Wednesday, October 28, 2020

24th Western Conference on Tax Exempt Organizations - coming in December

From December 3rd through the 4th, Loyola Law School will be holding its annual Western Conference on Tax Exempt Organizations. Attendees will be able to learn about a wealth of pressing developments in tax law for tax exempt organizations from top tax experts with nationwide recognition.

For more information, see Loyola's posting of the event.

David Brennen, University of Kentucky College of Law

October 28, 2020 in Conferences, Current Affairs, In the News | Permalink | Comments (0)

Tuesday, October 27, 2020

IRS offers tax relief for the victims of California wildfires

Last week, the IRS continued to expand an important list which has been growing since late August: the tally of counties in California where taxpayers can, in light of the catastrophic wildfires that continue to ravage the state, claim a (temporary) reprieve from filing their taxes. On October 19th the IRS announced that “affected” taxpayers in Fresno, Los Angeles, Madera, Mendocino, Napa, San Bernadino, San Diego, Shasta, Siskiyou, and Sonoma have a delayed deadline of January 15th to file their taxes. This deadline applies to individual taxpayers as well as many businesses (including tax-exempt organizations), all of whom have likely been affected in some way by the natural disasters plaguing the area. Whether these measures, among other forms of disaster relief, will be enough to offset the damages caused by these events is another matter entirely: while the IRS adds in its statement that affected taxpayers, businesses, and nonprofit organizations “should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case,” a few month’s delay in filing taxes may be a small comfort to many taxpayers whose homes and livelihoods have been severely impacted or else completely destroyed. Taxpayers in counties affected by Californian wildfires should note that this particular deadline extension is one of many: the IRS has declared different extensions to reflect the multitude of different fires raging throughout the state.

For the Forbes story on this development, see https://www.forbes.com/sites/robertwood/2020/10/25/irs-tax-extension-to-jan-15-for-california-wildfire-victims/?ss=taxes#5125e70425bc

For the IRS official statement, see https://www.irs.gov/newsroom/irs-announces-tax-relief-for-september-california-wildfire-victims

By Professor David Brennen, University of Kentucky College of Law

October 27, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Monday, October 26, 2020

IRS partners with non-profits to raise fraud awareness

    Last week the Internal Revenue Service joined with a coalition of charities and other not-for-profit organizations in raising awareness against frauds targeting the nonprofit sector in particular. The third International Charity Fraud Awareness Week, which took place between October 19th and the 23rd, provides resources regarding safety precautions, proper business practices, and recognition of potential fraud attempts to non-profit organizations both large and small. Given that many nonprofits are guided by an explicit mission to give aid to those in need, it is by no means novel that criminals seek to exploit that goodwill. However the issue is of particular vitality in a time when natural disasters and the COVID epidemic are causing suffering across the nation: people are more in need of help than ever. In aid of this cause, the IRS published a statement last week on its website directing tax-exempt organizations to several practical tools including tutorials, videos, webinars, COVID-specific resources.

For the IRS’ published statement, see https://www.irs.gov/newsroom/irs-fights-fraud-aimed-at-charities-joins-international-awareness-week

 

By Professor David Brennen, University of Kentucky College of Law

October 26, 2020 in Conferences, Current Affairs, In the News | Permalink | Comments (0)

Wednesday, October 21, 2020

Nonprofit Recovery Slowing Significantly According to New Report

The Center for Civil Society Studies released a new report showing a seriously slowing of recovery of employment in the nonprofit space. I guess the good news is there still seems to be an overall recovery, but worrisome signs that the sector may sink back into employment loss.

From the report: "As part of our continued effort to track the ongoing impact of the coronavirus pandemic on nonprofit employment, we have analyzed data from the latest BLS Employment Situation Report to estimate nonprofit job losses through September 2020.
 
How did nonprofits fare in September?
Unfortunately, the month of September showed only a modest 2% recovery of nonprofit jobs compared to the situation we reported in August.1 The only major field that enjoyed a rebound of more than 10% overall was social assistance at 12.8%. What is more, September brought significant additional losses in the key field of education totaling nearly 50,000 jobs—a drop of 24% from August employment levels, as shown in Figure 1."

Philip Hackney

October 21, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Monday, October 19, 2020

Fairbairn v. Fidelity implications for DAFs

Figured readers would be interested in this look by Brian Mittendorf at the implications for Donor Advised Funds of Fairbairn v. Fidelity that appears in HistPhil.org.

"One way the concern that commercial DAFs are donor-centric arises is in the competition between sponsoring organizations. The lawsuit alleges that Fidelity Charitable differentiated itself from other charitable options by its “superior ability to handle complex assets,” even stating in correspondence about the possibility of receiving a gift of one particular type of asset that “Vanguard can’t do this but we do it frequently.” The general public may think of competition among charities as focusing on who can best put gifts to charitable use. It turns out this is an antiquated notion: the intense competition centering on seamlessly receiving and converting complex assets for donors presents a stark contrast.

A related issue is that DAFs increasingly are vehicles that provide disposal options to donors for illiquid assets. In the Fairbairn case, the assets donated were technically liquid (they were publicly traded) but the size of the donation would threaten share price if it were a sale instead of a donation, an eventuality that formed the basis for the lawsuit. However, donating such assets permits a tax deduction for the value, even though an outright sale at that value would be problematic. "

And, "A final issue that surfaces in the Fairbairn case is that some DAF sponsors may implicitly or even explicitly be beholden to their commercial affiliates. Legally speaking, Fidelity Charitable is a distinct entity from Fidelity Investments; as is the case for Vanguard Charitable and Vanguard; and so on. Yet, the shared names and logos underscore a nontrivial affiliation. Critics have argued that the commercial DAFs invest funds heavily in their affiliated investment companies and, as such, generate substantial fees for them. This, in turn, could create incentives to retain funds in investments rather than distribute them to charitable endeavors. The allegations in the Fairbairn case are consistent with this fear."

Philip Hackney

 

October 19, 2020 in Current Affairs, Federal – Judicial, Federal – Legislative, In the News | Permalink | Comments (0)

Saturday, September 19, 2020

Nonprofits & Politics: Dark Money and Disclosure, FEC Chairman and the Johnson Amendment

DownloadIn the final lap for the 2020 general election, there have been three notable recent developments when it comes to nonprofits in politics and particularly their receipt of "dark money."

First, in CREW v. FEC the U.S. Court of Appeals for the D.C. Circuit affirmed a district court decision that struck down the FEC's narrow interpretation of a statute relating to public disclosure of contributor information when the recipient organization makes independent expenditures, as defined by federal election law. The FEC had taken the position that the statute only required disclosure if a contribution was earmarked to support a particular independent expenditure. The court concluded that this position contradicted the plain terms of the statute, which at a minimum required disclosure if a contribution was made to generally support independent expenditures. However, the court did not resolve whether the statute could be interpreted by the FEC to only require disclosure of contributions with this general intent or instead required disclosure of all contributions (above a modest threshold set by the statute) given to an organization that makes independent  expenditures. For further analysis, see the FEC summary. For coverage, see Politico. This ruling may be especially important as the use of so-called dark money increases on both sides of the aisle.

Second, the states of New Jersey and New York quietly ended their lawsuit against the Department of Treasury seeking documents relating to the Revenue Procedure (2018-38), which initially eliminated reporting of information about significant contributors to the IRS for tax-exempt organizations other than section 501(c)(3) and 527s. That Revenue Procedure was struck down by a federal district court and eventually replaced by regulations. According to Tax Notes, the parties filed a stipulation of voluntary dismissal that provides the states are satisfied Treasury and the IRS have produced the documents requested.

Third and finally, the Washington Post reports the FEC Chairman said during an interview earlier this week that a 2017 executive order freed churches to endorse political candidates. This was in the context of criticizing Catholic church leaders for admonishing priests who appear to do exactly that. He apparently acknowledged that the so-called Johnson Amendment, which prohibits section 501(c)(3) organizations, including churches, from supporting or opposing any candidate for elected office, is still good law, but asserted that it was unlikely to be enforced. Regardless of your views regarding the wisdom or even constitutionality of the Johnson Amendment, it is a bit shocking to hear a public official and lawyer say it is okay to break the law because it probably won't be enforced against you. (Not to mention the executive order he relies upon does not actually prohibit such enforcement.)

Lloyd Mayer

September 19, 2020 in Federal – Judicial, In the News, Studies and Reports | Permalink | Comments (1)

Friday, September 18, 2020

The Missing IRS: States (NRA, Bremer Trustees, Outreach Calling) and DOJ (We Build the Wall, Teva) Step Up

DownloadI do not have data to back this up, but my impression is that in the past it was common to see state authorities and, more rarely, U.S. Attorney offices working closely with the IRS when investigating the activities of a tax-exempt nonprofit organization. However, it appears that recently the IRS is almost always absent from such investigations.

State Investigations: The New York Attorney General's lawsuit against the National Rifle Association and the District of Columbia Attorney General's lawsuit against the NRA Foundation are prominent examples of this apparent trend. While the N.Y. AG cited among the NRA's alleged failures a lack of compliance with IRS requirements, there is no indication that she coordinated her investigation or the filing of the lawsuit with that agency. But these are not the only recent examples.

The Minnesota Attorney General has moved to replace the trustees of the Otto Bremer Trust, a charitable trust and private foundation that owns bank Bremer Financial Corp. The basis for this move is alleged violations of the duty of loyalty by the current trustees. Presumably such violations would also be of interest to the IRS, especially since at least some of them also allegedly constituted violations of the self-dealing prohibition, but there is no indication in the news reports of the AG's actions or the lengthy memorandum filed by the AG in court that the IRS is involved. (And if the IRS had been involved, you would hope they would have corrected the AG's repeated use of "IRS Code" in that memorandum.)

It is perhaps more typical to see the IRS absent when the actions of for-profit telemarketers are at issue, as the Federal Trade Commission tends to take the lead for the federal government in such matters. This is illustrated by the recent case brought by the FTC and several state attorneys general to shut down Outreach Calling, Inc. and several other companies for having "allegedly scammed consumers out of millions of dollars." It should be noted that the Center for Public Integrity highlighted the questionable activities of Outreach Calling and individuals associated with it more than two and a-half years ago. But the involvement of the FTC when matters within its jurisdiction arise only emphasizes the IRS absence in matters squarely implicating federal tax laws as well as state charity laws.

Department of Justice Investigations: The IRS also appears absent from two recent investigations by the Department of Justice. The most prominent one involves criminal charges against former senior advisor to President Trump Steve Bannon and others associated with an Internal Revenue Code section 501(c)(4) nonprofit We Build the Wall, Inc., formed to fund the building of a border wall between the United States and Mexico. The investigation was pursued by the U.S. Attorney's Office for for the Southern District of New York. While the allegations relate to alleged lies made to donors about the use of the funds raised, some of the actual uses of those funds - compensation and payment for personal expenses - may have tax ramifications for both the organization and the individuals involved. Yet there is no indication in the indictment or otherwise that the IRS is involved. This is despite the fact that the U.S. Postal Inspection Service was involved in the arrest of Bannon, presumably because one of the charges is mail fraud.

In a case a bit more removed from federal tax law, the Department of Justice's civil division has filed a False Claims Act complaint against two affiliated pharmaceutical companies, Teva Pharmaceutical USA Inc. and Teva Neuroscience Inc. relating to donations to charitable foundations. The allegations are that Teva used the foundations "as conduits to funnel kickbacks to Medicare patients." The announcement of the filing does not indicate any involvement by the IRS, including with respect to investigating the foundations involved. Coverage: Wall Street Journal. An earlier news story involving allegations of similar arrangements with other companies reported multi-million dollar payments to the federal government by the charities involved to resolve the claims against them, but again did not mention IRS involvement, nor did the DOJ announcement of that settlement.

Lloyd Mayer

September 18, 2020 in Federal – Executive, In the News, State – Executive | Permalink | Comments (0)

Thursday, September 17, 2020

Congress Update: Syndicated Conservation Easements, NRA, and Proposed Expansions of Above-the-Line Donation Deduction

Download (1)While Congress is not surprisingly slow to enact actual legislation during the run up to the 2020 general election, it has taken several other actions of interest to nonprofits:

More Slamming of Syndicated Conservation Easements: As the IRS continues its court battles and settlement program relating to syndicated conservation easements, the Senate Finance Committee released a lengthy bipartisan report criticizing these transactions. The introduction includes this passage:

The syndicated conservation-easement transactions examined in this report appear to be nothing more than retail tax shelters that let taxpayers buy tax deductions at the end of any given year, depending on how much income those taxpayers would like to shelter from the IRS, with no economic risk. Although the various offerings differ in their specifics, the general outcome is the same: for every dollar a taxpayer pays to a promoter to become an "investor" (or a "partner" or a "member") in a syndicated conservation-easement transaction, he or she commonly purchases a little more than four dollars' worth of tax deductions. For most taxpayers involved, this ultimately means that for every dollar paid to tax-shelter promoters, the taxpayers saved two dollars in taxes they did not pay.

Calls for IRS to Investigate the NRA: In the wake of the New York Attorney General seeking dissolution of the National Rifle Association, Democratic members of the House Ways & Means Committee have called for the IRS to also investigate the section 501(c)(4) organization and its related, section 501(c)(3) foundation. Of course it remains to be seen whether the IRS will do so, regardless of who wins the November presidential election. Additional coverage: Mother Jones (including a link to the letter).

Universal Giving Pandemic Response Act: A bipartisan group of nine Senators are sponsoring S.4032, which would expand in two ways the temporary above-the-line deduction for charitable contributions included in the CARES Act and codified in Internal Revenue Code section 62(a)(22). One expansion would be the amount, increasing it to half of the taxpayers standard deduction up from $300; the 2020 standard deduction is $12,400 for single taxpayers and $24,800 for married taxpayers filing jointly. The other would be the time window for contributions, extending it back from January 1, 2020 (for calendar year taxpayers) to January 1, 2019, with amended returns permitted for taxpayers who did not itemize their deductions in 2019. However, passage appears highly unlikely, especially with the apparent failure of new coronavirus relief legislation.

Lloyd Mayer

September 17, 2020 in Federal – Legislative, In the News | Permalink | Comments (0)

Thursday, September 10, 2020

Sale of Doris Day's Home to Bring Millions for Doris Day Animal Foundation

When singer, actress, and animal welfare activist Doris Day (born Doris Mary Anne Kappelhoff) died in May 2019 at the age of 97, she left almost all of her estate to the Doris Day Animal Foundation. Accordingly, the proceeds of the sale of Ms. Day's Monterey, CA, home -- listed recently for $7.4 million -- will go to the Foundation. The house sits on nine acres and includes a kitchen that Ms. Day dedicated to just cooking for her dogs.

Word of Ms. Day's pampering of rescued animals is legendary. As I have already noted, she cooked for dogs in a kitchen specially built for them. In an article published last week, the Wall Street Journal quoted people familiar with the situation saying that at some point, Ms. Day had as many as 50 dogs on the property. 

Ms. Day was well known for her animal rights work and fundraising for that cause. She founded the Doris Day Animal Foundation (DDAF) in 1978 as the Doris Day Pet Foundation with a mission to help animals and the people who love them. As a grant-giving charity, DDAF funds other 501(c)(3) organizations throughout the United States that directly care for and protect animals.

The NonProfit Times reports that Ms. Day formed the Doris Day Animal League (DDAL) in 1987. The League was a national, nonprofit citizens' lobbying organization whose overriding mission was to reduce the pain and suffering of animals through legislative initiatives, education, and programs to develop and enforce statutes and regulations protecting animals. In 1995, Ms. Day and DDAL founded Spay Day USA. It is now known as World Spay Day and is under the auspices of the Humane Society of the United States.

In 2007, DDAL merged with the Humane Society of the United States, and the Doris Day Pet Foundation evolved into the Doris Day Animal Foundation, with which Ms. Day was active until her death last year. The Foundation now stands to receive millions from Ms. Day's estate.

Now that's a heart-warming story -- not only for animal lovers but for all humanity.

Vaughn E. James 

 

September 10, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Boston Celtics and Celtics Shamrock Foundation Commit $25 million for Racial Justice Initiatives

Organizations making pledges and commitments for social causes continue to be in the news. The latest to jump in: the Boston Celtics and Boston Celtics Shamrock Foundation have announced that the two organizations are making a ten-year, $25 million commitment to address racial injustice and inequities in the greater Boston area.

This commitment is itself part of a larger effort announced by the National Basketball Association in August. The Celtics' initiative will be termed The Boston Celtics United for Social Justice. According to today's Philanthropy News Digest, the initiative

includes $20 million in cash and $5 million in media and in-kind assets in support of both the NBA's efforts and local programs, with a focus on six areas identified by the organization in discussions with community leaders and players: equity in education, economic opportunity and empowerment, equity in health care, criminal justice and law enforcement, breaking down barriers and building bridges between communities, and voting and civic engagement.  

The Digest continues:

Planned projects under the initiative include creating an early-education center for low-income families; providing pro bono services to minority-owned businesses; assisting juvenile offenders through workforce development and academic completion opportunities; expanding The Playbook Initiative, the team's bias-prevention curriculum; and promoting voter registration and the importance of voting.

In discussing the initiative, Celtics forward, Jaylen Brown, stated, "Our goal is to have a direct impact now. We don't need to pacify the situation with empty gestures. We need to hold ourselves, the Celtics organization, and the City of Boston accountable. Monetary commitment is a great first step, but we need to commit to this process by creating a balance of short- and long-term change. The time is now."

I fervently agree.

Vaughn E. James 

September 10, 2020 in Current Affairs, In the News, Sports | Permalink | Comments (0)

Wednesday, September 9, 2020

Bank of America Announces $300 Million of $1 Billion Equity Pledge

Today's Philanthropy News Digest is reporting that as part of a four-year, $1 billion pledge announced in June to advance racial equality and economic opportunity, Bank of America has announced commitments totaling $300 million.

The commitments include support for initiatives across ninety-one U.S. and global markets in four areas: $25 million for jobs initiatives in Black and Latinx communities, $25 million in support of community outreach and initiatives, $50 million for direct equity investments to minority depository institutions (MDIs), and $200 million in proprietary equity investments in minority entrepreneurs, businesses, and funds.

According to the Digest,

The $25 million for jobs initiatives will support up-skilling and reskilling programs for African-American and Latinx students through partnerships with eleven community colleges and ten public historically black colleges and universities (HBCUs) and Hispanic-serving institutions (HSIs). Recipients include North Carolina A&T State University, Atlanta Technical College, Dallas College-El Centro Campus, and Arizona State University -- Downtown Phoenix. The $25 million in support of community outreach initiatives includes funding to address needs and provide personal protective equipment in underserved and minority communities disproportionately impacted by the current COVID-19 public health emergency. The $50 million for direct equity investments in MDIs -- which includes awards of capital to First Independence Corporation in Detroit, Liberty Financial Services, Inc. in New Orleans, and SCCB Financial Corp. (parent company of Optus Bank) in Columbia, South Carolina -- will provide support for small business lending, housing creation, neighborhood revitalization, and other banking activities. Details of the $200 million proprietary equity investments will be announced at a later date.  

According to Bank of America CEO Brian Moynihan, "These initial investments will address access to jobs and support for small businesses by creating more pathways to employment in communities of color and more support for minority entrepreneurs."

 

Vaughn E. James 

 

 

 

September 9, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Friday, August 28, 2020

Congress proposes potential expansion to charitable deduction for taxpayers

A bill introduced on the floor of Congress June 22nd is attracting bipartisan approval and could signal a significant change in how taxpayers choose to do their deductions this year. The Universal Pandemic Response Act, proposed by republican senator James Lankford of Oklahoma, would increase the limit for above-the-line charitable deductions to one third of the standard deduction. Breaking the matter down to hard numbers, this piece of legislation would increase the charitable deduction from $300 to $4,133 for individual taxpayers and $8,267 for taxpayers filing jointly. This proposal would be a significant expansion on what has traditionally been a relatively small available deduction for taxpayers: perhaps cognizant of this, the law is set to have a short lifespan and would only extend to the end of this tax year, though it will also allow for amended 2019 tax returns with contributions made before July 15th. Though the bill originated from the right side of the Senate, the bill has gained bipartisan support as democratic senator Chris Coons of Delaware allied with senator Lankford to rally both political parties to pass the bill. With the global financial turmoil which has followed in the wake of the COVID epidemic Americans nonprofits stand to suffer as much as, if not more than, their for-profit counterparts. Perhaps the passage of this proposed legislation will incentivize American taxpayers to lend some more support to nonprofit organizations during this time of crisis.

To view the proposed law, see the following official link from Congress: https://www.congress.gov/bill/116th-congress/senate-bill/4032

By David A. Brennen, Professor of Law at the University of Kentucky  

August 28, 2020 in Federal – Legislative, In the News | Permalink | Comments (1)

Wednesday, August 26, 2020

11th Circuit signals strong support for nonprofit housing developers this summer

The 11th Circuit recently ruled on a case which might prove relevant on a far larger scale. On July 7th this summer, Judge William Thomas held that the Opa-Locka Community Development Corporation’s (Opa-Locka) right of first refusal could be exercised against the attempted sale of Aswan Village, an affordable housing project that Opa-Locka financed as a nonprofit corporation. The controversy of the case revolved primarily around whether an affiliate of HallKeen Management, the owner of Aswan Village, triggered Opa-Locka’s right of first refusal and thus had to allow Opa-Locka to purchase the housing project at well-below fair market value by sending a letter to Opa-Locka indicating their intent to sell Aswan Village to a third party. Under IRC 42(i)(7) of the United States Code, a qualified nonprofit corporation such as Opa-Locka can automatically insert itself into the sale of an affordable housing project ahead of other interested buyers. The 11th Circuit held that, absent more specific language in Opa-Locka’s contract containing its right of first refusal for Aswan Village, HallKeen’s indication of its intent to sell via a letter was sufficient to trigger Opa-Locka’s right of first refusal.

The immediate case is interwoven into a far broader national tapestry: demand for affordable housing options is high, and the availability of that housing could come under threat as for-profit companies seek to capitalize on market values for these areas which have risen steadily higher. Whether the 11th Circuit’s stance strongly favoring nonprofit corporations’ defense of these low or fixed income housing areas will stand remains to be seen, as the firm representing HallKeen filed a motion in Miami-Dade circuit court at the end of July to have the order set aside.

For information on the case and its potential broader implications, see: https://www.prnewswire.com/news-releases/local-court-win-is-a-victory-for-affordable-housing-communities-nationwide-301091845.html

 

By David A. Brennen, Professor of Law at the University of Kentucky 

August 26, 2020 in Federal – Judicial, In the News | Permalink | Comments (0)

Tuesday, August 25, 2020

NRA comes under fire from New York attorney general

On August 6th, New York attorney general Letitia James filed suit to dissolve the National Rifle Association, a powerful nonprofit quartered in New York. A 501(c)(4) tax-exempt organization, the NRA has stood for the protection of American second amendment rights since 1871: today, its leadership stands accused of seriously abusing organizational coffers and fraudulently concealing their actions. Attorney general James alleges in her complaint that the NRA at large instituted a culture of backroom dealing and illegal behavior which has resulted in the complete waste of millions of dollars in assets. As a tax-exempt charitable corporation, the NRA is required to use its resources to serve its members’ interests and advance its mission. James further asserts that the NRA’s internal policing mechanisms and boards routinely failed to put a stop to this illegal behavior, which is part of the reason why the attorney general now calls for complete dissolution of the organization.

            In addition to attacking the organization at large, attorney general James lists in her complaint four individuals in the NRA’s leadership: the organization’s executive vice president, former treasurer/CFO, former chief of staff, and general counsel. James’ complaint includes an impressive amount of evidence indicating that these men channeled colossal sums of NRA resources into lavishing benefits on themselves and those closest to them. If successful, the attorney general’s suit will serve as a powerful reminder that no nonprofit organization, no matter how venerable its history may be, is above the fiduciary duties it owes to its members or its reporting duties to federal and state governments alike.

 

By David A. Brennen, Professor of Law at the University of Kentucky

 

For the attorney general's press release see:

https://ag.ny.gov/press-release/2020/attorney-general-james-files-lawsuit-dissolve-nra

 

August 25, 2020 in Current Affairs, Federal – Judicial, In the News, State – Judicial | Permalink | Comments (0)

Potential reprieve for highly paid for-profit employees volunteering with nonprofits

The IRS hinted in June at further modifying an excise tax on highly-compensated employees of for-profit companies who also volunteer a portion of their time for nonprofit organizations. Section 4960, added to the Code in late 2017, imposed a significant tax on excess compensation to the five highest-paid officers of a nonprofit organization. Interpretation of this statute became the subject of debate in 2019 with the IRS’ release of 2019-04 I.R.B. 403 - a guidance on how to calculate taxes or liability under §4960. In that guidance, the IRS stated that the for-profit business employing an executive officer who also volunteers with or works for a tax-exempt business could be liable for the excise tax if the for-profit and tax-exempt businesses were deemed “related.” Following concerns voiced by commenters, the IRS proposed on June 11th of this year a possible exception to the definition of the five highest-paid employees of a tax-exempt organization.  The §4960 exception applies if someone working with a tax-exempt organization works a number of hours no more than 10% of their total hours worked with related organizations that year and isn’t paid for their work with the tax-exempt organization. It appears that the IRS heeded industry concerns.  Indeed, if for-profit companies don’t fear being held liable for an unexpected excise tax, then those for-profit companies will be more likely to allow their highly compensated employees’ dedicate spare time lending their valuable skills to tax-exempt organizations.

 

For the IRS' published proposal regarding this rule, see: https://www.federalregister.gov/documents/2020/06/11/2020-11859/tax-on-excess-tax-exempt-organization-executive-compensation

 

By David A. Brennen, Professor of Law at the University of Kentucky

August 25, 2020 in Current Affairs, Federal – Judicial, In the News | Permalink | Comments (0)

Tuesday, August 18, 2020

Was eliminating dark money donor disclosure a good thing? Generation Now may suggest not so much

A few weeks ago a federal grand jury indicted the Speaker of the House of Representatives of the State of Ohio, Larry Householder, along with 4 other individuals and a social welfare organization called Generation Now, exempt under section 501(c)(4) of the Internal Revenue Code, for engaging in a bribery scheme to pass legislation regarding nuclear energy that was worth about $1 billion. It involved approximately $60 million in bribes.

I was not blogging at the time, so writing this up after the announcement, but in my opinion this was a major indictment of the decision of the IRS to eliminate donor disclosure for dark money organizations like 501(c)(4) and (6) organizations. Disclosure of these dollars that the indictment alleges to be bribes could have very well alerted the IRS to a potentially problematic scheme. Additionally, there would have been the potential of asserting a false statement on the Form 990 filed by the social welfare organization. 

The evidence is particularly indicative that unscrupulous folk may see dark money organizations as an easy method of laundering money now: "In March 2017, Householder began receiving quarterly $250,000 payments from the related-energy companies into the bank account of Generation Now. The defendants allegedly spent millions of the company’s dollars to support Householder’s political bid to become Speaker, to support House candidates they believed would back Householder, and for their own personal benefit.  When asked how much money was in Generation Now, Clark said, “it’s unlimited.”"

In the Criminal Complaint, U.S. v. Matthew Borges, Case No. 1:20-MJ-00526 (July 16, 2020) on page 15 there is the following evidence: “Clark discussed with Householder, the use of a 501(c)(4), controlled by Householder, to receive payments: “what’s interesting is that there’s a newer solution that didn’t occur in, 13 years ago, is that they can give as much or more to the (c)(4) and nobody would ever know. So you don’t have to be afraid of anyone because there’s a mechanism to change it.”

This one is worth following and contemplating as we conceive of better policy to govern our nonprofit tax exempt sector.

By: Philip Hackney

 

August 18, 2020 in Federal – Executive, Federal – Judicial, In the News | Permalink | Comments (1)

Wednesday, August 5, 2020

Giving USA vs. 2020 Giving

Giving USA released its 2020 report a month and a half ago or so. And the report had some good news for nonprofits: in 2019, giving increased from $431.43 billion in 2018 to $449.64 billion in 2019. In inflation-adjusted dollars, that represents a 2.4% increase.

And by and large, that increase came across the board--giving by individuals, foundations, and corporations rose. (Giving by bequest was essentially flat.) No charitable sector received less, but education, public-society benefit societies, arts, culture, and humanities, and environmental and animal charities received the largest increase in donations.

And what about the pandemic? Giving USA reports that although giving was significantly down in the first quarter of 2020, 80% of donors intend to maintain or increase their giving over the pandemic.

But will that be enough? One survey reports that up to 1/3 of charities anticipate that they may have to close within the next year as a result of the pandemic. And the Johns Hopkins Center for Civil Society Studies estimates that nonprofits shed 1.6 million jobs between March and May.

So what will the nonprofit sector look like when we finally emerge from the pandemic? At best it will look different.

Samuel D. Brunson

August 5, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Sunday, August 2, 2020

IRS Investigation of Universities' Tax-Exempt Status

A little more than three weeks ago, President Donald Trump tweeted that the Treasury Department should investigate the tax-exempt status of universities as a result of their "Radical Left Indoctrination." Then Friday, TIGTA told Rep. Richard Neal that Treasury Secretary Mnuchin intends to follow through on some sort of investigation of the tax-exempt status of universities.

Two weeks ago, Professor Ellen P. Aprill and I wrote an op-ed for The Hill talking about the rules governing exempt educational organizations and Treasury's ability to investigate universities here.

I'm not going to reiterate our entire analysis here, but Treasury and the IRS face three significant problems in investigating universities. The first is that, even if you assume that universities are politically biased--and even if you assume they teach that bias to students--that doesn't mean they can't be exempt. Tax-exempt educational institutions  can endorse particular viewpoints.

Moreover, Treasury and the IRS run into two legal impediments in following through on this investigation. The first is section 7217, which prohibits the President from requesting that the IRS audit a particular taxpayer. The second is the Consolidated Appropriations Act, 2020 which, like the 2018 Act, prohibits the IRS from targeting groups for regulatory scrutiny on the basis of their ideological beliefs.

Samuel D. Brunson

August 2, 2020 in Current Affairs, Federal – Executive, In the News | Permalink | Comments (0)

Wednesday, July 8, 2020

Robin Hood Launches Fund for Nonprofits Led by People of Color

Philanthropy News Digest reports that New York City-based Robin Hood Foundation is launching a new initiative dedicated to supporting nonprofits led by people of color. 

According to the Digest, Robin Hood CEO Wes Moore told CNBC that this new initiative -- termed the Power Fund -- will work to catalyze a shift among business and philanthropic leaders, encouraging them to support smaller nonprofits working to address poverty and racial injustice and not just the mainstream organizations already in their portfolios. The Digest reports that

Data show that only 10 percent of philanthropic dollars currently go to organizations led by people of color. In the wake of the COVID-19 pandemic — which has disproportionately impacted people of color and the poor — and the nationwide protests following the killing of George Floyd, the new fund aims to support more such nonprofits.

According to Moore, Robin Hood already has committed $10 million in seed capital for the fund, which has attracted support from at least two financial institutions, Goldman Sachs and J.P. Morgan. The fund's board members include Blue Ridge Capital founder, John Griffin (chair), former Goldman Sachs Foundation president, Dina Powell McCormick (vice-chair), and Goldman Sachs CEO, David Solomon. 

Goldman Sachs recently created a Fund for Racial Equity with an initial commitment of $10 million to "support the vital work of leading organizations addressing racial injustice, structural inequity, and economic disparity." 

Commenting on this new initiative, Moore stated: "We are going to put a real focus [on identifying] organizations that could be in our portfolio, they just haven't been on our radar screen. How do we expand our horizon? How do we expand our thinking when it comes to what makes an organization ready to be part of our portfolio?"

In a statement shared with CNBC, Powell McCormick said that the new fund will assist leaders who are looking to make an impact in underserved communities. "We are very proud to launch the Power Fund, which will invest in a generation of leaders of color who affect change in underserved communities. The data is clear that organizations led by diverse leaders are underresourced and yet they more deeply and effectively understand the needs of the communities they serve."

I totally agree with Mr. McCormick. What is your opinion?

Vaughn E. James

July 8, 2020 in Current Affairs, In the News | Permalink | Comments (0)

Thursday, June 25, 2020

WaPo Article in the Style Section on DAFs

The Washington Post published an article on donor advised funds yesterday entitled Zombie philanthropy: The rich have stashed billions in donor-advised charities — but it’s not reaching those in need

It's honestly an interesting article though on some matters I had to scratch my head. For instance: "Known in the industry as DAFs (rhymes with calves) — and criticized by some insiders as “zombie philanthropy”.

To my experience, and I consider myself something of an insider to the industry from a regulatory and an observer point of view, I have never heard it pronounced to rhyme with calves -- calf maybe -- but not calves. Additionally, I have never heard it referred to as zombie philanthropy, and I am not sure that this is really apt. 

It raises the fact that fairly large resources that they estimate at $120 billion rest within DAF solution while charities themselves are hemorrhaging money and support, resulting in some significant animosity in the charitable world. 

The author a little strangely, but interestingly, discusses the thoughts of Norman Sugarman, who passed away long ago but was quite the exempt organization's attorney in his time. 

"To Norman Sugarman, a former IRS attorney in Cleveland, this created both concern and opportunity. Sugarman represented community foundations fearful the new law would scare off donors.

“For him, it was important that, no questions asked, these [community foundations] were public charities,” said Lila Corwin Berman, a history professor at Temple University who has written about Sugarman’s role in the popularization of DAFs. “He believed most social problems could be better solved by charity than government, and that individuals should have more control over what their wealth could do for society.”

After successfully convincing the IRS that community foundations deserved public charity status, Sugarman also won an important concession: “philanthropic funds,” an innovative way his clients raised money, would also have all the tax benefits of giving directly to a working charity."

For the particular moment we find ourselves in with a pandemic and a worldwide economic collapse resulting from that Pandemic, I thought the concluding paragraphs were the most interesting:

"When asked about the #HalfMyDaf challenge, Fidelity Charitable President Norley said she and her colleagues had been encouraging their clients to give more since the beginning of the crisis.

“I don’t think you need to set a percentage on this. If somebody wants to donate their entire DAF, that’s great,” she said.

A reporter then presented Norley with a hypothetical: If she learned tomorrow that all of Fidelity’s fund-holders had decided to spend at least half of their DAFs this year, causing her charity’s assets to plummet from more than $21 billion to about $10 billion, would she be happy or dismayed?

“I have no comment on that,” she said."

Philip Hackney

 

June 25, 2020 in Current Affairs, Federal – Legislative, In the News | Permalink | Comments (0)