Thursday, September 26, 2019

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

DownloadThe 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

September 26, 2019 in Federal – Legislative, In the News | Permalink | Comments (0)

Courts Dismiss Two Lawsuits Brought By SPLC-Designated Hate Groups

DownloadWhile 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., Inc. et al., the nonprofit (Coral Ridge) sued not only SPLC but also, 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:; South Florida Sun Sentinel.

Lloyd Mayer

September 26, 2019 in Federal – Judicial, In the News, Religion | Permalink | Comments (0)

Wednesday, September 25, 2019

How Not to Invest in For-Profit Businesses: Praying Pelican Ministries

EllisonPublic details are a bit scarce, but according to press reports a three-year investigation by Minnesota Attorney General Keith Ellison has raised questions about a nonprofit's investment of nearly a $1 million in for-profit companies owned by the nonprofit's CEO. Praying Pelican Ministries started a for-profit coffee shop in 2013 in order to raise money, with the CEO as the sole shareholder of the business (even though the board had approved the investment subject to the nonprofit being a 49% owner). After investing nearly $800,000 in the business, the coffee shop was sold for $16,000, with the sales proceeds used to pay off the shop's creditors. During approximately the same time period, the nonprofit referred participants in its mission trip to a  travel agency owned by - you guessed it - the CEO. The nonprofit also paid nearly $140,000 to the agency in purported reimbursements, but a later audit revealed that in fact the agency was obligated to repay this amount to the nonprofit.

In the wake of the investigation and the AG's allegations that they had violated their fiduciary duties in numerous ways, the CEO and four board members resigned earlier this year. Earlier this month the AG filed in court a stipulation and proposed order (agreed to by the nonprofit and its new leadership), which if accepted by the court would require the nonprofit to revise its policies and leadership. The "Petition for Order Approving Assurance of Discontinuance" is available here. At least at this point, no criminal charges have been filed.

Coverage: Duluth News Tribune; Star Tribune. Hat Tip: Nonprofit Quarterly

Lloyd Mayer

September 25, 2019 in In the News, State – Executive, State – Judicial | Permalink | Comments (0)

Tuesday, September 24, 2019

A Primer on Japanese Nonprofit Law

In the recent article, Recent Changes in Laws Regarding Nonprofit Corporations and Charitable Trusts in Japan, Nobuko Matsumoto provides an interesting overview of nonprofit law and taxation in Japan.  Here is the abstract:

Varies types of nonprofit organizations are active in Japan. A common feature of these is that they can earn profits but cannot distribute them to their members. Two systems of nonprofit corporations are known: general corporations and public interest corporations on the one hand, and NPO corporations and approved NPO corporations on the other. The Article examines the legal structure of these four entities. For this, it summarizes the status quo and discusses the latest trends.

In 2008, the Japanese nonprofit corporation law, that was originally enacted almost 100 years ago, was fundamentally reformed. The main purpose of this change was to make it easier to incorporate nonprofit corporations. In the reform, two new types of nonprofit corporations were introduced, namely, general corporations and public interest corporations. There are two types of these corporations: association-type corporations and foundation-type corporations. Association-type corporations have members, while foundation-type corporations do not. All that is required today to set up a general corporation is to enter it at a registry. Thus it has become much easier after the reform to incorporate such organizations. To turn a general corporation into a public interest corporation it has to obtain an additional authorization. The principal objective of a public interest corporation must be to operate a business which promotes the public interest.

Another category of Japanese nonprofit corporations is the NPO corporation, including the approved NPO corporation. The latter has an additional approval from the authorities. It is for historical reasons that Japan has these two different systems of nonprofit corporations. NPO corporations are among the most common nonprofit corporate structures in Japan.

The Japanese government is currently at work reforming the law governing charitable trusts, which has not been revised since 1922, when it was enacted. In 2016, within the Japanese Legislative Council, a section responsible of trust law, was set up and began discussing the reform of charitable trust law. In January 2018, a tentative report was published and the Ministry of Justice started collecting public comment. Charitable trusts in Japan have not necessarily been used actively as vehicles of charitable activities due to certain problems that have been experienced in practice in the past. The reform responds to these problems and is intended to make charitable trusts more flexible and easy to use.

Darryll K. Jones

September 24, 2019 | Permalink | Comments (0)

Monday, September 23, 2019

How The Tax Code Subsidizes Hate

Last Thursday, the Oversight Subcommittee of Ways and Means held a hearing entitled "How the Tax Code Subsidizes Hate."  The hearing lasted about two and a half hours and can be viewed in full by clicking on the YouTube video above.  The majority of the witnesses were relatives of victims of hate crime, such as the Pulse Nightclub shooting in Orlando in 2016.  The two legal experts were Marcus Owens, a well known expert on tax exemption doctrine, and Eugene Volokh, who might be best described in this context as a First Amendment purist.  Those two legal experts pretty much provided expected, if unimpressive, testimony.  Unimpressive only because they both agree that "hate speech" is something we hate, but also something that must be tolerated, and indeed subsidized through tax exemption, because that is the only way to preserve all forms of beneficial speech and debate.  Owens talked about the "methodology test" (Revenue Ruling 86-43) for determining whether a group is "educational," seemingly in support of applying that test in a manner which would deny tax exempt status to hate groups, though he didn't allow himself to explicitly state that much.  His principal contribution is that the IRS should more forcefully apply the methodology test, noting that the methodology test has been rarely utilized when perhaps it would be useful.

Having a standard, however, accomplishes little unless accompanied by an effort at enforcement.  While a few examples exist of Revenue Procedure 86-43 being used in the processing of applications for tax-exempt status, there is virtually no information regarding the extent to which the Revenue Procedure is utilized in IRS examinations of organizations after tax-exempt status has been recognized. Indeed, the data reported in the IRS Data Book for fiscal year 2018 reflects that the IRS received 1,603,499 returns from tax-exempt organizations that year.  The same Data Book, however, reports that only 2,816 returns of the same types included in the number filed were examined. While there are certainly concerns with the comparability of the two sets of numbers, 2,816 returns examined reflects a very small percentage of the universe of organizations filing returns, particularly when some unidentified number are Form 990-N filings made by very small organizations. The small number of actual examinations of tax-exempt organizations undoubtedly reflects resource allocation decisions within the IRS that ensure that the core mission of the IRS, tax collection to fund the government, continues, with those functions not generating significant tax revenue, as is the case with tax-exempt organizations, receiving reduced resources. The reduced resources have resulted in the consolidation of operational units and various technical functions, with a risk of dilution of institutional knowledge and a reduced flow of information about the tax-exempt sector to senior managers and policy makers in Washington, DC.

Professor Volokh's testimony followed the doctrine we are all primarily taught in law school.  That is, that the majority can never be trusted to be a referee of speech, not even speech universally considered beyond the boundaries of civilized debate, because a wrongly indoctrinated or intoxicated majority will inevitably narrow those boundaries until only the speech of an empowered minority will be considered within acceptable boundaries.  

But giving the government the power to discriminate against some such viewpoints necessarily means the government will also have the power to discriminate against others.  Would we feel comfortable giving this power to the Trump Administration? If we would, would we feel comfortable giving it to a possible Sanders Administration? I doubt there are many people who would trust both those Administrations; and this distrust of government power is one reason the First Amendment exists.  Many campaigns for democracy, liberty, and equality have been greatly helped by the First Amendment, and by courts’ willingness to enforce the First Amendment. But the Court has recognized that this protection against governmental suppression of speech must apply to foes of these principles as well as friends. As Justice Brennan wrote in NAACP v. Button (1963)—an important win for the NAACP—the NAACP’s civil rights mission was “constitutionally irrelevant” to the Court’s First Amendment analysis. “The course of our decisions in the First Amendment area makes plain that its protections would apply as fully to those who would arouse our society against the objectives of the [NAACP].  For the Constitution protects expression and association without regard to the race, creed, or political or religious affiliation of the members of the group which invokes its shield, or to the truth, popularity, or social utility of the ideas and beliefs which are offered.”

Pollyannish though it may be, I have a little more faith in a world matured by having lived through slavery, the holocaust, Wounded Knee, Vietnam, Rowanda, the Bosnian War, xenophobia, and even the nativism that some feel is fueling "reactionary" election results around the world.  We even know that online bullying, which can only be viewed as speech, is actionable and we've taken legal steps against it.  But the wholesale spread of hate so close to violence, well . . . we fall back on old dusty doctrine because we don't want to do the hard work necessary to preserve free speech and human life simultaneously.  I no longer believe that we have to tolerate racial supremacists because if we don't, we will inevitably allow condemnation of those who talk about loving neighbors no matter their race, gender, or sexual orientation.  I am not a First Amendment Scholar, but it seems fairly apparent that traditional First Amendment doctrine -- protect even the most despicable speech inevitably to lead to violence so that we never squash universal ideas underlying our spirituality and humanity -- is outdated and hardly applied in recognition of the speed and frequency with which hate speech can be repeated and used as tools of indoctrination.  Yes, it is and will continue to be difficult to distinguish between "civilized," speech that advances the plight of humankind (even if debatable on the fringes -- like global warming), and speech of those in or out of power labeled, in an exercise in of understatement,  "contemptuous" even by Professor Volokh in his testimony.  But I am in favor of a sentiment expressed by one of the Republican members of the subcommittee.  That the law should preclude tax exempt status for those who advocate violence (explicitly or by implication sufficient that even Stevie Wonder could see it) -- how possibly could that be considered "charitable?" --  even if it takes a constitutional amendment to implement such a rule; Volokh would extend deny only groups that actually engage in violence and that position is consistent with traditional First Amendment doctrine.   But it is as outdated as the notion that a stalking victim must await actual violence before expecting protection from the law.  Anyway, this is a blog post not a law review article.  Simply put, it is not an inevitable requirement that we subsidize hate speech in order to protect real charity.

Darryll K. Jones

September 23, 2019 | Permalink | Comments (1)

Thursday, September 19, 2019

Tax History: Charity Deductions Are for the Rich — and That Was Always the Plan

The September 16th edition of Tax Notes included an interesting article entitled Tax History: Charity Deductions Are for the Rich -- and That Was Always the Plan.  The article reviews an article published by economist Nicolas Duquette in the Business History Review on the history of the charitable contribution deduction (see here).  The following are introductory paragraphs of the Tax Notes piece:

In 1917 Congress created an income tax deduction for charitable gifts. The provision was itself a gift — to the nation’s wealthiest philanthropists. And in the century since, it has remained a rich person’s benefit, subsidizing charitable giving by a relatively small slice of the taxpaying public.

That’s the takeaway of a new article on the history of the charitable deduction, published last month by the Business History Review. In “Founders’ Fortunes and Philanthropy: A History of the U.S. Charitable-Contribution Deduction,” economist Nicolas J. Duquette traces the deduction’s creation and evolution, emphasizing its focus on the nation’s economic elite. “The philanthropy of the very rich has always been the object of the tax deduction, and the modern conception of it as an incentive for giving more broadly is a new element of our discourse,” Duquette writes.

What’s less new, however, are other conceptions that helped spur the creation of the deduction and shaped its development over the past century. In particular, the deduction has drawn strength from a durable anti-government strain in American political culture that often prefers private to public forms of social welfare.

“We trust one another, and not just the government, to make important decisions and to take action,” observed Yale economist Robert J. Shiller in a 2012 New York Times article. “We don’t rely on government to set all of our goals — even our social goals, our wishes for the nation’s future. The essential question we all must answer is how we can achieve the good society.” . . .

[See also TaxProf Blog]

Nicholas Mirkay 

September 19, 2019 in Federal – Legislative, Publications – Articles | Permalink | Comments (0)

Madoff & Colinvaux: Charitable Tax Reform for the 21st Century

Ray Madoff (Boston College) and Roger Colinvaux (Catholic University) published Charitable Tax Reform for the 21st Century in the September 16th issue of Tax Notes.  The following are the introductory paragraphs of the article:

Charitable organizations play a fundamental role in American society, fulfilling functions that would otherwise fall to government, providing creative solutions to society’s most pressing problems, and serving our highest ideals. The federal government has long provided generous tax incentives for charitable donations, with current benefits reaching up to 74 percent of the amount of the gift. Unfortunately, however, the design of the tax incentives is now woefully out of step with their purpose and the realities of charitable fundraising today, resulting in a system that is incoherent, Colinvaux_Roger_20190829_webs-2019-33233 Colinvaux_Roger_20190829_webs-2019-33233 ineffective, and on the verge of failure.

Taking a broad view, we believe that there are two overarching policy goals of the charitable tax incentives. The first is to promote actual charitable work and the second is to foster a strong culture of charitable giving with broad participation.

The fundamental purpose of providing charitable tax benefits is to support charitable work. If the good work of charities never gets done, tax benefits are wasted, costing the government significant revenue but providing no benefit to the public. In order to encourage actual charitable work, Congress based the giving incentive on donors giving up dominion and control of their donations. Only when donors give up control are funds fully available for charities to deploy in support of their mission. . . .

To summarize our concerns, the system of charitable tax benefits is failing on three main fronts: (1) current rules provide no giving incentive for 90 percent of American taxpayers, leaving charities reliant on a shrinking and narrow base of support; (2) current rules no longer provide any assurance that tax-benefited donations will ever be made available for charitable use; and (3) long-standing rules designed to promote the public good (for example, on payout, disclosure, and lobbying) are easy to avoid through the use of DAFs.

Both of us have written numerous articles and opinion pieces on ways to improve the tax rules to make them fairer and work better for the people who rely on charitable efforts, and there are many ways to approach these complex issues. In this article, we outline five proposals that we believe provide the best ways to fix the problems facing the charitable sector:

1.  replace the current charitable deduction with a credit for charitable giving available for all taxpayers who give more than a designated floor;

2.  reform the rules applicable to DAFs so that some tax benefits are conferred upon transfer to a DAF while others are deferred until the donation is no longer subject to the donor’s advisory privileges;

3. reform private foundation payout rules to close the loophole that allows a charity to avoid private foundation status by funding the charity through a DAF;

4. prohibit private foundations from counting a grant to a DAF as satisfying their 5 percent payout requirement, require disclosure of foundation to DAF grants, and bar foundations from counting payments to insiders (such as travel and compensation) as payments for charitable purposes; and

5. reform the excise tax applicable to private foundations to provide incentives for them to increase their charitable expenditures. . . .


Nicholas Mirkay

September 19, 2019 in Federal – Executive, Federal – Legislative, Publications – Articles | Permalink | Comments (1)

Finley: Reforming the Charitable Contribution Tax Deduction

Janene R. Finley (St. Ambrose University)  has published Reforming the Charitable Contribution Tax Deduction: Accounting for Random Acts of Charity, 10 Wm. & Mary Bus. L. Rev. 479 (2019).  The abstract:

Concern for the tax treatment of charitable contributions has increased as a result of the Tax Cuts and Jobs Act of 2017. Although the new law increased the limitation of deductible charitable contributions to 60 percent of adjusted gross income, the standard deduction was also increased. Increasing the standard deduction is expected to reduce the number of taxpayers who are able to itemize their deductions in the next tax year, which is expected to reduce charitable giving in the future. This Article discusses proposals to amend the Internal Revenue Code to promote charitable giving, including a non-itemizer deduction.

In addition, random acts of charity are explained, and consideration of those acts as charitable contributions for purposes of the charitable contribution tax deduction is proposed.

[Hat tip:  TaxProf Blog]

Nicholas Mirkay

September 19, 2019 in Federal – Executive, Federal – Legislative, Publications – Articles | Permalink | Comments (0)

Monday, September 16, 2019

Ways and Means To Hold Hearings, Requests Comments on Tax Exemption for Hate Groups

Sep 12, 2019 
Press Release

House Ways and Means Oversight Subcommittee Chairman John Lewis announced today that the Subcommittee will hold a hearing entitled How the Tax Code Subsidizes Hate. The hearing will be held on Thursday, September 19, 2019 at 10:00 a.m. in room 1100 of the Longworth House Office Building.  {Editor's Note:  The Hearing will be streamed live here:

In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only.  However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms.  From the Committee homepage,, select “Hearings.”  Select the hearing for which you would like to make a submission, and click on the link entitled, “Click here to provide a submission for the record.”  Once you have followed the online instructions, submit all requested information.  ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close of business on Thursday, October 3, 2019.  For questions, or if you encounter technical problems, please call (202) 225-3625.


The Committee relies on electronic submissions for printing the official hearing record.  As always, submissions will be included in the record according to the discretion of the Committee.  The Committee will not alter the content of your submission, but reserves the right to format it according to guidelines.  Any submission provided to the Committee by a witness, any materials submitted for the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below.  Any submission not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.

All submissions and supplementary materials must be submitted in a single document via email, provided in Word format and must not exceed a total of 10 pages.  Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official hearing record.

All submissions must include a list of all clients, persons and/or organizations on whose behalf the witness appears. The name, company, address, telephone, and fax numbers of each witness must be included in the body of the email.  Please exclude any personal identifiable information in the attached submission.

Failure to follow the formatting requirements may result in the exclusion of a submission.  All submissions for the record are final.

The Committee seeks to make its facilities accessible to persons with disabilities. If you require special accommodations, please call (202) 225-3625 in advance of the event (four business days’ notice is requested).  Questions regarding special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.


Darryll K. Jones

September 16, 2019 | Permalink | Comments (1)

Friday, September 13, 2019

ACLU, Consistent with its Principles, Files Suit Against NJ Donor Disclosure Law Aimed at 501(c)(4)s

From an ACLU-New Jersey Press Release:                                                                                           

SEPTEMBER 11, 2019

The American Civil Liberties Union of New Jersey and the national ACLU today filed a lawsuit challenging the constitutionality of a law requiring all social welfare organizations to disclose personal information about their donors and details about nonpartisan voter education and advocacy activities. The lawsuit calls for the court to invalidate provisions of S150, a bill that created vague and overbroad disclosure requirements for organizations that engage in public advocacy work, including even those that do not engage in electoral politics.  The ACLU’s lawsuit (PDF), filed in the U.S. District Court for the District of New Jersey, argues that mandatory disclosure of donors’ names and other personal information undermines New Jerseyans’ right to exercise free speech and free association – two fundamental freedoms afforded and protected by the First Amendment.  “This law discourages people from donating to non-profit organizations that advocate for causes that they believe make people’s lives better,” said ACLU-NJ Legal Director Jeanne LoCicero. “The law sweeps up hundreds of advocacy organizations, including those that don’t take sides in elections, and even some that don’t directly engage in lobbying the government.”

Here is the gravaman of the ACLU Complaint

1. Plaintiffs American Civil Liberties Union of New Jersey (“ACLU-NJ”) and American Civil Liberties Union, Inc. (“National ACLU”) bring this action pursuant to 42 U.S.C. § 1983 and N.J.S.A. 10:6-2 seeking a declaration that New Jersey Senate Bill 150 of 2019 (“S150” or “the Act”), P.L. 2019, c.124, et seq., to be codified at N.J.S.A. 19:44A-3, et seq., effective October 15, 2019, violates the First and Fourteenth Amendments to the United States Constitution and Article I, Paragraphs 1, 6, and 18 of New Jersey Constitution. Plaintiffs also seek an Order enjoining the Defendants from enforcing the Act.

2. S150, passed and signed into law despite New Jersey Governor Phil Murphy’s express concerns about its constitutionality, creates a new class of organization in New Jersey: the “independent expenditure committee” (“IEC”). S150 subjects any existing organization falling within that class to onerous regulations, including: 1) requirements that it publicly disclose certain donors; and 2) restrictions barring certain persons from holding leadership positions within that organization.

3. Specifically, S150 defines an IEC as any 501(c)(4) or 5271 organization that raises or spends $3,000 or more annually for the purposes of (1) influencing state or local elections, including the outcome of public questions; (2) influencing legislation or regulation; or (3) providing “political information,” broadly defined as any statement containing facts or reflecting the organization’s opinion about a candidate or public question, legislation, or regulation.

4. If an organization falls within the scope of this far-reaching definition, S150 requires it to disclose publicly the name, mailing address, occupation, and employer of any person contributing more than $10,000 to the organization. S150 also requires the IEC to disclose “all expenditures made by it in excess of $3,000,” including the name and address of the person to whom the expenditure was made.

5. S150 also restricts an IEC’s ability to choose its own leaders, by (1) barring any person who chairs a political party committee or a legislative leadership committee from serving as the IEC’s chairman or treasurer; and (2) barring any candidate or public office holder from “establish[ing], authoriz[ing] the establishment of, maintain[ing], or participat[ing] in the management or control” of an IEC.

6. By imposing these requirements on IECs, S150 burdens speech and expressive and associational conduct in a manner that goes far beyond what is permitted by the First Amendment to the Constitution of the United States and by the New Jersey Constitution of 1947. With respect to the Act’s donor disclosure requirements, S150 presents IECs with three untenable choices: (1) obey the law and publicly disclose their donors, though the First Amendment protects against being required to do so; (2) break the law and subject their staff and board members to criminal and civil penalties; or (3) extract themselves from the scope of the law by giving up the protected advocacy activities that would otherwise define them as IECs.  S150 likewise prevents IECs from freely choosing their own leadership unless they forgo the very activities that would otherwise bring them within the Act’s definition of an IEC. Furthermore, S150 runs afoul of the Fourteenth Amendment to the U.S. Constitution and New Jersey Constitution’s due process protections because its ill defined terms and poor drafting render the law—which includes criminal penalties— unconstitutionally vague.  


Darryll K. Jones


September 13, 2019 | Permalink | Comments (0)

Thursday, September 12, 2019

NCAA Loses Another Battle in War to Keep Athletes from Receiving Compensation

We have previously blogged about the efforts of the NCAA to assert its amateurism (and hence its deserving of tax exempt status).  Those efforts have not been entirely convincing, to put the matter charitably.  On Monday, the California State Assembly passed a bill by a vote of 72-0 that would allow athletes at California's 58 NCAA schools the right to receive compensation for the use of their names, images and likenesses.  The California Senate approved a previous bill by a vote of 31-4 and everyone expects the Governor to sign the bill soon.  The NCAA, which has lost a series of antitrust suits responded with a letter asserting that the bill is unconstitutional (one can only wonder how so, but presumably the NCAA has a lot of smart lawyers with whom to consult).  Here is the text of the letter:

Governor Newsom:

The 1,100 schools that make up the NCAA have always, in everything we do, supported a level playing field for all student-athletes. This core belief extends to each member college and university in every state across the nation.

California Senate Bill 206 would upend that balance. If the bill becomes law and California’s 58 NCAA schools are compelled to allow an unrestricted name, image and likeness scheme, it would erase the critical distinction between college and professional athletics and, because it gives those schools an unfair recruiting advantage, would result in them eventually being unable to compete in NCAA competitions. These outcomes are untenable and would negatively impact more than 24,000 California student-athletes across three divisions.

Right now, nearly half a million student-athletes in all 50 states compete under the same rules. This bill would remove that essential element of fairness and equal treatment that forms the bedrock of college sports.

The NCAA continues to focus on the best interests of all student-athletes nationwide. NCAA member schools already are working on changing rules for all student-athletes to appropriately use their name, image and likeness in accordance with our values — but not pay them to play. The NCAA has consistently stood by its belief that student-athletes are students first, and they should not be employees of the university.

It isn’t possible to resolve the challenges of today’s college sports environment in this way — by one state taking unilateral action. With more than 1,100 schools and nearly 500,000 student-athletes across the nation, the rules and policies of college sports must be established through the Association’s collaborative governance system. A national model of collegiate sport requires mutually agreed upon rules.

We urge the state of California to reconsider this harmful and, we believe, unconstitutional bill and hope the state will be a constructive partner in our efforts to develop a fair name, image and likeness approach for all 50 states. 
Members of the NCAA Board of Governors

For press coverage, see this LA Times article and this USA Today article.  


Darryll K. Jones

September 12, 2019 | Permalink | Comments (0)

Wednesday, September 11, 2019

A Bad Man -- known as "Voldemort" -- Gave Clean Money to Charity, and Convinced his Good Guy Friends to do the Same. Now Heads are Rolling, but Why?

A few days ago, we posed the question "should nonprofits return donations from people who do bad things?  The post discussed the mostly moral question whether charities should return or "re-purpose" clean money donations made by people later identified as having done bad things unrelated to the activities from which they earned the donated monies.  This week's New Yorker reports that Joi Ito, Director of the MIT Media Lab, resigned his position at the prestigious university because he continued to solicit, accept, and then hide the source of donations from Richard Epstein, after Epstein had been convicted and given a relative slap on the risk for solicitation of prostitution and procurement of minors for prostitution.  

The M.I.T. Media Lab, which has been embroiled in a scandal over accepting donations from the financier and convicted sex offender Jeffrey Epstein, had a deeper fund-raising relationship with Epstein than it has previously acknowledged, and it attempted to conceal the extent of its contacts with him. Dozens of pages of e-mails and other documents obtained by The New Yorker reveal that, although Epstein was listed as “disqualified” in M.I.T.’s official donor database, the Media Lab continued to accept gifts from him, consulted him about the use of the funds, and, by marking his contributions as anonymous, avoided disclosing their full extent, both publicly and within the university. Perhaps most notably, Epstein appeared to serve as an intermediary between the lab and other wealthy donors, soliciting millions of dollars in donations from individuals and organizations, including the technologist and philanthropist Bill Gates and the investor Leon Black. According to the records obtained by The New Yorker and accounts from current and former faculty and staff of the media lab, Epstein was credited with securing at least $7.5 million in donations for the lab, including two million dollars from Gates and $5.5 million from Black, gifts the e-mails describe as “directed” by Epstein or made at his behest. The effort to conceal the lab’s contact with Epstein was so widely known that some staff in the office of the lab’s director, Joi Ito, referred to Epstein as Voldemort or “he who must not be named.”

The financial entanglement revealed in the documents goes well beyond what has been described in public statements by M.I.T. and by Ito. The University has said that it received eight hundred thousand dollars from Epstein’s foundations, in the course of twenty years, and has apologized for accepting that amount. In a statement last month, M.I.T.’s president, L. Rafael Reif, wrote, “with hindsight, we recognize with shame and distress that we allowed MIT to contribute to the elevation of his reputation, which in turn served to distract from his horrifying acts. No apology can undo that.” Reif pledged to donate the funds to a charity to help victims of sexual abuse. On Wednesday, Ito disclosed that he had separately received $1.2 million from Epstein for investment funds under his control, in addition to five hundred and twenty-five thousand dollars that he acknowledged Epstein had donated to the lab. A spokesperson for M.I.T. said that the university “is looking at the facts surrounding Jeffrey Epstein’s gifts to the institute.”

The documents and sources suggest that there was more to the story. They show that the lab was aware of Epstein’s history—in 2008, Epstein pleaded guilty to state charges of solicitation of prostitution and procurement of minors for prostitution—and of his disqualified status as a donor. They also show that Ito and other lab employees took numerous steps to keep Epstein’s name from being associated with the donations he made or solicited. On Ito’s calendar, which typically listed the full names of participants in meetings, Epstein was identified only by his initials. Epstein’s direct contributions to the lab were recorded as anonymous. In September, 2014, Ito wrote to Epstein soliciting a cash infusion to fund a certain researcher, asking, “Could you re-up/top-off with another $100K so we can extend his contract another year?” Epstein replied, “yes.” Forwarding the response to a member of his staff, Ito wrote, “Make sure this gets accounted for as anonymous.” Peter Cohen, the M.I.T. Media Lab’s Director of Development and Strategy at the time, reiterated, “Jeffrey money, needs to be anonymous. Thanks.”

I know this is a touchy subject amongst the charitable and philanthropic communities, but its worth exploring a little more.  Now that we know (or think we know, because Gates is denying that Epstein influenced him to make his donations) that other untainted good guys were associated with Epstein and gave money at Epstein's request, should the recipients give that money back too?  Naturally, I understand MIT President's statement that he regrets that his institution's acceptance of the donations helped elevate a scoundrel's reputation but is that what really happened?  Ito, the very eager fundraiser -- who no doubt was given plenty of "atta-boys" when those gifts came rolling in -- ensured all of Epstein's direct gifts were anonymous so Epstein received no public acclaim for them.  Still, Epstein was widely known as a successful facilitator of gifts from untainted good guys like Gates and Black.  By the way, Slate magazine refers to MIT's acceptance of Epstein's gifts as evidence of MIT's "moral rot."  Seriously?  How far does that rot go?  Should the gifts from Gates and Black be returned too because they were done as favors to a child molestor?  The label "child molester" pretty forces a visceral response, but is that response logical.  And should Gates and Black be put on the "disqualified" list so that charities no longer accept gifts from them or their foundations?


Darryll K. Jones

September 11, 2019 | Permalink | Comments (1)

Tuesday, September 10, 2019

Follow-up on New Donor Disclosure Regulations

Last Friday, we blogged on Treasury's newly proposed donor disclosure regulations, made in response to Bullock v. IRS, where a Montana Federal District Court invalidated Revenue Procedure 2018-38 (removing the requirement that (c)(4) organizations disclose donors) because the procedure was issued in violation of Administrative Procedure Act.  Treasury also issued Notice 2019-47 which provides penalty relief for organizations that did not disclose donor names in reliance on Revenue Procedure 2018-38.  here is the text of the Notice:


Notice 2019-47

This Notice provides penalty relief related to taxpayer reliance on Revenue Procedure 2018-38, which was set aside by an order issued on July 30, 2019, by the United States District Court for the District of Montana in the case of Bullock v. IRS, 2019 WL 3423485 (D. Mont. Jul. 30, 2019).  Revenue Procedure 2018-38, 2018-31 IRB 280, provided information reporting relief to organizations exempt from tax under section 501(a), other than organizations described in section 501(c)(3), that are required to file an annual Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt From Income Tax. Pursuant to Revenue Procedure 2018-38, those organizations that are exempt from tax under section 501(a), other than organizations described in section 501(c)(3), were granted relief from the general requirement to report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ filed for taxable years ending on or after December 31, 2018. The information reporting relief did not apply to political organizations described in section 527. The instructions to Schedule B of Forms 990 and 990-EZ were modified  to conform to Revenue Procedure 2018-38.

Section 6652(c)(1)(A)(i) imposes a penalty for a failure to file a return required under section 6033(a)(1) on the date and in the manner prescribed. Section 6652(c)(1)(A)(ii) imposes a penalty for a failure to include any of the information required to be shown on a return filed under section 6033(a)(1) or to show the correct information. The section 6652(c) penalty is not imposed if it is shown that the failure was due to reasonable cause. I.R.C. § 6652(c)(5). In general, an organization exempt from tax under section 501(a) must file its Form 990 or 990-EZ by the 15th day of the 5th month after the organization’s accounting period ends. Treas. Reg. § 1.6033-1(e). The court’s July 30, 2019 order in Bullock has raised questions from taxpayers regarding the filing requirements for the 2018 tax year because the order was issued after the due date for most 2018 Forms 990 or 990-EZ. Any exempt organization filing before July 30, 2019,other than organizations described in section 501(c)(3), that did not report the names and addresses of its contributors on the Schedule B of its Forms 990 or 990-EZ, would have filed consistent with Revenue Procedure 2018-38 and according to the instructions to Schedule B of Forms 990 and 990-EZ.  In consideration of these facts, and the reliance interests of taxpayers, and consistent with how the IRS has previously exercised the authority under section 6652(c)(5) to provide relief from penalties for failures due to reasonable cause, the IRS will not impose a penalty under section 6652(c) for organizations exempt from tax under section 501(a), other than those organizations described in section 501(c)(3), that do not report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ filed for a taxable year ending on or after December 31, 2018, and on or prior to July 30, 2019. Exempt organizations may still be liable for a penalty under section 6652(c) for a failure to report any information required under section 6033(a) that is unrelated to the donor information described in Revenue Procedure 2018-38.

The Office of the Associate Chief Counsel (Procedure & Administration) is the principal author of this notice. For further information regarding this Notice, call 202-317-3400 (not a toll-free call).

Darryll K. Jones

September 10, 2019 | Permalink | Comments (2)

Friday, September 6, 2019

New Proposed Regulations on Donor Disclosure

Treasury just released Proposed Regulations under Code Section 6033 regarding donor disclosure (technically, it is filed but not yet published - it is scheduled to be published on September 10), which addresses the issue of what information an exempt organization must disclose about its donors.

If you are late to the story, a little recap is in order: 

  • Section 6033(b)(5) provides Section 501(c)(3) organizations must provide donor information for "substantial contributors."
  • Treasury Regulation 1.6033-2(a)(2)(ii)(f) states that any organization required to file an annual information return must provide information regarding donors who give more than $5,000 during the year.
  • On July 17, 2018, Treasury issued Revenue Procedure 2018-38, which states that, effective as of Dec. 31, 2018, exempt organizations that are not exempt under Section 501(c)(3) do not have to file the Schedule B with donor information, but they should keep the information and make it available upon IRS request.  Section 501(c)(3) organizations must still provide this information as required by Section 6033(b)(5).   See a more detailed description from KPMG here.
  • Not everyone was particularly pleased about this and, not surprisingly, litigation ensued.
  • On July 30, 2018, in Bullock v. IRS,  the U.S. District Court for Montana (Bullock being the Governor of Montana; the state of New Jersey also was a plaintiff) determined that Treasury did not follow proper procedure under the APA in issuing the Rev Proc.   The District Court held that the Rev. Proc. was really an amendment to Treasury Regulation 1.6033-2(a)(2)(ii)(f), and therefore was a "change in existing law or policy" (i.e., it was a legislative rather than interpretive rule) that required APA notice and comment.  Accordingly, it was set aside.
  • These new regs specifically respond to the Bullock v. IRS (in fact, it mentions it by name on page 10) by issuing these Proposed Regulations, which are subject to notice and comment.  

While I've not held the proposed regulations and the Rev Proc up to each other side by side quite yet, it does appear that the Proposed Regulations are essentially similar to the Rev. Proc, expect for the request for notice and comment.     Because the Proposed Regs are not yet officially published, there is no official due date for the comments, other than 90 days from the date of publication.   If they hold true to their word, it would be 90 days from Sept. 10.


September 6, 2019 in Current Affairs, Federal – Executive, In the News | Permalink | Comments (0)

Thursday, September 5, 2019

Should Nonprofits Return Donations from People who Do Bad Things?

Cosby Epstein







Before Bill Cosby was sentenced to 3 to 10 years for sexual assault, he donated lots of money to many charities, including the Airlift Research Foundation, the Bob Woodruff Foundation, the Children's Miracle Network Hospitals, and the Jackie Robinson Foundation.  He also donated significant amounts to historically black colleges and universities, including a $20 million gift to Spellman University; at the time Cosby's was the largest ever one time gift to a black college.  This morning's Wapo has an article about Jeffrey Epstein's large donations to various colleges and universities, donations that are now viewed at "tainted," and which perhaps should be returned or "re-purposed" to benefit a cause more closely associated with helping victims of crimes such as Epstein was accused of committing. 

Sometimes, revelations emerge about a donor after a gift has been accepted.  The ensuing decisions involve interlocking, legal, ethical and strategic considerations, Harold said.  It's complicated by tax law; presumably, the donor has already taken a tax deduction and the money is legally in the public trust.   "Ethically, it's also tricky for all sorts of obvious reasons,"  Harold said, such as "questions of how we define guilt, how we define responsibility, whether an organization believes the money can do more social good with them than if it were returned."  

Even here at relatively small Florida A&M University College of Law, we once received a $100,000 donation from one of the attorneys convicted of stealing the money from his clients who sued the makers of Fen-Phen for millions, if not billions.  The money was never returned and more than ten year's later the money was even used to "establish" a chaired professorship in the convicted lawyer's name.  The former provost, in her infinite wisdom, hired a new dean and quietly kicked in the chaired professorship to boot -- named after the guy doing 20 years for his theft!  Institutional memory can be fleeting, I guess.

The answer is easy in at least two instances.  If the donated money was stolen, or can otherwise be traced to some sort of taking crime, the victim has a superior right to the money and it should be returned.  If the "donation" was used to convince the admissions office to admit the donor's child, it should be returned.  But what if the money was "freely" obtained in an otherwise criminal activity, such as drug dealing?  Or not even that.  What if the money was had through the aggressive marketing of cigarettes or opiods?  Should the recipient feel compelled to disgorge the donation years later?  Anyway, what about Cosby and Epstein?  Presumably, they both made millions in legitimate, laudable activities.  And they donated large amounts of money to institutions that have done or are doing great things.  Should the fact that they did despicable, disgusting, criminal things in their private lives compel the recipients to return or "re-purpose" the money?  I suppose re-purposing the money might help directly undo some of the harm the donors did in their private lives.  The Wapo article indicates that some recipients of Epstein's donations are donating or intend to donate the money to organizations that help victims of sexual exploitation.  But I am just not so certain that doing so isn't more symbolic than anything else.  I can understand removing the donor's name from whatever stadium or department his or her donation most directly benefited. 

Last summer, Purdue University leaders voted to remove the name of John Schnatter from a research center and offered to return a pledged $8 million donation after Forbes reported that the founder of the Papa John's pizza chain used a racial slur.  A spokesman said $1 million, the total amount received, was returned.  Ball State University, Schnatter's alma mater, also erased his name from an institute, returned his gift, and issued a statement condemning racism.  

The symbolism is not to be lightly discarded, for sure.  But if the recipient is doing good things with the money, and the money was not obtained through the direct victimization of another human being, why return it?


Darryll K. Jones

September 5, 2019 | Permalink | Comments (0)

Wednesday, September 4, 2019

Of Soap, Mayonnaise, and Double Bottom Lines

In an article entitled "He Ran an Empire of Soap, and Mayonnaise.  Now He Wants to Reinvent Capitalism", today's New York Times profiles Paul Polman, the current CEO of Unilever.  Under Mr. Polman's tenure, Unilever has stopped issuing quarterly guidance, which is an interesting turn for those of you who follow corporate finance and securities law.  The interesting part for this blog, however, is that Polman stopped focusing on short term results and started looking at long term changes, including "a very bold objective to decouple [Unilever's] growth from our environmental impact."   In the article, he says "we need to decarbonize this global economy if we want to keep it livable.  We need to find an economic system that is more inclusive."   To that end, part of the reason Unilever turned down a bid from Kraft Heinz was the significant difference between the two companies on these types of issues of corporate social responsibility and double bottom line thinking.  

A few issues came to mind for me as I read this.  First, with regard to benefit corporation status, I said to myself, "Interesting that Unilever was able to go there without being a benefit corporation and under, presumably, standard fiduciary duty rules of engagement."  The answer to that is that Unilever is apparently two different organizations: Unilever NV is organized in the Netherlands and Unilever PLC is organized under the laws of England and Wales, according to their website , so they may in fact be working under different rules - I'd be curious if anyone knows what fiduciary duty standards apply in these jurisdictions.   

Of course, not all benefit corporations are B Corps, and vice versa, so just for fun, I then hit the Google with "Unilever B Corp."  My first hit was "Unilever, Multinationals, and the B Corp Movement," featuring a video from none other than ..  Paul Polman.   Apparently, Unilever will be working with B Lab to look at barriers to B Corp status for mulinationals as part of a new Multinationals and Public Markets Advisory Council.  Unilever owns a number of B Corp certified subsidiaries, including Ben & Jerry's and Sir Kensington's, an "upstart condiments maker" according to one industry blog (I'm not really sure what an upstart condiment is ... anyone had Sir Kensington's?  Looks pretty good though....)

The other connection I made harkens back to my post from yesterday, and specifically the book Winner Take All that I mentioned yesterday.   One of the themes of Winner Take All was that business elites like to talk about CSR, impact investing, double bottom lines, and all of the jargon that accompanies philanthro-capitalism because it is safe and familiar.   Everyone around them comes from a similar business background, so a lack of diversity of thought and training is reinforced.   This leads to the singular thinking that business methods can solve social problems, and there are no countervailing voices to say, "Hey, wait a minute..."   In the best case scenario, this is myopia.   In the worst case scenario, business solutions to social issues are "win-win" - at least to the business -  and forestall efforts to reallocate resources away from the business sector to governments in order to address these issues.   My problem with Winner Take All is that it was extraordinarily dismissive of those who were involved in philantho-capitalism as being entitled, self-indulgent, or greedy.  I think the picture is far more nuanced then that, and it was interesting to read the profile of Mr. Polman through that lens.





September 4, 2019 in Books, Current Affairs, In the News | Permalink | Comments (0)

Tuesday, September 3, 2019

The Chronicle's Nonprofit Reading List

 I found this helpful list of recommended nonprofit readings on the Chronicle of Philanthropy website:

I have read a few of them, have a couple of others on my Nook awaiting my attention (with summer reading time coming to an end and the new semester ... they may be waiting a while), and others that I'm about to add to the stack.   I read Winner Take All - I think the central point was important, but found the author's approach to be so judgmental as to overwhelm his argument.  I just started Just Giving, and am looking forward to finishing that as part of an article I'm writing (slowly...) on endowments.   I think the next up will be Uncharitable.

I'd love to hear any thoughts others might have on these books, and if there are any that you all might add to the list.



September 3, 2019 in Books, In the News, Publications – Books | Permalink | Comments (0)

Wednesday, August 28, 2019

The Myth and Perils of Meritocracy and How Tax Exemption Jurisprudence Can Help


Daniel Markovits, a law professor at Yale, has a thought provoking essay in the September 2019 issue of The Atlantic. His basic point is that the idea that we all compete in a fair meritocratic society is a myth (as is the concept of upwards socio-economic mobility) and harms even those who are born into elite status.  Here's an excerpt that I think captures his first point:

Today’s meritocrats still claim to get ahead through talent and effort, using means open to anyone. In practice, however, meritocracy now excludes everyone outside of a narrow elite. Harvard, Princeton, Stanford, and Yale collectively enroll more students from households in the top 1 percent of the income distribution than from households in the bottom 60 percent. Legacy preferences, nepotism, and outright fraud continue to give rich applicants corrupt advantages. But the dominant causes of this skew toward wealth can be traced to meritocracy. On average, children whose parents make more than $200,000 a year score about 250 points higher on the SAT than children whose parents make $40,000 to $60,000. Only about one in 200 children from the poorest third of households achieves SAT scores at Yale’s median. Meanwhile, the top banks and law firms, along with other high-paying employers, recruit almost exclusively from a few elite colleges.

Markovits is not just concerned about the impact of the myth of meritocracy on regular folk.  He is careful not to ask the reader to pity the rich, but at the same time he argues that being born into wealth harms the souls of rich folks too:

But what, exactly, have the rich won? Even meritocracy’s beneficiaries now suffer on account of its demands. It ensnares the rich just as surely as it excludes the rest, as those who manage to claw their way to the top must work with crushing intensity, ruthlessly exploiting their expensive education in order to extract a return.  No one should weep for the wealthy. But the harms that meritocracy imposes on them are both real and important. Diagnosing how meritocracy hurts elites kindles hope for a cure. We are accustomed to thinking that reducing inequality requires burdening the rich. But because meritocratic inequality does not in fact serve anyone well, escaping meritocracy’s trap would benefit virtually everyone.  Elites first confront meritocratic pressures in early childhood. Parents—sometimes reluctantly, but feeling that they have no alternative—sign their children up for an education dominated not by experiments and play but by the accumulation of the training and skills, or human capital, needed to be admitted to an elite college and, eventually, to secure an elite job. Rich parents in cities like New York, Boston, and San Francisco now commonly apply to 10 kindergartens, running a gantlet of essays, appraisals, and interviews—all designed to evaluate 4-year-olds. Applying to elite middle and high schools repeats the ordeal. Where aristocratic children once reveled in their privilege, meritocratic children now calculate their future—they plan and they scheme, through rituals of stage-managed self-presentation, in familiar rhythms of ambition, hope, and worry. . . . Such demands exact a toll. Elite middle and high schools now commonly require three to five hours of homework a night; epidemiologists at the Centers for Disease Control and Prevention have warned of schoolwork-induced sleep deprivation. Wealthy students show higher rates of drug and alcohol abuse than poor students do. They also suffer depression and anxiety at rates as much as triple those of their age peers throughout the country. A recent study of a Silicon Valley high school found that 54 percent of students displayed moderate to severe symptoms of depression and 80 percent displayed moderate to severe symptoms of anxiety.

Markovits, who has studied income inequality for awhile now, provides some modest but significant prescriptions for the ills of the modern rat race that seemingly favors those born several miles ahead of the rest of us.   The first of which involves re-directing the tax exemption subsidy, at least at it relates to colleges and universities:

Escaping the meritocracy trap will not be easy. Elites naturally resist policies that threaten to undermine their advantages. But it is simply not possible to get rich off your own human capital without exploiting yourself and impoverishing your inner life, and meritocrats who hope to have their cake and eat it too deceive themselves. Building a society in which a good education and good jobs are available to a broader swath of people—so that reaching the very highest rungs of the ladder is simply less important—is the only way to ease the strains that now drive the elite to cling to their status. How can that be done? For one thing, education—whose benefits are concentrated in the extravagantly trained children of rich parents—must become open and inclusive. Private schools and universities should lose their tax-exempt status unless at least half of their students come from families in the bottom two-thirds of the income distribution. And public subsidies should encourage schools to meet this requirement by expanding enrollment.

If charity and tax exemption is about the long-term reduction or elimination of economic inequality, as opposed to just handing a hungry person a fish sandwich, Markovits is undoubtedly on to something.  The essay, based on his forthcoming book, is a good read.


Darryll K. Jones


August 28, 2019 | Permalink | Comments (1)

Tuesday, August 27, 2019

Americans For Prosperity Files Petition for Cert. Seeking to Overturn California 501(c)(3) Donor Disclosure Requirement


The battle over the use of exempt organizations to collect "dark money" continued Monday when Americans For Prosperity filed a Petition for Certiorari asking the Supremes to overturn a Ninth Circuit Court ruling upholding California's requirement that charities operating in California disclose the identities of major donors.  Here is a summary of the case thus far from Law.Com:

The case, which drew amicus briefs from privacy advocates, think tanks and the NAACP, stems from the attorney general’s practice of collecting tax information from charities that operate in California. For years, the office allowed organizations to file only their Form 990s, the broad disclosure documents submitted annually to the U.S. Internal Revenue Service, and not the Schedule B forms that detail donor information. In 2010, however, under then-Attorney General Kamala Harris, the state charity registry began sending “deficiency letter” to charities demanding to see their Schedule Bs.  

Harris, and later Becerra, argued that the donor information is kept confidential but that the attorney general’s office has an interest in collecting it to ensure the charity is not engaging in fraud or other unfair business practices. The Americans for Prosperity Foundation, established by libertarian businessmen and brothers Charles Koch and the late David Koch, balked at the attorney general’s demand for their donors’ names, calling it a violation of its First Amendment right to free association.

The foundation sued and in 2016, the late U.S. District Judge Manuel Real of California’s Southern District issued a permanent injunction barring the attorney general from collecting the donors’ information. In September 2018, a three-judge panel for the U.S. Court of Appeals for the Ninth Circuit sided with Becerra and vacated the injunction.

“We hold that the California attorney general’s Schedule B requirement, which obligates charities to submit the very information they already file each year with the IRS, survives exacting scrutiny as applied to the plaintiffs because it is substantially related to an important state interest in policing charitable fraud,” Judge Raymond Fisher wrote for the panel.  In its petition to the high court, the Americans for Prosperity Foundation argues that the Ninth Circuit’s decision “cannot be squared” with “well-settled” constitutional protections for private association.  “The court sought to justify this holding by citing cases upholding disclosure requirements governing elections,” Shaffer wrote. “But there is a categorical distinction between the election context, where compelled public disclosure can be an affirmative good, and the non-election context, where compelled disclosure (even to government itself) is at best a necessary evil.”  A circuit split and the “exceptionally important” First Amendment issues raised help make this case “an ideal vehicle” for the high court to clarify its position on the disclosure of group affiliations, the petitioners argue.

Darryll K. Jones

August 27, 2019 | Permalink | Comments (0)

Friday, August 23, 2019

Philadelphia Inquirer Three Years a Nonprofit. How is it Faring?

The newspaper business has been a dying business for some time now. It has been hard to make ends meet. As a result of that challenge some newspapers have considered converting to charitable entities with tax exemption. Some have made the conversion. 

The Philadelphia Inquirer, a long and storied institution, made that choice three years ago. How's it faring? NiemanLab provides a good look 

From the story: "The Inquirer was once arguably the nation’s premier metro daily, with a 700-strong newsroom, bureaus around the world, and a run of 17 Pulitzer Prizes in 18 years. But it suffered through a miserable stretch between 2006 and 2016, with five different owners (and two bankruptcy auctions). When that last owner, Gerry Lenfest, decided three years ago to donate the paper into nonprofit ownership — what would become the Lenfest Institute for Journalism — it sparked a lot of hope and excitement in a depressed industry."

The Inquirer "brought a new twist, too, a public benefit corporation model. The nonprofit Lenfest Institute is the sole owner of the for-profit Inquirer."

I recommend a review of the article. It gets fairly wonky in terms of income tax exemption rules that have been challenges for this structure.

Perhaps the bottom line though is: "Or as that memo to staff put it: “Being owned by a not-for-profit entity makes us unique among our industry peers, but it does not make us immune from the challenges facing the local newspapers across the country.”

Philip Hackney, Associate Professor of Law, University of Pittsburgh School of Law

August 23, 2019 in Current Affairs, In the News | Permalink | Comments (0)