent charitable solicitation. Some of the cases involve tried-and-true techniques, such as purporting to raise funds to help veterans, while others reflect more recent events, such as attempting to capitalize on support for the Black Lives Matters movement. Here are recent examples from just last month:

• The FTC, 38 States, and the District of Columbia shut down a fraudulent charity telefunding operation that raised more than $110 million, almost all of which went to pay fundraising costs and very little of which went to actual charitable services.

• The Florida AG shut down a "sham" wounded veterans charity named Healing Heroes Network that used very little of the contributions it received to actually help veterans.

• The Minnesota AG is suing a company that allegedly posed as a charity for service members, using the name Contributing 2 Combatants and Coast 2 Coast Marketing, but instead allegedly used the donations to enrich the company's owner.

• In Ohio, the U.S. Attorney's Office reported an indictment against a man for allegedly using a fake nonprofit Facebook page with the Black Lives Matter name to rob donors of more than $450,000.

• In Oregon the Douglas County Sheriff's Office arrested a man accused of using fake nonprofits to obtain donations, including the Impossible Roads Foundation that purpotedly built tiny homes for disabled veterans.

• In Utah, the Davis County attorney general is investigating whether Operation Underground Railroad made misleading statements in its fundraising appeals, even as Vice reports broader concerns about the anti-child sex trafficking charity's operations.

It is not surprising that there is fraud in this area, as it has been increasingly easy to raise funds quickly for a variety of legitimate causes. Again just in the past month. Facebook and Instagram announced that users had donated more than $5 billion over five years to nonprofits through campaigns on those platform, and the AP reports that millions of dollars have poured in through crowdfunding campaigns to aid the families of the Atlanta shooting victims. Crowdfunding can also be used for more controversial causes, as illustrated by The Guardian's report that far-right extremists have raised millions of dollars via social media, among other channels.

Finally, some prominent donors are trying to use their influence to affect the charities they support. The Washington Post reports that James Huntsman has filed a federal lawsuit against the LDS Church, alleging it misused millions of dollars of his family's donations by using them for commercial purposes. And some wealthy supporters of the University of Texas have waded into the controversy over the school's fight song (Eyes of Texas), vowing to pull their donations unless the school retains it.

UPDATE: In another case of a disgruntled donor, a Sinclair anchor is demanding $20 million from the WE charity that has been at the center of a charity scandal in Canada. The amount is in addition to a demand for return of donations the anchor made, and is for "destruction of [the donor's] character and marketability as a journalist, public speaker, filmmaker, and author."

Lloyd Mayer

Nonprofit Profs File Amicus Brief in Supreme Court Donor Disclosure Case

A dozen well-known and experienced nonprofit law professors yesterday filed an amicus brief supporting the California Attorney General in Americans for Prosperity Foundation v. Rodriquez (previously named Americans for Prosperity Foundation v. Becerra). As detailed in a previous post by Joseph Mead in this space, this pending Supreme Court case raises significant issues relating to the ability of governments to require charities to provide information identifying their major donors. Here is the first paragraph from the Summary of Argument:

California has a compelling interest in sustaining its charitable sector, the nation’s largest. Petitioners challenge the State’s requirement that tax-exempt charities provide to the California Attorney General, on a confidential basis, a copy of the IRS Form 990 Schedule B form that charities file annually with the Internal Revenue Service. Their challenge, if upheld, would undercut crucial and irreplaceable elements of California’s efforts to regulate its charitable sector and ensure public confidence in charities operating in the
State. More than that, Petitioners’ same arguments could apply equally to central aspects of the federal regulation of charities and other major components of state supervision. Thus, whatever the applicable level of constitutional scrutiny, California’s collection of information about major charitable donors should survive review.

More details and documents relating to the case can be found on the Supreme Court's docket and on SCOTUSblog.

Lloyd Mayer

Strong Fundraising Years Ahead Despite Pandemic

As reported in The Chronicle of Philanthropy, the Lilly Family School of Philanthropy recent report predicts a period of “broad philanthropic growth” is forthcoming the next two years as the economy and nonprofits recover from the Covid pandemic.  The Chronicle article provided additional detail:

The [Lilly] report forecasts a 4.1 percent increase in total giving in 2021 and a 5.7 percent increase in 2022. For individual and household giving, the report forecasts a year-over-year rise of 6 percent in 2021 and 3.9 percent in 2022. Meanwhile, giving by all types of foundations is predicted to dip by 1 percent in 2021 but then jump by 8.8 percent in 2022. The report also projects giving from estates will grow 1.1 percent in 2021 and 12 percent in 2022, while giving by corporations is predicted to rise 4.3 percent in 2021 and 6.4 percent in 2022.

Citing the Fundraising Effectiveness Project, The Chronicle article also reported that individual giving increased in 2020 over the prior year, with the greatest increase in the form of gifts under $250. Changes to the rules for charitable deductions (as described in this prior blog post), passed as temporary measures in the CARES Act, allowing more taxpayers to deduct charitable contributions. The Project also reported that the number of donors also grew by about 7% from 2019 to 2020.

Nicholas Mirkay, Professor of Law University of Hawaii

Treasury and IRS Extend 2020 Tax Filing and Payment Deadline to May 17, 2021

You might have already heard about this, but in case you have not, here is some very important news:

The Treasury Department and Internal Revenue Service announced late today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS stated that it will be providing formal guidance in the coming days.

"This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities," said IRS Commissioner Chuck Rettig. "Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to."

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income is not subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.

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

Mayo Clinic Receives $60 Million Gift for Patient Tower

Today's Philanthropy News Digest is reporting that the Mayo Clinic in Rochester, Minnesota, has announced a $60 million gift from philanthropist Helene Houle in support of efforts to transform the delivery of health care in Minnesota.

In honor of the gift, the recently completed 430,000-square-foot tower at Mayo Clinic Hospital -- Rochester, Saint Mary's Campus, will be named after Houle's husband, John Nasseff, who died in 2018 on his ninety-fourth birthday.

According to the Digest

The family are longtime supporters of the medical center. Nasseff's youngest son, Arthur, had lifesaving surgery at Saint Mary's Hospital as a teenager in the 1960s, and over the years Nasseff and Houle made several gifts to Mayo in honor of his surgeon, Burton Onofrio, as well as other physicians who have cared for the family.

Reacting to the gift, Mayo President and CEO, Gianrico Farrugia, said, "John Nasseff and Helene Houle have had a significant impact on Mayo Clinic over the decades of their support. We are incredibly grateful to Ms. Houle for this generous gift, and we cannot think of a more fitting way to honor Mr. Nasseff."

Helene Houle added: "When I go to Mayo, I know I'm going to receive the best care possible. There's a special human touch that gives you confidence in knowing you are getting the answers you can trust.”

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

Educational Philanthropy Gets Ethical Update

Today's NonProfitTimes is reporting that the standards, guidelines and definitions for reporting the results of educational philanthropy have been updated with new guidance on gift counting, a new definition of educational philanthropy and for the first time, a statement on ethics.

According to the Times, the Council for Advancement and Support of Education (CASE) recently released the CASE Global Reporting Standards. For the first time since its initial publication in 1982, the standards offer a digital subscription and six-country supplement.

Previously referred to as the CASE Reporting Standards and Management Guidelines, the CASE Global Reporting Standards is a common set of standards, guidelines and definitions for reporting the results of educational philanthropy activities at schools, colleges and universities across the globe.

The guidelines underpin CASE’s ongoing work to guide the profession, ensure integrity and consistency in educational advancement work, and to support CASE’s own work in data collection and reporting with its AMAtlas suite of tools such as the recently released Voluntary Support of Education (VSE) survey results.

The Times notes three key changes within the standards this year:

• Updated guidance around gift counting, funds received, new funds committed, and donor control and influence.
• For the first time, the CASE Global Reporting Standards added the CASE Statement on Ethics to the front of the book and adds the CASE Principles of Practice for the advancement disciplines, all recently updated by the CASE Commissions for Philanthropy, Communications and Marketing, and Alumni Relations and approved by the CASE Board of Trustees. The CASE Principles of Practice provide global guidelines for those professions and represent the community-derived foundations on which the advancement profession stands.
• A new definition for educational philanthropy: Voluntary act of providing private financial support to nonprofit educational institutions. To be categorized as philanthropy in keeping with CASE standards, such financial support must be provided for the sole purpose of benefiting the institution’s mission and its social impact, without the expressed or implied expectation that the donor will receive anything more than recognition and stewardship as the result of such support. 

Announcing the new guidelines via a press release, CASE President & CEO Sue Cunningham stated, “The CASE Global Reporting Standards have at their core the CASE Ethics Statement and Principles of Practice for the profession. As institutional funding has evolved and created increasing expectations for philanthropic support, the need for clear guidance is paramount.”

The standards were reviewed and updated under the leadership of the CASE Reporting Standards and Management Guidelines Working Group. The group is comprised of 19 CASE volunteers and staff, co-chaired by Matthew Eynon, Vice President for College Advancement at Franklin & Marshall College in Lancaster, Pennsylvania, and Brian Hastings, President and CEO of the University of Nebraska Foundation in Lincoln, Nebraska. Six groups of regional volunteers also provided guidance on the new regional supplements for Australia/New Zealand, Canada, Mexico, Singapore, the United Kingdom, and the United States, including text in Spanish and French.

Commenting on the project, Enyon had this to say: “In developing the first global reporting standards for the advancement profession, CASE has decided to make a statement about the power, impact and importance of philanthropy around the world. The working group members represented many of the leading advancement programs in the world, and their efforts helped to ensure we defined standards which represent excellence in our profession.” 

Hastings added: “The standards are an essential element of upholding the integrity of our profession on a global scale. By reporting and benchmarking annual and campaign results consistent with the standards, all CASE member institutions can compare results with a greater level of confidence and understanding.”

Print copies and digital subscriptions of the Global Reporting Standards are available with a CASE membership discount from the CASE bookstore.

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

 

 

Fairbairn v. Fidelity Charitable: Duty Remains Unclear, Written Policies Key

A federal district court has ruled in favor of Fidelity's donor advised fund sponsor organization ("Fidelity Charitable")  in a lawsuit brought by donors upset with how the organization handled a large stock donation. A few thoughts on the February 26th decision in Emily Fairbairn et al. v. Fidelity Investments Charitable Gift Fund:

• The case shows how important the DAFs associated with commercial investment firms have become. It is disputes involving donors for these DAFs that are likely to be the primary source of litigation in this area going forward, as the attention this case garnered illustrates. The court even stated that DAFs are housed at "a 501(c)(3) nonprofit organization that has usually been created by a for-profit financial institution" (top of page 3). I am not sure the "usually" is correct, but that is clearly the court's perception, and likely the current perception of much of the public.

• The case shows the importance of clear and well communicated written policies for DAF sponsors. The Fairbairns lost in part because some of their allegations contradicted Fidelity Charitable's written policies regarding how non-monetary donations would be handled that had been repeatedly shared with them. For example, the court found that the Fairbairns failed to prove by a preponderance of the evidence that Fidelity Charitable had promised to not sell any shares until January 2018, in large part because even if an oral promise along those lines had been made it was unreasonably to rely on it given the written materials provided (top of page 8). The court also found that even if Fidelity Charitable had a duty to the Fairbairns, Fidelity Charitable did not violate that duty in part because because the immediate sale of donated shares was consistent with Fidelity Charitable's published policies (bottom of page 15).

• The case leaves for another day whether DAF sponsors owe a duty of care to DAF donors. The court concluded that if a duty was owed under California law it is not the same as the duty owed by an investment advisor to an investor who owns the relevant securities (page 18). But more importantly, the court decided to "not finally resolve whether Fidelity Charitable owed the Fairbairns a duty of care under California law" as doing so was not necessary for it to rule in favor of Fidelity Charitable. So it will be left to future courts, including in California, to resolve that important issue.

Media Coverage: Bloomberg (subscription req3uired); Law360 (sign up required); Wall Street Journal (subscription required).

Lloyd Mayer

Congress Members Reintroduce Spotlight Act Dealing with Dark Money Disclosure

U.S. Senators and Representatives reintroduced the Spotlight Act again to repeal the regulations issued by Treasury and the IRS in 2020 that eliminated the requirement for many tax exempt organizations to have to disclose substantial donor names and addresses.

"U.S. Senators Jon Tester (D-Mont.) and Ron Wyden (D-Ore.) along with U.S. Rep. David Price (D-N.C.) today are reintroducing their Spotlight Act to shine a light on dark money political donors and hold the government accountable to enforce our nation's campaign finance laws. This legislation is also supported by Senators Bennet, Carper, Whitehouse, Blumenthal, Murray, Van Hollen, Merkley, Klobuchar, Hirono, King, Brown, Cortez Masto, Booker, Menendez, Casey, Warren and Baldwin.

The Spotlight Act would require certain political non-profit organizations to disclose their donors to the Internal Revenue Service (IRS), reversing a Trump-era rule that eliminated the requirement and allowed such organizations to keep their donors secret."

You can find the Act here.

Philip Hackney