Tuesday, February 5, 2019

House Majority Whip Renews Push to Repeal Taxation of Qualified Fringes as UBIT

House Majority Whip James Clyburn
is renewing efforts to repeal the recent change to UBIT that would tax charities on the amount of qualified transportation fringes provided to employees.  From McClatchy

With Democrats in control of the U.S. House and Jim Clyburn wielding influence as majority whip, the S.C. congressman is pushing to repeal a law that imposes, for the first time, taxes on nonprofits — including places of worship.  How Clyburn, the third most powerful House Democrat, approaches his legislation could determine whether he is able to deliver a solution to the taxing problem.  Clyburn will have allies in some Republicans, who are coming around to reversing the nonprofit tax they included in their 2017 tax law. Still, there are worries that Clyburn, rather than work across the aisle, could introduce a more partisan bill that alienates Republicans and won’t win support in the GOP-controlled Senate.  “It’s great that they are going to introduce this bill, but this particular bill isn’t the most bipartisan way to do it,” said Galen Carey, vice president of government relations at the National Council of Evangelicals, who met Monday with members of Clyburn’s staff. “We encouraged them to think of maybe talking to (Republicans) and seeing if they can work out something bipartisan. But I don’t think that’s how it’s going to go down.”  The “Stop the Tax Hike on Charities and Places of Worship Act,” which Clyburn put forward last summer and plans to reintroduce as early as next week, would overturn a little-known provision in 2017’s “Tax Cuts and Jobs Act,” which Republicans passed without Democratic support.

Clyburn's op/ed regarding his bill appears in several newspapers and says:

It is well known that the tax bill passed last Congress with only Republican votes gave trillions of dollars in tax cuts to corporations and the wealthy on the backs of America's working families. What is not as well known is that to pay for that massive tax cut, which is still projected to raise the national debt by about $2 trillion over the next 10 years, Republicans placed a new tax on places of worship and charitable organizations.  Congress must repeal this new tax, and we should do so without adding another dime to the debt or an additional burden on America's working families. My bill, the Stop the Tax Hike on Charities and Places of Worship Act, would accomplish this goal.  Just as our country's history is steeped in volunteerism and philanthropy to aid the less fortunate, so too is our tax code, giving tax-exempt status to organizations working to improve our communities. In enacting their tax bill, Republicans turned their backs on this important principle.  The new tax forces nonprofit organizations to pay 21 percent of the value of so-called fringe benefits provided to employees. In the case of the affected nonprofit organizations, this generally means parking, other transportation and perhaps an occasional meal.  The tax threatens to cost charities and places of worship tens of thousands of dollars.


Darryll K. Jones


Read more here: https://www.mcclatchydc.com/news/politics-government/congress/article225228235.html#storylink=cpy

Read more here: https://www.mcclatchydc.com/news/politics-government/congress/article225228235.html#storylink=cpy

February 5, 2019 | Permalink | Comments (0)

GuideStar and Foundation Center to Merge



From FastCompany Magazine:

"Two of the biggest information-sharing forces in the nonprofit sector just combined to create a new organization. It’s called, appropriately, Candid, a merger between the Foundation Center and GuideStar. For funders and nonprofits trying to better understand opportunity within the sector, the Foundation Center collects information on more than 13 million grants offered by 155,000 grant makers. For nonprofits and would-be donors trying to understand the efforts of other cause groups, GuideStar has built an open database with profiles on 2.7 million active organizations.

“The name Candid goes back to the roots of both organizations . . . and also speaks to our approach to [sharing] information,” says Bradford Smith, who will become the president of Candid after previously serving as the president at Foundation Center. All told, the groups have about 17 million users in total, although they’ve yet to sort how many overlap. Bill and Melinda Gates, Charles Stewart Mott, and the William and Flora Hewlett Foundation, among others, put up $27 million to back the merger . . . . . 

By combining, the groups will be able to join their databases, and push for more uniformity and context in how this information about nonprofits is presented. “We just think that [the merger] enables network effects that could create a kind of the integration of experience in the sector that we’ve never seen before,” says Jacob Harold, who moves from GuideStar CEO to executive vice president at Candid. “We could credibly have a common profile that was actually populating throughout the internet and also used in communities, and that can lead to all sorts of efficiencies but also new kinds of learning about the field.”

GuideStar's Blog and Foundation Center's website have more information. 


Darryll K. Jones

February 5, 2019 | Permalink | Comments (0)

Friday, February 1, 2019

TE/GE Fiscal Year 2018 Accomplishments Letter

The Tax-Exempt and Government Entities (TE/GE) Division of the Internal Revenue Service released its accomplishments for Fiscal Year 2018 (see here).  Here are a few highlights:

  • Exempt Organizations (EO) implemented several changes to better serve EO customers and assist employees with processing applications more efficiently for tax-exempt status.
  • Employee Plans (EP) implemented several program and processing changes to better serve its customers and assist TE/GE’s employees with their cases.
  • Indian Tribal Governments (ITG) assists Indian tribes with addressing their federal tax matters, while Tax Exempt Bonds (TEB) administers federal tax laws applicable to tax-advantaged bonds. ITG/TEB implemented several program and procedural improvements.
  • TE/GE employed its Compliance Units to address potential noncompliance, primarily using correspondence contacts known as “compliance checks,” which limited the burden of each taxpayer contacted and allowed TE/GE to establish a presence in the taxpayer community in a manner that reduced the cost to the IRS.
  • TE/GE made a significant hiring push in FY18, partnering with the Human Capital Office to select a total of 111 employees, including new hires, promotions, and laterals.

The letter also describes the Fiscal Year 2018 Compliance Program, which was divided into six portfolio programs:

  • Compliance Strategies
  • Data-Driven Approaches
  • Referrals, Claims & Other Casework
  • Compliance Contacts
  • Determinations
  • Voluntary Compliance & Other Technical Programs


Nicholas Mirkay


February 1, 2019 in Federal – Executive | Permalink | Comments (0)

Philanthropic "First Loss" Investments and Private Benefit


In the world of high finance, "first loss investments" refer to the pool of equity  designated to absorb the initial losses generated by a pooled fund.  Other investors take on less risk because they are preferred relative to the first loss investors.  A preferred investor has a first line of defense against loss  -- composed of equity funding from other investors -- and as a result, might invest in a project it would otherwise pass on.   According to this Financial Times article, Private Foundations are increasingly serving as "first loss investors" to attract private money financing of public goods and services that would otherwise generate insufficient returns to attract private investors.  The article describes charitable first loss investments in a San Francisco Bay area project designed to provide affordable housing:

The idea works as follows. Investment ideas that pursue [public goods and services] — such as education, or environmental sustainability — don't usually achieve high enough returns to entice private capital. But if philanthropic capital takes the bulk of the risk, then private money will flow in. . . . For US foundations, losses themselves have a kind of value, because they count towards requirements to distribute (or "lose") 5 per cent of their holdings each year, so as to remain tax-exempt. At a high level, you can see a conceptual substitution between tax "losses" on the one hand and charitable "first losses" on the other.  The investment fund [in the San Francisco Bay area] is already lending $6.5m to the East Bay Asian Local Development Corporation. The ultimate logic is that the  [private foundation] concessionary capital (also known as "catalytic capital", also known, as above, as "first-loss capital") allows the loans provided by the fund to be cheaper than the market would provide. These loans, to developers, will allow them in turn to provide more affordable housing in developments that "also include market-rate units".  As you may have noticed, the entire principle is analogous to what a range of government subsidies aim to do. As the Impact Alpha article notes, those earning 60 per cent of the average median income are eligible for federal Low Income Housing Tax Credits. The philanthropic approach targets those who earn more, but are still struggling to find affordable housing.  

When the government provides subsidies, it potentially benefits private businesses or investors as much as it benefits the targeted political demographic which it intends to subsidise in some way. This is why private interests try to influence or capture the government's decision-making process.  The same thing is also true of charity. Or, as we should now start referring to it, "loss-absorbing capital".

Hmmmmm.  The second paragraph of the quoted passage makes me wonder whether first loss investing generates impermissible private benefit. The whole notion of "impact investing" revolves around the pairing of charitable and profit-making goals and that combination always raises private benefit concern vis-vis the charitable "subsidy."  

Darryll K. Jones  

February 1, 2019 | Permalink | Comments (0)

Thursday, January 31, 2019

Identifying and Navigating Impermissible Private Benefit in Practice

John Tyler (Ewing Marion Kauffman Foundation), Hillary Bounds, and Edward Diener posted to SSRN an article published in the September/October 2018 edition of Taxation of Exempts entitled Identifying and Navigating Impermissible Private Benefit in Practice.  Here is the abstract:

Organizations and people from within the charitable sector are increasingly engaging in historically non-traditional activities and with other than 501(c)(3) organizations in their efforts to generate revenue and investment/donations and to more aggressively pursue their charitable mission objectives. Examples include ventures with or from other than charitable-oriented businesses and investors, combined public-private fund arrangements, pay-for-success, impact investing, opportunity zones, micro-lending for business, and other finance-oriented relationships. These efforts are changing the ways in which 501(c)(3) organizations must identify and manage against impermissible private benefit.

One aspect of many of these activities is intentional awareness that the brand and reputation of many 501(c)(3) organizations can have independent value on which others might want to trade, with or without providing commensurate value. Another area in which private benefit problems arise is within more garden-variety, day-to-day operations. Consider operation-oriented pursuits such as contracting for delivery of goods and services, which might require increased attention to the financial and non-monetary values of data collected and the tools used to collect, store, secure, and analyze that data. Finally, “new” philanthropists and social change actors are engaging in historically non-traditional activities by structuring these activities without regard to (or at least with much less regard for) the incentives of tax deductions and exemptions. 

All of these implicate and require thoughtful consideration of and management to protect against impermissible private benefit while still allowing for enthusiastic pursuit of mission objectives.

Nicholas Mirkay


January 31, 2019 in Federal – Executive, Publications – Articles | Permalink | Comments (0)

Hackney: Testimony for Hearing on Oversight of Nonprofit Organizations

Philip Hackney (Pittsburgh) posted to SSRN his Written Testimony for the Hearing on Oversight of Nonprofit Organizations:  A Case Study on the Clinton Foundation (House Committee on Oversight, December 13, 2018).  Here is the abstract:

This is written testimony offered to the House Committee on Oversight's Subcommittee on Government Operations on December 13, 2018: Our nation has tasked the IRS with the large and complex responsibility for regulating the nonprofit sector, but has failed to provide the IRS with resources commensurate with that task. This is important work. Nonprofits constitute a large and growing part of our economy, and they are granted a highly preferential tax status. An organization that abuses that preferential status will obtain a significant and unfair advantage over the organizations and individuals who play by the rules. If we are to grant such a substantial advantage to nonprofits, and if we are going to rely on the IRS to oversee regulation of these entities, it is essential that the IRS have the resources it needs to ensure that this preferential status is not abused.

Lloyd Mayer previously discussed the hearing on this blog (here).

Nicholas Mirkay

January 31, 2019 in Current Affairs, Federal – Executive, Federal – Legislative | Permalink | Comments (0)

Partnership Not Entitled to Charitable Contribution Deduction for Two of Three Easements, Conservation Purpose Not Protected in Perpetuity

Conservation easement
In Pine Mountain Preserve, LLLP v. Commisioner, the Tax Court's 116 page opinion determined that (cribbing from CCH):  

A partnership was not entitled to charitable contributions deductions for two easement deeds because the conservation purpose of their donated easement was not protected in perpetuity and, consequently, was not a qualified conservation contribution. The IRS argued that the easements did not protect conservation purposes in perpetuity because the easement deeds permitted the property to be used in ways inconsistent with the conservation purposes of the easements. Further, the two easements deeds did not restrict a specific, identifiable piece of real property because they allowed supposedly conserved land to be taken back and used for residential development. Because neither easement constituted a restriction (granted in perpetuity) on the use which may be made of the real property, neither easement constituted a "qualified real property interest" that could give rise to a charitable contribution deduction under Code Sec. 170(h)(1)(A). Therefore, the partnership was not entitled to a deduction for conservation easements for the two tax years at issue. However, the easement deed for the third tax year did not contain a reserved-right provision allowing the landowner to construct houses. Although the third easement deed allowed the landowner to use the land in various other ways, these uses were consistent with the conservation purposes of the easement. Further, the third easement covered a specific, identifiable piece of real property, was "granted in perpetuity" under Code Sec. 170(h)(2)(C) and was made "exclusively for conservation purposes." Moreover, the inclusion in the easement of a provision allowing amendments, provided that they were "not inconsistent with the conservation purposes of the donation," did not prevent that easement from satisfying the granted-in-perpetuity requirement of Code Sec. 170(h)(2)(C). Therefore, the partnership could get a deduction for the donation of the easement for the third tax year at issue.

Darryll K. Jones

January 31, 2019 in Federal – Judicial | Permalink | Comments (0)

Wednesday, January 30, 2019

Canada Revokes Organization's Charity Status for Violating Public Policy Against Providing Support for Israeli Defense Force and Permanence of Occupied Territories and Settlements


Section 149 of the Canadian Income Tax Act provides for tax exemption for charitable organizations.  To be exempt, a Canadian organization may not operate contrary to Canadian Public Policy.   Canada's Policy  on Occupied Territories and Settlements holds that Israeli control over territories occupied in 1967 -- the Golan Heights, the West Bank, East Jerusalem and the Gaza Strip -- violates the Fourth Geneva Convention and UN Security Council Resolutions 446 and 465

On January 12, the Canadian Revenue Agency notified the Beth Oloth Charitable Organization of the revocation of its exempt status based on a finding that the organization supports the armed forces of a foreign country -- the Israeli Defense Force -- and uses its funds to support Israel's continued occupation of the Golan Heights, the West Bank, East Jerusalem and the Gaza Strip, in violation of Canadian Public Policy.  As reported in the Canadian Jewish News:

It is our position that these pre-army mechinot [a pre-military induction youth training academy] exist to provide support to the Israel Defence Forces, and that funds forwarded to these mechinot are therefore in support of foreign armed forces,” the CRA said. “While increasing the effectiveness and efficiency of Canada’s armed forces is charitable, supporting the armed forces of another country is not.”  Beth Oloth had explained that it was simply funding teachers to provide religious training. It pointed out that since Israel has mandatory army service, “providing any aid to anyone under the age of 18 may be construed as providing preparation for entrance into the military.” But, it stressed, that was not its position.  The audit also found about $1.2 million in donations to “projects conducted in the Occupied Territories.” However, the names of the projects are blacked out.  The CRA said a charity’s work cannot contradict Canadian public policy. Canada, it stated, does not recognize Israel’s permanent control over territories seized in the 1967 Six-Day War. “Providing assistance to Israeli settlements in the Occupied Territories serves to encourage and enhance the permanency of the infrastructure and settlements, and therefore is contrary to Canada’s public policy and international law,” the CRA said.

The Canadian Revenue Agency's 94 page file and report contains the determination letter and is an interesting read.   For other media coverage see AlJazeera, Middle East Monitor, and Global News.  

Darryll K. Jones

January 30, 2019 in International | Permalink | Comments (0)

Monday, January 28, 2019

Denying Tax-Exempt Status to Discriminatory Private Adoption Agencies

Allison M. Whelan (Covington & Burling, Washington D.C), Denying Tax-Exempt Status to Discriminatory Private Adoption Agencies, 8 UC Irvine L. Rev. 711 (2018):

This Article ... argues that the established public policy at issue here is the best interests of the child, which includes the importance of ensuring that children have safe, permanent homes. In light of this established public policy, which all three branches of the federal government have recognized and support, this Article ultimately argues that, consistent with the holding in Bob Jones, private adoption agencies that refuse to facilitate adoptions by same-sex parents, thereby narrowing the pool of qualified prospective parents and reducing the number of children who are adopted, act contrary to the established public policy of acting in the best interests of the child.

This Article proceeds in five Parts. Part I first provides general information about the child welfare system, adoption, private adoption agencies, and the “best interests of the child” standard. Part II describes the emergence of state laws that allow private agencies to refuse to facilitate adoption by same-sex couples. Part III provides an overview of federal income tax exemptions and then summarizes the Supreme Court’s decision in Bob Jones University v. United States. Part IV applies the analysis and holdings of Bob Jones to private adoption agencies that discriminate against same-sex couples, and ultimately argues that such policies are contrary to the established public policy of the best interests of the child. As a result, this Article argues that the IRS should conclude that these agencies do not qualify for exemption from federal income tax. Part V concludes by offering a potential compromise and additional policies the government should consider.

(Hat tip:  TaxProfBlog )

Nicholas Mirkay

January 28, 2019 in Federal – Executive, Federal – Judicial, Publications – Articles, Religion | Permalink | Comments (1)

Conservative Organization Denied 501(c)(4) Status Lacks Standing to Challenge Revenue Ruling 2004-6, According to Fifth Circuit

In 2011, Freedom Path, a would-be social welfare organization sought exempt status under 501(c)(4).  In 2013, the Service notified Freedom Path that it was not operated "exclusively for the promotion of social welfare."  The Service relied, in part, on the facts and circumstances test in Revenue Ruling 2004-6 to support its conclusion that the organization engaged in too much political campaign intervention and therefore was not primarily engaged in the promotion of social welfare.  Freedom Path brought an action seeking to declare Revenue Ruling 2004-6 facially  unconstitutional because it's vagueness "chilled" the exercise of rights guaranteed under the First Amendment.  A Federal District Court in Dallas found that Freedom Path had standing but that Revenue Ruling 2004-6 was not unconstitutional.  Freedom Path appealed.  In a January 16, 2018 opinion, the reasoning of which I found somewhat muddled, the Fifth Circuit Court stated that Freedom Path lacked standing:

Freedom Path asserts there is standing to make a facial challenge to the “Facts and Circumstances Test” of the Revenue Ruling because the test is vague, overbroad, and chills its speech. A specific allegation in the complaint is that Freedom Path decided not to air “Leader,” a television advertisement, because this test made it unclear whether airing the ad would be viewed as an exempt function activity or non-taxable issue advocacy. “Chilling a plaintiff's speech is a constitutional harm adequate to satisfy the injury-in-fact requirement.” Houston Chronicle Publ'g Co. v. City of League City, 488 F.3d 613, 618 (5th Cir. 2007).

Even if Freedom Path has made a sufficient claim of chilled speech, the injury must be traceable to the allegedly vague provision. For Freedom Path to have standing, we must be convinced that a supposedly vague Facts and Circumstances Test is what chills Freedom Path's speech.

Freedom Path emphasizes that the IRS relied in part on the Revenue Ruling in its proposed denial of Freedom Path's Section 501(c)(4) status, and consequently the Revenue Ruling was the agent of its injury. Further, Freedom Path argues its status as a 501(c)(4) organization could be threatened if the IRS determines that too many of its expenditures were for exempt functions rather than issue advocacy.

The problem we see with this argument is that the plaintiff is not arguing that the law in question is invalid because of how that directive affects its tax liability — which is the determination that is the purpose of the Revenue Ruling. Instead, Freedom Path's argument is that the IRS uses this Revenue Ruling for other purposes as well, and specifically as one of the tests for determining whether an applicant is entitled to recognition as a 501(c)(4) organization.

This argument leaves the facial terms of the Revenue Ruling behind and moves into the arena of an as-applied challenge. To find the unconstitutionality Freedom Path claims requires that we go beyond the language of the Revenue Ruling and analyze the way in which the IRS applies it beyond the text. On a facial challenge, however, we do not look beyond the text. See Washington State Grange v. Wash. State Republican Party, 552 U.S. 442, 449-50 (2008). We agree that “[a] ‘facial challenge’ to a statute considers only the text of the statute itself, not its application to the particular circumstances of an individual.” Field Day, LLC v. Cnty. of Suffolk, 463 F.3d 167, 174 (2d. Cir. 2006). The Revenue Ruling does not even facially apply to determinations of an organization's Section 501(c)(4) status. Instead, the purpose of the Revenue Ruling 2004-6 is to determine whether particular expenditures of funds by a 501(c)(4), 501(c)(5), or 501(c)(6) organization were for an exempt function “as described in [Section] 527(e)(2).” Rev. Rul. 2004-6, 2004-1 C.B. at 329.

We cannot conclude based on Freedom Path's arguments that its alleged injury of chilled speech is traceable to the text of Revenue Ruling 2004-6. Indeed, whatever vagueness it may have does not lead to uncertainty about the tax liability of organizations like Freedom Path when they have no investment income. That is because, as we earlier discussed, an organization is taxed under Section 527 for exempt function activity only to the extent the organization has net investment income. I.R.C. §527(f)(1). Freedom Path admittedly has no such income and no tax obligation.

Darryll K. Jones

January 28, 2019 in Federal – Judicial | Permalink | Comments (0)

Thursday, January 24, 2019

NYTimes: Hospitals Are Asking Their Own Patients to Donate Money

An article in today's New York Times highlights the practices of hospitals seeking donations from their patients while they are being treated:

Those who seem promising targets for fund-raising may receive a visit from a hospital executive in their rooms, as well as extra amenities like a bathrobe or a nicer waiting area for their families.

Some hospitals train doctors and nurses to identify patients who have expressed gratitude for their care, and then put the patients in touch with staff fund-raisers.

Read the full piece here.

January 24, 2019 in Current Affairs | Permalink | Comments (0)

Wednesday, January 23, 2019

National Council of Nonprofits Implores Government Leaders to Play Nice!


The National Council of Nonprofits has sent a letter to President Trump and congressional leaders of both parties urging an immediate re-opening of the government.  Here is an excerpt from the letter:

Direct Harm to Nonprofits: Charitable nonprofits – and therefore the people and communities they serve -- have been suffering direct harm from the shutdown. For instance, furloughed federal employees, kept from their jobs, cannot issue grants or contracts to nonprofits and cannot make payments to reimburse nonprofits for work they already have performed for the government. People in need still turn to nonprofits seeking assistance because they can’t wait for policymakers to agree. As this shutdown drags on, these and other organizations are forced to take out lines of credit or layoff staff and reduce or eliminate certain services, costs in economic and human terms that will never be recovered even when government operations return to normal.

Nonprofits as Collateral Damage: Equally harmful are the indirect, yet still significant financial and human costs of the shutdown that charitable organizations are experiencing with increasing frequency. Furloughed federal employees who previously were regular contributors to the Combined Federal Campaign are now showing up at local food banks seeking boxes of food to tide them over until reason prevails in Washington. They are joining the already long lines of individuals seeking assistance. Nonprofits providing various forms of human services are being called upon to provide support for new populations of persons in need – federal employees and contractors out of work through no fault of their own. And most tragically, we are learning of the toll your failure to reach agreement is playing out in terms of stressing worried couples and parents to the point of forcing some family members to seek protection at domestic violence shelters – many of which will not be  receiving their funding due to the shutdown. The dollars and hours of service diverted from nonprofit missions to address this politician-inflicted crisis will never be recouped and the unnecessary human toll will not be erased in too many instances.

For media coverage on the shut-down's impact on nonprofits, see this article in the Washington Post.  


Darryll K. Jones

January 23, 2019 | Permalink | Comments (0)

Monday, January 21, 2019

Canada Revenue Agency proposes guidance "Public policy dialogue and development activities by charities"

The Canada Revenue Agency (CRA) issued draft administrative guidance "Public policy dialogue and development activities by charities," and is accepting comments on the proposed guidance until April 18. The guidance instructs charities that commentary on public policy must further its core mission, and prohibits activity that supports or opposes a political candidate.

January 21, 2019 in International | Permalink | Comments (0)

Hemel posts "Tangled Up in Tax: The Nonprofit Sector and the Federal Tax System"

Daniel Hemel has posted "Tangled Up in Tax: The Nonprofit Sector and the Federal Tax System," to SSRN. From the abstract:

If the relationship between the federal tax system and the nonprofit sector is to be summed up in a single word, “entanglement” rather than “exemption” would be the appropriate term. Nonprofit organizations in the United States are caught in a complex web of nonprofit-specific tax provisions, and even seemingly unrelated tax statutes often tie back to the nonprofit sector in winding ways. This chapter seeks to understand how the federal tax laws lead to and limit the nonprofit sector’s entanglement with the public and for-profit sectors. It distinguishes among three types of entanglement—administrative entanglement, political entanglement, and market entanglement—and goes on to explain how society’s decisions to support the nonprofit sector through tax exemptions and tax deductions both respond to and result in entanglement of all three types. It then evaluates the specific strategies of entanglement management that the federal tax system employs. The chapter concludes with thoughts on the future of entanglement in light of the December 2017 tax law, which creates new sources of friction between the federal tax system and nonprofit organizations while at the same time withdrawing some of the tax system’s support for the nonprofit sector. 


January 21, 2019 in Publications – Articles | Permalink | Comments (0)

Wednesday, January 16, 2019

House of Representatives Passes Resolution Condemning Hate Speech: Fundamental Public Policy Yet?

Public Policy Process Diagram Mott 2011

Yesterday the U.S. House of Representatives passed a resolution  "Rejecting White nationalism and White Supremacy."  About 18 months ago, both houses of Congress passed a joint resolution "rejecting White nationalists, White supremacists, the Ku Klux Klan, neo-Nazis, and other hate groups, and urging the President and the President’s Cabinet to use all available resources to address the threats posed by those groups."  Recall that Bob Jones University v. United States held that to qualify for tax exemption a nonprofit must not violate fundamental public policy.  Do the resolutions provide sufficient proof of public policy to deny tax exempt status to hate groups?   For an informative debate on whether tax exemption can be denied to hate groups see this post at the Volokh Conspiracy, and this rejoinder at The Surly Subgroup.

Darryll K. Jones

January 16, 2019 | Permalink | Comments (0)

Tuesday, January 15, 2019

Jewish Nonprofit calls for Suspension of Other Jewish Nonprofits as supporters of Terrorism.

Israeli terrorism

I am not quite sure what to make of the allegations described in an op-ed piece published last Friday in the Washington Post, alarmingly titled, "Your tax dollars are propping up the intellectual heirs of an Israeli terrorist."  The commentary, written by the executive director of T'ruah, a Jewish human rights nonprofit, accuses the Jewish Heritage Movement, American Friends of Yeshivat HaRaayon HaYhudi, and Central Fund of Israel, of "openly promoting the extremist teachings of Meir Kahane, the late U.S.-born rabbi who preached -- and directed -- terrorism against those he viewed as enemies of Israel or the Jewish people."  The op-ed argues that the Service should suspend all three organizations' tax exempt status because of their support for terrorism:

But U.S.-based nonprofits still send millions of dollars a year in tax-deductible contributions to organizations that espouse Kahane’s ideology. The Heritage House is supported heavily by Jewish Heritage Movement, a Staten Island-based tax-exempt organization. Two other organizations also fund Kahanist groups: American Friends of Yeshivat HaRaayon HaYehudi (the “Jewish idea” yeshiva), an educational institution founded by Kahane that features his videos and writings in its teachings; and the Central Fund of Israel  , which says it sends donations from the United States to 300 different charities in Israel. Some of those organizations, though, are led by Kahane proteges committed to carrying out his legacy. These include Honenu, which describes itself as “an Israeli Zionist legal aid organization” for people who “find themselves in legal entanglements due to defending themselves against Arab aggression, or due to their love for Israel,” but which Israeli news organizations have reported also has made cash payments to Israelis convicted of terrorism and to their families; and Hemla, which has issued promotional materials saying it aims to “save” Jewish women who are “at risk of” forced conversion from intermarrying with Palestinians.

The author, Rabbi Jill Jacobs, explains that the three nonprofits whose tax exemption should be suspended send money in support of a Jerusalem youth hostel called The Heritage House (and other Israeli organizations) which, in turn, espouses ideas formerly propounded by Meir Kahane.  Those ideas were repudiated as being made in support of terrorism by both the Israeli and American governments some time ago.  Rabbi Jacobs explained that her organization filed a complaint with the IRS about the U.S. organizations' support of the Heritage House and other Israeli organizations that espouse Kahane-ist ideas.  "Those of us who support Israel often complain about the Palestinian Authority's payment to families of terrorists, including some who have carried out horrific and fatal attacks on Israeli citizens. We must speak just as loudly against the funding of terrorism and incitement by Israeli extremists, especially when American taxpayers finance these activities through subsidies of tax-exempt organizations."  I think that's a fair sentiment.  But when I asked for a copy of the actual complaint for discussion in this blog, I was informed that the op-ed contains all the information contained in the complaint -- an assertion I interpreted as a "no."  I sure hope there is more to the complaint that what is stated in the op-ed, because I don't think the op-ed describes anything more than a couple of Israeli organizations that support the idea that the Palestinians don't have a case and perhaps a hint of Jewish racial and ethnic supremacy.  Certainly not enough to justify suspension of tax exempt status.  At the very least, the op-ed misstates the law, as demonstrated by this excerpt:

Section 501(p) of the U.S. tax code asserts that “an organization’s tax exempt status will be suspended upon proof that it is engaged in terrorist activities.” The IRS takes its definition of “terrorist” from the Immigration and Nationality Act, which lays out a wide scope of violent activities that constitute terrorism and includes indirect support for terrorism — such as providing material support, soliciting others to take part in terrorist activities or raising money for terrorist groups. Significantly, this definition relates to any group that engages in terrorist activity, whether or not the State Department has officially designated it as a “foreign terrorist organization.”

I went back and looked at 501(p) and it does not say what it is quoted as saying.  I wanted to have a conversation with the Rabbi but judging by the comments to the op-ed on the WaPo website, she is probably very busy defending her viewpoint and, unfortunately, her judeo bona-fides.  As I mentioned to her in an email, the substance of her argument may have merit, but the procedure she is advocating seems wrong.  I don't think IRC 501(p) allows the Service to decide by itself, and without prior designation by the State Department or via executive order, that a nonprofit is a terrorist organization and therefore should have its tax exempt status suspended:

I am just not sure your call for action has been constructed on as solid a legal foundation as is necessary.  My observations, by the way, are more procedural than substantive.  As a matter of procedure, I don’t think the Service has the authority to suspend tax exempt status without some action by the State Department or by Executive Order.  For example, I don’t see the language you quote as coming from 501(p) (“an organization’s tax exempt status will be suspended upon proof that it is engaged in terrorist activities.”) in section 501(p).  The op/ed also argues that the IRS need not wait for official designation by the State Department.  If true, that means the Service could suspend tax exempt status without being prompted by a State Department finding or an executive order.  I don’t know if I want that particular assertion to be true or not, since it would give the Treasury Department a lot of power [and responsibility].  It seems to me that 501(p) does, in fact, require a designation or identification by the State Department or by Executive Order before an organization’s tax exempt status can be suspended.  See 501(p)(2) and 501(p)(3).  So you might be better off sending the [somewhat mysterious] complaint to the State Department. 

I haven't received a response yet.


Darryll K. Jones


January 15, 2019 | Permalink | Comments (0)

Monday, January 14, 2019

National Council of Nonprofits Articulates Nonprofit Legislative Agenda

The National Council of Nonprofits has articulated a federal legislative agenda for nonprofits in a letter to Chairpersons of Senate Finance and House Ways & Means late last year.  Here is part of the introduction:

Tax policy does far more than just define the nonprofit sector as tax exempt; whether intentionally or not, it also can promote fairness or its opposite, pick winners and losers, and support or ruin well managed operations trying their best to improve the lives of others. We believe that the commencement of your chairmanships provides the perfect opportunity to design tax policies that intentionally promote stronger nonprofits and stronger communities. To that end, we offer the following recommendations for your consideration and action. These ideas reflect the perspective of the charitable nonprofit community, a major segment of the U.S. economy that employs more than 14 million taxpayers and interacts in many ways with the Department of Treasury and the Internal Revenue Service. The National Council of Nonprofits works with and through our members – the nation’s largest network of nonprofits – to identify emerging trends, share proven practices, and promote solutions that benefit charitable nonprofits and the hundreds of million people they serve in local communities throughout the country.

For media coverage see this article in the Chronicle of Philanthropy.  

Darryll K. Jones

January 14, 2019 | Permalink | Comments (0)

North Carolina’s Nonprofit Property Tax Exemption Conundrum

    In their article, Thomas Kelley and Christopher McLaughlin discuss the conundrum facing North Carolina and other states about whether certain nonprofits should benefit from property tax exemptions. The article begins by explaining why some local governments believe nonprofits should receive tax exemptions from property taxes. One reason dates back to the 1980s Reagan Revolution, where block grants and other sources of funding were eliminated by the federal government. Since this time, local governments have struggled to pay their bills, forcing them to look for different sources of revenue. The second reason, is that nonprofits have begun adopting fee-generating strategies that make them look like for-profit organizations. For these reasons, many local governments including North Carolina believe that nonprofits should not get exemptions on property tax. The next portion of the article describes the differing views of the nonprofits versus the local governments. Finally, the article ends with a discussion of how North Carolina has been handling these problems and proposes new guidelines on how North Carolina can solve these problems in the future. Another law professor blogged about this article. Paul Caron discusses his opinion of the article in his blog post. You can read his opinions here: https://taxprof.typepad.com/taxprof_blog/2019/01/north-carolinas-nonprofit-property-tax-exemption-conundrum.html<https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Ftaxprof.typepad.com%2Ftaxprof_blog%2F2019%2F01%2Fnorth-carolinas-nonprofit-property-tax-exemption-conundrum.html&data=02%7C01%7Cdavid.brennen%40uky.edu%7C226a1be106f04ebb5f7908d67a28acad%7C2b30530b69b64457b818481cb53d42ae%7C0%7C1%7C636830712449885897&sdata=YCJhX4o7PBv77zSUWOoLikdvnaaKpmpS8d4h%2FVYQiiE%3D&reserved=0>  read the full article, click here: https://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=6690&context=nclr<https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fscholarship.law.unc.edu%2Fcgi%2Fviewcontent.cgi%3Farticle%3D6690%26context%3Dnclr&data=02%7C01%7Cdavid.brennen%40uky.edu%7C3ed6d5eac895452efccb08d677eefc48%7C2b30530b69b64457b818481cb53d42ae%7C0%7C1%7C636828265652193987&sdata=9V8AcXD%2FMnBHOFqBV6cvHt7psuqC2IvXqo7jhBcAvUg%3D&reserved=0><https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fscholarship.law.unc.edu%2Fcgi%2Fviewcontent.cgi%3Farticle%3D6690%26context%3Dnclr%3Chttps%3A%2F%2Fna01.safelinks.protection.outlook.com%2F%3Furl%3Dhttps%253A%252F%252Fscholarship.law.unc.edu%252Fcgi%252Fviewcontent.cgi%253Farticle%253D6690%2526context%253Dnclr%26data%3D02%257C01%257Cdavid.brennen%2540uky.edu%257C3ed6d5eac895452efccb08d677eefc48%257C2b30530b69b64457b818481cb53d42ae%257C0%257C1%257C636828265652193987%26sdata%3D9V8AcXD%252FMnBHOFqBV6cvHt7psuqC2IvXqo7jhBcAvUg%253D%26reserved%3D0%3E&data=02%7C01%7Cdavid.brennen%40uky.edu%7C226a1be106f04ebb5f7908d67a28acad%7C2b30530b69b64457b818481cb53d42ae%7C0%7C1%7C636830712449895905&sdata=olESKEcm1%2BKvgUMiDNLh1Q2XP9N7sg2sz6KM1KoVHo4%3D&reserved=0>


January 14, 2019 | Permalink | Comments (0)

Friday, January 11, 2019

Tax-Efficient Charitable Giving of Savings or Retirement Benefits

    In his article, Albert Feuer, discusses how to make tax-efficient donations when using your savings or retirement benefits. He begins the article by explaining how some individuals fund charitable gifts with their savings or retirement benefits. However, unless you donate using money from a Roth individual retirement arrangement, you take a risk that your donation will not be tax deductible. He then discusses how it's generally advisable to use beneficiary designations to make charitable contributions of survivor benefits and that wills or trusts can also be used. However, when using a will or trust one could run into non-charitable tax-planning issues. He also discusses Qualified Charitable Distributions (QCDs), which are an income tax exclusion with no charitable deduction. These are an advisable way to make charitable contributions when someone has substantial IRAs, and has reached the age of 70. To read the full article, click here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3249827<https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D3249827&data=02%7C01%7Cdavid.brennen%40uky.edu%7C6557aa69daae4c5f768f08d6775073ff%7C2b30530b69b64457b818481cb53d42ae%7C0%7C1%7C636827584764798795&sdata=K5bXl3dM0luOBWN2ZtFZ27RMWYq%2B%2F7M48pGAnahBM8E%3D&reserved=0>



January 11, 2019 | Permalink | Comments (0)

Wednesday, January 9, 2019

A Millionaire Couple is Threatening to Create a Magic Mushroom Monopoly

    In her article, Olivia Goldhill discusses the how the company, Compass Pathways is promoting the use of psilocybin, the psychedelic compound in magic mushrooms as a treatment for depression. Recent studies have found that psilocybin makes a promising treatment for mental health issues like post traumatic stress disorder, addiction, and depression. Some experts are troubled by the company’s business stricture. Compass Pathways started out as a charity, but became a for-profit corporation just one year later. These critics allege that Compass Pathways has relied on conventional pharmaceutical industry tactics that could help them dominate the field. Compass Pathways denies all the allegations. To read the full article, click here: https://qz.com/1454785/a-millionaire-couple-is-threatening-to-create-a-magic-mushroom-monopoly/<https://na01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fqz.com%2F1454785%2Fa-millionaire-couple-is-threatening-to-create-a-magic-mushroom-monopoly%2F&data=02%7C01%7Cdavid.brennen%40uky.edu%7Cda2e0182d82d4cf3eddf08d675dc9221%7C2b30530b69b64457b818481cb53d42ae%7C0%7C1%7C636825987540119838&sdata=2gEHkE7OR0a7wNBFL47yG9K75FBlMGWDLf9j6thx1fU%3D&reserved=0>



January 9, 2019 | Permalink | Comments (0)